-----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, B33kGViy9Tbv5FhxazUf5jLdjl+CnM81DCixv9r8pzeHEmoI1BVwNb7uRONzExMI RTsJJS8t7E1PGfbgW7Mb0g== 0000912057-00-014404.txt : 20000411 0000912057-00-014404.hdr.sgml : 20000411 ACCESSION NUMBER: 0000912057-00-014404 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000329 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ICH CORP /DE/ CENTRAL INDEX KEY: 0000049588 STANDARD INDUSTRIAL CLASSIFICATION: ACCIDENT & HEALTH INSURANCE [6321] IRS NUMBER: 436069928 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-07697 FILM NUMBER: 583036 BUSINESS ADDRESS: STREET 1: 9255 TOWNE CENTRE DRIVE STREET 2: SUITE 600 CITY: SAN DIEGO STATE: CA ZIP: 92121 BUSINESS PHONE: 2149547111 MAIL ADDRESS: STREET 1: P.O. BOX 2699 STREET 2: SUITE 400 CITY: DALLAS STATE: TX ZIP: 75221 FORMER COMPANY: FORMER CONFORMED NAME: SOUTHWESTERN LIFE CORP DATE OF NAME CHANGE: 19940808 FORMER COMPANY: FORMER CONFORMED NAME: ICH CORP DATE OF NAME CHANGE: 19930506 FORMER COMPANY: FORMER CONFORMED NAME: ICH CORP/CONSOL NAT/RTS/CFR/MOD AMER LIFE INS/SW LIFE INS/CF DATE OF NAME CHANGE: 19930505 10-K 1 10-K - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM 10-K /X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES AND EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999 / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES AND EXCHANGE ACT OF 1934
Commission File Number: 1-7697 ------------------------ I.C.H. CORPORATION (Exact Name of Registrant as Specified in its Charter) DELAWARE 43-6069928 (State or Other Jurisdiction of (IRS Employer Identification Number) Incorporation or Organization) 9255 TOWNE CENTRE DRIVE, 92121 SUITE 600, (Zip Code) SAN DIEGO, CA (Address of Principal Executive Offices)
Registrant's telephone number, including area code: (858) 587-8533 Securities registered pursuant to Section 12(g) of the Act: NONE Indicate by check mark whether the Registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934 during the preceding 12 months (or for such shorter period than the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes /X/ No / / Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. / / The aggregate market value of the voting stock held by non-affiliates of the Registrant on March 22, 2000 was $14,859,977, based on the closing price of the Common Stock as provided by the American Stock Exchange on March 22, 2000. As of March 22, 2000, there were outstanding 2,864,890 shares of the Registrant's Common Stock, par value $0.01 per share. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- TABLE OF CONTENTS To jump to a section, double-click on the section name. 10-K Part I...................................................... 2 ITEM 1...................................................... 2 ITEM 2...................................................... 8 Table 1..................................................... 8 ITEM 3...................................................... 8 ITEM 4...................................................... 8 PART II..................................................... 9 ITEM 5...................................................... 9 Table 2..................................................... 9 ITEM 6...................................................... 9 Selected Historical Financial Data (Table 3)................ 10 ITEM 7...................................................... 11 Table 4..................................................... 12 Table 5..................................................... 14 Table 6..................................................... 15 ITEM 8...................................................... 17 ITEM 9...................................................... 17 PART III.................................................... 17 ITEM 10..................................................... 17 ITEM 11..................................................... 17 ITEM 12..................................................... 17 ITEM 13..................................................... 17 PART IV..................................................... 18 ITEM 14..................................................... 18 Consolidated Balance Sheets................................. F-3 Consolidated Statements of Operations....................... F-4 Consolidated Statements of Stockholders' Equity............. F-5 Consolidated Statements of Cash Flows....................... F-6 Table 7..................................................... F-9 Table 8..................................................... F-10 Table 9..................................................... F-10 Table 10.................................................... F-10 Table 11.................................................... F-11 Table 12.................................................... F-12 Table 13.................................................... F-12 Table 14.................................................... F-12 Table 15.................................................... F-13 Table 16.................................................... F-14 Table 17.................................................... F-15 Table 18.................................................... F-15 Table 19.................................................... F-16 Table 20.................................................... F-17 Table 21.................................................... F-17 Table 22.................................................... F-18 Table 23.................................................... F-20 Table 24.................................................... F-20 Table 25.................................................... F-20 Table 26.................................................... F-20 Table 27.................................................... F-21 Table 28.................................................... F-21 EX-1 EX-1........................................................ 41 EX-27 EX-27....................................................... 43
PART I ITEM 1. BUSINESS GENERAL I.C.H. Corporation ("ICH", and together with its operating subsidiaries, the "Company"), a Delaware corporation, owns and operates quick-service restaurants under the Arby's name as well as full-service family dining restaurants under the Lyon's name through its wholly-owned subsidiaries. The Company operates its Arby's restaurant units as a franchisee of, and pursuant to license agreements with Arby's, Inc., the franchisor of the Arby's brand. The Company owns the Lyon's brand and all related trademarks and goodwill. The Company's principal executive offices are located at 9255 Towne Centre Drive, San Diego, California 92121, and its telephone number is (858) 587-8533. On April 30, 1997, the Company acquired all of the outstanding capital stock of Sybra, Inc. ("Sybra"), the second largest franchisee of Arby's restaurants. The aggregate purchase price was approximately $39.8 million which included the repayment of $23.7 million of Sybra indebtedness and an additional $2 million of acquisition indebtedness due to the seller within two years. Concurrently with the Company's acquisition of Sybra, Sybra entered into a sale/leaseback transaction on 61 of its restaurant sites with U.S. Restaurant Properties, Inc. ("USRP"). As of December 31, 1999, Sybra owned and operated 188 Arby's restaurants located primarily in Michigan, Texas, Pennsylvania, New Jersey and Florida. On December 14, 1998, the Company acquired substantially all of the assets of the Lyon's restaurant chain, through a newly-formed wholly-owned subsidiary, Lyon's of California, Inc. ("Lyon's"). The aggregate purchase price was approximately $22.6 million, of which $16.5 million was financed by USRP (Finance) LLC. As of December 31, 1999, Lyon's owned and operated a chain of 73 full-service family dining restaurants located in northern California and Oregon. The Company is the post-reorganization successor to ICH Corporation ("Old ICH") which emerged from Chapter 11 effective February 19, 1997. See Note 1 to the Consolidated Financial Statements for additional information concerning the Chapter 11 case and related plan of reorganization of Old ICH. BUSINESS STRATEGY The Company's overall business strategy is to increase profitability through acquisitions and investments that, in the judgment of the Company's management, create value for shareholders. Currently, the Company's primary focus is to expand its operations through the acquisition and construction of additional Arby's restaurants, as well as improving the profitability, quality of operations and competitive position of its existing Arby's and Lyon's restaurants. In addition, the Company will consider the acquisition of operating restaurants and/or restaurant chains other than Arby's and Lyon's which, in the judgment of the Company's management, can ultimately increase the Company's profitability and create value for its shareholders. The Company believes that certain of the markets in which it currently operates Arby's restaurants are underserved, and will thus provide opportunities for acquisition or construction of new restaurants to further penetrate those existing markets, as well as markets in which the Company has been granted exclusive development rights by the franchisor. In addition, the Company believes that the size of the nationwide Arby's restaurant system will continue to present opportunities for selective growth through acquisitions. Consistent with the Company's strategy of expanding its operations through the acquisition of existing Arby's restaurants, Sybra acquired a total of 3 operating Arby's restaurants during 1999. 2 To implement the Company's strategy of expanding through the construction and development of new Arby's restaurants, Sybra has entered into a development agreement with Arbys, Inc., the franchisor of Arby's restaurants, which requires Sybra to construct a total of 210 new Arby's restaurants over ten years (the "Development Agreement"). This agreement supersedes a prior agreement which required the development of 150 new restaurants during the same time period. The Development Agreement grants Sybra the exclusive right to build Arby's restaurants in certain areas, primarily in certain northeast markets in Pennsylvania, Washington D.C., Maryland and New Jersey, as well as the exclusive right to build Arby's restaurants in and around the Detroit and Dallas/Fort Worth markets. Sybra opened a total of 15 new Arby's restaurants during 1999 (not including the 3 restaurants which were acquired in 1999), exceeding the 1999 annual minimum opening requirement of 12 restaurants set out in the Development Agreement. During the first quarter of 2000, Sybra opened 3 new Arby's restaurants. The number of Arby's restaurants opened in the future may vary depending upon general economic conditions, variability in the time required to obtain necessary permits, the availability of financing and the Company's ability to locate additional suitable restaurant sites. Because Sybra exceeded the annual minimum store opening requirements under the Development Agreement for 1998 and 1999 by a total of 5 stores which can be counted towards future year's development obligations, Sybra is only required to open 11 new stores during 2000 to comply with the Development Agreement. However management currently believes that Sybra will, at a minimum, meet its original annual requirement under the Development Agreement (16 restaurants) for 2000. As part of the Company's overall strategy of improving the quality of operations of its existing Arby's and Lyon's restaurants, the Company closely monitors factors affecting the overall profitability of its restaurant operations as well as the profitability of individual restaurants. During 1999, the Company believes it has made improvements in several factors bearing on the overall profitability of its restaurant operations, including reductions in labor and general and administrative costs as a percentage of sales, and increased efficiencies in marketing and advertising. During 1999, the Company also closed 2 restaurants due to unprofitability. RESTAURANT OPERATIONS The Company conducts its restaurant operations principally through two wholly-owned subsidiaries, Sybra, Inc. and Lyon's of California, Inc. SYBRA, INC. As of December 31, 1999, Sybra operated 188 Arby's restaurants as a franchisee of Arby's, Inc. 160 of those restaurants are free-standing units, with the remaining 28 restaurants located in shopping malls or as part of food courts within malls. MENU Each of Sybra's Arby's restaurants offers a diverse menu containing a variety of food items including roast beef, chicken, turkey and ham sandwiches. Arby's restaurants are generally known for their roast beef sandwiches, which are made from thinly-sliced beef which is freshly-roasted at each restaurant. The Arby's menu also typically includes potato products, salads and soft drinks. In addition, the restaurants sell a variety of promotional products, normally on a limited-time basis. A number of Sybra's Arby's restaurants also serve breakfast, including eggs and breakfast meat selections. SITE SELECTION Site selection for new restaurants is made by Sybra's real estate and development department, subject to acceptance by the franchisor, Arby's, Inc. A typical market area will have a population base of at least 30,000 people within a three-mile radius. Within the potential market area, Sybra evaluates major retail and office concentrations and major traffic arteries to determine focal points. Site specific factors which Sybra considers include visibility, convenience of access, proximity to direct competition, 3 access to utilities, local zoning regulations and various other factors. Sybra's current business strategy is to locate new restaurants, whenever possible, on the grounds of or nearby to shopping centers. RESTAURANT LAYOUT AND OPERATIONS Sybra's Arby's restaurants (excluding mall and food court locations) typically range from 2,100 to 3,200 square feet, with a seating capacity of between 60 and 90 people and are typically open from 10 a.m. to 11 p.m., with some restaurants open for extended evening hours. Approximately 80% of Sybra's restaurants feature drive-thru windows. RAW MATERIALS As an Arby's franchisee, Sybra complies with recipe and ingredient specifications provided by the franchisor, and purchases all food and beverage inventories and restaurant supplies from independent vendors. Arby's, Inc. does not sell food or supplies to its franchisees. Sybra and all other Arby's franchisees are members of ARCOP, Inc. ("ARCOP"), a non-profit cooperative purchasing organization. ARCOP facilitates negotiation of national contracts for food and distribution, taking advantage of the large purchasing requirements of the member franchisees. Since Arby's franchisees are not required to purchase any food products or supplies from Arby's, Inc., ARCOP facilitates control over food supply costs and avoids franchisor conflicts of interest. Sybra purchases soft drink products from the Coca-Cola Company and its affiliates. In the Southwestern region, Dr. Pepper products are also purchased. Prior to February, 2000, most other food items and supplies purchased by Sybra were warehoused and distributed by AmeriServe, an independent distributor. In January, 2000, the Company began to shift the purchasing, warehousing and distribution of food items and supplies for its Arby's units from AmeriServe to Meadowbrook Meat Company ("MBM"). On January 31, 2000, and while AmeriServe was still purchasing, warehousing and distributing some food items and supplies for the Company's Arby's units, AmeriServe and several of its affiliates filed for chapter 11 protection. As a result of, and immediately following AmeriServe's chapter 11 filing, the Company experienced some sporadic and isolated shortages of certain food products and supplies at some of its Arby's units, although the Company was generally able to obtain those items from other sources. Currently MBM is purchasing, warehousing and distributing to the Company's Arby's units substantially all of the food items and supplies previously furnished by AmeriServe, and the Company currently anticipates no material shortages of food items or other supplies necessary to the operation of its Arby's units. LYON'S OF CALIFORNIA, INC. As of December 31, 1999, the Company owned and operated 73 full-service family dining restaurants operating under the "Lyon's" name and located in California and Oregon, through its wholly-owned subsidiary, Lyon's of California, Inc. The Lyon's restaurant chain was established in northern California more than 30 years ago, and enjoys nearly 100% brand name recognition in that area. Through its decades of continuous operation, the Lyon's chain has developed and retained a loyal customer base by offering its customers traditional American classic foods, sold at value price points and served in a friendly and relaxed environment. Because many of the Company's Lyon's restaurants have occupied their current locations for decades, they have become integral parts of the communities they serve and enjoy prime locations. MENU Each Lyon's restaurant offers a wide variety of traditional American classic foods served three full meals a day, together with desserts, fountain treats and alcoholic and non-alcoholic beverages. The Lyon's menu features such signature dishes as prime rib (three cut selections), fresh fish, steaks and "San Francisco" stir-fry. To accompany their entrees, Lyon's customers are offered their choice of any two homestyle side dishes from a selection that includes fresh mashed potatoes, creamed spinach, fresh 4 vegetables, cole slaw, pasta salad, cornbread stuffing and others, and a variety of salads and appetizers. The dessert and fountain selections include pies and pastries as well as ice cream, espresso-based beverages and shakes. Lyon's restaurants offer a full complement of beer, wine and other alcoholic beverages with meals. Some Lyon's restaurants also feature separate bar/lounge areas. This full selection of alcoholic beverages is unique to the segment in which the Lyon's restaurants operate and provides a significant brand differentiation and competitive advantage. While committed to offering the freshest foods available, Lyon's also provides its customers with a significant dining value. Average checks for breakfast, lunch and dinner at Lyon's approximate $6.15, $7.75 and $9.00, respectively, with an overall average of $8.10. RESTAURANT LAYOUT AND OPERATIONS The Lyon's restaurants range in size from 3,600 to 8,200 square feet and 103 to 258 seats, and average approximately 5,100 square feet and 150 seats. The Company leases all of the Lyon's restaurants locations, and owns 16 of its restaurant buildings. Many of the Lyon's restaurants occupy high-visibility and high-traffic locations, near major thoroughfares, important intersections and shopping centers. The Company believes that these prime locations, many of which have operated under the Lyon's banner for decades, cannot be easily replicated by competing restaurant companies, and thus provide an important competitive advantage for Lyon's. Lyon's currently operates 30 24-hour a day restaurants, while the remaining 42 restaurants are typically open from 6:00 a.m. to 12:00 a.m. RAW MATERIALS Lyon's utilizes a centralized purchasing system to purchase its food, beverages and other supplies from a variety of vendors, and has well developed relationships with its key suppliers. Individual restaurant managers are able to place orders for required items directly with the appropriate suppliers, and orders are typically drop-shipped to each restaurant by the applicable distributor. As a result, Lyon's is able to buy many of its products at costs that are among the lowest in the industry and is able to operate without a central warehouse. Lyon's has not experienced any significant shortages of food, beverages, equipment, fixtures or other products, which are necessary to restaurant operations. The Company anticipates no such shortages and believes that alternate suppliers are available in the event any such shortages occur. FRANCHISE AND DEVELOPMENT AGREEMENTS GENERAL Sybra operates all of its Arby's restaurants as a franchisee of Arby's, Inc. and is the second largest franchisee of Arby's restaurants. The Company owns the "Lyon's" brand and all related trademarks, service marks and goodwill. Sybra's relationship with Arby's, Inc. is governed by (1) the Development Agreement, which grants the Company exclusive franchise territories and (2) unit franchise agreements (collectively, "Franchise Agreements"), one of which is executed in connection with the opening of each new Arby's restaurant. These agreements provide Arby's, Inc. with significant rights regarding Sybra's business operations. Any acquisition by Sybra of an existing Arby's restaurant, or the development by Sybra of a new Arby's restaurant, requires the prior consent of Arby's, Inc. Sybra is prohibited from operating, managing or having a controlling interest or a fifteen percent (15%) or greater interest in any competing business offering roast beef sandwiches for sale to consumers and located within the Protected Area (as defined in the appropriate Franchise Agreement) for each individual Arby's restaurant it operates. Sybra's agreements with Arby's, Inc. also restrict the sale, assignment or transfer of any substantial portion of the assets of Sybra without the prior written consent of Arby's, Inc. However those 5 agreements do not require approval of the assignment, transfer or pledge of all or any part of the assets of Sybra, excluding the Franchise Agreements, or all or any part of the stock of Sybra to banks or other lending institutions as collateral security for loans made directly to or for the benefit of Sybra. Should Sybra fail to comply with the Development Agreement, Arby's, Inc. could terminate the exclusive nature of Sybra's franchises in such covered territory. In addition, certain events of default under a Franchise Agreement give Arby's, Inc. the right to terminate the franchise rights of the Sybra restaurant governed by such Franchise Agreement. A loss of development rights or, depending upon the aggregate number of restaurants affected, a loss of franchise rights, could have a material adverse effect on the Company. Sybra is also required to operate each of its Arby's restaurants in accordance with certain standards contained in the Arby's, Inc. Operations Manual (the "Operations Manual"). Arby's, Inc. periodically monitors the operations of Sybra's restaurants and notifies Sybra of any failure to comply with any of the Franchise Agreements, the Development Agreement or the Operations Manual. DEVELOPMENT AGREEMENT Effective as of November 1, 1997, and as amended May 12, 1998, Sybra and Arby's, Inc. entered into a Development Agreement covering nine counties in the Harrisburg-Lancaster-Lebanon-York Dominant Marketing Area ("DMA"), two counties in the Detroit DMA, 12 counties in the Philadelphia DMA, three counties in the Dallas-Fort Worth DMA, seven counties in the Washington, D.C.-Hagerstown, MD DMA, and nine counties in the New York DMA, as well as portions of Baltimore County, MD and Burlington County, NJ. Under the terms of the Development Agreement, Sybra has been granted exclusive rights to develop and operate Arby's restaurants within the covered territories, and is required to develop and commence construction of new Arby's restaurants in accordance with schedules set out in the Development Agreement. Pursuant to the Development Agreement, Sybra is required to submit to Arby's, Inc. for its acceptance each proposed restaurant site and the plans for each new restaurant. Under the Development Agreement, Sybra is currently obligated to open or commence construction of a minimum of 16 restaurants in 2000, 26 restaurants in 2001, and 30 restaurants in each year beginning in 2002 through and including 2006. Although no assurances can be given, Sybra currently anticipates meeting or exceeding all of the development requirements under the Development Agreement. UNIT FRANCHISE AGREEMENTS Sybra operates each of its Arby's restaurants under a Franchise Agreement with Arby's, Inc. Each Franchise Agreement provides the Company the right to operate an Arby's restaurant for a period of 20 years. The Franchise Agreements are renewable by the Company, subject to certain conditions, generally for 20 years (the financial terms of any renewal period may differ from those in effect during the initial term). Each Franchise Agreement gives Sybra the exclusive right to operate an Arby's restaurant in a particular geographic area, defined by either a radius restriction or specific boundaries. The Franchise Agreements also require Sybra to make royalty payments to Arby's, Inc. equal to a fixed or variable percentage of each restaurant's revenue. For restaurants opened pursuant to the Development Agreement, those royalty payments are set at four percent of sales. Pursuant to the Franchise Agreements, Arby's, Inc. prescribes the designs, color schemes, signs and equipment to be utilized in each restaurant, and determines the menu items as well as the formulas and ingredients for the preparation of food and beverage products. Each new restaurant opened within an area covered by the Development Agreement will be governed by a Franchise Agreement, with an initial licensing fee of $25,000. Of that license fee, $10,000 will be deducted from monies already placed on deposit with Arby's, Inc. in accordance with the Development Agreement. 6 GOVERNMENT REGULATIONS The restaurant business is subject to extensive federal, state and local government regulations relating to the development and operation of restaurants, including regulations relating to building, ingress and egress, zoning, employment issues, the preparation and sale of food and the sale of alcoholic beverages. The Company is subject to federal and state environmental regulations, although such regulations have not historically had a material effect on the Company's operations. The Company is also subject to laws governing relationships with employees, such as minimum wage requirements, health insurance coverage requirements and laws regulating overtime working conditions and employee citizenship. Further increases in the minimum wage or mandatory health care coverage could have a material adverse effect on the Company. SEASONAL AND QUARTERLY RESULTS Restaurant sales are moderately seasonal and historically January, February and March generate the lowest sales volumes for the Company's restaurants. As a result, operating margins for the first quarter tend to be slightly lower than those for the remaining quarters due to lower sales providing a smaller spread to cover fixed costs. TRADEMARKS AND SERVICE MARKS The Franchise Agreements grant the Company the right to use certain registered trademarks and service marks of Arby's, Inc. The names "Arby's," "Arby's Restaurants" and "Arby's Roast Beef Restaurants" were adopted to identify and promote Arby's. The Company believes that these marks are of material importance to the operation of its Arby's restaurants. The Company owns the trademark and service marks used in connection with the operation of its Lyon's restaurants. The Company believes that these marks are of material importance to the operation of its Lyon's restaurants. COMPETITION The restaurant business is highly competitive and is affected by changes in the public's eating habits and preferences, population trends and traffic patterns, as well as by local and national economic conditions affecting consumer spending habits, many of which are beyond the Company's control. Key competitive factors in the industry are the quality and value of the food products offered, quality and speed of service, attractiveness of facilities, advertising, name brand awareness and image and restaurant location. A number of the Company's significant competitors are larger or more diversified and have substantially greater resources than the Company. The Company's operations, as with the restaurant industry generally, can be significantly affected by factors such as changes in local, regional or national economic conditions, changes in consumer tastes, severe weather and consumer concerns about nutritional quality of the various food products offered at the Company's restaurants. In addition, factors such as changes in food, labor and energy costs, the availability and cost of suitable restaurant sites and the availability of an adequate number of hourly-paid employees can also affect the restaurant industry. EMPLOYEES As of December 31, 1999, the Company had approximately 7,600 employees, none of whom are subject to collective bargaining agreements with the Company or any of its subsidiaries. Employees at five of the Company's Lyon's restaurants are represented by Hotel Employees and Restaurant Employees Local Union 340, and were previously subject to collective bargaining agreements with the former owner of the Lyon's chain. Many of the Company's restaurant employees work part-time, and many are paid at or slightly above minimum wage levels. The Company considers its employee relations to be generally good. 7 ITEM 2. PROPERTIES As of December 31, 1999, the Company operated 261 restaurants in the areas listed below. The Company's land and building leases generally are for terms of 20 years with one or more five-year renewal options. Certain leases require the payment of additional rent equal to a percentage of annual sales in excess of specified amounts. The Company leases office space in San Diego, California and New York, New York for its corporate and executive offices and in Flint, Michigan; Sinking Spring, Pennsylvania; Plano, Texas and Tampa, Florida for its regional operations centers. The following table sets forth the locations of the restaurants operated by the Company (by state) as of December 31, 1999:
SYBRA LYON'S -------- -------- California.................................................. 0 68 Florida..................................................... 21 -- Maryland.................................................... 2 -- Michigan.................................................... 52 -- New Jersey.................................................. 8 -- Oregon...................................................... -- 5 Pennsylvania................................................ 34 -- Texas....................................................... 67 -- Virginia.................................................... 3 -- West Virginia............................................... 1 -- --- --- Total:.................................................... 188 73 === ===
ITEM 3. LEGAL PROCEEDINGS The Company is not a party to any pending legal proceedings which, in management's belief, are likely to have a material adverse effect on the Company, nor to any other pending legal proceedings other than ordinary, routine litigation incidental to the operation of its business. The Company also maintains customary commercial, general liability, workers' compensation and directors and officers insurance policies. ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS None. 8 PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS MARKET INFORMATION The Company's common stock commenced trading on the American Stock Exchange on July 23, 1997 under the symbol "IH." The following table sets forth, for the periods indicated, the applicable range of the high and low sales prices for the Company's common stock on the American Stock Exchange.
1999 1998 ------------------- ------------------- HIGH LOW HIGH LOW -------- -------- -------- -------- First Quarter.............................................. 9-3/4 3-5/8 4-1/16 3-1/8 Second Quarter............................................. 15-1/2 8-1/4 5-1/2 3-15/16 Third Quarter.............................................. 14-7/8 11-5/8 5-1/4 3-3/4 Fourth Quarter............................................. 13-1/8 8-7/16 4-1/2 3-1/4
NUMBER OF STOCKHOLDERS The information available indicates that as of March 21, 2000 there were approximately 3,267 holders of record of the Company's common stock. DIVIDENDS The Company has not paid any cash dividends on its common stock and does not intend to pay cash dividends on its common stock for the foreseeable future. The Company intends to retain future earnings to finance future development. ITEM 6. SELECTED FINANCIAL INFORMATION SELECTED HISTORICAL FINANCIAL DATA Set forth below are selected historical financial data of the Company, which is the post-reorganization successor to Old ICH. Until the Company's acquisition of Sybra, Inc. (see Note 2 to Notes To Consolidated Financial Statements), the Company had no significant business operations. Old ICH financial data is not presented as its assets, liabilities and operations were dissolved or sold as part of Old ICH's reorganization plan (see Note 1 to Notes To Consolidated Financial Statements). For purposes of presentation, Sybra is considered to be a Predecessor of the Company. Accordingly, the selected historical financial data for the four months ended April 30, 1997 and as of and for the years ended December 31, 1996 and December 31, 1995 were derived from the financial statements of the Predecessor. Due to required purchase accounting adjustments relating to the acquisition and certain corporate administrative expenses that are necessary to operate on a stand-alone basis, the consolidated financial and other data for the period subsequent to the acquisition (the "Successor Period") is not comparable to such data for the periods prior to the acquisition (the "Predecessor Period"). Pro forma net income (loss) was derived by retroactively adjusting all prior years as if the acquisition had occurred on January 1, 1995. As such, the effects of purchase accounting, including the impact of the different capital structure of the Predecessor, has been reflected in arriving at pro forma net income (loss) for the prior periods. In addition, adjustments reflecting the costs of operating a stand-alone company have been retroactively included in arriving at pro forma net income (loss) for the prior periods. Such costs include, but are not limited to, administrative services, tax compliance, treasury service, human resource administration and legal services. The information contained in this table should be read in conjunction 9 with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the Company's financial statements and accompanying notes thereto included herein.
COMPANY PREDECESSOR COMPANY COMBINED PREDECESSOR ------------------- ----------- --------- --------- ------------------- FOUR EIGHT YEAR YEAR MONTHS MONTHS YEAR YEAR YEAR STATEMENT OF EARNINGS DATA ENDED ENDED ENDED ENDED ENDED ENDED ENDED (000'S EXCEPT PER SHARE AMOUNTS) DEC. 31, DEC. 31, APRIL 30, DEC. 31, DEC. 31, DEC. 31, DEC.31, (UNAUDITED) 1999 1998 1997 1997(A) 1997(A) 1996 1995 - -------------------------------- -------- -------- ----------- --------- --------- -------- -------- Revenues...................................... $244,879 $140,032 $37,916 $75,006 $112,922 $116,124 $115,531 Cost & Expenses Restaurant costs/expenses................... 206,856 113,845 32,006 61,503 93,509 93,867 94,414 General & administrative.................... 15,409 9,479 2,212 5,087 7,299 6,179 6,643 Depreciation & amortization................. 5,731 4,923 2,006 3,398 5,404 5,972 6,041 Non-recurring/restructuring Charges......... -- -- -- 1,497 1,497 -- -- Other....................................... 230 691 -- 977 977 1,200 900 Earnings from operations...................... 16,653 11,094 1,692 2,544 4,236 8,906 7,533 Interest expense............................ 8,092 6,035 638 3,661 4,299 2,346 2,605 Income (loss) from continuing operations and before taxes.............................. 8,561 5,059 1,054 (1,117) (63) 6,560 4,928 Provision (benefit) for income taxes........ 3,467 2,143 434 (253) 181 2,398 1,913 Income (loss) from continuing operations.... 5,094 2,916 620 (864) (244) 4,162 3,015 Gain from sale of discontinued operations... -- 388 -- -- -- -- -- Net Income (loss)............................. $ 5,094 $ 3,304 $ 620 $ (864) $ (244) $ 4,162 $ 3,015 Income (loss) from continuing operations per share: Basic....................................... $ 1.82 $ 1.11 -- $ (.34) -- -- -- Diluted..................................... $ 1.47 $ 1.01 -- $ (.34) -- -- -- Gain from discontinued operation per share: Basic....................................... -- $ .15 -- -- -- -- -- Diluted..................................... -- $ .13 -- -- -- -- -- Net income (loss) per share: Basic....................................... $ 1.82 $ 1.26 -- $ (.34) -- -- -- Diluted..................................... $ 1.47 $ 1.14 -- $ (.34) $ -- -- -- Pro-forma net income (loss) (b)............... $ 5,094 $ 2,916 $ (791) $ 690 $ (101) $ 857 $ 206 Other data: EBITDA (c).................................. $ 22,384 $ 16,017 $ 3,698 $ 5,942 $ 9,640 $ 14,878 $ 13,574 EBITDA--Pro forma (c)....................... $ 22,384 $ 16,017 $ 2,212 $ 8,209 $ 10,421 $ 12,016 $ 10,932 Balance Sheet Data Working capital deficit..................... $ (3,555) $ (7,459) n/a (5,006) $ n/a $ (8,455) $ (7,112) Total assets................................ $132,656 $113,466 n/a 75,264 $ n/a $ 75,601 $ 74,373 Total long-term obligations................. $ 80,183 $ 65,677 n/a 47,417 $ n/a $ 24,728 $ 31,152 Shareholders' equity........................ $ 19,320 $ 15,026 n/a 11,185 $ n/a $ 35,142 $ 30,980
NOTES: (a) Included in the results of operations for the eight months ending December 31, 1997 are sales and operating loss of $164 and $(188), respectively, of the Company for the period from February 19, 1997 to April 30, 1997. (b) Pro forma net income (loss) reflects (1) the effects of purchase accounting for Sybra as if the purchase was effective on January 1, 1995; (2) increased interest expense for the Predecessor Period as a result of a difference in capital structure; and (3) increased general and administrative expenses reflecting the costs of operating as a stand-alone public company; and has been tax effected using a combined federal and state income tax rate of 40%.
10 (c) EBITDA on a pro forma basis gives effect to the adjustments discussed in Note (b) above. Management believes that EBITDA is generally accepted as providing useful information regarding a company's ability to service and/or incur debt. EBITDA should not be considered in isolation or as a substitute for net income, cash flows, or other consolidated income or cash flow data prepared in accordance with generally accepted accounting principles or as a measure of a company's profitability or liquidity.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion should be read in conjunction with the "Selected Historical Financial Data" and the financial statements of the Company and the accompanying notes thereto included elsewhere herein. Certain information discussed below may constitute forward-looking statements within the meaning of the federal securities laws. Although the Company believes that the expectations reflected in such forward-looking statements are based upon reasonable assumptions, it can give no assurance that its expectations will be achieved. Forward-looking information is subject to certain risks, trends and uncertainties that could cause actual results to differ materially from projected results. Among those risks, trends and uncertainties are the general economic climate, costs of food and labor, consumer demand, interest rate levels, the availability of financing and other risks associated with the acquisition, development and operation of new and existing restaurants. Unless otherwise indicated, all amounts are in thousands except share amounts. On April 30, 1997, the Company acquired all of the outstanding capital stock of Sybra, Inc. ("Sybra"), the second largest franchisee of Arby's restaurants. The aggregate purchase price was approximately $39.8 million which included the repayment of $23.7 million of Sybra indebtedness and an additional $2 million of acquisition indebtedness due to the seller within two years. Concurrently with the Company's acquisition of Sybra, Sybra entered into a sale/leaseback transaction on 61 of its restaurant sites with U.S. Restaurant Properties, Inc. ("USRP"). As of December 31, 1999, Sybra owned and operated 188 Arby's restaurants located primarily in Michigan, Texas, Pennsylvania, New Jersey and Florida. On December 14, 1998, the Company acquired substantially all of the assets of the Lyon's restaurant chain, through a newly-formed wholly-owned subsidiary, Lyon's of California, Inc. ("Lyon's"). The aggregate purchase price was approximately $22.6 million, of which $16.5 million was financed by USRP (Finance) LLC. As of December 31, 1999, Lyon's owned and operated a chain of 73 full-service family dining restaurants located in northern California and Oregon. GENERAL The Company's revenues consist almost entirely of restaurant sales from its principal operating subsidiaries, Sybra and Lyon's. Restaurant costs and expenses include all direct operating costs, including direct labor, occupancy costs, advertising expenses, royalty payments, expenditures for repairs and maintenance, and workers' compensation and casualty and general liability insurance costs. Advertising fees paid by the Company's Sybra subsidiary to the Arby's Franchise Association to develop and prepare advertising materials and to undertake marketing research are equal to 0.7% of restaurant sales. In addition, Sybra operates its restaurants pursuant to licenses which require Sybra to pay Arby's, Inc. a royalty based upon percentages of its restaurant sales (presently an aggregate of approximately 3.1% of Sybra's restaurant sales). The royalty rate for new Arby's restaurants (currently 4.0%) will result in an increase in the aggregate royalty rate for Sybra as new Arby's restaurants are opened. General and administrative expenses consist of corporate and regional office expenses, including executive and administrative compensation, office expenses, travel and professional fees. 11 RESULTS OF OPERATIONS The following table sets forth, with respect to the Company and for the periods indicated, the percentage of total revenues represented by certain expense and income items. For purposes of the discussion below, the results of operations for the year ended December 31, 1997 represent the mathematical addition of the historical amounts of Sybra for the Predecessor Period (December 29, 1996 to April 30, 1997) and the Successor Period (May 1, 1997 to December 31, 1997) and are not necessarily indicative of the results that would actually have been obtained if the Sybra acquisition had occurred on January 1, 1997. The Predecessor Period does not give effect to, among other items, corporate expenses necessary to operate on a stand-alone basis. Such expenses include, but are not limited to, certain administrative services, tax compliance, treasury service, human resource administration and legal services.
PREDECESSOR/COMPANY COMPANY COMBINED ----------------------------- ------------------- YEAR ENDED YEAR ENDED YEAR ENDED CONSOLIDATED COMPANY DEC. 31, 1999 DEC. 31, 1998 DEC. 31, 1997 - -------------------- ------------- ------------- ------------------- Revenues........................................... 100.0% 100.0% 100.0% Expenses: Restaurant costs & expenses........................ 84.5% 81.3% 82.8% General & administrative........................... 6.3% 6.8% 6.5% Depreciation & amortization........................ 2.3% 3.5% 4.8% Non-recurring/restructuring charges................ -- -- 1.3% Other.............................................. .1% .5% .9% ----- ----- ----- Operating income (loss)............................ 6.8% 7.9% 3.7% Interest expense................................... 3.3% 4.3% 3.8% ----- ----- ----- Income (loss) from continuing operations and before taxes............................................ 3.5% 3.6% (.1)% Income taxes (benefit)............................. 1.4% 1.5% .1% ----- ----- ----- Income (loss) from continuing operations and before taxes............................................ 2.1% 2.1% (.2)% Gain from sale of discontinued operations.......... -- .3% -- ----- ----- ----- Net income (loss).................................. 2.1% 2.4% (.2)% ===== ===== =====
COMPARISON OF THE YEARS ENDED DECEMBER 31, 1999 AND DECEMBER 31, 1998 Revenues--Consolidated revenues were $244.9 million for 1999 as compared to $140.0 million for 1998, an increase of $104.9 million or 74.9%. This sales increase is due primarily to the acquisition of the Lyon's restaurants on December 14, 1998 which generated $99.9 million in sales for the year ended December 31, 1999. Lyon's sales from the date of acquisition (December 14, 1998) through December 31, 1998 were $7.0 million. Consolidated 1999 revenues also reflect Sybra's same store sales increase of 2.4% versus 1998, sales from new store openings and store acquisitions, offset by the fact that Sybra, which operates on a 52/53 week accounting cycle, had 53 weeks of sales in 1998 and had only 52 weeks in 1999. Additionally, Sybra sold 9 of its Arby's units early in the fourth quarter of 1999. Restaurant Costs & Expenses--Consolidated restaurant costs and expenses were $206.9 million, or 84.5% of sales for 1999 as compared to $113.8 million, or 81.3% of sales for 1998, an increase of $93.1 million. The increase in total restaurant costs and expenses is due primarily to the acquisition of the Lyon's restaurants on December 14, 1998, as well as the sales increase explained above. As a percentage of sales, restaurant costs and expenses increased as a result of including the lower margin Lyon's restaurants with Sybra. 12 General and Administrative--General and administrative costs and expenses were $15.4 million, or 6.3% of sales, for 1999 as compared to $9.5 million, or 6.8% of sales, for 1998. The increase in costs and expenses was primarily due to the costs of operating the Lyon's restaruant chain, although these costs and expenses decreased as a percentage of sales due to efficiencies obtained through combining the Lyon's restaurant operations with the Company's other operations. Depreciation and Amortization--Consolidated depreciation and amortization expense was $5.7 million, or 2.3% of sales in 1999 as compared to $4.9 million, or 3.5% of sales in 1998, a decrease as a percentage of sales as a result of the lower depreciation charges related to the Lyon's restaurants. Interest Expense--Consolidated interest expense was $8.1 million, or 3.3% of sales in 1999 as compared to $6.0 million, or 4.3% of sales in 1998, an increase of $2.1 million primarily as a result of debt incurred in connection with the Company's acquisition of the Lyon's restaurants and debt incurred in connection with new store openings and store acquisitions at Sybra. COMPARISON OF THE YEARS ENDED DECEMBER 31, 1998 AND DECEMBER 31, 1997 Revenues--Consolidated revenues were $140.0 million for 1998 as compared to $112.9 million for 1997, an increase of $27.1 million or 24.0%. Sybra's sales for the year ended December 31, 1998 were $131.3 million, an increase of $19.7 million or 17.6% over the prior year comparable period, as a result of the fact that Sybra, which operates on a 52/53 week accounting cycle, had 53 weeks of sales in 1998 and only 52 weeks of sales in 1997. Consolidated revenues were also impacted by Sybra's same store sales increases of 4.8% for the period, sales from new store openings and store acquisitions. Sales from the Company's Lyon's restaurants from the date of acquisition (December 14, 1998) to December 31, 1998, were $7.0 million. Restaurant Costs & Expenses--Consolidated Restaurant costs and expenses were $113.8 million, or 81.3% of sales, for 1998 as compared to $93.5 million, or 82.8% of sales for 1997, an increase of $20.3 million due to the sales increase explained above and the acquisition of the Lyon's restaurants on December 14, 1998. As a percentage of sales, costs decreased as a result of lower labor costs due to improved efficiency, net of increases in rent expense associated with the Company's sale/leaseback of 61 properties previously classified as owned. General and Administrative--General and administrative costs and expenses were $9.5 million, or 6.8% of sales, for 1998 as compared to $7.3 million, or 6.5% of sales, for 1997. These increased costs and expenses resulted from costs associated with operating the Company as a stand-alone public company, as well as increased expenses associated with business development and real estate operations necessary to achieve new store development requirements. Depreciation and Amortization--Consolidated depreciation and amortization expense was $4.9 million, or 3.5% of sales in 1998 as compared to $5.4 million, or 4.8% of sales in 1997, a decrease as a percent of sales as a result of the impact of the sale/leasebacks explained above, net of goodwill amortization as a result of purchase accounting related to the Sybra acquisition. Interest Expense--Interest expense was $6.0 million, or 4.3% of sales in 1998 as compared to $4.3 million, or 3.8% of sales in 1997, an increase of $1.7 million as a result of debt incurred in connection with the Company's acquisition of Sybra, new store openings and store acquisitions. CAPITAL EXPENDITURES The Company's total capital expenditures were $19.1 million, $12.9 million and $5.1 million in 1999, 1998 and 1997, respectively, which include new store development, as well as store maintenance, store remodel and store renovation capital expenditures. The Company anticipates that store maintenance, store remodel and store renovation capital expenditures for 2000 will approximate $6.0 million. The level of capital expenditures for new store development and acquisitions will be dependent upon several factors, including the number of stores constructed and/or acquired, the availability of appropriate financing as well as the capital structure of any such transactions. 13 OPERATING SEGMENTS The Company operates entirely in the food service industry with substantially all revenues resulting from the sale of menu products at the restaurants operated by its wholly-owned subsidiaries. At December 31, 1999, Sybra owned and operated 188 Arby's restaurants and Lyon's owned and operated 73 Lyon's restaurants. The Company considers each subsidiary a reportable segment. The Company evaluates performance based on several factors, of which the primary financial measure is business segment operating income. For purposes of the discussion below, the results of operations for the year ended December 31, 1997 represent the mathematical addition of the historical amounts of Sybra for the Predecessor Period (December 29, 1996 to April 30, 1997) and the Successor Period (May 1, 1997 to December 31, 1997) and are not necessarily indicative of the results that would actually have been obtained if the Sybra acquisition had occurred on December 31, 1996. The amounts reported for Lyon's reflect only the periods subsequent to the acquisition date (December 14, 1998).
YEAR ENDED YEAR ENDED YEAR ENDED SYBRA DEC. 31, 1999 DEC. 31, 1998 DEC. 31, 1997 - ----- ------------- ------------- ------------- Sales.................................................... 100.0% 100.0% 100.0% Expenses: Restaurant costs & expenses.............................. 81.0% 82.3% 83.7% Depreciation & amortization.............................. 3.1% 3.7% 4.8% ----- ----- ----- Operating income (loss).................................. 15.9% 14.0% 11.5% ===== ===== =====
COMPARISON OF THE YEARS ENDED DECEMBER 31, 1999 AND DECEMBER 31, 1998 Sales--Sybra's sales for the year ended December 31, 1999 were $144.5 million, an increase of $13.2 million or 10.1% over the prior year comparable period. This increase is the result of a same store sales increase of 2.4%, sales from new store openings and store acquisitions, offset by the fact that Sybra, which operates on a 52/53 week accounting cycle, had 53 weeks of sales in 1998 and only 52 weeks of sales in 1999. Additionally, Sybra sold 9 of its Arby's units early in the fourth quarter of 1999. Restaurant Costs & Expenses--Sybra's restaurant costs and expenses were $117.1 million, or 81.0% of sales, for 1999 as compared to $108.1 million, or 82.3% of sales, for 1998, an increase of $9.0 million due to the sales increase explained above. As a percentage of sales, costs decreased primarily as a result of increased efficiencies and a decrease in the cost of certain food and related products. Depreciation and Amortization--Sybra's depreciation and amortization expense was $4.5 million, or 3.1% of sales in 1999, as compared to $4.9 million, or 3.7% of sales in 1998, a decrease as a percentage of sales as a result of changes in the depreciation schedule of Sybra's assets related to the Company's acquisition of Sybra. COMPARISON OF THE YEARS ENDED DECEMBER 31, 1998 AND DECEMBER 31, 1997 Sales--Sybra's sales for the year ended December 31, 1998 were $131.3 million, an increase of $19.7 million or 17.6% over the prior year combined comparable period. This increase is a result of the fact that Sybra, which operates on a 52/53 week accounting cycle, had 53 weeks of sales in 1998 and only 52 weeks of sales in 1997, as well as a same store sales increase of 4.8%, sales from new store openings and store acquisitions. Restaurant Costs & Expenses--Sybra's restaurant costs and expenses were $108.1 million, or 82.3% of sales, for 1998 as compared to $93.5 million, or 83.7% of sales for 1997, an increase of $14.6 million due to the sales increase explained above. As a percentage of sales, costs decreased as a result of lower labor and other operating costs due to improved efficiency, net of increases in rent expense associated with the Company's sale/leaseback of 61 properties previously classified as owned. 14 Depreciation and Amortization--Depreciation and amortization expense was $4.9 million, or 3.7% of sales in 1998 as compared to $5.4 million, or 4.8% of sales in 1997, a decrease as a percentage of sales as a result of the impact of the sale/leasebacks explained above, net of goodwill amortization as a result of purchase accounting related to the Sybra acquisition. CAPITAL EXPENDITURES Sybra's total capital expenditures were $17.0 million, $12.9 million and $5.1 million in 1999, 1998 and 1997, respectively, which include new store development, as well as store maintenance, store remodel and store renovation capital expenditures. Sybra anticipates that store maintenance, store remodel and store renovation capital expenditures for 2000 will approximate $3.4 million. The level of capital expenditures for new store development and acquisitions will be dependent upon several factors, including the number of stores constructed and/or acquired, the availability of appropriate financing as well as the capital structure of any such transactions. LYON'S
DEC. 14, 1998 (DATE OF ACQUISITION) YEAR ENDED THROUGH DEC. 31, 1999 DEC. 31, 1998 ------------- --------------------- Sales....................................................... 100.0% 100.0% Expenses: Restaurant costs & expenses................................. 89.8% 82.4% Depreciation & amortization................................. 1.2% 0.5% ----- ----- Operating income (loss)..................................... 9.0% 17.1% ===== =====
COMPARISON OF THE YEAR ENDED DECEMBER 31, 1999 AND THE PERIOD FROM DATE OF ACQUISITION (DECEMBER 14, 1998) THROUGH DECEMBER 31, 1998 Sales--As discussed above, the Lyon's restaurants were acquired on December 14, 1998. Lyon's sales for the year ended December 31, 1999 were $99.9 million. Lyon's sales for the period from the date of acquisition (December 14, 1998) through December 31, 1998 were $7.0 million. Restaurant Costs & Expenses--Lyon's restaurant costs and expenses were $89.7 million, or 89.8% of sales, for the year ended December 31, 1999 as compared to $5.8 million or 82.4% of sales for the period from the date of acquisition (December 14, 1998) through December 31, 1998. Restaurant costs and expenses increased as a percentage of sales in 1999 as a result of the fact that the Christmas shopping season and Christmas day (the period of time that Lyon's was owned by the Company in 1998) are generally higher sales volume periods. As a result, costs as a percentage of sales decrease during these higher sales volume periods. The restaurant costs and expenses for the year ended December 31, 1999 are likely more indicative of the recurring annual levels of these costs although no assurance can be given that this level of expense will continue. Restaurant costs and expenses are subject to price fluctuations of goods and services, restaurant level efficiencies and sales levels. Depreciation and Amortization--Lyon's depreciation and amortization expense was $1.2 million, or 1.2% of sales, in 1999 as compared to $38, or 0.5% of sales, for the period from the date of acquisition (December 14, 1998) through December 31, 1998. Depreciation and amortization expense increased as a percentage of sales in 1999 as a result of the fact that the Christmas shopping season and Christmas day (the period of time that Lyon's was owned by the Company in 1998) are generally higher sales volume periods. As a result, costs as a percentage of sales decrease during these higher sales volume periods. 15 CAPITAL EXPENDITURES Lyon's total capital expenditures were $2.1 million in 1999. For the period from the date of acquisition (December 14, 1998) through December 31, 1998, Lyon's had no capital expenditures. Lyon's anticipates that store maintenance, store remodel and store renovation capital expenditures for 2000 will approximate $2.6 million. IMPACT OF THE YEAR 2000 ISSUES During 1999 and 1998 the Company assessed its internal and store-level systems and concluded that its hardware and software were Year 2000 compliant. Prior to January 1, 2000 the Company was also in communication with respect to Year 2000 issues with its suppliers to assess the likelihood that those suppliers might be affected by Year 2000 issues. The Company's internal and store-level systems were essentially unaffected by the calender change to the year 2000 and the Company has not experienced any known delays or shortages in receipt of product from any of its suppliers as a result of Year 2000 issues. LIQUIDITY AND CAPITAL RESOURCES The Company's primary liquidity needs arise from debt service on indebtedness incurred in connection with the Sybra acquisition, the Lyon's acquisition, operating lease requirements and the funding of capital expenditures primarily for new store openings. As of December 31, 1999, the Company had total long-term debt of $82.3 million, which included $30.3 million under a term facility with Atherton Capital Incorporated (the "Atherton Loan"), $15.9 million under a term facility with USRP (Finance) LLC (the "USRP Loan") and certain other indebtedness totaling $36.1 million. The Atherton Loan has a weighted-average maturity of 12.5 years (of which approximately 9.5 years remain), bears interest at 10.63%, requires monthly payments of principal and interest, is collateralized by substantially all of the assets owned by Sybra at the time it was acquired by the Company and imposes certain financial restrictions and covenants. The USRP Loan has a weighted average maturity of 12 years (of which approximately 11 years remain) a weighted average interest rate of 12.75%, requires monthly payments of principal and interest, is collateralized by substantially all of the assets owned by Lyon's and imposes certain financial restrictions and covenants. In December, 1999, the Company completed three separate financing transactions totalling $15.0 million, the proceeds of which were used both to repay existing indebtedness and to contribute to the Company's working capital. (See "Recent Developments"). The Company's primary source of liquidity during the year was the operation of the restaurants owned by its principal operating subsidiaries, Sybra and Lyon's, and debt and lease financing. In the future, the Company's liquidity and capital resources will primarily depend on the operations of Sybra and Lyon's which, under the provisions of the Company's loan agreements, would permit, under certain conditions, distributions and dividends to the Company. Sybra and Lyon's, like most restaurant businesses, are able to operate with nominal or deficit working capital because all sales are for cash and inventory turnover is rapid. Renovation and/or remodeling of existing restaurants is either funded directly from available cash or, in some instances, is financed through outside lenders. Construction or acquisition of new restaurants is generally, although not always, financed by outside lenders. The Company believes that it will continue to be able to secure adequate financing on acceptable terms for new restaurant construction and acquisitions and that cash generated from operations will be adequate to meet its needs for the foreseeable future, although no assurances can be given. RECENT DEVELOPMENTS On December 22, 1999, the Company completed a $5.5 million financing with U.S. Restaurant Lending Group I, L.P., of which approximately $4.5 million of the proceeds was used to repay existing indebtedness. This loan bears interest at an annual rate of 10.53% and matures in 15 years. On 16 December 29, 1999, the Company completed an $8.5 million financing with Finova Capital Corporation and a $1.0 million financing with CNL APF Partners, L.P., substantially all of which proceeds were contributed to the Company's working capital. These loans bear interest at annual rates of 10.88% and 10.54%, and mature in 10 years and 15 years, respectively. SUBSEQUENT EVENTS On January 31, 2000, AmeriServe Food Distributors and several affilliates filed for Chapter 11 protection. (See Item I--"Restaurant Operations--Raw Materials"). CAPITAL LOSS CARRY FORWARD On April 25, 1997, the Company sold its interest in the stock of Bankers Multiple Line Insurance Company, which generated a significant tax loss (see Note 3 of Notes to Consolidated Financial Statements). Due to limitations pursuant to the Internal Revenue Code and Treasury regulations thereunder, no deferred tax asset has been recorded for the capital loss carry forward due to the uncertainty of its availability and realizability. INFLATION Certain of the Company's operating costs are subject to inflationary pressures, of which the most significant are food and labor costs. As of December 31, 1999, a significant percentage of the Company's employees were paid wages equal to or based on the federal minimum hourly wage rate. An increase in the minimum wage and/or economic growth that would reduce unemployment or make more jobs available in higher paying industries would directly affect the Company's labor costs. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The response to this item is submitted as a separate section of this Form 10-K. See Item 14. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information required by Item 10 is incorporated by reference from the Company's definitive proxy statement for its annual meeting of stockholders to be held May 26, 2000. ITEM 11. EXECUTIVE COMPENSATION The information required by Item 11 is incorporated by reference from the Company's definitive proxy statement for its annual meeting of stockholders to be held May 26, 2000. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by Item 12 is incorporated by reference from the Company's definitive proxy statement for its annual meeting of stockholders to be held May 26, 2000. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by Item 13 is incorporated by reference from the Company's definitive proxy statement for its annual meeting of stockholders to be held May 26, 2000. 17 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) 1. Financial Statements The financial statements filed as part of this report are listed in the Index to Consolidated Financial Statements on page F-1.
PAGE -------- Report of Independent Accountants........................... F-2 Consolidated Balance Sheets................................. F-3 Consolidated Statements of Operations....................... F-4 Consolidated Statements of Stockholders' Equity............. F-5 Consolidated Statements of Cash Flows....................... F-6 Notes to Consolidated Financial Statements.................. F-7
2. Financial Statement Schedules Schedules have been omitted either because the required information is shown in the consolidated financial statements or notes thereto or they are not applicable. 3. Exhibits The exhibits to this Report are listed on the accompanying Index to Exhibits and are incorporated herein by reference or are filed as part of this Annual Report on Form 10-K. (b) Reports on Form 8-K None. 18 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. I.C.H. Corporation (Registrant) Dated: March 24, 2000 /s/James R. Arabia -------------------------------------------- James R. Arabia Chairman of the Board, President and Chief Executive Officer Dated: March 24, 2000 /s/Glen V. Freter -------------------------------------------- Glen V. Freter Senior Vice President and Chief Financial Officer Dated: March 24, 2000 /s/John A. Bicks -------------------------------------------- John A. Bicks Executive Vice President, General Counsel, Secretary and Director Dated: March 24, 2000 /s/Robert H. Drechsler -------------------------------------------- Robert H. Drechsler Executive Vice President, Corporate Counsel and Director Dated: March 24, 2000 /s/Timothy Scott -------------------------------------------- Timothy Scott Director Dated: March 24, 2000 /s/David A. Gotz -------------------------------------------- David A. Gotz Director Dated: March 24, 2000 /s/Carl D. Robinson -------------------------------------------- Carl D. Robinson Director Dated: March 24, 2000 /s/Raymond L. Steele -------------------------------------------- Raymond L. Steele Director
19 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE -------- I.C.H. CORPORATION AND SUBSIDIARIES: Report of Independent Accountants......................... F-2 Consolidated Balance Sheets--Company as of December 31, F-3 1999 and December 31, 1998.............................. Consolidated Statements of Operations--Company for the F-4 years ended December 31, 1999 and December 31, 1998 and the eight-month period ended December 31, 1997 and Predecessor for the four-month period ended April 30, 1997.................................................... Consolidated Statements of Stockholders' Equity--Company F-5 for the years ended December 31, 1999 and December 31, 1998 and the period from February 19, 1997 to December 31, 1997 and Predecessor for the four-month period ended April 30, 1997.......................................... Consolidated Statements of Cash Flows--Company for the F-6 years ended December 31, 1999 and December 31, 1998 and the eight-month period ended December 31, 1997 and Predecessor for the four-month period ended April 30, 1997.................................................... Notes to Consolidated Financial Statements................ F-7
F-1 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors I.C.H. Corporation In our opinion, the accompanying consolidated balance sheets of I.C.H. Corporation and Subsidiaries ("Company") as of December 31, 1999 and 1998 and the related consolidated statements of operations, stockholders' equity and of cash flows--Company for the years ended December 31, 1999 and 1998 and for the eight-month period ended December 31, 1997 and--Sybra, Inc. ("Predecessor") for the four-month period ended April 30, 1997 present fairly, in all material respects, the financial position of I.C.H. Corporation and Subsidiaries at December 31, 1999 and 1998, and results of their operations and their cash flows - --Company for the years ended December 31, 1999 and 1998 and for the eight-month period ended December 31, 1997--Predecessor for the four-month period ended April 30, 1997 in conformity with accounting principles generally accepted in the United States. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. PricewaterhouseCoopers LLP San Diego, California February 28, 2000 F-2 I.C.H. CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (IN THOUSANDS EXCEPT SHARE AMOUNTS)
DECEMBER 31, DECEMBER 31, 1999 1998 ------------ ------------ ASSETS Current assets: Cash and cash equivalents................................. $ 15,085 $ 9,235 Accounts receivable....................................... 735 1,293 Inventories............................................... 2,867 2,828 Deferred income taxes..................................... 1,029 1,137 Other current assets...................................... 2,769 4,473 -------- -------- Total current assets.................................. 22,485 18,966 Property and equipment, net................................. 54,461 40,141 Intangible assets, net...................................... 47,622 47,462 Other assets................................................ 8,018 4,326 Deferred income taxes, net.................................. 70 2,571 -------- -------- Total assets.......................................... $132,656 $113,466 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable.......................................... $ 9,962 $ 8,254 Accrued liabilities....................................... 11,539 12,743 Current portion of long-term debt......................... 4,295 4,839 Current portion of capital lease obligations.............. 244 589 -------- -------- Total current liabilities............................. 26,040 26,425 Noncurrent liabilities: Long-term debt............................................ 78,009 63,193 Long-term capital lease obligations....................... 2,174 2,484 Other liabilities......................................... 7,113 6,338 -------- -------- Total liabilities..................................... 113,336 98,440 -------- -------- Stockholders' equity: Preferred stock, $0.01 par value; 1,000,000 authorized; none issued and outstanding............................. -- -- Common stock, $0.01 par value;19,000,000 authorized; 2,811,643 outstanding (see note 10)..................... 28 27 Paid-in-capital........................................... 12,662 12,559 Retained earnings......................................... 6,630 2,440 -------- -------- Total stockholders' equity............................ 19,320 15,026 -------- -------- Total liabilities and stockholders' equity............ $132,656 $113,466 ======== ========
See Notes to Consolidated Financial Statements. F-3 I.C.H. CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS EXCEPT SHARE AMOUNTS)
COMPANY COMPANY PREDECCESSOR COMPANY COMBINED ------------ ------------ ------------ ------------ ------------ FOR THE FOR THE FOR THE YEAR FOR THE YEAR FOUR MONTHS EIGHT MONTHS FOR THE ENDED ENDED ENDED ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, APRIL 30, DECEMBER 31, DECEMBER 31, 1999 1998 1997 1997 1997 ------------ ------------ ------------ ------------ ------------ Revenue and other income: Restaurant sales..................... $ 244,410 $ 138,315 $37,868 $ 73,787 $111,655 Other................................ 469 1,717 48 1,219 1,267 ---------- ---------- ------- ---------- -------- Total revenues......................... 244,879 140,032 37,916 75,006 112,922 Costs and expenses: Restaurant costs and expenses........ 206,856 113,845 32,006 61,503 93,509 General and administrative........... 15,409 9,479 2,212 5,087 7,299 Depreciation and amortization........ 5,731 4,923 2,006 3,398 5,404 Other................................ 230 691 -- 977 977 Non-recurring/restructuring charges............................ -- -- -- 1,497 1,497 ---------- ---------- ------- ---------- -------- Operating income....................... 16,653 11,094 1,692 2,544 4,236 Interest expense....................... 8,092 6,035 638 3,661 4,299 ---------- ---------- ------- ---------- -------- Income (loss) from continuing operations before income taxes....... 8,561 5,059 1,054 (1,117) (63) Provision (benefit) for income taxes... 3,467 2,143 434 (253) 181 ---------- ---------- ------- ---------- -------- Income (loss) from continuing operations........................... 5,094 2,916 620 (864) (244) Gain from sale of discontinued operation............................ -- 388 -- -- -- ---------- ---------- ------- ---------- -------- Net income (loss)...................... $ 5,094 $ 3,304 $ 620 $ (864) $ (244) ========== ========== ======= ========== ======== Income (loss) from continuing operations per share: Basic................................ $ 1.82 $ 1.11 $ (.34) Diluted.............................. $ 1.47 $ 1.01 $ (.34) Gain from discontinued operations per share: Basic................................ $ -- $ .15 Diluted.............................. $ -- $ .13 Net income (loss) per share: Basic................................ $ 1.82 $ 1.26 $ (.34) Diluted.............................. $ 1.47 $ 1.14 $ (.34) Weighted-average common shares outstanding (see note 10): Basic................................ 2,799,000 2,620,000 2,549,000 Diluted.............................. 3,475,000 2,903,000 2,549,000
See Notes to Consolidated Financial Statements. F-4 I.C.H. CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (IN THOUSANDS EXCEPT SHARE AMOUNTS)
COMMON STOCK TOTAL -------------------- PAID-IN RETAINED STOCKHOLDERS' SHARES AMOUNT CAPITAL EARNINGS EQUITY --------- -------- -------- -------- ------------- Predecessor Balance at December 31, 1996............. 55,199 $28 $21,398 $ 13,716 $ 35,142 Net income for period.................. -- -- -- 620 620 Distributions: Land parcel.......................... -- -- -- (845) (845) Cash................................. -- -- -- (46,079) (46,079) --------- --- ------- -------- -------- Balance at April 30, 1997.................. 55,199 $28 $21,398 $(32,588) $(11,162) ========= === ======= ======== ======== Company Balance at February 19, 1997............. -- $-- $12,193 $ -- $ 12,193 Initial issuance of common stock (Note 1)..................................... 2,549,281 26 (26) -- -- Cash paid for Old ICH shares redeemed (Note 1)............................... -- -- (141) -- (141) Net loss (Note 1)........................ -- -- -- (864) (864) --------- --- ------- -------- -------- Balance at December 31, 1997............... 2,549,281 $26 $12,026 $ (864) $ 11,188 Issuance of common stock upon exercise of options................................ 117,334 1 533 -- 534 Net income............................... -- -- -- 3,304 3,304 --------- --- ------- -------- -------- Balance at December 31, 1998............... 2,666,615 27 12,559 2,440 15,026 Issuance of common stock upon exercise of options and warrants................... 314,901 3 868 -- 871 Repurchases of common stock (169,873) (2) (765) (904) (1,671) Net income............................... -- -- -- 5,094 5,094 --------- --- ------- -------- -------- Balance at December 31, 1999............... 2,811,643 $28 $12,662 $ 6,630 $ 19,320 ========= === ======= ======== ========
See Notes to Consolidated Financial Statements. F-5 I.C.H. CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS EXCEPT SHARE AMOUNTS)
COMPANY PREDECESSOR COMPANY --------------------------- ----------- ------------ FOR THE FOR FOR THE YEAR FOR THE YEAR FOUR EIGHT MONTHS ENDED ENDED MONTHS ENDED DECEMBER DECEMBER ENDED DECEMBER 31, 31, APRIL 30, 31, 1999 1998 1997 1997 ------------ ------------ ----------- ------------ Cash flows from operating activities: Net income (loss)......................................... $ 5,094 $ 3,304 $ 620 $ (864) Adjustments to reconcile net income (loss) to cash from Operating activities: Depreciation and amortization............................. 5,731 4,923 2,006 3,398 Deferred income taxes (benefit)........................... 2,609 147 480 (68) Accrued rent.............................................. -- -- -- 332 Provision for store closings and other non-recurring/restructuring charges..................... -- -- -- 462 Gain from sale of discontinued operations................. -- (388) -- -- Changes in current assets and liabilities: Accounts receivable....................................... 33 (831) -- (231) Inventories............................................... (39) (604) 38 89 Payable to (due from) former parent....................... -- -- (741) (370) Accounts payable and accrued expenses..................... 504 9,849 (3,173) 880 Other, net................................................ 403 (1,600) 168 (1,334) -------- -------- -------- -------- Net cash provided (used) by operating activities...... 14,335 14,800 (602) 2,294 -------- -------- -------- -------- Cash flows from investing activities: Capital expenditures...................................... (19,081) (12,876) (1,763) (3,336) Proceeds from disposition of property and equipment....... 740 758 35,655 232 Acquisition of Sybra, Inc., net of $886 cash acquired..... -- -- -- (13,614) Acquisition of Lyon's Restaurants Inc..................... -- (23,233) -- -- Acquisition of restaurant properties...................... (1,870) (5,642) -- -- Sale of subsidiary........................................ -- 2,955 -- 5,000 Proceeds from Old ICH liquidating trust (see Note 3)...... -- -- -- 2,790 Other, net................................................ (437) 397 -- (65) -------- -------- -------- -------- Net cash provided (used) by investing activities...... 20,648 (37,641) 33,892 (8,993) -------- -------- -------- -------- Cash flows from financing activities: Borrowings on credit agreement............................ -- -- 9,299 -- Repayment on credit agreement............................. -- -- (10,384) -- Proceeds from issuance of long-term debt, net of expenses................................................ 24,914 25,182 -- 36,448 Proceeds from debt to former parent....................... -- -- 3,772 -- Repayment of debt to former owner of Sybra................ (2,000) -- -- (23,772) Repayment of long-term debt and capital lease obligation.............................................. (9,951) (2,930) (306) (1,603) Distribution to former owner of Sybra..................... -- -- (46,079) -- Loan element of sale/leaseback financing.................. -- -- 9,000 Other, net................................................ (800) 5,406 -- (456) -------- -------- -------- -------- Net cash provided (used) by financing activities...... 12,163 27,658 (34,698) 10,617 -------- -------- -------- -------- Net change in cash and cash equivalents..................... 5,850 4,817 (1,408) 3,918 Cash and cash equivalents at beginning period............... 9,235 4,418 2,294 500 -------- -------- -------- -------- Cash and cash equivalents at end of period.................. $ 15,085 $ 9,235 $ 886 $ 4,418 ======== ======== ======== ======== Supplemental non-cash disclosures: Cash paid for Income taxes............................................ 1,645 1,841 1,029 1,085 Interest................................................ 8,092 6,035 638 3,661 Note issued in acquisition of Sybra, Inc.................. -- -- -- 2,000
See Notes to Consolidated Financial Statements. F-6 I.C.H. CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (ALL AMOUNTS IN 000'S EXCEPT SHARE AMOUNTS) 1. ORGANIZATION, BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: ORGANIZATION I.C.H. Corporation (the "Company") is the post-reorganization successor to ICH Corporation ("Old ICH"). Old ICH, together with its subsidiaries, filed voluntary petitions for relief under Chapter 11 on October 10, 1995. The Company's plan of reorganization was confirmed February 7, 1997 and became effective on February 19, 1997 (the "Effective Date"). Until its acquisition of Sybra, Inc. (see Note 2), the Company had no significant business operations. On the Effective Date, all of the outstanding equity securities ("Old ICH Common Stock" and "Old ICH Preferred Stock", collectively the "Old ICH Stock") of Old ICH were canceled. The Company's Restated Certificate of Incorporation authorized the issuance of 9,000,000 shares of common stock and 1,000,000 shares of preferred stock. Holders of Old ICH Stock had two years from the Effective Date in which to exchange their canceled shares for the Company's common stock. Generally, holders of the canceled Old ICH shares received 0.0269 shares of the Company's common stock for each share of Old ICH Common Stock and 0.2 shares of the Company's common stock for each share of Old ICH Preferred Stock. 2,549,281 shares of the Company's common stock were issued in exchange for Old ICH stock during the two year conversion period ending on February 19, 1999. BUSINESS AND PRESENTATION The accompanying Consolidated Financial Statements labeled "Company" include the accounts of the Company and its wholly-owned subsidiaries, principally Sybra, Inc. ("Sybra") and Lyon's of California, Inc. ("Lyon's"). All significant intercompany accounts and transactions have been eliminated. Included in the results of operations for the eight months ended December 31, 1997 are revenues and operating loss of $164 and $(188), respectively, for the period from February 19, 1997 to April 30, 1997 (the period prior to the acquisition of Sybra). In addition, cash flows for the period prior to the acquisition of Sybra consisting principally of cash from the sale of a subsidiary and from the Lone Star Liquidating Trust, are included in cash flows for the eight months ended December 31, 1997 (see Note 3). Sybra is considered to be a Predecessor of the Company and, accordingly, the historical financial statements of Sybra, prior to its acquisition by the Company on April 30, 1997, are presented with the accompanying financial statements of the Company. The acquisition of Sybra resulted in changes in the cost basis of Sybra's assets and liabilities, use of estimated lives for certain of the intangibles that are different from those used by the Predecessor and a different capital structure. These factors significantly affect the comparability of the Predecessor's financial information. SIGNIFICANT ACCOUNTING POLICIES FISCAL YEAR. The Company operates on a calendar year basis. Sybra, however, uses a 52/53 week fiscal year ending on the last Saturday of the year and Lyon's uses a 52/53 week fiscal year ending on the last Sunday of the year. Accordingly, the accompanying financial statements include Sybra's results for the periods ended January 1, 2000, January 2, 1999, December 27, 1997 and April 30, 1997 and Lyon's results for the period ended January 2, 2000 and for the period from the date of acquisition (December 14, 1998) through December 31, 1998. CASH AND CASH EQUIVALENTS. The Company considers all highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents. Interest income on cash F-7 I.C.H. CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (ALL AMOUNTS IN 000'S EXCEPT SHARE AMOUNTS) 1. ORGANIZATION, BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED) equivalents was $319, $50, $99 and $1 for the periods ended December 31, 1999, December 31, 1998, April 30, 1997 (four months) and December 31, 1997 (eight months), respectively. FOOD AND SUPPLIES INVENTORIES. Food and supplies inventories are stated at the lower of cost or market. Cost is determined using the first-in, first-out (FIFO) method. PROPERTY AND EQUIPMENT. Property and equipment is stated at cost less accumulated depreciation and amortization. Normal repairs and maintenance costs are expensed as incurred. Depreciation is being recorded on a straight-line basis over the following estimated useful lives: Buildings................................................... 40 years Restaurant equipment........................................ 5-10 years
Buildings under capitalized leases and leasehold improvements are amortized on a straight-line basis over the lesser of the lease term or the estimated useful lives of the assets. INTANGIBLES. Franchise agreements with Arby's require Sybra to pay a franchise fee for each new restaurant developed and DE MINIMIS renewal fees for franchises that have expired. Each franchise agreement provides Sybra the right to operate an Arby's restaurant for a period of 20 years and is renewable by Sybra, subject to certain conditions, for varying terms of up to 20 years. Franchise fees are capitalized and amortized using the straight-line method over 40 years. Acquired royalty rights, representing the fair value of royalty rates of acquired franchises, are capitalized and amortized on a straight-line basis over 20 years or the remaining life of the franchise agreement, whichever is less. Equity in operating leases, representing the estimated fair value of base rental rates, less the actual rental obligation, is amortized on a straight-line basis over 20 years or the remaining life of the lease, including option periods, whichever is less. Goodwill is amortized using the straight-line method over 40 years. At each balance sheet date, the Company evaluates the realizability of goodwill based upon expectations of operating income for the restaurants as a group. The Company believes that no material impairment of goodwill exists at December 31, 1999. INCOME TAXES. Deferred income taxes are computed using the liability method, which provides that deferred tax assets and liabilities are recorded based on the differences between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes (see Note 11). ADVERTISING EXPENSES. All advertising costs are expensed as incurred. Advertising expenses were approximately $14,300, $10,600, $3,400, and $5,000 for the periods ended December 31, 1999, December 31, 1998, April 30, 1997 (four months) and December 31, 1997 (eight months), respectively. USE OF ESTIMATES. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses in the financial statements and in the disclosure of contingent assets and liabilities. While actual results could differ from those estimates, management believes that actual results will not be materially different from amounts provided in the accompanying consolidated financial statements. F-8 I.C.H. CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (ALL AMOUNTS IN 000'S EXCEPT SHARE AMOUNTS) 1. ORGANIZATION, BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED) SEGMENT REPORTING. Under Statement of Financial Accounting Standards ("SFAS") No. 131, the determination of segments to be reported in the financial statements is to be consistent with the manner in which management organizes and evaluates the internal organization to make operating decisions and assess performance. Under SFAS No. 131, the Company reports as separate segments the operations of each of its two principal operating subsidiaries, Sybra and Lyon's. (See Note 18). RECLASSIFICATION. Certain amounts from prior periods have been reclassified to conform to the current year presentation. 2. ACQUISITIONS SYBRA, INC. On April 30, 1997, the Company acquired all of the common stock of Sybra for $15,614 including related expenses and net of cash acquired of $886. The Company incurred $2,000 in acquisition indebtedness to the seller and paid the remainder in cash. Concurrently with the Company's acquisition of Sybra, Sybra entered into a sale/leaseback transaction with respect to 61 of its restaurant properties for approximately $44,200. The acquisition was recorded under the purchase method of accounting and, accordingly, the results of operations of Sybra commencing May 1, 1997 are included in the accompanying financial statements of the Company. The purchase price was allocated to identifiable tangible and intangible assets and liabilities based on their estimated fair values, with the excess of the purchase price over the fair value of such net assets acquired reflected as goodwill, as follows: Current assets.............................................. $ 3,428 Franchise rights............................................ 3,865 Other intangibles, excluding goodwill....................... 8,299 Goodwill.................................................... 28,159 Other tangible assets....................................... 20,342 Liabilities assumed......................................... (48,479) -------- Purchase price.............................................. $ 15,614 ========
LYON'S RESTAURANTS, INC. On December 14, 1998, the Company acquired substantially all of the assets of Lyon's restaurants for $22,600. The Company incurred $16,500 in acquisition indebtedness and paid the remainder of the purchase price with cash and a $600 note payable to the seller. The Company also issued 125,000 warrants to purchase shares of the Company's common stock at $.01 per share to USRP (Finance), LLC as part of the financing of the Lyon's acquisition. The acquisition was recorded under the purchase method of accounting. F-9 I.C.H. CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (ALL AMOUNTS IN 000'S EXCEPT SHARE AMOUNTS) 2. ACQUISITIONS (CONTINUED) The purchase price was allocated to identifiable tangible and intangible assets and liabilities based on their estimated fair values, with the excess of the purchase price over the fair value of such net assets acquired reflected as goodwill, as follows: Current assets and liabilities, net......................... $ 1,409 Other intangibles, excluding goodwill....................... 2,057 Goodwill.................................................... 7,734 Other tangible assets....................................... 11,400 ------- Purchase price.............................................. $22,600 =======
3. OLD ICH TRANSACTIONS On April 25, 1997, the Company exercised its option, pursuant to the reorganization plan of Old ICH, to sell all of the outstanding capital stock of Bankers Multiple Line Insurance Company ("BML"), a property and casualty insurer licensed in all fifty states, for its carrying value of $5,000. In February 1997, the Company received $2,790 from the Lone Star Liquidating Trust in satisfaction of a receivable related to the Old ICH reorganization plan. 4. OTHER CURRENT ASSETS Other current assets consist of the following as of:
DECEMBER 31, DECEMBER 31, 1999 1998 ------------ ------------ Prepaid rent................................................ $1,518 $1,040 Other prepaid expenses...................................... 1,251 2,875 Other....................................................... -- 558 ------ ------ Other current assets........................................ $2,769 $4,473 ====== ======
5. INTANGIBLES Intangible assets, net, consist of the following as of:
DECEMBER 31, DECEMBER 31, 1999 1998 ------------ ------------ Franchise rights............................................ $ 5,299 $ 4,921 Other intangibles, excluding goodwill....................... 8,781 7,803 Goodwill.................................................... 37,458 36,944 ------- ------- Total....................................................... 51,538 49,668 Less accumulated amortization............................... 3,916 2,206 ------- ------- Intangible assets, net...................................... $47,622 $47,462 ======= =======
F-10 I.C.H. CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (ALL AMOUNTS IN 000'S EXCEPT SHARE AMOUNTS) 6. PROPERTY AND EQUIPMENT Property and equipment, net, consist of the following as of:
DECEMBER 31, DECEMBER 31, 1999 1998 ------------ ------------ Land........................................................ $ 77 $ 77 Buildings................................................... 24,129 11,521 Leasehold improvements...................................... 11,452 13,062 Restaurant equipment........................................ 21,880 19,089 Construction in progress.................................... 5,468 1,408 ------- ------- Total....................................................... 63,006 45,157 Less accumulated depreciation and amortization.............. 8,545 5,016 ------- ------- Property and equipment, net................................. $54,461 $40,141 ======= =======
7. LEASES The Company leases all of the land and substantially all of the buildings used in its restaurant operations under noncancelable leases with remaining lease terms of one to twenty years. In many cases, the leases provide for one or more renewal options. The leases generally require the Company to pay property taxes, insurance, maintenance and other operating costs of the properties. Some also require contingent rent payments based on a percentage of restaurant sales. Base rent expense for operating leases for the periods ended December 31, 1999, December 31, 1998, April 30, 1997 (four months) and December 31, 1997 (eight months) was approximately $16,676, $9,525, $1,373 and $5,520, respectively. Additional contingent rent payments were approximately $769, $463, $130 and $240 for the same periods, respectively. Immediately prior to its acquisition by the Company on April 30, 1997, Sybra entered into a sale/ leaseback transaction in which Sybra sold land and buildings related to 61 restaurants for their fair value of $36,000 and leased them back under twenty-year base term leases (classified as operating) with options that could, at Sybra's option, extend the leases an additional 20 years. As part of the sale/ leaseback transaction, Sybra received an additional $9,000 in the form of a loan. Total proceeds of the transaction were $44,200, net of related expenses. The proceeds were distributed to Sybra's former parent. The lease payments escalate, requiring the Company to straight-line the rent expense over the term of the leases. F-11 I.C.H. CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (ALL AMOUNTS IN 000'S EXCEPT SHARE AMOUNTS) 7. LEASES (CONTINUED) The Company's future minimum rental commitments as of December 31, 1999 for all noncancelable capital and operating leases are as follows:
OPERATING FISCAL YEAR CAPITAL LEASES LEASES - ----------- -------------- --------- 2000........................................................ $ 553 $ 18,874 2001........................................................ 533 18,470 2002........................................................ 533 17,799 2003........................................................ 533 16,703 2004........................................................ 533 15,230 Thereafter.................................................. 1,086 127,954 ------ -------- Total....................................................... $3,771 $215,030 ======== Less amount representing interest........................... 1,353 ------ Present value of future minimum lease payments.............. $2,418 ======
8. ACCRUED LIABILITIES Accrued liabilities consist of the following as of:
DECEMBER 31, DECEMBER 31, 1999 1998 ------------ ------------ Employee related............................................ $ 4,218 $ 3,243 Property and other taxes.................................... 3,022 4,436 Insurance related........................................... 1,447 1,690 Other....................................................... 2,852 3,374 ------- ------- Total....................................................... $11,539 $12,743 ======= =======
9. LONG-TERM DEBT Long-term debt consists of the following as of:
DECEMBER DECEMBER 31, 31, 1999 1998 ------------ --------- Term loan, 10.63%, payable monthly through 2012............. $30,272 $32,319 Term loan, 10.88%, payable monthly through 2010............. 8,500 -- Term loan, 10.53%, payable monthly through 2015............. 5,500 -- Loan, 14.50%................................................ 3,214 9,000 Acquisition indebtedness due in 1999........................ -- 2,000 Term loan, 12.75% payable monthly through February 1, 2011...................................................... 15,927 16,500 Other notes payable 8.5% to 10.93% maturing through 2019.... 18,891 8,213 ------- ------- 82,304 68,032 Less current portion:....................................... 4,295 4,839 ------- ------- Total long-term debt...................................... $78,009 $63,193 ======= =======
F-12 I.C.H. CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (ALL AMOUNTS IN 000'S EXCEPT SHARE AMOUNTS) 9. LONG-TERM DEBT (CONTINUED) Concurrently with the acquisition of Sybra, the Company entered into a loan agreement that provides, on an aggregate basis, a $35,000 fixed-rate term loan bearing interest at 10.63% with a weighted-average maturity of 12.5 years. The term loan is collateralized by substantially all of the restaurant equipment owned by Sybra. The proceeds of the term loan were used to fund the acquisition of Sybra and retire debt payable to Sybra's former parent assumed in the acquisition. The loan agreement contains covenants which require, among other things, the maintenance of a minimum fixed charge coverage ratio, restrictions that limit the payment of dividends, and other provisions and restrictive covenants. As mentioned in Note 7, as an element of the sale/leaseback transaction completed immediately before its acquisition by the Company, Sybra received $9,000 as a loan of which the Company has repaid $5.8 million. The loan element of the transaction carries an interest rate of approximately 14.50% and the remaining balance of $3.2 million may be repaid at any time after December 2000 without penalty. If not repaid in full prior to April 30, 2001, any remaining balance of the loan will be repaid over the remaining lease term of the sale/leaseback transaction described in Note 7 above. On December 14, 1998, the Company entered into a term loan agreement for the acquisition of Lyon's restaurants with USRP (Finance), LLC. The 12.75% term loan has an original maturity of 12 years and is collateralized by substantially all of the assets of Lyon's. The agreement contains covenants which require, among other things, the maintenance of a minimum fixed charge coverage ratio and other provisions and restrictive covenants. The Company also has 32 separate notes for the financing of buildings and equipment used in restaurants with remaining principal balances ranging from $64 to $2.2 million, interest rates ranging from 8.50% to 10.93% and an average remaining maturity of 11.4 years. These loans are collateralized by the underlying assets. At December 31, 1999, long-term debt had a fair value that approximates the carrying value. The aggregate maturities of long-term debt at December 31, 1999 are as follows:
FISCAL YEAR - ----------- 2000........................................................ $ 4,295 2001........................................................ 4,787 2002........................................................ 5,263 2003........................................................ 5,552 2004........................................................ 5,413 Thereafter.................................................. 56,994 ------- $82,304 =======
10. EQUITY AND EARNINGS PER COMMON SHARE Basic earnings per share is computed by dividing net income available to common shareholders by the weighted-average number of common shares outstanding. Diluted earnings per share assumes the F-13 I.C.H. CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (ALL AMOUNTS IN 000'S EXCEPT SHARE AMOUNTS) 10. EQUITY AND EARNINGS PER COMMON SHARE (CONTINUED) issuance of common stock for all potentially dilutive securities outstanding. The following table sets forth the computation of basic and diluted earnings per share:
YEAR ENDED DECEMBER 31, --------------------- 1999 1998 --------- --------- Numerator: Income for computation of basic earnings per share and diluted earnings per share................................ $ 5,094 $ 3,304 ========= ========= Denominator: Weighted-average shares for computation of basic earnings per share.................................. 2,799,000 2,620,000 Shares issuable upon exercise of dilutive stock options..... 676,000 283,000 --------- --------- Weighted-average shares for computation of diluted earnings per share................................................. 3,475,000 2,903,000 ========= ========= Basic earnings per share.................................... $ 1.82 $ 1.26 ========= ========= Diluted earnings per share.................................. $ 1.47 $ 1.14 ========= =========
Basic net income per share is computed based on the weighted-average number of common shares outstanding during the year. Because the results for the eight months ended December 31, 1997 reflect a net loss from continuing operations, basic and diluted loss per share are calculated based on the same weighted average number of shares outstanding. Net earnings per common share for the Predecessor is not presented as the per share results are not meaningful due to the changes resulting from the acquisition of Sybra (see Note 2). As of February 19, 1997, the Company declared a dividend of one right (collectively, the "Rights") for each share of the Company's common stock. Each Right represents the right to purchase one one-thousandth of a share of Series A Junior Participating Preferred Stock (the "Junior Preferred Stock"). The Rights, as amended, have an exercise price of $20.00 per right and are exercisable until February 19, 2007. Ten thousand shares of the Company's authorized preferred stock have been designated as the Junior Preferred Stock and have been reserved for issuance upon the exercise of the Rights. The Rights are not exercisable until the occurrence of those "triggering events" detailed in the Rights Agreement by and between the Company and the Mid-America Bank of Louisville and Trust Company. Upon the occurrence of any of such triggering events, all holders of Rights (other than the holder that caused the triggering event to occur) will thereafter have the right to receive upon exercise that number of shares of the Company's common stock having a market value of two times the exercise price of the Right. The Junior Preferred Stock has voting rights equal to 1,000 votes per share and is entitled to receive dividends, on a cumulative basis, payable in cash, equal to 1,000 times the aggregate per share amount of all cash dividends or all non-cash dividends or other distributions declared on the Company's common stock. Upon liquidation, the Junior Preferred Stock is entitled to receive an aggregate amount per share equal to 1,000 times the aggregate amount to be distributed per share to the holders of shares of common stock plus any accrued and unpaid dividends. F-14 I.C.H. CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (ALL AMOUNTS IN 000'S EXCEPT SHARE AMOUNTS) 11. INCOME TAXES The provision (benefit) for income taxes consists of:
COMPANY PREDECESSOR COMPANY --------------------------- ----------- ------------ FOR THE FOR THE YEAR FOR THE YEAR FOR THE EIGHT MONTHS ENDED ENDED FOUR MONTHS ENDED DECEMBER DECEMBER ENDED DECEMBER 31, 31, APRIL 30, 31, 1999 1998 1997 1997 ------------ ------------ ----------- ------------ Current........................................ $1,645 $1,841 $(46) $(185) Deferred....................................... 1,822 302 480 (68) ------ ------ ---- ----- $3,467 $2,143 $434 $(253) ====== ====== ==== =====
Significant components of the Company's deferred tax assets and liabilities are as follows:
DECEMBER 31, DECEMBER 31, 1999 1998 ------------ ------------ Property and equipment...................................... $ 2,167 $ 2,106 Accrued liabilities and other............................... 3,404 6,531 ------- ------- Deferred tax assets......................................... 5,571 8,637 Deferred tax liability--intangible assets................... (4,235) (4,188) Valuation allowance......................................... (237) (741) ------- ------- Net deferred tax assets (liabilities)....................... $ 1,099 $ 3,708 ======= ======= Current deferred tax assets................................. $ 1,029 $ 1,137 Non-current deferred tax assets (liabilities)............... 70 2,571 ------- ------- Net deferred tax assets (liability)......................... $ 1,099 $ 3,708 ======= =======
On April 25, 1997, the Company sold its interest in the stock of BML which generated a significant tax loss (see Note 3). Due to limitations pursuant to the Internal Revenue Code and Treasury regulations thereunder, no deferred tax asset has been recorded for the capital loss carry forward due to the uncertainty of its availability and realizability. F-15 I.C.H. CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (ALL AMOUNTS IN 000'S EXCEPT SHARE AMOUNTS) 11. INCOME TAXES (CONTINUED) A reconciliation of the Federal statutory income tax rate to the Company's effective tax rate follows:
COMPANY PREDECESSOR COMPANY --------------------------- ----------- ------------ FOR THE FOR THE EIGHT MONTHS FOR THE FOR THE FOUR MONTHS ENDED YEAR ENDED YEAR ENDED ENDED DECEMBER DECEMBER 31, DECEMBER 31, APRIL 30, 31, 1999 1998 1997 1997 ------------ ------------ ----------- ------------ Expected tax expense, at the federal statutory rate of 34%...................... $2,911 $1,720 $369 $(391) State income taxes, net...................... 556 256 53 (31) Other, net................................... -- 167 12 169 ------ ------ ---- ----- $3,467 $2,143 $434 $(253) ====== ====== ==== =====
12. STOCK OPTION PLANS The Company has two fixed option plans, the I.C.H. Corporation 1997 Employee Stock Option Plan, as amended (the "ESP"), and the I.C.H. Corporation 1997 Director Stock Option Plan (the "DSP"). Under the ESP, the Company may grant incentive stock options with specific vesting periods and non-qualifying options to eligible officers and employees for the purchase of up to an aggregate of 1,500,000 shares of common stock. Under the DSP, the Company may grant non-qualifying options to eligible directors for the purchase of up to an aggregate of 400,000 shares of common stock. Under both plans, the exercise price of each option is equal to the estimated fair value of the Company's stock on the date of grant. Stock options granted under the ESP have 10-year terms and generally vest ratably over four years. Options granted under the DSP also have 10-year terms. F-16 I.C.H. CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (ALL AMOUNTS IN 000'S EXCEPT SHARE AMOUNTS) 12. STOCK OPTION PLANS (CONTINUED) A summary of the Company's stock option plans as of December 31, 1999 and the changes during the two years ended December 31, 1999 are presented as follows:
WEIGHTED-AVERAGE OPTIONS EXERCISE PRICE --------- ---------------- Outstanding at February 19, 1997............................ -- $ -- Granted..................................................... 788,000 3.18 Exercised................................................... -- -- Canceled.................................................... (93,000) 3.80 --------- ----- Outstanding at December 31, 1997............................ 695,000 $3.10 Granted..................................................... 510,000 3.87 Exercised................................................... (117,000) 2.17 Canceled.................................................... (23,000) 3.57 --------- ----- Outstanding at December 31, 1998............................ 1,065,000 $3.56 Granted..................................................... 430,000 $9.13 Exercised................................................... (190,000) 3.07 Canceled.................................................... (137,000) 3.67 --------- ----- Outstanding at December 31, 1999............................ 1,168,000 $5.68 ========= ===== Exercisable at December 31, 1999............................ 236,000 $3.68 ========= =====
The following table summarizes information about stock options outstanding at December 31, 1999:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE ----------------------------------- -------------------- WEIGHTED- AVERAGE WEIGHTED- REMAINING AVERAGE RANGE OF CONTRACTUAL EXERCISE WEIGHTED- EXERCISE PRICES SHARES LIFE PRICE SHARES AVERAGE - --------------- --------- ----------- --------- -------- --------- $2.17 to $3.09................................... 168,000 7.47 3.01 71,000 2.99 $3.19 to $4.00................................... 543,000 8.21 3.75 141,000 3.76 $4.38 to $5.00................................... 89,000 8.71 4.87 12,000 4.77 $5.50 to $6.125.................................. 110,000 9.13 5.69 12,000 5.63 $8.50 to $10.25.................................. 51,000 9.74 9.34 -- -- $12.25 to $13.50................................. 207,000 9.41 12.34 -- -- --------- ---- ----- ------- ---- $2.17 to $13.50.................................. 1,168,000 8.51 5.68 236,000 3.68 ========= ==== ===== ======= ====
The Company applies APB Opinion 25 and related interpretations in accounting for its stock option plans. Accordingly, no compensation cost is recognized for grants of stock options to employees with excercise prices at least equal to the fair value of the Company's common stock on the date of grant. Had compensation cost been determined in accordance with the provisions of SFAS No. 123, F-17 I.C.H. CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (ALL AMOUNTS IN 000'S EXCEPT SHARE AMOUNTS) 12. STOCK OPTION PLANS (CONTINUED) "Accounting for Stock Based Compensation," the net income per share would have been changed to the pro forma amounts indicated below:
FOR THE YEARS ENDED DECEMBER 31, ------------------- 1999 1998 -------- -------- Net income-as reported...................................... $5,094 $2,916 Net income-pro forma........................................ $4,762 $2,779 Basic per share - as reported............................................. $ 1.82 $ 1.11 - pro forma............................................... $ 1.70 $ 1.06 Diluted per share - as reported............................................. $ 1.47 $ 1.01 - pro forma............................................... $ 1.37 $ .96
The fair value of each option grant is estimated on the grant date using the Black-Scholes option-pricing model with the following assumptions: a risk-free interest rate range of 5.69%-6.35%; volatility factor of the expected market price of the Company's common stock of 46.6%; expected lives of 2-5 years; and a dividend yield of 0%. The weighted average fair value of options granted was $3.97 in 1999 and $1.58 in 1998. 13. BENEFIT PLANS The Company maintains a defined contribution 401(k) plan known as the Sybra, Inc. Retirement Income Plan (the "Retirement Plan"). The Retirement Plan permits eligible employees to defer a portion of their compensation (1% to 15%, up to certain maximum limitations established by law) through payroll deductions. The Company may, at its discretion, contribute to the Retirement Plan on behalf of participating employees based on a matching formula or other method. No matching contributions were made to the Retirement Plan for 1999, 1998 or 1997. 14. COMMITMENTS AND CONTINGENCIES DEVELOPMENT AGREEMENT WITH ARBY'S The Development Agreement contains certain requirements regarding the number of units to be opened in the future. Should the Company fail to comply with the required development schedule or with the requirements for restaurants within areas covered by the Development Agreement, Arby's could terminate the exclusive nature of the Company's franchise and the Company would forfeit prepaid fees. However, the Company would no longer be obligated for any future unpaid fees required by the Development Agreement. The Development Agreement also provides Arby's with certain rights regarding the Company's business operations and any transfer of significant portions of assets owned by Sybra. Commitments under the Development Agreement require payments aggregating $930,000 over the next four (4) years. F-18 I.C.H. CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (ALL AMOUNTS IN 000'S EXCEPT SHARE AMOUNTS) 14. COMMITMENTS AND CONTINGENCIES (CONTINUED) LEGAL PROCEEDINGS Various legal proceedings are pending against the Company, all of which involve routine litigation incidental to the Company's businesses. The consequences of these matters are not presently determinable but, in the opinion of the management of the Company after consulting with legal counsel, the ultimate liability is not expected to have a material effect on the results of operations, financial position, liquidity or capital resources of the Company. 15. NON-RECURRING AND RESTRUCTURING CHARGES During 1997, the Company recorded provisions totaling $1,497 related to (1) restructuring Sybra's operations in the Texas region, (2) buy-out of an employment contract with the former president of Sybra and (3) non-recurring expenses related to obtaining financing and maintaining Sybra's status as an Arby's franchisee. 16. RETIREE LIABILITY During 1998, the Company assumed the liabilities associated with a post-retirement healthcare and life insurance plan from The Lone Star Liquidating Trust in return for a lump sum cash payment of approximately $4.9 million. Health benefits under such plan include major medical insurance with deductible and co-insurance providers and in some cases are supplemental to Medicare benefits. The plan provides that current participants do not earn any future benefits and provides that certain of the participants pay for a portion of their coverage. The remainder of the costs, including premiums, are paid for on a current basis by the Company. The net present value of the healthcare and life insurance benefits liability at December 31, 1999 was approximately $4.9 million. The liability was calculated assuming a 7% discount rate applied to the estimated future cash flows. It also assumed that medical costs would initially increase at a rate of 10% per annum, declining over a period of 10 years to 5.75%. Active employees are not eligible for post retirement healthcare or life insurance benefits upon retirement. 17. DISCONTINUED OPERATIONS On June 30, 1998, the Company sold its Perry Park golf course and real estate development located in Owen County, Kentucky for $3.1 million in cash resulting in a gain of $388. The gain from discontinued operations of $388 included a gain of $719 from the reversal of a valuation allowance for a deferred income tax asset related to this property. Sales and operating income for Perry Park are included in continuing operations due to their immateriality. 18. SEGMENT INFORMATION The Company operates entirely in the food service industry with substantially all of its revenues flowing from the sale of menu products at the restaurants operated by its wholly-owned subsidiaries. At December 31, 1999, Sybra owned and operated 188 Arby's restaurants and Lyon's owned and operated 73 Lyon's restaurants. The Company considers each subsidiary a reportable segment. The amounts reported for Lyon's reflect only the period subsequent to the date of its acquisition by the Company, F-19 I.C.H. CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (ALL AMOUNTS IN 000'S EXCEPT SHARE AMOUNTS) 18. SEGMENT INFORMATION (CONTINUED) December 14, 1998. Amounts described as "Corporate and other" relate to revenues, expenses and assets associated with non-segmented operations. The Company evaluates performance based on several factors, of which the primary financial measure is business segment operating income before interest, taxes, depreciation, amortization and charges for (recoveries of) restructuring and impairment ("EBITDA as defined"). The accounting policies of the business segments are the same as those described in the summary of significant accounting policies in Note 1 above.
FOR THE YEAR ENDED ------------------------------------------ DECEMBER 31, DECEMBER 31, DECEMBER 31, 1999 1998 1997 ------------ ------------ ------------ SALES Sybra................................................... $144,541 $131,312 $111,655 Lyon's.................................................. 99,869 7,003 -- Corporate and other..................................... -- -- -- -------- -------- -------- Total consolidated sales................................ $244,410 $138,315 $111,655 ======== ======== ========
FOR THE YEAR ENDED ------------------------------------------ DECEMBER 31, DECEMBER 31, DECEMBER 31, 1999 1998 1997 ------------ ------------ ------------ DEPRECIATION AND AMORTIZATION Sybra................................................... $4,275 $4,713 $5,235 Lyon's.................................................. 1,236 38 -- Corporate and other..................................... 220 172 169 ------ ------ ------ Total consolidated depreciation and amortization........ $5,731 $4,923 $5,404 ====== ====== ======
FOR THE YEAR ENDED ------------------------------------------ DECEMBER 31, DECEMBER 31, DECEMBER 31, 1999 1998 1997 ------------ ------------ ------------ EBITDA AS DEFINED Sybra................................................... $16,955 $15,018 $11,514 Lyon's.................................................. 5,920 642 -- Corporate and other..................................... (491) 357 (1,874) ------- ------- ------- Total EBITDA as defined for reportable segments......... $22,384 $16,017 $ 9,640 ======= ======= =======
FOR THE YEAR ENDED ------------------------------------------ DECEMBER 31, DECEMBER 31, DECEMBER 31, 1999 1998 1997 ------------ ------------ ------------ CAPITAL EXPENDITURES Sybra................................................... $ 17,000 $ 12,876 $ 5,099 Lyon's.................................................. 2,081 -- -- Corporate and other..................................... -- -- -- -------- -------- ------- Total capital expenditures for reportable Segments...... $ 19,081 $ 12,876 $ 5,099 ======== ======== =======
F-20 I.C.H. CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (ALL AMOUNTS IN 000'S EXCEPT SHARE AMOUNTS) 18. SEGMENT INFORMATION (CONTINUED)
DECEMBER 31, DECEMBER 31, 1999 1998 ------------ ------------ ASSETS Sybra....................................................... $ 97,627 $ 81,183 Lyon's...................................................... 30,540 28,783 Corporate and other......................................... 4,489 3,500 -------- -------- Total consolidated assets................................... $132,656 $113,466 ======== ========
19. QUARTERLY DATA (UNAUDITED) The results for each quarter include all adjustments which are, in the opinion of management, necessary for a fair presentation of the results of operations for the interim periods. Selected consolidated data for each quarter within 1998 and 1999 are as follows:
FIRST QUARTER SECOND QUARTER THIRD QUARTER FOURTH QUARTER ------------- -------------- ------------- -------------- YEAR ENDED DECEMBER 31, 1998: Sales.................................... $28,694 $31,244 $33,174 $46,920 Operating income......................... 1,862 2,317 2,235 4,680 Income from continuing operations........ 293 531 476 1,616 Net income............................... $ 293 $ 531 $ 864 $ 1,616 Income from continuing operations per share Basic.................................. $ .11 $ .20 $ .18 $ .61 Diluted................................ $ .11 $ .18 $ .16 $ .56 YEAR ENDED DECEMBER 31, 1999: Sales.................................... $59,824 $61,084 $61,293 $62,678 Operating income......................... 3,189 4,401 4,097 4,966 Net income............................... $ 707 $ 1,435 $ 1,211 $ 1,741 Net Income Basic.................................. $ .27 $ .51 $ .43 $ .62 Diluted................................ $ .22 $ .41 $ .34 $ .51
F-21 INDEX TO EXHIBITS
EXHIBIT PAGE NUMBER DESCRIPTION NUMBER - --------------------- ------------------------------------------------------------ -------- 2.1 First Amended Joint Plan of Reorganization Under Chapter 11 (incorporated by reference to Exhibit B to Exhibit 99.1 to the Company's Form 8-K dated November 22, 1996) 2.2 First Nonmaterial Modification to the First Amended Joint Plan of Reorganization Under Chapter 11 (incorporated by reference to Exhibit 2.2 to the Company's Form 8-K dated February 18, 1997) 2.3 Letter to Robert T. Shaw, Henry W. Simon, Jr. and Russell L. Munsch agreeing to nonmaterial modification to the First Amended Joint Plan of Reorganization Under Chapter 11, as filed with the Bankruptcy Court (incorporated by reference to Exhibit 2.3 to the Company's Form 8-K dated February 18, 1997) 2.4 Order confirming the First Amended Joint Plan of Reorganization under Chapter 11, as entered by the United States Bankruptcy Court for the Northern District of Texas, Dallas Division, on February 7, 1997 (incorporated by reference to Exhibit 99.1 to the Company's Form 8-K dated February 18, 1997) 2.5 Findings of Fact and Conclusions of Law in support of Order Confirming First Amended Joint Plan of Reorganization Under Chapter 11 (incorporated by reference to Exhibit 99.2 to the Company's Form 8-K dated February 18, 1997) 3.1 Amended and Restated Certificate of Incorporation of I.C.H. Corporation (incorporated by reference to Exhibit 99.5 to the Company's Form 8-K dated February 19, 1997) 3.2 Amendment No. 1 to Amended and Restated Certificate of Incorporation of I.C.H. Corporation (incorporated by reference to Exhibit 3.1 to the Company's Form 8-K dated January 15, 1998) 3.3 Amended and Restated By-Laws of I.C.H. Corporation (incorporated by reference to Exhibit 99.6 to the Company's Form 8-K dated February 19, 1997) 3.4 Amendment No. 1 to Amended and Restated By-Laws of I.C.H. Corporation (incorporated by reference to Exhibit 3.1 to the Company's Form 8-K dated February 10, 1998) 3.5 Certificate of Amendment to the Amended and Restated Certificate of Incorporation of I.C.H. Corporation (incorporated by reference to Exhibit 3.5 to the Company's Form 10-Q dated 8/13/99) 10.1 Form of Rights Agreement between I.C.H. Corporation and The Mid-America Bank of Louisville and Trust Company, which includes as Exhibit B thereto the Form of Rights Certificate (incorporated by reference to Exhibit 1 to the Company's Registration Statement on Form 8-A dated February 19, 1997) 10.2 Amendment No. 1 to Rights Agreement between I.C.H. Corporation and The Mid-America Bank of Louisville and Trust Company (incorporated by reference to Exhibit 10.1 to the Company's Form 8-K dated February 10, 1998) 10.3 Stock Purchase Agreement, dated as of February 7, 1997, by and between I.C.H. Corporation and Valcor, Inc. (incorporated by reference to Exhibit 10.02 to the Company's Quarterly Report on Form 10-Q dated March 31, 1997) 10.4 First Amendment to Stock Purchase Agreement, dated as of April 18, 1997, by and between I.C.H. Corporation and Valcor, Inc. (incorporated by reference to Exhibit 10.03 to the Company's Quarterly Report on Form 10-Q dated March 31, 1997) 10.5 Form of Loan Agreement by and between Sybra, Inc. and Atherton Capital Incorporated (incorporated by reference to Exhibit 10.04 to the Company's Quarterly Report on Form 10-Q dated March 31, 1997)
EXHIBIT PAGE NUMBER DESCRIPTION NUMBER - --------------------- ------------------------------------------------------------ -------- 10.6 Form of Promissory Note executed by Sybra, Inc. in favor of Atherton Capital Incorporated (incorporated by reference to Exhibit 10.05 to the Company's Quarterly Report on Form 10-Q dated March 31, 1997) 10.7 Form of Leasehold/Deed of Trust Mortgage executed by Sybra, Inc. in favor of Atherton Capital Incorporated (incorporated by reference to Exhibit 10.06 to the Company's Quarterly Report on Form 10-Q dated March 31, 1997) 10.8 Form of Security Agreement executed by Sybra, Inc. in favor of Atherton Capital Incorporated (incorporated by reference to Exhibit 10.07 to the Company's Quarterly Report on Form 10-Q dated March 31, 1997) 10.9 Form of Master Lease by and between Sybra, Inc. and U.S. Restaurant Properties Operating L.P. (incorporated by reference to Exhibit 10.08 to the Company's Quarterly Report on Form 10-Q dated March 31, 1997) 10.10 Employment Agreement, dated as of April 30, 1997, by and between I.C.H. Corporation and Charles N. Hyslop (incorporated by reference to Exhibit 10.09 to the Company's Quarterly Report on Form 10-Q dated March 31, 1997) 10.11 Employment Agreement, dated as of April 30, 1978, by and between I.C.H. Cooperation and Donald P. Zima (incorporated by reference to Exhibit 10.10 to the Company's Quarterly Report on Form 10-Q dated March 31, 1997) 10.12 Second Amended and Restated Employment Agreement, effective as of September 1, 1998, by and between James R. Arabia and I.C.H. Corporation (incorporated by reference to Exhibit 10.12 to the Company's Annual Report on Form 10-K dated March 29, 1999) 10.13 I.C.H. Corporation Amended and Restated 1997 Employee Stock Option Plan (incorporated by reference to Exhibit 10.24 to the Company's Quarterly Report on Form 10-Q date June 30, 1998) 10.14 I.C.H. Corporation 1997 Director Stock Option Plan (incorporated by reference to Exhibit 10.14 to the Company's Annual Report on Form 10-K dated December 31, 1997) 10.15 Commitment Letter, dated July 25, 1997, between FFCA Acquisition Corporation and Sybra, Inc. (incorporated by reference to Exhibit 10.15 to the Company's Annual Report on Form 10-K dated December 31, 1997) 10.16 Form of Loan Agreement between FFCA Acquisition Corporation and Sybra, Inc. (incorporated by reference to Exhibit 10.16 to the Company's Annual Report on Form 10-K dated December 31, 1997) 10.17 Form of Promissory Note from Sybra, Inc. to FFCA Acquisition Corporation (incorporated by reference to Exhibit 10.17 to the Company's Annual Report on Form 10-K dated December 31, 1997) 10.18 Form of Mortgage between Sybra, Inc. and FFCA Acquisition Corporation (incorporated by reference to Exhibit 10.18 to the Company's Annual Report on Form 10-K dated December 31, 1997) 10.19 Asset Purchase Agreement, dated as of November 26, 1997, among Sybra of California, Inc., I.C.H. Corporation, William Brusslan, 294, Inc., American Food Concepts, Inc. and WEB Acquisition Company L.L.C. (incorporated by reference to Exhibit 10.19 to the Company's Annual Report on Form 10-K dated December 31, 1997) 10.20 Development Agreement, dated as of October 30, 1997, between Arby's, Inc. and Sybra, Inc. (incorporated by reference to Exhibit 10.20 to the Company's Annual Report on Form 10-K dated December 31, 1997)
EXHIBIT PAGE NUMBER DESCRIPTION NUMBER - --------------------- ------------------------------------------------------------ -------- 10.21 Asset Purchase Agreement, dated as of February 18, 1998, between Sybra, Inc. and RGS Enterprises of New Jersey, Inc. (incorporated by reference to Exhibit 10.21 to the Company's Annual Report on Form 10-K dated March 31, 1998) 10.22 Asset Purchase Agreement, dated as of February 19, 1998, between Sybra, Inc., Wolverine Food Systems, Inc. and Wolverine Properties, G.P. (incorporated by reference to Exhibit 10.22 to the Company's Annual Report on Form 10-K dated March 31, 1998) 10.23 Asset Purchase Agreement, dated as of March 11, 1998, among Sybra, Inc., Richard T. Morath, Toni F. Morath and certain affiliated Subchapter S Corporations (incorporated by reference to Exhibit 10.23 to the Company's Quarterly Report on Form 10-Q dated June 30, 1998) 10.24 Asset Purchase Agreement, dated as of August 14, 1998, among Lyon's of California, Inc., ICH Corporation and Lyon's Restaurants, Inc.(incorporated by reference to Exhibit 10.25 to the Company's Quarterly Report on Form 10-Q dated September 30, 1998) 10.25 Amendment to Asset Purchase Agreement, dated as of October 6, 1998, among Lyon's of California, Inc., ICH Corporation and Lyon's Restaurants, Inc.(incorporated by reference to Exhibit 10.26 to the Company's Quarterly Report on Form 10-Q dated September 30, 1998) 10.26 Commitment Letter dated February 17, 1999, between FFCA Acquisition Corporation and Sybra, Inc. (incorporated by reference to Exhibit 10.26 to the Company's Annual Report on Form 10-K dated March 31, 1999). 10.27 Loan Commitment Letter, dated July 8, 1999, between Fleet Franchise Finance and I.C.H. Corporation (incorporated by reference to Exhibit 10.27 to the Company's Quarterly Report on Form 10-Q dated August 13, 1999) 10.28 Employment Agreement, dated as of September 1, 1999, between I.C.H. Corporation and John A. Bicks 10.29 Employment Agreement, dated as of September 1, 1999, between I.C.H. Corporation and Robert H. Drechsler 10.30 Third Amended and Restated Employment Agreement, dated as of September 1, 1999, between I.C.H. Corporation and James R. Arabia 10.31 Commitment Letter dated February 9, 2000 between Newcourt Commercial Finance Corporation and Sybra, Inc. 10.32 Loan Agreement, dated as of December 29, 1999, between Sybra, Inc. and Finova Capital Corporation. 10.33 Form of Loan and Security Agreement, dated as of December 22, 1999, between Sybra, Inc. and U.S. Restaurant Lending Group I, L.P. 10.34 Form of Loan Agreement, dated as of December 21, 1999, between CNL APF Partners, LP and Sybra, Inc. 27.1 Financial Data Schedule EX-1 2
EX-10.28 2 EXHIBIT 10.28 Exhibit 10.28 I.C.H. CORPORATION EMPLOYMENT AGREEMENT JOHN A. BICKS THIS EMPLOYMENT AGREEMENT ("Agreement") is effective as of the 1st day of September, 1999, by and between I.C.H. Corporation ("ICH"), a Delaware corporation with offices at 9255 Towne Centre Drive, Suite 600, San Diego, CA 92121, and its subsidiaries, Sybra, Inc., a Michigan corporation ("Sybra"), Lyon's of California, Inc., a California corporation ("Lyons"), and Care Financial Corp., a Delaware corporation ("Care", and collectively, with ICH, Sybra and Lyons, the "Companies"), each with offices at c/o I.C.H. Corporation, 9255 Towne Centre Drive, Suite 600, San Diego, California 92121 and John A. Bicks, an individual residing at 1070 Park Avenue, New York, New York 10128 (the "Executive"). WHEREAS, Executive has served as Executive Vice President and General Counsel and through such service, has acquired special and unique knowledge, abilities and expertise; and WHEREAS, ICH desires to continue to employ Executive as its Executive Vice President and General Counsel and to have Executive continue to serve as a member of the Board of Directors of ICH (the "ICH Board") and the other Companies desire to employ Executive in similar capacities and the Companies desire to employ Executive in such capacities with any future subsidiaries of the Companies and wish to be assured of his continued services on the terms and conditions hereinafter set forth; and WHEREAS, Executive desires to continue to be employed by ICH as its Executive Vice President and General Counsel and to serve as a member of the ICH Board, and by the other Companies and any future subsidiaries of the Companies in similar capacities and to perform and to serve the Companies on the terms and conditions hereinafter set forth. NOW, THEREFORE, in consideration of the premises and of the mutual promises, agreements and covenants set forth herein, the parties hereto agree as follows: 1. EMPLOYMENT. (a) DUTIES. The Companies hereby agree to continue to employ Executive, and Executive hereby accepts such continued employment, as the Executive Vice President and General Counsel of ICH and agrees to serve as member of the ICH Board and as Executive Vice President and General Counsel and member of the Board of Directors of each of the other Companies. In his role as Executive Vice President and General Counsel of ICH and the other Companies, Executive shall be responsible for such duties and functions as may be directed from time to time by ICH's Chief Executive Officer and each other respective Chief Executive Officer, provided, that such duties and functions are reasonable and customary for an Executive Vice President and General Counsel. Executive agrees that he shall, during the term of this Agreement, except during reasonable vacation periods, periods of illness and the like, devote substantially all his business time, attention and ability to his duties and responsibilities hereunder; PROVIDED, HOWEVER, that nothing contained herein shall be construed to prohibit or restrict Executive from (i) serving as a director of any corporation, with or without compensation therefor; (ii) serving in various capacities in community, civic, religious or charitable organizations or trade associations or leagues; or (iii) attending to personal business; PROVIDED, HOWEVER, that no such service or activity permitted in this Section 1(a) shall materially interfere with the performance by Executive of his duties hereunder. Executive shall report directly to ICH's Chief Executive Officer and each other respective Chief Executive Officer. (b) TERM. (i) Except as otherwise provided in this Agreement to the contrary, the terms and conditions of this Agreement shall be and remain in effect during the period of employment (the "Employment Period") established under this Section 1(b). The initial Employment Period shall be for a term commencing on the date of this Agreement and ending on the third anniversary of the date of this Agreement; provided, however, that commencing on the first day after the date of this Agreement and on each day thereafter, the Employment Period shall be extended for one additional day so that a constant three (3) year Employment Period shall be in effect, unless (A) ICH (on its behalf and on behalf of the other Companies) or Executive elects not to extend the term of this Agreement by giving written notice to the other party in accordance with Sections 4(b) and 11 hereof, in which case, the term of this Agreement shall become fixed and shall end on the third anniversary of the date of such written notice ("Notice of Non-Renewal"), or (B) Executive's employment terminates hereunder. (ii) Notwithstanding anything contained herein to the contrary, (A) Executive's employment with the Companies may be terminated by ICH (on its behalf and on behalf of the other Companies) or Executive during the Employment Period, subject to the terms and conditions of this Agreement; and (B) nothing in this Agreement shall mandate or prohibit a continuation of Executive's employment following the expiration of the Employment Period upon such terms and conditions as ICH's Chief Executive Officer and Executive may mutually agree. (iii) If Executive's employment with the Companies is terminated, for purposes of this Agreement, the term "Unexpired Employment Period" shall mean the period commencing on the date of such termination and ending on the last day of the Employment Period. -2- (c) LOCATION/TRAVEL. Executive shall work at ICH's offices in New York, New York. Executive shall not be required to relocate from the New York City area during the Employment Period. 2. COMPENSATION. Subject to the provisions of Section 7 hereof, the Companies shall each be responsible and have joint and several liability for all compensation and benefits owed to Executive under this Agreement. A reference to an ICH plan, program, obligation or commitment shall also be considered an obligation or commitment of each of the other Companies but shall not result in duplicate benefits being paid or provided to Executive. (a) SALARY. Executive shall receive an annual base salary of Two Hundred Fifty Thousand Dollars ($250,000). The annual base salary payable to Executive pursuant to this Section 2(a), which may be increased but not decreased by ICH's Chief Executive Officer, shall be hereinafter referred to as the "Annual Base Salary" (it being understood that if and when such Annual Base Salary is increased, it may not be subsequently decreased below such new Annual Base Salary). (b) ANNUAL BONUS. (i) Executive shall be entitled to receive an annual cash bonus, hereinafter referred to as the "Annual Bonus," based upon the performance of ICH and Executive as determined by ICH's Chief Executive Officer in consultation with the ICH Board. The target Annual Bonus payable to Executive for each fiscal year shall be an amount equal to at least forty percent (40%) of Executive's Annual Base Salary for such year. (ii) Executive's Annual Bonus shall be paid to Executive no later than forty five (45) days following the end of the period for which the bonus is being paid. (c) REIMBURSEMENT OF BUSINESS EXPENSES. ICH shall reimburse Executive for all reasonable out-of-pocket expenses incurred by him during the Employment Period, including, but not limited to, all reasonable travel and entertainment expenses. Executive may only obtain reimbursement under this Section 2(c) upon submission of such receipts and records as may be required under the reimbursement policies established by ICH. (d) ADDITIONAL BENEFITS; GENERAL RIGHTS. During the Employment Period, Executive shall be entitled to: (i) participate in all employee stock option, pension, savings, and other similar benefit plans of ICH and/or such other plans or programs of the other Companies as ICH may designate from time to time; -3- (ii) participate in all welfare plans established by ICH such as life insurance, medical, dental, disability, and business travel accident plans and programs and/or such other plan or programs of the other Companies as ICH may designate from time to time. In addition, ICH shall reimburse Executive for (i) any premium costs Executive may incur with respect to the health insurance plan currently maintained by ICH (and which may be maintained by ICH from time to time) in which Executive (and his spouse and children) participates and (ii) for all other medical and dental expenses not covered by any medical or dental plan in which Executive (and his spouse and children) participates, including, without limitation, deductibles and out of pocket expenses; (iii) a minimum Four Hundred dollars ($400) per month parking/transportation allowance; (iv) four (4) weeks paid vacation per year; and (v) any other benefits provided by ICH to its executive officers. (e) WITHHOLDING. ICH and/or the other Companies, as the case may be, shall deduct from all compensation paid to Executive under this Agreement, any Federal, State or city withholding taxes, social security contributions and any other amounts which may be required to be deducted or withheld by the Companies pursuant to Federal, State or city laws, rules or regulations. 3. OPTION GRANT. (a) (i) Executive has received options issued pursuant to ICH's 1997 Employee Stock Option Plan, as amended (the "Stock Option Plan") as follows (collectively, the "1998-1999 Options"):
- ------------------------- ------------------------ ------------------------ ------------------------------------------ GRANT DATE NUMBER OF SHARES EXERCISE PRICE/SHARE VESTING GRANTED ($) - ------------------------- ------------------------ ------------------------ ------------------------------------------ March 12, 1998 60,000 3.4375 25% installments on March 12, 1998, January 1, 1999, January 1, 2000 and January 1, 2001 - ------------------------- ------------------------ ------------------------ ------------------------------------------ September 1, 1998 10,000 4.00 25% installments on September 1, 1998, January 1, 1999, January 1, 2000 and January 1, 2001 - ------------------------- ------------------------ ------------------------ ------------------------------------------ February 15, 1999 10,000 5.625 25% installments on February 15, 1999, January 1, 2000, January 1, 2001 and January 1, 2002 - ------------------------- ------------------------ ------------------------ ------------------------------------------
-4- - ------------------------- ------------------------ ------------------------ ------------------------------------------ May 7, 1999 35,000 12.25 25% installments on May 7, 1999, January 1, 2000, January 1, 2001 and January 1, 2002 - ------------------------- ------------------------ ------------------------ ------------------------------------------
The terms and conditions of each option grant set forth above are memorialized in written option grant agreements between ICH and Executive dated the dates thereof. Such 1998-1999 Options plus any additional options granted to Executive in the future (collectively referred to herein as the "Options") shall expire on the tenth anniversary of each respective grant date. (ii) The Options were and are intended to qualify as incentive stock options within the meaning of Section 422(b) of the Internal Revenue Code of 1986, as amended (the "Code"); PROVIDED, HOWEVER, that to the extent that any Options do not satisfy the requirements of Section 422(b) of the Code either at the time of grant or before or after exercise, including, without limitation, upon disposition of the underlying stock acquired by the exercise of Options prior to the requisite holding period, they shall be treated as non-qualified stock options. (b) In the event that Executive incurs taxable income as a result of any or all of his Options being treated as non-qualified options (I.E. Options have been exercised and the requirements of Section 422(b) of the Code have not been or are no longer met) (the "Taxable Event") as soon as practicable after a determination by ICH and Executive that the Options are non-qualified and a Taxable Event has occurred, ICH shall make an additional single sum cash payment to Executive in an amount equal to thirty percent (30%) of Executive's taxable income resulting from the Taxable Event. Such payment shall only be made in the event Executive's employment with ICH has not terminated for Cause within the meaning of Section 4(a)(i) of this Agreement. (c) Notwithstanding any provisions in an Option grant agreement to the contrary, upon termination of his employment for any reason, Executive shall have the right to exercise his Options at any time through the tenth anniversary of the grant date of such Options. Executive understands that the effect of exercising any incentive stock options on a day that is more than ninety (90) days after the date of termination of employment (or, in the case of a termination of employment on account of death or disability, on a day that is more than one (1) year after the date of such termination) shall be to cause such incentive stock options to be treated as non-qualified stock options. (d) In the event ICH issues additional shares of Common Stock and/or any class of stock convertible into Common Stock and/or any other security convertible into Common Stock (including, without limitation, options and warrants which may be granted to individuals or entities other than employees and directors but excluding (i) the exercise of any currently outstanding options or warrants, (ii) any future grants of options, but only to the extent such grants relate to shares of Common Stock currently -5- authorized to be granted under the Stock Option Plan or the ICH 1997 Director Stock Option Plan (collectively, the "Option Plans") (I.E. any options that may be granted by virtue of an increase in the number of shares of Common Stock currently authorized under the Option Plans shall not be excluded) and (iii) the exercise of any of such options) at any time during the Employment Period and prior to Executive's termination of employment and in connection with a public or private equity offering or in connection with an acquisition (the "Issuance"), Executive shall be granted additional stock options and/or provided with a loan to purchase Common Stock, as determined by ICH's Chief Executive Officer, in an amount equal to three and one-half percent (3.5%) of the number of shares issued pursuant to such Issuance. The foregoing notwithstanding, in the event ICH repurchases any shares of Common Stock, stock convertible into shares of Common Stock and/or any other security convertible into shares of Common Stock, the anti-dilution provisions set forth in this Section 3(d) shall not apply until an equal number of such shares of Common Stock, stock convertible into shares of Common Stock and/or other securities convertible into shares of Common Stock are first reissued by ICH. In addition, equitable adjustments shall be made to such anti-dilution provisions in the event ICH effectuates a stock split, reverse stock split, stock dividend or other recapitalization transaction. (e) To the extent any Options are not vested upon a "Change in Control" of ICH, such unvested Options shall become fully vested and immediately exercisable upon a "Change in Control" of ICH (whether or not such Change in Control is approved of by the Continuing Directors of ICH (as defined in the Rights Agreement between ICH and Mid-America Bank of Louisville and Trust Company dated as of February 19, 1997 and amended as of February 10, 1998)). A "Change in Control" of ICH shall be deemed to have occurred upon the happening of any of the following events: (i) approval by the ICH Board or stockholders of ICH of a transaction that would result in the reorganization, merger, or consolidation of ICH with one or more other "Persons" within the meaning of Sections 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934 ("Exchange Act"), other than a transaction following which: (A) at least seventy-one percent (71%) of the equity ownership interests of the entity resulting from such transaction are beneficially owned (within the meaning of Rule 13d-3 promulgated under the Exchange Act) in substantially the same relative proportions by Persons who, immediately prior to such transaction, beneficially owned (within the meaning of Rule 13d-3 promulgated under the Exchange Act) at least seventy-one percent (71%) of the outstanding equity ownership interests in ICH; and -6- (B) at least seventy-one percent (71%) of the securities entitled to vote generally in the election of directors of the entity resulting from such transaction are beneficially owned (within the meaning of Rule 13d-3 promulgated under the Exchange Act) in substantially the same relative proportions by Persons who, immediately prior to such transaction, beneficially owned (within the meaning of Rule 13d-3 promulgated under the Exchange Act) at least seventy-one percent (71%) of the securities entitled to vote generally in the election of directors of ICH; (ii) the acquisition of all or substantially all of the assets of ICH; (iii) a complete liquidation or dissolution of ICH, or approval by the stockholders of ICH of a plan for such liquidation or dissolution; (iv) the occurrence of any event in the nature of an event described in this Section 3(e) if, immediately following such event, at least seventy-five percent (75%) of the members of the ICH Board do not belong to any of the following groups: (A) individuals who were members of the ICH Board on the date of this Agreement; or (B) individuals who first became members of the ICH Board after the date of this Agreement either: (I) upon election to serve as a member of the ICH Board by affirmative vote of three-quarters of the members of such ICH Board, or of a nominating committee thereof, in office at the time of such first election; or (II) upon election by the stockholders of ICH to serve as a member of the ICH Board, but only if nominated for election by affirmative vote of three-quarters of the members of the ICH Board, or of a nominating committee thereof, in office at the time of such first nomination; provided, however, that such individual's election or nomination did not result from an actual or threatened election contest (within the meaning of Rule 14a-11 of Regulation 14A promulgated under the Exchange Act) or other actual or threatened solicitation of proxies or consents (within the meaning of Rule 14a-11 of Regulation 14A promulgated under -7- the Exchange Act) other than by or on behalf of the ICH Board. (v) in a single transaction or a series of related transactions, one or more other Persons, other than an employee benefit plan sponsored by ICH, becomes the "beneficial owner," as such term is used in Section 13 of the Exchange Act, of shares of Common Stock of ICH (including newly issued shares) which equal thirty percent (30%) or more of the issued and outstanding shares of Common Stock of ICH prior to such person or persons becoming such a "beneficial owner." (f) In the event of a conflict between the terms of any Option grant agreement or the Stock Option Plan and this Agreement, the terms of this Agreement shall control. 4. TERMINATION OF EMPLOYMENT; EVENTS OF TERMINATION. (a) Executive's employment hereunder may be terminated during the Employment Period under the following circumstances: (i) CAUSE. Executive's employment hereunder shall terminate for "Cause" ten days after the date ICH shall have given Executive notice of the termination of his employment for "Cause". For purposes of this Agreement, "Cause" shall mean (A) the commission by Executive of fraud, embezzlement or an act of serious, criminal moral turpitude against any of the Companies; (B) the commission of an act by Executive constituting material financial dishonesty against any of the Companies; or (C) Executive's gross neglect in carrying out his material duties and responsibilities under this Agreement which has a material adverse effect on any of the Companies and which is not cured within thirty (30) days subsequent to written notice from ICH to Executive of such breach. (ii) DEATH. Executive's employment hereunder shall terminate upon his death. (iii) DISABILITY. Executive's employment hereunder shall terminate ten days after the date on which ICH shall have given Executive notice of the termination of his employment by reason of his physical or mental incapacity or disability on a permanent basis. For purposes of this Agreement, Executive shall be deemed to be physically or mentally incapacitated or disabled on a permanent basis if ICH's Chief Executive Officer determines he is unable to -8- perform his duties hereunder for a period exceeding six (6) months in any twelve (12) month period. (iv) GOOD REASON. Executive shall have the right to terminate his employment for "Good Reason." This Agreement shall terminate effective immediately on the date Executive shall have given ICH's Chief Executive Officer notice of the termination of his employment with ICH for "Good Reason." For purposes of this Agreement, "Good Reason" shall mean (A) any material and substantial breach of this Agreement by any of the Companies, (B) a diminution of Executive's responsibilities, loss of title or position in which Executive currently serves, failure to reelect Executive to the ICH Board or the Board of Directors of any of the other Companies, but not including the loss of responsibilities and title associated with any of the Companies other than ICH upon the sale of the stock or substantially all of the assets of such other Company, (C) a Change in Control occurs and Executive voluntarily quits at any time within the six (6) month period on or immediately following the Change in Control, (D) ICH issues a Notice of Non-Renewal to Executive, (E) a reduction in Executive's Annual Base Salary or a material reduction in other benefits (except for bonuses or similar discretionary payments) as in effect at the time in question, or any other failure by the Companies to comply with Sections 2 and 3, hereof, (F) the relocation of Executive's office outside the New York City area, or (G) this Agreement is not assumed by a successor to ICH. (v) WITHOUT CAUSE. ICH shall have the right to terminate Executive's employment hereunder without Cause subject to the terms and conditions of this Agreement. In such event, this Agreement shall terminate, effective immediately upon the date on which ICH shall have given Executive notice of the termination of his employment for reasons other than for Cause or due to Executive's Disability. (vi) WITHOUT GOOD REASON. Executive shall have the right to terminate his employment hereunder without Good Reason subject to the terms and conditions of this Agreement. This Agreement shall terminate, effective immediately upon the date as of which Executive shall have given ICH's Chief Executive Officer notice of the termination of his employment without Good Reason. (b) NOTICE OF TERMINATION. Any termination of Executive's employment by ICH or any such termination by Executive (other than on account of death) shall be communicated by written Notice of Termination to the other party hereto. For purposes of this Agreement, a "Notice of Termination" shall mean a notice which shall indicate the -9- specific termination provision in this Agreement relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of Executive's employment under the provision so indicated. In the event of the termination of Executive's employment on account of death, written Notice of Termination shall be deemed to have been provided on the date of death. 5. PAYMENTS UPON TERMINATION. (a) WITHOUT CAUSE, FOR GOOD REASON, DEATH OR DISABILITY. If Executive's employment is terminated by ICH without Cause (pursuant to Section 4(a)(v)), by Executive for Good Reason (pursuant to Section 4(a)(iv)), due to death of Executive (pursuant to Section 4(a)(ii)), or by ICH due to Executive's Disability (pursuant to Section 4(a)(iii)), Executive, or in the case of Executive's Death or Disability, Executive's legal representative estate or beneficiaries, as the case may be, shall be entitled to receive from ICH (i) a lump sum payment in an aggregate amount equal to three (3) times the sum of (A) then current Annual Base Salary and (B) the average of all bonuses, including, without limitation, Executive's Annual Bonus, earned by or paid to Executive during the two (2) immediately preceding full fiscal years of employment ending prior to the date of termination (the "Severance Payment"); (ii) any bonuses which have been earned but not been paid prior to such termination ("Prior Bonus Payment") and (iii) reimbursement of expenses incurred prior to date of termination (the "Expense Reimbursement"). The aforesaid amounts shall be payable in cash without discount for early payment, at the option of Executive, either in full immediately upon such termination or monthly over the Unexpired Employment Period (the "Payment Election"). In addition, (x) Executive's fringe benefits specified in Section 2 shall continue through the end of the Unexpired Employment Period, provided, however, that such benefits which may not continue pursuant to law, such as participation in a qualified pension plan, shall terminate on the date of termination and further provided, that Executive shall be entitled to COBRA continuation coverage and to continue the applicable life insurance policies thereafter, at his cost ("Fringe Benefit Continuation); and (y) all outstanding Options which are not vested as of the date of termination, if any, shall upon such date of termination vest and become immediately exercisable in accordance with the terms of the Option grant agreements and this Agreement ("Vested Options"). In the event Executive terminates his employment within the six month period on or immediately following a Change in Control which constitutes a termination for Good Reason under this Agreement pursuant to Section 4(a)(iv)(C), Executive shall be entitled to receive from ICH an additional lump sum cash payment in an amount sufficient to pay any excise taxes which may be imposed on Executive pursuant to Section 4999 of the Code (or any successor provisions) plus any excise or income tax liability on the gross up payment itself so that on a net after tax basis Executive shall be in the same position as if the excise tax under Section 4999 of the Code (or any successor provisions) had not been imposed. -10- In the event Executive is terminated by ICH without Cause or due to Executive's Disability, or Executive terminates his employment with ICH for Good Reason, Executive shall have no duty to mitigate the amount of the payment received pursuant to this Section 5(a), it being understood that Executive's acceptance of other employment shall not reduce ICH's or the other Companies' obligations hereunder. (b) TERMINATION WITH CAUSE OR VOLUNTARY QUIT. If ICH terminates Executive's employment for Cause (pursuant to Section 4(a)(i)) or in the event Executive voluntarily terminates his employment without Good Reason (pursuant to Section 4(a)(vi)) ("Voluntary Quit"), Executive shall be entitled to his Annual Base Salary through the date of the termination of such employment and Executive shall be entitled to any bonuses which have been earned but not paid prior to such termination. Executive shall not be entitled to any other bonuses. Executive's additional benefits specified in Section 2 shall terminate at the time of such termination. Additionally, Executive shall be entitled to all Options that have vested as of the date of such termination. All outstanding Options, which have not vested, if any, as of date of such termination shall be forfeited, and if the termination is for Cause, no further payments pursuant to Section 3(b) shall be made to Executive. (c) TERMINATION BY ICH UPON CHANGE IN CONTROL. If ICH terminates Executive's employment for any reason in connection with a Change in Control which is not approved by the Continuing Directors of ICH, Executive shall receive from ICH in one lump sum, payable on the consummation of the Change in Control an amount equal to the Severance Payment, the Prior Bonus Payment and the Expense Reimbursement. The aforesaid amount shall be payable in cash without discount for early payment on the consummation of such Change in Control. Executive shall be entitled to his Vested Options and Executive (and his spouse and children) shall be entitled to Fringe Benefit Continuation. In addition to the aforesaid cash payment, ICH shall pay Executive, on the consummation of the Change in Control, in one lump sum, a cash payment in an amount sufficient to pay any excise taxes which may be imposed on Executive pursuant to Section 4999 of the Code (or any successor provisions) plus any excise or income tax liability on the gross up payment itself so that on a net after tax basis Executive shall be the same as if the excise tax under Section 4999 of the Code (or any successor provisions) had not been imposed. In the event Executive is terminated by ICH in connection with a Change in Control which is not approved by the Continuing Directors of ICH, Executive shall have no duty to mitigate the amount of the payment received pursuant to this Section 5(c), it being understood that Executive's acceptance of other employment shall not reduce the Companies obligations hereunder. (d) VESTING TRUST. At Executive's option, the Companies shall establish a vesting trust into which the Companies shall, to the extent economically feasible, contribute and/or pledge assets to secure their severance obligations to Executive under this Agreement. -11- 6. SUCCESSORS AND ASSIGNS. (a) This Agreement shall be binding upon and inure to the benefit of ICH, its successors and assigns. ICH shall require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all its assets to expressly assume and agree to perform this Agreement in the same manner and to the same extent ICH would be required to perform if no such succession had taken place. (b) Executive agrees that this Agreement is personal to him and may not be assigned by him other than by the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by Executive's legal representative. 7. JOINT AND SEVERAL LIABILITY. (a) NO DUPLICATION OF PAYMENTS. The Companies shall be jointly and severally liable for any amounts payable to Executive under this Agreement. Any amounts payable to Executive shall be paid in the first instance by ICH, and to the extent not paid by ICH shall be paid by the other Companies. In no event shall any amount payable pursuant to this Agreement be paid by ICH and any other Company, or any two or more Companies and Executive shall not be entitled to receive duplicate benefits or payments under any of the provisions of this Agreement. (b) NEW SUBSIDIARIES. Any subsidiary of the Companies that is formed or acquired on or after the date hereof shall be required to become a signatory to this Agreement and shall become jointly and severally liable with the Companies for the obligations hereunder. (c) SALE OF SUBSIDIARIES. Upon the sale of the stock or substantially all of the assets of any subsidiary of the Companies, which is approved by the ICH Board, such subsidiary shall be automatically released from its obligations hereunder and shall not be considered as having any continuing liability for the obligations hereunder, and Executive shall be released from his obligations to such subsidiary hereunder. 8. GOVERNING LAW. This Agreement shall be construed in accordance with, and its validity, interpretation, performance and enforcement and shall be governed by, the laws of the State of New York without regard to conflicts of law principles thereof. Each of the parties hereto hereby (a) irrevocably and unconditionally submits to the non-exclusive jurisdiction of any New York State or Federal court sitting in New York County, New York in any action or proceeding arising out of or relating to this Agreement, (b) irrevocably waives, to the fullest extent it may effectively do so, the defense of an inconvenient forum to the maintenance of such action or proceeding, and (c) irrevocably and unconditionally consents to the service of any and all process in any such action or proceeding by the mailing of copies of such process by certified mail to such party and its counsel at their respective addresses specified in Section 11 hereof. -12- 9. ENTIRE AGREEMENT. (a) This instrument contains the entire understanding and agreement among the parties relating to the subject matter hereof, except as otherwise referred to herein, and supersedes all other prior agreements and undertakings, both written and oral, among the parties with respect to the subject matter hereof. (b) Neither this Agreement nor any provisions hereof may be waived or modified, except by an agreement in writing signed by the party(ies) against whom enforcement of any waiver or modification is sought. 10. PROVISIONS SEVERABLE. In case any one or more of the provisions of this Agreement shall be invalid, illegal or unenforceable in any respect, or to any extent, the validity, legality and enforceability of the remaining provisions contained herein shall not in any way be affected or impaired thereby. 11. NOTICES. Any notice required or permitted to be given under the provisions of this Agreement shall be in writing and delivered by courier or personal delivery, facsimile transmission (to be followed promptly by written confirmation mailed by certified mail as provided below) or mailed by certified mail, return receipt requested, postage prepaid, addressed as follows: If to ICH or any of the other Companies: ICH Corporation 9255 Towne Centre Drive Suite 600 San Diego, California 92121 Attention: Chief Executive Officer Facsimile Number: (858) 638-2083 With a copy to: Christopher J. Sues, Esq. c/o Pryor Cashman Sherman & Flynn LLP 410 Park Avenue New York, New York 10022 Facsimile Number: (212) 326-0806 If to Executive: John A. Bicks, Esq. 1070 Park Avenue New York, New York 10128 Facsimile Number: (212) 876-2908 -13- If delivered personally, by courier or facsimile transmission (confirmed as aforesaid and provided written confirmation and receipt is obtained by the sender), the date on which a notice is delivered or transmitted shall be the date on which such delivery is made. Notices given by mail as aforesaid shall be effective and deemed received upon the date of actual receipt or upon the third business day subsequent to deposit in the U.S. mail, whichever is earlier. Either party hereto may change its or his address specified for notices herein by designating a new address by notice in accordance with this Section 11. 12. COUNTERPARTS. This Agreement may be executed in separate counterparts, each of which is deemed to be an original and both of which taken together shall constitute one and the same agreement. THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK. -14- IN WITNESS WHEREOF, the Companies and Executive have executed this Agreement as of the date first above written. EXECUTIVE ICH CORPORATION /s/ /s/ - ------------------------------- ------------------------------- JOHN A. BICKS NAME: James R. Arabia TITLE: Chairman and Chief Executive Officer SYBRA, INC. /s/ ------------------------------- NAME: James R. Arabia TITLE: Chairman and Chief Executive Officer LYON'S OF CALIFORNIA, INC. /s/ ------------------------------- NAME: James R. Arabia TITLE: Chairman and Chief Executive Officer CARE FINANCIAL CORP. /s/ ------------------------------- NAME: James R. Arabia TITLE: Chairman and Chief Executive Officer -15- EX-10.29 3 EXHIBIT 10.29 Exhibit 10.29 I.C.H. CORPORATION EMPLOYMENT AGREEMENT ROBERT H. DRECHSLER THIS EMPLOYMENT AGREEMENT ("Agreement") is effective as of the 1st day of September, 1999, by and between I.C.H. Corporation ("ICH"), a Delaware corporation with offices at 9255 Towne Centre Drive, Suite 600, San Diego, CA 92121, and its subsidiaries, Sybra, Inc., a Michigan corporation ("Sybra"), Lyon's of California, Inc., a California corporation ("Lyons"), and Care Financial Corp., a Delaware corporation ("Care", and collectively, with ICH, Sybra and Lyons, the "Companies"), each with offices at c/o I.C.H. Corporation, 9255 Towne Centre Drive, Suite 600, San Diego, California 92121 and Robert H. Drechsler, an individual residing at 15 Deer Run, Rye Brook, New York 10573 (the "Executive"). WHEREAS, Executive has served as Executive Vice President - Acquisitions & Capital Markets and Corporate Counsel and through such service, has acquired special and unique knowledge, abilities and expertise; and WHEREAS, ICH desires to continue to employ Executive as its Executive Vice President - Acquisitions & Capital Markets and Corporate Counsel and to have Executive continue to serve as a member of the Board of Directors of ICH (the "ICH Board") and the other Companies desire to employ Executive in similar capacities and the Companies desire to employ Executive in such capacities with any future subsidiaries of the Companies and wish to be assured of his continued services on the terms and conditions hereinafter set forth; and WHEREAS, Executive desires to continue to be employed by ICH as its Executive Vice President - Acquisitions & Capital Markets and Corporate Counsel and to serve as a member of the ICH Board, and by the other Companies and any future subsidiaries of the Companies in similar capacities and to perform and to serve the Companies on the terms and conditions hereinafter set forth. NOW, THEREFORE, in consideration of the premises and of the mutual promises, agreements and covenants set forth herein, the parties hereto agree as follows: 1. EMPLOYMENT. (a) DUTIES. The Companies hereby agree to continue to employ Executive, and Executive hereby accepts such continued employment, as the Executive Vice President - Acquisitions & Capital Markets and Corporate Counsel of ICH and agrees to serve as member of the ICH Board and as Executive Vice President - Acquisitions & Capital Markets and Corporate Counsel and member of the Board of Directors of each of the other Companies. In his role as Executive Vice President - Acquisitions & Capital Markets and Corporate Counsel of ICH and the other Companies, Executive shall be responsible for such duties and functions as may be directed from time to time by ICH's Chief Executive Officer and each other respective Chief Executive Officer, provided, that such duties and functions are reasonable and customary for an Executive Vice President - Acquisitions & Capital Markets and Corporate Counsel. Executive agrees that he shall, during the term of this Agreement, except during reasonable vacation periods, periods of illness and the like, devote substantially all his business time, attention and ability to his duties and responsibilities hereunder; PROVIDED, HOWEVER, that nothing contained herein shall be construed to prohibit or restrict Executive from (i) serving as a director of any corporation, with or without compensation therefor; (ii) serving in various capacities in community, civic, religious or charitable organizations or trade associations or leagues; or (iii) attending to personal business; PROVIDED, HOWEVER, that no such service or activity permitted in this Section 1(a) shall materially interfere with the performance by Executive of his duties hereunder. Executive shall report directly to ICH's Chief Executive Officer and each other respective Chief Executive Officer. (b) TERM. (i) Except as otherwise provided in this Agreement to the contrary, the terms and conditions of this Agreement shall be and remain in effect during the period of employment (the "Employment Period") established under this Section 1(b). The initial Employment Period shall be for a term commencing on the date of this Agreement and ending on the third anniversary of the date of this Agreement; provided, however, that commencing on the first day after the date of this Agreement and on each day thereafter, the Employment Period shall be extended for one additional day so that a constant three (3) year Employment Period shall be in effect, unless (A) ICH (on its behalf and on behalf of the other Companies) or Executive elects not to extend the term of this Agreement by giving written notice to the other party in accordance with Sections 4(b) and 11 hereof, in which case, the term of this Agreement shall become fixed and shall end on the third anniversary of the date of such written notice ("Notice of Non-Renewal"), or (B) Executive's employment terminates hereunder. (ii) Notwithstanding anything contained herein to the contrary, (A) Executive's employment with the Companies may be terminated by ICH (on its behalf and on behalf of the other Companies) or Executive during the Employment Period, subject to the terms and conditions of this Agreement; and (B) nothing in this Agreement shall mandate or prohibit a continuation of Executive's employment following the expiration of the Employment Period upon such terms and conditions as ICH's Chief Executive Officer and Executive may mutually agree. (iii) If Executive's employment with the Companies is terminated, for purposes of this Agreement, the term "Unexpired Employment Period" shall mean the period commencing on the date of such termination and ending on the last day of the Employment Period. -2- (c) LOCATION/TRAVEL. Executive shall work at ICH's offices in New York, New York. Executive shall not be required to relocate from the New York City area during the Employment Period. 2. COMPENSATION. Subject to the provisions of Section 7 hereof, the Companies shall each be responsible and have joint and several liability for all compensation and benefits owed to Executive under this Agreement. A reference to an ICH plan, program, obligation or commitment shall also be considered an obligation or commitment of each of the other Companies but shall not result in duplicate benefits being paid or provided to Executive. (a) SALARY. Executive shall receive an annual base salary of Two Hundred Fifty Thousand Dollars ($250,000). The annual base salary payable to Executive pursuant to this Section 2(a), which may be increased but not decreased by ICH's Chief Executive Officer, shall be hereinafter referred to as the "Annual Base Salary" (it being understood that if and when such Annual Base Salary is increased, it may not be subsequently decreased below such new Annual Base Salary). (b) ANNUAL BONUS. (i) Executive shall be entitled to receive an annual cash bonus, hereinafter referred to as the "Annual Bonus," based upon the performance of ICH and Executive as determined by ICH's Chief Executive Officer in consultation with the ICH Board. The target Annual Bonus payable to Executive for each fiscal year shall be an amount equal to at least forty percent (40%) of Executive's Annual Base Salary for such year. (ii) Executive's Annual Bonus shall be paid to Executive no later than forty five (45) days following the end of the period for which the bonus is being paid. (c) REIMBURSEMENT OF BUSINESS EXPENSES. ICH shall reimburse Executive for all reasonable out-of-pocket expenses incurred by him during the Employment Period, including, but not limited to, all reasonable travel and entertainment expenses. Executive may only obtain reimbursement under this Section 2(c) upon submission of such receipts and records as may be required under the reimbursement policies established by ICH. (d) ADDITIONAL BENEFITS; GENERAL RIGHTS. During the Employment Period, Executive shall be entitled to: (i) participate in all employee stock option, pension, savings, and other similar benefit plans of ICH and/or such other plans or programs of the other Companies as ICH may designate from time to time; -3- (ii) participate in all welfare plans established by ICH such as life insurance, medical, dental, disability, and business travel accident plans and programs and/or such other plan or programs of the other Companies as ICH may designate from time to time. In addition, ICH shall reimburse Executive for (i) any premium costs Executive may incur with respect to the health insurance plan currently maintained by ICH (and which may be maintained by ICH from time to time) in which Executive (and his spouse and children) participates and (ii) for all other medical and dental expenses not covered by any medical or dental plan in which Executive (and his spouse and children) participates, including, without limitation, deductibles and out of pocket expenses; (iii) a minimum Four Hundred dollars ($400) per month parking/transportation allowance; (iv) four (4) weeks paid vacation per year; and (v) any other benefits provided by ICH to its executive officers. (e) ONE TIME CASH BONUS. ICH shall pay to Executive on January 1, 2000 a one time cash bonus in an amount equal to $35,004.38 in order that Executive can exercise 6,223 of the vested option shares granted to Executive on February 15, 1999. In addition to the aforesaid cash bonus payment, ICH shall pay Executive, on or prior to April 15th of the next following calendar year, a cash payment in an amount equal to thirty percent (30%) of Executive's taxable income resulting from the payment of the aforesaid cash bonus. (f) WITHHOLDING. ICH and/or the other Companies, as the case may be, shall deduct from all compensation paid to Executive under this Agreement, any Federal, State or city withholding taxes, social security contributions and any other amounts which may be required to be deducted or withheld by the Companies pursuant to Federal, State or city laws, rules or regulations. 3. OPTION GRANT. (a) (i) Executive has received options issued pursuant to ICH's 1997 Employee Stock Option Plan, as amended (the "Stock Option Plan") as follows -4- (collectively, the "1999 Options"):
GRANT DATE NUMBER OF SHARES EXERCISE PRICE/SHARE VESTING GRANTED ($) - ------------------------- ------------------------ ------------------------ ------------------------------------------ February 15, 1999 60,000 5.625 10,000 shares on February 15, 1999, 20,000 shares on each of January 1, 2000 and January 1, 2001 and 10,000 on January 1, 2002 - ------------------------- ------------------------ ------------------------ ------------------------------------------ May 7, 1999 35,000 12.25 25% installments on May 7, 1999, January 1, 2000, January 1, 2001 and January 1, 2002 - ------------------------- ------------------------ ------------------------ ------------------------------------------
The terms and conditions of each option grant set forth above are memorialized in written option grant agreements between ICH and Executive dated the dates thereof. Such 1999 Options plus any additional options granted to Executive in the future (collectively referred to herein as the "Options") shall expire on the tenth anniversary of each respective grant date. (ii) The Options were and are intended to qualify as incentive stock options within the meaning of Section 422(b) of the Internal Revenue Code of 1986, as amended (the "Code"); PROVIDED, HOWEVER, that to the extent that any Options do not satisfy the requirements of Section 422(b) of the Code either at the time of grant or before or after exercise, including, without limitation, upon disposition of the underlying stock acquired by the exercise of Options prior to the requisite holding period, they shall be treated as non-qualified stock options. (b) In the event that Executive incurs taxable income as a result of any or all of his Options being treated as non-qualified options (I.E. Options have been exercised and the requirements of Section 422(b) of the Code have not been or are no longer met) (the "Taxable Event") as soon as practicable after a determination by ICH and Executive that the Options are non-qualified and a Taxable Event has occurred, ICH shall make an additional single sum cash payment to Executive in an amount equal to thirty percent (30%) of Executive's taxable income resulting from the Taxable Event. Such payment shall only be made in the event Executive's employment with ICH has not terminated for Cause within the meaning of Section 4(a)(i) of this Agreement. (c) Notwithstanding any provisions in an Option grant agreement to the contrary, upon termination of his employment for any reason, Executive shall have the right to exercise his Options at any time through the tenth anniversary of the grant date of such Options. Executive understands that the effect of exercising any incentive stock options on a day that is more than ninety (90) days after the date of termination of employment (or, in the case of a termination of employment on account of death or -5- disability, on a day that is more than one (1) year after the date of such termination) shall be to cause such incentive stock options to be treated as non-qualified stock options. (d) In the event ICH issues additional shares of Common Stock and/or any class of stock convertible into Common Stock and/or any other security convertible into Common Stock (including, without limitation, options and warrants which may be granted to individuals or entities other than employees and directors but excluding (i) the exercise of any currently outstanding options or warrants, (ii) any future grants of options, but only to the extent such grants relate to shares of Common Stock currently authorized to be granted under the Stock Option Plan or the ICH 1997 Director Stock Option Plan (collectively, the "Option Plans") (I.E. any options that may be granted by virtue of an increase in the number of shares of Common Stock currently authorized under the Option Plans shall not be excluded) and (iii) the exercise of any of such options) at any time during the Employment Period and prior to Executive's termination of employment and in connection with a public or private equity offering or in connection with an acquisition (the "Issuance"), Executive shall be granted additional stock options and/or provided with a loan to purchase Common Stock, as determined by ICH's Chief Executive Officer, in an amount equal to three and one-half percent (3.5%) of the number of shares issued pursuant to such Issuance. The foregoing notwithstanding, in the event ICH repurchases any shares of Common Stock, stock convertible into shares of Common Stock and/or any other security convertible into shares of Common Stock, the anti-dilution provisions set forth in this Section 3(d) shall not apply until an equal number of such shares of Common Stock, stock convertible into shares of Common Stock and/or other securities convertible into shares of Common Stock are first reissued by ICH. In addition, equitable adjustments shall be made to such anti-dilution provisions in the event ICH effectuates a stock split, reverse stock split, stock dividend or other recapitalization transaction. (e) To the extent any Options are not vested upon a "Change in Control" of ICH, such unvested Options shall become fully vested and immediately exercisable upon a "Change in Control" of ICH (whether or not such Change in Control is approved of by the Continuing Directors of ICH (as defined in the Rights Agreement between ICH and Mid-America Bank of Louisville and Trust Company dated as of February 19, 1997 and amended as of February 10, 1998)). A "Change in Control" of ICH shall be deemed to have occurred upon the happening of any of the following events: (i) approval by the ICH Board or stockholders of ICH of a transaction that would result in the reorganization, merger, or consolidation of ICH with one or more other "Persons" within the meaning of Sections 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934 ("Exchange Act"), other than a transaction following which: -6- (A) at least seventy-one percent (71%) of the equity ownership interests of the entity resulting from such transaction are beneficially owned (within the meaning of Rule 13d-3 promulgated under the Exchange Act) in substantially the same relative proportions by Persons who, immediately prior to such transaction, beneficially owned (within the meaning of Rule 13d-3 promulgated under the Exchange Act) at least seventy-one percent (71%) of the outstanding equity ownership interests in ICH; and (B) at least seventy-one percent (71%) of the securities entitled to vote generally in the election of directors of the entity resulting from such transaction are beneficially owned (within the meaning of Rule 13d-3 promulgated under the Exchange Act) in substantially the same relative proportions by Persons who, immediately prior to such transaction, beneficially owned (within the meaning of Rule 13d-3 promulgated under the Exchange Act) at least seventy-one percent (71%) of the securities entitled to vote generally in the election of directors of ICH; (ii) the acquisition of all or substantially all of the assets of ICH; (iii) a complete liquidation or dissolution of ICH, or approval by the stockholders of ICH of a plan for such liquidation or; (iv) the occurrence of any event in the nature of an event described in this Section 3(e) if, immediately following such event, at least seventy-five percent (75%) of the members of the ICH Board do not belong to any of the following groups: (A) individuals who were members of the ICH Board on the date of this Agreement; or (B) individuals who first became members of the ICH Board after the date of this Agreement either: (I) upon election to serve as a member of the ICH Board by affirmative vote of three-quarters of the members of such ICH Board, or of a nominating committee thereof, in office at the time of such first election; or (II) upon election by the stockholders of ICH to serve as a member of the ICH Board, but only if nominated for election by affirmative vote of three-quarters of the -7- members of the ICH Board, or of a nominating committee thereof, in office at the time of such first nomination; provided, however, that such individual's election or nomination did not result from an actual or threatened election contest (within the meaning of Rule 14a-11 of Regulation 14A promulgated under the Exchange Act) or other actual or threatened solicitation of proxies or consents (within the meaning of Rule 14a-11 of Regulation 14A promulgated under the Exchange Act) other than by or on behalf of the ICH Board. (v) in a single transaction or a series of related transactions, one or more other Persons, other than an employee benefit plan sponsored by ICH, becomes the "beneficial owner," as such term is used in Section 13 of the Exchange Act, of shares of Common Stock of ICH (including newly issued shares) which equal thirty percent (30%) or more of the issued and outstanding shares of Common Stock of ICH prior to such person or persons becoming such a "beneficial owner." (f) In the event of a conflict between the terms of any Option grant agreement or the Stock Option Plan and this Agreement, the terms of this Agreement shall control. 4. TERMINATION OF EMPLOYMENT; EVENTS OF TERMINATION. (a) Executive's employment hereunder may be terminated during the Employment Period under the following circumstances: (i) CAUSE. Executive's employment hereunder shall terminate for "Cause" ten days after the date ICH shall have given Executive notice of the termination of his employment for "Cause". For purposes of this Agreement, "Cause" shall mean (A) the commission by Executive of fraud, embezzlement or an act of serious, criminal moral turpitude against any of the Companies; (B) the commission of an act by Executive constituting material financial dishonesty against any of the Companies; or (C) Executive's gross neglect in carrying out his material duties and responsibilities under this Agreement which has a material adverse effect on any of the Companies and which is not cured within thirty (30) days subsequent to written notice from ICH to Executive of such breach. (ii) DEATH. Executive's employment hereunder shall terminate upon his death. -8- (iii) DISABILITY. Executive's employment hereunder shall terminate ten days after the date on which ICH shall have given Executive notice of the termination of his employment by reason of his physical or mental incapacity or disability on a permanent basis. For purposes of this Agreement, Executive shall be deemed to be physically or mentally incapacitated or disabled on a permanent basis if ICH's Chief Executive Officer determines he is unable to perform his duties hereunder for a period exceeding six (6) months in any twelve (12) month period. (iv) GOOD REASON. Executive shall have the right to terminate his employment for "Good Reason." This Agreement shall terminate effective immediately on the date Executive shall have given ICH's Chief Executive Officer notice of the termination of his employment with ICH for "Good Reason." For purposes of this Agreement, "Good Reason" shall mean (A) any material and substantial breach of this Agreement by any of the Companies, (B) a diminution of Executive's responsibilities, loss of title or position in which Executive currently serves, failure to reelect Executive to the ICH Board or the Board of Directors of any of the other Companies, but not including the loss of responsibilities and title associated with any of the Companies other than ICH upon the sale of the stock or substantially all of the assets of such other Company, (C) a Change in Control occurs and Executive voluntarily quits at any time within the six (6) month period on or immediately following the Change in Control, (D) ICH issues a Notice of Non-Renewal to Executive, (E) a reduction in Executive's Annual Base Salary or a material reduction in other benefits (except for bonuses or similar discretionary payments) as in effect at the time in question, or any other failure by the Companies to comply with Sections 2 and 3, hereof, (F) the relocation of Executive's office outside the New York City area, or (G) this Agreement is not assumed by a successor to ICH. (v) WITHOUT CAUSE. ICH shall have the right to terminate Executive's employment hereunder without Cause subject to the terms and conditions of this Agreement. In such event, this Agreement shall terminate, effective immediately upon the date on which ICH shall have given Executive notice of the termination of his employment for reasons other than for Cause or due to Executive's Disability. (vi) WITHOUT GOOD REASON. Executive shall have the right to terminate his employment hereunder without Good Reason subject to the terms and conditions of this Agreement. This Agreement -9- shall terminate, effective immediately upon the date as of which Executive shall have given ICH's Chief Executive Officer notice of the termination of his employment without Good Reason. (b) NOTICE OF TERMINATION. Any termination of Executive's employment by ICH or any such termination by Executive (other than on account of death) shall be communicated by written Notice of Termination to the other party hereto. For purposes of this Agreement, a "Notice of Termination" shall mean a notice which shall indicate the specific termination provision in this Agreement relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of Executive's employment under the provision so indicated. In the event of the termination of Executive's employment on account of death, written Notice of Termination shall be deemed to have been provided on the date of death. 5. PAYMENTS UPON TERMINATION. (a) WITHOUT CAUSE, FOR GOOD REASON, DEATH OR DISABILITY. If Executive's employment is terminated by ICH without Cause (pursuant to Section 4(a)(v)), by Executive for Good Reason (pursuant to Section 4(a)(iv)), due to death of Executive (pursuant to Section 4(a)(ii)), or by ICH due to Executive's Disability (pursuant to Section 4(a)(iii)), Executive, or in the case of Executive's Death or Disability, Executive's legal representative estate or beneficiaries, as the case may be, shall be entitled to receive from ICH (i) a lump sum payment in an aggregate amount equal to three (3) times the sum of (A) then current Annual Base Salary and (B) the average of all bonuses, including, without limitation, Executive's Annual Bonus, earned by or paid to Executive during the two (2) immediately preceding full fiscal years of employment ending prior to the date of termination (the "Severance Payment"); (ii) any bonuses which have been earned but not been paid prior to such termination ("Prior Bonus Payment") and (iii) reimbursement of expenses incurred prior to date of termination (the "Expense Reimbursement"). The aforesaid amounts shall be payable in cash without discount for early payment, at the option of Executive, either in full immediately upon such termination or monthly over the Unexpired Employment Period (the "Payment Election"). In addition, (x) Executive's fringe benefits specified in Section 2 shall continue through the end of the Unexpired Employment Period, provided, however, that such benefits which may not continue pursuant to law, such as participation in a qualified pension plan, shall terminate on the date of termination and further provided, that Executive shall be entitled to COBRA continuation coverage and to continue the applicable life insurance policies thereafter, at his cost ("Fringe Benefit Continuation); and (y) all outstanding Options which are not vested as of the date of termination, if any, shall upon such date of termination vest and become immediately exercisable in accordance with the terms of the Option grant agreements and this Agreement ("Vested Options"). In the event Executive terminates his employment within the six month period on or immediately following a Change in Control which constitutes a termination for Good Reason under this Agreement pursuant to Section 4(a)(iv)(C), Executive shall -10- be entitled to receive from ICH an additional lump sum cash payment in an amount sufficient to pay any excise taxes which may be imposed on Executive pursuant to Section 4999 of the Code (or any successor provisions) plus any excise or income tax liability on the gross up payment itself so that on a net after tax basis Executive shall be in the same position as if the excise tax under Section 4999 of the Code (or any successor provisions) had not been imposed. In the event Executive is terminated by ICH without Cause or due to Executive's Disability, or Executive terminates his employment with ICH for Good Reason, Executive shall have no duty to mitigate the amount of the payment received pursuant to this Section 5(a), it being understood that Executive's acceptance of other employment shall not reduce ICH's or the other Companies' obligations hereunder. (b) TERMINATION WITH CAUSE OR VOLUNTARY QUIT. If ICH terminates Executive's employment for Cause (pursuant to Section 4(a)(i)) or in the event Executive voluntarily terminates his employment without Good Reason (pursuant to Section 4(a)(vi)) ("Voluntary Quit"), Executive shall be entitled to his Annual Base Salary through the date of the termination of such employment and Executive shall be entitled to any bonuses which have been earned but not paid prior to such termination. Executive shall not be entitled to any other bonuses. Executive's additional benefits specified in Section 2 shall terminate at the time of such termination. Additionally, Executive shall be entitled to all Options that have vested as of the date of such termination. All outstanding Options, which have not vested, if any, as of date of such termination shall be forfeited, and if the termination is for Cause, no further payments pursuant to Section 3(b) shall be made to Executive. (c) TERMINATION BY ICH UPON CHANGE IN CONTROL. If ICH terminates Executive's employment for any reason in connection with a Change in Control which is not approved by the Continuing Directors of ICH, Executive shall receive from ICH in one lump sum, payable on the consummation of the Change in Control an amount equal to the Severance Payment, the Prior Bonus Payment and the Expense Reimbursement. The aforesaid amount shall be payable in cash without discount for early payment on the consummation of such Change in Control. Executive shall be entitled to his Vested Options and Executive (and his spouse and children) shall be entitled to Fringe Benefit Continuation. In addition to the aforesaid cash payment, ICH shall pay Executive, on the consummation of the Change in Control, in one lump sum, a cash payment in an amount sufficient to pay any excise taxes which may be imposed on Executive pursuant to Section 4999 of the Code (or any successor provisions) plus any excise or income tax liability on the gross up payment itself so that on a net after tax basis Executive shall be the same as if the excise tax under Section 4999 of the Code (or any successor provisions) had not been imposed. In the event Executive is terminated by ICH in connection with a Change in Control which is not approved by the Continuing Directors of ICH, Executive shall have no duty to mitigate the amount of the payment received pursuant to this Section -11- 5(c), it being understood that Executive's acceptance of other employment shall not reduce the Companies obligations hereunder. (d) VESTING TRUST. At Executive's option, the Companies shall establish a vesting trust into which the Companies shall, to the extent economically feasible, contribute and/or pledge assets to secure their severance obligations to Executive under this Agreement. 6. SUCCESSORS AND ASSIGNS. (a) This Agreement shall be binding upon and inure to the benefit of ICH, its successors and assigns. ICH shall require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all its assets to expressly assume and agree to perform this Agreement in the same manner and to the same extent ICH would be required to perform if no such succession had taken place. (b) Executive agrees that this Agreement is personal to him and may not be assigned by him other than by the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by Executive's legal representative. 7. JOINT AND SEVERAL LIABILITY. (a) NO DUPLICATION OF PAYMENTS. The Companies shall be jointly and severally liable for any amounts payable to Executive under this Agreement. Any amounts payable to Executive shall be paid in the first instance by ICH, and to the extent not paid by ICH shall be paid by the other Companies. In no event shall any amount payable pursuant to this Agreement be paid by ICH and any other Company, or any two or more Companies and Executive shall not be entitled to receive duplicate benefits or payments under any of the provisions of this Agreement. (b) NEW SUBSIDIARIES. Any subsidiary of the Companies that is formed or acquired on or after the date hereof shall be required to become a signatory to this Agreement and shall become jointly and severally liable with the Companies for the obligations hereunder. (c) SALE OF SUBSIDIARIES. Upon the sale of the stock or substantially all of the assets of any subsidiary of the Companies, which is approved by the ICH Board, such subsidiary shall be automatically released from its obligations hereunder and shall not be considered as having any continuing liability for the obligations hereunder, and Executive shall be released from his obligations to such subsidiary hereunder. 8. GOVERNING LAW. This Agreement shall be construed in accordance with, and its validity, interpretation, performance and enforcement and shall be governed by, the laws of the State of New York without regard to conflicts of law principles thereof. Each of the parties hereto hereby (a) irrevocably and unconditionally submits to the -12- non-exclusive jurisdiction of any New York State or Federal court sitting in New York County, New York in any action or proceeding arising out of or relating to this Agreement, (b) irrevocably waives, to the fullest extent it may effectively do so, the defense of an inconvenient forum to the maintenance of such action or proceeding, and (c) irrevocably and unconditionally consents to the service of any and all process in any such action or proceeding by the mailing of copies of such process by certified mail to such party and its counsel at their respective addresses specified in Section 11 hereof. 9. ENTIRE AGREEMENT. (a) This instrument contains the entire understanding and agreement among the parties relating to the subject matter hereof, except as otherwise referred to herein, and supersedes all other prior agreements and undertakings, both written and oral, among the parties with respect to the subject matter hereof. (b) Neither this Agreement nor any provisions hereof may be waived or modified, except by an agreement in writing signed by the party(ies) against whom enforcement of any waiver or modification is sought. 10. PROVISIONS SEVERABLE. In case any one or more of the provisions of this Agreement shall be invalid, illegal or unenforceable in any respect, or to any extent, the validity, legality and enforceability of the remaining provisions contained herein shall not in any way be affected or impaired thereby. 11. NOTICES. Any notice required or permitted to be given under the provisions of this Agreement shall be in writing and delivered by courier or personal delivery, facsimile transmission (to be followed promptly by written confirmation mailed by certified mail as provided below) or mailed by certified mail, return receipt requested, postage prepaid, addressed as follows: If to ICH or any of the other Companies: ICH Corporation 9255 Towne Centre Drive Suite 600 San Diego, California 92121 Attention: Chief Executive Officer Facsimile Number: (858) 638-2083 With a copy to: Christopher J. Sues, Esq. c/o Pryor Cashman Sherman & Flynn LLP 410 Park Avenue New York, New York 10022 Facsimile Number: (212) 326-0806 -13- -14- If to Executive: Robert H. Drechsler, Esq. 15 Deer Run Rye Brook, New York 10573 Facsimile Number: (914) 937-9675 If delivered personally, by courier or facsimile transmission (confirmed as aforesaid and provided written confirmation and receipt is obtained by the sender), the date on which a notice is delivered or transmitted shall be the date on which such delivery is made. Notices given by mail as aforesaid shall be effective and deemed received upon the date of actual receipt or upon the third business day subsequent to deposit in the U.S. mail, whichever is earlier. Either party hereto may change its or his address specified for notices herein by designating a new address by notice in accordance with this Section 11. 12. COUNTERPARTS. This Agreement may be executed in separate counterparts, each of which is deemed to be an original and both of which taken together shall constitute one and the same agreement. THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK. -15- IN WITNESS WHEREOF, the Companies and Executive have executed this Agreement as of the date first above written. EXECUTIVE ICH CORPORATION /S/ /S/ - --------------------------- ------------------------------- ROBERT H. DRECHSLER NAME: James R. Arabia TITLE: Chairman and Chief Executive Officer SYBRA, INC. /S/ ------------------------------- NAME: James R. Arabia TITLE: Chairman and Chief Executive Officer LYON'S OF CALIFORNIA, INC. /S/ ------------------------------- NAME: James R. Arabia TITLE: Chairman and Chief Executive Officer CARE FINANCIAL CORP. /S/ ------------------------------- NAME: James R. Arabia TITLE: Chairman and Chief Executive Officer -16- EX-10.30 4 EXHIBIT 10.30 Exhibit 10.30 I.C.H. CORPORATION THIRD AMENDED AND RESTATED EMPLOYMENT AGREEMENT JAMES R. ARABIA THIS THIRD AMENDED AND RESTATED EMPLOYMENT AGREEMENT ("Agreement") is effective as of the 1st day of September, 1999, by and between I.C.H. Corporation ("ICH"), a Delaware corporation with offices at 9255 Towne Centre Drive, Suite 600, San Diego, CA 92121, and its subsidiaries, Sybra, Inc., a Michigan corporation ("Sybra"), Lyon's of California, Inc., a California corporation ("Lyons"), and Care Financial Corp., a Delaware corporation ("Care", and collectively, with ICH, Sybra and Lyons, the "Companies"), each with offices at c/o I.C.H. Corporation, 9255 Towne Centre Drive, Suite 600, San Diego, California 92121 and James R. Arabia, an individual residing at 2174 Guy Street, San Diego, CA 92103 (the "Executive"). WHEREAS, Executive has served as Chairman, President and Chief Executive Officer of ICH and in similar capacities for each of the other Companies pursuant to his prior employment agreement with ICH and the other Companies dated as of September 1, 1998 (the "Prior Agreement") and prior thereto and has taken on and will be taking on certain additional responsibilities, including, without limitation, additional responsibilities related to impending acquisitions, and through such service, has acquired special and unique knowledge, abilities and expertise; and WHEREAS, in recognition of Executive's past performance and responsibilities and the additional responsibilities Executive has undertaken and will be undertaking, ICH wishes to clarify certain terms set forth in the Prior Agreement and desires to continue to employ Executive as its President and Chief Executive Officer and to have Executive continue to serve as Chairman of the Board of Directors of ICH (the "ICH Board") and the other Companies desire to employ Executive in similar capacities and the Companies desire to employ Executive in such capacities with any future subsidiaries of the Companies and wish to be assured of his continued services on the terms and conditions hereinafter set forth; and WHEREAS, Executive desires to continue to be employed by ICH as its President and Chief Executive Officer and to serve as Chairman of the ICH Board, and by the other Companies and any future subsidiaries of the Companies in similar capacities and to perform and to serve the Companies on the terms and conditions hereinafter set forth. NOW, THEREFORE, in consideration of the premises and of the mutual promises, agreements and covenants set forth herein, the parties hereto agree as follows: -2- 1. EMPLOYMENT. The Prior Agreement is hereby amended and restated in its entirety as of the date of this Agreement. (a) DUTIES. The Companies hereby agree to continue to employ Executive, and Executive hereby accepts such continued employment, as the President and Chief Executive Officer of ICH and agrees to serve as Chairman of the ICH Board and as President and Chief Executive Officer and Chairman of the Board of Directors of each of the other Companies. In his role as President and Chief Executive Officer of ICH and the other Companies, Executive shall be responsible for such duties and functions of a supervisory or managerial nature as may be directed from time to time by the ICH Board and each other respective Board of Directors provided that such duties are reasonable and customary for a President and Chief Executive Officer. Executive agrees that he shall, during the term of this Agreement, except during reasonable vacation periods, periods of illness and the like, devote substantially all his business time, attention and ability to his duties and responsibilities hereunder; PROVIDED, HOWEVER, that nothing contained herein shall be construed to prohibit or restrict Executive from (i) serving as a director of any corporation, with or without compensation therefor; (ii) serving in various capacities in community, civic, religious or charitable organizations or trade associations or leagues; or (iii) attending to personal business; PROVIDED, HOWEVER, that no such service or activity permitted in this Section 1(a) shall materially interfere with the performance by Executive of his duties hereunder. Executive shall report directly to the ICH Board and each other respective Board of Directors. (b) TERM. (i) Except as otherwise provided in this Agreement to the contrary, the terms and conditions of this Agreement shall be and remain in effect during the period of employment (the "Employment Period") established under this Section 1(b). The initial Employment Period shall be for a term commencing on the date of this Agreement and ending on the third anniversary of the date of this Agreement; provided, however, that commencing on the first day after the date of this Agreement and on each day thereafter, the Employment Period shall be extended for one additional day so that a constant three (3) year Employment Period shall be in effect, unless (A) ICH (on its behalf and on behalf of the other Companies) or Executive elects not to extend the term of this Agreement by giving written notice to the other party in accordance with Sections 5(b) and 12 hereof, in which case, the term of this Agreement shall become fixed and shall end on the third anniversary of the date of such written notice ("Notice of Non-Renewal"), or (B) Executive's employment terminates hereunder. (ii) Notwithstanding anything contained herein to the contrary, (A) Executive's employment with the Companies may be terminated by ICH (on its behalf and on behalf of the other Companies) or Executive during the Employment -3- Period, subject to the terms and conditions of this Agreement; and (B) nothing in this Agreement shall mandate or prohibit a continuation of Executive's employment following the expiration of the Employment Period upon such terms and conditions as the ICH Board and Executive may mutually agree. (iii) If Executive's employment with the Companies is terminated, for purposes of this Agreement, the term "Unexpired Employment Period" shall mean the period commencing on the date of such termination and ending on the last day of the Employment Period. (c) LOCATION/TRAVEL. Executive shall work at ICH's headquarters in San Diego County, California. Executive shall not be required to relocate from the San Diego area during the Employment Period. 2. COMPENSATION. Subject to the provisions of Section 8 hereof, the Companies shall each be responsible and have joint and several liability for all compensation and benefits owed to Executive under this Agreement. A reference to an ICH plan, program, obligation or commitment shall also be considered an obligation or commitment of each of the other Companies but shall not result in duplicate benefits being paid or provided to Executive. (a) SALARY. Executive shall receive an annual base salary of Five Hundred Twenty-Five Thousand Dollars ($525,000). The annual base salary payable to Executive pursuant to this Section 2(a), which may be increased but not decreased by the ICH Board or the Compensation Committee of the ICH Board (the "ICH Compensation Committee"), as the case may be, shall be hereinafter referred to as the "Annual Base Salary" (it being understood that if and when such Annual Base Salary is increased, it may not be subsequently decreased below such new Annual Base Salary). (b) ANNUAL BONUS. (i) Executive shall be entitled to receive an annual cash bonus, hereinafter referred to as the "Annual Bonus," based upon a formula and subject to certain performance goals having been achieved (the "Formula"), determined by the ICH Board, in its sole discretion, by the end of the first quarter of each year. The target bonus payable to Executive for each fiscal year based upon the Formula established by the ICH Board shall be an amount equal to at least forty percent (40%) of Executive's Annual Base Salary for such year. (ii) Executive's Annual Bonus shall be paid to Executive no later than forty five (45) days following the end of the period for which the bonus is being paid. (c) REIMBURSEMENT OF BUSINESS EXPENSES. ICH shall reimburse Executive for all reasonable out-of-pocket expenses incurred by him during the Employment Period, including, but not limited to, all reasonable travel and -4- entertainment expenses. Executive may only obtain reimbursement under this Section 2(c) upon submission of such receipts and records as may be required under the reimbursement policies established by ICH. (d) ADDITIONAL BENEFITS; GENERAL RIGHTS. During the Employment Period, Executive shall be entitled to: (i) participate in all employee stock option, pension, savings, and other similar benefit plans of ICH and/or such other plans or programs of the other Companies as ICH may designate from time to time; (ii) participate in all welfare plans established by ICH such as life insurance, medical, dental, disability, and business travel accident plans and programs and/or such other plan or programs of the other Companies as ICH may designate from time to time. In addition, ICH shall reimburse Executive for (i) any premium costs Executive may incur with respect to the health insurance plan currently maintained by ICH (and which may be maintained by ICH from time to time) in which Executive (and his spouse and children) participates and (ii) for all other medical and dental expenses not covered by any medical or dental plan in which Executive (and his spouse and children) participates, including, without limitation, deductibles and out of pocket expenses; (iii) reimbursement from ICH for any premium costs associated with the term life insurance in the amount of one and one-half million dollars ($1,500,000.00) issued by Security Connecticut and currently owned by Executive; (iv) a minimum eight hundred dollars ($800) per month local travel allowance; (v) four (4) weeks paid vacation per year; and (vi) any other benefits provided by ICH to its executive officers. (e) WITHHOLDING. ICH and/or the other Companies, as the case may be, shall deduct from all compensation paid to Executive under this Agreement, any Federal, State or city withholding taxes, social security contributions and any other amounts which may be required to be deducted or withheld by the Companies pursuant to Federal, State or city laws, rules or regulations. 3. OPTION GRANT. (a) (i) Executive has received options issued pursuant to ICH's 1997 Employee Stock Option Plan, as amended (the "Stock Option Plan"), as follows: -5-
HEREIN REFERRED GRANT DATE NUMBER OF SHARES EXERCISE VESTING TO AS GRANTED PRICE PER SHARE ($) - ------------------ ------------------ ------------------- -------------- ------------------------------ 1997 Options February 11, 1997 176,000 2.17 58,667 on February 11, 1997 58,667 on February 11, 1998 58,666 on February 11, 1999 - ------------------ ------------------ ------------------- -------------- ------------------------------ 1998 Options September 1, 1998 74,000 4.00 18,500 on September 1, 1998 18,500 on September 1, 1999 18,500 on September 1, 2000 18,500 on September 1, 2001 - ------------------ ------------------ ------------------- -------------- ------------------------------ 1999 Options May 7, 1999 100,000 12.25 25,000 on May 7, 1999 25,000 on January 1, 2000 25,000 on January 1, 2001 25,000 on January 1, 2002 - ------------------ ------------------ ------------------- -------------- ------------------------------
The terms and conditions of each option grant set forth above are memorialized in written option grant agreements between ICH and Executive dated the dates thereof. Such 1997 Options, 1998 Options and 1999 Options plus any additional options granted to Executive in the future (collectively referred to herein as the "Options") shall expire on the tenth anniversary of each respective grant date. (ii) The Options were and are intended to qualify as incentive stock options within the meaning of Section 422(b) of the Internal Revenue Code of 1986, as amended (the "Code"); PROVIDED, HOWEVER, that to the extent that any Options do not satisfy the requirements of Section 422(b) of the Code either at the time of grant or before or after exercise, including, without limitation, upon disposition of the underlying stock acquired by the exercise of Options prior to the requisite holding period, they shall be treated as non-qualified stock options. (b) In the event that Executive incurs taxable income as a result of any or all of his Options being treated as non-qualified options (I.E. Options have been exercised and the requirements of Section 422(b) of the Code have not been or are no longer met) (the "Taxable Event") as soon as practicable after a determination by ICH and Executive that the Options are non-qualified and a Taxable Event has occurred, ICH shall make an additional single sum cash payment to Executive in an amount equal to thirty percent (30%) of Executive's taxable income resulting from the Taxable Event. Such payment shall only be made in the event Executive's employment with ICH has not terminated for Cause within the meaning of Section 5(a)(i) of this Agreement. (c) Notwithstanding any provisions in an Option grant agreement to the contrary, upon termination of his employment for any reason, Executive shall have the right to exercise his Options at any time through the tenth anniversary of the grant date of such Options. Executive understands that the effect of exercising any incentive stock options on a day that is more than ninety (90) days after the date of termination of -6- employment (or, in the case of a termination of employment on account of death or disability, on a day that is more than one (1) year after the date of such termination) shall be to cause such incentive stock options to be treated as non-qualified stock options. (d) In the event ICH issues additional shares of Common Stock and/or any class of stock convertible into Common Stock and/or any other security convertible into Common Stock (including, without limitation, options and warrants which may be granted to individuals or entities other than employees and directors but excluding (i) the exercise of any currently outstanding options or warrants, (ii) any future grants of options, but only to the extent such grants relate to shares of Common Stock currently authorized to be granted under the Stock Option Plan or the ICH 1997 Director Stock Option Plan (collectively, the "Option Plans") (I.E. any options that may be granted by virtue of an increase in the number of shares of Common Stock currently authorized under the Option Plans shall not be excluded) and (iii) the exercise of any of such options) at any time during the Employment Period and prior to Executive's termination of employment and in connection with a public or private equity offering or in connection with an acquisition (the "Issuance"), Executive shall be granted additional stock options and/or provided with a loan to purchase Common Stock, as determined by the ICH Board, in an amount equal to ten percent (10%) of the number of shares issued pursuant to such Issuance. The foregoing notwithstanding, in the event ICH repurchases any shares of Common Stock, stock convertible into shares of Common Stock and/or any other security convertible into shares of Common Stock, the anti-dilution provisions set forth in this Section 3(d) shall not apply until an equal number of such shares of Common Stock, stock convertible into shares of Common Stock and/or other securities convertible into shares of Common Stock are first reissued by ICH. In addition, equitable adjustments shall be made to such anti-dilution provisions in the event ICH effectuates a stock split, reverse stock split, stock dividend or other recapitalization transaction. (e) To the extent any Options are not vested upon a "Change in Control" of ICH, such unvested Options shall become fully vested and immediately exercisable upon a "Change in Control" of ICH (whether or not such Change in Control is approved of by the Continuing Directors of ICH (as defined in the Rights Agreement between ICH and Mid-America Bank of Louisville and Trust Company dated as of February 19, 1997 and amended as of February 10, 1998)). A "Change in Control" of ICH shall be deemed to have occurred upon the happening of any of the following events: (i) approval by the ICH Board or stockholders of ICH of a transaction that would result in the reorganization, merger, or consolidation of ICH with one or more other "Persons" within the meaning of Sections 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934 ("Exchange Act"), other than a transaction following which: -7- (A) at least seventy-one percent (71%) of the equity ownership interests of the entity resulting from such transaction are beneficially owned (within the meaning of Rule 13d-3 promulgated under the Exchange Act) in substantially the same relative proportions by Persons who, immediately prior to such transaction, beneficially owned (within the meaning of Rule 13d-3 promulgated under the Exchange Act) at least seventy-one percent (71%) of the outstanding equity ownership interests in ICH; and (B) at least seventy-one percent (71%) of the securities entitled to vote generally in the election of directors of the entity resulting from such transaction are beneficially owned (within the meaning of Rule 13d-3 promulgated under the Exchange Act) in substantially the same relative proportions by Persons who, immediately prior to such transaction, beneficially owned (within the meaning of Rule 13d-3 promulgated under the Exchange Act) at least seventy-one percent (71%) of the securities entitled to vote generally in the election of directors of ICH; (ii) the acquisition of all or substantially all of the assets of ICH; (iii) a complete liquidation or dissolution of ICH, or approval by the stockholders of ICH of a plan for such liquidation or dissolution; (iv) the occurrence of any event in the nature of an event described in this Section 3(e) if, immediately following such event, at least seventy-five percent (75%) of the members of the ICH Board do not belong to any of the following groups: (A) individuals who were members of the ICH Board on the date of this Agreement; or (B) individuals who first became members of the ICH Board after the date of this Agreement either: (I) upon election to serve as a member of the ICH Board by affirmative vote of three-quarters of the members of such ICH Board, or of a nominating committee thereof, in office at the time of such first election; or (II) upon election by the stockholders of ICH to serve as a member of the ICH Board, but only if nominated for election by affirmative vote of three-quarters of the -8- members of the ICH Board, or of a nominating committee thereof, in office at the time of such first nomination; provided, however, that such individual's election or nomination did not result from an actual or threatened election contest (within the meaning of Rule 14a-11 of Regulation 14A promulgated under the Exchange Act) or other actual or threatened solicitation of proxies or consents (within the meaning of Rule 14a-11 of Regulation 14A promulgated under the Exchange Act) other than by or on behalf of the ICH Board. (v) in a single transaction or a series of related transactions, one or more other Persons, other than an employee benefit plan sponsored by ICH, becomes the "beneficial owner," as such term is used in Section 13 of the Exchange Act, of shares of Common Stock of ICH (including newly issued shares) which equal thirty percent (30%) or more of the issued and outstanding shares of Common Stock of ICH prior to such person or persons becoming such a "beneficial owner." (f) In the event of a conflict between the terms of any Option grant agreement or the Stock Option Plan and this Agreement, the terms of this Agreement shall control. 4. LOANS TO EXECUTIVE. (a) RESIDENCE LOAN. (i) ICH has previously made a loan to Executive in a principal amount of $350,000 for the purchase of a principal residence (the "Residence Loan"). The Residence Loan accrues interest at an annual rate equal to the published applicable federal rate (AFR) for loans of similar maturity at the time the Residence Loan was granted. Principal plus interest is repayable on a self-amortizing basis in years eight (8) through ten (10). (ii) In the event Executive's employment is terminated by ICH in connection with a Change in Control which is not approved by the Continuing Directors of ICH, ICH shall on the consummation of such Change in Control, forgive all principal and accrued interest then outstanding on the Residence Loan. Additionally, on the consummation of such Change in Control, ICH shall pay Executive, in one lump sum, a cash amount sufficient to gross up Executive for the full tax consequences of such forgiveness so that on a net after tax basis Executive shall be in the same position as if no taxable event had occurred upon such forgiveness. The forgiveness of the Residence Loan and the related gross up payment shall hereinafter be referred to as the "Residence Loan Forgiveness". -9- (b) 1997 OPTION LOANS. (i) ICH has collectively loaned Executive Three Hundred Eighty-One Thousand Nine Hundred Twenty Dollars ( $381,920) in order to enable Executive to exercise all his 1997 Options (the "1997 Option Loans"). (ii) In the event (A) Executive remains in the continuous employ of ICH during the period beginning on September 1, 1999 and ending on December 31, 2001, (B) Executive's employment is terminated by ICH in connection with a Change in Control not approved by the Continuing Directors of ICH or without Cause or by Executive for Good Reason or (C) Executive's employment is terminated due to his death or disability, ICH shall, on December 31, 2001, or in the case of such Change in Control, on the consummation of such Change in Control, or in the case of such termination of Executive's employment, on the date of termination, forgive all principal and accrued interest then outstanding on such 1997 Option Loans. Additionally, on January 15, 2002 , or in the case of a Change in Control not approved of by the Continuing Directors of ICH, on the consummation of such Change in Control, or in the case of such termination of employment, on the date of termination, ICH shall pay Executive in one lump sum, a cash amount sufficient to gross up Executive for the full tax consequences of such forgiveness so that on a net after tax basis Executive shall be in the same position as if no taxable event had occurred upon such forgiveness. The forgiveness of the 1997 Option Loans and the related gross up payment shall hereinafter be referred to as the "1997 Option Loan Forgiveness". (iii) ICH has and will require Executive to pledge a sufficient amount of shares of Common Stock acquired upon exercise of his 1997 Options (the "Option Shares") to secure the 1997 Option Loans. The 1997 Option Loans shall be secured only by the lesser of the full amount of the Option Shares acquired at the time each loan was made or the number of Option Shares having a fair market value of one hundred and twenty percent (120%) of the outstanding principal amount of the 1997 Option Loans, together with interest projected to accrue thereon through December 31, 2001 ("Maximum Amount Due"). On each March 1 and each September 1, through the date the 1997 Option Loans are either repaid or forgiven (each such date a "Determination Date"), ICH shall reasonably determine the aggregate fair market value of the collateral (the "Market Value") being held. If on such Determination Date the Market Value exceeds the Maximum Amount Due, ICH shall, unless otherwise requested by Executive, automatically release to Executive such portion of the collateral the aggregate fair market value of which equals the Market Value less one hundred and twenty percent (120%) of the Maximum Amount Due, free and clear of any and all encumbrances under the related stock pledge agreements. 5. TERMINATION OF EMPLOYMENT; EVENTS OF TERMINATION. (a) Executive's employment hereunder may be terminated during the Employment Period under the following circumstances: -10- (i) CAUSE. Executive's employment hereunder shall terminate for "Cause" ten days after the date ICH shall have given Executive notice of the termination of his employment for "Cause". For purposes of this Agreement, "Cause" shall mean (A) the commission by Executive of fraud, embezzlement or an act of serious, criminal moral turpitude against any of the Companies; (B) the commission of an act by Executive constituting material financial dishonesty against any of the Companies; or (C) Executive's gross neglect in carrying out his material duties and responsibilities under this Agreement which has a material adverse effect on any of the Companies and which is not cured within thirty (30) days subsequent to written notice from ICH to Executive of such breach. (ii) DEATH. Executive's employment hereunder shall terminate upon his death. (iii) DISABILITY. Executive's employment hereunder shall terminate ten days after the date on which ICH shall have given Executive notice of the termination of his employment by reason of his physical or mental incapacity or disability on a permanent basis. For purposes of this Agreement, Executive shall be deemed to be physically or mentally incapacitated or disabled on a permanent basis if the ICH Board determines he is unable to perform his duties hereunder for a period exceeding six (6) months in any twelve (12) month period. (iv) GOOD REASON. Executive shall have the right to terminate his employment for "Good Reason." This Agreement shall terminate effective immediately on the date Executive shall have given the ICH Board notice of the termination of his employment with ICH for "Good Reason." For purposes of this Agreement, "Good Reason" shall mean (A) any material and substantial breach of this Agreement by any of the Companies, (B) a diminution of Executive's responsibilities, loss of title or position in which Executive currently serves, failure to reelect Executive to the ICH Board or the Board of Directors of any of the other Companies, reappoint Executive Chairman of the ICH Board or Chairman of the Board of Directors of any of the other Companies, or maintain the composition of the Nomination Committee of the ICH Board as it exists on the date hereof (I.E. with Executive being its sole member), but not including the loss of responsibilities and title associated with any of the Companies other than ICH upon the sale of the stock or substantially all of the assets of such other Company, (C) a Change in Control occurs and Executive voluntarily quits at any time within the six (6) month period on or -11- immediately following the Change in Control, (D) ICH issues a Notice of Non-Renewal to Executive, (E) a reduction in Executive's Annual Base Salary or a material reduction in other benefits (except for bonuses or similar discretionary payments) as in effect at the time in question, or any other failure by the Companies to comply with Sections 2 and 3, hereof, (F) the relocation of Executive's office outside the San Diego area, or (G) this Agreement is not assumed by a successor to ICH. (v) WITHOUT CAUSE. ICH shall have the right to terminate Executive's employment hereunder without Cause subject to the terms and conditions of this Agreement. In such event, this Agreement shall terminate, effective immediately upon the date on which ICH shall have given Executive notice of the termination of his employment for reasons other than for Cause or due to Executive's Disability. (vi) WITHOUT GOOD REASON. Executive shall have the right to terminate his employment hereunder without Good Reason subject to the terms and conditions of this Agreement. This Agreement shall terminate, effective immediately upon the date as of which Executive shall have given the ICH Board notice of the termination of his employment without Good Reason. (b) NOTICE OF TERMINATION. Any termination of Executive's employment by ICH or any such termination by Executive (other than on account of death) shall be communicated by written Notice of Termination to the other party hereto. For purposes of this Agreement, a "Notice of Termination" shall mean a notice which shall indicate the specific termination provision in this Agreement relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of Executive's employment under the provision so indicated. In the event of the termination of Executive's employment on account of death, written Notice of Termination shall be deemed to have been provided on the date of death. 6. PAYMENTS UPON TERMINATION. (a) WITHOUT CAUSE, FOR GOOD REASON OR DISABILITY. If Executive's employment is terminated by ICH without Cause (pursuant to Section 5(a)(v)), by Executive for Good Reason (pursuant to Section 5(a)(iv)), or by ICH due to Executive's Disability (pursuant to Section 5(a)(iii)), Executive, or in the case of Executive's Disability, Executive's legal representative, shall be entitled to receive from ICH (i) a lump sum payment in an aggregate amount equal to four (4) times the sum of (A) then current Annual Base Salary and (B) the average of all bonuses, including, without limitation, Executive's Annual Bonus but excluding any loans forgiven or payments made by ICH pursuant to Section 4(b)(ii) hereof, earned by or paid to Executive during the two (2) immediately preceding full fiscal years of employment ending prior to the -12- date of termination (the "Severance Payment"); (ii) any bonuses which have been earned but not been paid prior to such termination ("Prior Bonus Payment") and (iii) reimbursement of expenses incurred prior to date of termination (the "Expense Reimbursement"). The aforesaid amounts shall be payable in cash without discount for early payment, at the option of Executive, either in full immediately upon such termination or monthly over the Unexpired Employment Period (the "Payment Election"). In addition, (x) Executive's fringe benefits specified in Section 2 shall continue through the end of the Unexpired Employment Period, provided, however, that such benefits which may not continue pursuant to law, such as participation in a qualified pension plan, shall terminate on the date of termination and further provided, that Executive shall be entitled to COBRA continuation coverage and to continue the applicable life insurance policies thereafter, at his cost ("Fringe Benefit Continuation); (y) all outstanding Options which are not vested as of the date of termination, if any, shall upon such date of termination vest and become immediately exercisable in accordance with the terms of the Option grant agreements and this Agreement ("Vested Options") and (z) Executive shall be entitled to the 1997 Option Loan Forgiveness as set forth in Section 4(b)(ii) hereof. Any outstanding balance (principal and interest) of the Residence Loan and any other loans made to Executive (except for the 1997 Options Loans which shall be forgiven as set forth in the paragraph above) by ICH or any of the other Companies shall become due on the date of such termination and shall be payable in a single sum payment. Any amounts owed by Executive to ICH or the other Companies hereunder shall be set off against any amounts payable from ICH or the other Companies to the Executive. In the event Executive terminates his employment within the six month period on or immediately following a Change in Control which constitutes a termination for Good Reason under this Agreement pursuant to Section 5(a)(iv)(C), Executive shall be entitled to receive from ICH an additional lump sum cash payment in an amount sufficient to pay any excise taxes which may be imposed on Executive pursuant to Section 4999 of the Code (or any successor provisions) plus any excise or income tax liability on the gross up payment itself so that on a net after tax basis Executive shall be in the same position as if the excise tax under Section 4999 of the Code (or any successor provisions) had not been imposed. In the event Executive is terminated by ICH without Cause or due to Executive's Disability, or Executive terminates his employment with ICH for Good Reason, Executive shall have no duty to mitigate the amount of the payment received pursuant to this Section 6(a), it being understood that Executive's acceptance of other employment shall not reduce ICH's or the other Companies' obligations hereunder. (b) DEATH. If Executive's employment is terminated due to death of Executive (pursuant to Section 5(a)(ii)), Executive's estate or beneficiary(ies), as the case may be, shall be entitled to the proceeds of the key man life insurance policy currently held by ICH (the "Death Benefit"). In the event that the Death Benefit exceeds -13- the sum of (i) sixty percent (60%) of the value of the Severance Payment and (ii) the outstanding balance (principal and interest) of the Residence Loan and any other loans made to Executive (except the 1997 Option Loans) by ICH or any of the other Companies ((i) and (ii) being collectively referred to as, the "Target Death Benefit"), such excess amount shall be due and payable by the Executive's estate or beneficiary(ies) to ICH or the other Companies, as the case may be, on the date of such termination in a single sum payment; PROVIDED, HOWEVER, that the amount of such payment by the Executive's estate or beneficiary(ies) shall not exceed the outstanding balance (principal and interest) of the Residence Loan and any other loans made to Executive (except the 1997 Option Loans) by ICH or any of the other Companies. In the event that the Death Benefit is less than the Target Death Benefit, ICH shall pay the amount of such difference to the Executive's estate or beneficiary(ies) on the date of such termination in a single sum payment. In addition, Executive's estate or beneficiary(ies), as the case may be, shall be entitled to receive Executive's Prior Bonus Payment, Vested Options, Expense Reimbursement, and the 1997 Option Loan Forgiveness as set forth in Section 4(b)(ii) hereof and Executive's spouse and covered children shall be entitled to receive Fringe Benefit Continuation to the extent applicable. Any amounts owed by Executive's estate or beneficiary(ies) to ICH or any of the other Companies hereunder shall be set off against any amounts payable from the Companies to the Executive's estate or beneficiary(ies), as the case may be. (c) TERMINATION WITH CAUSE OR VOLUNTARY QUIT. If ICH terminates Executive's employment for Cause (pursuant to Section 5(a)(i)) or in the event Executive voluntarily terminates his employment without Good Reason (pursuant to Section 5(a)(vi)) ("Voluntary Quit"), Executive shall be entitled to his Annual Base Salary through the date of the termination of such employment and Executive shall be entitled to any bonuses which have been earned but not paid prior to such termination. Executive shall not be entitled to any other bonuses. Executive's additional benefits specified in Section 2 shall terminate at the time of such termination and the entire outstanding balance (principal and interest) of the Residence Loan, the 1997 Option Loans and any other loans from ICH or any of the other Companies to Executive shall be due and owing on date of such termination. Any amounts owed by Executive to ICH or the other Companies hereunder shall be set off against any amounts payable from the Companies to the Executive. Additionally, Executive shall be entitled to all Options that have vested as of the date of such termination. All outstanding Options, which have not vested, if any, as of date of such termination shall be forfeited, and if the termination is for Cause, no further payments pursuant to Section 3(b) shall be made to Executive. (d) TERMINATION BY ICH UPON CHANGE IN CONTROL. If ICH terminates Executive's employment for any reason in connection with a Change in Control which is not approved by the Continuing Directors of ICH, Executive shall receive from ICH in one lump sum, payable on the consummation of the Change in Control an amount -14- equal to the Severance Payment, the Prior Bonus Payment and the Expense Reimbursement. The aforesaid amount shall be payable in cash without discount for early payment on the consummation of such Change in Control. In addition, any outstanding balances (principal and interest) of the Residence Loan, the 1997 Option Loans and any other loans made by ICH and any of the other Companies to Executive shall be forgiven on the consummation of such Change in Control. Executive shall be entitled to his Vested Options and Executive (and his spouse and children) shall be entitled to Fringe Benefit Continuation. In addition to the aforesaid cash payment, ICH shall pay Executive, on the consummation of the Change in Control, in one lump sum, a cash payment (i) in an amount sufficient to cover the full tax consequences of the forgiveness of any loans so that on a net after tax basis Executive shall be the same as if no taxable events had occurred upon such forgiveness (ii) in an amount sufficient to pay any excise taxes which may be imposed on Executive pursuant to Section 4999 of the Code (or any successor provisions) plus any excise or income tax liability on the gross up payment itself so that on a net after tax basis Executive shall be the same as if the excise tax under Section 4999 of the Code (or any successor provisions) had not been imposed. In the event Executive is terminated by ICH in connection with a Change in Control which is not approved by the Continuing Directors of ICH, Executive shall have no duty to mitigate the amount of the payment received pursuant to this Section 6(d), it being understood that Executive's acceptance of other employment shall not reduce the Companies obligations hereunder. (e) VESTING TRUST. At Executive's option, the Companies shall establish a vesting trust into which the Companies shall, to the extent economically feasible, contribute and/or pledge assets to secure their severance obligations to Executive under this Agreement. 7. SUCCESSORS AND ASSIGNS. (a) This Agreement shall be binding upon and inure to the benefit of ICH, its successors and assigns. ICH shall require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all its assets to expressly assume and agree to perform this Agreement in the same manner and to the same extent ICH would be required to perform if no such succession had taken place. (b) Executive agrees that this Agreement is personal to him and may not be assigned by him other than by the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by Executive's legal representative. -15- 8. JOINT AND SEVERAL LIABILITY. (a) NO DUPLICATION OF PAYMENTS. The Companies shall be jointly and severally liable for any amounts payable to Executive under this Agreement. Any amounts payable to Executive shall be paid in the first instance by ICH, and to the extent not paid by ICH shall be paid by the other Companies. In no event shall any amount payable pursuant to this Agreement be paid by ICH and any other Company, or any two or more Companies and Executive shall not be entitled to receive duplicate benefits or payments under any of the provisions of this Agreement. (b) NEW SUBSIDIARIES. Any subsidiary of the Companies that is formed or acquired on or after the date hereof shall be required to become a signatory to this Agreement and shall become jointly and severally liable with the Companies for the obligations hereunder. (c) SALE OF SUBSIDIARIES. Upon the sale of the stock or substantially all of the assets of any subsidiary of the Companies, which is approved by the ICH Board, such subsidiary shall be automatically released from its obligations hereunder and shall not be considered as having any continuing liability for the obligations hereunder, and Executive shall be released from his obligations to such subsidiary hereunder. 9. GOVERNING LAW. This Agreement shall be construed in accordance with, and its validity, interpretation, performance and enforcement and shall be governed by, the laws of the State of California without regard to conflicts of law principles thereof. Each of the parties hereto hereby (a) irrevocably and unconditionally submits to the non-exclusive jurisdiction of any California State or Federal court sitting in San Diego County, California in any action or proceeding arising out of or relating to this Agreement, (b) irrevocably waives, to the fullest extent it may effectively do so, the defense of an inconvenient forum to the maintenance of such action or proceeding, and (c) irrevocably and unconditionally consents to the service of any and all process in any such action or proceeding by the mailing of copies of such process by certified mail to such party and its counsel at their respective addresses specified in Section 12 hereof. 10. ENTIRE AGREEMENT. (a) This instrument contains the entire understanding and agreement among the parties relating to the subject matter hereof, except as otherwise referred to herein, and supersedes all other prior agreements and undertakings, both written and oral, among the parties with respect to the subject matter hereof. The parties recognize that the Prior Agreement has been amended and restated in its entirety by this Agreement and the terms of the Prior Agreement are of no further force and effect. (b) Neither this Agreement nor any provisions hereof may be waived or modified, except by an agreement in writing signed by the party(ies) against whom enforcement of any waiver or modification is sought. -16- 11. PROVISIONS SEVERABLE. In case any one or more of the provisions of this Agreement shall be invalid, illegal or unenforceable in any respect, or to any extent, the validity, legality and enforceability of the remaining provisions contained herein shall not in any way be affected or impaired thereby. 12. NOTICES. Any notice required or permitted to be given under the provisions of this Agreement shall be in writing and delivered by courier or personal delivery, facsimile transmission (to be followed promptly by written confirmation mailed by certified mail as provided below) or mailed by certified mail, return receipt requested, postage prepaid, addressed as follows: If to ICH or any of the other Companies: ICH Corporation 9255 Towne Centre Drive Suite 600 San Diego, California 92121 Attention: Corporate Secretary Facsimile Number: (619) 535-1634 With a copy to: Christopher J. Sues, Esq. Pryor Cashman Sherman & Flynn LLP 410 Park Avenue New York, New York 10022 Facsimile Number: (212) 326-0806 If to Executive: Mr. James Arabia 2174 Guy Street San Diego, California 92103 Facsimile Number: (619) 298-3212 If delivered personally, by courier or facsimile transmission (confirmed as aforesaid and provided written confirmation and receipt is obtained by the sender), the date on which a notice is delivered or transmitted shall be the date on which such delivery is made. Notices given by mail as aforesaid shall be effective and deemed received upon the date of actual receipt or upon the third business day subsequent to deposit in the U.S. mail, whichever is earlier. Either party hereto may change its or his address specified for notices herein by designating a new address by notice in accordance with this Section 12. -17- 13. COUNTERPARTS. This Agreement may be executed in separate counterparts, each of which is deemed to be an original and both of which taken together shall constitute one and the same agreement. IN WITNESS WHEREOF, the Companies and Executive have executed this Agreement as of the date first above written. EXECUTIVE ICH CORPORATION /S/ /S/ - ------------------------- -------------------------------------- JAMES R. ARABIA NAME: John A. Bicks TITLE: Executive Vice President and General Counsel SYBRA, INC. /S/ -------------------------------------- NAME: John A. Bicks TITLE: Executive Vice President and General Counsel LYON'S OF CALIFORNIA, INC. /S/ -------------------------------------- NAME: John A. Bicks TITLE: Executive Vice President and General Counsel CARE FINANCIAL CORP. /S/ -------------------------------------- NAME: John A. Bicks TITLE: Executive Vice President and General Counsel -18- EX-10.31 5 EXHIBIT 10.31 Exhibit 10.31 February 9, 2000 Mr. Glen Freter Sybra, Inc. 9255 Towne Centre Drive, Suite 600 San Diego, CA 92121 Mr. Rob Drechsler I.C.H. Corporation 780 Third Avenue, 43rd Floor New York, NY 10017 Gentlemen: Newcourt Commercial Finance Corporation (the "Lender") has approved your loan application and is pleased to issue this commitment letter (THE "COMMITMENT") SUBJECT TO AND CONDITIONED ON THE FOLLOWING TERMS AND CONDITIONS: A. BASIC CREDIT TERMS LENDER: Newcourt Commercial Finance Corporation BORROWER: Sybra, Inc. GUARANTORS: I.C.H. Corporation AMOUNT: $12,500,000 Line of Credit. The facility shall be available until June 30, 2001 unless extended at Lender's sole discretion. Each takedown / loan advance will be subject to Lender's review and approval of, but not limited to, the following: o site selection approval of franchisor o 12 month income statement projection o schedule of project costs o quarterly financial statements o financial statements for individual stores financed by Lender and/or for other stores operated by Borrower in same DMA. TERM/ Real Estate: 15-year term / 20-year AMORTIZATION: amortization; Equipment: 7-year term / 7-year amortization; Blended: 12-year term / 12-year amortization USE OF PROCEEDS: Each Loan under the Line may be used to finance development costs of new Arby's restaurants. Advances shall be up to 90% of Total Project Costs ("Total Project Costs" shall be defined to include construction of improvements, FF&E, soft costs, franchise fees and pre-opening expenses), including up to 100% of costs for real estate, improvements, furniture, fixtures & equipment, architectural fees, professional and other fees. COLLATERAL: The proposed facility is to be secured by a first security interest in favor of Lender on all Business Assets of Borrower associated with the site being financed by Lender, including any proceeds thereof. In addition, Lender shall be granted an ALTA insured first mortgage on all real property being financed with this acquisition. The facility will be subject to cross-default and cross-collateral provisions with present and future loans from Lender. INTEREST RATE: Real Estate & Blended Loans: Fixed rate of 410 basis points above the published average yield on U.S. Treasury Notes maturing approximately ten (10) years from the date of closing. The fixed rate will be determined five (5) business days prior to closing and based on the then published yield on U.S. Treasury Notes maturing ten (10) years thereafter trading closest to par. Equipment Loans: Fixed rate of 410 basis points above the published average yield on U.S. Treasury Notes maturing approximately seven (7) years from the date of closing. The fixed rate will be determined five (5) business days prior to closing and based on the then published yield on U.S. Treasury Notes maturing seven (7) years thereafter trading closest to par. On construction loans, the interest rate for the construction period shall be the Prime Rate plus 1%, adjustable quarterly. The interest rate for the permanent loan is stated above and shall be set five business days prior to the closing date of such permanent loan. ORIGINATION FEE: Borrower shall remit a non-refundable loan origination fee of 1.0% of the principal amount of each Loan under the Line, which shall be due at the initial disbursement of each Loan. COMMITMENT FEE: A non-refundable commitment fee of $75,000 (Lender hereby acknowledges receipt to date of $25,000 thereof) is due with the return of the signed Commitment Letter. The $75,000 fee shall be applied to the 1.0% commitment fee that will be due for each loan under the Line of Credit, until such amount is exhausted. Thereafter, commitment fees of 1.0% of each loan under the Line of Credit shall be due upon the return of each applicable commitment letter. This Commitment Fee shall be used to reimburse lender for all expenses described in the "costs" section Page 2 of this letter. The balance, if any, after these expenses shall be applied to the Loan Origination Fee. PREPAYMENT: Prepayment premiums (together with an administrative fee of $4,000) will be assessed on the amount of the principal balance prepaid as follows: Year of Loan % of Principal Balance 1 Not Allowed 2 Not Allowed 3 5% 4 4% 5 3% 6 2% 7 1% Thereafter 0% LATE CHARGE AND A late payment charge of 5% of the payment DEFAULT INTEREST: will be assessed on all payments received more than 10 days after its scheduled due date. In the event of default, the interest rate charged shall increase to a rate of 400 basis points (i.e., 4%) over the rate otherwise payable, provided that in no event shall Borrower be obligated to pay a rate or an amount greater than that allowed by applicable law. ENVIRONMENTAL Evidence in form and substance satisfactory REQUIREMENTS: to Lender that all real estate securing the proposed loan is free and clear of any environmental concerns. Borrower will complete an Environmental Questionnaire regarding the real property collateral and Borrower and Guarantors shall execute Environmental Warranty and Indemnification Agreements. In addition, an environmental site assessment (based on ASTM standards and acceptable to Lender) of such property may be necessary and any costs associated therewith shall be paid by Borrower. The real estate securing the proposed loan shall meet or exceed all federal, state and local requirements or regulations that are in effect and will meet or exceed all applicable future federal, state and local requirements or regulations as they become effective. Borrower will promptly take whatever action is necessary when an environmental issue has arisen including the financial responsibility for any clean-up process. JUNIOR LIENS: No liens or encumbrances on the collateral will be permitted (except those in favor of Lender) without Lender's prior written permission (which permission may be withheld for any reason). Page 3 For each site financed, Lender shall allow up to $50,000 PMSI liens for collateral not financed by Lender. B. FINANCIAL INFORMATION FINANCIAL: Annual CPA-audited consolidated financial statements of I.C.H. Corporation shall be furnished to Lender within 120 calendar days of the end of each fiscal period, together with consolidating statements including Borrower. Interim semi-annual financial statements for Borrower shall be provided to Lender within 45 calendar days of the end of each 6-month period. In addition, so long as the Line of Credit is in effect, internally prepared quarterly financial statements shall be provided. FINANCIAL COVENANTS: Minimum Fixed Charge Coverage Ratio ("FCCR") of 1.1:1.0, measured annually. FCCR is defined as A) net income plus income taxes plus interest plus depreciation plus amortization plus rent expense plus extraordinary non-cash expenses minus extraordinary non-cash income, divided by B) the sum of required principal payments during such year (including capital lease payments), interest expense, and rent expense C. CONDITIONS TO CLOSING DOCUMENTATION: Documentation in the form and substance acceptable to Lender will be required, including assignment of leases. INJECTION OF FUNDS: Prior to, or simultaneously with closing of each Loan, Borrower will provide evidence of non-borrowed funds utilized to pay for a minimum of 10% of total project costs. FUNDING: Funding will take place upon Lender's confirmation of compliance with all terms and conditions of the Commitment. COSTS: Borrower shall reimburse Lender for all reasonable "out of pocket" expenses and fees incurred which are necessary to close the transaction and perfect Lender's security interest, including but not limited to searches, inspections, title insurance, recording fees, mortgage taxes, surveys, inspection reports and legal fees, whether or not the loan is closed. AUTOMATIC DEBITS: Borrower shall be required to make Loan payments via automatic electronic transfers from the Borrower's designated checking account. Page 4 SURVEYS: Borrower will deliver a survey of all real estate securing the Loan, acceptable to Lender, showing all improvements thereon and all easements affecting the property with ALTA certification in favor of Lender and title insurer. TITLE INSURANCE: A title insurance policy issued by a title company approved by Lender, including deletion of all exceptions requested by Lender; on all real estate offered as collateral. RISK INSURANCE: The Borrower shall furnish to Lender such fire, hazard, special hazard, flood, general liability and any other insurance coverage as Lender may require on business assets and mortgaged properties. Lender to be named as mortgagee, loss payee and/or additional insured, as applicable. The minimum amounts of said insurance shall be in the amount of the loan, unless specified otherwise by Lender. Such insurance to be in form and substance acceptable to Lender. CONSTRUCTION: Under the Preferred Customer Real Estate Development Program for ground lease construction program, Lender advances 80% of the total loan amount during the construction process and the remaining 20% at permanent loan closing. Ground lease term, including options, has to be at least 150% of loan term. (NOTE: Only one construction loan under the ground lease program may be outstanding at one time. Borrower may instead utilize Lender's standard construction program.) Construction Fee: Prior to initial disbursement, Borrower shall pay to Lender a construction lending fee in an amount of one percent (1.00%) of that portion of the loan authorized for construction (including building and equipment). Ground lease transactions approved by Lender may be taken down in two (2) advances. FIRST ADVANCE: First advance under the loan will be up to 40% of the building, site development and equipment costs. Funding will be subject to Lender's review and approval of satisfactory loan submissions including, but not limited to, the following: a) Receipt of franchisor's site approval; b) Receipt of executed lease agreement; c) Receipt of the standard AIA form Contractor's Qualification Statement; Page 5 d) Receipt of title insurance rundown evidencing no liens against the subject property; e) A preliminary survey showing the improvements, easements, and restrictions of record; f) Plans and Specifications - One (1) complete set of the final plans and specifications; g) Construction budget - A complete budget breakdown in a standard CSI format for all on- site and off-site improvements, which are necessary for substantial completion of the project; h) Copy of executed construction contract; i) Letters of Certification from the design Architect and Engineer or the Project Manager indicating that the plans and specifications submitted for our review comply with all applicable codes including but not limited to earthquake, zoning, environmental and governmental requirements. If the property lies within a Flood Hazard Zone, submit a copy of the Elevation Certificate as required by Federal Flood Insurance. A complete list of the plans and specifications submitted should be included indicating the original and revision dates; and j) Copies of the Building Permit Application, Building Permit, Zoning Board Approval and any and all variances granted for the property. SECOND ADVANCE: Second advance will be up to 80% of the building, site development and equipment costs. Funding of the second advance will be subject to Lender's review and approval of the following: Letter from the Borrower stating the percentage of completion (at least 50% completed) with a back-up letter from the Contractor or Contractor's draw request, stating the same percentage of completion. CONVERSION TO PERMANENT LOAN OR TAKE-OUT Page 6 CONSTRUCTION: PRIOR TO CONVERSION TO A PERMANENT LOAN OR IF THE BORROWER IS UNDERTAKING A CONSTRUCTION PROJECT FINANCED BY AN INTERIM CONSTRUCTION LENDER, and because the successful completion of the construction project is a prerequisite to the closing of the permanent loan, Lender's approval is subject to the following added conditions: a) Receipt of lien releases and waivers and all other documentation satisfactory to Lender, to assure Lender's first priority lien position with respect to the real estate collateral; and b) The construction project shall be completed in accordance with the plans and specifications; the necessary licenses and permits must be obtained and an unconditional final Certificate of Occupancy and any other certificates, licenses, permits, or approvals necessary to operate the Borrower's business on the premises must be issued by the appropriate authority; and c) An updated survey showing the improvements, easements, and restrictions of record, satisfactory to Lender. NON-CONVERSION FEE: Borrower understands and acknowledges the economic benefit Lender anticipates and expects to receive from Borrower's agreement to convert its construction loans with Lender to permanent loans with Lender upon completion of the construction projects. Borrower also understands, acknowledges and agrees that Lender would not extend the construction financing to Borrower BUT FOR the Borrower's agreement to convert the construction financing to a permanent financing status with the Lender. Borrower shall pay Lender a three percent (3.0%) non-conversion fee if the construction loan is not converted to a permanent loan within six (6) months. Moreover, if the construction loan does not timely convert to a permanent loan within six (6) months, Borrower understands, acknowledges and agrees that Lender shall have no duty or obligation to release the lien of its construction mortgage unless and until the three percent (3.0%) non-conversion fee has been paid in full to Lender. INSPECTION: Lender may require inspections of all real estate collateral and the construction premises by Lender or Lender's designee. Borrower agrees to provide access at such times as required by Lender or Lender's designee. Page 7 FRANCHISE Satisfactory evidence that Borrower has AGREEMENT: been approved to operate as an Arby's franchise. Borrower acknowledges that the loan program designed for the franchise concept does not constitute an endorsement of the franchise concept or the franchiser by Lender. All franchise programs involve elements of risk to the franchisee, and prospective franchisees are cautioned to make a thorough and independent investigation of the franchiser and its franchise program. Borrower acknowledges that it is NOT relying upon Lender's willingness to provide financing as an endorsement by Lender of the franchiser or the franchise concept or program. Remaining term of franchise rights held by Borrower must be at least equal to the term of the loan. ATTORNEY'S OPINION: LETTER: Borrower's and Guarantor's counsel shall provide at closing an opinion of counsel in form acceptable to Lender. EVIDENCE OF AUTHORIZATION: Borrower and Guarantor's shall provide evidence satisfactory to the Lender that the Borrower (if a corporation or other form of organization) and all guarantors have taken all necessary corporate or other actions to authorize the transaction contemplated herein. NO MATERIAL ADVERSE CHANGE: Lender has issued this Commitment in reliance of the continuation of the present management, ownership and financial condition of the Borrower and guarantors. Accordingly, should any actual or threatened material adverse change affect the Borrower, any guarantor, or any collateral pledged as security, Lender shall have the right to withdraw its Commitment and shall have no further obligation to Borrower to make any loan, or otherwise. The determination of material adverse change shall be made in the reasonable discretion of Lender. Additionally, if Borrower or any guarantor is considered to be in default by Lender or any of Lender's affiliates under any agreement or other obligation now or hereafter in effect with Lender or Lender's affiliates, Lender shall be under no obligation to extend the credit contemplated herein. Further, Lender's obligation to fund the loan is expressly subject to there not having occurred at any time prior to the funding of the loan any adverse change in, deterioration of, or any occurrence which materially and adversely affects domestic or international financial, liquidity, banking, or syndication markets, or the Lender's availability or access thereto, either generally, or specifically with respect to the loan transaction described herein, which, in the reasonable judgment of the Lender, would materially Page 8 and adversely affect any of the parties to the transaction described herein or the transaction itself. In addition, if any of the foregoing material adverse changes occur, Lender, at its option, shall have the right, but not the obligation, to modify the pricing, structure or terms of the loan if the Lender determines that such changes are advisable in order to fund the loan. In the event that the Borrower does not consent to such modifications, either the Lender or the Borrower may terminate this Commitment, whereupon this Commitment shall be of no further force or effect (except that the Borrower shall remain obligated to pay the fees, costs and expenses as stated herein.). TERM OF THE If this letter is not executed and returned COMMITMENT: within seven (7) days from the date hereof, this Commitment will become null and void. Upon receipt of the commitment fee and this executed letter, this Commitment shall remain open until, and must close by, June 30, 2001 whereupon this Commitment will expire and become null and void. Borrower may request in writing a 60 day extension of the closing date, which Lender in its sole discretion may allow. NONASSIGNABILITY: This Commitment is not assignable by Borrower by operation of law or otherwise without the prior written consent of Lender, which may be withheld by Lender in its sole discretion, for any reason or no reason. CHOICE OF LAW; This Commitment shall be governed by the WAIVER: internal laws (as opposed to the conflicts of law provisions) and decisions of the State of New Jersey. Borrower waives all rights to special, incidental, punitive or consequential damages that may be alleged to arise out of or relate to this Commitment or any transaction contemplated hereunder. SURVIVABILITY: The terms and conditions of this Commitment shall survive the closing of the loan, and to the extent any such terms and conditions conflict with the loan closing documents, the terms and conditions of the loan closing documents shall control. We thank you for the opportunity to be of service. If the terms of this Commitment are acceptable, please evidence your acceptance by signing below in the space indicated and returning the executed copy of this letter to the undersigned together with a check in the amount of $50,000, representing the balance of the commitment fee. This Commitment is solely for the use of the Borrower and, unless Lender agrees in writing, it shall not be disclosed to any person or entity not affiliated with the Borrower including, without limitation, any other potential financing source. You hereby recognize, acknowledge and agree that if the transaction contemplated hereby is consummated on or after January 1, 2000, then at the sole discretion of Newcourt Commercial Page 9 Finance Corporation, the actual obligee may be The CIT Group/Equipment Financing, Inc. rather than Newcourt Commercial Finance Corporation. If you have any questions concerning this Commitment, please call me at (973) 606-4891. Sincerely, NEWCOURT COMMERCIAL FINANCE CORPORATION By:_______________________________ Name: Mark L. Robinson Title: Senior Credit Underwriter Acknowledged and Accepted: BORROWER: Sybra, Inc. By:_______________________________ Name: Title: Acknowledged and Accepted: GUARANTOR: I.C.H. Corporation By:_______________________________ Name: Title: Page 10 EX-10.32 6 EXHIBIT 10.32 Exhibit 10.32 LOAN AGREEMENT THIS LOAN AGREEMENT, dated as of December 29, 1999, is between SYBRA, INC., a Michigan corporation ("Borrower"), and FINOVA CAPITAL CORPORATION, a Delaware corporation (together with its successors and assigns, "FINOVA"). PRELIMINARY STATEMENT: Borrower desires to borrow up to $8,500,000 which amount shall be used (i) to pay transaction costs, (ii) for working capital and (iii) to provide funds for the acquisition and development of Expansion Stores. FINOVA has agreed to make the Loan upon the terms and subject to the conditions set forth herein. NOW, THEREFORE, it is agreed as follows: ARTICLE I DEFINITIONS AND DETERMINATIONS 1.1 DEFINITIONS. As used in this Loan Agreement and in the other Loan Instruments, unless otherwise expressly indicated herein or therein, the following terms shall have the following meanings (such meanings to be applicable equally to both the singular and plural forms of the terms defined): ACCOUNTANTS: Deloitte & Touche, LLP or any other independent certified public accounting firm selected by Borrower and reasonably satisfactory to FINOVA. ACCOUNTING CHANGES: as defined in Section 1.3. ADA: the Americans with Disabilities Act of 1990, as amended, any successor statute thereto, and the rules and regulations issued thereunder, as in effect from time to time. ADDITIONAL SUMS: as defined in subsection 2.2.4. AFFILIATE: any Person that directly or indirectly, through one or more intermediaries, controls or is controlled by or is under common control with another Person. The term "control" means possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities or equity interests, by contract or otherwise. For the purposes hereof any Person which owns or controls, directly or indirectly, 10% or more of the securities or equity interests, as applicable, whether voting or non-voting, of any other Person shall be deemed to "control" such Person. ALLOCATED LOAN AMOUNT: for each Initial Store, the portion of the Principal Balance allocated to such Initial Store as set forth on EXHIBIT 5.5.2. The Allocated Loan Amount for each Initial Store shall be reduced concurrently with each payment of the Principal Balance by an amount equal to the amount of such payment multiplied by the percentage that such Allocated Loan Amount bears to $8,500,000. BANKRUPTCY CODE: the United States Bankruptcy Code, any successor statute thereto, and the rules, regulations and legally binding policies promulgated thereunder, as amended and in effect from time to time. BASIC FINANCIAL STATEMENTS: as defined in subsection 6.3.2. BORROWER: as defined in the Preamble to this Loan Agreement. BORROWER CAPITAL STOCK: all of the issued and outstanding capital stock and all warrants, options and other rights to acquire capital stock of Borrower. BORROWER CASH FLOW: for any period, the net income of Borrower for such period: (i) PLUS the sum of the following (without duplication), to the extent deducted in determining such net income for such period: (A) losses from sales, exchanges and other dispositions of Property, and other extraordinary and non-recurring losses, in each case not in the ordinary course of business; (B) interest, fees and other charges paid or accrued on Indebtedness, including, without limitation, interest on Capitalized Leases that is imputed in accordance with GAAP; (C) income taxes paid or accrued; (D) depreciation, amortization and all other non-cash items deducted in determining such net income; and (E) rent expense paid or accrued under all Operating Leases of Borrower during such period, including all Leases and all equipment leases of Borrower which are not Capitalized Leases; and 2 (ii) MINUS the sum of the following (without duplication), to the extent included in determining such net income for such period: (A) gains from sales, exchanges and other dispositions of Property, and other extraordinary and non-recurring gains, in each case not in the ordinary course of business; (B) proceeds of any insurance other than business interruption insurance; and (C) any other non-cash item included in determining such net income. BORROWER FIXED CHARGE COVERAGE RATIO: for any period, the ratio of (i) Borrower Cash Flow for such period to (ii) Borrower Fixed Charges for such period. BORROWER FIXED CHARGES: during any period as applicable, the sum of (i) all payments of principal, interest, premium, loan fees and other charges with respect to Indebtedness for Borrowed Money made or required to be made by Borrower during such period plus (ii) rent expense paid or accrued under all Operating Leases of Borrower during such period, including all Leases and all equipment leases of Borrower which are not Capitalized Leases. BORROWER's Obligations: (i) any and all Indebtedness due or to become due, now existing or hereafter arising, of Borrower to FINOVA pursuant to the terms of this Loan Agreement or any other Loan Instrument, including, without limitation, the Loan Fee, and (ii) the performance of the covenants of Borrower contained in the Loan Instruments. BUSINESS DAY: any day other than a Saturday, Sunday or other day on which banks in Phoenix, Arizona or New York, New York are required to close. CAPITALIZED LEASE: any lease of Property, the obligations for the rental of which are required to be capitalized in accordance with GAAP. CLOSING: the disbursement of the Loan. CLOSING DATE: the date the Closing occurs. CODE: the Internal Revenue Code of 1986, any successor statute thereto, and the rules, regulations and legally binding policies promulgated thereunder, as amended and in effect from time to time. 3 COLLATERAL: (i) all existing and after-acquired Property of Borrower related to the Collateral Stores, including, without limitation, all furniture, fixtures, equipment and inventory located at the Collateral Stores, but excluding (A) the Development Agreement, (B) all intellectual property, Franchise Agreements, Collateral Store Leases and Licenses of Borrower and (B) all Property of Borrower subject to Permitted Senior Indebtedness Liens and (ii) all proceeds of the foregoing. COLLATERAL STORE LEASE: a Lease of a Collateral Store. COLLATERAL STORES: collectively, the Initial Stores and each Substitute Store. COMPLIANCE CERTIFICATE: a compliance certificate executed by Borrower in the form of Exhibit 1.1(A) attached hereto. DEFAULT RATE: 12.88% per annum. DEFAULT RATE PERIOD: a period of time commencing on the date an Event of Default has occurred and ending on the date that such Event of Default is cured or waived. DEVELOPMENT AGREEMENT: that certain Development Agreement dated as of May 12, 1998 between Franchisor and Borrower. EMPLOYEE BENEFIT PLAN: any employee benefit plan within the meaning of Section 3(3) of ERISA which (i) is maintained for employees of Borrower or any of its ERISA Affiliates or (ii) has at any time within the preceding six years been maintained for the employees of Borrower or any of its current or former ERISA Affiliates. ENVIRONMENTAL LAWS: any and all federal, state and local laws that relate to or impose liability or standards of conduct concerning public or occupational health and safety or protection of the environment, as now or hereafter in effect and as have been or hereafter may be amended or reauthorized, including, without limitation, the Comprehensive Environmental Response, Compensation and Liability Act (42 U.S.C. '9601 ET SEQ.), the Hazardous Materials Transportation Act (42 U.S.C. '1802 ET SEQ.), the Resource Conservation and Recovery Act (42 U.S.C. '6901 ET SEQ.), the Federal Water Pollution Control Act (33 U.S.C. '1251 ET SEQ.), the Toxic Substances Control Act (15 U.S.C. '2601 ET SEQ.), the Clean Air Act (42 U.S.C. '7901 ET seq.), the National Environmental Policy Act (42 U.S.C. '4231, ET SEQ.), the Refuse Act (33 U.S.C. '407, ET SEQ.), the Safe Drinking Water Act (42 U.S.C. '300(f) ET SEQ.), the Occupational Safety and Health Act (29 U.S.C. '651 ET SEQ.), and all rules, regulations, codes, ordinances and guidance documents promulgated or published thereunder, and the provisions of any licenses, permits, orders and decrees issued pursuant to any of the foregoing. 4 ERISA: the Employee Retirement Income Security Act of 1974, and any successor statute thereto, and the rules, regulations and legally binding policies promulgated thereunder, as amended and in effect from time to time. ERISA AFFILIATE: any Person who is a member of a group which is under common control with Borrower, who together with Borrower is treated as a single employer within the meaning of Section 414(b), (c) and (m) of the Code. EVENT OF DEFAULT: any of the Events of Default set forth in Section 8.1. EXCESS INTEREST: as defined in subsection 2.2.4. EXPANSION STORES: new Stores to be acquired, constructed, renovated or otherwise developed by Borrower after the Closing Date pursuant to the Development Agreement. FINOVA: as defined in the Preamble to this Loan Agreement. FINOVA DEBT SERVICE: for any period, all payments of principal and interest with respect to the Principal Balance or an Allocated Loan Amount, as applicable, made or required to be made by Borrower during such period. FRANCHISE AGREEMENT: a franchise agreement between Borrower and Franchisor with respect to the operation of a Collateral Store, in form and substance reasonably satisfactory to FINOVA. FRANCHISOR: Arby's, Inc., a Delaware corporation. GAAP: generally accepted accounting principles as in effect from time to time, which shall include but shall not be limited to the official interpretations thereof by the Financial Accounting Standards Board or any successor thereto. GOOD FUNDS: United States Dollars available in Federal funds to FINOVA at or before 2:00 p.m., Phoenix time, on a Business Day. GOVERNMENTAL BODY: any foreign, federal, state, municipal or other government, or any department, commission, board, bureau, agency, public authority or instrumentality thereof or any court or arbitrator. GUARANTY: a guaranty of Borrower's Obligations executed by the Guarantor in favor of FINOVA. 5 GUARANTOR: I.C.H. Corporation, a Delaware corporation. HAZARDOUS MATERIALS: any hazardous, toxic, dangerous or other waste, substance or material defined as such in, regulated by or for purposes of any Environmental Law. INCIPIENT DEFAULT: any event or condition which, with the giving of notice or the lapse of time, or both, would become an Event of Default. INDEBTEDNESS: all liabilities, obligations and reserves, contingent or otherwise, which, in accordance with GAAP, would be reflected as a liability on a balance sheet or would be required to be disclosed in a financial statement or the footnotes thereto, including, without duplication: (i) Indebtedness for Borrowed Money, (ii) obligations secured by any Lien upon Property, (iii) guaranties, letters of credit and other contingent obligations and (iv) liabilities in respect of unfunded vested benefits under any Pension Plan or in respect of withdrawal liabilities incurred under ERISA by Borrower or any of its ERISA Affiliates to any Multiemployer Plan. INDEBTEDNESS FOR BORROWED MONEY: without duplication, all Indebtedness (i) in respect of money borrowed, (ii) evidenced by a note, debenture or other like written obligation to pay money (including, without limitation, all of Borrower's Obligations and Permitted Senior Indebtedness), (iii) in respect of rent or hire of Property under Capitalized Leases or for the deferred purchase price of Property, (iv) in respect of obligations under conditional sales or other title retention agreements and (v) all guaranties of any or all of the foregoing. INITIAL STORES: the existing Stores designated by the numbers and at the locations described in EXHIBIT 5.5.2. LANDLORD: a lessor under a Lease. LANDLORD's Waiver: a landlord's waiver in form and substance satisfactory to FINOVA. LEASE: any lease of real estate under which Borrower is the lessee or sublessee. LEASEHOLD PROPERTY: any real estate which is the subject of a Lease. LICENSES: all licenses (including liquor licenses, if any), permits, consents, approvals and authority issued by any Governmental Body in connection with the operation of the Collateral Stores. LIEN: any mortgage, pledge, assignment, lien, charge, encumbrance or security interest of any kind, or the interest of a vendor or lessor under any conditional sale agreement, Capitalized Lease or other title retention agreement. 6 LOAN: the term loan to be made by FINOVA to Borrower pursuant to Section 2.1. LOAN AGREEMENT: this Loan Agreement and any amendments or supplements hereto. LOAN FEE: the fee payable to FINOVA pursuant to Section 2.5. LOAN INSTRUMENTS: (i) Loan Agreement; (ii) Note; (iii) Guaranty; (iv) Security Agreement; (v) Solvency Certificate; (vi) such Uniform Commercial Code financing statements as FINOVA may require in order to perfect the Security Interests; and (vii) such other instruments and documents as FINOVA reasonably may require in connection with the transactions contemplated by this Loan Agreement. LOAN YEAR: a period of time from the Closing Date or any anniversary of the Closing Date to the immediately succeeding anniversary of the Closing Date. MATERIAL ADVERSE EFFECT: (i) a material adverse effect upon the business, operations, Property, profits or condition (financial or otherwise) of Borrower, (ii) a material adverse effect upon the validity, enforceability or priority of the Security Interests or (iii) a material impairment of the ability of Borrower to perform its obligations under any Loan Instrument to which it is a party or of FINOVA to enforce or collect any of Borrower's Obligations. MATURITY DATE: the earlier to occur of (i) January 4, 2010 and (ii) the date Borrower's Obligations are accelerated pursuant to Section 8.2. MAXIMUM RATE: as defined in subsection 2.2.4. 7 MULTIEMPLOYER PLAN: any multiemployer plan as defined pursuant to Section 3(37) of ERISA to which Borrower or any of its ERISA Affiliates makes, or accrues an obligation to make contributions, or has made, or been obligated to make, contributions within the preceding six years. NOTE: a promissory note in the principal amount of $8,500,000 executed and delivered by Borrower to FINOVA to evidence the Loan. OBLIGOR: any of the Obligors. OBLIGORS: collectively, Borrower and Guarantor. OPERATING AGREEMENTS: all right-of-entry agreements, supply agreements, access agreements, advertising contracts, equipment leases, service contracts and similar agreements relating to the operation of the Collateral Stores, excluding the Development Agreement and the Collateral Store Leases, the Franchise Agreements and Licenses. OPERATING LEASE: any lease which, under GAAP, is not required to be capitalized. PBGC: the Pension Benefit Guaranty Corporation or any Governmental Body succeeding to the functions thereof. PENSION PLAN: any Employee Benefit Plan, other than a Multiemployer Plan, which is subject to the provisions of Part 3 of Title I of ERISA, Title IV of ERISA, or Section 412 of the Code and which (i) is maintained for employees of Borrower or any of its ERISA Affiliates, or (ii) has at any time within the preceding six years been maintained for the employees of Borrower or any of its current or former ERISA Affiliates. PERMITTED LIENS: any of the following Liens: (i) the Security Interests; (ii) Liens for taxes or assessments and similar charges, which either are (A) not delinquent or (B) being contested diligently and in good faith by appropriate proceedings, and as to which Borrower has set aside reserves on its books which are satisfactory to FINOVA; (iii) statutory Liens, such as mechanic's, materialman's, warehouseman's, carrier's or other like Liens, incurred in good faith in the ordinary course of business, provided that the underlying obligations relating to such Liens are paid in the ordinary course of business, or are being contested diligently and in good faith by appropriate proceedings and as to which 8 Borrower has set aside reserves on its books satisfactory to FINOVA, or the payment of which obligations are otherwise secured in a manner satisfactory to FINOVA; (iv) zoning ordinances, easements, licenses, reservations, provisions, covenants, conditions, waivers or restrictions on the use of Property and other title exceptions, in each case, that are acceptable to FINOVA, or that do not interfere with the intended use of the Property as a Collateral Store; (v) Liens in respect of judgments or awards with respect to which no Event of Default would exist pursuant to subsection 8.1.6; (vi) Liens to secure payment of insurance premiums (A) to be paid in accordance with applicable laws in the ordinary course of business relating to payment of worker's compensation, or (B) that are required for the participation in any fund in connection with worker's compensation, unemployment insurance, old-age pensions or other social security programs; (vii) the Permitted Senior Indebtedness Liens; and (viii) statutory liens in favor of Landlords under Collateral Store Leases or contractual liens granted to Landlords under Collateral Store Leases, in each case to secure the obligations of Borrower under Collateral Store Leases. PERMITTED PRIOR LIENS: any of the following Liens: (i) the Permitted Liens described in clauses (ii) and (iii) of the definition of Permitted Liens that are accorded priority to the Security Interests by law; (ii) the Permitted Liens described in clauses (iv) and (vi) of the definition of Permitted Liens, subject to the limitations set forth therein; and (iii) the Permitted Senior Indebtedness Liens. PERMITTED SENIOR INDEBTEDNESS: Indebtedness, other than Borrower's Obligations, incurred to purchase tangible personal property or Indebtedness incurred to lease tangible personal property pursuant to Capitalized Leases, provided that (i) the amount of such Indebtedness attributable to any Collateral Store at any one time outstanding during any Loan Year shall not exceed $60,000, 9 and (ii) no Event of Default exists at the time or will be caused as a result of the incurrence of any Indebtedness described in clause (i). PERMITTED SENIOR INDEBTEDNESS LIENS: Liens that secure Permitted Senior Indebtedness, provided that each such Lien attaches only to the Property purchased or leased with the proceeds of the Permitted Senior Indebtedness incurred with respect to such Property. PERSON: any individual, firm, corporation, business enterprise, trust, association, joint venture, partnership, Governmental Body or other entity, whether acting in an individual, fiduciary or other capacity. PRINCIPAL BALANCE: the aggregate unpaid principal balance of the Loan or any specified portion thereof outstanding from time to time. PROPERTY: all types of real, personal or mixed property and all types of tangible or intangible property. QUALIFIED DEPOSITORY: a member bank of the Federal Reserve System having a combined capital and surplus of at least $100,000,000. REAL ESTATE: any fee simple real estate now owned or hereafter acquired, beneficially or otherwise, by Borrower. RESTAURANT BUSINESS: the ownership and operation of restaurants, taverns, banquet centers, related commissary/catering services and ancillary activities. SECURITIES ACT: the Securities Act of 1933, the Securities Exchange Act of 1934, any successor statute thereto, and the rules, regulations and legally binding policies of the Securities Exchange Commission promulgated thereunder, as amended and in effect from time to time. SECURITY AGREEMENT: a security agreements executed by Borrower in favor of FINOVA. SECURITY INTERESTS: the Liens in the Collateral granted to FINOVA pursuant to the Security Agreement and any other document now or hereafter executed by any Obligor which purports to grant a Lien on the Property of such Obligor in favor of FINOVA to secure Borrower's Obligations. SOLVENCY CERTIFICATE: a solvency certificate executed by Borrower in favor of FINOVA. STATED RATE: as defined in subsection 2.2.4. 10 STORE: an ARBY's restaurant owned and operated by Borrower. STORE CASH FLOW: for any period, with respect to any designated Store, the net income of Borrower derived from the operation of such Store for such period: (i) PLUS the sum of the following (without duplication), to the extent deducted in determining such net income for such period and to the extent attributable to such Store for such period: (A) losses from sales, exchanges and other dispositions of Property, and other extraordinary and non-recurring losses, in each case not in the ordinary course of business; (B) interest, fees and other charges paid or accrued on Indebtedness, including, without limitation, interest on Capitalized Leases that is imputed in accordance with GAAP; (C) income taxes paid or accrued; (D) depreciation, amortization and all other non-cash items deducted in determining such net income; and (E) rent expense paid or accrued under all Operating Leases related to such Store, including the Collateral Store Lease of such Store and all equipment leases which are not Capitalized Leases pertaining to equipment located at such Store; and (ii) MINUS the sum of the following (without duplication), to the extent included in determining such net income for such period and to the extent attributable to such Store for such period: (A) gains from sales, exchanges and other dispositions of Property, and other extraordinary and non-recurring gains, in each case not in the ordinary course of business; (B) proceeds of any insurance other than business interruption insurance; and (C) any other non-cash item included in determining such net income. 11 STORE FIXED CHARGES: during any period with respect to any designated Store, as applicable, the sum of (i) all payments of principal, interest, premium, loan fees and other charges with respect to Indebtedness for Borrowed Money made or required to be made by Borrower which are allocable to such Store plus (ii) rent expense paid or accrued under all Operating Leases of Borrower related to such Store including the applicable Collateral Store Lease and all equipment leases which are not Capitalized Leases pertaining to equipment located at such Store. SUBSTITUTE STORE: as defined in subsection 2.6.2(a). TERMINATION EVENT: (i) a "Reportable Event" described in Section 4043 of ERISA and the regulations issued thereunder; or (ii) the withdrawal of Borrower or any of its ERISA Affiliates from a Pension Plan during a plan year in which it was a "substantial employer" as defined in Section 4001(a)(2); or (iii) the termination of a Pension Plan, the filing of a notice of intent to terminate a Pension Plan or the treatment of a Pension Plan amendment as a termination under Section 4041 of ERISA; or (iv) the institution of proceedings to terminate, or the appointment of a trustee with respect to, any Pension Plan by the PBGC; or (v) any other event or condition which would constitute grounds under Section 4042(a) of ERISA for the termination of, or the appointment of a trustee to administer, any Pension Plan; or (vi) the partial or complete withdrawal of Borrower or any of its ERISA Affiliates from a Multiemployer Plan; or (vii) the imposition of a lien pursuant to Section 412 of the Code or Section 302 of ERISA; or (viii) any event or condition which results in the reorganization or insolvency of a Multiemployer Plan under Sections 4241 or 4245 of ERISA; or (ix) any event or condition which results in the termination of a Multiemployer Plan under Section 4041A of ERISA or the institution by the PBGC of proceedings to terminate a Multiemployer Plan under Section 4042 of ERISA. 1.2 TIME PERIODS. In this Loan Agreement and the other Loan Instruments, in the computation of periods of time from a specified date to a later specified date, (i) the word "from" means "from and including," (ii) the words "to" and "until" each mean "to, but excluding" and (iii) the words "through," "end of" and "expiration" each mean "through and including." Unless otherwise specified, all references in this Loan Agreement and the other Loan Instruments to (i) a "month" shall be deemed to refer to a calendar month, (ii) a "quarter" shall be deemed to refer to a calendar quarter and (iii) a "year" shall be deemed to refer to a calendar year. 1.3 ACCOUNTING TERMS AND DETERMINATIONS. All accounting terms not specifically defined herein shall be construed, all accounting determinations hereunder shall be made and all financial statements required to be delivered pursuant hereto shall be prepared in accordance with GAAP as in effect at the time of such interpretation, determination or preparation, as applicable. In the event that any Accounting Changes (as hereinafter defined) occur and such changes result in a change in the method of calculation of financial covenants, standards or terms contained in this Loan Agreement, then Borrower and FINOVA agree to enter into negotiations to amend such provisions of this Loan Agreement so as to reflect such Accounting Changes with the desired result that the criteria for evaluating the financial condition of 12 Borrower shall be the same after such Accounting Changes as if such Accounting Changes had not been made. For purposes hereof, "Accounting Changes" shall mean (i) changes in generally accepted accounting principles required by the promulgation of any rule, regulation, pronouncement or opinion by the Financial Accounting Standards Board of the American Institute of Certified Public Accountants (or any successor thereto) or other appropriate authoritative body and (ii) changes in accounting principles as approved by the Accountants. 1.4 REFERENCES. All references in this Loan Agreement to "Article," "Section," "subsection," "subparagraph," "clause" or "Exhibit," unless otherwise indicated, shall be deemed to refer to an Article, Section, subsection, subparagraph, clause or Exhibit, as applicable, of this Loan Agreement. 1.5 FINOVA's Discretion. Whenever the terms "satisfactory to FINOVA," "determined by FINOVA," "acceptable to FINOVA," "FINOVA shall elect," "FINOVA shall request," "at the option or election of FINOVA," or similar terms are used in the Loan Instruments, except as otherwise specifically provided therein, such terms shall mean satisfactory to, at the election or option of, determined by, acceptable to or requested by FINOVA, in its sole and unlimited discretion. 1.6 BORROWER's Knowledge. Any statements, representations or warranties in the Loan Instruments that are based upon the best knowledge of Borrower or an officer thereof shall be deemed to have been made after due inquiry by Borrower or an officer, as applicable, with respect to the matter in question. ARTICLE II LOAN AND TERMS OF PAYMENT 2.1 LOAN. 2.1.1 AMOUNT. The Loan shall consist of a term loan from FINOVA to Borrower in the amount of $8,500,000. 2.1.2 DISBURSEMENT. FINOVA shall disburse the Loan to or as directed by Borrower when all of the terms and conditions set forth in Article IV have been satisfied. 2.1.3 USE OF PROCEEDS. The proceeds of the Loan shall be used (i) to pay transaction costs, (ii) for the acquisition and development of Expansion Stores and (iii) for working capital. 2.1.4 NOTE. The Loan shall be evidenced by the Note. 13 2.1.5 REBORROWING. Borrower shall not be entitled to reborrow any portion of the Loan which is repaid or prepaid. 2.2 INTEREST. 2.2.1 INTEREST RATE. Except as provided in subsection 2.2.2, the Principal Balance shall bear interest at a fixed rate per annum equal to 10.88%. 2.2.2 DEFAULT RATE. During a Default Rate Period, Borrower's Obligations shall bear interest at the Default Rate. 2.2.3 INTEREST COMPUTATION. Interest shall be computed on the basis of a year consisting of 360 days and charged for the actual number of days during the period for which interest is being charged. In computing interest, the date of funding of the Loan shall be included and the date of payment shall be excluded. 2.2.4 MAXIMUM INTEREST. Notwithstanding any provision to the contrary contained herein or in any other Loan Instrument, FINOVA shall not collect a rate of interest on any obligation or liability due and owing by Borrower to FINOVA in excess of the maximum contract rate of interest permitted by applicable law ("EXCESS Interest"). All fees, charges, goods, things in action or any other sums or things of value (other than items (a), (b) and (c) below) paid or payable by Borrower (collectively, the "ADDITIONAL SUMS"), whether pursuant to the Note, this Loan Agreement, the other Loan Instruments or any other document or instrument in any way pertaining to the Loan, that, under the laws of the State of Arizona, may be deemed to be interest with respect to the Loan, for the purpose of any laws of the State of Arizona that may limit the maximum amount of interest to be charged with respect to the Loan shall be payable by Borrower and shall be deemed to be additional interest, and for such purposes only, the agreed upon and "contracted for rate of interest" with respect to the Loan shall be deemed to be increased by the rate of interest resulting from the Additional Sums. FINOVA and Borrower agree that the interest laws of the State of Arizona shall govern the relationship among them and understand and believe that the transactions contemplated by the Loan Instruments comply with the usury laws of the State of Arizona, but in the event of a final adjudication to the contrary, Borrower shall be obligated to pay, NUNC PRO TUNC, to FINOVA only such interest as then shall be permitted by the laws of the state found to govern the contract relationship between FINOVA and Borrower. For the purpose of any laws of the State of Arizona that may limit the maximum amount of interest to be charged with respect to a loan, the "contracted for rate of interest" for the Loan shall consist of the following: (a) interest calculated in accordance with the provisions of subsections 2.2.1 and 2.2.2; (b) the late charges calculated in accordance with the provisions of Section 2.4; (c) the Loan Fee; and (d) all Additional Sums, if any. Borrower agrees to pay an effective "contracted for rate of interest" which is the sum of items (a), (b), (c) and (d) above. If any Excess Interest is provided for or determined by a court of competent jurisdiction to have been provided for in this Loan 14 Agreement or any other Loan Instrument, then in such event (i) no Obligor shall be obligated to pay such Excess Interest, (ii) any Excess Interest collected by FINOVA shall be, at FINOVA's option, (A) applied to the Principal Balance of any Loan in such manner as FINOVA may elect or to accrued and unpaid interest not in excess of the maximum rate permitted by applicable law or (B) refunded to the payor thereof, (iii) the interest rates provided for herein (collectively, including, without limitation, the Loan Fee, the "STATED RATE") shall be automatically reduced to the maximum rate allowed from time to time under applicable law (the "MAXIMUM RATE") and this Loan Agreement and the other Loan Instruments, as applicable, shall be deemed to have been, and shall be, modified to reflect such reduction, and (iv) neither Borrower nor any other Obligor shall have any action against FINOVA for any damages arising out of the payment or collection of such Excess Interest. 2.3 PAYMENTS. 2.3.1 STUB PERIOD INTEREST. Interest which will accrue on the Principal Balance from the Closing Date through the last day of the month in which the Closing occurs shall be paid in advance on the Closing Date. 2.3.2 MONTHLY INSTALLMENTS. Commencing on the first Business Day of February, 2000 and on the first Business Day of each month thereafter through the first Business Day of December, 2009, the Principal Balance of the Loan and all accrued and unpaid interest thereon shall be payable in 119 equal monthly installments of $116,510.88. 2.3.3 PAYMENT AT MATURITY. The remaining Principal Balance, together with all accrued and unpaid interest thereon and all other amounts which then are due and payable pursuant to the terms of the Loan Instruments, shall be due and payable in full on the Maturity Date. 2.4 LATE CHARGES. If a payment of principal or interest to be made pursuant to this Loan Agreement becomes past due for a period in excess of ten days, Borrower shall pay on demand to FINOVA a late charge of 10% of the amount of such overdue payment. 2.5 LOAN FEE. Borrower shall pay to FINOVA a loan fee of $85,000, which shall be deemed to be fully earned and payable upon the Closing and against which FINOVA shall credit the $25,000 deposit (net of FINOVA's expenses) previously paid by Borrower to FINOVA. 2.6 PREPAYMENTS. 2.6.1 VOLUNTARY PREPAYMENT. Borrower may not prepay the Principal Balance at any time during the first two Loan Years. Borrower voluntarily may prepay the Principal Balance in whole, but not in part, at any time after the second Loan Year subject to the following conditions: 15 (A) PREPAYMENT PREMIUM. Concurrently with any such voluntary prepayment of the Principal Balance, Borrower shall pay to FINOVA a prepayment premium equal to a percentage of the amount of the Principal Balance prepaid, determined in accordance with the following schedule: Percentage of Principal Period Of Prepayment Balance Prepaid -------------------- ----------------------- Third Loan Year 5.0% Fourth Loan Year 3.0% Fifth Loan Year and Thereafter 1.0% (B) NOTICE OF PREPAYMENT. Not less than 30 days prior to the date upon which Borrower desires to prepay the Principal Balance, Borrower shall deliver to FINOVA notice of its intention to prepay, which notice shall state the prepayment date and the amount of the Principal Balance as of the prepayment date. If Borrower delivers to FINOVA a notice of prepayment and fails to make such prepayment, Borrower shall reimburse FINOVA on demand in the amount of any loss, cost and/or expense incurred by FINOVA as a result of FINOVA's reliance on such notice, including without limitation, any loss, cost or expense resulting from any contractual obligations of FINOVA in connection with the reinvestment of the amount indicated in such notice of prepayment. (C) ADDITIONAL PAYMENTS. Concurrently with any prepayment of the Principal Balance, Borrower shall pay to FINOVA accrued and unpaid interest on the Principal Balance which is being prepaid to the date on which FINOVA is in receipt of Good Funds, and any other sums which are due and payable pursuant to the terms of any of the Loan Instruments. 2.6.2 MANDATORY PREPAYMENTS. (a) LEASE OR FRANCHISE EXPIRATION. In the event any Collateral Store Lease or Franchise Agreement with respect to any Initial Store terminates prior to January 4, 2010, and such Collateral Store Lease or Franchise Agreement is not renewed or otherwise extended, Borrower shall prepay the Principal Balance in an amount equal to the Allocated Loan Amount with respect such Initial Store, unless at least 30 days prior to such termination Borrower delivers to FINOVA (i) certified copies of a Collateral Store Lease and a Franchise Agreement with respect to a Substitute Store and (ii) such amendments to this Loan Agreement and the Security Agreement as are necessary to reflect the substitution of such Substitute Store for such Initial Store, together with a UCC-1 financing statement naming Borrower, as debtor, and FINOVA, as secured party, 16 covering the Collateral located at such Substitute Store. As used herein, the term "SUBSTITUTE STORE" means any Store designated by Borrower: (i) which is the subject of a Collateral Store Lease and a Franchise Agreement each having an expiration date not earlier than January 4, 2010; (ii) with respect to which Borrower demonstrates to the satisfaction of FINOVA that the ratio of the Store Cash Flow for the most recently ended twelve month period to the sum of Store Fixed Charges for such period plus the projected FINOVA Debt Service on the Allocated Loan Amount of the Initial Store being replaced for the succeeding twelve month period is not less than 1.25:1.00; and (iii) with respect to which the representations and warranties contained in Section 5.5 are true and correct in all material respects. (b) ADDITIONAL PAYMENTS; PREPAYMENT PREMIUM. Concurrently with any mandatory prepayment pursuant to subsection 2.6.2(a), Borrower shall pay to FINOVA accrued and unpaid interest on the Principal Balance which is being prepaid to the date on which FINOVA is in receipt of Good Funds, any other sums which are due and payable pursuant to the terms of any of the Loan Instruments and a prepayment premium equal to a percentage of the Principal Balance prepaid, determined in accordance with the following schedule: Percentage of Principal Period Of Prepayment Balance Prepaid -------------------- ----------------------- Third Loan Year 5.0% Fourth Loan Year 3.0% Fifth Loan Year and Thereafter 1.0% (c) APPLICATION OF MANDATORY PREPAYMENTS. Prepayments received by FINOVA pursuant to this subsection 2.6.2 shall be applied in the following order of priority to the payment of: (i) any and all sums which are due and payable pursuant to the terms of the Loan Instruments, except the Principal Balance and accrued and unpaid interest thereon, (ii) accrued and unpaid interest on the portion of the Principal Balance being prepaid and (iii) the installments of the Principal Balance in the inverse order of maturity. 2.6.3 NO PREPAYMENT PREMIUM. No prepayment premium shall be payable with respect to prepayments made from insurance proceeds. 17 2.6.4 INVOLUNTARY PREPAYMENT. Concurrently with any payment of the Principal Balance received by FINOVA resulting from the exercise by FINOVA of any remedy available to FINOVA subsequent to the occurrence of an Event of Default and the acceleration of Borrower's Obligations, Borrower shall pay to FINOVA a prepayment premium in an amount equal to the prepayment premium which would be payable if such payment was made pursuant to subsection 2.6.1. 2.7 PAYMENTS AFTER EVENT OF DEFAULT. All payments received by FINOVA during the existence of an Event of Default shall be applied in accordance with Section 8.4. ARTICLE III GUARANTY AND SECURITY Borrower's Obligations shall be (i) guaranteed by the Guarantor pursuant to the Guaranty and (iii) secured by a Lien upon all of the Collateral, which at all times shall be superior and prior to all other Liens, except Permitted Prior Liens. ARTICLE IV CONDITIONS OF CLOSING 4.1 REPRESENTATIONS AND WARRANTIES. On the Closing Date the representations and warranties of each Obligor set forth in the Loan Instruments to which such Person is a party shall be true and correct. 4.2 PERFORMANCE; NO DEFAULT. Each Obligor shall have performed and complied with all agreements and conditions contained in the Loan Instruments to be performed by or complied with by such Person prior to or at such disbursement and no Event of Default or Incipient Default shall then exist or result from the disbursement of the Loan. 4.3 APPRAISALS. FINOVA shall have received from the Accountants appraisals of ten of the Initial Stores, in each case in form and substance satisfactory to FINOVA, showing an aggregate business value of the Initial Stores of not less than $8,630,000. 4.4 STORE FIXED CHARGE COVERAGE. Borrower shall demonstrate to the satisfaction of FINOVA that the ratio of the combined Store Cash Flow of the Initial Stores for the twelve month period ending closest to September 30, 1999 to the sum of the combined Store Fixed Charges of the Initial Stores 18 for such twelve month period plus the projected FINOVA Debt Service on the Principal Balance for the first Loan Year is not less than 1.25:1.00. 4.5 DELIVERY OF DOCUMENTS. The following shall have been delivered to FINOVA, each duly authorized and executed, where applicable, and in form and substance satisfactory to FINOVA: (a) the Loan Instruments; (b) good standing certificates for each Obligor from the State in which each such Person is organized and for Borrower from each State in which any Initial Store is located, each dated a recent date prior to the Closing Date; (c) copies of: (1) the articles of incorporation of each Obligor, certified by the Secretary of State of the State in which such Obligor is organized, together with all current and proposed amendments thereto, certified by the corporate secretary of such Obligor; (2) the by-laws of each Obligor, together with all current and proposed amendments thereto, certified by the corporate secretary of such Obligor; (3) resolutions adopted by the board of directors of each Obligor, authorizing the execution and delivery by such Obligor of the Loan Instruments to which such Obligor is a party and the consummation of the transactions contemplated thereby, certified as of the Closing Date by the corporate secretary of such Obligor; (4) signature and incumbency certificates of the officers of each Obligor; (5) certified copies or executed originals of each of the following: (A) the Development Agreement as in effect on the Closing Date; (B) the Franchise Agreements for each of the Initial Stores as in effect on the Closing Date; (C) the Collateral Store Leases for each of the Initial Stores as in effect on the Closing Date; and (D) the certificate of occupancy for each of the Initial Stores; 19 (6) a Landlord's Waiver from the Landlord under at least seven of the Collateral Store Leases; and (7) such other instruments, documents, certificates, consents, waivers and opinions as FINOVA reasonably may request. 4.6 OPINIONS OF COUNSEL; DIRECTION FOR DELIVERY. FINOVA shall have received an opinion dated the Closing Date from Pryor Cashman Sherman and Flynn, counsel to the Obligors, and any other law firm representing Obligors, addressed to FINOVA, in such form and covering such matters as FINOVA may require. 4.7 SECURITY INTERESTS. All filings of Uniform Commercial Code financing statements and all other filings and actions necessary to perfect and maintain the Security Interests as first, valid and perfected Liens in the Collateral covered thereby, subject only to Permitted Prior Liens, shall have been filed or taken and FINOVA shall have received such UCC, state and federal tax Lien, pending suit, judgment and other Lien searches as it deems necessary to confirm the foregoing. 4.8 FINANCIAL STATEMENTS; INSPECTION. FINOVA shall have received the financial statements described in EXHIBIT 5.7. Borrower shall have provided FINOVA with an opportunity for representatives of FINOVA to visit and inspect its offices and properties. 4.9 BUSINESS AND FLOOD INSURANCE. At least two Business Days prior to the Closing Date Borrower shall have delivered to FINOVA evidence satisfactory to FINOVA that all insurance coverage required pursuant to Section 6.6 is in full force and effect and all premiums then due thereon have been paid in full. 4.10 APPROVAL OF INSTRUMENTS AND SECURITY INTERESTS. FINOVA shall have received evidence that the approval or consent shall have been obtained from all Governmental Bodies and all other Persons whose approval or consent is required to enable Obligors to (i) enter into and perform their respective obligations under the Loan Instruments to which each such Person is a party and (ii) grant the Security Interests to FINOVA. 4.11 LICENSES. FINOVA shall have received evidence that (i) Borrower is the licensee of all Licenses and Franchise Agreements necessary for the operation of the Collateral Stores and (ii) such Licenses and Franchise Agreements are in full force and effect as of the Closing Date and no event has occurred which could result in the termination, revocation or non-renewal of any such License or Franchise Agreement. 4.12 USE OF ASSETS. FINOVA shall be satisfied that Borrower at all times shall be entitled to the use and quiet enjoyment of all Property necessary for the continued ownership and operation of the 20 Collateral Stores, including, without limitation, the use of equipment, fixtures, Licenses, offices and means of ingress and egress thereto, necessary for the operation of the Collateral Stores. 4.13 NO MATERIAL ADVERSE EFFECT. No event or series of events shall have occurred since October 2, 1999, and no litigation or governmental proceeding or investigation shall be pending, which has had or could reasonably be expected to have a Material Adverse Effect. No judgment, order, injunction or other restraint prohibiting or imposing materially adverse conditions on the transactions to be consummated on the Closing Date shall be in effect. 4.14 PAYMENT OF FEES AND EXPENSES. Borrower shall have paid the Loan Fee and all fees and expenses described in subsection 10.1.1 incurred in connection with the Loan. ARTICLE V REPRESENTATIONS AND WARRANTIES Borrower represents and warrants to FINOVA as follows: 5.1 EXISTENCE AND POWER. Each Obligor is a corporation, duly formed, validly existing and in good standing under the laws of the State of its incorporation. Each Obligor is duly authorized to transact business in each other State where such Obligor conducts business and has all requisite power and authority to own its Property and to carry on its business as now conducted and as proposed to be conducted. 5.2 AUTHORITY. Each Obligor has full power and authority to enter into, execute, deliver and carry out the terms of the Loan Instruments to which it is a party and to incur the obligations provided for therein, all of which have been duly authorized by all proper and necessary action and are not prohibited by its articles of incorporation, by-laws or other organizational instruments of such Person. 5.3 BORROWER CAPITAL STOCK AND RELATED MATTERS. 5.3.1 BORROWER CAPITAL STOCK. As of the Closing Date, there is set forth in EXHIBIT 5.3.1 a complete description of the Borrower Capital Stock, all of which is validly issued, fully paid and non-assessable, and has been issued and sold in compliance with all applicable federal and state laws, rules and regulations, including, without limitation, all so- called "Blue-Sky" laws. The Borrower Capital Stock is owned beneficially and of record by Guarantor, free and clear of all Liens. Borrower has no subsidiaries. 5.3.2 RESTRICTIONS. No Obligor (i) is a party to or has knowledge of any agreements restricting the transfer of the Borrower Capital Stock, except the Loan Instruments, (ii) has issued 21 any rights which can be convertible into or exchangeable or exercisable for any of the Borrower Capital Stock, or any rights to subscribe for or to purchase, or any options for the purchase of, or any agreements providing for the issuance (contingent or otherwise) of, or any calls, commitments or claims of any character relating to, any of the Borrower Capital Stock or any securities convertible into or exchangeable or exercisable for any of the Borrower Capital Stock and (iii) is not subject to any obligation (contingent or otherwise) to repurchase or otherwise acquire or retire any of the Borrower Capital Stock or any convertible rights or options. 5.4 BINDING AGREEMENTS. This Loan Agreement and the other Loan Instruments, when executed and delivered, will constitute the valid and legally binding obligations of each Obligor to the extent such Obligor is a party thereto, enforceable against such Obligor in accordance with their respective terms, except as such enforceability may be limited by (i) applicable bankruptcy, insolvency, reorganization, moratorium or similar laws now or hereafter in effect affecting the enforcement of creditors' rights generally and (ii) equitable principles (whether or not any action to enforce such document is brought at law or in equity). 5.5 BUSINESS AND PROPERTY; COLLATERAL STORES. 5.5.1 BUSINESS AND PROPERTY. Borrower owns all Property and hold all Collateral Store Leases, Licenses, Franchise Agreements and Operating Agreements necessary to conduct its business as now conducted. Borrower does not engage or propose to engage in any business or activity other than the Restaurant Business. 5.5.2 COLLATERAL STORES; OTHER LOCATIONS. There is set forth in EXHIBIT 5.5.2 (i) a complete and accurate address of each Collateral Store, (ii) the chief executive office of each Obligor and (iii) all other locations where any books and records of Borrower pertaining to the Collateral Stores are located. 5.5.3 COLLATERAL STORE LEASES. There is set forth in EXHIBIT 5.5.3 a description of each Collateral Store Lease, including the name and address of the landlord thereunder, the commencement and expiration dates thereof, a description of all renewal or extension options with respect thereto and a complete and accurate legal description of each parcel of Leasehold Property which is the subject of such Collateral Store Lease. Each such Collateral Store Lease is in full force and effect, there has been no material default in the performance of any of its terms or conditions by Borrower, or, to the best of Borrower's knowledge, any other party thereto, and no claims of default have been asserted with respect thereto. The present and contemplated use of the Leasehold Property which is the subject of such Collateral Store Lease is in compliance in all material respects with all applicable zoning ordinances and regulations and other laws and regulations. 22 5.5.4 LICENSES AND FRANCHISE AGREEMENTS. All of Licenses and Franchise Agreements which have been issued or assigned to Borrower are in full force and effect and have been duly issued in the name of, or validly assigned to, Borrower, no default or breach exists thereunder and Borrower has full power and authority thereunder to conduct its Restaurant Business with respect to the Collateral Stores. 5.5.5 OPERATING AGREEMENTS. There is set forth in EXHIBIT 5.5.5 a description of all material Operating Agreements with respect to the Collateral Stores. All of such Operating Agreements are in full force and effect and no event has occurred which could result in the cancellation or termination of any such Operating Agreement or the imposition thereunder of any liability upon Borrower which could have a Material Adverse Effect. 5.5.6 REAL ESTATE. No Collateral Store is located upon any Real Estate. 5.5.7 OPERATION AND MAINTENANCE OF EQUIPMENT. No equipment owned or operated by Borrower which is necessary for the operation of any Collateral Store has been used, operated or maintained in a manner which now or hereafter could result in the cancellation or termination of the right of Borrower to use or make use of the same or which could result in any material liability of Borrower for damages in connection therewith. All of the equipment and other tangible personal property owned by Borrower used in the operation of the Collateral Stores is, in all material respects, in good operating condition and repair (subject to normal wear and tear) and has been used, operated and maintained in substantial compliance with all material applicable laws, rules and regulations. 5.5.8 TITLE TO PROPERTY; LIENS. Each Obligor has (i) good and marketable title to all of its Property used or useful in connection with the operation of the Collateral Stores, except (A) any License or Franchise Agreement which cannot be transferred without the consent of the applicable Governmental Body or Franchisor and (B) the portion thereof consisting of a leasehold estate and (ii) a valid leasehold estate in each portion of its Property which consists of a leasehold estate. All of such Property is free and clear of all Liens, except Permitted Liens. Upon the proper filing with the appropriate Governmental Bodies of appropriate Uniform Commercial Code financing statements, the applicable Loan Instruments will create valid and perfected Liens in the Property described therein, subject only to Permitted Liens, and subject in priority only to Permitted Prior Liens. 5.6 INDEBTEDNESS FOR BORROWED MONEY. There is set forth in EXHIBIT 5.6 a description of all Indebtedness for Borrowed Money of Borrower existing as of the Closing Date, including the principal amount thereof and the interest rate, amortization schedule and maturity date applicable thereto. 5.7 FINANCIAL STATEMENTS. Borrower has delivered to FINOVA the financial statements described in EXHIBIT 5.7 pertaining to the operations of the Obligors. Such financial statements present 23 fairly in all material respects the results of operations of the Obligors for the periods covered thereby and the financial condition of the Obligors as of the dates indicated therein. All of such financial statements have been prepared in conformity with GAAP. Since October 2, 1999, there has been no change which has had a Material Adverse Effect. Borrower also has delivered to FINOVA a pro-forma balance sheet as of the Closing Date. Such pro-forma balance sheet, which assumes the consummation of the transactions contemplated by the Loan Instruments, presents fairly in all material respects the anticipated financial condition of Borrower as of the Closing Date. 5.8 LITIGATION. There are no actions, suits, arbitration proceedings and claims pending or, to the best knowledge of Borrower, threatened against any Obligor or maintained by any Obligor at law or in equity or before any Governmental Body, which could reasonably be expected to be adversely determined could have a Material Adverse Effect if adversely determined. 5.9 DEFAULTS IN OTHER AGREEMENTS; CONSENTS; CONFLICTING AGREEMENTS. No Obligor is in default under any agreement to which it is a party or by which it or any of its Property is bound, the effect of which default could have a Material Adverse Effect. No authorization, consent, approval or other action by, and no notice to or filing with, any Governmental Body or any other Person which has not already been obtained, taken or filed, as applicable, is required (i) for the due execution, delivery or performance by any Obligor of any of the Loan Instruments to which it is a party or (ii) as a condition to the validity or enforceability of any of the Loan Instruments to which it is a party or any of the transactions contemplated thereby or the priority of the Security Interests, except for certain filings to establish and perfect the Security Interests. No provision of any mortgage, indenture, contract, agreement, statute, rule, regulation, judgment, decree or order binding on any Obligor or affecting its Property conflicts with, or requires any consent which has not already been obtained under, or would in any way prevent the execution, delivery or performance of the terms of any of the Loan Instruments or affect the validity or priority of the Security Interests. The execution, delivery and performance of the terms of the Loan Instruments will not constitute a default under, or result in the creation or imposition of, or obligation to create, any Lien upon the Property of any Obligor pursuant to the terms of any such mortgage, indenture, contract or agreement. 5.10 TAXES. Each Obligor has filed all tax returns required to be filed, and has paid, or made adequate provision for the payment of, all taxes shown to be due and payable on such returns or in any assessments made against it, and no tax liens have been filed except for tax liens which are (i) not delinquent or (ii) being contested diligently and in good faith by appropriate proceedings, and as to which Borrower has set aside reserves on its books which are satisfactory to FINOVA and, to the best knowledge of Borrower, no claims are being asserted in respect of such taxes which are required by GAAP to be reflected in the financial statements of such Obligor and are not so reflected therein. The charges, accruals and reserves on the books of each Obligor with respect to all federal, state, local and other taxes are considered by the management of Borrower to be adequate, and Borrower does not know of any unpaid assessment which is or might be due and payable by any Obligor or create a Lien against such Obligor's Property, except such assessments as are being contested in good faith and by appropriate proceedings diligently conducted, and for which adequate reserves have been set aside in accordance with GAAP. 24 Borrower has not received written notice that any of its tax returns are under audit or that it is the subject or target of any investigation by the Internal Revenue Service. 5.11 COMPLIANCE WITH APPLICABLE LAWS. No Obligor is in default in respect of any judgment, order, writ, injunction, decree or decision of any Governmental Body, which default could have a Material Adverse Effect. Each Obligor is in compliance in all material respects with all applicable statutes and regulations, including, without limitation, all Environmental Laws, ERISA, ADA and all laws and regulations relating to unfair labor practices, equal employment opportunity and employee safety, of all Governmental Bodies. No material condemnation, eminent domain or expropriation has been commenced or, to the best knowledge of Borrower, threatened against the Property which any Obligor owns or will own upon the Closing. 5.12 PATENTS, TRADEMARKS, FRANCHISES, AGREEMENTS. Each Obligor owns, possesses or has the right to use all patents, trademarks, service marks, trade names, copyrights, franchises and rights with respect thereto which are necessary for the conduct of its business, the failure to own, possess or have the right to use could have a Material Adverse Effect, without any known conflict with the rights of others. 5.13 REGULATORY MATTERS. Each Obligor (i) has duly and timely filed all reports and other filings which are required to be filed by Borrower under any applicable law, rule or regulation of any Governmental Body, the non-filing of which could have a Material Adverse Effect, and (ii) is in compliance with all such laws, rules and regulations, the noncompliance with which could have a Material Adverse Effect. 5.14 ENVIRONMENTAL MATTERS. Each Obligor is in compliance in all material respects with all applicable Environmental Laws and, to the best knowledge of Borrower, no portion of any Real Estate or Leasehold Property has been used as a land fill. There currently are not any known Hazardous Materials generated, manufactured, released, stored, buried or deposited over, beneath, in or on (or used in the construction and/or renovation of) the Real Estate or Leasehold Property in violation of applicable Environmental Laws. 5.15 APPLICATION OF CERTAIN LAWS AND REGULATIONS. Borrower is not and no Affiliate of Borrower is: 5.15.1 INVESTMENT COMPANY ACT. An "investment company," or a company "controlled" by an "investment company," within the meaning of the Investment Company Act of 1940, as amended. 5.15.2 HOLDING COMPANY ACT. A "holding company," or a "subsidiary company" of a "holding company," or an "affiliate" of a "holding company" or of a "subsidiary company" of a "holding company," as such terms are defined in the Public Utility Holding Company Act of 1935, as amended. 25 5.15.3 FOREIGN OR ENEMY STATUS. (i) An "enemy" or an "ally of an enemy" within the meaning of Section 2 of the Trading with the Enemy Act, (ii) a "national" of a foreign country designated in Executive Order No. 8389, as amended, or of any "designated enemy country" as defined in Executive Order No. 9095, as amended, of the President of the United States of America, in each case within the meaning of such Executive Orders, as amended, or of any regulation issued thereunder, (iii) a "national of any designated foreign country" within the meaning of the Foreign Assets Control Regulations or the Cuban Assets Control Regulations of the United States of America (Code of Federal Regulations, Title 31, Chapter V, Part 515, Subpart B, as amended) or (iv) an alien or a representative of any alien or foreign government within the meaning of Section 310 of Title 47 of the United States Code. 5.15.4 REGULATIONS AS TO BORROWING. Subject to any statute or regulation which regulates the incurrence of any Indebtedness for Borrowed Money, including, without limitation, statutes or regulations relative to common or interstate carriers or to the sale of electricity, gas, steam, water, telephone, telegraph or other public utility services. 5.16 MARGIN REGULATIONS. None of the transactions contemplated by this Loan Agreement or any of the other Loan Instruments, including the use of the proceeds of the Loan, will violate or result in a violation of Section 7 of the Securities Exchange Act of 1934, as amended, or any regulations issued pursuant thereto, including, without limitation, Regulations T, U and X, and no Obligor owns or intends to carry or purchase any "margin security" within the meaning of Regulation U. 5.17 NO MISREPRESENTATION. Neither this Loan Agreement nor any other Loan Instrument, certificate or financial statement furnished or to be furnished by or on behalf of any Obligor to FINOVA in connection with any of the transactions contemplated hereby or thereby, contains or will contain a misstatement of material fact, or omits or will omit to state a material fact required to be stated in order to make the statements contained herein or therein, taken as a whole, not misleading in the light of the circumstances under which such statements were made. There is no fact, other than information known to the public generally, known to Borrower after diligent inquiry, that could have a Material Adverse Effect that has not expressly been disclosed to FINOVA in writing. 5.18 EMPLOYEE BENEFIT PLANS. 5.18.1 ERISA AND CODE COMPLIANCE AND LIABILITY. Borrower and each ERISA Affiliate are in compliance with all applicable provisions of ERISA and the regulations and published interpretations thereunder with respect to all Employee Benefit Plans except where failure to comply would not result in a material liability to Borrower and except for any required amendments for which the remedial amendment period as defined in Section 401(b) of the Code has not yet expired. Each Employee Benefit Plan that is intended to be qualified under Section 401(a) of the Code has been determined by the Internal Revenue Service to be so qualified, and each trust related to such plan has been determined to be exempt under Section 401(a) of the 26 Code. No material liability has been incurred by Borrower or any ERISA Affiliate which remains unsatisfied for any taxes or penalties with respect to any Employee Benefit Plan or any Multiemployer Plan. 5.18.2 FUNDING. No Pension Plan has been terminated, nor has any accumulated funding deficiency (as defined in Section 412 of the Code) been insured (without regard to any waiver granted under Section 412 of the Code), nor has any funding waiver from the Internal Revenue Service been received or requested with respect to any Pension Plan, nor has Borrower or any ERISA Affiliate failed to make any contributions or to pay any amounts due and owing as required by Section 412 of the Code, Section 302 of ERISA or the terms of any Pension Plan prior to the due dates of such contributions under Section 412 of the Code or Section 302 of ERISA, nor has there been any event requiring any disclosure under Section 4041(c)(3)(C), 4063(a) or 4068 of ERISA with respect to any Pension Plan. 5.18.3 PROHIBITED TRANSACTIONS AND PAYMENTS. Neither Borrower nor any ERISA Affiliate has: (i) engaged in a nonexempt "prohibited transaction" as such term is defined in Section 406 of ERISA or Section 4975 of the Code; (ii) incurred any liability to the PBGC which remains outstanding other than the payment of premiums and there are no premium payments which are due and unpaid; (iii) failed to make a required contribution or payment to a Multiemployer Plan; or (iv) failed to make a required installment or other required payment under Section 412 of the Code. 5.18.4 NO TERMINATION EVENT. No Termination Event has occurred or is reasonably expected to occur. 5.18.5 ERISA LITIGATION. No material proceeding, claim, lawsuit and/or investigation is existing or, to the best knowledge of Borrower, threatened concerning or involving any (i) employee welfare benefit plan (as defined in Section 3(1) of ERISA) currently maintained or contributed to by Borrower or any ERISA Affiliate, (ii) Pension Plan or (iii) Multiemployer Plan. 5.19 EMPLOYEE MATTERS. 5.19.1 COLLECTIVE BARGAINING AGREEMENTS; Grievances. As of the Closing Date and except as set forth in EXHIBIT 5.20.1, (i) none of the employees of Borrower is subject to any collective bargaining agreement with Borrower, (ii) no petition for certification or union election is pending with respect to the employees of Borrower and no union or collective bargaining unit has sought such certification or recognition with respect to the employees of Borrower and (iii) there are no strikes, slowdowns, work stoppages, unfair labor practice complaints, grievances, arbitration proceedings or controversies pending or, to the best knowledge of Borrower, threatened against Borrower by any of Borrower's employees, other than employee grievances or controversies arising in the ordinary course of business that could not in the aggregate be expected to have a Material Adverse Effect. 27 5.19.2 CLAIMS RELATING TO EMPLOYMENT. Neither Borrower nor, to Borrower's best knowledge, any employee of Borrower, is subject to any employment agreement or non-competition agreement with any former employer or any other Person which agreement would have a Material Adverse Effect due to (i) any information which Borrower would be prohibited from using under the terms of such agreement or (ii) any legal considerations relating to unfair competition, trade secrets or proprietary information. 5.20 BURDENSOME OBLIGATIONS. After giving effect to the transactions contemplated by the Loan Instruments (i) no Obligor (A) will be a party to or be bound by any franchise, agreement, deed, lease or other instrument, or be subject to any restriction, which is so unusual or burdensome so as to cause, in the foreseeable future, a Material Adverse Effect and (B) intends to incur, or believes that it will incur, debts beyond its ability to pay such debts as they become due, and (ii) each Obligor (A) owns and will own Property, the fair saleable value of which is (I) greater than the total amount of its liabilities (including contingent liabilities) and (II) greater than the amount that will be required to pay the probable liabilities of its then existing debts as they become absolute and matured, and (B) has and will have capital that is not unreasonably small in relation to its business as presently conducted and as proposed to be conducted. Borrower does not presently anticipate that future expenditures needed to meet the provisions of federal or state statutes, orders, rules or regulations will be so burdensome so as to have a Material Adverse Effect. 5.21 BROKER FEES. The services of a broker or other similar agent have not been used in connection with the Loan. ARTICLE VI AFFIRMATIVE COVENANTS Until all of Borrower's Obligations are paid and performed in full Borrower agrees that it will: 6.1 LEGAL EXISTENCE; GOOD STANDING. Maintain its existence and its good standing in the jurisdiction of its formation and its qualification in each jurisdiction in which the failure so to qualify could have a Material Adverse Effect, and in any event in each jurisdiction in which any Store is operated by it. 6.2 INSPECTION. Permit representatives of FINOVA at any reasonable time during normal business hours and upon reasonable notice, provided, however, that if an Event of Default or Incipient Default exists, the following activities may be conducted at any time and without notice, to (i) visit its offices, (ii) examine its books and records and Accountants' reports relating thereto, (iii) make copies or extracts therefrom, (iv) discuss its affairs with its employees, (v) examine and inspect the Collateral and (vi) meet and discuss its affairs with the Accountants, and such Accountants, as a condition to their retention by Borrower, are hereby irrevocably authorized by Borrower to fully discuss and disclose all such affairs with 28 FINOVA. If no Event of Default or Incipient Default exists, FINOVA shall not conduct any such inspections more than four times per calendar year. 6.3 FINANCIAL STATEMENTS AND OTHER INFORMATION. Maintain a standard system of accounting in accordance with GAAP and furnish to FINOVA: 6.3.1 QUARTERLY STATEMENTS. As soon as available and in any event within 45 days after the close of each quarter: (a) a copy of the balance sheet of Borrower as of the end of such quarter, and (b) statements of operations and Borrower Cash Flow of Borrower for such quarter and for the period from the beginning of the then current year to the end of such quarter, setting forth in each case in comparative form the corresponding figures for the corresponding period in the preceding year, all in reasonable detail, containing such information as FINOVA reasonably may require, and certified by the chief financial officer of Borrower as complete and correct, subject to normal year-end adjustments. 6.3.2 ANNUAL STATEMENTS. As soon as available and in any event within 90 days after the close of each year: (a) the balance sheet of Guarantor as of the end of such year and the statements of operations, cash flows, shareholders' equity of Guarantor for such year (collectively, the "BASIC FINANCIAL STATEMENTS") and a statement of Borrower Cash Flow for Borrower for such year, setting forth in each case in comparative form the corresponding figures for the preceding year, and (b) an opinion of the Accountants which shall accompany the Basic Financial Statements which opinion shall be unqualified as to going concern and scope of audit, stating that (i) the examination by the Accountants in connection with such Basic Financial Statements has been made in accordance with generally accepted auditing standards, (ii) such Basic Financial Statements have been prepared in conformity with GAAP and in a manner consistent with prior periods, and (iii) such Basic Financial Statements fairly present in all material respects the financial position and results of operations of each Obligor. 6.3.3 COMPLIANCE CERTIFICATE. The financial statements described in subsection 6.3.1 and in subsection 6.3.2 shall be accompanied by a Compliance Certificate. 29 6.3.4 ACCOUNTANTs' Certificate. Simultaneously with the delivery of the certified Basic Financial Statements required by subsection 6.3.2, copies of a certificate of the Accountants stating that (i) they have checked the computations delivered by Borrower in compliance with subsection 6.3.2, and (ii) in making the examination necessary for their audit or review of the Basic Financial Statements for such year, nothing came to their attention of a financial or accounting nature that caused them to believe that (A) Borrower was not in compliance with the terms, covenants, provisions or conditions of any of the Loan Instruments, or (B) there shall have occurred any condition or event which would constitute an Event of Default, or, if so, specifying in such certificate all such instances of non-compliance and the nature and status thereof. 6.3.5 AUDIT REPORTS. Promptly upon receipt thereof, a copy of each report, other than the reports referred to in subsection 6.3.2, including any so-called "Management Letter" or similar report, submitted to any Obligor by the Accountants in connection with any annual, interim or special audit made by the Accountants of the books of such Obligor. 6.3.6 NOTICE OF DEFAULTS; LOSS. Prompt written notice if: (i) any Indebtedness of any Obligor in the aggregate principal amount in excess of $1,000,000 is declared or shall become due and payable prior to its declared or stated maturity, or called and not paid when due, (ii) an event has occurred that enables the holder of any note, or other evidence of such Indebtedness, certificate or security evidencing any such Indebtedness of any Obligor to declare such Indebtedness due and payable prior to its stated maturity, (iii) there shall occur and be continuing an Event of Default, accompanied by a statement of setting forth what action Borrower proposes to take in respect thereof, or (iv) any event shall occur which has a Material Adverse Effect, including the amount or the estimated amount of any loss or adverse effect. 6.3.7 NOTICE OF SUITS; ADVERSE EVENTS. Prompt written notice of: (i) any citation, summons, subpoena, order to show cause or other order naming any Obligor a party to any proceeding before any Governmental Body which could reasonably be expected to have a Material Adverse Effect, including with such notice a copy of such citation, summons, subpoena, order to show cause or other order, (ii) any lapse or other termination of any license, permit, franchise, agreement or other authorization issued to Borrower by any Governmental Body or any other Person that is material to the operation of the business of Borrower, (iii) any refusal by any Governmental Body or any other Person to renew or extend any such license, permit, franchise, agreement or other authorization and (iv) any dispute between Borrower and any Governmental Body or any other Person, which lapse, termination, refusal or dispute referred to in clauses (ii) and (iii) above or in this clause (iv) could have a Material Adverse Effect. 6.3.8 REPORTS TO SHAREHOLDERS, CREDITORS AND GOVERNMENTAL BODIES. (a) Promptly upon becoming available, copies of all financial statements, reports, notices and other statements sent or made available generally by any Obligor to 30 its shareholders, of all regular and periodic reports and all registration statements and prospectuses filed by any Obligor with any securities exchange or with the Securities and Exchange Commission or any Governmental Body succeeding to any of its functions, and of all statements generally made available by any Obligor or others concerning material developments in the business of such Obligor. (b) Promptly upon becoming available, copies of any periodic or special reports filed by any Obligor with any Governmental Body or Person, if such reports indicate any material adverse change in the business, operations, affairs or condition of such Obligor, or if copies thereof are requested by FINOVA, and copies of any material notices and other communications from any Governmental Body or Person which specifically relate to any Obligor. 6.3.9 ERISA NOTICES AND REQUESTS. (a) With reasonable promptness, and in any event within 30 days after occurrence of any of the following, notice and/or copies of: (i) the establishment of any new Employee Benefit Plan, Pension Plan or Multiemployer Plan; (ii) the commencement of contributions to any Employee Benefit Plan, Pension Plan or Multiemployer Plan to which Borrower or any of its ERISA Affiliates was not previously contributing or any increase in the benefits of any existing Employee Benefit Plan, Pension Plan or Multiemployer Plan; (iii) each funding waiver request filed with respect to any Employee Benefit Plan and all communications received or sent by Borrower or any ERISA Affiliate with respect to such request; and (iv) the failure of Borrower or any of its ERISA Affiliates to make a required installment or payment under Section 302 of ERISA or Section 412 of the Code by the due date. (b) Promptly and in any event within 10 days of becoming aware of the occurrence of or forthcoming occurrence of any (i) Termination Event or (ii) "prohibited transaction," as such term is defined in Section 406 of ERISA or Section 4975 of the Code, in connection with any Pension Plan or any trust created thereunder, a notice specifying the nature thereof, what action Borrower has taken, is taking or proposes to take with respect thereto and, when known, any action taken or threatened by the Internal Revenue Service, the Department of Labor or the PBGC with respect thereto. (c) With reasonable promptness but in any event within 10 days after the occurrence of any of the following, copies of: (i) any favorable or unfavorable determination letter from the Internal Revenue Service regarding the qualification of an Employee Benefit Plan under Section 401(a) of the Code; (ii) all notices received by Borrower or any ERISA Affiliate of the PBGC's intent to terminate any Pension Plan or to have a trustee appointed to administer any Pension Plan; (iii) each Schedule B (Actuarial 31 Information) to the annual report (Form 5500 Series) filed by Borrower or any ERISA Affiliate with the Internal Revenue Service with respect to each Pension Plan; and (iv) all notices received by Borrower or any ERISA Affiliate from a Multiemployer Plan sponsor concerning the imposition or amount of withdrawal liability pursuant to Section 4202 of ERISA; and written notice within two Business Days of Borrower's or any ERISA Affiliate's filing of or intention to file a notice of intent to terminate any Pension Plan under a distress termination within the meaning of Section 4041(c) of ERISA. 6.3.10 OTHER INFORMATION. (a) Immediate notice of any change in the location of any Property of Borrower located at any of the Collateral Stores, any change in the name of Borrower, any sale or purchase of Property located at the Collateral Stores or arising out of activities conducted at the Collateral Stores outside the regular course of business of Borrower or as otherwise permitted by Section 7.10, and any change in the business or financial affairs of any Obligor, which change could have a Material Adverse Effect. (b) Promptly upon request therefor, such other information and reports relating to the past, present or future financial condition, operations, plans and projections of Borrower as FINOVA reasonably may request from time to time. 6.4 REPORTS TO GOVERNMENTAL BODIES AND OTHER PERSONS. Timely file all material reports, applications, documents, instruments and information required to be filed pursuant to all rules, regulations or requests of any Governmental Body or other Person having jurisdiction over the operation of the business of Borrower, including, but not limited to, such of the Loan Instruments as are required to be filed with any such Governmental Body or other Person pursuant to applicable rules and regulations promulgated by such Governmental Body or other Person, except where the failure to file such reports, applications, documents, instruments and information could not reasonably be expected to have a Material Adverse Effect. 6.5 MAINTENANCE OF LICENSES AND FRANCHISE AGREEMENTS. Maintain in full force and effect at all times, and apply in a timely manner for renewal of, all Licenses, Franchise Agreements, trademarks, tradenames and agreements necessary for the operation of its Restaurant Business at the Collateral Stores, the loss of any of which could have a Material Adverse Effect. 6.6 INSURANCE. 6.6.1 MAINTENANCE OF INSURANCE. (i) Maintain in full force and effect at all times such property, casualty, business interruption and other insurance with respect to the Collateral Stores required by FINOVA, all of which shall be written by insurers, contain terms and be in amounts and forms reasonably satisfactory to FINOVA (including, at a minimum (i) comprehensive general 32 liability insurance (including bodily injury and property damage coverage) with a broad form endorsement and combined single limit of at least $2,000,000 and (ii) casualty insurance against fire and other "All Risk" perils, including, if required by FINOVA, earthquake and flood, in the full replacement value of the Collateral Stores), providing for deductibles of not more than $30,000 for any single act or occurrence, with a standard mortgagee clause endorsed thereon in favor of FINOVA which shall provide, among other things, that the policies may not be canceled without 30 days' prior notice to FINOVA and (ii) deliver to FINOVA, from time to time as FINOVA reasonably may request, evidence of compliance with this subsection, provided that Borrower will use its best efforts to provide such evidence at least 15 days prior to the expiration date of any policy required hereunder, but in any event at least 5 days prior to such expiration date, each bearing notations evidencing prior payment of premiums. 6.6.2 CLAIMS AND PROCEEDS. Borrower hereby directs all insurers under all policies of casualty and property insurance pertaining to the furniture, fixtures, equipment and other contents located at the Collateral Stores required to be maintained by Borrower pursuant to subsection 6.6.1 to pay all proceeds payable thereunder directly to FINOVA and Borrower hereby authorizes FINOVA to collect such proceeds; provided that so long as no Incipient Default or Event of Default exists and is continuing any proceeds payable thereunder in an aggregate amount of $50,000 or less may be paid directly to Borrower provided Borrower promptly uses such proceeds to pay for the cost of repair or replacement of the Collateral subject to the applicable loss, damage, destruction or other casualty to at least equal value and substantially the same character as prior to such loss, damage, destruction or other casualty. Borrower hereby irrevocably appoints FINOVA (and all officers, employees or agents designated by FINOVA) as Borrower's true and lawful attorney and agent in fact for the purpose of and with power to make, settle and adjust claims under such policies of insurance, endorse the name of Borrower on any check, draft, instrument or other item of payment for the proceeds of such policies of insurance, and to make all determinations and decisions with respect to such policies of insurance. Borrower acknowledges that such appointment of FINOVA as its attorney and agent in fact is a power coupled with an interest and therefore is irrevocable. Borrower shall promptly notify FINOVA of any loss, damage, destruction or other casualty to the Collateral. Subject to the first sentence of this subsection 6.6.2, the insurance proceeds received on account of any loss, damage, destruction or other casualty (i) if any Incipient Default or Event of Default exists, at the option of FINOVA shall be applied (A) as set forth in the following clause (ii) or (B) in reduction of Borrower's Obligations in the following order of priority: (1) first, to the payment of any and all sums which are then due and payable pursuant to the terms of the Loan Instruments, other than the Principal Balance and accrued and unpaid interest thereon, (2) next, to accrued and unpaid interest on the Principal Balance and (3) next, to the Principal Balance of the Loans in the inverse order of the maturity of the installments thereof or (ii) if no Incipient Default or Event of Default exists or if FINOVA so elects, shall be held by FINOVA and applied to pay for the cost of repair or replacement of the Collateral subject to such loss, damage, destruction or other casualty, in which event such proceeds shall be made available in the manner and under such conditions as FINOVA 33 reasonably may require. In the event the proceeds are to be applied to the repair or replacement of Collateral, the Collateral shall be so repaired or replaced as to be of at least equal value and substantially the same character as prior to such loss, damage, destruction or other casualty. 6.7 ENVIRONMENTAL MATTERS. At all times comply with, and be responsible for, its obligations under all Environmental Laws applicable to the Real Estate and Leasehold Property and any other Property owned by Borrower or used by Borrower in the operation of the Collateral Stores. At its sole cost and expense, Borrower shall (i) comply in all respects with (A) any notice of any violation or administrative or judicial complaint or order having been filed against Borrower, any portion of any Real Estate or Leasehold Property or any other Property owned by Borrower or used by Borrower in the operation of its business alleging violations of any law, ordinance and/or regulation requiring Borrower to take any action in connection with the release, transportation and/or clean-up of any Hazardous Materials, the violation of which could have a Material Adverse Effect, and (B) any notice from any Governmental Body or any other Person alleging that Borrower is or may be liable for costs associated with a response or clean-up of any Hazardous Materials or any damages resulting from such release or transportation, or (ii) diligently contest in good faith by appropriate proceedings any demands set forth in such notices, provided (A) reserves in an amount satisfactory to FINOVA to pay the costs associated with complying with any such notice are established by Borrower and (B) no Lien would or will attach to any Collateral which is the subject of any such notice as a result of any compliance by Borrower which is delayed during any such contest. Promptly upon receipt of any notice described in the foregoing clause (i), Borrower shall deliver to FINOVA a copy thereof. 6.8 COMPLIANCE WITH LAWS. Comply with all federal, state and local laws, ordinances, requirements and regulations and all judgments, orders, injunctions and decrees applicable to Borrower and its operations, the failure to comply with which could have a Material Adverse Effect. 6.9 TAXES AND CLAIMS. Pay and discharge all taxes, assessments and governmental charges or levies imposed upon it or upon its income or profits, or upon any Collateral Store, prior to the date on which penalties attach thereto, and all lawful claims which, if unpaid, might become a Lien (other than a Permitted Lien) upon any Collateral Store, provided that Borrower shall not be required by this Section 6.9 to pay any such amount if the same is being contested diligently and in good faith by appropriate proceedings and as to which Borrower has set aside reserves on its books satisfactory to FINOVA. 6.10 MAINTENANCE OF PROPERTIES. Maintain all of its Properties necessary in the operation of the Collateral Stores in good working order and condition. 6.11 APPROVALS. Upon the exercise by FINOVA of any power, right or privilege pursuant to the provisions of any of the Loan Instruments requiring any consent, approval or authorization of any Governmental Body, Landlord, Franchisor or other Person (including, without limitation, transfers of Licenses, Collateral Store Leases and Franchise Agreements), promptly execute and cause the execution 34 of all applications, certificates, instruments and other documents that FINOVA may be required to obtain for such consent, approval or authorization. 6.12 PAYMENT OF INDEBTEDNESS. Except as to matters being contested in good faith and by appropriate proceedings, promptly pay when due, or in conformance with customary trade terms, all of its Indebtedness. 6.13 LANDLORD's Waivers. Deliver to FINOVA not later than January 31, 2000 a Landlord's Waiver from the Landlord under at least twelve of the Collateral Store Leases. ARTICLE VII NEGATIVE COVENANTS Until all of Borrower's Obligations are paid and performed in full, Borrower shall not: 7.1 BORROWING. Create, incur, assume or suffer to exist any liability for Indebtedness for Borrowed Money if the Borrower Fixed Charge Coverage Ratio for the twelve month period most recently ended would be less than 1.10 assuming such Indebtedness for Borrowed Money was incurred on the first day of such period. 7.2 LIENS. Create, incur, assume or suffer to exist any Lien upon any of the Collateral or the Collateral Store Leases, in each case whether now owned or hereafter acquired, except Permitted Liens. 7.3 MERGER AND ACQUISITION. Consolidate with or merge with or into any Person unless (i) Borrower is the surviving corporation and (ii) immediately upon consummation of such consolidation or merger, Borrower would be permitted to borrow at least $1.00 of additional Indebtedness for Borrowed Money under Section 7.1. 7.4 CONTINGENT LIABILITIES. Assume, guarantee, endorse, contingently agree to purchase, become liable in respect of any letter of credit, or otherwise become liable upon the obligation of any Person, except for liabilities arising from the endorsement of negotiable instruments for deposit or collection or similar transactions in the ordinary course of business and except to the extent permitted under Section 7.1. 7.5 DIVIDENDS AND DISTRIBUTIONS. Make any dividends or distributions with respect to the Borrower Capital Stock or apply any of its Property to the purchase, redemption or other retirement of, or set apart any sum for the payment of, or make any other distribution by reduction of capital or otherwise in respect of, any of the Borrower Capital Stock, if the ratio of (i) the remainder of (A) Borrower Cash 35 Flow for the period from the Closing Date through the last day of the month most recently ended minus (B) the sum of (x) the aggregate amount of all dividends, distributions and other payments referred to above made during such period plus (y) the aggregate amount of all dividends, distributions and other payments referred to above to be made to (ii) the Borrower Fixed Charges for such period would be less than 1.00. 7.6 EQUIPMENT LEASES. Enter into any (i) Operating Leases after the Closing Date pertaining to equipment or other Property located at any of the Collateral Stores if the aggregate rent expense payable under all such Operating Leases would exceed $60,000 in any year or (ii) except to the extent permitted under Section 7.1, Capitalized Leases. 7.7 FUNDAMENTAL BUSINESS CHANGES. Materially change the nature of its business or engage in any business other than the Restaurant Business and activities incidental thereto. 7.8 FACILITY SITES. Change the locations of its chief executive office or other Property used in the operation of the Collateral Stores unless (i) FINOVA shall have received at least 30 days' prior written notice thereof and (ii) Borrower shall have executed and delivered to FINOVA any documents FINOVA may reasonably require in order to maintain the validity and priority of the Security Interests. 7.9 SALE OR TRANSFER OF ASSETS. Sell, lease, assign, transfer or otherwise dispose of any of the Collateral or any of the Collateral Store Leases, except for the sale or disposition of (i) inventory in the ordinary course of business and (ii) obsolete, surplus or unusable items of equipment which promptly are replaced with new items of equipment of like function and comparable value to the unusable items of equipment when the same were new or not obsolete or unusable, provided such replacement items of equipment shall become subject to the Security Interests. 7.10 AMENDMENT OF CERTAIN AGREEMENTS. Amend, modify or waive any term or provision of its articles of incorporation or by-laws or the Collateral Store Leases or the Franchise Agreements, other than non-material amendments, modifications or waivers that would not reasonable be expected to adversely affect FINOVA. 7.11 FUNDAMENTAL BUSINESS CHANGES. Engage in any business other than the Restaurant Business. 7.12 TRANSACTIONS WITH AFFILIATES. Sell, lease, assign, transfer or otherwise dispose of any Property to any Obligor or any Affiliate of any Obligor, lease Property, render or receive services or purchase assets from any Obligor or any such Affiliate, or otherwise enter into any contractual relationship with any Obligor or any Affiliate of any Obligor except to the extent permitted by Section 7.5 or otherwise on terms and conditions no less favorable to Borrower than could be obtained on an arm's length basis from a third party who is not an Obligor or an Affiliate of an Obligor. 7.13 COMPLIANCE WITH ERISA. 36 (i) Permit the occurrence of any Termination Event which would result in a liability to Borrower or any ERISA Affiliate in excess of $50,000; (ii) Permit the present value of all benefit liabilities under all Pension Plans to exceed the current value of the assets of such Pension Plans allocable to such benefit liabilities by more than $50,000; (iii) Permit any accumulated funding deficiency in excess of $50,000 (as defined in Section 302 of ERISA and Section 412 of the Code) with respect to any Pension Plan, whether or not waived; (iv) Fail to make any contribution or payment to any Multiemployer Plan which Borrower or any ERISA Affiliate may be required to make under any agreement relating to such Multiemployer Plan, or any law pertaining thereto which results in or is likely to result in a liability in excess of $50,000; (v) Engage, or permit Borrower or any ERISA Affiliate to engage, in any "prohibited transaction" as such term is defined in Section 406 of ERISA or Section 4975 of the Code for which a civil penalty pursuant to Section 502(i) of ERISA or a tax pursuant to Section 4975 of the Code in excess of $50,000 is imposed; (vi) Permit the establishment of any Employee Benefit Plan providing post-retirement welfare benefits or establish or amend any Employee Benefit Plan which establishment or amendment could result in liability to Borrower or any ERISA Affiliate or increase the obligation of Borrower or any ERISA Affiliate to a Multiemployer Plan which liability or increase, individually or together with all similar liabilities and increases, is material to Borrower or amu ERISA Affiliate; or (vii) Fail, or permit Borrower or any ERISA Affiliate to fail, to establish, maintain and operate each Employee Benefit Plan in compliance in all material respects with ERISA, the Code and all other applicable laws and regulations and interpretations thereof. 7.14 BORROWER FIXED CHARGE COVERAGE RATIO. Permit the Borrower Fixed Charge Coverage Ratio for the twelve month period ending on the last day of any quarter commencing with the quarter ending March 30, 2000 to be less than 1.10. 37 ARTICLE VIII DEFAULT AND REMEDIES 8.1 EVENTS OF DEFAULT. The occurrence of any of the following shall constitute an Event of Default under the Loan Instruments: 8.1.1 DEFAULT IN PAYMENT. If Borrower shall fail to pay all or any portion of Borrower's Obligations the same become due and payable and such failure shall continue for a period of 5 Business Days; or 8.1.2 BREACH OF COVENANTS. (a) If Borrower shall fail to observe or perform any covenant or agreement made by Borrower contained in Section 6.2, 6.5, 6.6, 6.8, 6.9, 6.13 or in Article VII; (b) If Borrower shall fail to observe or perform any covenant or agreement made by Borrower contained in Section 6.1 or 6.3 and such failure shall continue for a period of 5 Business Days; or (c) If Borrower or Guarantor shall fail to observe or perform any covenant or agreement (other than those referred to in subparagraphs (a) or (b) above or specifically addressed elsewhere in this Section 8.1) made by such Person in any of the Loan Instruments to which such Person is a party, and such failure shall continue for a period of 30 days. 8.1.3 BREACH OF WARRANTY. If any representation or warranty made by or on behalf of any Obligor in or pursuant to any of the Loan Instruments or in any instrument or document furnished in compliance with the Loan Instruments shall prove to be false or misleading in any material respect. 8.1.4 DEFAULT UNDER OTHER INDEBTEDNESS FOR BORROWED MONEY. If any default shall occur in respect of any issue of Indebtedness for Borrowed Money of any Obligor (other than Borrower's Obligations) outstanding in a principal amount of at least $1,000,000, or in respect of any agreement or instrument relating to any such issue of Indebtedness for Borrowed Money, and such default shall continue beyond the grace period, if any, applicable thereto. 8.1.5 BANKRUPTCY. (a) If any Obligor shall (i) generally not be paying its debts as they become due, (ii) file, or consent, by answer or otherwise, to the filing against it of a petition for relief or reorganization or arrangement or any other petition in bankruptcy or insolvency under the laws of any jurisdiction, (iii) make an assignment for the benefit of creditors, (iv) consent to the appointment of a custodian, receiver, trustee or other officer with similar powers for it or for any substantial part of its Property, or (v) be adjudicated insolvent. 38 (b) If any Governmental Body of competent jurisdiction shall enter an order appointing, without consent of such Obligor, a custodian, receiver, trustee or other officer with similar powers with respect to it or with respect to any substantial part of its Property, or if an order for relief shall be entered in any case or proceeding for liquidation or reorganization or otherwise to take advantage of any bankruptcy or insolvency law of any jurisdiction, or ordering the dissolution, winding-up or liquidation of any Obligor or if any petition for any such relief shall be filed against it and such petition shall not be dismissed or stayed within 90 days. 8.1.6 JUDGMENTS. If there shall be entered against Borrower one or more judgments, awards or decrees, or orders of attachment, garnishment or any other writ, which exceed $250,000 in the aggregate at any one time outstanding, excluding judgments, awards, decrees, orders or writs (i) for which there is full insurance (subject to applicable deductibles) and with respect to which the insurer has assumed responsibility in writing, (ii) for which there is full indemnification (upon terms and by creditworthy indemnitors which are satisfactory to FINOVA) or (iii) which have been in force for less than the applicable period for filing an appeal so long as execution has not been levied thereunder (or in respect of which Borrower shall at the time in good faith be prosecuting an appeal or proceeding for review and in respect of which a stay of execution or appropriate appeal bond shall have been obtained pending such appeal or review). 8.1.7 IMPAIRMENT OF LICENSES; OTHER AGREEMENTS. If (i) any Governmental Body shall revoke, terminate, suspend or adversely modify any License of Borrower, the adverse modification or non-continuation of which could have a Material Adverse Effect, or (ii) there shall exist any violation or default in the performance of, or a material failure to comply with any agreement, or condition or term of any License or Franchise Agreement, which violation, default or failure has a Material Adverse Effect, or (iii) any Franchise Agreement or other agreement which is necessary to the operation of the Restaurant Business of Borrower with respect to any Collateral Store shall be revoked or terminated and not replaced by a substitute acceptable to FINOVA within 30 days after the date of such revocation or termination, and such revocation or termination and non-replacement could have a Material Adverse Effect. 8.1.8 COLLATERAL. If any material portion of the Collateral or any Collateral Store Lease shall be seized or taken by a Governmental Body or Person (unless in any such case either (i) the Initial Store or Substitute Store affected is replaced with a Substitute Store within 60 days after such seizure or taking and Borrower otherwise complies with the requirements of subsection 2.6.2(a) with respect to such Substitute Store or (ii) Borrower prepays the Principal Balance in an amount equal to the Allocated Loan Amount with respect to such Initial Store or Substitute Store), or Borrower shall fail to maintain or cause to be maintained the Security Interests and priority of the Loan Instruments as against any Person, or the title and rights of Borrower to any material portion of the Collateral or any Collateral Store Lease shall have become the subject matter of 39 litigation which could reasonably be expected to result in impairment or loss of the security provided by the Loan Instruments, 8.1.9 PLANS. If an event or condition specified in subsection 6.3.9 hereof shall occur or exist with respect to any Pension Plan or Multiemployer Plan and, as a result of such event or condition, together with all other such events or conditions, Borrower or any ERISA Affiliate shall incur, or in the opinion of FINOVA be reasonably likely to incur, a liability to a Pension Plan or Multiemployer Plan or the PBGC (or any of them) which, in the reasonable judgment of FINOVA, would have a Material Adverse Effect. 8.1.10 CHANGE IN CONTROL. If Guarantor at any time shall cease (i) to own at least 51% of the Borrower Capital Stock or (ii) to maintain (A) effective voting control over Borrower, including the right to elect a majority of the board of directors of Borrower or (B) the ability to direct the management and policies of Borrower. 8.1.11 GUARANTY. If prior to the termination of the Guaranty in accordance with its terms, Guarantor shall (i) deny or disaffirm its obligations thereunder or (ii) fail to make any payment required thereunder when due. 8.2 ACCELERATION OF BORROWER'S OBLIGATIONS. Upon the occurrence of: (a) any Event of Default described in clauses (ii), (iii), (iv) and (v) of subsection 8.1.5(a) or in 8.1.5(b), all of Borrower's Obligations at that time outstanding automatically shall mature and become due, and (b) any other Event of Default, FINOVA, at any time, at its option, without further notice or demand, may declare all of Borrower's Obligations due and payable, whereupon Borrower's Obligations immediately shall mature and become due and payable, all without presentment, demand, protest or notice (other than notice of the declaration referred to in clause (b) above), all of which hereby are waived. 8.3 REMEDIES ON DEFAULT. If Borrower's Obligations have been accelerated pursuant to Section 8.2, FINOVA, at its option, may: 8.3.1 ENFORCEMENT OF SECURITY INTERESTS. Enforce its rights and remedies under the Loan Instruments in accordance with their respective terms. 8.3.2 OTHER REMEDIES. Enforce any of the rights or remedies accorded to FINOVA at equity or law, by virtue of statute or otherwise. 40 8.4 APPLICATION OF FUNDS. Any funds received by FINOVA pursuant to the exercise of any rights accorded to FINOVA pursuant to, or by the operation of any of the terms of, any of the Loan Instruments, including, without limitation, insurance proceeds, condemnation proceeds or proceeds from the sale of Collateral, shall be applied to Borrower's Obligations in the following order of priority: 8.4.1 EXPENSES. First, to the payment of (i) all fees and expenses actually incurred, including, without limitation, court costs, fees of appraisers, title charges, costs of maintaining and preserving the Collateral, costs of sale, and all other costs incurred by FINOVA in exercising any rights accorded to such Persons pursuant to the Loan Instruments or by applicable law, including, without limitation, reasonable attorney's fees, and (ii) all Liens superior to the Liens of FINOVA except such superior Liens subject to which any sale of the Collateral may have been made. 8.4.2 BORROWER'S OBLIGATIONS. Next, to the payment of the remaining portion of Borrower's Obligations in such order as FINOVA may determine. 8.4.3 SURPLUS. Any surplus, to the Person or Persons entitled thereto. 8.5 PERFORMANCE OF BORROWER'S Obligations. If Borrower fails to (i) maintain in force and pay for any insurance policy or bond which Borrower is required to provide pursuant to any of the Loan Instruments, (ii) keep the Collateral free from all Liens except for Permitted Liens, (iii) pay when due all taxes, levies and assessments on or in respect of the Collateral, except as otherwise permitted pursuant to the terms hereof, (iv) make all payments and perform all acts on the part of Borrower to be paid or performed in the manner required by the terms hereof and by the terms of the other Loan Instruments with respect to any of the Collateral, including, without limitation, all expenses of protecting, storing, warehousing, insuring, handling and maintaining the Collateral, (v) keep fully and perform promptly any other of the obligations of Borrower hereunder or under any of the other Loan Instruments, and (vi) keep fully and perform promptly the obligations of Borrower with respect to any issue of Indebtedness for Borrowed Money secured by a Permitted Prior Lien, then FINOVA may (but shall not be required to) procure and pay for such insurance policy or bond, place such Collateral in good repair and operating condition, pay, contest or settle such Liens or taxes or any judgments based thereon or otherwise make good any other aforesaid failure of Borrower. Borrower shall reimburse FINOVA immediately upon demand for all sums paid or advanced on behalf of Borrower for any such purpose, together with costs and expenses (including reasonable attorney's fees) paid or incurred by FINOVA in connection therewith and interest on all sums advanced from the date of advancement until repaid to FINOVA at the Default Rate. All such sums advanced by FINOVA, with interest thereon, immediately upon advancement thereof, shall be deemed to be part of Borrower's Obligations. 41 ARTICLE IX CLOSING The Closing Date shall be such date as the parties shall determine, and the Closing shall take place on such date, provided all conditions for the Closing as set forth in this Loan Agreement have been satisfied or otherwise waived by FINOVA. The Closing shall take place at the offices of Altheimer & Gray, 10 S. Wacker Drive, Chicago, Illinois 60606 or such other place as the parties hereto shall agree. Unless the Closing occurs on or before December 29, 1999, this Loan Agreement shall terminate and be of no further force or effect and, except for any obligation of Borrower to FINOVA pursuant to Article X, none of the parties hereto shall have any further obligation to any other party. ARTICLE X EXPENSES AND INDEMNITY 10.1 ATTORNEYS' Fees and Other Fees and Expenses. Whether or not any of the transactions contemplated by this Loan Agreement shall be consummated, subject to the limitations set forth in subsection 10.1.1, Borrower agrees to pay to FINOVA on demand all reasonable expenses incurred by FINOVA in connection with the transactions contemplated hereby and in connection with any amendments, modifications or waivers (whether or not the same become effective) under or in respect of any of the Loan Instruments, including, without limitation: 10.1.1 FEES AND EXPENSES FOR PREPARATION OF LOAN INSTRUMENTS. All reasonable expenses, disbursements (including, without limitation, charges for required mortgagee's title insurance, lien searches, reproduction of documents, long distance telephone calls and overnight express carriers) and reasonable attorneys' fees, actually incurred by FINOVA in connection with the (i) preparation and negotiation of the Loan Instruments or any amendments, modifications or waivers thereto or any documents delivered pursuant thereto and (ii) administration of the Loan. 10.1.2 FEES AND EXPENSES IN ENFORCEMENT OF RIGHTS OR DEFENSE OF LOAN INSTRUMENTS. Any reasonable expenses or other costs, including reasonable attorneys' fees and expert witness fees, actually incurred by FINOVA in connection with the enforcement or collection against any Obligor of any provision of any of the Loan Instruments, and in connection with or arising out of any litigation, investigation or proceeding instituted by any Governmental Body or any other Person with respect to any of the Loan Instruments, whether or not suit is instituted, including, but not limited to, such costs or expenses arising from the enforcement or collection against any Obligor of any provision of any of the Loan Instruments in any workout or restructuring or in any state or federal bankruptcy or reorganization proceeding. 10.2 INDEMNITY. Borrower agrees to indemnify and save FINOVA harmless of and from the following: 10.2.1 BROKERAGE FEES. The fees, if any, of brokers and finders engaged by Borrower. 42 10.2.2 GENERAL. Any loss, cost, liability, damage or expense (including reasonable attorneys' fees and expenses) incurred by FINOVA in investigating, preparing for, defending against, providing evidence, producing documents or taking other action in respect of any commenced or threatened litigation, administrative proceeding, suit instituted by any Person or investigation under any law, including any federal securities law, the Bankruptcy Code, any relevant state corporate statute or any other securities law, bankruptcy law or law affecting creditors generally of any jurisdiction, or any regulation pertaining to any of the foregoing, or at common law or otherwise, relating, directly or indirectly, to the transactions contemplated by or referred to in, or any other matter related to, the Loan Instruments, except to the extent (i) of any gross negligence or willful misconduct of FINOVA or (ii) Borrower is the prevailing party in any adversarial proceeding between Borrower and FINOVA. 10.2.3 OPERATION OF COLLATERAL; JOINT VENTURERS. Any loss, cost, liability, damage or expense (including reasonable attorneys' fees and expenses) incurred in connection with the ownership, operation or maintenance of the Collateral, the construction of FINOVA and Borrower as having the relationship of joint venturers or partners or the determination that FINOVA has acted as agent for Borrower. 10.2.4 ENVIRONMENTAL INDEMNITY. Any and all claims, losses, damages, response costs, clean-up costs and expenses suffered and/or incurred at any time by FINOVA arising out of or in any way relating to the existence at any time of any Hazardous Materials in, on, under, at, transported to or from, or used in the construction and/or renovation of, any of the Real Estate or Leasehold Property, or otherwise with respect to any Environmental Law, and/or the failure of any Obligor to perform its obligations and covenants hereunder witch respect to environmental matters, including, but not limited to: (i) claims of any Persons for damages, penalties, response costs, clean-up costs, injunctive or other relief, (ii) costs of removal and restoration, including reasonable fees of attorneys and experts, and costs of reporting the existence of Hazardous Materials to any Governmental Body, and (iii) any expenses or obligations, including reasonable attorneys' fees and expert witness fees, incurred at, before and after any trial or other proceeding before any Governmental Body or appeal therefrom whether or not taxable as costs, including, without limitation, reasonable witness fees, deposition costs, copying and telephone charges and other expenses, all of which shall be paid by Borrower to FINOVA on demand, except where such costs were directly caused by the gross negligence or willful misconduct of FINOVA or by any agent or third party acting on behalf of and at the direction of FINOVA. 43 ARTICLE XI MISCELLANEOUS 11.1 NOTICES. All notices and communications under this Loan Agreement shall be in writing and shall be (i) delivered in person, (ii) sent by telecopy, or (iii) mailed, postage prepaid, either by registered or certified mail, return receipt requested, or by overnight express carrier, addressed in each case as follows: To Borrower: I.C.H. Corporation Sybra, Inc. 9255 Towne Centre Drive Suite 600 San Diego, California 92121 Attention: Glen V. Freter Senior Vice President Chief Financial Officer Telecopy No.: (858) 638-2078 Copy to: I.C.H. Corporation 780 Third Avenue, 43rd Floor New York, New York 10017 Attention: Robert H. Drechsler, Esq. Executive Vice President Telecopy No.: (212) 317-0991 Copy to: Pryor Cashman Sherman & Flynn LLP 410 Park Avenue New York, New York 10022 Attention: William M. Levine, Esq. Telecopy No.: (212) 326-0806 To FINOVA: FINOVA Capital Corporation 115 West Century Road Paramus, New Jersey 07693 Attention: Daniel O'Donnell Vice President Telecopy No.: (201) 634-3497 Copy to: FINOVA Capital Corporation 1850 N. Central Avenue Phoenix, Arizona 85077 Attention: Vice President, Law Telecopy No.: (602) 207-5036 44 Copy to: Altheimer & Gray 10 South Wacker Drive Suite 4000 Chicago, Illinois 60606 Attention: Michael L. Owen, Esq. Telecopy No.: (312) 715-4800 or to any other address or telecopy number, as to any of the parties hereto, as such party shall designate in a written notice to the other parties hereto. All notices sent pursuant to the terms of this Section 11.1 shall be deemed received (i) if personally delivered, then on the Business Day of delivery, (ii) if sent by telecopy before 2:00 p.m. Phoenix time, on the day sent if a Business Day or if such day is not a Business Day or if sent after 2:00 p.m. Phoenix time, then on the next Business Day, (iii) if sent by overnight, express carrier, on the next Business Day immediately following the day sent, or (iv) if sent by registered or certified mail, on the earlier of the fifth Business Day following the day sent or when actually received. Any notice by telecopy shall be followed by delivery on the next Business Day by overnight, express carrier or by hand. 11.2 SURVIVAL OF LOAN AGREEMENT; INDEMNITIES. All covenants, agreements, representations and warranties made in this Loan Agreement and in the certificates delivered pursuant hereto shall survive the making by FINOVA of the Loans and the execution and delivery to FINOVA of the Notes and of all other Loan Instruments, and shall continue in full force and effect so long as any of Borrower's Obligations remain outstanding, unperformed or unpaid. Notwithstanding the repayment of all amounts due under the Loan Instruments, the cancellation of the Note and the release and/or cancellation of any and all of the Loan Instruments or the foreclosure of any Liens on the Collateral, the obligations of Borrower to indemnify FINOVA with respect to the expenses, damages, losses, costs and liabilities described in Section 10.2 shall survive until all applicable statute of limitations periods with respect to actions which may be brought against FINOVA have run. 11.3 FURTHER ASSURANCE. From time to time, Borrower shall execute and deliver to FINOVA such additional documents as FINOVA reasonably may require to carry out the purposes of the Loan Instruments and to protect rights of FINOVA thereunder, including, without limitation, using its reasonable best efforts in the event any Collateral is to be sold to secure the approval by any Governmental Body of any application required by such Governmental Body in connection with such sale, and not take any action inconsistent with such sale or the purposes of the Loan Instruments. 11.4 TAXES AND FEES. Should any tax (other than taxes based upon the net income of any FINOVA), recording or filing fees become payable in respect of any of the Loan Instruments, or any amendment, modification or supplement thereof, Borrower agrees to pay the same on demand, together with any interest or penalties thereon attributable to any delay by Borrower in meeting any FINOVA demand, and agrees to hold FINOVA harmless with respect thereto. 45 11.5 SEVERABILITY. In the event that any provision of this Loan Agreement is deemed to be invalid by reason of the operation of any law, or by reason of the interpretation placed thereon by any court or any other Governmental Body, as applicable, the validity, legality and enforceability of the remaining terms and provisions of this Loan Agreement shall not in any way be affected or impaired thereby, all of which shall remain in full force and effect, and the affected term or provision shall be modified to the minimum extent permitted by law so as to achieve most fully the intention of this Loan Agreement. 11.6 WAIVER. No delay on the part of FINOVA in exercising any right, power or privilege hereunder shall operate as a waiver thereof, and no single or partial exercise of any right, power or privilege hereunder shall preclude other or further exercise thereof, or be deemed to establish a custom or course of dealing or performance between the parties hereto, or preclude the exercise of any other right, power or privilege. 11.7 MODIFICATION OF LOAN INSTRUMENTS. No modification or waiver of any provision of any of the Loan Instruments shall be effective unless the same shall be in writing and signed by Borrower and FINOVA, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given. No notice to or demand on Borrower in any case shall entitle Borrower to any other or further notice or demand in the same, similar or other circumstances. 11.8 CAPTIONS. The headings in this Loan Agreement are for purposes of reference only and shall not limit or otherwise affect the meaning hereof. 11.9 SUCCESSORS AND ASSIGNS. This Loan Agreement shall be binding upon and inure to the benefit of and be enforceable by the respective successors and assigns of the parties hereto; provided that Borrower may not assign any of its rights or delegate any of its duties hereunder to any other Person. 11.10 REMEDIES CUMULATIVE. All rights and remedies of the parties hereto, any other Loan Instruments or otherwise, shall be cumulative and non-exclusive, and may be exercised singularly or concurrently. FINOVA shall not be required to prosecute collection, enforcement or other remedies against any Obligor before proceeding against any other Obligor or to enforce or resort to any security, liens, collateral or other rights of FINOVA. One or more successive actions may be brought against Borrower and/or any other Obligor, either in the same action or in separate actions, as often as FINOVA deems advisable, until all of Borrower's Obligations are paid and performed in full. 11.11 ENTIRE AGREEMENT; CONFLICT. This Loan Agreement and the other Loan Instruments executed prior or pursuant hereto constitute the entire agreement among the parties hereto with respect to the transactions contemplated hereby or thereby and supersede any prior agreements, whether written or oral, relating to the subject matter hereof. In the event of a conflict between the terms and conditions set forth herein and the terms and conditions set forth in any other Loan Instrument, the terms and conditions set forth herein shall govern. 46 11.12 APPLICABLE LAW. THE LOAN INSTRUMENTS SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS AND DECISIONS OF THE STATE OF ARIZONA. FOR PURPOSES OF THIS SECTION 11.12, THE LOAN INSTRUMENTS SHALL BE DEEMED TO BE PERFORMED AND MADE IN THE STATE OF ARIZONA. 11.13 BORROWER HEREBY AGREES THAT ALL ACTIONS OR PROCEEDINGS INITIATED BY BORROWER AND ARISING DIRECTLY OR INDIRECTLY OUT OF THE LOAN INSTRUMENTS SHALL BE LITIGATED IN THE SUPERIOR COURT OF MARICOPA COUNTY, OR THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF ARIZONA OR, IF FINOVA INITIATES SUCH ACTION, IN ADDITION TO THE FOREGOING COURTS, ANY COURT IN WHICH FINOVA SHALL INITIATE OR TO WHICH FINOVA SHALL REMOVE SUCH ACTION, TO THE EXTENT SUCH COURT HAS JURISDICTION. BORROWER HEREBY EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE TO SUCH JURISDICTION IN ANY ACTION OR PROCEEDING COMMENCED BY FINOVA IN OR REMOVED BY FINOVA TO ANY OF SUCH COURTS, AND HEREBY AGREES THAT PERSONAL SERVICE OF THE SUMMONS AND COMPLAINT, OR OTHER PROCESS OR PAPERS ISSUED THEREIN MAY BE SERVED IN THE MANNER PROVIDED FOR NOTICES HEREIN, AND AGREES THAT SERVICE OF SUCH SUMMONS AND COMPLAINT OR OTHER PROCESS OR PAPERS MAY BE MADE BY REGISTERED OR CERTIFIED MAIL ADDRESSED TO BORROWER AT THE ADDRESS TO WHICH NOTICES ARE TO BE SENT PURSUANT TO SECTION 11.1. BORROWER WAIVES ANY CLAIM THAT MARICOPA COUNTY, ARIZONA OR THE DISTRICT OF ARIZONA IS AN INCONVENIENT FORUM OR AN IMPROPER FORUM BASED ON LACK OF VENUE. TO THE EXTENT PROVIDED BY LAW, SHOULD BORROWER, AFTER BEING SO SERVED, FAIL TO APPEAR OR ANSWER TO ANY SUMMONS, COMPLAINT, PROCESS OR PAPERS SO SERVED WITHIN THE NUMBER OF DAYS PRESCRIBED BY LAW AFTER THE MAILING THEREOF, BORROWER SHALL BE DEEMED IN DEFAULT AND AN ORDER AND/OR JUDGMENT MAY BE ENTERED BY THE COURT AGAINST BORROWER AS DEMANDED OR PRAYED FOR IN SUCH SUMMONS, COMPLAINT, PROCESS OR PAPERS. THE EXCLUSIVE CHOICE OF FORUM FOR BORROWER SET FORTH IN THIS SECTION 11.13 SHALL NOT BE DEEMED TO PRECLUDE THE ENFORCEMENT BY FINOVA OF ANY JUDGMENT OBTAINED IN ANY OTHER FORUM OR THE TAKING BY FINOVA OF ANY ACTION TO ENFORCE THE SAME IN ANY OTHER APPROPRIATE JURISDICTION, AND BORROWER HEREBY WAIVES THE RIGHT TO COLLATERALLY ATTACK ANY SUCH JUDGMENT OR ACTION. 11.14 FINOVA AND BORROWER ACKNOWLEDGE AND AGREE THAT ANY CONTROVERSY WHICH MAY ARISE UNDER ANY OF THE LOAN INSTRUMENTS OR WITH RESPECT TO THE TRANSACTIONS CONTEMPLATED THEREBY WOULD BE BASED UPON DIFFICULT AND COMPLEX ISSUES AND, THEREFORE, THE PARTIES AGREE THAT ANY LAWSUIT ARISING OUT OF ANY SUCH CONTROVERSY WILL BE TRIED IN A COURT OF COMPETENT JURISDICTION BY A JUDGE SITTING WITHOUT A JURY. 11.15 ESTOPPEL CERTIFICATE. Within 15 days after FINOVA requests Borrower to do so, Borrower will execute and deliver to FINOVA a statement certifying (i) that this Loan Agreement is in full force and effect and has not been modified except as described in such statement, (ii) the date to which interest and principal on the Notes has been paid, (iii) the Principal Balance, (iv) whether or not to its knowledge an Incipient Default or Event of Default has occurred and is continuing, and, if so, specifying in reasonable detail each such Incipient Default or Event of Default of which it has knowledge, (v) whether to its knowledge it has any defense, setoff or counterclaim to the payment of the Note in accordance with its terms, and, if so, specifying each defense, setoff or counterclaim of which it has knowledge in reasonable 47 detail (including where applicable the amount thereof), and (vi) as to any other matter reasonably requested by FINOVA. 11.16 CONSEQUENTIAL DAMAGES. Neither FINOVA nor any agent or attorney of FINOVA shall be liable to Borrower for consequential damages arising from any breach of contract, tort or other wrong relating to the establishment, administration or collection of Borrower's Obligations. 11.17 COUNTERPARTS. This Loan Agreement may be executed by the parties hereto in several counterparts and each such counterpart shall be deemed to be an original, but all such counterparts shall together constitute one and the same agreement. 11.18 NO FIDUCIARY RELATIONSHIP. No provision in this Loan Agreement or in any other Loan Instrument, and no course of dealing among the parties hereto, shall be deemed to create any fiduciary duty by FINOVA to Borrower. 11.19 SALE OF NOTE; PARTICIPATIONS. FINOVA may assign to one or more banks or other Persons all or any part of, or may grant participations to one or more banks or other Persons in, its right, title and interest in the Loan, this Loan Agreement, the other Loan Instruments, or any of them, and to the extent of any such assignment or participation (unless otherwise stated therein) the assignee or participant of such assignment or participation shall have the same rights, benefits and obligations hereunder and thereunder as FINOVA would have hereunder. 11.20 PUBLICITY. Borrower authorizes FINOVA to issue appropriate press releases and to cause a tombstone to be published announcing the consummation of this transaction and the aggregate amount thereof. [remainder of this page intentionally left blank] 48 IN WITNESS WHEREOF, this Loan Agreement has been executed and delivered by each of the parties hereto by a duly authorized officer of each such party on the date first set forth above. SYBRA, INC., a Michigan corporation By: ------------------------------------ Glen V. Freter Senior Vice President Chief Financial Officer FINOVA CAPITAL CORPORATION, a Delaware corporation By: ------------------------------------ Name: ----------------------------------- Title: ---------------------------------- EX-10.33 7 EXHIBIT 10.33 Exhibit 10.33 LOAN NO.163 LOAN AND SECURITY AGREEMENT Made By SYBRA, INC. a Michigan Corporation ("Borrower") in favor of U.S. RESTAURANT LENDING GROUP I, L P. a Delaware Limited Partnership ("Secured Party") LOAN AND SECURITY AGREEMENT LOAN AND SECURITY AGREEMENT (this "Security Agreement"), dated as of December 22, 1999, by SYBRA, INC., a Michigan corporation (the "Borrower"), in favor of U.S. RESTAURANT LENDING GROUP I, L.P., a Delaware limited partnership (together with its successors and assigns, the "Secured Party"). PRELIMINARY STATEMENTS 1. On the date hereof the Secured Party will make the loans (individually, a "Loan", and collectively, the "Loans") to the Borrower reflected in the promissory notes (individually, a "Promissory Note", and collectively, the "Promissory Notes") in the aggregate loan amount (the "Aggregate Loan Amount") of $5,500,000.00, dated the date hereof, in the form of EXHIBIT E prepared by and acceptable to Secured Party, which Promissory Notes will evidence the Borrower's obligation, INTER, ALIA (i) to repay the Loans, and (ii) to pay interest and other amounts as set forth therein. The value of that certain Promissory Note executed by Borrower with respect to this Security Agreement is $100,000.00. 2. It is a condition to the making of the Loan, that the Borrower shall have executed and delivered this Security Agreement whereby the Borrower, in order to provide security for the full payment when due of all amounts payable under the Promissory Note, shall pledge and grant to the Secured Party a security interest in the collateral described herein. NOW THEREFORE, in consideration of the foregoing and in order to induce the Secured Party to make the Loan available to the Borrower and for other good and valuable consideration, the receipt and sufficiency of which the Borrower hereby acknowledges, the Borrower and the Secured Party agree as follows: ARTICLE I DEFINITIONS AND OTHER TERMS 1. Definitions and Other Terms. 1. 1. DEFINED TERMS. The following terms shall have the meanings herein specified unless the context otherwise requires. All terms not otherwise defined herein shall have the meaning ascribed to such terms in the Promissory Note. All terms defined in the singular will have the same meaning when used in the plural and vice versa. "ACCOUNTS" means, "accounts", with respect to the Pledged Store, as such term is defined in the UCC. "AFFILIATE" means, with respect to any designated Person, any Person that, directly or indirectly, controls or is controlled by or is under common control with such designated Person and, without limiting the generality of the foregoing, shall include, (i) any Person who is a director or officer of the designated Person; (ii) any Person of which or whom the designated Person is a director or officer; (iii) any Person, who, directly or indirectly, is the legal or beneficial owner of or controls 10% or more of any class of equity securities of the designated Person; and (iv) any Person, who is an Affiliate, as defined in clauses (i), (ii) or (iii) of an Affiliate of the specified person. For the purposes of this definition, "control" (including, with correlative meanings, the terms "controlled by" and "under common control LOAN AND SECURITY AGREEMENT -- PAGE 1 SYBRA, INC./LOAN NO. 163 ARBY'S/DALLAS, TEXAS with"), as used with respect to any Person, shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities, by contract or otherwise. "BORROWER" means the Person or Persons (if more than one, collectively, and jointly and severally) executing this Agreement as Borrower. "BUSINESS" means the Pledged Stores operated by the Borrower. "BUSINESS DAY" means any day other than a Saturday, Sunday or a day on which borrowing institutions in New York, New York, are authorized or obligated by law or executive order to be closed. "BUSINESS VALUATION" means the business valuation of the Pledged Store and Collateral prepared by Valuation Consultants. "CHANGE IN CONTROL" means the sale, transfer or other disposition, whether voluntary or involuntary, of more than forty-nine percent (49.0%) of the outstanding voting equity interest in Borrower without Lender's prior written consent, which consent shall not be unreasonably withheld or delayed, or the merger, consolidation or combination of Borrower with any other Person where Borrower is not the surviving entity. "CHATTEL PAPER" means the chattel paper, as defined under the UCC, with respect to the Pledged Store. "CODE" means the Internal Revenue Code of 1986 as amended. "COLLATERAL" has the meaning ascribed to such term in Section 2. "CONSOLIDATED CASH FLOW" means, for any period, with respect to the Consolidated Pledged Stores, an amount equal to (a) the sum of (i) pre-tax income; (ii) interest expense; (iii) all non-cash charges, including depreciation and amortization; (iv) Rental Expense; and (v) Non-Recurring Expenses, all as recorded on the Consolidated Pledged Stores' financial statements for such period in accordance with GAAP. "CONSOLIDATED FCCR" means, for any period, the ratio of (a) the Borrower's Consolidated Cash Flow for such period to (b) the sum of Fixed Charges and Rental Expense of the Borrower for the Consolidated Pledged Stores for such period. "CONSOLIDATED PLEDGED STORES" means the Stores listed on SCHEDULE 5 attached hereto. "CONTRACTS" shall mean all contracts and agreements related to the Pledged Store to which the Borrower now is, or hereafter will be, bound, or a party, beneficiary or assignee (other than rights evidenced by Chattel Paper, Documents or Instruments), other than the Franchise Agreement, License or any other agreement which, by its terms, is non-assignable. "CONTROL PERSONS" has the meaning ascribed to such term in Section 3.19. LOAN AND SECURITY AGREEMENT -- PAGE 2 SYBRA, INC./LOAN NO. 163 ARBY'S/DALLAS, TEXAS "CORPORATE CASH FLOW" means, for any period, with respect to the Borrower, an amount equal to (a) the sum of (i) pre-tax income, (ii) interest expense, (iii) all non-cash charges, including depreciation and amortization, (iv) Rental Expense, and (v) Non-Recurring Expenses, all as recorded on the Borrower's financial statement for such period in accordance with GAAP. "CORPORATE FCCR" means, for any period, the ratio of (a) the Corporate Cash Flow for such period to (b) the sum of Fixed Charges and Rental Expense of the Borrower for such period. "DEFAULT" means any event or condition which, with the giving of any applicable notice or lapse of time or both, would become an Event of Default. "DEFAULT RATE" has the meaning ascribed to such term in the Promissory Note. "DEPOSIT ACCOUNTS" means the deposit accounts of Borrower set forth on SCHEDULE 4 hereto. "DISTRIBUTIONS" means all distributions and other payments by Borrower to any Person on account of such Person's equity ownership in Borrower, but shall not include stock dividends or reimbursement for insurance policies expressly required to be maintained pursuant to Section 3.17 hereof. "DOCUMENT" means the documents, as defined under the UCC, with respect to the Pledged Store. "ERISA" means the Employee Retirement Income Security Act of 1974 as amended. "EQUIPMENT" means any "equipment", as such term is defined in the UCC, used or bought for use primarily in the Pledged Store and not included within Inventory, now or hereafter owned by the Borrower and, in any event, shall include, but shall not be limited to, all appliances, machinery, tools, office equipment, furniture, appliances, store fixtures, food service equipment, coolers, furnishings, fixtures, petroleum storage tanks and pumps, and any manuals, instructions and similar items which relate to the foregoing, and any and all additions, substitutions and replacements of any of the foregoing, wherever located, together with all improvements thereon and all attachments, components, parts, equipment and accessories installed thereon or affixed thereto. "EVENT OF DEFAULT" has the meaning ascribed to such term in Section 7. "FINANCING STATEMENTS" means the UCC financing statements, substantially in the form of EXHIBIT D hereto, prepared by Secured Party, and delivered to Borrower and which Borrower must execute and deliver to Secured Party as a condition under the Loan Documents. "FIXED CHARGES" means, with respect to any Person, for any period, without duplication, the aggregate amount of all scheduled or required (accrued or otherwise) payments of Indebtedness by such Person during such period, as determined in accordance with GAAP. "FRANCHISE AGREEMENT" means, with respect to the Pledged Store, the franchise agreement between Franchisor, as franchisor, and Borrower, as franchisee. "FRANCHISOR" means the franchisor identified as such on SCHEDULE 1. LOAN AND SECURITY AGREEMENT -- PAGE 3 SYBRA, INC./LOAN NO. 163 ARBY'S/DALLAS, TEXAS "FUNDING DATE" means the date the Loan is actually closed and funds are wired. "GAAP" means generally accepted accounting principles consistently applied. "GENERAL INTANGIBLES" shall mean "general intangibles" as such item is defined in the UCC, with respect to the Pledged Store, and shall include, but not be limited to, writings, memoranda, confirmations, passbooks, signature cards, acknowledgments, understandings, Contract rights, leases, permits, filings, consents, and approvals, and all puts, calls, options, and all security interests, methods, and information (including proprietary information, director and shareholder, sales, business, financial, accounting, forecasts, projections, media, and other information), know-how, programs, plans, data, blueprints, designs, drawings, surveys, notices, and goodwill, and all recordings and registrations thereof, applications for recording or registration, renewals, modifications, supplements, reissues, continuations, extensions, divisions thereof and rights corresponding thereto, and all manuals, standards, practices, mail, advertisements, files, reports, books, catalogs, records, journals, invoices, and bills, and all rights (including voting rights, rights to receive notice or to consent, rights to payment, interest, dividends, distributions or earnings, rights to sue and enforce), powers (including powers of attorney), privileges, benefits, and remedies relating thereto or arising in connection therewith. "GOODS" means the goods, as defined under the UCC, with respect to the Pledged Store, and shall include (i) all Inventory, and (ii) all Equipment. "GUARANTOR" has the meaning assigned to such term in the Promissory Note. "INDEBTEDNESS" means, with respect to any Person, (i) all obligations of such Person for borrowed money, including the Promissory Note, (ii) all obligations of such Person evidenced by bonds, debentures, notes or other similar instruments, (iii) all obligations of such Person to pay the deferred purchase price of property or services, (iv) all capitalized lease obligations of such Person, (v) all indebtedness of others secured by a Lien on any asset of such Person, whether or not such indebtedness has been assumed by such Person, (vi) all indebtedness of others to the extent guaranteed by such Person, and (vii) reimbursement obligations of such Person (whether contingent or otherwise) in respect of letters of credit, bankers' acceptances, surety and other bonds and similar instruments. "INSTRUMENT" means the instruments, as defined under the UCC, with respect to the Pledged Store (other than Instruments constituting Chattel Paper). "INVENTORY" means the inventory of the Borrower as such term is defined in the UCC, with respect to the Pledged Store, now owned or hereafter acquired and wherever located, whether raw, in process or furnished, and all materials usable in processing the same and all documents of title covering any inventory, including, without limitation, work in process, materials used or consumed in the Pledged Store, now owned or hereafter acquired or manufactured by the Borrower and held for sale in the ordinary course of its business, all present and future substitutions thereof, parts and accessories thereof and all additions thereto, and all Proceeds thereof and products of such inventory in any form whatsoever. "LEASE OBLIGATIONS" means with respect to any Person, any obligations of such Person in connection with any leases for personal property (including Equipment) or real property, to the extent such obligations are not included in Indebtedness. LOAN AND SECURITY AGREEMENT -- PAGE 4 SYBRA, INC./LOAN NO. 163 ARBY'S/DALLAS, TEXAS "LICENSE" means, with respect to the Pledged Store, the license to use the Trademark of Franchisor under the Franchise Agreement. "LIEN" means any deed, mortgage, pledge, security interest, hypothecation, collateral assignment, encumbrance, lien (statutory or other), or preference, priority or other security agreement or preferential arrangement of any kind or nature whatsoever (including, without limitation, any conditional sale or other title retention agreement, any financing lease having substantially the same economic effect as any of the foregoing, and the filing of any financing statement under the UCC). "LOAN" has the meaning ascribed to such term in the preliminary statements of this Security Agreement. "LOAN AMOUNT" shall have the meaning ascribed to such term in the Promissory Note. "LOAN DOCUMENTS" means the Promissory Note, this Security Agreement and any commitment letter, guarantee, mortgage, assignment of lease, deed of trust, environmental indemnity affidavit, assignment or other instrument, agreement, certificate or other writing, now or hereafter executed and delivered in connection with the Promissory Note or the Obligations. "MATERIAL ADVERSE EFFECT" shall mean a material adverse effect on (a) the business, operations, property, condition (financial or otherwise) or prospects of the Borrower; (b) the validity or enforceability of this Security Agreement or any of the other Loan Documents or the rights or remedies of the Secured Party hereunder or thereunder; or (c) the ability of any Person to perform its Obligations with or in respect of any Loan Documents. "NON-RECURRING EXPENSES" [and "NON-RECURRING INCOME"] mean expenses or income, as the case may be, that are extraordinary and generally not reflected in any prior period or reasonably anticipated to be incurred in any subsequent period. "OBLIGATIONS" means each and every obligation, covenant, agreement, Indebtedness and liability of the Borrower to the Secured Party with respect to the Pledged Store or Other Pledged Stores evidenced by, arising under or in connection with the Promissory Note (including, without limitation, indebtedness, obligations and liabilities in respect of principal, interest and the Prepayment Amount for the Loan), this Security Agreement, or any other Loan Document, and any future advances thereon, renewals, extensions, modifications, amendments, substitutions and consolidations thereof, including the Borrower's obligations to pay (or reimburse the Secured Party for) all reasonable costs and expenses (including reasonable attorneys' fees and disbursements) incurred by the Secured Party in obtaining, maintaining, protecting and preserving its interest in the Collateral or its security interest therein, foreclosing, retaking, holding, preparing for sale or lease, selling or otherwise disposing or realizing on the Collateral or in exercising its rights hereunder or as a secured party under the UCC, any other applicable law, regulation or rule or this Security Agreement. "OTHER PLEDGED STORES" means the Arby's restaurants operated by Borrower as identified on SCHEDULE 5 hereto. LOAN AND SECURITY AGREEMENT -- PAGE 5 SYBRA, INC./LOAN NO. 163 ARBY'S/DALLAS, TEXAS "PERMITTED LIENS" means (i) any and all of the Liens set forth on EXHIBIT C attached hereto; (ii) Liens arising as a matter of law to secure payment of taxes, assessments or charges owing to any governmental authority but which are not yet due or which are being contested in good faith by appropriate proceedings or other appropriate actions and with respect to which adequate reserves or other appropriate provisions are being maintained in accordance with GAAP; (iii) statutory Liens of landlords and Liens of carriers, warehousemen, mechanics, materialmen and other Liens imposed by law, created in the ordinary course of business and for amounts not yet due (or which are being contested in good faith by appropriate proceedings or other appropriate actions which are sufficient to prevent imminent foreclosure of such Liens, are promptly instituted and diligently conducted) and with respect to which adequate reserves or other appropriate provisions are being maintained in accordance with GAAP; (iv) Liens incurred or deposits made in the ordinary course of business (including, without limitation, security deposits for leases, surety bonds and appeal bonds) in connection with workers' compensation, unemployment insurance and other types of social security benefits or to secure the performance of tenders, bids, contracts (other than for the repayment or guarantee of borrowed money or purchase money obligations), statutory obligations and other similar obligations or arising as a result of progress payments under government contracts; (v) easements (including, without limitation, reciprocal easement agreements and utility agreements), rights-of-way, covenants, consents, reservations, encroachments, minor defects or irregularities in title, variations and other restrictions, charges or encumbrances (whether or not recorded) affecting the use of real property, which individually or in the aggregate do not or are not reasonably likely to have a material adverse effect on the conduct of the Borrower's business or on the use of such real property or on the value to or marketability by the Borrower of its interest in such real property; (vi) Liens arising under the Loan Documents in favor of the Secured Party; (vii) Liens incurred in connection with the purchase or acquisition of equipment or fixed assets, as security for the deferred purchase or acquisition price of such equipment or assets, each of which Liens shall extend only to the equipment or assets so purchased or acquired and shall secure only up to 100% of the deferred purchase or acquisition price thereof, and (viii) extensions, renewals or replacements or any Lien referred to in clauses (i) through (vii) above. "PERSON" means any individual, corporation, limited liability company, partnership, unincorporated association, firm, trust, joint stock company, joint venture, government or agency thereof or other entity of whatever nature. "PLEDGED STORE" means the Store listed on SCHEDULE 1, attached hereto. "PLEDGED STORE CASH FLOW" means, for any period, with respect to the Pledged Store, an amount equal to (a) the sum of (i) pre-tax income, (ii) interest expense, (iii) all non-cash charges, including depreciation and amortization, (iv) Rental Expense, and (v) Non-Recurring Expenses. "PREPAYMENT AMOUNT" shall have the meaning ascribed to such term in the Promissory Note. "PROCEEDS" shall mean "proceeds" as such term is defined in the UCC or under other relevant law with respect to the Pledged Store and shall include, but shall not be limited to, (a) any and all proceeds of any insurance (insuring the Collateral or otherwise required to be maintained hereunder, including return of unearned premium), indemnity, warranty or guaranty payable to the Secured Party or Borrower from time to time, and claims for insurance, indemnity, warranty or guaranty effected or held for the benefit of the Borrower, with respect to any of the Collateral, (b) any and all payments (in any form whatsoever) made or due and payable to the Borrower from time to time in connection with any requisition, confiscation, condemnation, seizure or forfeiture of all or any part of the Collateral by any governmental authority (or any person acting under color of governmental authority) and (c) any and all interest, income, dividends, distributions and earnings on the Collateral or other monies, revenues or other amounts derived LOAN AND SECURITY AGREEMENT -- PAGE 6 SYBRA, INC./LOAN NO. 163 ARBY'S/DALLAS, TEXAS from the Collateral, including any such amounts received in connection with any disposition of the Franchise Agreement. "PROMISSORY NOTE" has the meaning ascribed to such term in the preliminary statements to this Security Agreement. "PROPERTY" means the real property on which the Pledged Store is located, as more specifically described on SCHEDULE 1 attached hereto. "RENTAL EXPENSE" means, with respect to any Person, for any period, the aggregate of all amounts paid or accrued with respect to leases (including building and ground operating lease expense), plus percent rent, plus capitalized building lease expense (net of principal and interest), minus rent on regional and corporate offices. "REQUIRED CORPORATE FCCR" has the meaning ascribed to such term in Section 3.14. "SCHEDULED MONTHLY LOAN PAYMENT" shall have the meaning ascribed to such term in the Promissory Note. "SECURITIZATION" means the sale, pledge, grant of a security interest, collateral assignment, transfer and delivery or other encumbrance or disposition of the Loan (or the Secured Party's rights and powers therein) by the Secured Party, from time to time, to one or more of its Affiliates or to other Persons, including, without limitation, the sale of the Loan by the Secured Party to one or more Persons who will issue debt instruments or equity certificates backed by such Loan and the servicing of such Loan by the Person appointed as Servicer in connection therewith. "SERVICER" shall mean the Person designated by the Secured Party from time to time to service the Loan. "STATE" shall have the meaning ascribed to such term in the Promissory Note. "STORE" means a business/commercial property owned and/or operated by the Borrower and includes all aspects of the operating unit. "UCC" means the Uniform Commercial Code of the State and the state where the Pledged Store is located, if different and as applicable. "UCC SEARCH" means the security interest, tax lien, suit and judgment search of the Borrower conducted in the locations set forth on SCHEDULE 2 hereto. "UNIT FCCR" means, with respect to the Pledged Store and Other Pledged Stores, for any period, the ratio of (x) such Pledged Store's or Other Pledged Stores' Pledged Store Cash Flow for such period to (y) the sum of Fixed Charges and Rental Expense for such Pledged Store or Other Pledged Store for such period. In determining Unit FCCR, Indebtedness shall include only the indebtedness of the Borrower to the Secured Party, and any Indebtedness secured by Permitted Liens with respect to the Pledged Store or Other Pledged Stores. LOAN AND SECURITY AGREEMENT -- PAGE 7 SYBRA, INC./LOAN NO. 163 ARBY'S/DALLAS, TEXAS "VALUATION CONSULTANTS" shall mean Deloitte & Touche LLP, or such other consultants selected by the Secured Party to prepare a Business Valuation. 1.2. CERTAIN CALCULATIONS. For the purposes of calculating the Borrower's Cash Flow, Non-Recurring Expenses, Non-Recurring Income and Indebtedness, the term "financial statement" shall mean the consolidated financial statement of the Borrower prepared in accordance with GAAP. 1.3. RULES OF CONSTRUCTION. When used in this Security Agreement: (a) "or" is not exclusive; (b) a reference to a law includes any amendment or modification of such law; (c) a reference to a Person includes its permitted successors and permitted assigns; and (d) a reference to an agreement, instrument or document shall include such agreement, instrument or document as the same may be amended, modified or supplemented from time to time in accordance with its terms. ARTICLE II SECURITY INTERESTS 2. SECURITY INTERESTS. 2.1. PLEDGE AND GRANT OF SECURITY INTEREST. As collateral security for the prompt and complete payment and performance when due of all of the Obligations, the Borrower hereby pledges and grants to the Secured Party, a continuing security interest in, and Lien on, all of the Borrower's right, title and interest in and to the following (collectively, the "COLLATERAL"): all Accounts, Goods, Documents, Chattel Paper, Deposit Accounts, Inventory, Equipment, Contracts, General Intangibles (other than the Franchise Agreement and Licenses), certificates of title, fixtures, credits, claims, demands, assets and other personal property of Borrower, whether now owned, existing, hereafter acquired, held, used, or sold to the extent that any such items are located at, or used solely in the ownership or operation of, the Pledged Store, and any other property, rights and interests of the Borrower which at any time relate to, arise out of or in connection with the foregoing or which shall come into the possession or custody or under the control of the Secured Party or any of its agents, representatives, associates or correspondents, in connection with the foregoing, any and all additions and accessions, replacements, substitutions, and improvements, of or to all the foregoing and all products, rents, profits, offspring, and Proceeds thereof subject to restrictions or limitations on pledge or assignment of such Collateral contained in any existing Property lease that have not been waived, subordinated or released by the landlord of such lease pursuant to an estoppel or other similar agreement. Without limiting the generality of the foregoing, this Agreement also secures the payment of all amounts which constitute part of the Obligations and would be owed by the Borrower to the Secured Party but for the fact they are unenforceable or not allowable due to the existence of a bankruptcy, reorganization or similar proceeding involving the Borrower. 2.2. SECURITY INTEREST ABSOLUTE. All rights of the Secured Party and the security interests hereunder shall be absolute and unconditional irrespective of: (a) any change in the time, manner, amount or place of payment of or in any other term of all or any of the Obligations, or any other amendment or waiver of or any consent to any departure from the Promissory Note or any other Loan Document; LOAN AND SECURITY AGREEMENT -- PAGE 8 SYBRA, INC./LOAN NO. 163 ARBY'S/DALLAS, TEXAS (b) any exchange, release or non-perfection of all or any part of the Collateral or any other collateral, or any release from, amendment to, waiver of or consent to departure from any guaranty, for all or any of the Obligations; or (c) to the fullest extent permitted by law, any other circumstances which might otherwise constitute a defense available to, or a discharge of the Borrower or a third party pledgor. ARTICLE III REPRESENTATIONS, WARRANTIES AND COVENANTS 3. REPRESENTATIONS, WARRANTIES AND COVENANTS. The Borrower hereby represents, warrants and covenants that: 3.1. ORGANIZATION. The Borrower is and will continue to be duly formed, validly existing and in good standing under the laws of the state of its organization set forth on SCHEDULE 1 and is duly authorized to do business in, and is in good standing in each jurisdiction where the Business or the Property is located and where such organization, qualification or standing is necessary, required or proper in connection with the Borrower's ownership or use of the Collateral or the Property or the conduct of the Business. There is no state or jurisdiction, other than its state of organization , and, if different, the State, where such organization, qualification or standing is necessary, required or proper in connection with Borrower's ownership or use of the Collateral or the Pledged Store or the conduct of its Business. 3.2. POWER AND AUTHORITY. The Borrower has and will continue to maintain all requisite power, authority and the legal right and all necessary permits, consents, licenses and authorizations (a) to own the Collateral, (b) to conduct the Business and (c) to execute, deliver and perform its obligations under this Security Agreement, the Promissory Note and the other Loan Documents, except, in each case, where the failure to maintain such permits, consents, licenses and authorizations would not result in a Material Adverse Effect. To the extent that any Affiliate owns any Collateral, conducts any part of the Business or has executed any of the Loan Documents, such Affiliate has and will continue to maintain all requisite power, authority and the legal right and all necessary permits, consents, licenses and authorizations (a) to own the Collateral, (b) to conduct the Business and (c) to execute, deliver and perform its obligations under this Security Agreement, the Promissory Note and the other Loan Documents, except, in each case, where the failure to maintain such permits, consents, licenses and authorizations would not result in a Material Adverse Effect. 3.3 EXECUTION AND DELIVERY; ENFORCEABILITY. Upon execution, this Security Agreement, the Promissory Note and the other Loan Documents will be duly executed and delivered by the Borrower. Upon execution, each of this Security Agreement, the Promissory Note and the other Loan Documents will constitute a legal, valid and binding obligation of the Borrower, enforceable against the Borrower, in accordance with its terms, subject to the effect of any applicable bankruptcy, insolvency, reorganization or moratorium or similar laws affecting the rights of creditors generally and general principles of equity. To the extent that any Affiliate executes any of the Loan Documents, such Loan Documents will be duly executed and delivered by the Affiliate. Upon execution, each Loan Document executed by the Affiliate will constitute a legal, valid and binding obligation of the Affiliate, enforceable against the Affiliate, in accordance with its terms, subject to the effect of any applicable bankruptcy, insolvency, reorganization or moratorium or similar laws affecting the rights of creditors generally and general principles of equity. LOAN AND SECURITY AGREEMENT -- PAGE 9 SYBRA, INC./LOAN NO. 163 ARBY'S/DALLAS, TEXAS 3.4. NAME: CHIEF EXECUTIVE OFFICE: LOCATION. (a) The Borrower's legal name, federal taxpayer identification number, and mailing address are accurately set forth on SCHEDULE 1. As of the Funding Date, the Borrower has not, merged, consolidated, acquired all or substantially all of the assets of any other Person or, except as disclosed on SCHEDULE 1, used any other name (whether in connection with the Business, Property or the Collateral or for business, obtaining credit or financing or otherwise) in the last five (5) years. (b) As of the Funding Date, the Borrower's principal place of business, chief executive office (and, if the Borrower is an individual, residence) is accurately set forth on SCHEDULE 1. (c) As of the Funding Date, the Borrower operates the Pledged Store from the Property at the address and in the county and state set forth in SCHEDULE 1. SCHEDULE 1 correctly discloses that the Borrower either (i) is sole record owner of the fee estate in the Property or (ii) leases (or subleases) the Property and the record owner of the Property is the person or entity disclosed on SCHEDULE 1. All personal property of the Borrower owned, acquired, held, used, sold or consumed in the Pledged Store, including Goods, Inventory, Equipment, General Intangibles, Contracts, Chattel Paper, Instruments, Documents, certificates of title, fixtures, and all writings relating thereto and records thereof, books of record or account are located at and conducted out of such Property or at its chief executive office. (d) The Borrower will neither change its name, federal taxpayer identification number, or its chief executive office nor the location of the Pledged Store or the Collateral), without in each instance providing the Secured Party with not less than thirty (30) days' prior written notice of the proposed action and specifying within such notice and with reasonable clarity and particularity the timing and nature of such proposed action. Additionally, the Borrower shall provide such other information in connection with the proposed action as the Secured Party may reasonably request and shall have taken all action, reasonably satisfactory to the Secured Party, to maintain the security interest of the Secured Party in the Collateral intended to be granted hereby at all times fully perfected and in full force and effect. 3.5. NO CONFLICT. The Borrower's execution, delivery and consummation of the transactions contemplated by this Security Agreement, the Promissory Note and other Loan Documents do not and will not (with the passage of time or otherwise) (i) conflict with, violate or constitute a default under any law, rule, regulation, order, decree, contract, agreement (including the Franchise Agreement, if applicable), note, mortgage, bond, indenture, lease, license, or obligation of or applicable to the Borrower, or the Collateral or (ii) grant, create or result in any Lien in favor of any person (other than the Secured Party) in the Collateral. No Event of Default has occurred and is continuing. 3.6. NO CONSENT REQUIRED. Except for the filing of the Financing Statements in the locations set forth on SCHEDULE 2 hereto and as otherwise set forth therein (and, if applicable, the recording of the mortgage or deed of trust included in the Loan Documents), no consent of any other Person and no authorization, approval or other action by and no notice to or filing with, any court, government, agency or regulatory authority is required (i) for the grant by the Borrower of the pledge and security interest granted hereby or for the execution, delivery or performance of this Security Agreement, the Promissory Note and other Loan Documents or (ii) for validity, perfection or maintenance of the pledge, lien and security interest created hereby. LOAN AND SECURITY AGREEMENT -- PAGE 10 SYBRA, INC./LOAN NO. 163 ARBY'S/DALLAS, TEXAS 3.7. TITLE TO THE COLLATERAL. The Borrower has and, subject to Section 4, will maintain good and marketable title to the Collateral, free of all Liens (other than Permitted Liens and the security interest granted to the Secured Party hereunder) and such Collateral is sufficient to enable the Pledged Store to be operated at the Property in accordance with the Franchise Agreement. 3.8. OWNERSHIP; NO LIENS. The Borrower has, and will continue to have good and marketable title to each item of Collateral, free and clear of all Liens, other than Permitted Liens, and except as shown on the UCC List attached hereto as SCHEDULE 3, as of the Funding Date there is no Lien (including any federal or state tax lien), suit (including any action, proceeding, or other litigation pending, or to the Borrower's knowledge, threatened) or judgment (including any award, injunction, order) filed with, registered, indexed or recorded in any public office, court, arbitration panel, administrative agency or regulatory authority (or intended so to be), directly or indirectly, identifying or encumbering or covering or involving the Collateral or which could have a material adverse effect on the Borrower, the Pledged Store or the Borrower's ability to perform its Obligations. All Liens listed on SCHEDULE 3 shall be removed upon funding of the Loan unless such lien is specifically identified as a Permitted Lien. Other than the security interest granted to the Secured Party hereunder and the Permitted Liens, and except as provided in Section 4 hereof the Borrower has not and, without the prior written consent of the Secured Party, will not enter into any agreement or understanding or take, permit or suffer to exist any action (including the filing of a financing statement, agreement, pledge, mortgage, notice or registration) or event (whether by operation of law or otherwise) for the purpose of or that may have the effect of directly or indirectly, (i) granting a Lien on (including any state of federal tax lien), pledging, transferring, assigning, selling, disposing of or encumbering any Collateral including any interest therein or rights pertaining thereto or involving the Pledged Store, or (ii) changing, modifying, supplementing, or increasing the amount of credit, loans, Indebtedness or value secured by the Permitted Liens, if any, or the amount, property or assets encumbered thereby. 3.9. MAINTENANCE OF COLLATERAL AND BUSINESS. The Equipment and Inventory are located at the Pledged Store. At the Borrower's sole cost and expense, the Borrower shall continue to (i) keep, use, operate and maintain the Collateral, the Pledged Store, the Business and the Property in accordance with the Franchise Agreement and/or License and applicable laws, rules, and regulations in all material respects, (ii) operate the Pledged Store at the Property and in accordance with the Franchise Agreement (if applicable) and customary, prudent business practices, and at all times fully comply with terms and provisions of the Franchise Agreement (if applicable) in all material respects, (iii) fully comply with all current and future laws and regulations concerning the storage and sale of petroleum products, if applicable, in all material respects and (iv) not do or acquiesce in any act whereby the value of the Collateral, the Property or the Pledged Store or any part or interest therein may be lessened in any material respect. The Borrower shall notify the Secured Party promptly of any actual or threatened destruction or material damage or impairment of the Pledged Store, the Collateral or the Property or if Borrower receives a notice of violation from any governmental entity or agency. Notwithstanding the foregoing to the contrary, Borrower may, without Secured Party's prior consent but with prior written notice to Secured Party, cease business operations at the Pledged Store on a temporary basis in order to remodel the Pledged Store or otherwise comply with the requirements of the Franchise Agreement or applicable law. In addition, Borrower may, with Secured Party's prior written consent, which shall not be unreasonably withheld or delayed, substitute a restaurant of approximately equal value for the Pledged Store, in which event Secured Party shall release the Lien against the Pledged Store. For purposes hereof, a restaurant (the "SUBSTITUTE STORE") shall not be considered to be of equal value to the Pledged Store to be replaced (the "REPLACED STORE"), unless (i) the Substitute Store is subject to a Franchise Agreement, (ii) the lease agreement for the Substitute Store is of equivalent duration and rental rate to the Replaced Store, (iii) Borrower shall have obtained landlord estoppels and such security documents pledging the Substitute Store (including leasehold mortgages and financing statements) in form reasonably LOAN AND SECURITY AGREEMENT -- PAGE 11 SYBRA, INC./LOAN NO. 163 ARBY'S/DALLAS, TEXAS satisfactory to Secured Party, (iv) neither Secured Party nor its Affiliates may operate any business at the Replaced Store after the date the Lien with respect to such Replaced Store is released, (v) the Loan with respect to the Replaced Store shall not exceed seventy percent (70.0%) of the value of such Substitute Store, based on a current appraisal performed by such appraisal firm regularly employed by Secured Party, (vi) the Substitute Store had Unit FCCR for the twelve (12) month period preceding the date of substitution of at least 1.25 to 1.00, and (vii) the Replaced Store had Unit FCCR for the twelve (12) month period preceding the date of substitution of less than 1.25 to 1.00. Borrower shall pay all appraisal, legal and other reasonable expenses incurred by Secured Party hereunder. 3.10. PERFECTED SECURITY INTEREST. This Security Agreement and the grant and transfer of the Collateral hereunder creates a valid and enforceable security interest in the Collateral. Upon filing of the Financing Statements in the locations set forth on SCHEDULE 2 hereto, such security interest will be perfected and subject to no prior or equal security interest other than and only to the extent of the Permitted Liens. The execution and filing of the Financing Statements has been duly authorized by all appropriate action on the part of the Borrower (and any other Person named as debtor therein) and the Borrower (and any other Person named as debtor therein) has duly executed the Financing Statements. 3.11. NO VIOLATION; INDEMNITY. The Borrower has not and shall not acquire, obtain, make, manufacture, produce, operate, hold, possess, maintain, use, sell, transfer, grant, pledge, or dispose of (for purposes of this Section 3.11, collectively "the Borrower's use") any of its Business, (including any proceeds of the Loan, the Collateral and the Property) in violation of any statute, law, rule, ordinance, regulation, policy, procedure, injunction, award, decree, judgment, contract, agreement (including the Franchise Agreement, if applicable), understanding, or right or interest of any other Person (for purposes of this Section 3.11, each such event a "violation"), and to the Borrower's knowledge no such violation has been made by any other Person and no basis for a claim of any such violation exists. 3.12. FRANCHISE AGREEMENT. (a) The Borrower, if a franchisee or franchisor under a Franchise Agreement, is and will continue to be in good standing under such Franchise Agreement in all material respects. The termination date of such Franchise Agreement is scheduled to occur after the maturity date of the Promissory Note. The Borrower, if a franchisee or franchisor under a Franchise Agreement, has not breached and is not in default under the Franchise Agreement in any material respect; the Borrower shall not terminate, fail to renew, breach or be in default under the Franchise Agreement in any material respect; and the Borrower has no knowledge of any claim of (or basis for any claim of) any such termination, non-renewal, material breach or default. The Borrower agrees to fully comply, at the Borrower's own cost and expense, with the terms of the License and the Franchise Agreement (including any renewal option) in all material respects and to promptly notify the Secured Party of any material adverse development with regard to the Franchise Agreement or the License, including any claim of a material breach of or default under, or threat of non-renewal or termination of or litigation involving the Franchise Agreement or the License. (b) Borrower agrees that until such time as Borrower's Obligations under the Loan Documents (including the Promissory Note) have been fully satisfied, if, whether because of a change in the Franchise Agreement, applicable law or otherwise, Borrower is able to grant a security interest in the Franchise Agreement to the Secured Party to secure its Obligations without Franchisor's consent and without breaching or defaulting under the Franchise Agreement, Borrower agrees to promptly grant such security interest in favor of the Secured Party and to obtain, procure, execute and deliver, file and affix such further agreements (including modification of the Security Agreement), assignments, instruments, documents, notices, statements, writings (including financing statements), powers (including LOAN AND SECURITY AGREEMENT -- PAGE 12 SYBRA, INC./LOAN NO. 163 ARBY'S/DALLAS, TEXAS stock and bond powers, and powers of attorney), tax stamps and information, and to do or cause to be done all such further acts and things (including the execution, delivery and filing of financing statements on Form UCC-1) as Secured Party may reasonably request, from time to time, in its discretion, in connection with such security interest and the perfection thereof. Without limiting the foregoing, Borrower authorizes Secured Party to the extent permitted by law to execute and file, or file without Borrower's signature, any and all financing statements, amendments thereto and continuations thereof as Secured Party deems necessary or appropriate in connection therewith. (c) Until such time as the Obligations of Borrower under the Loan Documents (including the Promissory Note) have been fully satisfied, Borrower agrees to make one or more timely elections to renew the term of the Franchise Agreement in accordance with the terms of the Franchise Agreement for a period which extends beyond the Maturity Date (as defined in the Promissory Note) of the Loan and shall use its reasonable best efforts to satisfy any and all conditions to any such renewal, and to obtain, procure, execute and deliver, file and affix such further agreement, instruments, documents, notices, statements, writings, powers and information, and to do or cause to be done all such further acts and things as Secured Party may reasonably request, from time to time, in its discretion, in connection with Borrower's Obligations set forth herein. 3.13. OPERATING EXPERIENCE. The Borrower has had at least three (3) years' experience operating a business or businesses similar to the Business of the Pledged Store. 3.14. FCCR. The Borrower shall maintain a Corporate FCCR of not less than 1.10 to 1.00 to be tested annually on December 31st of each year for the fiscal year then ended (the "Required Corporate FCCR"). The Borrower or an Affiliate shall have the right to cure any breach by the Borrower of such Required Corporate FCCR within forty-five (45) days of such breach, by depositing into a segregated escrow account in Borrower's name (with contemporaneous written notice to Secured Party of the deposit account and amount escrowed): (i) if the Corporate FCCR is less than 1.00 to 1.00, an amount in cash such that the interest income thereon is sufficient in amount to cause the future Corporate FCCR to be equal to or greater than 1.10 to 1.00, or (ii) if the Corporate FCCR is equal to or greater than 1.05 to 1.00, then an amount in cash equal to the difference between the income of the Borrower assuming a Corporate FCCR of 1.05 to 1.00 and the income of the Borrower assuming a Corporate FCCR of 1.10 to 1.00. In no event shall the Borrower be required to maintain funds in the escrow account in excess of the outstanding aggregate principal balance of the Loan. Borrower shall grant Secured Party a perfected first lien security interest in the escrow account to the extent allowable under Borrower's financing arrangement with Atherton, Inc., as of the date of this Security Agreement, or any refinancing thereof. Any amounts deposited into the escrow account shall be returned to Borrower, if Borrower is not in default hereunder after applicable notice and cure periods and upon compliance with the Required Corporate FCCR for two (2) consecutive fiscal quarters. 3.15. LIMITATION ON INDEBTEDNESS, LEASE OBLIGATIONS AND DISTRIBUTIONS. The Borrower shall not, directly or indirectly, incur any Indebtedness, Lease Obligations or make or become obligated to make any Distributions if after giving effect to such incurrence or payments, the Corporate FCCR would be less than the Required Corporate FCCR. Notwithstanding the foregoing to the contrary, Borrower may at any time incur Indebtedness to an Affiliate of Borrower which is unsecured and with respect to which Secured Party and the Affiliate making such loan have entered into an agreement subordinating repayment of such loan to the Loan Amount in form reasonably acceptable to Secured Party. 3.16. INSPECTION. The Borrower shall allow the Secured Party, its agents and representatives, from time to time, to inspect the Collateral, the Property and the Borrower's books and records pertaining thereto, to inspect the LOAN AND SECURITY AGREEMENT -- PAGE 13 SYBRA, INC./LOAN NO. 163 ARBY'S/DALLAS, TEXAS Business during normal business hours and unless an Event of Default has occurred and is continuing, upon reasonable prior notice and in a reasonable manner that will not unduly interfere with normal operations, and the Borrower will assist (and permit abstracts and photocopies of the Borrower's books and records to be taken and retained by) the Secured Party, its agents and representatives in making any such inspection. 3.17. INSURANCE. At the Borrower's sole cost and expense, the Borrower shall: (i) keep the Collateral (which for purposes of this Section 3.17 includes the Property) insured against loss or damage by fire, theft, collision and other hazards (including flood, if no certification or other evidence satisfactory to the Secured Party is delivered to the Secured Party to the effect that the Property is not located within a federally designated special flood hazard area) and otherwise as may be required by the Secured Party and shall maintain: (A) comprehensive general public liability insurance covering all claims for bodily injury, death and property damage occurring on, in or about the Property or in connection with the Business, with a combined single limit of not less than $1,000,000.00 per occurrence; (B) maintain business interruption insurance covering at least six (6) months of operating costs and expenses, including finance costs for the Obligations; (C) "all risk" extended coverage property insurance against loss or damage to the tangible Collateral from fire, theft or any other cause, for one hundred percent (100%) of the full replacement value with a deductible not exceeding $50,000 per occurrence; (D) federal flood hazard insurance in the maximum amount obtainable to the extent any of the Collateral is located in a federally designated flood hazard area; (E) builder's risk insurance covering the Pledged Store during construction, restoration or renovation; (F) workers' compensation insurance covering all of the Borrower's employees at the Pledged Store; and (G) maintain such other or additional insurance as may be required from time to time by Secured Party against the same or similar risks; (ii) cause all insurance policies required hereunder to be issued by financially sound and responsible insurance carriers authorized to do business in the jurisdiction where the Property is located with a General Policy Rating "A-8" or better as published in BEST'S KEY RATING GUIDE. Copies of all insurance policies required to be maintained under this Security Agreement shall be delivered to the Secured Party or its assigns prior to the execution and delivery of this Security Agreement, together with evidence that premiums have been paid in advance in full. Evidence of renewal or any modification to any policy shall be delivered to Secured Party or its designees or assigns, including the Servicer, not less than ten (10) days prior to the expiration date, or modification, as applicable of such policy; (iii) cause all policies to contain an endorsement or agreement by the insurer that any loss will be paid to the Secured Party or its designees or assigns in accordance with its interests and the terms of the policy, notwithstanding any act or negligence of the Borrower or the Borrower's agents or representatives that might otherwise result in denial or forfeiture of coverage, and use reasonable efforts to obtain an agreement by the insurer waiving all rights of recovery, setoff or counterclaim against the Secured Party by way of subrogation or otherwise. Liability policies shall designate the Secured Party or its designees and their respective successors and assigns as additional named insureds. All other policies shall designate the Secured Party or its designee and their respective successors and assigns as loss payees with respect to the Collateral and all business interruption coverage, and shall contain a standard noncontributory form of first mortgagee endorsement, entitling the Secured Party to collect all proceeds, together with a standard waiver of subrogation endorsement if available as above provided. All policies shall provide for at least ten (10) days prior written notice to the Secured Party and its designees or assigns of cancellation, non-renewal or modification (including any reduction in the scope or limits of coverage or any increase in deductible amounts). If any insurance coverage required to be maintained by Borrower pursuant to this Security Agreement shall expire or lapse LOAN AND SECURITY AGREEMENT -- PAGE 14 SYBRA, INC./LOAN NO. 163 ARBY'S/DALLAS, TEXAS for any reason, the Secured Party shall have the right in its sole discretion (but not the obligation), after notice of any impending lapse, cancellation or non-renewal of coverage, to obtain replacement coverage in some or all of the amounts and against any and all of the risk as required under this Security Agreement. All costs and expenses incurred by the Secured Party in doing so shall be paid or reimbursed by the Borrower immediately, together with interest at the Default Rate, and until repaid shall constitute part of the Obligations secured by the Collateral; (iv) timely pay all premiums, fees and charges required in connection with all of its insurance policies and otherwise continue to maintain such policies in full force and effect; (v) promptly deliver the insurance policies, certificates (and renewals) thereof or other evidence of compliance herewith to the Secured Party; and (vi) promptly notify the Secured Party of any loss covered by such insurance policies and allow the Secured Party to join the Borrower in adjusting any loss in excess of eighty percent (80.0%) of the Loan Amount. 3.18. LOAN PROCEEDS. No part of the proceeds of the Loan will be used, directly or indirectly, for the purpose of buying or carrying any "margin stock" within the meaning of Regulation U of the Board of Governors of the Federal Reserve System. The Borrower intends to and agrees to use the proceeds of the Loan solely for the lawful, proper business or commercial purpose(s) set forth in its application for the Loan and Secured Party's commitment letter. 3.19. CAPITALIZATION; SOLVENCY. (a) All of the issued and outstanding capital stock, partnership or membership interests of Borrower are directly and beneficially owned and held by the Persons identified on the SCHEDULE 1 ("Control Persons") and all of such capital stock, partnership or membership interests have been duly authorized and are fully paid and non-assessable, free and clear of all claims, liens, pledges and encumbrances of any kind. (b) The Borrower is solvent and, after giving effect to the Obligations, will continue to be solvent. The Borrower's financial statements fairly present the financial position of Borrower and the results of operations as of the dates and for the periods set forth therein. The Borrower has no material obligations or liabilities (direct, indirect, contingent or liquidated), or liabilities for taxes required to be reflected therein that are not reflected. 3.20. REPORTING REQUIREMENTS. The Borrower agrees to provide to the Secured Party within forty-five (45) days after the end of each fiscal quarter during the term of this Security Agreement, a compliance certificate (in the form attached hereto as EXHIBIT A) executed by Borrower, and at the end of the fourth fiscal quarter for the prior year, a calculation of Corporate FCCR (the form calculation is attached hereto as EXHIBIT B). The Borrower further agrees to provide to the Secured Party: (i) within forty-five (45) days after the end of each fiscal quarter and within one hundred twenty (120) days after the end of each fiscal year, consolidated Borrower internally generated financial statements covering the corresponding period then ended including a balance sheet, income and expense, cash flow and operating statements for such period and containing comparative data from prior periods and individual Pledged Store internally generated income and expense, or operating statements for such period; and (ii) such other information reasonably requested by the Secured Party and reasonably available to the Borrower. The financial statements furnished to the Secured Party in connection with the Borrower's application for the Loan and hereunder shall be certified by the Borrower to fairly present the financial condition of the Borrower and the results of operations and shall LOAN AND SECURITY AGREEMENT -- PAGE SYBRA, INC./LOAN NO. 163 ARBY'S/DALLAS, TEXAS reflect all Indebtedness and Lease Obligations of the Person covered thereby and shall be sufficiently detailed to allow the Secured Party to calculate the Unit FCCR of the Pledged Store (where required herein), the Consolidated FCCR (where required herein) and the Corporate FCCR. Such financial statements shall be prepared in accordance with GAAP or such other accounting principles customarily used in the industry and reasonably acceptable to Secured Party. 3.21. ACCURACY OF INFORMATION. All information, reports, statements and financial and other data furnished (or hereafter furnished) by the Borrower to the Secured Party, its agents or representatives hereunder or in connection with the Borrower's application for the Loan and the Obligations, are (and shall be on the date so furnished) true, complete and correct in all material respects. All financial projections that have been or are hereafter prepared by or on behalf of Borrower, its Affiliates or their respective agents or representatives have been and shall be prepared in good faith and based upon reasonable assumptions. Borrower hereby authorizes Secured Party to request credit bureau reports while any of the Obligations are outstanding. 3.22. FULL DISCLOSURE. Neither this Security Agreement nor any instrument, document, certificate, schedule or statement delivered herewith or heretofore by Borrower to Secured Party contains any material untrue statement made by Borrower of a fact or omits to state any fact necessary to keep such statements, in light of the circumstances in which they were made, from being materially misleading. 3.23. EMPLOYEE BENEFIT PLANS. (a) Except as set forth in SCHEDULE 3.23, neither the Borrower nor any ERISA Affiliate (as hereinafter defined) is currently obligated to contribute to an employee benefit plan subject to ERISA (an "ERISA Plan"). Within the five (5) year period ending on the date hereof no ERISA Affiliate has incurred any material liability to the U.S. Pension Benefit Guaranty Corporation (the "PBGC"), the U. S. Internal Revenue Service (the "IRS") or an ERISA Plan on account of any failure to meet the contribution requirements or minimum funding standards of or prohibited transactions with respect to, any ERISA Plan, the administration or termination of any single employer pension plan which is an ERISA Plan, or any partial or complete withdrawal from or the insolvency, reorganization or termination of a multi-employer plan which is an ERISA Plan, and no event has occurred and no condition exists which presents a material risk that the Borrower will incur liabilities on account of the foregoing circumstances which are material in aggregate. As used in this Agreement, the term "ERISA Affiliate" means the Borrower and any other trade or business, whether or not incorporated which is subject to ERISA and which is from time to time a member of a controlled group or a group under common control with the Borrower (within the meaning of Section 414(b) or Section 414(c) of the Code or Section 4001(b) (1) of ERISA); and other terms used in this Section 3.23 shall have the meanings assigned thereto in the applicable provisions of ERISA and the Code. (b) Solely for the purposes of making the representation in the next sentence and only to the extent that the accuracy of the representation made by this sentence affects the accuracy of the representation in the next sentence, neither the Borrower nor any of its Affiliates is a "party in interest" (within the meaning of Section 3(14) of ERISA) with respect to any ERISA Plan, and none of their securities are "employer securities" (within the meaning of Section 407(d) or ERISA) with respect to any ERISA Plan. The acquisition of the Promissory Note by Secured Party or its assigns does not and will not constitute a "prohibited transaction" (within the meaning of Section 4975 of the Code or Section 406 of ERISA). 3.24. TAXES. The Borrower and each entity which might have tax liabilities for which the Borrower is liable, has filed all tax returns and paid all taxes required by law to be filed or paid, which have become due pursuant to said returns (or which to the knowledge of the Borrower are due and payable) and on all assessments received by the Borrower or such entity, as the case may be. As of the Funding Date, no extensions of the time for the assessment of LOAN AND SECURITY AGREEMENT -- PAGE 16 SYBRA, INC./LOAN NO. 163 ARBY'S/DALLAS, TEXAS deficiencies have been granted by the Borrower. There are no material Liens on the Collateral imposed or arising as a result of the delinquent payment or the nonpayment of any tax, assessment, fee or other governmental charge. As of the Funding Date, the Borrower has not given or consented to any waiver of the statute of limitations with respect to its tax liabilities for any fiscal year. Adequate provision has also been made for all other taxes (whether past, current or deferred, federal, provincial, local or foreign, due or to come due) on such balance sheet, and the Borrower knows of no transaction or matter which might or could result in additional tax assessments to the Borrower in the ordinary course since the date of such balance sheet other than Permitted Liens. There are no applicable taxes, fees or other governmental charges payable by the Borrower in connection with the execution and delivery of this Agreement, and the other Loan Documents by the Borrower or the offer, issuance, sale and delivery of the Promissory Note by the Borrower. The Borrower shall pay all taxes, assessments and governmental levies and all other claims that if unpaid might result in the creation of a Lien upon the Collateral other than Permitted Liens before they become delinquent and before interest or penalties accrue. 3.25. BENEFIT RECEIVED. Each signatory to this Security Agreement acknowledges and agrees to all of the following: (a) that it has received a direct or indirect benefit from the Loan as consideration for executing Loan Documents providing Secured Party with collateral security for such Loan; and (b) that it is not insolvent as of the date it executed such Loan Documents and that providing such collateral security to Secured Party does not render such signatory insolvent and was not done to hinder, delay, defraud or avoid any other creditors of such signatory. 3.26. NO FURTHER DISPOSITION OR ENCUMBRANCES. Other than with respect to the interest granted in favor of Secured Party, to the extent of the Permitted Encumbrances, if any, and except as provided for in Section 4 hereof, Borrower has not and, without the prior written consent of Secured Party (which consent shall not be unreasonably withheld or delayed in connection with encumbrances in favor of Secured Party or any of its Affiliates), will not enter into any agreement or understanding or take, permit, or suffer to exist any action (including the filing of a financing statement, agreement, pledge, mortgage, notice or registration) or event (whether by operation of law or otherwise) for the purpose of, or that may have the effect of, either directly or indirectly, granting a security interest in or lien on (including any state or federal tax lien), pledging, transferring, assigning, selling, disposing of, or encumbering any Collateral or the Franchise Agreement, any interest herein or rights pertaining thereof or involving the Pledged Store; PROVIDED, HOWEVER, that the Borrower may transfer, assign, sell or otherwise dispose of (i) Inventory and other assets in the ordinary course of business, (ii) Equipment and other assets, provided that the net Proceeds of such transfer, assignment, sale or other disposition are applied within one hundred twenty (120) days to acquire Equipment and other assets of equal or greater value, or (iii) any Collateral or the Franchise Agreement if in the case of a Substituted Store pursuant to Section 3.9 or a casualty or damage pursuant to Section 5. 3.27. BROKERS AND FINANCIAL ADVISORS. Borrower represents and warrants to Secured Party that no brokers or finders were used in connection with the financing contemplated hereby and Borrower hereby agrees to indemnify and hold Secured Party harmless from and against any and all liabilities, costs and expenses (including attorneys' fees and court costs) suffered or incurred by Secured Party as a result of or arising out of any of the transactions contemplated hereby. The provisions of this Section shall survive the expiration and termination of this Security Agreement and the repayment of the related Indebtedness. 3.28. LITIGATION. Except as set forth on SCHEDULE F, as of the Funding Date, there is no present investigation by any governmental agency pending, or to the best of Borrower's knowledge threatened, against or affecting Borrower, its assets or Business and there is no action, suit, proceeding or claim by any Person pending, or to the best of Borrower's knowledge threatened, against or affecting any transactions contemplated by this Agreement. None of LOAN AND SECURITY AGREEMENT -- PAGE 17 SYBRA, INC./LOAN NO. 163 ARBY'S/DALLAS, TEXAS the investigations, actions, suits, proceedings or claims identified on SCHEDULE F would, if adversely determined, have a Material Adverse Effect. There is no action, suit, proceeding or claim by any Person pending, or to the best of Borrower's knowledge threatened, against Borrower or its assets or Business that would, if adversely determined, have a Material Adverse Effect 3.29. TRANSACTIONS WITH AFFILIATES. Borrower shall not directly or indirectly: (a) purchase, acquire or lease any property from, or sell, transfer or lease any property to, any Affiliate or any officer, employee, member, manager, director, or agent of any Affiliate of Borrower; or (b) make any payments of management, consulting or other fees for management or similar services, or of any indebtedness owing to any Affiliate or any officer, employee, member, manager, director, agent of any Affiliate of Borrower, except in the ordinary course of business and pursuant to agreements in writing on terms no less favorable to Borrower than would be available in agreements with Persons other than those referenced in (a) or (b). ARTICLE IV SPECIAL PROVISIONS CONCERNING INVENTORY, EQUIPMENT AND REAL PROPERTY 4. SPECIAL PROVISIONS CONCERNING INVENTORY, EQUIPMENT AND REAL PROPERTY. The Borrower shall do nothing to impair the rights of the Secured Party in the Inventory and the Equipment and shall cause the Inventory and the Equipment to at all times be, constitute and remain personal property subject to the security interest granted to the Secured Party. Notwithstanding the preceding sentence, provided an Event of Default has not occurred and is not continuing, in the ordinary course of the Borrower's Business, (i) the Borrower may sell its Inventory, and (ii) the Borrower may, from time to time, refinance existing Indebtedness secured by Permitted Liens in accordance with the terms thereof, replace its Equipment, acquire new Equipment and accessions to its Equipment, or acquire fee interest in (or ground lease of) any Property, subject to purchase money security interests, if any; provided that if the Secured Party has a leasehold mortgage or deed of trust on any lease of such Property, such lease remains in full force and effect (or is spread to a fee mortgage on the Property or on the ground lease of the Property), subject to the Secured Party's security interest and any Person with a lien on the fee interest in (or ground lease of such Property) provides the Secured Party with a nondisturbance agreement and such other assurances as the Secured Party shall reasonably request. ARTICLE V SPECIAL PROVISIONS CONCERNING PROCEEDS 5. SPECIAL PROVISIONS CONCERNING PROCEEDS. Unless prohibited under the terms of the Property lease, if applicable, the Borrower hereby directs any and all transferors, distributors or payers (including insurance companies with whom the Borrower maintains insurance) to make payment of all Proceeds directly to the Secured Party or its designee, including the Servicer, and authorizes the Secured Party or its designee, including the Servicer, (i) to apply the same toward replacement and repair of the Collateral or (ii) in the event the damage results in fifty percent (50.0%) or more in value of the Pledged Store requiring replacement, and the Unit FCCR of the Pledged Store for the twelve (12) month period preceding such casualty was less than 1.25 to 1.00, then the Secured Party may, at its sole discretion, require the proceeds to be applied to the repayment of the Loan. In any situation where the insurance proceeds would be applied to the repayment of the Loan as described in clause (ii) above, Borrower may, at its election, request LOAN AND SECURITY AGREEMENT -- PAGE 18 SYBRA, INC./LOAN NO. 163 ARBY'S/DALLAS, TEXAS Lender's consent (which consent shall not be unreasonably withheld or delayed) to the insurance proceeds being paid to Borrower, with Borrower providing a Substitute Store (as defined in Section 3.9) to replace the Pledged Store subject to the casualty. In all cases other than as set forth in clause (ii) above, the Borrower shall have the option of applying the proceeds to replacing or repairing the Collateral/Pledged Store or repaying the Loan. Notwithstanding the terms of the Property lease, if applicable, the Borrower will use its reasonable best efforts and hereby assigns the Proceeds toward replacement of the Collateral and shall keep any lease or options to extend the lease in effect until the Loan is paid. All Proceeds, whether received by the Secured Party or by the Borrower, or by any other Person will be included in the Collateral subject to the security interest granted to the Secured Party hereunder. Upon and during the continuation of an Event of Default the Borrower shall (i) identify, earmark, segregate and keep separate all Proceeds received by it, (ii) upon the Secured Party's request, promptly account to the Secured Party for all Proceeds, and (iii) hold all Proceeds received by the Borrower in trust for the benefit of the Secured Party and shall promptly (and in any event not later than the fifth day after receipt) deliver (or cause to be delivered) the same to the Secured Party and into its possession in the form received by the Borrower and at a time and in a manner satisfactory to the Secured Party. ARTICLE VI SPECIAL PROVISIONS CONCERNING RIGHTS AND DUTIES WHILE IN POSSESSION OF COLLATERAL 6. SPECIAL PROVISION CONCERNING RIGHTS AND DUTIES WHILE IN POSSESSION OF COLLATERAL. 6.1. BORROWER'S POSSESSION. Upon and during the continuance of an Event of Default to the extent the same shall, from time to time, be in the Borrower's possession, the Borrower will hold all Instruments, Chattel Paper, Documents, money on hand at the Pledged Store and other writings evidencing or relating to the Collateral in trust for the Secured Party and, upon request or as otherwise provided herein, promptly deliver the same to the Secured Party in a form received and at a time and in a manner satisfactory to the Secured Party. With respect to the Collateral in the Borrower's possession, the Borrower shall at the Secured Party's request take such action as the Secured Party in its discretion deems necessary or desirable to create, perfect and protect the Secured Party's security interest in any of the Collateral. 6.2. SECURED PARTY'S POSSESSION. With respect to all of the Collateral delivered or transferred to, or otherwise in the custody or control of (including any items in transit to or set apart for) the Secured Party or any of its agents, associates or correspondents in accordance with this Security Agreement, the Borrower agrees that upon the occurrence and during the continuation of an Event of Default, (i) such Collateral will be and be deemed to be in the sole possession of the Secured Party; (ii) subject to Section 4, the Borrower has no right to withdraw or substitute any such Collateral without the consent of the Secured Party, which consent may be withheld or delayed in the Secured Party's sole discretion; (iii) the Borrower shall not take or permit any action, or exercise any voting and other rights, powers and privileges in respect of the Collateral inconsistent with the Secured Party's sole possession thereof; and (iv) the Secured Party may in its sole discretion and without notice, without obligation or liability except to account for property actually received by it, and without affecting or discharging the Obligations, (x) further transfer and segregate the Collateral in its possession; (y) receive Proceeds and hold the same as part of the Collateral and/or apply the same as hereinafter provided; and (z) exchange any of the Collateral for other property upon reorganization, recapitalization or other readjustment. Following the occurrence and during the continuation of an Event of Default, the Secured Party is authorized (i) to exercise or cause its nominee to exercise all or any rights, powers and privileges (including to vote) on or with respect to the Collateral with the same force and effect as an absolute owner thereof; (ii) whether any of the Obligations be due, in its name or in the Borrower's name or otherwise, to demand, sue for, collect or receive any LOAN AND SECURITY AGREEMENT -- PAGE 19 SYBRA, INC./LOAN NO. 163 ARBY'S/DALLAS, TEXAS money or property at any time payable or receivable on account of or in exchange for, or make any compromise or settlement with respect to, any of the Collateral; and (iii) to extend the time of payment, arrange for payment in installments, or otherwise modify the terms of or release, any of the Collateral. Notwithstanding the rights accorded the Secured Party with respect to the Collateral and except to the extent provided below or required by the UCC or other applicable law (which requirement cannot be modified, waived or excused), the Secured Party's sole duty with respect to the Collateral in its possession (with respect to custody, preservation, safekeeping or otherwise) will be to deal with it in the same manner that the Secured Party deals with similar property owned and possessed by it. Without limiting the foregoing, the Secured Party, and any of its officers, directors, partners, trustees, owners, employees and agents, to the extent permitted by law (i) will not be required to take any steps necessary to preserve any rights against prior parties to any of the Collateral; and (ii) will not be liable for (or deemed to have made an election of or exercised any right or remedy on account of) any delay or failure to demand, collect or realize upon any of the Collateral. The Borrower agrees that such standard of care is reasonable and appropriate under the circumstances. 6.3. FUNDAMENTAL CHANGES. Without Secured Party's prior written consent, which consent shall not be unreasonably withheld or delayed, Borrower will not permit a Change in Control to occur. Borrower shall pay all reasonable costs and expenses of the Secured Party incurred in connection with any proposed Change in Control including, without limitation, the reasonable underwriting costs, appraisal costs, the costs of Lien searches, recording and filing fees, document preparation and reasonable attorneys' fees and expenses. No Change in Control shall relieve Borrower or any other party liable for payment of the Obligations including, any Guarantor, from liability for payment of the Obligations. The Borrower and any such other party liable for payment of the Obligations shall continue to be jointly and severally liable with any transferee for the continued payment and performance of the Obligations. ARTICLE VII EVENTS OF DEFAULT 7. EVENTS OF DEFAULT. The happening of any one or more of the following events shall constitute an "Event of Default" hereunder: (a) the Borrower shall fail to make any payment under this Security Agreement, the Promissory Note or any Loan Document when the same becomes due and payable and such failure shall continue for five (5) Business Days after the Secured Party provides notice to the Borrower of such failure; or (b) any representation, warranty or statement made by Borrower or any Guarantor (or any of their respective officers) in any Loan Document or in any certificate or financial statement furnished at any time in connection with the Obligations or this Security Agreement shall be false, misleading or erroneous in any material respect when made; or (c) the Borrower shall default under, fail to perform or observe in any material respect any covenant or condition of or agreement in this Security Agreement, the Promissory Note or any other Loan Document, and such default, failure, or breach shall continue unremedied for fifteen (15) days following the date of such default, failure, or breach, or the Borrower shall default in connection with an obligation with respect to the Pledged Store secured by a Permitted Lien and such default shall continue beyond any applicable grace or cure period, provided, however, that if such default or breach is not capable of cure within the foregoing periods, and provided that Borrower has diligently commenced and continues to pursue cure thereof then Borrower shall have such additional time as is necessary in order to cure such breach, but in no event in excess of forty-five (45) days; or LOAN AND SECURITY AGREEMENT -- PAGE 20 SYBRA, INC./LOAN NO. 163 ARBY'S/DALLAS, TEXAS (d) if the Borrower is a party to a Franchise Agreement as of the execution of this Security Agreement with regard to the Pledged Store and the Borrower or other party to such Franchise Agreement shall terminate or not renew such Franchise Agreement other than in connection with a casualty or substitution of a Substitute Store pursuant to Section 3.9; or (e) the Borrower shall dissolve, liquidate or suspend for more than fifteen (15) days the transaction of Business at the Pledged Store, other than in connection with remodeling, casualty at the Pledged Store, to comply with any provision of the Franchise Agreement (other than the termination thereof) or applicable law, or subject to a permitted substitution of a Substitute Store pursuant to Section 3.9; or (f) a judgment shall be entered against the Borrower or any Guarantor for the payment of money in excess of $1,000,000 and the same shall not be discharged (or provision shall not be made for discharge), or a stay of execution thereof shall not be procured, within thirty (30) days after being entered, unless the amount of the judgment is fully covered by insurance and an insurer has accepted in writing, responsibility for payment; or (g) the Borrower or any Guarantor shall make or consent to an assignment for the benefit of or composition with, creditors, or shall be or become insolvent or unable, or admit in writing or generally fail, to pay its debts when due, or shall be or become a party or subject to any bankruptcy, reorganization, insolvency or other similar proceeding, or a receiver or liquidator, custodian or trustee shall be appointed for the Borrower, any Guarantor or any other liable party, or a substantial portion of any of the Borrower's, any Guarantor's or their respective assets and, if any of the foregoing shall occur involuntarily as to the Borrower or any Guarantor, it shall not be dismissed with prejudice, stayed or discharged within ninety (90) days; or (h) the Borrower shall take any action to effect, or which indicates its acquiescence in, any of (e) or (g) above; or (i) subject to Borrower's right to provide a Substitute Store pursuant to Section 3.9, the lease with respect to the Pledged Store is terminated, and on or before the date of termination Borrower does not deposit with Secured Party, as additional Collateral hereunder, cash or a letter of credit in form reasonably acceptable to Secured Party, in the amount of the unamortized Loan Amount allocated to such Pledged Store, or other property with a value acceptable to Secured Party in its sole discretion; provided, however, that if the lease is terminated because of a casualty or other similar event, this paragraph shall not apply if Secured Party receives sufficient insurance or other proceeds to repay the unamortized balance of the Loan Amount allocable to such Pledged Store; or (j) this Security Agreement or any other Loan Document shall cease to be in full force and effect other than as a result of a voluntary release, or this Security Agreement or any other Loan Document shall be declared null and void or the validity or enforceability thereof shall be contested or challenged by Borrower or any Guarantor or any of their respective shareholders or Borrower or any Guarantor shall deny that it has any further liability or obligation under any of the Loan Documents, or any Lien or security interest created by the Loan Documents shall for any reason cease to be a first priority perfected security interest in and Lien upon any of the Collateral purported to be covered thereby, except for Permitted Liens; or (k) there occurs any Change in Control without Secured Party's prior written consent; or LOAN AND SECURITY AGREEMENT -- PAGE 21 SYBRA, INC./LOAN NO. 163 ARBY'S/DALLAS, TEXAS (l) there occurs any "Event of Default" under any other Loan Document; or (m) there occurs a default beyond any applicable grace or cure period on the part of Borrower or Guarantor under any other note, agreement or instrument related to an Other Pledged Store, whether now existing or hereafter entered into, with the Secured Party or any Affiliate of the Secured Party; or (n) the Borrower fails to pay when due (after the lapse of any applicable grace or cure periods) any principal of or interest on any Indebtedness (other than the Obligations) the principal amount of which is in excess of $1,000,000, or any event shall have occurred that permits any holder or any Person acting on behalf of such holder to accelerate the maturity of such Indebtedness or such Indebtedness shall have been required to be prepaid prior to the stated maturity thereof; or (o) the Borrower shall have defaulted, after any applicable notice and cure period, under the Franchise Agreement; or (p) the Borrower, or any Affiliate of Borrower shall have defaulted under any loan made by Secured Party to Borrower, or its Affiliate, dated contemporaneously with the date of this Agreement. ARTICLE VIII REMEDIES UPON OCCURRENCE AND CONTINUATION OF A DEFAULT 8. REMEDIES UPON OCCURRENCE AND CONTINUATION OF EVENT OF DEFAULT. 8.1. CUMULATIVE RIGHTS AND REMEDIES. Upon the occurrence of an Event of Default, and at any time thereafter if any Event of Default shall then be continuing, the Secured Party shall have the rights, powers and remedies (i) granted to secured parties under the UCC; (ii) granted to the Secured Party under any other applicable statute, law, rule or regulation; and (iii) granted to the Secured Party under this Security Agreement, the Promissory Note or any other Loan Document or any other agreement between the Borrower and the Secured Party. In addition, all such rights, powers and remedies shall be cumulative and not alternative. Any single or partial exercise of or forbearance, failure or delay in exercising any right, power or remedy shall not be, nor shall any such single or partial exercise of or forbearance, failure or delay be deemed to be a limitation, modification or waiver of any right, power or remedy and shall not preclude the further exercise thereof and every right power and remedy of the Secured Party shall continue in full force and effect until such right, power and remedy is specifically waived by an instrument in writing executed and delivered with respect to each such waiver by the Secured Party. 8.2. ACCELERATION OF OBLIGATIONS. Upon the occurrence of an Event of Default, and at any time thereafter if any Event of Default shall then be continuing, the Secured Party may, in its discretion, by written notice to the Borrower declare the Promissory Note (including any Prepayment Amount required to be paid upon prepayment of the Loan) and any other Obligations to be immediately due and payable whereupon (and, automatically without any notice, demand, notice of dishonor, notice of intent to accelerate, notice of acceleration or other action by the Secured Party all of which are hereby expressly waived, upon the occurrence of any Event of Default set forth in subsections (e) through (g) of Section 7) such principal, interest and other Obligations shall be immediately due and payable, without further notice, presentment, demand, protest, notice of dishonor, notice of intent to accelerate, notice of acceleration or other notice of any kind, all of which are hereby expressly waived by the Borrower to the maximum extent permitted by law. LOAN AND SECURITY AGREEMENT -- PAGE 22 SYBRA, INC./LOAN NO. 163 ARBY'S/DALLAS, TEXAS 8.3. ADDITIONAL RIGHTS OF THE SECURED PARTY. Upon the occurrence of an Event of Default, and at any time thereafter if any Event of Default shall then be continuing, the Secured Party may, from time to time, in its discretion, and without the Borrower's assent, without advertisements or notices of any kind (except for the notice specified in Section 8.5 below regarding notice required in connection with a public or private sale), or demand of performance or other demand, or obligation or liability (except to account for amounts actually received) to or upon the Borrower or any other person (all such advertisements, notices and demands, obligations and liabilities, if any, hereby being expressly waived and discharged to the extent permitted by law), forthwith, directly or through its agents or representatives, (i) disclose such default and other matters (including the name, address and telephone number of the Borrower) in connection therewith in the Secured Party's reasonable discretion to the Borrower's franchisor or franchisee (if applicable) and other creditors or obligors of the Borrower (and the Borrower understands that the Secured Party intends to make such disclosure, from time to time); (ii) to the extent permitted by applicable law enter any premises, with or without the assistance of other persons or legal process; (iii) require the Borrower to account for (including accounting for any products and Proceeds), segregate, assemble, make available and deliver to the Secured Party, its agents or representatives, the Collateral; (iv) take possession of, operate, render unusable, collect, transfer and receive, recover, appropriate, foreclose, extend payment of, adjust, compromise, settle, release any claims included in, and do all other acts or things necessary or, in the Secured Party's sole discretion appropriate, to protect, maintain, preserve and realize upon, the Collateral and any products and Proceeds, in whole or in part; and (v) exercise all rights, powers and interests with respect to any and all Collateral, and sell, assign, lease, license, pledge, transfer, negotiate (including endorse checks, drafts, orders, or instruments), deliver or otherwise dispose (by contract, option(s) or otherwise) of the Collateral or any part thereof. Any such disposition may be in one or more public or private sales, at or upon an exchange, board or system or in the county, in the state set forth on SCHEDULE 1 or elsewhere, at such price, for cash or credit (or for future delivery without credit risk) and upon such other terms and conditions as it deems appropriate, with the right of the Secured Party to the extent permitted by law upon any cash sale or sales, public or private, to purchase the whole or any part of said Collateral, free of any right, claim or equity of redemption of or in the Borrower (such rights, claims and equity or redemption, if any, hereby being expressly waived). Notwithstanding that the Secured Party, whether in its own behalf and/or on behalf of another or others, may continue to hold the Collateral and regardless of the value thereof or any delay or failure to dispose thereof unless and then only to the extent that the Secured Party proposes to retain the Collateral in satisfaction of the Obligations by written notice in accordance with the UCC, the Borrower shall be and remain liable for the payment in full of any balance of the Obligations and expenses at any time unpaid. Without limiting the foregoing, upon the occurrence and continuation of an Event of Default, in addition to its other rights and remedies, the Secured Party may (but is not required to), in its sole discretion and to the extent it deems necessary, advisable or appropriate, take or cause to be taken such actions or things to be done (including the payment or advancement of funds, or requiring advancement of funds to be held by the Secured Party to fund such obligations, including taxes or insurance) as may be required hereby (or necessary or desirable in connection herewith) to correct such failure (including causing the Collateral to be maintained or insurance protection required hereby to be procured and maintained) and any and all costs and expenses incurred (including attorney's fees and disbursements) in connection therewith shall be included in the Borrower's Obligations and shall be immediately due and payable and bear interest at the Default Rate. 8.4. APPLICATION OF PROCEEDS. The Secured Party may apply the net proceeds, if any, of any collection, receipt, recovery, appropriation, foreclosure or realization, or from any use, operation, sale, assignment, lease, pledge, transfer, delivery or disposition of all or any of the Collateral, after deducting all reasonable costs and expenses (including reasonable attorneys' fees, court cost and legal expenses) incurred in connection therewith or with respect to the care, safekeeping, custody, maintenance, protection, administration or otherwise of any and all of said Collateral LOAN AND SECURITY AGREEMENT -- PAGE 23 SYBRA, INC./LOAN NO. 163 ARBY'S/DALLAS, TEXAS or in any way relating to the rights of the Secured Party under this Security Agreement, (i) first, to the satisfaction of the Obligations, in whole or in part, in such order as the Secured Party may, in its discretion, elect; (ii) second, to the payment, satisfaction or discharge of any other Indebtedness or obligation as required by any law, rule or regulation; and (iii) lastly, the surplus, if any, to the Borrower. 8.5. REQUIRED NOTICE OF SALE. In exercising its rights, powers and remedies as secured party, the Secured Party agrees to give the Borrower ten (10) days notice of the time and place of any public sale of Collateral or of the time after which any private sale of Collateral may take place, unless the Collateral is perishable or threatens to decline speedily in value or is of a type customarily sold on a recognized market. The Borrower agrees that such period and notice is commercially reasonable under the circumstances. ARTICLE IX POST-DEFAULT POWER OF ATTORNEY 9. POST-DEFAULT POWER OF ATTORNEY. The Borrower hereby irrevocably constitutes and appoints, effective on and after the occurrence of an Event of Default and at anytime thereafter if any Event of Default shall then be continuing, the Secured Party acting through any officer or agent thereof with full power of substitution, as the Borrower's true and lawful attorney-in-fact with full irrevocable power and authority in the Borrower's place and stead and in the Borrower's name or in its own name, from time to time in the Secured Party's discretion, to receive, open and dispose of mail addressed to the Borrower, to take any and all action, to do all things, to execute, endorse, deliver and file any and all writings, documents, instruments, notices, statements (including financing statements, and writings to correct any error or ambiguity in any Loan Document), applications and registrations, checks, drafts, acceptances, money orders, or other evidence of payment or proceeds, which may be or become necessary or desirable in the sole discretion of the Secured Party to accomplish the terms, purposes and intent of this Security Agreement and the other Loan Documents with respect to the Collateral, including the right to appear in and defend any action or proceeding brought with respect to the Collateral or Property, and to bring any action or proceeding, in the name and on behalf of the Borrower, which the Secured Party, in its discretion, deems necessary or desirable to protect its interest in the Collateral or Property. Said attorney or designee shall not be liable for any acts of commission or omission, nor for any error of judgment or mistake of fact or law, unless and then only to the extent that the same constitutes its negligence or willful misconduct. This power is coupled with an interest and is irrevocable. THIS POWER DOES NOT AND SHALL NOT BE CONSTRUED TO AUTHORIZE ANY CONFESSION OF JUDGMENT. ARTICLE X INDEMNIFICATION 10. INDEMNIFICATION. THE BORROWER AGREES TO INDEMNIFY THE SECURED PARTY AND EACH OF ITS AFFILIATES AND THEIR RESPECTIVE OFFICERS, DIRECTORS, EMPLOYEES, ATTORNEYS AND AGENTS (COLLECTIVELY, THE "INDEMNIFIED PARTIES") FROM AND HOLD EACH OF THEM HARMLESS AGAINST THIRD PARTY CLAIMS RESULTING IN ANY AND ALL LIABILITIES (WHETHER IN CONTRACT OR TORT), OBLIGATIONS, LOSSES, CLAIMS, DAMAGES (WHETHER SUCH THIRD PARTY CLAIMS ARE DIRECT, INDIRECT, CONSEQUENTIAL, PUNITIVE, INCIDENTAL, SPECIAL OR OTHERWISE), PENALTIES, ACTIONS, JUDGMENTS, SUITS, COSTS, EXPENSES (INCLUDING ATTORNEYS' FEES) OR DISBURSEMENTS OF ANY KIND OR NATURE WHATSOEVER WHICH MAY BE IMPOSED ON, INCURRED BY, OR ASSERTED AGAINST ANY INDEMNIFIED PARTY DIRECTLY OR INDIRECTLY RELATING TO, ARISING OUT OF OR IN CONNECTION WITH THE BORROWER, THE LOAN AND SECURITY AGREEMENT -- PAGE 24 SYBRA, INC./LOAN NO. 163 ARBY'S/DALLAS, TEXAS COLLATERAL, THIS SECURITY AGREEMENT, THE LOAN DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY OTHER THAN THOSE CAUSED BY SECURED PARTY'S GROSS NEGLIGENCE OR WILLFUL MISCONDUCT IN ITS OBLIGATIONS UNDER THIS SECURITY AGREEMENT OR THE LOAN DOCUMENTS. WITHOUT LIMITATION OF THE FOREGOING, THE BORROWER WILL REIMBURSE THE SECURED PARTY FOR ALL NECESSARY OR REASONABLE EXPENSES (INCLUDING EXPENSES FOR LEGAL SERVICES OF EVERY KIND) OF, OR INCIDENTAL TO, THE NEGOTIATION OF, ENTERING INTO AND ENFORCEMENT OF ANY OF THE PROVISIONS HEREOF AND OF ANY OF THE OBLIGATIONS, AND ANY ACTUAL OR ATTEMPTED SALE, LEASE OR OTHER DISPOSITION OF, AND ANY EXCHANGE, ENFORCEMENT, COLLECTION, COMPROMISE OR SETTLEMENT OF ANY OF THE COLLATERAL AND RECEIPT OF THE PROCEEDS THEREOF, AND FOR THE CARE OF THE COLLATERAL AND DEFENDING OR ASSERTING THE RIGHTS AND CLAIMS OF THE SECURED PARTY IN RESPECT THEREOF, BY LITIGATION OR OTHERWISE, INCLUDING EXPENSE OF INSURANCE, AND ALL SUCH EXPENSES SHALL BE THE BORROWER'S OBLIGATIONS. WITHOUT PREJUDICE TO THE SURVIVAL OF ANY OTHER OBLIGATION OF THE BORROWER HEREUNDER, THE OBLIGATIONS OF BORROWER UNDER THIS SECTION 10 SHALL SURVIVE FORECLOSURE OR OTHER DISPOSITION OF THE COLLATERAL AND REPAYMENT IN FULL OF THE OBLIGATIONS. ARTICLE XI OBLIGATIONS ABSOLUTE 11. OBLIGATIONS ABSOLUTE. The Borrower's Obligations will be absolute, unconditional and irrevocable and will be paid or satisfied strictly in accordance with their respective terms under all circumstances whatsoever, including: (i) the invalidity or unenforceability of all or any of, or any part of this Security Agreement, the Promissory Note or any other Loan Document, or any consent, waiver, amendment or modification thereof; (ii) the existence of any claim, setoff, defense or other right which the Borrower may have at any time against the Secured Party, or any other Person, whether in connection with this Security Agreement, any other Loan Documents, the transactions contemplated hereby, thereby or otherwise all of which the Borrower hereby waives to the maximum extent permitted by law; or (iii) the loss, theft, damage, destruction or unavailability of the Collateral to the Borrower for any reason whatsoever, it being understood and agreed that the Borrower retains all liability and responsibility with respect to the Collateral. ARTICLE XII ASSIGNMENT AND DISSEMINATION OF INFORMATION 12. ASSIGNMENT AND DISSEMINATION OF INFORMATION. 12.1 ASSIGNMENT. This Security Agreement is freely assignable, in whole or in part, by the Secured Party and, to the extent of any such assignment, the Secured Party shall be fully discharged from all responsibility. The Borrower understands and agrees that the Secured Party intends to and may, from time to time, sell, pledge, grant a security interest in and collaterally assign, transfer and deliver or otherwise encumber or dispose of the Promissory Note, this Security Agreement and the other Loan Documents and its rights and powers hereunder and thereunder, in whole or in part, in connection with the Securitization or any other assignment or other disposition of the Promissory Note. For so long as Secured Party is the holder or servicing agent of the Promissory Note, Secured Party shall designate one representative or contact person to service the Loan underlying the Promissory Note. The Borrower may not, in whole or in part, directly or indirectly, assign this Security Agreement or any Loan Document or its rights hereunder or thereunder or delegate its duties hereunder without, in each instance, the specific prior written consent LOAN AND SECURITY AGREEMENT -- PAGE 25 SYBRA, INC./LOAN NO. 163 ARBY'S/DALLAS, TEXAS of the Secured Party, which consent may be withheld or delayed in the Secured Party's sole discretion, and payment of the amounts required under and compliance with Section 11(b) of the Promissory Note. Notwithstanding the foregoing to the contrary, Borrower may assign the rights and obligations under this Security Agreement but not its obligation under the Promissory Note to a subsidiary corporation which, at the time of assignment and at all times thereafter, Borrower owns one hundred percent (100%) of the outstanding stock, with Secured Party's prior written consent, which will not be unreasonably withheld or delayed, but may be conditioned on: (i) all leases, Franchise Agreements and other rights and obligations of Borrower with respect to the Pledged Store being assigned to such subsidiary concurrently with the assignment of the Security Agreement; (ii) Borrower providing certification to Secured Party that all necessary consents to such assignment have been obtained; (iii) Borrower providing Secured Party with such assurances that Secured Party may reasonably request that Secured Party will have a perfected first lien security interest in all items of Collateral which have been transferred; and (iv) Borrower and Secured Party have agreed to all amendments to this Security Agreement deemed reasonably necessary by Secured Party to effectuate the assignment, including any amendments to Borrower's representations, warranties and covenants. Borrower will pay all Secured Party's reasonable expenses incurred in connection with this Section. 12.2 DISSEMINATION OF INFORMATION. If Secured Party determines at any time to sell transfer or assign the Promissory Note, Security Agreement, or other Loan Documents, and any or all servicing rights with respect thereto, or to otherwise issue a Securitization involving the Loan Documents, Secured Party may forward to each purchaser, transferee, assignee, investor or their prospective successors in such Securitization or any rating agency rating such Securitization and each prospective investor, all documents and information which Secured Party now has or may hereafter acquire relating to the Loan Documents, the Borrower, any Guarantor and the Property, which shall have been furnished by Borrower or any Guarantor, as Secured Party determines necessary or desirable. The Borrower hereby consents to the Secured Party's disclosure of such financial and other information about Borrower, any Guarantor, the Loan, the Collateral and the Business in connection with such transfer or assignment as Secured Party determines necessary or desirable. ARTICLE XIII FURTHER ASSURANCE 13. FURTHER ASSURANCE. The Borrower agrees, that with respect to the Collateral and the Pledged Store, at any time and from time to time, at the Borrower's sole cost and expense, to promptly obtain, procure, execute and deliver, file and affix such further agreements, bills of sale and assignments, instruments, documents, warehouse receipts, bills of lading, vouchers, invoices, notices, statements, writings, (including financing statements, and writings to correct any error or ambiguity in any Loan Document), powers (including stock and bond powers, and powers of attorney), tax stamps and information, and to do or cause to be done all such further acts and things (including the execution, delivery and filing of financing statements on Form UCC-1, payment of filing fees and transfer, gains and recording taxes) as the Secured Party may reasonably request, from time to time, in its discretion, including but not limited to all such actions required to provide Secured Party with a perfected security interest in the Collateral (including all General Intangibles). Additionally, the Borrower agrees to fully cooperate with the Secured Party in connection with any Securitization or other disposition, including, but not limited to, providing the Secured Party with any information deemed necessary to complete the Securitization or other disposition. Furthermore, Borrower agrees to use its reasonable best efforts (provided, however, the Borrower shall not be obligated to make any payments with respect hereto), to provide Secured Party with fully-executed landlord estoppels and landlord consents to leasehold mortgages, in form and substance acceptable to Secured Party for the Pledged Store, if the Pledged Store is leased. LOAN AND SECURITY AGREEMENT -- PAGE 26 SYBRA, INC./LOAN NO. 163 ARBY'S/DALLAS, TEXAS Without limiting the foregoing, the Borrower authorizes the Secured Party to the extent permitted under the UCC to execute and file, or file without the Borrower's signature, any and all financing statements, amendments thereto and continuations thereof as the Secured Party deems necessary or appropriate and the Borrower shall pay and indemnify the Secured Party for and hold the Secured Party harmless from any and all costs and expenses in connection therewith. The Borrower agrees that it will promptly notify the Secured Party of and agree to correct any defect, error or omission in the contents of any of the Loan Documents or in the execution, delivery or acknowledgment thereof. ARTICLE XIV TERM, PARTIAL RELEASE AND REINSTATEMENT 14. TERM, PARTIAL RELEASE AND REINSTATEMENT. 14.1. TERM. This Security Agreement shall be immediately in full force and effect upon the Borrower's and Secured Party's execution below. Upon indefeasible payment in full of the Obligations in accordance with the terms thereof this Security Agreement and the security interest granted hereunder shall terminate and the Secured Party, at the Borrower's expense, will execute and deliver to the Borrower the proper instruments (including UCC termination statements) acknowledging the termination of such security interest, and will duly assign, transfer and deliver (without recourse, representation or warranty) such Collateral as may be in the Secured Party's possession, and not to be retained, sold, or otherwise applied or released pursuant to this Security Agreement, to the Borrower, except that the Borrower's obligations under Sections 10, 11, 13 and 15 shall survive indefinitely. 14.2. PARTIAL RELEASE. Upon the indefeasible payment in full of the Loan (including, without limitation, any Prepayment Amount or other amounts payable by the Borrower with respect to such Loan) in accordance with the provisions of the Promissory Note evidencing such Loan, the security interest hereunder with respect to the Collateral shall terminate, and the Secured Party, at the expense of the Borrower, will execute and deliver to the Borrower the proper instruments (including UCC partial release statements) acknowledging the termination of such security interest, and will duly assign, transfer and deliver (without recourse, representation or warranty) such of the Collateral as may be in the possession of the Secured Party and has not theretofore been sold or otherwise applied or released pursuant to this Security Agreement, to the Borrower, and shall take such other action as the Borrower may reasonably request to effectuate the foregoing. Notwithstanding the foregoing to the contrary, Secured Party shall not be required to release its Lien as to any Collateral, unless either: (a) (i) the Consolidated FCCR of the Consolidated Pledged Stores which will not be released, exceeds 1.25 to 1.00 for the twelve (12) month period immediately preceding the date of payment of such Loan; and (ii) the aggregate indebtedness of Borrower to Secured Party (or its Affiliates or assigns), with respect to the Consolidated Pledged Stores which will not be released is less than seventy percent (70.0%) of the value of such Consolidated Pledged Stores, based upon a current appraisal performed by such appraisal firm regularly employed by Secured Party; and (b) the release of the Collateral and Pledged Store would not result in a decrease in the Consolidated FCCR calculated in clause (a)(i) above, or in the loan-to-value ratio calculated in (a)(ii) above (calculated by first including the Unit FCCR and loan-to-value ratio of the Pledged Store, and then excluding such amounts). 14.3. REINSTATEMENT. This Security Agreement shall continue to be effective or be reinstated, as the case may be, if at any time any amount received by the Secured Party in respect of the Obligations is rescinded or must otherwise be restored or returned by the Secured Party upon the insolvency, bankruptcy, dissolution, liquidation or reorganization of the Borrower or any Guarantor or upon the appointment of any intervenor or conservator of or trustee LOAN AND SECURITY AGREEMENT -- PAGE 27 SYBRA, INC./LOAN NO. 163 ARBY'S/DALLAS, TEXAS or similar official for, the Borrower, Guarantor or any substantial part of the Borrower's or any Guarantor's assets, or otherwise, all as though such payments had not been made. ARTICLE XV MISCELLANEOUS 15. Miscellaneous. 15.1. FINAL AGREEMENT, AMENDMENTS, CONSENTS, AUTHORIZATIONS. THIS SECURITY AGREEMENT, TOGETHER WITH THE OTHER LOAN DOCUMENTS, REPRESENTS THE FINAL AGREEMENT BETWEEN THE BORROWER AND THE SECURED PARTY AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE BORROWER AND THE SECURED PARTY. THE BORROWER UNDERSTANDS AND AGREES THAT ORAL AGREEMENTS AND ORAL COMMITMENTS TO LOAN MONEY, EXTEND CREDIT OR TO FORBEAR FROM ENFORCING REPAYMENT OF A DEBT ARE NOT ENFORCEABLE. THE BORROWER ACKNOWLEDGES AND AGREES THERE ARE NO ORAL AGREEMENTS BETWEEN THE BORROWER AND THE SECURED PARTY. This Security Agreement and the Loan Documents represent the entire understanding of the Secured Party and the Borrower with respect to the transactions contemplated hereby and thereby. None of the terms or provisions of this Security Agreement or any other Loan Document may be waived, altered, modified, or amended except in each instance by a specific written instrument duly executed by the Secured Party. Without limiting the foregoing, no action or omission to act shall be deemed to be a consent, authorization, representation or agreement of the Secured Party, under the UCC or otherwise, unless, in each instance, the same is in a specific writing signed by the Secured Party. The inclusion of Proceeds in the Collateral does not and shall not be deemed to authorize the Borrower to sell, exchange or dispose of the Collateral or the Franchise Agreement or otherwise use the Collateral in any manner not otherwise specifically authorized herein. 15.2. NOTICES. All notices and other communications given pursuant to or in connection with this Security Agreement shall be in writing delivered to the parties at the addresses set forth below (or such other address as may be provided by one party in a notice to the other party): If to the Secured Party: 12240 Inwood Road, Suite 200 Dallas, Texas 75244 Attn: Servicing Department If to the Borrower, to the Borrower's chief executive office (or residence), as represented by the Borrower herein. Notice delivered in accordance with the foregoing shall be effective (i) when delivered, if delivered personally or by receipted-for telex, telecopier, or facsimile transmission, (ii) two (2) business days after being delivered in the United States (properly addressed and all fees paid) for overnight delivery service to a courier (such as Federal Express) which regularly provides such service and regularly obtains executed receipts evidencing delivery, or (iii) five (5) business days after being deposited (properly addressed and stamped for first-class delivery) in a daily serviced United States mail box. LOAN AND SECURITY AGREEMENT -- PAGE 28 SYBRA, INC./LOAN NO. 163 ARBY'S/DALLAS, TEXAS 15.3. REASONABLENESS. If at any time the Borrower believes that the Secured Party has not acted reasonably in granting or withholding any approval or consent under the Promissory Note, this Security Agreement, or any other Loan Document or otherwise with respect to the Obligations, as to which approval or consent either the Secured Party has expressly agreed to act reasonably, or absent such agreement, a court of law having jurisdiction over the subject matter would require the Secured Party to act reasonably, then the Borrower's sole remedy shall be to seek injunctive relief, specific performance or actual damages, the Borrower hereby waiving any right to punitive or consequential damages. 15.4. RECOVERY OF SUMS REQUIRED TO BE PAID. The Secured Party shall have the right from time to time to take action to recover any sum or sums which constitute a part of the Obligations as the same become due, without regard to whether or not the balance of the Obligations shall be due, and without prejudice to the right of the Secured Party thereafter to bring an action of foreclosure, or any other action, for a default or defaults by the Borrower existing at the time such earlier action was commenced. 15.5. WAIVERS. THE BORROWER HEREBY MAKES AND ACKNOWLEDGES THAT IT MAKES ALL OF THE WAIVERS SET FORTH IN THIS SECURITY AGREEMENT, THE PROMISSORY NOTE AND THE OTHER LOAN DOCUMENTS KNOWINGLY, INTENTIONALLY, VOLUNTARILY, WITHOUT DURESS, AND ONLY AFTER EXTENSIVE CONSIDERATION OF THE RAMIFICATIONS OF SUCH WAIVERS WITH ITS ATTORNEY; THE BORROWER FURTHER ACKNOWLEDGES THAT SUCH WAIVERS ARE A MATERIAL INDUCEMENT TO THE SECURED PARTY TO MAKE THE LOAN TO THE BORROWER AND THAT THE SECURED PARTY WOULD NOT HAVE MADE THE LOAN WITHOUT SUCH WAIVERS. 15.6. WAIVER OF TRIAL BY JURY. THE BORROWER HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES, AND THE SECURED PARTY BY ITS ACCEPTANCE OF THE PROMISSORY NOTE AND THIS SECURITY AGREEMENT AND OTHER LOAN DOCUMENTS IRREVOCABLY AND UNCONDITIONALLY WAIVES, ANY AND ALL RIGHTS TO TRIAL BY JURY IN ANY ACTION, SUIT OR COUNTERCLAIM ARISING IN CONNECTION WITH, OUT OF OR OTHERWISE RELATING TO THE PROMISSORY NOTE, THIS SECURITY AGREEMENT, OR ANY OTHER LOAN DOCUMENT OR THE OBLIGATIONS. 15.7. RELATIONSHIP. The relationship of the Secured Party to the Borrower hereunder is strictly and solely that of secured lender on the one hand and borrower on the other and nothing contained in the Promissory Note, this Security Agreement or any other Loan Document or otherwise in connection with the Obligations is intended to create, or shall in any event or under any circumstance be construed as creating, a partnership, joint venture, tenancy-in-common, joint tenancy or other relationship of any nature whatsoever between the Secured Party and the Borrower other than as secured lender on the one hand and borrower on the other. 15.8. [Intentionally deleted]. 15.9. GOVERNING LAW; BINDING EFFECT. BORROWER AND SECURED PARTY AGREE THAT THE VALIDITY, ENFORCEABILITY, CONSTRUCTION AND INTERPRETATION OF THIS SECURITY AGREEMENT, AND OF ALL TRANSACTIONS AND DOCUMENTS UNDER OR RELATING TO IT, WILL BE CONSTRUED, APPLIED, ENFORCED AND GOVERNED UNDER THE LAWS OF THE STATE OF NEW YORK (WITHOUT GIVING EFFECT TO PRINCIPLES OF CONFLICTS OF LAW), PROVIDED HOWEVER, THAT WITH RESPECT TO THE CREATION, ATTACHMENT, PERFECTION, PRIORITY AND LOAN AND SECURITY AGREEMENT -- PAGE 29 SYBRA, INC./LOAN NO. 163 ARBY'S/DALLAS, TEXAS ENFORCEMENT OF ANY LIENS CREATED BY THIS SECURITY AGREEMENT, THE LAWS OF THE STATE WHERE THE APPLICABLE PROPERTY IS LOCATED SHALL APPLY. This Security Agreement shall be binding upon the Borrower, and the heirs, devises, administrators, executives, personal representatives, successors, receivers, trustees, and (without limiting Section 12 hereof) assignees, including all successors in interest of the Borrower in and to all or any part of the Collateral, and shall inure to the benefit of the Secured Party, and the successors and assignees of the Secured Party. 15.10. SEVERABILITY. Whenever possible this Security Agreement, the Promissory Note and each Loan Document and each provision hereof and thereof shall be interpreted in such manner as to be effective, valid and enforceable under applicable law. If and to the extent that any such provision shall be held invalid and unenforceable by any court of competent jurisdiction, such holding shall not invalidate or render unenforceable any other provisions hereof or thereof and any determination that the application of any provision hereof or thereof to any person or under any circumstance is illegal and unenforceable shall not affect the legality, validity and enforceability of such provision as it may be applied to any other person or in any other circumstance. 15.11. HEADINGS DESCRIPTIVE. The headings, titles and captions used herein are for convenience only and shall not affect the construction of this Security Agreement or any term or provision hereof. 15.12. COUNTERPARTS. This Security Agreement may be executed in a number of counterparts and each of such counterparts shall for all purposes be deemed to be an original; and all such counterparts shall together constitute but one and the same agreement. 15.13. ACKNOWLEDGMENT. Borrower acknowledges that Secured Party's underwriting guidelines and standards are applied on a case-by-case basis and that waivers may be granted in any particular case (including in the case of a borrower to be included in a pool with Borrower). Borrower further acknowledges that Secured Party's underwriting guidelines or standards may be modified at any time by Secured Party without notice to Borrower. 15.14. COSTS AND EXPENSES. Borrower shall pay to Secured Party on demand all reasonable costs, expenses, filing fees and taxes (other than income and franchise taxes of Secured Party) paid or payable in connection with the preparation, negotiation, execution, delivery, recording, administration, collection, liquidation, enforcement and defense of the Obligations, Secured Party's rights in the Collateral, this Security Agreement, the other Loan Documents and all other documents related hereto or thereto, including any amendments, supplements, restatements or consents which may be hereafter contemplated (whether or not executed) or entered into in respect hereof and thereof, including, but not limited to: (a) all reasonable costs and expenses of filing or recording (including Uniform Commercial Code financing statement filing taxes and fees, documentary taxes, intangible taxes and mortgage recording taxes and fees, if applicable); (b) all title insurance and other insurance premiums, Business Valuation fees and search fees; (c) to the extent applicable, reasonable costs and expenses of remitting loan proceeds, collecting checks and other items of payment, and establishing and maintaining any account with any bank required to be listed on SCHEDULE 4 together with Secured Party's customary charges and fees with respect thereto; (d) reasonable costs and expenses of preserving and protecting the Collateral; (e) reasonable costs and expenses paid or incurred in connection with obtaining payment of the Obligations, enforcing the security interests and liens of Secured Party, selling or otherwise realizing upon the Collateral, and otherwise enforcing the provisions of this Security Agreement and the other Loan Documents or defending any claims made or threatened against Secured Party arising out of the transactions contemplated hereby and thereby (including, without limitation, preparations for and consultations concerning any such matters); (f) all reasonable out-of-pocket expenses and costs heretofore and from time to time hereafter incurred by Secured Party LOAN AND SECURITY AGREEMENT -- PAGE SYBRA, INC./LOAN NO. 163 ARBY'S/DALLAS, TEXAS during the course of periodic field examinations of the Collateral and Borrower's operations; (g) survey costs for the Property; and (h) the actual and reasonable fees and disbursements of counsel (including legal assistants) to Secured Party in connection with any of the foregoing. 15.15. ACH AUTHORIZATION FOR REQUIRED PAYMENTS. Borrower agrees to make each required payment due under the Promissory Note only by ACH Transfer and in connection therewith, Borrower agrees to execute the ACH Authorization Form attached hereto as EXHIBIT G. 15.16. PUBLIC ANNOUNCEMENT. Upon the closing of the Loan, Secured Party is authorized in its discretion to issue news releases and at its own expense to publish "tombstone ads" and other announcements in newspapers, trade journals and other appropriate media, containing information about the Loan as may be deemed noteworthy by Secured Party, including without limitation the legal and trade name of Borrower, the amount of the Loan and the name, nature and location of the Collateral. 15.17. SURVIVAL. All representations, warranties and agreements contained in this Security Agreement or any other Loan Document or in any certificate, document or statement furnished in connection with this Security Agreement shall survive the execution and delivery of this Security Agreement and the other Loan Documents and no investigation by the Secured Party or any closing shall affect such representations, warranties or agreements or the Secured Party's right to rely on them. NOTICE OF INDEMNIFICATION: It is expressly agreed and understood that this Security Agreement includes indemnification provisions including, without limitation, those contained in Article X. IN WITNESS WHEREOF, the Borrower has executed and entered into this Security Agreement and delivered it to the Secured Party on and as of the date set forth below. This document is executed under seal and intended to take effect as a sealed instrument. [Signature Page Follows] LOAN AND SECURITY AGREEMENT -- PAGE 31 SYBRA, INC./LOAN NO. 163 ARBY'S/DALLAS, TEXAS BORROWER: SYBRA, INC. By: ------------------------------------- Name/Title: ----------------------------- SECURED PARTY: U.S. RESTAURANT LENDING GROUP I, L.P. BY: U.S. RESTAURANT LENDING GP, INC., ITS GENERAL PARTNER By: ------------------------------------- Name/Title: ----------------------------- EX-10.34 8 EXHIBIT 10.34 Exhibit 10.34 LOAN AGREEMENT BETWEEN CNL APF PARTNERS, LP, a Delaware limited partnership AND SYBRA, INC., a Michigan corporation Dated as of December 21, 1999 TABLE OF CONTENTS PAGE 1. PAYMENT OF PRINCIPAL AND INTEREST.......................... 1 2. CONDITIONS PRECEDENT....................................... 1 3. FUNDS FOR TAXES, INSURANCE AND OTHER CHARGES............... 2 4. APPLICATION OF PAYMENTS.................................... 2 5. CHARGES; LIENS............................................. 3 6. INSURANCE.................................................. 3 7. PRESERVATION AND MAINTENANCE OF PROPERTY................... 5 8. PROTECTION OF LENDER'S SECURITY............................ 5 9. BOOKS AND RECORDS.......................................... 6 10. CONDEMNATION............................................... 6 11. FORBEARANCE BY LENDER NOT A WAIVER......................... 7 12. ESTOPPEL CERTIFICATE....................................... 8 13. LEASES OF THE PROPERTY..................................... 8 14. REMEDIES CUMULATIVE........................................ 8 15. ACCELERATION IN CASE OF BORROWER'S INSOLVENCY.............. 9 16. TRANSFERS OF THE PROPERTY OR BENEFICIAL INTERESTS IN BORROWER; ASSUMPTION ...................................... 9 17. NOTICE..................................................... 9 18. SUCCESSORS AND ASSIGNS BOUND; JOINT AND SEVERAL LIABILITY; AGENTS; CAPTIONS .......................................... 10 19. GOVERNING LAW; SEVERABILITY............................... 10 20. ASSIGNMENT OF LEASES AND RENTS; APPOINTMENT OF RECEIVER; LENDER IN POSSESSION...................................... 10 21. ACCELERATION: REMEDIES.................................... 11 22. SUBROGATION............................................... 13 23. PARTIAL INVALIDITY........................................ 13 24. REPRESENTATIONS OF BORROWER............................... 13 25. BORROWER'S ADDITIONAL COVENANTS........................... 15 26. MAINTENANCE OF CASH FLOW.................................. 16 27. ASSIGNMENT BY LENDER...................................... 16 28. SECURITIZATION OPINIONS; FINANCIAL INFORMATION............ 17 29. DEFINITIONS............................................... 17 30. CONSTRUCTION LOAN......................................... 21 31. WAIVER OF JURY TRIAL...................................... 21 32. MISCELLANEOUS............................................. 22 33. ADDITIONAL NON-UNIFORM PROVISIONS......................... 23 LOAN AGREEMENT THIS LOAN AGREEMENT (the "Agreement") is made as of December 21, 1999, between SYBRA, INC., a Michigan corporation, whose address is 9255 Towne Center, San Diego, California 92121 (herein "Borrower") and CNL APF PARTNERS, LP, a Delaware limited partnership, whose address is CNL Center at City Commons, 450 South Orange Avenue, Orlando, Florida 32801-3336 (herein "Lender"). WHEREAS, subject to and upon the terms and conditions herein set forth, Lender is willing to make a loan available for the Borrower in the aggregate amount of FIVE HUNDRED FOURTEEN THOUSAND AND NO/100 DOLLARS (US $514,000.00) (the "Loan"), which indebtedness is evidenced by Borrower's promissory note dated December 21, 1999 (the "Note"); WHEREAS, the indebtedness evidenced by the Note is secured by that certain Commercial Mortgage, Assignment of Rents and Security Agreement dated as of the date hereof (the "Instrument") granting to Lender a security interest in Borrower's Property (as such term is defined therein), including without limitation, Borrower's leasehold interest, as tenant, as to Site No. 133, under that certain Lease Agreement (the "Lease") with G & G Realty, a Florida general partnership, as Landlord, ("Landlord") dated October 10, 1989, as memorialized in that certain Memorandum of Lease executed by Landlord and Borrower, as tenant, and recorded in the Public Records of Polk County, Florida; and as to Site No. 1695 under that certain Lease Agreement (the "Lease") with G & G Realty, a Florida general partnership, as Landlord, ("Landlord") dated October 10, 1989, as memorialized in that certain Memorandum of Lease executed by Landlord and Borrower, as tenant, and recorded in the Public Records of Highlands County, Florida; and as to Site No. 1134 under that certain Lease Agreement (the "Lease") with Glenn Arthur Revocable Trust, as Landlord ("Landlord") dated October 10, 1989, as memorialized in that certain Memorandum of Lease executed by Landlord and Borrower, as tenant, and recorded in the Public Records of Hillsborough County, Florida; and WHEREAS, to further secure Lender in respect of the repayment of the indebtedness, Borrower has executed other documents with or to or in favor of Lender in connection with the Loan (herein, together with the Note, the Instrument, this Agreement and the guaranty of the Guarantor, if any, guaranteeing the obligations of the Borrower, collectively the "Loan Documents"). NOW THEREFORE, for and in consideration of Lender's making the Loan to Borrower and other good and valuable consideration, the sufficiency of which is hereby acknowledged, Borrower and Lender covenant and agree as follows: 1. PAYMENT OF PRINCIPAL AND INTEREST. Borrower shall promptly pay when due the principal of, interest on and all other sums accruing in respect of the indebtedness evidenced by the Note, in accordance with the terms and conditions thereof, hereof and as otherwise provided in the Loan Documents. 2. CONDITIONS PRECEDENT. The obligation of Lender to make the Loan is subject to the satisfaction of the following conditions: (a) all of the Loan Documents shall have been duly executed by Borrower and delivered to Lender; (b) all of the requirements set forth in that certain Commitment Letter dated November 8, 1999, executed by Borrower shall have been fulfilled or waived by Lender; (c) no Default (as hereafter defined) has occurred and all representations, warranties and covenants contained herein and in the other Loan Documents shall be true and correct in all material respects; and (d) all corporate and legal proceedings, and all instruments and agreements in connection with the transactions contemplated in this Agreement and the other Loan Documents, including, without limitation, a marked-up title commitment, shall be reasonably satisfactory in form and substance to Lender, and Lender shall have received all information and copies of all documents and papers, including records of corporate proceedings, governmental approvals, if any, which Lender may reasonably have requested in connection therewith. 3. FUNDS FOR TAXES, INSURANCE AND OTHER CHARGES. Upon a Borrower's Default hereunder or under the Instrument, or in the event Borrower is, or has been, materially or habitually delinquent in the timely payment of any services, taxes, assessments, insurance or rent payment under the Lease, at Lender's request, Borrower shall pay to Lender or its loan servicer a sum (the "Initial Yearly Premium Payment") equal to such amount as is deemed necessary by Lender to be in position to pay the next annual payment of taxes and insurance when due. Thereafter, Borrower shall pay to Lender or its loan servicer on the day monthly installments of principal or interest are payable under the Note (or on another day designated in writing by Lender), until the Note is paid in full, a sum (herein, together with the Initial Yearly Premium Payment, the "Funds") equal to one-twelfth of (a) the yearly water and sewer rates and taxes and assessments which may be levied on the Property, (b) the yearly premium installments for fire and other hazard insurance, rent loss insurance and such other insurance covering the Property as Lender may require pursuant to paragraph 5 hereof (the "Yearly Premium"), and (c) the yearly fixed rents, if any, under the Lease, all as reasonably estimated initially and from time to time by Lender on the basis of assessments and bills and reasonable estimates thereof. Any waiver by Lender of a requirement that Borrower pay such Funds may be revoked by Lender, in Lender's sole discretion, at any time upon notice in writing to Borrower. Lender may require Borrower to pay to Lender, in advance, such other Funds for other taxes, charges, premiums, assessments and impositions in connection with Borrower or the Property which Lender shall reasonably deem necessary to protect Lender's interests (herein "Other Impositions"). Lender may require the payment of Funds in respect of Other Impositions upon a Borrower's Default hereunder or under the Instrument, or in the event Borrower is, or has been materially or habitually delinquent in the timely payment of such Other Impositions. Unless otherwise provided by applicable law, Lender may require Funds for Other Impositions to be paid by Borrower in a lump sum or in periodic installments, at Lender's option. Lender shall apply the Funds to pay said rates, rents, taxes, assessments, insurance premiums and Other Impositions so long as Borrower is not in Default (as hereinafter defined) under the Instrument, this Agreement, any of the other Instruments (as hereinafter defined or under any of the Loan Documents). Lender shall make no charge for so holding and applying the Funds, analyzing said account or for verifying and compiling said assessments and bills and such Funds shall be held in an interest-bearing account and interest shall be applied by Lender to pay such taxes and insurance premiums. Lender shall give to Borrower, at Borrower's expense, an annual accounting of the Funds in Lender's normal format showing credits and debits to the Funds and the purpose for which each debit to the Funds was made. The Funds are pledged as additional security for the sums secured by the Instrument, this Agreement, any of the other Instruments or in any of the Loan Documents. If the amount of the Funds held by Lender at the time of the annual accounting thereof shall exceed the amount deemed necessary by Lender to provide for the payment of water and sewer rates, taxes, assessments, insurance premiums, rents and Other Impositions, as they fall due, such excess shall be credited to Borrower on the next monthly installment or installments of Funds due. If at any time the amount of the Funds held by Lender shall be less than the amount deemed necessary by Lender to pay taxes, assessments, insurance premiums, rents and Other Impositions, as they fall due, Borrower shall pay to Lender any amount necessary to make up the deficiency within thirty (30) days after notice from Lender to Borrower requesting payment thereof. Upon Borrower's Default under this Agreement, the Instrument or any of the Loan Documents, Lender may apply, in any amount and in any order as Lender shall determine in Lender's sole discretion, any Funds held by Lender at the time of application (i) to pay rates, rents, taxes, assessments, insurance premiums and Other Impositions which are now or will hereafter become due, or (ii) as a credit against sums due under or accrued pursuant to the Instrument. Upon the release of the Property secured by the Instrument and payment in full of the amounts secured hereby, Lender shall promptly refund to Borrower any Funds held by Lender applicable to the Property. 4. APPLICATION OF PAYMENTS. Unless applicable law provides otherwise, so long as Borrower is not in Default under the Loan Documents, all payments received by Lender from Borrower under the Note or the Loan Documents shall be applied by Lender in the order of priority set forth in the Note. Upon Borrower's Default under the Loan Documents, Lender may apply any payments received by Lender in any amount and in any order as Lender shall determine in Lender's sole discretion. 5. CHARGES; LIENS. Borrower shall pay all water and sewer rates, rents, taxes, assessments, premiums, and Other Impositions attributable to the Property (exclusive of Permitted Encumbrances), by Borrower making payment, within the applicable payment period, directly to the payee thereof provided that after a Borrower's Default under this Agreement or the Instrument or after material or habitual payment delinquencies in respect of such payments have occurred, at Lender's option, Borrower shall make such payments in the manner provided under paragraph 3 hereof, or in such other manner as Lender may designate in writing. Borrower shall promptly discharge any lien which has, or may have, priority over or equality with, the lien of the Instrument, and Borrower shall pay, when due, the claims of all persons supplying labor or materials to or in connection with the Property, except for Permitted Encumbrances. Without Lender's prior written permission, Borrower shall not allow any lien inferior to the Instrument to exist against the Property except for Permitted Encumbrances and as otherwise provided herein and in the Instrument. 6. INSURANCE. Borrower shall keep the improvements now existing or hereafter erected on the Property insured by Approved Carriers (as hereinafter defined) against loss by fire, hazards included within an all-risk "extended coverage" endorsement and such other hazards, casualties, liabilities and contingencies, including rent loss and/or business interruption coverage, as applicable, as Lender and the Lease shall require and in such amounts and for such periods provided in this paragraph 6. All premiums on insurance policies shall be paid, at Lender's option, in the manner provided under paragraph 3 hereof, if applicable, or in the Note, or by Borrower making payment, when due, directly to the carrier, or in such other manner as Lender may reasonably designate in writing. "Approved Carriers" shall mean insurance carriers which have a long-term debt rating of claims paying in the category "A-" or better as rated by Best's Insurance Rating Service or otherwise reasonably acceptable to Lender. Borrower shall purchase a blanket or other policies of insurance with respect to the Property with such Approved Carriers, in such amounts and covering such risks including, but not limited to, (i) loss or damage by fire, lightning, hail, windstorm, explosion, earthquake (if in a high risk area), and such other hazards, casualties and contingencies insured in an "all-risk" policy, all on an occurrence basis (including at least twelve (12) months rental or business interruption insurance and broad form boiler and machinery insurance, if applicable); (ii) loss or damage by flood, if the Property is in a 100-year flood hazard area as defined by the Federal Emergency Management Agency under the National Flood Insurance Program, in an amount equal to the greater of the replacement cost of the Property or the maximum amount available through the National Flood Insurance Program, but in no event less than the maximum amount available under the Flood Disaster Protection Act of 1973, and regulations issued pursuant thereof, as amended from time to time, or such lesser standard as Lender may permit, in form complying with the "insurance purchase requirement" of that Act; (iii) commercial general liability (including, liquor liability if Borrower serves alcoholic beverages on the Property) with limits equal to or greater than $1,000,000.00 per occurrence, including product and liquor liability equal to or greater than $2,000,000.00 aggregate, and employer's liability and workers' compensation in amounts which are customary practice; (iv) an umbrella policy in the amount of $5,000,000.00 per occurrence in excess of the above comprehensive general liability, product and liquor liability, if applicable, and employer's liability requirements; and (v) such other insurance as Lender may reasonably require from time to time or which is required by the Loan Documents; provided, that each policy shall provide by way of endorsement, rider or otherwise that no such insurance policy shall be canceled or non-renewed, unless such insurer shall have first given Lender thirty (30) days prior written notice thereof and ten (10) days notice in the case of premium nonpayment, such property policy shall be on a replacement cost basis ( without coinsurance) and in amount not less than one hundred percent (100%) of the insurable value (based upon replacement cost) of the Property and the deductible clause, if any, property policy may not exceed the lesser of (x) one percent (1%) of the face amount of the policy, (y) $25,000.00, and (z) unless included in a blanket policy for all the Properties (if more than one (1) restaurant operation secures the Loan), five percent (5%) of the gross annual income of or recovery from the applicable Property. Borrower shall cause all property insurance carried in accordance with this paragraph 6 to be payable to Lender as a mortgagee and not as a coinsured, and, in the case of all policies of insurance carried by each lessee for the benefit of Borrower, if any, to cause all such policies to be payable to Lender as Lender's interest may appear. The Borrower shall also cause the Lender to be named as an Additional Insured with respect to the commercial general liability and umbrella policies. All insurance policies and renewals thereof shall be in a form reasonably acceptable to Lender as provided in this paragraph 6 and all property policies shall include a standard mortgagee clause in favor of and in a form reasonably acceptable to Lender. Lender shall have the right to hold the policies, and Borrower shall promptly furnish to Lender all renewal certificates, if Lender requests all receipts of paid premiums. At least ten (10) days prior to the expiration date of a policy, Borrower shall deliver to Lender a renewal policy insurance certificate(s) in form and substance satisfactory to Lender, together with an outline of the material terms of such renewal policy. If the Instrument is on a leasehold, Borrower shall furnish Lender, upon request, a duplicate of all policies, renewal notices, renewal policies and receipts of paid premiums if, by virtue of the Lease, the originals thereof may not be supplied by Borrower to Lender. In the event of loss, Borrower shall give prompt written notice to the insurance carrier and to Lender. During a Default hereunder or in the event of a Major Casualty (as hereinafter defined) and Borrower is not diligently pursuing resolution of claims with respect to the Property and such non-action could result in a material adverse effect on the value of the Property, Borrower hereby irrevocably appoints, authorizes and empowers Lender (which appointment is coupled with an interest), and/or its assigns with respect to the Loan, as attorney-in-fact for Borrower to make proof of loss, to adjust and compromise any claim under insurance policies, to appear in and prosecute any action arising from such insurance policies, to collect and receive insurance proceeds, and to deduct therefrom Lender's reasonable expenses incurred in the collection of such proceeds; provided however, that nothing contained in this paragraph 6 shall require Lender to incur any expense or take any action hereunder. Borrower agrees and covenants that in the event of a Major Casualty (unless waived by Lender) or after a Default hereunder all property insurance proceeds for the Property (except rent loss) shall be paid to Lender, and the insurance proceeds shall be payable to Borrower if Borrower is not in Default hereunder (and no event exists which, with the passing of time or giving of notice, would constitute a Default hereunder). Borrower, subject to the following sentence, further authorizes Lender, at Lender's option, to hold the balance of a Major Casualty proceeds provided they are used to reimburse Borrower to pay for the cost of reconstruction or repair of the Property. Borrower shall apply the balance of any proceeds remaining after restoration or repair to reinvestment in the operations of the Borrower (subject, however, to the rights of Landlord under the Lease, if the Instrument is on a leasehold). In the event of a Total Casualty (as hereinafter defined) for the Property, then at Lender's option, all insurance proceeds (except rent loss) shall be paid to Lender and applied to the payment of sums secured by the Instrument, whether or not then due, in the order of application set forth in paragraph 4 hereof, in which event the Lender shall have the right to accelerate all amounts payable hereunder, and Borrower shall have the right to prepay any remaining balance due, without any prepayment premium. Borrower covenants that in no event shall Borrower use any insurance proceeds from loss or damage to the Property or Condemnation Proceeds (as hereinafter defined) to rebuild any buildings or improvements on any real property other than the Property. Notwithstanding the foregoing, except in the event of a Total Casualty (as hereinafter defined) for the Property, so long as Borrower is not in Default hereunder (and no event exists which, with the passing of time or giving of notice, would constitute a Default hereunder), and Lender is satisfied that Lender is holding sufficient funds for such restoration and repair, then the Lender shall not unreasonably withhold its approval for the application of insurance proceeds for the cost of restoration and repair of the Property as provided below. If the insurance proceeds from a Major Casualty are held by Lender to pay mechanics, materialmen and suppliers of materials, including Borrower, for the cost of restoration and repair of the Property, Borrower shall restore the Property to the equivalent of the type and class of construction existing before such casualty, with new materials as required by the current building codes or such other condition as Lender may approve in writing. If the insurance proceeds from a Major Casualty are held by Lender, Lender shall disburse (no more than once a month) such proceeds to Borrower for restoration and repair of the Property, and Lender may, at Lender's option, condition disbursement of said proceeds on Lender's approval of such plans and specifications of an architect satisfactory to Lender, contractor's cost estimates, architect's certificates, waivers of liens, sworn statements of mechanics and materialmen and such other evidence of costs, percentage completion of construction, application of payments, and satisfaction of liens as Lender may reasonably require; provided, however, in the event of a Default, any or all such proceeds shall be applied in the manner prescribed in paragraph 4 hereof. If the insurance proceeds are applied to the payment of the sums secured by the Instrument, any such application of proceeds to principal shall not extend or postpone the due dates of the monthly installments referred to in paragraphs 1 and 3 hereof or change the amounts of such installments unless Lender and Borrower otherwise agree in writing. Such application of proceeds to principal shall be without penalty or premium. If the Property is sold pursuant to paragraph 21 hereof or if Lender acquires title to the Property, Lender shall have all of the right, title and interest of Borrower in and to the proceeds resulting from any damage to the Property prior to such sale or acquisition. "Major Casualty" shall mean any damage, injury or loss to the Property by fire, lightning, hail, windstorm, explosion, flood or other hazard or casualty (collectively, a "Casualty") for which the cost to replace or repair would exceed$100,000.00. "Total Casualty" shall mean any Casualty for which the cost to replace or repair would exceed fifty percent (50%) of the value of the Property. 7. PRESERVATION AND MAINTENANCE OF PROPERTY. Borrower shall preserve and maintain the Property in accordance with the provisions of paragraph 6 of the Mortgage. Borrower (i) shall comply with the provisions of the Lease (except that Borrower may contest enforcement or application of provisions in good faith so long so long as Borrower has set aside adequate reserves (in accordance with GAAP) therefor), (ii) shall give immediate written notice to Lender of any default by Landlord under the Lease which is known to Borrower or of any notice received by Borrower from Landlord of any default under the Lease by Borrower, (iii) shall exercise any option to renew or extend the Lease relating to a period prior to the maturity date of the Note and give written confirmation thereof to Lender within thirty (30) days after such option becomes exercisable and hereby irrevocably appoints Lender as its attorney-in-fact which appointment is coupled with an interest, and is applicable to this paragraph 7, 7(iii), 7(iv) and 7(y) giving Lender full power and authority to exercise any option to renew or extend the Lease (if necessary to extend the Lease to a date on or after the Maturity Date) in the event Borrower fails to do so, (iv) shall give immediate written notice to Lender of the commencement of any remedial proceedings under the Lease by any party thereto and, if during the continuance of a Default, or if Borrower is not diligently pursuing resolution of claims or prosecuting actions with respect to the lease and such non-action could result in a material adverse affect on the value of the Property, shall permit Lender as Borrower's attorney-in-fact to control and act for Borrower in any such remedial proceedings, and (v) shall use its reasonable efforts within thirty (30) days after request by Lender to obtain from Landlord under the Lease and deliver to Lender the lessor's estoppel certificate required thereunder, if any. Borrower hereby expressly transfers and assigns to Lender the benefit of all covenants contained in the Lease, whether or not such covenants run with the land, but Lender shall have no liability with respect to such covenants nor any other covenants contained in the Lease. Borrower hereby irrevocably authorizes and empowers Lender as attorney-in-fact for Borrower, at Borrower's expense during the continuance of a Default, or if Borrower is not diligently pursuing resolution of claims or prosecuting actions with respect to the lease and such non-action could result in a material adverse affect on the value of the Property, to make proof of claim, to adjust and compromise any claim under any such leases, to appear in and prosecute any action arising from such leases, and otherwise to represent and act on behalf of the Borrower in connection with any enforcement, arbitration, bankruptcy or similar action or proceeding involving such leases, and to deduct therefrom Lender's expenses incurred in connection therewith, provided however, that nothing contained in this paragraph 7 shall require Lender to incur any expense or take any action hereunder. Borrower shall not surrender the leasehold estate and interests conveyed by the Instrument nor terminate or cancel the Lease creating said estate and interests, and Borrower shall not, without the express written consent of Lender, materially alter or amend said Lease. Borrower covenants and agrees that there shall not be a merger of the Lease, or of the leasehold estate created thereby, with the fee estate covered by the Lease by reason of said leasehold estate or said fee estate, or any part of either, coming into common ownership, unless Lender shall consent in writing to such merger; if Borrower shall acquire such fee estate, then the Instrument shall simultaneously and without further action be spread so as to become a lien on such fee estate. 8. PROTECTION OF LENDER'S SECURITY. If Borrower is in Default or if any action or proceeding is commenced which materially adversely affects the Property or title thereto or the interest of Lender therein, including, but not limited to, eminent domain, insolvency, code enforcement, or arrangements or proceedings involving a bankrupt or decedent, then Lender at Lender's option may make such appearances, disburse such sums and take such action as Lender deems necessary, in its sole discretion, to protect Lender's interest, including, but not limited to, (i) disbursement of attorneys' fees, (ii) entry upon the Property to make repairs, (iii) procurement of satisfactory insurance as provided in paragraph 6 hereof, (iv) if the Instrument encumbers a leasehold interest, exercise of any option to renew or extend the Lease on behalf of Borrower and the curing of any default of Borrower in the terms and conditions of the Lease, (v) the payment of any taxes and/or assessments levied against the Property and then due and payable, and (vi) discharge (by payment, bonding or otherwise) of any lien (including any Lien) on the Property which is not a Permitted Encumbrance. In addition, if any action or proceeding is commenced which materially adversely affects the Property or title thereto or the interest of Lender therein, including, but not limited to, eminent domain, insolvency, code enforcement, or arrangements or proceedings involving a bankruptcy and if Borrower is not diligently pursuing available legal rights or remedies with respect to such actions or proceedings and such non-action could result in a material adverse effect on the value of the Property, then Lender, at Lender's option, may make such appearances, disburse such sums (including reasonable attorneys' fees) and take such actions as Lender deems reasonably necessary to protect Lender's interest. In addition, with respect to an environmental condition which may affect the Property during the term of the Loan or the interest of Lender therein, including, but not limited to any actual or suspected on-site environmental pollution conditions which are, or are reasonably believed to be, in violation of applicable environmental laws and have (or are reasonably believed to have) a material adverse affect on the Property or the Borrower, or upon a Default, then Lender (or its agent, contractor or designee), at Lender's option, shall have the right to enter the Property to conduct tests and investigate any such pollution conditions. If the environmental assessment reveals environmental pollution at or above actionable levels under applicable law, and Lender reasonably determines that Borrower is not diligently pursuing remediation with respect thereto, then Lender may, at Lender's sole option, engage third party providers to undertake such remediation up to the limits of the Secured Creditor Pollution Policy relating to the Property. 9. BOOKS AND RECORDS. Borrower shall keep and maintain at all times at Borrower's address stated below, or such other place as Lender may approve in writing, complete and accurate books of accounts and records adequate to reflect correctly Borrower's financial condition and the results of the operation of the Property and copies of all written contracts, leases and other instruments which affect the Property. Such books, records, contracts, leases and other instruments shall be in accordance with generally accepted accounting principles consistently applied, and shall be subject to examination and inspection by Lender at all times during normal business hours and Lender shall have the right to make such copies or abstracts thereof as Lender may desire. Borrower shall furnish to Lender, within one hundred twenty (120) days after the end of each fiscal year of Borrower, its audited current signed financial statements (including an annual balance sheet, profit/loss statement, statement of cash flow and footnotes) of Borrower and also an income and expense statement of the operation of the Property (including the total rents and other income received from any tenant, total gross receipts from operations and total expenses), each in reasonable detail and certified by Borrower and, if Lender shall require, by an independent certified public accountant, together with any restaurant reports required under the Franchise Agreement, and, if the Property is subject to any leases, Borrower shall furnish to Lender current signed rent rolls or lease digests certified to be correct by Borrower. Borrower shall furnish to Lender, within forty-five (45) days after the end of each fiscal quarter of Borrower, an unaudited financial statement of Borrower and a statement of income and expenses of the Property (and a year-end statement of income and expenses of the Property within forty-five (45) days after the end of each fiscal year, in reasonable detail and certified by Borrower to be true, correct and accurate to the best of his or her knowledge. Borrower shall furnish to Lender, certified copies of all tax returns of the Borrower within forty-five (45) days of filing; provided, that, if the Borrower has provided audited current signed financial statements certified by an independent certified public accountant, then no copies of the tax returns of the Borrower shall be furnished to Lender and an annual statement disclosing all contingent liabilities. In addition, within ten (10) days after the end of each calendar quarter, Borrower agrees to provide to Lender a summary of all material communications and notices received from Franchisor relating to the Property during the preceding quarter, provided that such disclosure does not create a breach under the terms of any Franchise Agreement. In addition, Borrower shall also furnish such other interim statements of Borrower as Lender may reasonably require from time to time. Borrower shall advise Lender of its fiscal year-end date and shall notify Lender, in writing, of any change in such year-end date. 10. CONDEMNATION. Borrower shall promptly notify Lender of any action or proceeding known to Borrower relating to any condemnation or other taking, whether direct or indirect, of the Property, or part thereof, and Borrower shall appear in and prosecute any such action or proceeding unless otherwise directed by Lender in writing. During the continuance of a Default or, if Lender has made the determination, in its reasonable discretion, that Borrower is not diligently and effectively prosecuting such action or proceeding and, such lack of prosecution could result in a materially adverse effect on the value of the Property, then immediately upon written notice to Borrower of Lender's determination, Borrower authorizes Lender, at Lender's option, as attorney-in-fact for Borrower, to commence, appear in and prosecute, in Lender's or Borrower's name, any action or proceeding relating to any condemnation or other taking of the Property, whether direct or indirect, and to settle or compromise any claim in connection with such condemnation or other taking. Borrower hereby irrevocably appoints Lender as its attorney-in-fact (coupled with an interest) for the purposes described in the immediately preceding sentence. The proceeds of any award, payment or claim for damages, direct or consequential, in connection with any Major Taking, whether direct or indirect, of the Property, or part thereof, or for conveyances in lieu of condemnation ("Condemnation Proceeds"), are hereby assigned to and shall be paid to Lender subject to the rights of Landlord under the Lease. In the event such condemnation or other taking involves less than fifty percent (50%) of the value of the Property and will not result in a material diminution of the restaurant operation, and Borrower is not in Default under the Loan Documents (or an event exists which, with the passing of time or giving of notice, would constitute a Default), then Borrower shall retain the Condemnation Proceeds which shall be used for reinvestment in the operations of the Borrower. In the event such condemnation or other taking involves is a Major Taking (as defined below), or to the extent that Condemnation Proceeds are not necessary for feasible repair and restoration of the Property (except as set forth in the immediately preceding sentence), or if Borrower is in Default under the Loan Documents (or an event exists which, with the passing of time or giving of notice, would constitute a Default), then the Condemnation Proceeds shall, at Lender's sole option, be assigned and paid to Lender and applied to the payment of sums secured by the Instrument, whether or not due, in accordance with paragraph 4 hereof without a prepayment premium. In the event such condemnation or other taking is not a Major Taking and requires the repair and restoration of the remaining portion of the Property for use of the Property as contemplated by this Agreement, then, provided Borrower is not in Default hereunder and Lender is not otherwise authorized to apply Condemnation Proceeds to the payment of sums secured hereby as aforesaid, the Condemnation Proceeds shall be paid to Borrower and Borrower shall immediately undertake the renovation and repair of the remaining portions of the Property. In the event such condemnation or other taking is a Major Taking, involves less than fifty percent (50%) of the Property and requires the repair and restoration of the remaining portion of the Property for use of the Property as contemplated by this Agreement, then the Condemnation Proceeds shall be assigned and paid to Lender, and Borrower shall repair and restore the remaining portion of the Property and Lender shall distribute the Condemnation Proceeds in the same manner as Lender distributes insurance proceeds under paragraph 6 hereof. If Borrower is in Default hereunder at the time of such condemnation or other taking, Lender, at its sole option, shall apply the Condemnation Proceeds as set forth in paragraph 4 hereof. After application of the Condemnation Proceeds as set forth herein, any excess proceeds shall, at Lender's sole option, be applied to the principal balance of the Note without penalty or premium, or paid directly to Borrower. "Major Taking" shall mean any condemnation or other taking by eminent domain, or conveyance in lieu thereof, of a portion of the Property for which a claim for payment of an award for such taking and for damages in connection therewith is fifty percent (50%) or more of the value of the Property. The foregoing provisions providing for the application of Condemnation Proceeds to the sums secured by the Instrument are agreed to be necessary to prevent an impairment of Lender's security resulting from such taking. In the event, however, that any provision hereof providing for the application of any Condemnation Proceeds to the indebtedness secured by the Instrument is held to be unenforceable, in whole or in part, then all Condemnation Proceeds not payable to Lender for immediate application to the sums secured by the Instrument as the result of such invalidity, shall be applied by Borrower to the restoration of the Property for use of the Property as contemplated by this Agreement with the balance thereof, if any, being deposited with Lender as additional amounts due under paragraph 3 hereof, which balance shall be held and applied as provided for therein. Unless Borrower and Lender otherwise agree in writing, any application of proceeds to principal shall not extend or postpone the due date of the monthly installments referred to in paragraphs 1 and 3 hereof or change the amount of such installments. Such application of proceeds to principal shall be without penalty or premium. Borrower agrees to execute such further evidence of assignment of any awards, proceeds, damages or claims arising in connection with such condemnation or taking as Lender may require. 11. FORBEARANCE BY LENDER NOT A WAIVER. Any forbearance by Lender in exercising any right or remedy hereunder or under the Instrument, or any of the other Loan Documents or Instruments, or otherwise afforded by applicable law, shall not be a waiver of or preclude the exercise of any right or remedy available to Lender. The acceptance by Lender of payment of any sum secured by the Instrument after the due date of such payment shall not be a waiver of Lender's right to either require prompt payment when due of all other sums so secured or to declare a default for failure to make prompt payment. The procurement of insurance or the payment of taxes or other liens or charges by Lender shall not be a waiver of Lender's right to accelerate the maturity of the indebtedness secured by the Instrument or by any of the other Instruments after notice of such breach and failure of Borrower to cure as hereinafter provided, nor shall Lender's receipt of any awards, proceeds or damages under paragraphs 6 and 10 hereof operate to cure or waive Borrower's default in payment of sums secured by the Instrument or by any of the other Instruments. 12. ESTOPPEL CERTIFICATE. Borrower shall within ten (10) days of a written request from Lender furnish Lender with a written statement, duly acknowledged, (a) setting forth (i) the then outstanding principal balance of the Note and all other sums, if any, then due and payable by Borrower to Lender under the provisions of the Note or this Agreement or Loan Documents relating to the Property and any right of set-off, counterclaim or other defense which exists against such sums and the obligations under the Loan Documents; (ii) that no Default or event which, with the passage of time or the giving of notice, would constitute a Default exists; and (iii) other matters reasonably requested by Lender; and (b) attaching true, correct and complete copies of the Note, and the Instrument and any other Loan Documents and all modifications, amendments and substitutions thereof. 13. LEASES OF THE PROPERTY. As used in this paragraph 13, the word "lease" shall mean "sublease" if the Instrument encumbers a leasehold interest. Borrower shall comply with and observe Borrower's obligations as landlord under all leases of the Property or any part thereof. Borrower will not lease any portion of the Property except with the prior written approval of Lender. Borrower, at Lender's request, shall furnish Lender with executed copies of all leases now existing or hereafter made of all or any part of the Property, and all leases now or hereafter entered into will be in form and substance subject to the approval of Lender. All leases of the Property shall specifically provide that such leases are subordinate to the Instrument; that the tenant will, upon request, attorn to Lender or any purchaser of the Property at foreclosure or following issuance of a deed-in-lieu of foreclosure; that the tenant agrees to execute such further evidences of attornment as Lender may from time to time request, and that Lender may, at Lender's option, accept or reject such attornments; that the leases shall not be modified without Lender's prior written approval; that the tenant shall pay rent to Lender after notification of a Default hereunder; and that Lender, or its successors in the event of a foreclosure or deed-in-lieu of foreclosure of the interest secured by the Instrument, shall not be liable for (i) any default existing prior to the date upon which Lender or any such successor obtains title to the Property, (ii) rents paid more than one month in advance, or (iii) any offsets or defenses against any prior landlord. Borrower shall not, without Lender's written consent, execute, modify, surrender or terminate, either orally or in writing, any lease now existing or hereafter made of all or any part of the Property, permit an assignment or sublease of such a lease without Lender's written consent, or request or consent to the subordination of any lease of all or any part of the Property to any lien subordinate to the Instrument. If Borrower becomes aware that any tenant proposes to do, or is doing, any act or thing which may give rise to any right of set-off against rent, Borrower shall (i) take such steps as shall be reasonably calculated to prevent the accrual of any right to a set-off against rent, (ii) notify Lender thereof and of the amount of said set-offs, and (iii) within ten (10) days after such accrual, reimburse the tenant who shall have acquired such right to set-off or take such other steps as shall effectively discharge such set-off and as shall assure that rents thereafter due shall continue to be payable without set-off or deduction. Notwithstanding the general assignment of all leases hereunder, upon written request of Lender, Borrower shall assign to Lender, by written instrument satisfactory to Lender, all leases now existing or hereafter made of all or any part of the Property and all security deposits made by tenants in connection with such leases of the Property. Upon assignment by Borrower to Lender of any leases of the Property, Lender shall have all of the rights and powers possessed by Borrower prior to such assignment and Lender shall have the right to modify, extend or terminate such existing leases and to execute new leases, in Lender's sole discretion. 14. REMEDIES CUMULATIVE. Each remedy provided in the Loan Documents is distinct and cumulative to all other rights or remedies under the Loan Documents or afforded by law or equity, and may be exercised concurrently, independently, or successively, in any order whatsoever. 15. ACCELERATION IN CASE OF BORROWER'S INSOLVENCY. If Borrower or any Guarantor shall voluntarily file a petition under the Federal Bankruptcy Code (the "Code"), as such Code may from time to time be amended, or under any similar or successor Federal statute relating to bankruptcy, receivership, insolvency, arrangements or reorganizations, or under any state bankruptcy or insolvency act, or file an answer in an involuntary proceeding admitting insolvency or inability to pay debts, or if Borrower or any Guarantor shall fail to obtain a vacation or stay of involuntary proceedings brought for the reorganization, dissolution or liquidation of Borrower or such Guarantor respectively, within ninety (90) days of the filing of such involuntary proceeding, or if Borrower or any Guarantor shall be adjudged a bankrupt, or if a trustee or receiver shall be appointed for Borrower or any Guarantor or for any of Borrower's property or any Guarantor's property, or if the Property shall become subject to the jurisdiction of a Federal bankruptcy court or similar state court, or if Borrower or any Guarantor shall make an assignment for the benefit of Borrower's or such Guarantor's creditors, or if there is an attachment, execution or other judicial seizure of any portion of Borrower's or such Guarantor's assets and such seizure is not discharged within thirty (30) days, then Borrower shall be in Default under the Instrument and Lender may, at Lender's option, declare all of the sums secured by the Instrument to be immediately due and payable without prior notice to Borrower, and Lender may invoke any remedies permitted by paragraph 21 of this Agreement. Any reasonable attorneys' fees and other expenses incurred by Lender in connection with Borrower's or any Guarantor's bankruptcy or any of the other aforesaid events shall be additional indebtedness of Borrower secured by the Instrument pursuant to paragraph 8 hereof and paragraph 8 of the Instrument. 16. TRANSFERS OF THE PROPERTY OR BENEFICIAL INTERESTS IN BORROWER; ASSUMPTION. Except as otherwise provided in this paragraph 16, on sale or transfer of (i) all or any part of the Property, or any interest therein, or (ii) beneficial interests in Borrower (if Borrower is not a natural person or persons but is a corporation, partnership, trust or other legal entity), Borrower shall be in Default under the Instrument and this Agreement and Lender may, at Lender's option, declare all of the sums secured by the Instrument and due under the provisions of this Agreement to be immediately due and payable, and Lender may invoke any remedies permitted by paragraph 21 of this Agreement and applicable law. This option shall not apply in case of: (a) transfers by devise or descent or by operation of law upon the death of a joint tenant or a partner; (b) sales or transfers of direct beneficial interests in Borrower provided that such sales or transfers, together with any prior sales or transfers of beneficial interests in Borrower, but excluding sales or transfers under subparagraph (a) above, do not result in more than forty-nine percent (49%) of the beneficial interests in Borrower having been sold or transferred since the date hereof; and (c) sales or transfers of fixtures or any personal property pursuant to the first paragraph of paragraph 6 of the Instrument hereof. Notwithstanding anything in this paragraph 16, Borrower shall be entitled to transfer the Property to any of the following: (i) the Franchisor, (ii) any Affiliate of Borrower, or (iii) any other franchisee acceptable to Franchisor whose financial condition, creditworthiness and ability to operate the Property are satisfactory to Lender in its sole discretion, provided however, that in each of such cases itemized as (i), (ii) or (iii) above: (1) Borrower obtains Lender's prior written consent to such transfer; (2) the proposed transferee assumes in writing all obligations of the Borrower under the Note, the Instrument and the Loan Documents; (3) Lender receives a transfer fee in the amount of one percent (1%) of the then outstanding principal balance of the Note and all accrued but unpaid interest due thereunder; (4) Lender shall receive for its review and approval copies of all transfer documents; and (5) Borrower or the transferee shall pay all costs and expenses in connection with such transfer and assumption, including without limitation all reasonable fees and expenses incurred by Lender. 17. NOTICE. Except for any notice required under applicable law to be given in another manner, any notice to Borrower provided for in this Agreement or in the Note shall be given by certified mail, return receipt requested, postage prepaid, or by national receipted overnight delivery service, to Borrower's address as set forth above or as otherwise specified in writing by Borrower, and shall be effective only upon delivery or attempted delivery. Notices to the Lender shall be by certified mail, return receipt requested, postage prepaid, or by national receipted overnight delivery service, to the address of the Lender as set forth above or as otherwise specified in writing by the Lender, with a copy to Timothy J. Manor, Esquire, Lowndes, Drosdick, Doster, Kantor & Reed, P.A., 215 North Eola Drive, Orlando, Florida 32802, and shall be effective only upon delivery or attempted delivery. 18. SUCCESSORS AND ASSIGNS BOUND; AGENTS; CAPTIONS. The covenants and agreements herein contained shall bind, and the rights hereunder shall inure to, the respective successors and assigns of Lender and Borrower, subject to the provisions of paragraph 16 hereof. In exercising any rights hereunder or taking any actions provided for herein, Lender may act through its employees, agents or independent contractors as authorized by Lender. The captions and headings of the paragraphs of the Loan Documents are for convenience only and are not to be used to interpret or define the provisions hereof. 19. GOVERNING LAW; SEVERABILITY. This Agreement shall be governed by the law of the jurisdiction in which the real estate that constitutes a portion of the Property is located. Borrower and Lender agree that any dispute arising out of this Agreement shall be subject to the jurisdiction of both the state and federal courts in Florida. For that purpose, Borrower hereby submits to the jurisdiction of the state and federal courts of Florida. Borrower further agrees to accept service of process out of any of the aforesaid courts in any such dispute by registered or certified mail, postage prepaid, addressed to the undersigned. Nothing herein contained, however, shall prevent Lender from bringing any action or exercising any rights against (i) Borrower, (ii) any security, (iii) a Guarantor personally, or (iv) the assets of Borrower or any Guarantor, within any other state or jurisdiction. In the event that any provision of any of this Agreement or the Note conflicts with applicable law, such conflict shall not affect other provisions of this Agreement or the Note which can be given effect without the conflicting provisions, and to this end the provisions of any of this Agreement, the Note and the other Instruments and Loan Documents are declared to be severable. In the event that any applicable law limiting the amount of interest or other charges permitted to be collected from Borrower is interpreted so that any charge provided for this Agreement, in the Note, the other Instruments or Loan Documents, whether considered separately or together with other charges levied in connection with this Agreement and the Note, violates such law, and Borrower is entitled to the benefit of such law, such charge is hereby reduced to the extent necessary to eliminate such violation. The amounts, if any, previously paid to Lender in excess of the amounts payable to Lender pursuant to such charges as reduced shall be applied by Lender to reduce the principal of the indebtedness evidenced by the Note in inverse order of maturity in which case such prepayment shall not be subject to any Prepayment Premium. For the purpose of determining whether any applicable law limiting the amount of interest or other charges permitted to be collected from Borrower has been violated, all indebtedness which is secured by the Instrument and any of the other Instruments, or evidenced by the Note and which constitutes interest, as well as all other charges levied in connection with such indebtedness which constitute interest, shall be deemed to be allocated and spread over the stated term of the Note. Unless otherwise required by applicable law, such allocation and spreading shall be effected in such a manner that the rate of interest computed thereby is uniform throughout the stated term of the Note. 20. ASSIGNMENT OF LEASES AND RENTS; APPOINTMENT OF RECEIVER; LENDER IN POSSESSION. As part of the consideration for the indebtedness evidenced by the Note, Borrower, under the provisions of paragraph 23 of the Instrument absolutely and unconditionally assign and transfer to Lender the leases and all the rents and revenues of the Property. Borrower hereby covenants that Borrower has not executed any prior assignment of said leases or rents, that Borrower has not performed, and will not perform, any acts or has not executed, and will not execute, any instrument which would prevent Lender from exercising its rights under this paragraph 20, and that at the time of execution of this Agreement there has been no anticipation or prepayment of any of the rents of the Property for more than one (1) month prior to the due dates of such rents. Borrower covenants that Borrower will not hereafter collect or accept payment of any rents of the Property more than one (1) month prior to the due dates of such rents. Borrower further covenants that Borrower will execute and deliver to Lender such further assignments of rents and revenues of the Property as Lender may from time to time request. Upon Borrower's Default hereunder, under the Instrument or under the Loan Documents, Lender shall be entitled to the appointment of a receiver for the Property and Lender may in person, by agent or by a court-appointed receiver, regardless of the adequacy of Lender's security, enter upon and take and maintain full control of the Property in order to perform all acts necessary and appropriate for the operation and maintenance thereof including, but not limited to, the execution, cancellation or modification of leases, the collection of all rents and revenues of the Property, the making of repairs to the Property and the execution or termination of contracts providing for the management or maintenance of the Property, all on such terms as are deemed best to protect the security of the Instrument. In the event Lender elects to seek the appointment of a receiver for the Property upon Borrower's Default, Borrower hereby expressly consents to the appointment of such receiver. Lender or the receiver shall be entitled to receive a reasonable fee for so managing the Property. All rents and revenues collected as a lessor subsequent to the Default by Borrower under the Loan Documents shall be applied first to the costs, if any, of taking control of and managing the Property and collecting the rents, including, but not limited to, attorneys' fees, receiver's fees, premiums on receiver's bonds, costs of repairs to the Property, premiums on insurance policies, taxes, assessments and other charges on the Property, and the costs of discharging any obligation or liability of Borrower as lessor or landlord of the Property and then to the sums secured by the Instrument. Lender or the receiver shall have access to the books and records used in the operation and maintenance of the Property and shall be liable to account only for those rents actually received. Lender shall not be liable to Borrower, anyone claiming under or through Borrower or anyone having an interest in the Property by reason of anything done or left undone by Lender under this paragraph 20. If the rents of the Property are not sufficient to meet the costs, if any, of taking control of and managing the Property and collecting the rents, any funds expended by Lender for such purposes shall become indebtedness of Borrower to Lender secured by the Instrument pursuant to paragraph 8 hereof and paragraph 8 of the Instrument. Unless Lender and Borrower agree in writing to other terms of payment, such amounts shall be payable upon notice from Lender to Borrower requesting payment thereof and shall bear interest from the date of disbursement at the rate stated in the Note which applies in the event of Default unless payment of interest at such rate would be contrary to applicable law, in which event such amounts shall bear interest at the highest rate which may be collected from Borrower under applicable law. Any entering upon and taking and maintaining of control of the Property by Lender or the receiver and any application of rents as provided herein shall not cure or waive any Default hereunder or invalidate any other right or remedy of Lender under applicable law or provided herein. This assignment of rents of the Property shall terminate at such time as the indebtedness and obligations secured by this Instrument have been paid and performed in a complete and irrevocable manner. 21. ACCELERATION: REMEDIES. Any one or more of the following shall constitute a "Default" under the Instrument and this Agreement: (a) failure of Borrower to make any payment due under the Note or under paragraph 1 of this Agreement within ten (10) calendar days after Lender's written demand for such amount; (b) failure of Borrower (except as set forth under clause (a) above) to pay any amount, costs, expenses or fees (including attorneys' fees) of Lender, as required by any provision of the Note, this Agreement, the Instrument or any Loan Document within ten (10) days after Lender's written demand for such amount; (c) failure of Borrower (except as set forth under clauses (a), (b), (d), (e), (f), (g), (h), (i), (j) and (k) of this paragraph 21) to comply with or perform, or any breach or violation by Borrower of, any warranty, representation, covenant, agreement, prohibition, restriction or condition contained herein (except for those contained in paragraphs 15 and 16 hereof and paragraph 17 of the Instrument), in the Note, the Instrument or any Loan Document, or in the Franchise Agreement, which failure or breach or violation continues uncured to Lender's reasonable satisfaction for thirty (30) calendar days after the delivery by Lender of written notice to Borrower describing such failure or breach or violation; provided, however, that if such failure or breach or violation shall be not be curable within said thirty (30) calendar day period and Borrower is diligently attempting to cure such failure or breach or violation within such thirty (30) calendar day period, then such failure or breach or violation shall not constitute a Default unless it shall continue uncured to Lender's reasonable satisfaction for ninety (90) calendar days after the delivery by Lender of such notice to Borrower or by Borrower of such notice to Lender, or if Borrower is diligently attempting to effect such cure, such longer period of time as may be necessary in Lender's reasonable judgment to effect such cure; (d) except as provided in and permitted under the Note, the Instrument or any other Loan Document, any sale, assignment, transfer, conveyance, mortgaging, encumbering or other change in, or collateral assignment of, the legal title to or beneficial interest in the Property, or any part thereof, or any interest therein, including, without limitation, the granting of any subordinate lien, whether voluntarily or involuntarily by operation of law and whether or not of record or for consideration, which is not cured to Lender's reasonable satisfaction within thirty (30) calendar days of such sale, assignment, transfer or encumbrance; (e) the occurrence of any event deemed to be a Default under either paragraph 15 or 16 hereof; (f) any default shall occur under any Related Note, the Instrument or any Loan Document which remains uncured after the expiration of any applicable notice and/or cure period; (g) the occurrence of any event deemed to be a default under any commitment and/or loan made by Lender or affiliate of Lender to Borrower with the amount in controversy in excess of $25,000.00 which remains uncured after the expiration of any applicable notice and/or cure period and/or the payment of the indebtedness outstanding pursuant thereto has been accelerated shall, at the option of Lender, be and constitute a default under all commitments and/or loans made to Borrower by Lender (including without limitation, the Note, this Agreement, the Instrument or any other Instruments and the Loan Documents); (h) a material misrepresentation or material error or withholding of material information by Borrower, in each case, incident to the Loan or the Loan Documents; (i) the ownership by Borrower or any Guarantor, or any of their Affiliates, of an interest in, or the operation by the Borrower or any Guarantor or any of their Affiliates of any ARBY'S restaurant within a one (1) mile radius of the Property (excluding the ARBY'S restaurant located or to be located on the Property); (j) the termination of the Franchise Agreement; and (k) the occurrence of any event deemed to be a default under the Lease, which remains uncured after any applicable notice or cure period provided for therein. Upon Borrower's Default, in addition to Lender's right to appoint a receiver or enter upon and take and maintain control of the Property as set forth in paragraph 23 of the Instrument and paragraph 20 of this Agreement, Lender at Lender's option may declare all of the sums secured by the Instrument to be immediately due and payable without further demand and may foreclose the interest secured by the Instrument by judicial proceeding and may invoke any other remedies permitted by applicable law or provided herein. Borrower acknowledges that the power of sale granted may be exercised by Lender without prior judicial hearing. Borrower has the right to bring an action to assert the non-existence of a Default or any other defense of Borrower to acceleration and sale. Lender shall be entitled to collect all reasonable costs and expenses incurred in pursuing such remedies, including, but not limited to, reasonable attorneys' fees and costs of documentary evidence, abstracts and title reports. Nothing contained herein shall be deemed to require Lender to provide Borrower with notice in the event a bankruptcy proceeding (whether voluntary or involuntary) has been instituted by or against Borrower or any Guarantor of Borrower's indebtedness under any of the other Instruments or Loan Documents. If the Property is sold pursuant to this paragraph 21, Borrower or any person holding possession of the Property through Borrower shall immediately surrender possession of the Property to the purchaser at such sale upon the purchaser's written demand. If possession is not surrendered upon the purchaser's written demand, Borrower or such person shall be a tenant at sufferance and may be removed by writ of possession or by an action for forcible entry and detainer. If Lender invokes the power of sale, Lender shall mail a copy of a notice of sale to Borrower in the manner provided in paragraph 17 hereof. Lender shall publish the notice of sale once a week for three (3) consecutive weeks in a newspaper published in Polk County, Florida as to Site No. 133 and in Highlands County, Florida as to Site No. 1695, and in Hillsborough County, Florida as to Site No. 1134 and thereupon shall sell the Property to the highest bidder at public auction at the front door of the County Courthouse of said County. Lender may sell the Property in one or more parcels and in such order as Lender may determine. Lender may postpone the sale of all or any parcel of the Property by public announcement at the time and place of any previously scheduled sale. Lender or Lender's designee may purchase the Property at any sale. Lender shall deliver to the purchaser Lender's deed conveying the Property so sold without any covenant or warranty, expressed or implied. The recitals in Lender's deed shall be prima facie evidence of the truth of the statements made therein. Borrower covenants and agrees that the proceeds of any sale shall be applied in the following order (a) to all costs and expenses of the sale, including, but not limited to, attorneys' fees and costs of title evidence; (b) to all sums secured by this Instrument in such order as Lender, in Lender's sole discretion, directs; and (c) the excess, if any, to the person or persons legally entitled thereto. In the event of a Default under this Agreement, any other Instruments or the Loan Document or upon a default by the manager of the Property under its management agreement, Lender or any receiver for the Property shall be entitled to terminate the management agreement between Borrower and any manager of the Property. Notwithstanding any provision to the contrary herein, in the event that (i) Borrower's interest in the Property is a leasehold interest, (ii) the real estate portion of the Property is not separately assessed for real estate taxation or assessment purposes, (iii) Borrower is current in its payments, if any, to lessor/owner in connection therewith, and (iv) the lessor/owner of such Property is responsible for the payment of taxes and assessments therefor, then such non-payment of taxes and assessments by the lessor/owner shall not be a Default under this Agreement and Borrower shall not be required to make payments as set forth in paragraph 3 hereof as a result of said non-payment. 22. SUBROGATION. Any of the proceeds of the Note utilized to satisfy outstanding liens against all or any part of the Property have been advanced by Lender at Borrower's request and upon Borrower's representation that such amounts are due and are secured by valid liens against the Property. Lender shall be subrogated to any and all rights, superior titles, liens and equities owned or claimed by any owner or holder of any outstanding liens and debts, however remote, regardless of whether said liens or debts are acquired by Lender, by assignment or are released by the holder thereof upon payment. 23. PARTIAL INVALIDITY. In the event any portion of the sums intended to be secured by the Instrument cannot be lawfully secured thereby, payments in reduction of such sums shall be applied first to those portions not secured thereby. 24. REPRESENTATIONS OF BORROWER. The Borrower hereby represents and warrants to Lender the following: (a) Borrower (i) is a Borrower Entity duly organized, validly existing and in good standing under the laws of the Borrower State and in all jurisdictions in which qualification or licensing is required; and (ii) has the power and authority to own, lease and operate the Property and conduct its business as it is now conducted. There are no proceedings or actions pending, threatened or contemplated for the liquidation, reorganization, termination or dissolution of Borrower. (b) There have been no material adverse changes, financial or otherwise, in the condition of Borrower from that disclosed to Lender in the loan application submitted to Lender by Borrower, or in any supporting data submitted in connection with the Loan, and all of the information contained therein was true and correct in all material respects when submitted and is now substantially materially true and correct on the date hereof. (c) No proceedings in bankruptcy or insolvency have ever been instituted by or against Borrower and no such proceeding is now pending or contemplated. (d) Borrower, and the general partner of Borrower if applicable, is solvent pursuant to the laws of the United States and the state in which the Property is located, as reflected by the entries in Borrower's books and records and as reflected by the actual facts. (e) The Note, the Instrument, the other Instruments, the Loan Documents, and all other notes and loan documents evidencing all other obligations of Borrower to Lender, if any, and the Franchise Agreement have been duly authorized, executed and delivered by Borrower and constitute valid and binding obligations of Borrower, enforceable against Borrower in accordance with their respective terms, except as the enforcement of them may be limited by bankruptcy, insolvency, moratorium and other applicable debtor relief laws, which should not make them inadequate for the practical realization of the benefits to be afforded Lender by them. No approval, consent, order or authorization of any governmental authority and no designation, registration, declaration or filing with any governmental authority is required in connection with the execution and delivery of the Note, the Instrument or any of the other Instruments or Loan Documents or the Franchise Agreement. (f) The execution, delivery, and performance of the Loan Documents will not violate or contravene in any way the organizational documents of Borrower (if Borrower is a partnership, corporation or other entity) or any indenture, agreement or Instrument to which Borrower is a party or by which it or its property may be bound, or be in conflict with, result in a breach of or constitute a default under any such indenture, agreement or other instrument, or result in the creation or imposition of any lien, charge or encumbrance of any nature whatsoever upon any of the property or assets of Borrower, except as contemplated by the provisions of such instrument, and no action or approval with respect thereto by any third person is required. (g) The proceeds of the Loan will be used by Borrower for its business and commercial purposes, not to include the purchase of margin stock, and not for personal, family, household or agricultural use. No part of the Property is all or part of Borrower's homestead. (h) There is no litigation, legal or administrative proceeding, investigation or other action of any nature commenced, pending, or, to the knowledge of Borrower, threatened against or affecting the Borrower, the Property or any interest or right therein or any Guarantor which has not been disclosed in detail in writing to Lender and which may involve the possibility of any judgment or liability not fully covered by insurance, or materially adversely affecting any of the assets of the Borrower or Borrower's right to carry on business as now conducted, or affecting the continued employment of any officer or director of Borrower. (i) The representations and warranties contained in paragraph 25 of the Mortgage are hereby confirmed. 25. BORROWER'S ADDITIONAL COVENANTS. Borrower hereby covenants, agrees and undertakes to: (a) from time to time, at the reasonable request of Lender, (i) promptly correct any defect, error or omission which may be discovered in the contents of this Agreement, the Instrument or any of the other Loan Documents or any of the other Instruments or in the execution or acknowledgment thereof; (ii) execute, acknowledge, deliver and record and/or file such further documents or instruments (including, without limitation, further mortgages, security agreements, financing statements, continuation statements, assignments of rents or leases and environmental indemnity agreements) and perform such further acts and provide such further assurances as may be necessary, desirable or proper, in Lender's reasonable opinion, to carry out more effectively the purposes of this Agreement and such other instruments and to subject to the liens and security interests hereof and thereof any property intended by the terms hereof or thereof to be covered hereby or thereby, including specifically, but without limitation, any renewals, additions, substitutions, replacements, or appurtenances to the Property; and (iii) execute, acknowledge, deliver, procure, and file and/or record any document or instrument (including specifically, but without limitation, any financing statement) reasonably deemed necessary by Lender to protect the liens and the security interests herein granted against the rights or interests of third persons; provided that such documents or instruments do not increase Borrower's liability or obligations under the Loan Documents. Borrower will pay all reasonable costs connected with any of the foregoing in this subparagraph (a); (b) continuously maintain Borrower's existence, if applicable, as a Borrower Entity, and the right to do business, as applicable, in the State of Florida; (c) at any time any law shall be enacted imposing or authorizing the imposition of any tax upon the Instrument or any of the other Loan Documents, or upon any rights, title, liens or security interests created hereby, or upon the obligations secured hereby or any part thereof, pay all such taxes within the applicable payment period; provided that, if such law as enacted makes it unlawful for Borrower to pay such tax, Borrower shall not pay nor be obligated to pay such tax, and in the alternative, Borrower may, in the event of the enactment of such a law, and must, if it is unlawful for Borrower to pay such taxes, prepay the obligations secured hereby in full within one hundred twenty (120) days after demand therefor by Lender, without penalty or premium; (d) promptly pay all reasonable and bona fide out-of-pocket costs, fees and expenses and other expenditures, including, but not limited to, reasonable attorneys' fees and expenses, paid or incurred by Lender to third parties incident to this Agreement, the Instrument or any of the other Loan Documents (including, but not limited to, reasonable attorneys' fees and expenses in connection with the negotiation, preparation and execution hereof and of any other Loan Document and any amendment hereto or thereto, any release hereof, any consent, approval or waiver hereunder or under any other Loan Document, the making of any advance under the Note, and any suit to which Lender is a party involving this Agreement or the Property including any such fees incurred on appeal of such suit) or incident to the enforcement of the obligations secured hereby or the exercise of any right or remedy of the Lender under any Loan Document; (e) not materially amend the constituent entity organizational documents of Borrower without the prior written consent of Lender, which consent shall not be unreasonably delayed or withheld; (f) at its sole cost and expense, furnish Lender with such title endorsements or updates to Lender's title insurance policy as Lender may reasonably require, from time to time, to insure Lender that no other matters of record affect the condition of title or the priority of Lender's lien; (g) not amend, modify or terminate the management agreement, if any, relating to the management of the Property or the Restaurant without the Lender's prior written consent, and Borrower shall strictly enforce all the material terms of any such management agreement. (The existence and identity of any manager of the Property and/or the Restaurant which is not an Affiliate of Borrower, as well as the terms and conditions of any management agreement relating thereto, shall be subject to Lender's prior written approval); (h) not own an interest in, or operate, any other ARBY'S restaurant within a one (1) mile radius of the Property (excluding the ARBY'S restaurant operated on the Property); (i) without limiting any other obligation of the Borrower hereunder, shall and does hereby indemnify, hold harmless and insure the Lender of and from any and all claim, liability, loss or damage whatsoever, including without limitation, and without duplication, in-house and outside counsel attorneys' and paralegals' fees and costs, arising from or in any way relating to the Property this Agreement, the Instrument or any of the other the Loan Documents, save only and except for any claim or loss caused directly as a result of gross negligence or intentional breach or misconduct by Lender or to any claim that Borrower indemnifies Lender for the amount of any final judgment obtained by Borrower against Lender in a court of competent jurisdiction; (j) promptly, and in any event within three (3) business days after an officer of the Borrower obtains actual knowledge of any failure or breach or violation or a Default under this Agreement, to provide Lender with written notice thereof. "Actual knowledge" as used in this clause (j) of paragraph 25 means the actual knowledge of an executive officer of Borrower; (k) not provide a guaranty of the obligations of any of its affiliates or a third party which if exercised would result in a Default (or which but for the passage of time would be a Default hereunder) with respect to the requirements set for cash flow in paragraph 26 hereof; and (l) keep the covenants set forth in paragraph 26 of the Instrument. 26. MAINTENANCE OF CASH FLOW. During the term of this Instrument, the Borrower shall maintain a Consolidated Fixed Charge Coverage Ratio for the Borrower and Guarantors, if any, of not less than 1.2:1. All calculations of the Consolidated Fixed Charge Coverage Ratio shall be based upon the financial information furnished by the Borrower hereunder for the twelve (12) month period ending on the last day of each fiscal year of Borrower or after and during the continuance of a Default more frequently as the Lender may from time to time reasonably request. The initial Consolidated Fixed Charge Coverage Ratio shall be calculated for the twelve (12) month period ending on the last day of the Borrower's fiscal year. Notwithstanding the foregoing, if the Loan proceeds are used to construct or acquire new units, the first measurement of the FCCR shall be made at the fiscal quarter end following one (1) year after the Loan closing date. If the Loan proceeds are used to refinance existing units of the Borrower, the first measurement of the FCCR shall be for the twelve (12) month period ending the last day of Borrower's fiscal year. Failure by Borrower to comply with the covenants set forth herein shall be deemed a Default under this Agreement. For the purposes of calculating the Borrower's Cash Flow, Rental Payments, Non-Recurring Expenses and Non-Recurring Income, the term "Borrower" shall mean the Borrower and all Guarantors, if any, and the term "financial statement" shall mean a consolidated financial statement of the Borrower and such Guarantors. 27. ASSIGNMENT BY LENDER. This Agreement (and unless a contrary intention is expressly provided, each other Loan Document) is freely assignable, in whole or in part, by the Lender and, to the extent of any such assignment, the Lender shall be fully discharged from all liability under this Agreement (and each other Loan Document) accruing from and after the date of such assignment. The Lender's assignee shall, to the extent of the assignment, be vested with all the powers and rights of the Lender hereunder and under the other Loan Documents, and to the extent of which assignment the assignee may fully enforce such rights and powers as the holder hereof and all references to the Lender shall mean and refer to such assignee. The Lender shall retain all rights and powers hereby given which are not so assigned, transferred and/or delivered. Without limiting the foregoing, the Borrower understands and agrees that the Lender intends to and may, from time to time, sell, pledge, grant a security interest in and collaterally assign, transfer and deliver or otherwise encumber or dispose of the Note, and the Loan Documents and its rights and powers hereunder and thereunder, in whole or in part, in connection with the Securitization or any other assignment or other disposition of the Note. The Borrower may not, in whole or in part, directly or indirectly, assign this Agreement, the Instrument or any Loan Document or its rights hereunder or thereunder or delegate its duties hereunder. 28. SECURITIZATION OPINIONS; FINANCIAL INFORMATION. In the event the Loan is included as an asset of a Securitization by Lender or any of its Affiliates, Borrower shall, within ten (10) days after Lender's written request therefor, deliver or cause to be delivered opinions and certifications in form and substance and delivered by counsel reasonably acceptable to Lender and the Rating Agency, as may be reasonably required by Lender and/or the Rating Agency in connection with such Securitization. Borrower shall not be required to bear the cost of the delivery of such opinions, if any. Borrower shall, in the event the Loan is included as an asset of a Securitization, (a) gather any environmental information reasonably required by the Rating Agency in connection with such a Securitization, at Lender's request, (b) meet with representatives of the Rating Agency to discuss the business and operations of the Property, and (c) cooperate with the reasonable requests of the Rating Agency and Lender in connection with all of the foregoing and the preparation of any offering documents with respect thereof. Borrower shall, upon Lender's written request therefor in connection with a Securitization in which the Loan is to be included as an asset, promptly deliver such financial statements and related documentation prepared by an independent certified public accountant as may be reasonably necessary and shall fully cooperate with the Lender in connection with any assurances or other documents, which are deemed to be reasonably necessary or convenient by Lender, requested from Borrower and consistent with the Borrower's obligations hereunder, in connection therewith. Borrower shall not be required to bear the costs of preparation of financial statements and related documentation prepared by an independent certified public accountant in connection with a Securitization (unless Borrower is otherwise having such financial statements and related documents prepared). 29. DEFINITIONS. Borrower and Lender agree that, unless the context otherwise specifies or requires, the following terms shall have the meanings herein specified, such definitions to be applicable equally to the singular and the plural forms of such terms. "Affiliate" means, with respect to any designated Person, any Person that, directly or indirectly, controls or is controlled by or is under common control with such designated Person and, without limiting the generality of the foregoing, shall include, (i) any Person who is a director or officer of, partner in, trustee of, or blood or legal relative, guardian or representative of the designated Person, or any Person who acts or serves in a similar capacity with respect to the designated Person, (ii) any Person of which or whom the designated Person is a director or officer, partner, trustee, or blood or legal relative, guardian or representative, or with respect to which or whom, the designated Person acts or serves in a similar capacity; and (iii) any Person, who, directly or indirectly, is the legal or beneficial owner of or controls 10% or more of any class of equity securities of the designated Person. For the purposes of this definition, "CONTROL" (including, with correlative meanings, the terms "CONTROLLED BY" and "UNDER COMMON CONTROL WITH"), as used with respect to any Person, shall mean the possession, directly or indirectly, of the power or cause the direction of the management and policies of such Person, whether through the ownership of voting securities, by contract or otherwise. "Actual knowledge" means the actual knowledge of an executive officer of the Borrower. "Affiliate Guarantor" means any Affiliate of the Borrower that is providing the Lender with a guarantee of the Note. "Approved Carriers" has the meaning ascribed to such term in paragraph 6 of this Agreement. "Borrower" has the meaning ascribed to such term in the first paragraph of the preamble of this Agreement. "Borrower Entity" means, if applicable, the entity form of Borrower which is a corporation. "Borrower State" means, if applicable, the state or other jurisdiction under which the Borrower is formed, which is the State of Michigan. "Cash Flow" means, for any period, with respect to any Person, an amount equal to (a) the sum of (i) pre-tax income, (ii) interest expense, (iii) all non-cash amounts in respect of depreciation and amortization, (iv) Non-Recurring Expenses, (v) discretionary management fees, and (vi) Rental Payments LESS (b) Non-Recurring Income, all as reflected on such Person's financial statement for such period. "Casualty" has the meaning ascribed to such term in paragraph 6 of this Agreement. "Code" has the meaning ascribed to such term in paragraph 15 of this Agreement. "Collateral Assignment of Liquor License" means that certain Collateral Assignment of Liquor License dated as of the date hereof by Borrower to and in favor of Lender pledging the liquor license collateral, if any, relating to operation of the Restaurant located at the Property. "Commitment" means the commitment letter from CNL APF Partners, LP to Borrower dated November 8, 1999. "Condemnation Proceeds" has the meaning ascribed to such term in paragraph 10 of this Agreement. "Consolidated Fixed Charge Coverage Ratio" means, for any period, the ratio of (a) the Borrower's and Guarantor's, if any, Cash Flow for such period to (b) the sum of Borrower's and Guarantor's, if any, Debt Service for such period. "Contracts" means all contracts and agreements to which the Borrower now is, or hereafter will be, bound, or a party, beneficiary or assignee (other than rights evidenced by Chattel Paper, Documents, the Instrument or other Instruments) including, without limitation the Franchise Agreement and the License and all other agreements and documents executed and delivered with respect to such contracts, and all revenues, rentals and other sums of money due and to become due thereunder from any of the foregoing. "Copyrights" means all United States or other registered and unregistered copyrights, all licenses thereto, and all applications therefor, and all reissues, divisions, continuations, renewals, extensions, modifications, supplements thereto or to any part thereof, and the right to sue for past, present and future infringements of the foregoing, and all rights corresponding to the foregoing throughout the world. "Debt Service" means, for any period, with respect to any Person all of such Person's (i) interest payments, (ii) current portion of the principal payments, (iii) Rental Payments and (iv) current portion of capital lease obligations. "Default" has the meaning ascribed to such term in paragraph 21 of Agreement. "Document" has the meaning ascribed to such term under the UCC related to the Restaurants. "Equipment" means any "equipment," as such term is defined in the UCC, used or bought for use primarily in the Restaurant and not included within Inventory, now or hereafter owned or leased by the Borrower and, in any event, shall include, but shall not be limited to, all machinery, tools, computer software, office equipment, furniture, appliances, fixtures, vehicles, motor vehicles, and any manuals, instructions and similar items which relate to the foregoing, and any and all additions, substitutions and replacements of any of the foregoing, wherever located, together with all improvements thereon and all attachments, components, parts, equipment and accessories installed thereon or affixed thereto. "Franchise Agreement" means the Franchise Agreement between the Franchisor, as franchisor, and the Borrower, as franchisee relating to the Restaurant. "Franchisor" means the franchisor of Arby's restaurants. "Funds" has the meaning ascribed to such term in paragraph 3 of this Agreement. "Future Advances" has the meaning ascribed to such term in the granting clause on page 1 of this Agreement, with respect to future indebtedness pursuant to paragraph 29 of the Instrument. "GAAP" means generally accepted accounting principles. "General Intangibles" has the meaning ascribed to such term under the UCC related to the Restaurants. "Guarantor" means any guarantor of all or part of Borrower's obligations under the Note, this Agreement, the Instrument or the other Loan Documents. "Initial Yearly Premium Payment" has the meaning ascribed to such term in paragraph 3 of this Agreement. "Instrument" means the Commercial Mortgage, Assignment of Rents and Security Agreement as defined in the second WHEREAS clause on page 1 hereof. "Instruments" means all documents granting a security interest or assigning rights or otherwise pledging the assets of Borrower (or Guarantor(s) or its or their respective affiliates) to Lender or its Affiliate to secure the indebtedness evidenced by any Related Note. "Inventory" means all inventory of the Borrower of every type or description relating to the Restaurants, including all "inventory" as such term is defined in the UCC, now owned or hereafter acquired and wherever located, whether raw, in process or finished, and all materials usable in processing the same and all documents of title covering any inventory, including, without limitation, work in process, materials used or consumed in the Restaurants, now owned or hereafter acquired or manufactured by the Borrower and held for sale in the ordinary course of its business; all present and future substitutions thereof, parts and accessories thereof and all additions thereto; and all proceeds thereof and products of such inventory in any form whatsoever. "License" means the license to use the Trademarks and other intellectual property of Franchisor under the Franchise Agreement relating to the Restaurants. "Lien" means any mortgage, pledge, security interest, hypothecation, collateral assignment, encumbrance, lien (statutory or other), or preference, priority or other security agreement or preferential arrangement of any kind or nature whatsoever (including, without limitation, any conditional sale or other title retention agreement, any financing lease having substantially the same economic effect as any of the foregoing, and the filing of any financing statement under the UCC). "Loan" has the meaning ascribed to such term in the first WHEREAS clause of this Agreement. "Loan Documents" means the Note, the Instrument, this Agreement, UCC-1 Financing Statement, any of the Related Notes secured hereby from time to time, and all other instruments, guaranties, documents and agreements evidencing or securing the same or the indebtedness represented thereby. "Major Casualty" has the meaning ascribed to such term in paragraph 6 of this Agreement. "Major Taking" has the meaning ascribed to such term in paragraph 10 of this Agreement. "Maturity Date" has the meaning ascribed to such term in the preamble of the Note. "Non-Recurring Expenses" and "Non-Recurring Income" mean expenses or income, as the case may be, that is extraordinary and generally not reflected in any prior period or reasonably anticipated to be incurred in any subsequent period. "Note" has the meaning ascribed to such term in the first WHEREAS clause of this Agreement. "Other Impositions" has the meaning ascribed to such term in paragraph 3 of this Agreement. "Patents" means all United States or other registered and unregistered patents, all licenses thereto, and all applications therefor, and all reissues, divisions, continuations, renewals, extensions, modifications, supplements thereto or to any part thereof, and the right to sue for past, present and future infringements of the foregoing, and all rights corresponding to the foregoing throughout the world. "Payment Date" means the first day of each month or, in the event that the first day of a month is not a Business Day (as defined in the Note), the next Business Day (as provided in the Note) during the term of the Loan in which a monthly installment of principal and interest is due under the Note. "Permitted Encumbrances" means (i) liens created by the Loan Documents; (ii) liens for taxes not yet due and payable or which are being contested in good faith with appropriate and adequate reserves (in accordance with GAAP) held by Borrower as reasonably determined by Lender; (iii) liens imposed by law incurred in the ordinary course of business, such as warehousemen's liens; (iv) liens to secure the performance of tenders, bids, contracts (other than for the repayment or guarantee of borrowed money or purchase money obligations), statutory obligations and other similar obligations or arising as a result of progress payments under government contracts; (v) liens for workers' compensation, unemployment insurance and similar payments arising in the ordinary course of business and relating to payments which are not yet delinquent or are being contested; (vi) other easements, rights-of-way, restrictions, minor defects in title and similar matters (including those which do not diminish, in any material respect, the value of the Property or impair, in any material respect, the priority of the liens created by the Loan Documents related to the Property; and a security interest relating to purchase money (or lease) financing in connection with the purchase (or lease) of Equipment to replace existing, obsolete or surplus Equipment or to comply with the terms of the Franchise Agreements in an amount not to exceed (x) $75,000.00 per restaurant site if the related Property is owned or held by Borrower in fee simple or pursuant to a ground lease or (y) $50,000.00 per restaurant site if the Property is owned or held by Borrower pursuant to a space lease; provided that Borrower has obtained the prior written approval of the Lender for such purchase money (or lease) financing. "Person" means any individual, corporation, partnership, unincorporated association, firm, trust, joint stock company, joint venture or other entity of whatever nature. "Prepayment Premium" has the meaning ascribed to such term in the Note. "Property" has the meaning ascribed to such term in the description of collateral in the Instrument. "Rating Agency" means any nationally recognized statistical rating agency; provided, however, that at any time during which the Loan is an asset of a Securitization, "Rating Agency" shall mean the rating agency or rating agencies that rate the securities issued in connection with such Securitization. "Receivables" means any "account" as such term is defined in the UCC related to the Restaurants and in any event shall include, but not be limited to, all of the Borrower's rights to payment for goods sold or leased, or services performed, by the Borrower, whether now in existence or arising from time to time hereafter, including, without limitation, rights evidenced by an account, note, contract, security agreement, chattel paper, or other evidence of indebtedness or security, together with (a) all security pledged, assigned, hypothecated or granted to or held by the Borrower to secure the foregoing, (b) all the Borrower's rights, title, and interest in and to any goods, the sale of which gave rise thereto, (c) guarantees, endorsements and indemnifications on, or of, any of the foregoing, (d) all powers of attorney for the execution of any evidence of indebtedness or security or other writing in connection therewith, (e) all books, correspondence, credit files, records, ledger cards, invoices, and other papers relating thereto, including without limitation all similar information stored on a magnet medium or other similar storage device and other papers and documents in the possession or under the control of the Borrower or any computer bureau from time to time acting for the Borrower, (f) all evidences of the filing of financing statements and other statements and the registration of other instruments in connection therewith and amendments thereto, notices to other creditors or secured parties, and certificates from filing or other registration officers, (g) all credit information, reports and memoranda relating thereto, and (h) all other writings related in any way to the foregoing. "Related Note" has the meaning ascribed to such term in paragraph 27 of the Instrument. "Rental Payments" means, for any period, with respect to any Person, all of such Person's operating lease or rent obligations other than capital lease obligations. "Restaurant" means a franchise restaurant licensed by the Franchisor and operated by Borrower and pledged to Lender hereunder. "Securitization" means the sale, pledge, grant of a security interest, collateral assignment, transfer and delivery or other encumbrance or disposition of all or any portion of the Lender's rights and powers in the Note, this Agreement, the Instrument and the other Loan Documents by the Lender, from time to time, to one or more of its Affiliates or to other Persons, including the sale of the Note, this Agreement, the Instrument and the other Loan Documents by the Lender to one or more Persons who will issue debt instruments or equity certificates backed by such Note, this Agreement, the Instrument and the other Loan Documents and the servicing of such instruments by a Person appointed as servicer in connection therewith. "sublease" has the meaning ascribed to such term in paragraph 13 of this Agreement. "Tax Code" means the Internal Revenue Code of 1986, as amended. "Trademarks" shall mean all United States or other registered or unregistered trademarks together with the goodwill of the business connected with the use thereof, and symbolized thereby, all licenses thereto (including the License), and all applications therefor, and all reissues, divisions, continuations, renewals, extensions, modifications, supplements thereto or to any part thereof, and the right to sue for past, present and future infringements of the foregoing, and all rights corresponding to the foregoing throughout the world. "UCC" shall mean the Uniform Commercial Code as adopted in the State of Florida. 30. CONSTRUCTION LOAN. [[INTENTIONALLY OMITTED.]] 31. WAIVER OF JURY TRIAL. BORROWER AND LENDER BY ITS ACCEPTANCE HEREOF, FOR ITSELF AND FOR EACH HOLDER HEREOF, HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY AGREE, THAT: (a) NEITHER BORROWER NOR LENDER, NOR ANY ASSIGNEE, SUCCESSOR, HEIR OR LEGAL REPRESENTATIVE OF ANY OF THE SAME SHALL SEEK A JURY TRIAL IN ANY LAWSUIT, PROCEEDING, COUNTERCLAIM, OR ANY OTHER LITIGATION PROCEDURE ARISING FROM OR BASED UPON THE NOTE, THIS AGREEMENT, THE INSTRUMENT OR ANY OTHER LOAN DOCUMENT EVIDENCING, SECURING OR RELATING TO THE OBLIGATIONS OR TO THE DEALINGS OR RELATIONSHIP BETWEEN OR AMONG THE PARTIES THERETO; (b) NEITHER BORROWER NOR LENDER SHALL SEEK TO CONSOLIDATE ANY SUCH ACTION, IN WHICH A JURY TRIAL HAS BEEN WAIVED, WITH ANY OTHER ACTION IN WHICH A JURY TRIAL HAS NOT BEEN OR CANNOT BE WAIVED; (c) THE PROVISIONS OF THIS PARAGRAPH HAVE BEEN FULLY NEGOTIATED BY THE BORROWER AND LENDER, AND THESE PROVISIONS SHALL BE SUBJECT TO NO EXCEPTIONS; (d) NEITHER BORROWER NOR LENDER HAS IN ANY WAY AGREED WITH OR REPRESENTED TO ANY OTHER PARTY THAT THE PROVISIONS OF THIS PARAGRAPH WILL NOT BE FULLY ENFORCED IN ALL INSTANCES; (e) IN NO EVENT SHALL LENDER BE RESPONSIBLE OR LIABLE FOR CONSEQUENTIAL OR PUNITIVE DAMAGES; AND (f) THIS PROVISION IS A MATERIAL INDUCEMENT FOR LENDER TO ENTER INTO THIS TRANSACTION AND IS SEPARATELY GIVEN, KNOWINGLY AND VOLUNTARILY WITH THE BENEFIT OF COMPETENT LEGAL COUNSEL. 32. MISCELLANEOUS. (a) Time shall be of the essence with respect to all of Borrower's obligations under the Note, this Agreement, the Instrument and the other Loan Documents. (b) In the event that the Lender should become the owner of the Property, there shall be no merger of the estate created by the Instrument with the estate or any other interest in the Property. (c) The Note, this Agreement, the Instrument, and the Loan Documents may not be changed, amended or modified, except in a writing expressly intended for such purpose and executed by the parties hereto. (d) The Note, this Agreement, the Instrument and the other Loan Documents are intended to and shall be deemed to create only the relationship of a borrower and a lender between Borrower and Lender, and are not intended to nor shall they be construed to create a joint venture or any relationship other than the relationship of Borrower and Lender. (e) The liability of each of the parties named as the Borrower hereunder, if more than one, and every other party who or which is or may become liable hereunder is and shall be joint and several in all respects. (f) Borrower hereby appoints Lender as its attorney-in-fact to perform any action or execute any document required to be taken or executed by Borrower under this Agreement, the Instrument or any of the other Loan Documents or otherwise deemed necessary or advisable by Lender in its sole discretion with respect to the Loan or the Property; provided that Lender shall not so act as Borrower's attorney-in-fact prior to a Default under this Agreement or the Loan Documents related to the Property unless Borrower has not, and is then not, undertaking such action and Lender reasonably determines that such non-action could result in a material adverse effect on the value of the Property. Lender, in its sole discretion, shall have the right, but not the obligation, to perform or refrain from performing any of Borrower's obligations described in the Loan Documents and such substituted performance shall not relieve Borrower from its obligations or cure any default under the Loan Documents. The powers of attorney described in this paragraph are coupled with an interest and irrevocable, shall survive Borrower's death, and shall not be affected by Borrower's disability in any manner. As additional security to Lender, Borrower hereby authorizes Lender to sign and file financing statements at any time with respect to any and all items of personalty included as a portion of the Property, which may be subject to a security interest pursuant to the UCC, without the signature of Borrower. Borrower will, however, at any time on the reasonable request of Lender, sign financing statements, trust receipts, security agreements or other agreements with respect to such Property. Upon the Borrower's failure to do so, Lender is authorized as the agent of Borrower to sign any such Agreement. Borrower agrees to pay all filing fees and to reimburse Lender all reasonable costs and expenses of any kind incurred in any way in connection with such Property. (g) Whenever possible this Agreement and each provision hereof shall be interpreted in such manner as to be effective, valid and enforceable under applicable law. Any provisions of this Agreement which are prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. In addition, any determination that the application of any provision hereof to any person or under any circumstance is illegal and unenforceable shall not affect the legality, validity and enforceability of such provision as it may be applied to any other person or in any other circumstance. (h) The Powers of Attorney granted to Lender pursuant to this Agreement, or other related Loan Document shall be automatically terminated upon the irrevocable payment of the Note and release of the Instrument. (i) From time to time, at the reasonable request of Borrower, Lender agrees to promptly correct any defect, error or omission which may be discovered in the contents of this Agreement, the Instrument or in the other Loan Documents or in the execution or acknowledgment thereof. (j) Borrower shall take all action necessary to assure that Borrower's computer-based systems are able to operate and effectively process data including dates on and after January 1, 2000. Borrower hereby represents and warrants to Lender that Borrower's operations are Year 2000 compatible. 33. ADDITIONAL NON-UNIFORM PROVISIONS. (a) Notwithstanding anything to the contrary contained herein, Borrower shall have the option to substitute the Property securing the Loan with a substitute property of equal or greater value, such value being determined by a valuation and appraisal of such proposed substitute property in accordance with the provisions of the Commitment dated November 8, 1999 (the "Commitment Letter"); and which substitute property meets all of Lender's underwriting requirements, including, but not limited to, confirmation that the rating of any bonds or trust certificates issued in connection with a securitization in which the Loan is included will not change as a result of the substitution. This substitution option is subject to the following: (i) there shall be no Default under the Loan Documents (or an event which, but for the passage of time or the giving of notice, would constitute a Default); (ii) there shall be no more than one (1) site of the eight (8) sites securing the loans contemplated by the Commitment Letter) substituted for other property; (iii) Borrower shall have an equal or greater real property interest in the property to be substituted (e.g., a leasehold Property may be substituted with a leasehold, ground lease or fee simple interest, but a fee simple Property may not be substituted with a leasehold or ground lease interest) and all personal property (including equipment) and any and all other property and/or interests relating to and used or necessary for the operation of the restaurant business at such substituted site shall be owned by Borrower and free of encumbrances except for Permitted Encumbrances or as specifically allowed or excluded by Lender; (iv) the unit level FCCR for the substitution property shall be equal or greater than that of the substituted Property; and (v) there shall be a Franchise Agreement in effect for such substitution property which shall have a term equal to or in excess of the term of the Loan. Borrower shall also be responsible for all costs associated with preparation of the documentation to evidence the substitution of property for any Property and release of the Property which is so substituted, including but not limited to attorneys' fees, recording costs, title search and endorsement fees, and all other out-of pocket costs of Lender. Upon such a substitution of property, the security interests of Lender in such Property which has been so substituted shall be released. Notwithstanding the provisions of Paragraph 6 hereof to the contrary, Borrower shall be permitted to use insurance proceeds or Condemnation Proceeds obtained with respect to the Property for and in connection with the substitution property. (b) Notwithstanding any provision hereof or in the other Loan Documents to the contrary, (i) none of Borrower's Franchise Agreements, Trademarks, Copyrights or Licenses (if any) shall be deemed to be a portion of the Property encumbered under this Agreement or the Loan Documents and (ii) the Borrower has no liquor licenses. (c) Notwithstanding any provision hereof or in the other Loan Documents to the contrary, Borrower shall be permitted to sell inventory and obsolete and surplus assets in the ordinary course of business so long as such assets are replaced with assets of equal or greater value. (d) Notwithstanding the provisions of paragraph 16 hereof or any other provision hereof or in the other Loan Documents to the contrary, Borrower shall not be required to pay a one percent (1%) fee for a transfer of ownership upon a permitted transfer to an Affiliate of the Borrower. (e) Notwithstanding the provisions of paragraph 9 hereof or any other provision hereof or in the other Loan Documents to the contrary, until the occurrence (and during the continuance) of a Default hereunder, Lender shall be permitted to inspect the books and records and the Property once a year, during normal business hours, upon 48 hours prior written notice to Borrower. In addition, Lender shall have a right to one additional inspection, at it's sole cost and expense, each year. Upon the occurrence (and during the continuance) of a Default, Lender shall have a right to such inspections more frequently as Lender reasonably deems necessary. (f) Notwithstanding the provisions contained in the definition of "Affiliate" in paragraph 29 hereof to the contrary, with respect to Borrower, the definition of Affiliate shall exclude therefrom: in subclause (i) the phrase "partner in, trustee of, or blood or legal relative, guardian or representative of " and (y) in subclause (ii) the phrase "partner, trustee, or blood or legal relative, guardian or representative, or with respect to which or whom, the designated Person acts or serves in a similar capacity." (g) Notwithstanding the definition of "Cash Flow" in paragraph 29 hereof to the contrary, the calculation shall include deductions for actual general and administrative expenses of such Person. (h) Notwithstanding the definition of "Permitted Encumbrances" in paragraph 29 hereof to the contrary such term shall also include landlord's liens, but only if such landlord's liens are subordinated to Lender's security interest or otherwise permitted, in writing, by Lender and such term shall include the POS Equipment (hardware and software) the purchase (or lease) of which is currently being contemplated by Borrower for use in the Restaurants and its other restaurants; provided that Lender shall have a springing lien in such POS Equipment when the purchase money security interest has been released or lease financing has been paid. (i) The payment of all management fees, intercompany fund transfers, stock dividends, advances to affiliates/owners, equity advance loan repayments and owner distributions shall be expressly subordinated to the payments due to Lender under the Note and the other Loan Documents. In the event the payment of such management fees shall cause Borrower to be unable to meet the Consolidated Fixed Charge Coverage Ratio requirements of paragraph 26 hereof, the payment of such amounts shall be deferred until Borrower is able to comply with the requirements of paragraph 26. In addition, the Consolidated Fixed Charge Coverage Ratio set forth in paragraph 26 is hereby changed from 1.2:1 to 1.05:1. (j) Notwithstanding the provisions hereof which reference a guarantor, Lender confirms that there is no Guarantor of the Loan. (k) Notwithstanding the provisions of Paragraph 17 hereof, an additional copy of all notices to Borrower shall be sent to: Pryor Cashman Sherman & Flynn LLP, 410 Park Avenue, New York , New York 10022-4441, Attention: William M. Levine, Esquire. IN WITNESS WHEREOF, the parties have executed this Agreement or have caused the same to be executed by their respective representatives thereunto duly authorized. BORROWER: Signed, sealed and delivered in the presence of: SYBRA, INC., a Michigan corporation - ------------------------------ By: Name: ----------------------------------- ------------------------- ROBERT H. DRECHSLER, Executive Vice President - ------------------------------ Name: (CORPORATE SEAL) ------------------------- ACKNOWLEDGMENT STATE OF NEW YORK COUNTY OF NEW YORK BEFORE ME, the undersigned, a Notary Public in and for said County and State, on this day personally appeared ROBERT H. DRECHSLER as Executive Vice President of SYBRA, INC., a Michigan corporation, that executed the foregoing instrument on behalf of SYBRA, INC., known to me to be the person and whose name is subscribed to the foregoing instrument, and acknowledged to me that the same was the act of the said corporation and that such Executive Vice President of SYBRA, INC. and that such corporation executed the same for the purposes and consideration therein expressed and in the capacity therein stated for and on behalf of the corporation. GIVEN UNDER MY HAND AND SEAL this 21st day of December, 1999. --------------------------------------------- Notary Public - State of New York Print Name: --------------------------------- Commission Number: -------------------------- Commission Expires: ------------------------- LENDER: CNL APF PARTNERS, LP, a Delaware limited partnership BY: CNL APF GP CORP., a Delaware corporation, as General Partner By: - ------------------------------ ------------------------------------- Name: SUZANNE HAY, as Vice President ------------------------- - ------------------------------ Name: ------------------------- CNL APF PARTNERS, LP ACKNOWLEDGMENT STATE OF DELAWARE COUNTY OF NEW CASTLE The foregoing instrument was acknowledged before me this 21st day of December, 1999, by SUZANNE HAY, as Vice President of CNL APF GP CORP., a Delaware corporation, the General Partner of CNL APF PARTNERS, LP, a Delaware limited partnership, for and on behalf of the corporation and limited partnership. She is personally known to me and did not take an oath. --------------------------------------------- Notary Public - State of Delaware Print Name: --------------------------------- Commission Number: -------------------------- Commission Expires: ------------------------- EX-27 9 EXHIBIT 27
5 1,000 YEAR DEC-31-1999 JAN-01-1999 DEC-31-1999 15,085 249 735 0 2,867 23,250 63,006 (8,545) 133,883 26,025 0 0 0 28 19,292 133,883 244,410 244,879 65,211 227,996 230 0 8,092 8,561 3,467 8,561 0 0 0 5,094 1.82 1.47
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