-----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, Rn4iKsAbcdKsOR0TFnhHg1/XKPNl7M8mSaspaxuTJHjp+MOFjyC0fBCyQe46U4Kt h+8/9YUWaq2oSe8hFA45PQ== 0000950146-98-000505.txt : 19980401 0000950146-98-000505.hdr.sgml : 19980401 ACCESSION NUMBER: 0000950146-98-000505 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980331 SROS: NONE 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: 98580633 BUSINESS ADDRESS: STREET 1: 9404 GENESEE AVE CITY: LA JOLLA STATE: CA ZIP: 92037 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 FORM 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, 1997 ( ) 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) 9404 Genesee Avenue, Suite 330, La Jolla, California 92037 - -------------------------------------------------------------------------------- (Address of Principal Executive Offices) (Zip Code) Registrant's telephone number, including area code: 619-587-8533 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 25, 1998 was $9,971,854, based on the closing price of the Common Stock as provided by the American Stock Exchange on March 25, 1998. As of March 25, 1998, there were outstanding 2,793,550 (1) shares of the Registrant's Common Stock, par value $0.01 per share. - -------- (1) Assumes full conversion of all remaining outstanding shares of Common Stock and Preferred Stock of pre-reorganized I.C.H. Corporation. See Note 10 of Notes To Consolidated Financial Statements. PART I ITEM 1. BUSINESS - ---------------- GENERAL I.C.H. Corporation (the "Company"), a Delaware corporation, is the post-reorganization successor to ICH Corporation ("Old ICH"). On October 10, 1995, Old ICH and three of its wholly-owned subsidiaries filed voluntary petitions for relief under Chapter 11 of Title 11 of the United States Bankruptcy Code (the "Code") in the United States Bankruptcy Court for the Northern District of Texas, Dallas Division (the "Bankruptcy Court"). Old ICH's First Amended Joint Plan of Reorganization under Chapter 11 (the "Reorganization Plan") was confirmed by the Bankruptcy Court on February 7, 1997 and the Company emerged from bankruptcy effective as of February 19, 1997. On April 30, 1997, the Company acquired all of the outstanding capital stock of Sybra, Inc. ("Sybra" and/or "Predecessor"), 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, 1997, the Company, through its wholly-owned subsidiary Sybra, owned and operated 149 Arby's restaurants clustered in four operating regions. Those restaurants generated approximately $111.7 million in revenue during 1997. Through another wholly-owned subsidiary, Perry Park Resorts, Inc., the Company also owns and operates a planned real estate development consisting of approximately 2,600 acres ("Perry Park") located in Owenton, Kentucky. Perry Park includes an 18-hole golf course, clubhouse, restaurant, salable lots, several lakes, additional platted but undeveloped lots and unimproved acreage. I.C.H. Corporation and its subsidiaries are collectively referred to herein as the "Company". SYBRA, INC. As of December 31, 1997, the Company owned and operated 149 Arby's restaurants clustered in four regions in the United States: the Northern Region (45 restaurants), the Eastern Region (29 restaurants), the Southwestern Region (55 restaurants) and the Southeastern Region (20 restaurants). Pursuant to a new Development Agreement entered into with Arby's, Inc. (the "Franchisor") effective as of November 1, 1997, Sybra was granted the exclusive right to develop Arby's restaurants in certain designated areas, including certain counties in and around Philadelphia, Pennsylvania; Detroit, Michigan, Dallas-Fort Worth, Texas, Washington, D.C. and Baltimore, Maryland. The development schedule calls for Sybra to open 150 new Arby's restaurants over the next ten years. See "Franchise and Development Agreements - Development Agreement". As of December 31, 1997, Sybra had 124 free-standing restaurants, with the remaining 25 restaurants located in shopping malls or as part of a food court within a mall. New restaurants are likely to be free-standing, which the Company has found generally to yield a more stable rate of return on its investment. Sybra has renovated over 20 of its Arby's units during the past five years. 2 PERRY PARK RESORTS, INC. The Perry Park real estate consists of an approximately 2,600 acre planned development including an 18-hole golf course, clubhouse, restaurant, salable lots, several lakes, additional platted but undeveloped lots and unimproved acreage. The platted undeveloped lots and unimproved acreage are estimated to be approximately 1,800 acres. The operations of Perry Park are not expected to be material to the Company's future operations. RECENT DEVELOPMENTS Acquisitions - ------------ On January 30, 1998, through its newly-formed, wholly-owned subsidiary Sybra of California, Inc., the Company acquired eight Arby's restaurant units located in Sacramento, California. The total purchase price of the acquisition, which includes six leased properties, and fee ownership of two properties (and management of one additional restaurant) was approximately $1.75 million, plus warrants to purchase shares of the Company's common stock. The sources of funds for the acquisition include a note for $325,000 to the sellers and $1.275 million through the sale/leaseback of two of the restaurant units through USRP, which sale/leaseback transactions management expects to close by the end of the second quarter of 1998. New Store Development - --------------------- On November 17, 1997, Sybra executed a development agreement with Arby's, Inc., the franchisor of Arby's restaurants, which calls for the construction of 150 new Arby's restaurants by Sybra over the next ten years (the "Development Agreement"). This agreement superseded a prior agreement which required the development of 31 new stores over a six year period. The Development Agreement grants Sybra the exclusive right to build Arby's restaurants, primarily in certain northeast markets in and around Philadelphia, Harrisburg, Washington, D.C. and Baltimore, as well as the exclusive right to build Arby's restaurants in and around the Detroit and Dallas/Fort Worth markets. During 1997 Sybra opened three new restaurants. Sybra opened one new restaurant during the first quarter of 1998 and anticipates that it will, at a minimum, meet its annual store opening requirement under the Development Agreement (four additional restaurants) for 1998. Financing - --------- On July 23, 1997, shares of the Company's common stock began trading on the American Stock Exchange under the trading symbol "IH". Prior to July 23, 1997, the Company's common stock traded on the Over-the-Counter Bulletin Board under the trading symbol "ICHC". On August 1, 1997, Sybra executed a loan commitment letter with Franchise Finance Corporation of America ("FFCA") to finance the construction of up to 12 new Arby's restaurants during the next two years. Under the terms of that commitment letter, FFCA has agreed to finance mortgage and equipment loans for up to 12 new Arby's restaurants to be built by Sybra, to a maximum of $1.0 million per location. To date, FFCA has advanced total financing of $2.6 million to Sybra pursuant to the commitment letter which Sybra has used to fund the development and construction of three new Arby's restaurants. 3 Management - ---------- On September 18, 1997, the Company terminated the employment of Charles Hyslop, the former President of Sybra, pursuant to the terms of Mr. Hyslop's employment contract. Mr. Hyslop was the President of Sybra at the time Sybra was acquired by the Company, and had also served as a director of the Company since that time. In connection with his departure from Sybra, Mr. Hyslop also resigned from the Company's board of directors. Under the terms of his employment agreement, upon his departure from Sybra, Mr. Hyslop became entitled to receive severance payments totaling approximately $400,000 to be paid over the following 24 months. The Company has recorded a corresponding liability for the full amount of the severance obligation to Mr. Hyslop in its 1997 financial statements. Following Mr. Hyslop's departure, James. R, Arabia, Chief Executive Officer of the Company, was appointed President of Sybra. On November 1, 1997, the Company promoted Ed Chappell to the position of Vice President of Business Development for Sybra. Mr. Chappell has been with Sybra since March 5, 1995 when he was hired as Director of Real Estate. Mr. Chappell has over 25 years of real estate experience, including as Vice President of Real Estate for Rite Aid Drug Stores, and Director of Development for Taco Bell Corporation. On December 8, 1997, the Company promoted David Fitnich to the position of Senior Vice President and Chief Operating Officer for Sybra. Mr. Fitnich has been with Sybra since 1981 in a variety of operating positions. Immediately before his promotion to Chief Operating Officer, Mr. Fitnich served as the regional manager for Sybra's Northern region, where he supervised the operation of approximately 45 Arby's restaurants. On February 2, 1998, the Company appointed two new directors, Robert H. Drechsler and Raymond L. Steele, to its board of directors. Mr. Drechsler is a corporate partner with the New York firm of Pryor, Cashman, Sherman & Flynn, legal counsel to the Company. Mr. Steele is a retired executive with experience in investment banking and investment management, who serves or has served as a director of Robinson Humphrey, Classic Car Investments, Webcraft, Modernfold, Orion, Emerson Radio, Pharmhouse, Video Services Corp. and GFTA, and is currently retained as an outside consultant to Pizza Hut. On February 24, 1998, the Company hired David A. Brainard as its Senior Vice President and Chief Financial Officer. Mr. Brainard has previously served as the Chief Financial Officer for Olan Mills, Inc., an 850 store retail photography chain and for Ben Franklin Retail Stores, Inc., a franchisor, wholesaler and retailer. Mr. Brainard is also a certified public accountant On March 12, 1998, the Company hired John A. Bicks as its Senior Vice President and General Counsel. Prior thereto, Mr. Bicks was an attorney with the law firm of Pryor, Cashman, Sherman & Flynn and, in that capacity, represented the official committee of equity security holders in the chapter 11 case of Old ICH. Mr. Bicks has been a practicing attorney in New York since 1985, serving as an Assistant District Attorney in the Manhattan District Attorney's Office from 1985 until 1991, and subsequently in private practice specializing in the areas of chapter 11 business reorganization and restructuring. Pryor, Cashman, Sherman & Flynn provides legal services to the Company and its subsidiaries. Mr. Bicks also serves as Director of the Company. 4 STRATEGY The Company's primary business strategy is to expand its operations through the acquisition and construction of additional Arby's restaurants while enhancing the quality of operations and competitive position of its existing Arby's restaurants. Sybra believes the size of the nationwide Arby's system will continue to present opportunities for selective growth through acquisitions. In addition, Sybra believes that most of the markets in which it currently operates are underserved and will provide opportunities for construction of new restaurants to further penetrate those existing markets, and markets in which the Company has exclusive development rights. Consistent with Sybra's strategy of expanding its operations through the acquisition of existing Arby's restaurants, during the first quarter of 1998 Sybra closed on its acquisition of eight Arby's restaurants (and the management of an additional Arby's restaurant) located in Sacramento, California. To implement Sybra's strategy of expanding through the development and construction of new Arby's restaurants, Sybra has entered into an agreement with Arby's, Inc., the franchisor of Arby's restaurants, which calls for Sybra to open and operate between six and eighteen additional restaurants in each of the next ten calendar years, adding a total of 150 new restaurants by December 31, 2007. In addition, Sybra opened three new Arby's restaurants during 1997 and one new restaurant during the first quarter of 1998. The number of restaurants opened may vary depending upon general economic conditions, variability in the time required to obtain local permits, the continued availability of financing and the Company's ability to locate additional suitable restaurant sites. However management currently believes that Sybra will meet or exceed its development obligations under the Development Agreement with respect to 1998. See "Recent Developments - New Store Development". As part of Sybra's overall strategy of improving the quality of operations of its existing Arby's units, the Company closely monitors factors affecting the overall profitability of its restaurant operations as well as the profitability of individual restaurants. During 1997, Sybra believes it has made improvements in several factors bearing on the overall profitability of its operations, including reductions in labor costs as a percentage of goods sold and increased efficiencies in marketing and advertising. Sybra has also implemented a stock option and bonus program which provides individual unit managers with economic incentives to improve the operating profitability of their units. During 1997, Sybra also closed four restaurants due to unprofitability. RESTAURANT OPERATIONS 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. Marketing and Promotions - ------------------------ All franchisees of Arby's, Inc. must belong to AFA Service Corporation ("AFA"), a non-profit association of Arby's restaurant operators, and must contribute a specified portion (currently 0.7%) of their restaurant sales as dues to AFA. In return, AFA provides franchisees with creative materials such as television and radio commercials, ad mats for newspapers, point-of-purchase graphics and other advertising materials. The direction and management of AFA is governed by its board of directors, whose members are elected by the member franchisees. In addition to the required payments to AFA, certain of Sybra's Arby's restaurants also participate in advertising cooperatives composed of Arby's franchisees from their local area. Member franchisees of the cooperative pay a percentage of their restaurant sales, in an amount determined by the cooperative, to fund local advertising and promotional campaigns and such other marketing activities as the members deem to be in their best interests. Sybra participates in advertising cooperatives in two of its regions (Northern and Southwestern). 5 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, 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, the Company complies with recipe and ingredient specifications provided by the Franchisor, and purchases all food and beverage inventories and restaurant supplies from independent vendors approved by the Franchisor. 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. The Company purchases soft drink products from the Coca-Cola Company and its affiliates. In the Southwestern region, Dr. Pepper products are also purchased. Most other food items and supplies purchased by Sybra are warehoused and distributed by AmeriServe, an independent distributor. The Company has not experienced any significant shortages of food, 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 such shortages occur. FRANCHISE AND DEVELOPMENT AGREEMENTS General - ------- 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 and restaurant franchise agreements (collectively, "Franchise Agreements"), one of which is executed in connection with the opening of each of Sybra's restaurants. 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 unit franchise agreement) for each and every individual Arby's restaurant they franchise. 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 agreements do not require approval of the assignment, transfer or pledge of all or any part of the assets of Sybra, excluding the license 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. 6 Should Sybra fail to comply with the Development Agreement or the Franchise Agreements for restaurants, Arby's, Inc. could terminate the exclusive nature of Sybra's franchises in such covered territory. 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. 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, 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, twelve counties in the Philadelphia DMA, three counties in the Dallas-Fort Worth DMA, seven counties in the Washington, D.C.-Hagerstown, MD 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 development and performance 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 six restaurants in 1998, nine restaurants in 1999, thirteen restaurants in 2000, fifteen restaurants in 2001, seventeen restaurants in 2002 and eighteen restaurants in each year 2003 through and including 2007. 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 Unit 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 stores opened pursuant to the Development Agreement, those royalty payments are set at four percent of sales. Pursuant to the Unit 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 Unit Franchise Agreement, with a license 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. 7 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 and the preparation and sale of food. The Company is subject to federal and state environmental regulations, but these 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. On September 1, 1997, the balance of Congress's 1996 minimum wage increase to $5.15 per hour was put into effect. Further increases in the minimum wage or mandatory health care coverage could adversely affect the Company. SEASONAL AND QUARTERLY RESULTS Sybra's restaurant sales are moderately seasonal for each of its regions. Historically, January, February and March generate the lowest sales volumes. 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 Agreement grants 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 Company's business. 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 Sybra'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 Sybra's significant competitors are larger or more diversified and have substantially greater resources than the Company. Sybra'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 quick-service food. 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, 1997, Sybra employed approximately 3,800 persons in seven states. Of these employees, approximately 68 held management and administrative positions and the remainder were engaged in the operation of Sybra's restaurants. None of Sybra's employees are covered by a collective bargaining agreement. Sybra considers its employee relations to be generally good. 8 ITEM 2. PROPERTIES - ------------------ As of December 31, 1997, the Company operated 149 restaurants in the areas listed below. Of the 149 restaurants, the Company owned the land and building for two restaurants and held long-term leases covering land and/or buildings for the remainder. The Company's land and building leases are most commonly written for terms of twenty years with one or more five year renewal options. Certain leases require the payment of additional rent equal to a percentage (usually between 5% and 8%) of annual sales in excess of specified amounts. The Company leases office space in Atlanta, Georgia; La Jolla, California; Flint, Michigan; Sinking Spring, Pennsylvania; Plano, Texas and Tampa, Florida for its Corporate, Executive, Northern, Eastern, Southwestern and Southeastern operations centers, respectively. The following lists the locations of the restaurants operated by the Company (by region) as of December 31, 1997: Northern Region: Michigan 45 Eastern Region: Pennsylvania 24 Virginia 3 Maryland 2 Southwestern Region: Texas 55 Southeastern Region: Florida 20 --- Total All Markets 149 === ITEM 3. LEGAL PROCEEDINGS - ------------------------- The Company is not a party to any pending legal proceeding which, in management's belief, will have a material adverse effect on the Company's results of operations or financial condition, nor to any other pending legal proceedings other than ordinary, routine litigation incidental to its business. The Company also maintains commercial, general liability, workers' compensation and directors and officers' insurance policies which cover most of the actions brought against the Company. ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS - --------------------------------------------------------- None 9 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 tables set 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. 1997 High Low Third Quarter (for the period July 4-7/8 3-7/8 23, 1997 to September 30, 1997) Fourth Quarter 4-7/16 3 NUMBER OF STOCKHOLDERS The information available as of March 25, 1998 indicates that there were 2,823 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 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 as of and for each of the four years ended December 28, 1996, and the four months ended April 30, 1997, 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" periods). Pro-forma net income (loss) was derived by retroactively adjusting all prior years as if the acquisition had occurred on January 1, 1993. 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 with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the Financial Statements and accompanying notes thereto included herein. 10
Predecessor Successor ---------------------------------------------------------------- ---------------------- Combined ------------------------------------- Four Eight Months Months Statement of Earnings Year ended Year ended Year ended Year ended Ended ended Year ended Data (000's, except EPS) Dec. 25, Dec. 31, Dec. 30, Dec. 28, Apr. 30, Dec. 31, Dec. 31, 1993 1994 1995 1996 1997 1997(a) 1997 ---- ---- ---- ---- ---- ------- ---- Revenues $ 111,952 $ 115,651 $ 115,531 $ 116,124 $ 37,916 $ 75,006 $ 112,922 Costs & expenses Restaurant costs/ expenses 89,569 92,821 94,414 93,867 32,006 61,503 93,509 General & adm 5,945 6,586 6,643 6,179 2,212 5,087 7,299 Dep & amort 6,185 5,935 6,041 5,972 2,006 3,398 5,404 Non-recurring/ restructuring chrgs -- -- -- -- -- 1,497 1,497 Other 620 1,400 900 1,200 -- 977 977 Earnings from operations 9,633 8,909 7,533 8,906 1,692 2,544 4,236 Interest expense 1,744 1,909 2,605 2,346 638 3,661 4,299 Earnings (loss) before 7,889 7,000 4,928 6,560 1,054 (1,117) (63) income taxes Provision (benefit) for income taxes 2,977 2,650 1,913 2,398 434 (253) 181 Net income (loss) - as reported $ 4,912 $ 4,350 $ 3,015 $ 4,162 $ 620 $ (864) $ (244) Basic and Diluted loss per share -- -- -- -- -- $ (0.31) -- Pro-forma net income (loss) (b) $ 1,697 $ 1,496 $ 206 $ 857 $ (791) $ 690 $ (101) Other data: EBITDA (d)$15,818 (d)$14,844 (d)$13,574 (d)$14,878 (d)$ 3,698 $ 5,942 $ 9,640 Balance sheet data: (c) Working capital defecit $ (7,337) $ (9,460) $ (7,112) $ (8,455) n/a $ (5,006) n/a Total assets $ 65,111 $ 68,789 $ 74,373 $ 75,601 n/a $ 75,264 n/a Total long-term debt $ 22,561 $ 27,321 $ 31,152 $ 25,625 n/a $ 50,079 n/a Shareholders' equity $ 28,615 $ 27,965 $ 30,980 $ 35,142 n/a $ 11,185 n/a
NOTES: (a) Included in the results of operations for the eight months ending December 31, 1997 are sales and operating loss of $164,000 and $(188,000), 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, 1993; 2) increased interest expense for the Predecessor periods as a result of a difference in capital structure; 3) increased general and administrative expenses reflecting the costs of operating as a stand-alone public company; and 4) has been tax effected using a combined federal and state income rate of 40%. (c) Balance sheet data are presented as of December 25, 1993, December 31, 1994, December 30, 1995, December 28, 1996 and December 31, 1997 (d) EBITDA on a pro-forma basis giving effect to the adjustments discussed a in Note (b) above would have been $13,417, $13,082, $10,932, $12,018, $2,212 and $8,209 respectively for the periods. For the combined period, pro-forma EBITDA would have been $10,421. 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. 11 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. GENERAL The Company's revenues consist almost entirely of restaurant sales from its wholly-owned subsidiary, Sybra, Inc. 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 to AFA to develop and prepare advertising materials and to undertake marketing research are equal to 0.7% of restaurant sales. In addition, the Company operates its restaurants pursuant to licenses which require the Company to pay Arby's, Inc. a royalty based upon percentages of its restaurant sales (presently an aggregate of approximately 2.9% of the Company's restaurant sales). The royalty rate for new restaurants (currently 4%) will result in an increase in the Company's aggregate royalty rate as new 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. 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 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 acquisition had occurred on December 31, 1996. 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. The discussion below does not include a comparison of the year ended December 28, 1996 to the year ended December 30, 1995 as the results consisted only of the Predecessor operations and are not comparable to the Company's current operations for the reasons mentioned above. 12 Predecessor Successor ---------------------- ------------ Combined --------------------------------------- Year Four Months Eight Months Year Ended Ended Ended Ended December 28, April 30, December 31, December 31, 1996 1997 1997 1997 ----------- -------- ------------ ------------ Revenues 100.0% 100.0% 100.0% 100.0% Expenses Restaurant costs & expenses 80.9% 84.4% 82.0% 82.8% General & administrative 5.3% 5.8% 6.8% 6.5% Depreciation & amortization 5.1% 5.3% 4.5% 4.8% Non-recurring/ restructuring charges -- -- 2.0% 1.3% Other 1.0% -- 1.3% .9% ----- ----- ----- ----- Operating income (loss) 7.7% 4.5% 3.4% 3.7% Interest expense 2.0% 1.7% 4.9% 3.8% ----- ----- ----- ----- Income (loss) before taxes 5.7% 2.8% (1.5)% (.1)% Income taxes (benefit) 2.1% 1.1% (.3)% .1% ----- ----- ----- ----- Net income (loss) 3.6% 1.7% (1.2)% (.2)% ================== =================== Comparison of the Years Ended December 31, 1997 and December 28, 1996 - -------------------------------------------------------------------- Revenues - Revenues were $112.9 million for FY 1997 as compared to $116.1 million for FY 1996, a decrease of $3.2 million primarily as a result of same store sales being down 3% for the year due to a change in marketing strategy emphasizing brand quality and fewer price promotions begun in the third quarter of 1997. Restaurant Costs & Expenses - Restaurant costs and expenses were $93.5 million, or 82.8% of sales, for FY 1997 as compared to $93.9 million, or 80.9% of sales for FY 1996. a decrease of $358,000 due to the sales decline explained above. As a percent of sales, costs increased as a result 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 $7.3 million, or 6.5% of sales, for FY 1997 as compared to $6.2 million, or 5.3% of sales for FY 1996, an increase as a percent of sales as a result of lower sales and of costs and expenses associated with operating I.C.H. Corporation as a stand-alone public company as explained above and increased expenses associated with business development and real estate operations necessary to achieve new store development requirements. Depreciation and Amortization - Depreciation and amortization expense was $5.4 million, or 4.8% of sales in FY 1997 as compared to $6.0 million, or 5.1% of sales in FY 1996, a decrease as a percent of sales as a result of the impact of the sale/leaseback as explained above net of goodwill amortization as a result of purchase accounting related to the Sybra acquisition. Non-recurring and Restructuring Charges - Non-recurring and restructuring charges were $1.5 million in FY 1997 as a result of the restructuring of Sybra's operations, buy-out of an employment contract and non-recurring expenses related to obtaining financing and maintaining Sybra's status as an Arby's franchisee. Other - Other expenses were $1.0 million in FY 1997, as compared to $1.2 million in FY 1996. Other expenses in FY 1997 relate primarily to the cost of operations of Perry Park, and for FY 1996 relate primarily to store closings. 13 Interest Expense - Interest expense was $4.3 million in FY 1997 as compared to $2.4 million in FY 1996, an increase of $2.0 million as a result of debt incurred in connection with the Company's acquisition of Sybra. PERRY PARK RESORTS, INC. The Perry Park real estate consists of an approximately 2,600 acre planned development including an 18-hole golf course, club house, restaurant, salable lots, three lakes, additional platted but undeveloped lots and unimproved acreage which generates agriculturally based revenues. The platted undeveloped lots and unimproved acreage are estimated to be approximately 1,800 acres. The operations of the Perry Park development are seasonal in nature and are not material to the operations of the Company. IMPACT OF THE YEAR 2000 ISSUES Based on a recent assessment, the Company has determined that it will not have to modify or replace any of its software and that its computer systems will properly utilize dates beyond December 31, 1999. LIQUIDITY AND CAPITAL RESOURCES The Company's primary liquidity needs arise from debt service on indebtedness incurred in connection with the Sybra acquisition and the funding of capital expenditures. As of December 31, 1997, the Company had total outstanding indebtedness for borrowed money of $43 million, comprised of a $34 million term facility with Atherton Capital Incorporated ("Atherton") and a $9 million debt obligation to USRP. The Atherton term facility has a weighted-average maturity of 12.5 years and bears interest at 10.63%. The Atherton term facility requires monthly payments of principal and interest, is collateralized by substantially all of the Company's restaurant equipment, and imposes certain financial restrictions and covenants. The $9 million obligation to USRP bears interest at the rate of 14.5%. The Company's primary source of liquidity during the period from February 19, 1997 through December 31, 1997 was funds from the operation of the restaurants owned by Sybra and the proceeds of the sale of Bankers Multiple Line Insurance Company ("BML") to the Lone Star Liquidating Trust. In the future, the Company's liquidity and capital resources will primarily depend on the operations of Sybra which, under the provisions of its loan agreement with Atherton, would permit, under certain conditions, distributions and dividends to the Company. Sybra, like most restaurant businesses, is 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 stores is either funded directly by Sybra from available cash or, in some instances, is financed through outside lenders. Construction or acquisition of new stores 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 store 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. On August 7, 1997, Sybra executed a loan commitment letter with FFCA to finance the construction of up to 12 new Arby's restaurants during the next two years. Under the terms of the commitment letter, FFCA has agreed to finance mortgage and equipment loans for up to 12 new Arby's restaurants to be built by Sybra, to a maximum of $1 million per location. The Company maintains, with a bank, a $150,000 letter of credit that automatically renews in November of each year. 14 CAPITAL LOSS CARRY FORWARD On April 25, 1997, the Company sold its interest in the stock of BML which generated a significant tax loss (see Note 11 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 existance and realizability. CAPITAL EXPENDITURES Sybra's total capital expenditures were $12.1 million, $6.3 million and $5.2 million in 1995, 1996 and 1997, respectively, which include new store development, as well as store maintenance, store remodel and store renovation capital expenditures. The Company anticipates that Sybra's store maintenance, store remodel and store renovation capital expenditures for 1998 will approximate $2.5 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 as well as the capital structure of any such transactions. 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, 1997, approximately 24% of the Company's employees were paid wages equal to or based on the federal minimum hourly wage rate. Recent changes in the federal minimum hourly wage rate will serve to increase labor costs in fiscal year 1998 and beyond. Economic growth that would reduce unemployment or make more jobs available in higher paying industries, would directly affect the Company's labor costs. 15 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 29, 1998. 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 29, 1998. 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 29, 1998. 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 29, 1998. 16 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FROM 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(s) ------- Independent Accountant's Opinion 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 - F-17 Independant Accountant's Report F-18 Consolidated Balance Sheet of February 19, 1997 F-19 Notes to Consolidated Financial Statements F-20 - F-25 2. Financial Statement Schedules Schedules have been omitted 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 A Report on Form 8-K, dated February 10, 1998, was filed by the Company during the quarter ended December 31, 1997. Items 5 and 7 were reported thereon. 17 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 27, 1998 /s/James R. Arabia -------------------------- James R. Arabia Chairman of the Board, President and Chief Executive Officer Dated: March 27, 1998 /s/David A. Brainard -------------------------- David A. Brainard Senior Vice President and Chief Financial Officer Dated: March 27, 1998 /s/John A. Bicks -------------------------- John A. Bicks Secretary and Director Dated: March 27, 1998 /s/Michael D. Dunn -------------------------- Michael D. Dunn Director Dated: March 27, 1998 /s/Kenneth E. Giddens -------------------------- Kenneth E. Giddens Director Dated: March 27, 1998 /s/Carl D. Robinson -------------------------- Carl D. Robinson Director Dated: March 27, 1998 /s/Raymond L. Steele -------------------------- Raymond L. Steele Director Dated: March 27, 1998 /s/Robert H. Drechsler -------------------------- Robert H. Drechsler Director 18 INDEX TO FINANCIAL STATEMENTS
Page I.C.H. CORPORATION AND SUBSIDIARIES: Independent Accountant's Report F-2 Consolidated Balance Sheets - Company as of December 31, 1997 and Predecessor as of December 28, 1996 F-3 Consolidated Statements of Operations - Company for the eight-month period ended December 31, 1997 and Predecessor for the four-month period ended April 30, 1997 and the years ended December 28, 1996 and December 30, 1995 F-4 Consolidated Statements of Stockholders' Equity - Company for the period from February 19, 1997 to December 31, 1997 and Predecessor for the four-month period ended April 30, 1997 and the years ended December 28, 1996 and December 30, 1995 F-5 Consolidated Statements of Cash Flows - Company for the eight- month period ended December 31, 1997 and Predecessor for the four-month period ended April 30, 1997 and the years ended December 28, 1996 and December 30, 1996 F-6 Notes to Consolidated Financial Statements F-7 - F-17 I.C.H. CORPORATION AND SUBSIDIARIES: Independent Accountant's Report F-18 Consolidated Balance Sheet as of February 19, 1997 F-19 Notes to the Consolidated Financial Statements F-20 - F-25
F-1 [Coopers & Lybrand Letterhead] REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors I.C.H. Corporation We have audited the accompanying consolidated balance sheets of Sybra, Inc. ("Predecessor") as of December 28, 1996 and of I.C.H. Corporation and Subsidiaries ("Company") as of December 31, 1997, and the related consolidated statements of operations, stockholders' equity and cash flows--Predecessor for the years ended December 30, 1995 and December 28, 1996 and for the four-month period ended April 30, 1997 and--Company for the eight-month period ended December 31, 1997. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Sybra, Inc. as of December 28, 1996 and--I.C.H. Corporation and Subsidiaries as of December 31, 1997, and the consolidated results of their operations and their cash flows--Predecessor for the years ended December 30, 1995 and December 28, 1996 and for the four-month period ended April 30, 1997 and--Company for the eight-month period ended December 31, 1997 in conformity with generally accepted accounting principles. /s/ Coopers & Lybrand L.L.P. Atlanta, Georgia March 28, 1998 F-2 I.C.H. CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In thousands except share amounts) December 28, December 31, 1996 1997 (Predecessor) (Company) ------------- ----------- ASSETS Current assets: Cash and cash equivalents $ 2,294 $ 4,418 Accounts receivable 299 530 Inventories 1,499 1,372 Deferred income taxes 1,225 1,257 Other current assets 655 1,565 ------- -------- Total current assets 5,972 9,142 Property and equipment, net 53,582 24,696 Intangible assets, net 15,848 39,470 Other assets 199 1,956 ------- -------- Total assets $75,601 $ 75,264 ======= ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 5,277 $ 2,741 Accrued liabilities 8,253 8,745 Current portion of long-term debt 4 1,714 Current portion of capital lease obligations 893 948 ------- -------- Total current liabilities 14,427 14,148 Noncurrent liabilities: Long-term debt 1,081 44,718 Long-term capital lease obligations 3,647 2,699 Debt to former parent 20,000 -- Deferred income taxes 14 1,908 Other liabilities 1,290 606 ------- -------- Total liabilities 40,459 64,079 ------- -------- Stockholders' equity: Predecessor common stock, $.50 par value; 200,000 authorized, 55,199 issued and 28 outstanding Preferred stock, $0.01 par value; 1,000,000 authorized; none issued and outstanding Common stock, $0.01 par value; 9,000,000 authorized; 2,414,495 outstanding (see note 10) 24 Paid-in-capital 21,398 12,025 Retained earnings (deficit) 13,716 (864) ------- -------- Total stockholders' equity 35,142 11,185 ------- -------- Total liabilities and stockholder's equity $75,601 $ 75,264 ======= ======== See Notes to Consolidated Financial Statements. F-3 I.C.H. CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands except share amounts) Predecessor Company ------------------------------------ ------------ For the For the four eight For the For the months months year ended year ended ended ended December 30, December 28, April 30, December 31, 1995 1996 1997 1997 ----------- ----------- -------- ------------ Revenues and other income: Restaurant sales $115,370 $115,973 $37,868 $ 73,787 Real estate operations and 161 151 48 1,219 other -------- -------- ------- -------- 115,531 116,124 37,916 75,006 Costs and expenses: Restaurant costs and expenses 94,414 93,867 32,006 61,503 General and administrative 6,643 6,179 2,212 5,087 Depreciation and amortization 6,041 5,972 2,006 3,398 Non-recurring/restructuring charges -- -- -- 1,497 Other 900 1,200 -- 977 -------- -------- ------- -------- Operating income 7,533 8,906 1,692 2,544 Interest expense 2,605 2,346 638 3,661 -------- -------- ------- -------- Income (loss) before income taxes 4,928 6,560 1,054 (1,117) Provision (benefit) for income taxes 1,913 2,398 434 (253) -------- -------- ------- -------- Net income (loss) $ 3,015 $ 4,162 $ 620 $ (864) ======== ======== ======= ======== Net loss per share Basic ($0.31) Diluted ($0.31) Weighted-average common shares outstanding (See note 10) 2,793,550 See Notes to Consolidated Financial Statements. F-4 I.C.H. CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (In thousands except share amounts)
TOTAL PAID-IN RETAINED STOCKHOLDERS' COMMON STOCK CAPITAL EARNINGS EQUITY -------------------- -------- -------- -------- Shares Amount Predecessor Balance at December 31, 1994 55,199 $28 $ 21,398 $ 6,539 $ 27,965 Net income -- -- -- 3,015 3,015 --------- ------- -------- -------- -------- Balance at December 30, 1995 55,199 28 21,398 9,554 30,980 Net income -- -- -- 4,162 4,162 --------- ------- -------- -------- -------- Balance at December 28, 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 -- $ -- $ 12,190 $ -- $ 12,190 Issuance of common stock 2,414,495 24 (24) -- Cash paid for shares redeemed -- -- (141) -- (141) Net loss (see Note 1) -- -- -- (864) (864) ========= ======= ======== ======== ======== Balance at December 31, 1997 2,414,495 $ 24 $ 12,025 $ (864) $ 11,185 ========= ======= ======== ======== ========
See Notes to Consolidated Financial Statements. F-5 I.C.H. CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands except share amounts)
Predecessor Company ----------------------------------------------- ----------------- For the four For the year For the year months For the eight ended ended ended months December 30, December 28, April 30, ended December 31, 1995 1996 1997 1997 ----------- ----------- ------------ ----------------- Cash flows from operating activities: Net income (loss) $ 3,015 $ 4,162 $ 620 $ (864) Adjustments to reconcile net income to cash from operating activities: Depreciation and amortization 6,041 5,972 2,006 3,398 Deferred income taxes (benefit) (239) (645) 480 (68) Accrued rent -- -- -- 332 Provision for store closings and other 900 1,200 -- 462 non-recurring/restructuring charges Changes in current assets and liabilities: Accounts receivable -- -- -- (231) Inventories 37 (16) 38 89 Payable to (due from) former parent 290 64 (741) (370) Accounts payable and accrued expenses (1,109) 2,761 (3,173) 880 Other, net (485) (596) 168 (1,334) -------- -------- -------- -------- Net cash provided by operating activities 8,450 12,902 (602) 2,294 -------- -------- -------- -------- Cash flows from investing activities: Capital expenditures (11,976) (6,095) (1,763) (3,336) Proceeds from disposition of property and equipment -- -- 35,655 232 Acquisition of Sybra, Inc, net of $886 cash acquired -- -- -- (13,614) Sale of subsidiary -- -- -- 5,000 Proceeds from Old ICH liquidating trust -- -- -- 2,790 (see Note 3) Other, net 190 (94) -- (65) -------- -------- -------- -------- Net cash provided (used) by investing activities (11,786) (6,189) 33,892 (8,993) -------- -------- -------- -------- Cash flows from financing activities: Borrowings on credit agreement 43,677 28,758 9,299 -- Repayment on credit agreement (33,346) (45,285) (10,384) -- Proceeds from issuance of long-term debt, net of expenses -- -- -- 36,448 Proceeds from debt to former parent -- 11,000 3,772 -- Repayment of debt to former owner of Sybra (7,000) -- -- (23,772) Repayment of long-term debt and capital lease obligations -- -- (306) (1,603) Distribution to former owner of Sybra -- -- (46,079) -- Loan element of sale/leaseback financing -- -- 9,000 -- Other, net -- -- -- (456) -------- -------- -------- -------- Net cash provided (used) by financing activities 3,331 (5,527) (34,698) 10,617 -------- -------- -------- -------- Net change in cash and cash equivalents (5) 1,186 (1,408) 3,918 Cash and cash equivalents at beginning of period 1,113 1,108 2,294 500 ======== ======== ======== ======== Cash and cash equivalents at end of period $ 1,108 $ 2,294 $ 886 $ 4,418 ======== ======== ======== ======== Supplemental non-cash disclosures: Cash paid for Income taxes 1,845 3,335 1,029 1,085 Interest 2,578 2,368 606 3,622 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 bankruptcy 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 have 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 are entitled to receive 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 and, for a period of 40 days from the Effective Date, certain holders could elect to exchange canceled shares for a single de minimis cash payment. An aggregate of $141 was paid for shares exchanged during this period. 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"). All significant intercompany accounts and transaction 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 (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 (see Note 3) and are included in cash flows for the eight months ended December 31, 1997. Sybra currently operates a chain of 149 fast food restaurants clustered in four regions, primarily Texas, Michigan, Pennsylvania and Florida, as a franchisee of Arby's, Inc. d/b/a Triarc Restaurant Group ("Arby's"). Another subsidiary owns and operates a golf course and planned residential development in Kentucky. 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. Accordingly, the accompanying financial statements include Sybra's results for the periods ended December 30, 1995, December 28, 1996 and April 30, 1997 and December 27, 1997. F-7 I.C.H. CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (All amounts in 000's except share amounts) 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 equivalents was $1, $1, $1 and $99 for the periods ended December 30, 1995, December 28, 1996, April 30, 1997, and December 31, 1997, 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 the Company to pay a franchise fee for each new restaurant developed and de minimis renewal fees for franchises that have expired. Each franchise agreement provides the Company the right to operate an Arby's restaurant for a period of 20 years and is renewable by the Company, 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 28, 1996 and December 31, 1997. 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 $9,200, $9,400, $3,400 and $5,000 for the periods ended December 30, 1995, December 28, 1996, April 30, 1997 and December 31, 1997, 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 (All amounts in 000's except share amounts) Earnings Per Share. In 1997, the Company adopted SFAS No. 128, "Earnings Per Share," which requires presentation of both basic and diluted earnings per share. Basic net loss per share is computed based on the weighted-average number of common shares outstanding during the year (see Note 10). 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). New Accounting Standards. In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information," superseding SFAS No. 14, "Financial Reporting of Segments of a Business Enterprise." SFAS No. 131 establishes new standards for reporting operating segment information in annual and interim financial statements. The Company does not believe this Statement will have any impact on the financial statements. 2. Acquisition of Sybra 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. 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 Tangible assets 20,342 Liabilities assumed (48,479) ------- Purchase price $15,614 ======= 3. Old ICH Transactions On April 25, 1997, the Company exercised its option pursuant to the Reorganization Plan, 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 in satisfaction of a receivable related to the Old ICH Reorganization Plan. F-9 I.C.H. CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (All amounts in 000's except share amounts) 4. Other Current Assets Other current assets consist of the following as of: December 28, December 31, 1996 1997 (Predecessor) (Company) -------------- ------------ Due from Sybra's former parent $ - $558 Prepaid rent 522 971 Other prepaid expenses 133 36 ------------- ------------ Other current assets $655 $1,565 ============= ============ 5. Intangibles Intangible assets, net, consist of the following as of: December 28, December 31, 1996 1997 (Predecessor) (Company) -------------- ------------ Franchise rights $4,548 $4,164 Other intangibles, excluding goodwill 15,840 8,024 Goodwill 2,630 28,159 -------------- ------------ Total 23,018 40,347 Less accumulated amortization 7,170 877 -------------- ------------ Intangible assets, net $15,848 $39,470 ============== ============ 6. Property and Equipment Property and equipment, net, consist of the following as of: December 28, December 31, 1996 1997 (Predecessor) (Company) --------------- ------------ Land $17,830 $4,363 Buildings 21,631 1,890 Leasehold Improvements 19,013 11,752 Restaurant Equipment 22,688 11,539 Construction in Progress 660 726 --------------- ------------ Total 81,822 30,270 Less accumulated depreciation and amortization 28,240 5,574 --------------- ------------ Property and equipment, net $53,582 $24,696 F-10 I.C.H. CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (All amounts in 000's except share amounts) 7. Leases The Company leases substantially all of the land and 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 30, 1995, December 28, 1996, April 30, 1997 and December 31, 1997 was approximately $4,523, $4,149, $1,373 and $5,520, respectively. Additional (contingent) rental payments were approximately $429, $437, $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 lease. The Company's future minimum rental commitments as of December 31, 1997 for all noncancelable capital and operating leases are as follows: Operating Fiscal Year Capital Leases Leases ------------------------------------- --------------- ------------- 1998 $1,375 $8,948 1999 685 8,641 2000 553 8,239 2001 533 7,957 2002 533 7,507 Thereafter 2,092 79,800 --------------- ------------- Total 5,771 $121,092 ============= Less amount representing interest 2,124 --------------- Present value of future minimum lease payments $3,647 =============== 8. Accrued Liabilities Accrued liabilities consist of the following as of: December 28, December 31, 1996 1997 (Predecessor) (Company) ----------------- ---------------- Employee related $2,840 $2,203 Property and other taxes 983 1,122 Insurance related 2,031 2,303 Other 2,399 3,117 ----------------- ---------------- Total $8,253 $8,745 ================= ================ F-11 I.C.H. CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (All amounts in 000's except share amounts) 9. Long-Term Debt Long-term debt consists of the following as of: December 28, December 31, 1996 1997 (Predecessor) (Company) ------------- ----------- Term loan, 10.63%, payable monthly through 2012 $ -- $33,984 Loan, 14.50% -- 9,000 Acquisition indebtedness due in 1999 -- 2,000 Credit agreement 1,085 - Other 1,448 ------------- ----------- 1,085 46,432 Less: current portion 4 1,714 ------------- ----------- Total $ 1,081 $44,718 ============= =========== 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. The loan element of the transaction carries an interest rate of approximately 14.50% and may be repaid at any time without penalty. If not repaid prior to December 31, 1999, the loan will be repaid pursuant to a 20-year amortization schedule. At December 31, 1997, long-term debt had a fair value that approximates the carrying value. The aggregate maturities of long-term debt at December 31, 1997 are as follows: Fiscal year ---------------------------------------------- 1998 $1,714 1999 12,904 2000 2,116 2001 2,339 2002 2,537 Thereafter 24,822 ------------------- Total $46,432 =================== The Company maintains, with a bank, a $150 letter of credit that automatically renews in November of each year. On August 1, 1997, Sybra executed a loan commitment letter with Franchise Finance Corporation of America ("FFCA") to finance the construction of up to 12 new Arby's restaurants during the next two years. Under the terms of the commitment letter, FFCA has agreed to finance mortage and equipment loans for up to 12 new Arby's restaurants to be built by Sybra, to a maximum of $1 million per location. F-12 I.C.H. CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (All amounts in 000's except share amounts) 10. Equity and Earnings Per Common Share Given the stock conversion provisions of the Reorganization Plan, the Company has not determined and cannot currently determine, the ultimate number of shares of common stock that will be issued upon completion of the stock conversion. However, based on the number of outstanding shares of Old ICH Stock on the Effective Date, and after considering nominal shareholders of record who are not eligible to convert their shares into shares of the Company's common stock and shares which were exchanged for cash under the provisions of the Reorganization Plan, the Company estimates that a maximum of approximately 2,793,550 shares of the Company's common stock could be issued, although the amount could be lower if all shares are not exchanged prior to the end of the two-year period. Although conservative, the Company has used the maximum 2,793,550 shares in computing loss per share. As of December 31, 1997, 2,414,495 shares of common stock were outstanding. 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-13 I.C.H. CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (All amounts in 000's except share amounts) 11. Income Taxes The provision (benefit) for income taxes consists of: Predecessor Company -------------------------------------------- ------------- For the For the For the year For the year four months eight months ended ended ended ended December 30, December 28, April 30, December 31, 1995 1996 1997 1997 -------------------------------------------- ------------- Current $2,152 $3,043 $(46) $(185) Deferred (239) (645) 480 (68) -------------------------------------------- ------------- $1,913 $2,398 $434 $(253) ============================================ ============= Deferred taxes reflect the net tax effects of temporary differences between carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company's deferred tax assets and liabilities are as follows: December 28, December 31, 1996 1997 (Predecessor) (Company) --------------- -------------- Property and equipment $3,017 $3,388 Accrued liabilities and other 1,703 1,481 --------------- -------------- Deferred tax assets 4,720 4,869 Deferred tax liability - Intangible assets (3,509) (4,060) Valuation allowance -- (1,460) --------------- -------------- Net deferred tax asset $1,211 $(651) =============== ============== =============== ============== Current deferred tax assets $1,225 $1,257 Non-current deferred tax liabilities (14) (1,908) --------------- -------------- Net deferred tax liability $1,211 $(651) =============== ============== The Company's tax basis in real estate exceeds its book basis resulting in a deferred tax asset of $1,460 using a 34% federal rate. The Company recorded a full valuation allowance against this deferred tax asset due to the uncertainty surrounding its realizability as of February 19, 1997. 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 existance and realizability. F-14 I.C.H. CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (All amounts in 000's except share amounts) A reconciliation of the Federal statutory income tax rate to the Company's effective tax rate follows: Predecessor Company --------------------------------------------------- For the four For the For the For the months eight months year ended year ended ended ended December December April 30, December 31, 30, 1995 28, 1996 1997 1997 ----------- ---------- ---------- ------------ Expected tax expense, at the federal statutory rate of 35% $1,725 $2,296 $369 $(391) State income taxes, net 192 39 53 (31) Other, net (4) 63 12 169 ----------- ---------- ---------- ------------ $1,913 $2,398 $434 $(253) =========== ========== ========== ============ 12. Stock Option Plans The Company has two fixed option plans, the I.C.H. Corporation 1997 Employee Stock Option Plan (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 1,000,000 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. December 31, 1997 ----------------------------------------------------------- Options Outstanding Options Exercisable ----------------------------------- -------------------- Weighted- Average Weighted- Range of Remaining Average Exercise Prices Contractual Exercise Weighted- Shares Life Price Shares Average - ------------------ --------- ------------ ---------- -------- --------- $2.17 to $3.09 489,000 9.33 $2.68 94,000 $2.17 $3.62 to $3.80 362,000 9.63 3.76 47,000 3.80 $4.38 to $4.50 31,000 9.74 4.40 5,000 4.50 - ------------------ --------- ------------ ---------- -------- --------- $2.17 to $4.50 882,000 9.47 $3.19 146.000 $2.85 ================== ========= ============ ========== ======== ========= The Company applies APB Opinion 25 and related interpretations in accounting for its stock option plans. Accordingly, no compensation cost has been recognized for grants of stock options. Had compensation cost been determined in accordance with the provisions of SFAS No. 123, "Accounting for Stock Based Compensation," the net loss per share would have been changed to the pro forma amounts indicated below: F-15 I.C.H. CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (All amounts in 000's except share amounts) For the eight months ended December 31, 1997 ------------------------ Net loss--as reported $(864) Net loss--pro forma $(1,047) Basic and diluted loss per share--as reported $(0.31) Basic and diluted loss per share--pro forma $(0.37) 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%. 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 1997. The Predecessor made contributions of $283, $236 and $0 to the plan for the periods ended December 30, 1995, December 28, 1996 and, April 30, 1997 respectively. 14. Commitments and contingencies Franchise agreements with Arby's The Arby's 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 the Company. Commitments under the agreement require payments aggregating $1,000 over the next six (6) years. Legal proceedings Various legal proceedings are pending against the Company, many involving routine litigation incidental to the 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. F-16 I.C.H. CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (All amounts in 000's except share amounts) 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. Subsequent Event On January 30, 1998, Sybra purchased the assets of eight leased Arby's restaurants and the option to acquire the land and buildings of two of the eight leased restaurants and contracted to manage an additional Arby's restaurant in and around Sacramento, California for $325 in cash, a $325, ten-year note bearing interest of 10% and a grant of 20,000 seven-year warrants to acquire I.C.H. common stock at five dollars ($5.00) per share. The restaurants are subject to land and building leases. In connection with the purchase, Sybra exercised the lessee's option to purchase the land and buildings at both restaurant sites. F-17 [COOPERS & LYBRAND LETTERHEAD] Report of Independent Accountants To the Board of Directors I.C.H Corporation: We have audited the accompanying consolidated balance sheet of ICH Corporation (the "Company," the entity which emerged from Chapter 11 bankruptcy) as of February 19, 1997. This consolidated balance sheet is the responsibility of the Company's management. Our responsibility is to express an opinion on the consolidated balance sheet based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated balance sheet is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures accompanying the consolidated balance sheet. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the consolidated balance sheet presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the consolidated balance sheet referred to above presents fairly, in all material respects, the financial position of I.C.H. Corporation as of February 19, 1997, in conformity with generally accepted accounting principles. /s/ Coopers & Lybrand L.L.P. ----------------------------------- Dallas, Texas April 17, 1997 F-18 I.C.H. CORPORATION CONSOLIDATED BALANCE SHEET as of February 19, 1997 ASSETS Current assets: Cash and cash equivalents $ 500,000 Other assets 200,000 Account receivable 2,790,203 Subsidiary held for sale 5,000,000 Real estate held for sale 3,700,000 ----------- Total assets $12,190,203 =========== STOCKHOLDERS' EQUITY Preferred stock, $0.01 par value, 1,000,000 authorized, none issued and outstanding $ -- Common stock, $0.01 par value, 9,000,000 authorized (see Note 7) -- Paid-in capital 12,190,203 ----------- Total stockholders' equity $12,190,203 =========== The accompanying notes are an integral part of the consolidated balance sheet. F-19 I.C.H. CORPORATION NOTES TO CONSOLIDATED BALANCE SHEET 1. Organization: I.C.H. Corporation, referred to as Reorganized ICH Corporation (the "Company"), is the successor to ICH Corporation (the "Predecessor Company"). On October 10, 1995, the Predecessor Company and three of its wholly-owned subsidiaries filed voluntary petitions for relief under Chapter 11 of Title 11 of the United States Bankruptcy Code (the "Code") in the United States Bankruptcy Court for the Northern District of Texas, Dallas Division (the "Bankruptcy Court"). The Predecessor Company continued to operate and manage its assets and business as a debtor in possession as authorized by Chapter 11 of the Code. The Predecessor Company sold seven of eight insurance subsidiaries and also sold all of the business of Bankers Multiple Line Insurance Company ("BML"), its remaining insurance subsidiary, through an assumption reinsurance agreement. The Company's Joint Plan of Reorganization (the "Reorganization Plan") was confirmed on February 7, 1997 by the Bankruptcy Court and became effective on February 19, 1997 (the "Reorganization Date"). As of the Reorganization Date, the Company had no significant business operations. Lone Star Liquidating Trust (the "Trust") was created on the Reorganization Date as a vehicle to liquidate and distribute assets owned by the Predecessor Company to the claimants. The Reorganization resulted in the complete satisfaction, discharge and release of all claims against and interests in the Company. The Company retained certain designated assets and emerged from Chapter 11 owned by its existing preferred and common stockholders. Existing shares of the Predecessor Company's preferred and common stock were canceled, and the Company issued new common stock. See Note 7. Assets retained by the Trust and postpetition and other liabilities are not reflected in this consolidated balance sheet as the Company does not have legal title to the assets nor any obligations to satisfy the liabilities. 2. Consolidation: The consolidated balance sheet includes the accounts of the Company and both of its wholly-owned subsidiaries, SWL Holding Corporation ("SWL Holding") and Care Financial Corporation ("Care") which owns 100% of BML. The Company and its wholly-owned subsidiaries currently have no ongoing business operations. F-20 I.C.H. CORPORATION NOTES TO CONSOLIDATED BALANCE SHEET, Continued 3. Significant Accounting Policies: Cash and Cash Equivalents The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. 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 and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements. Actual results could differ from those estimates. Fresh-Start Reporting As holders of existing voting shares immediately before filing and confirmation of the Reorganization Plan received less than 50% of the voting shares of the emerging entity and as reorganization value was estimated to be less than postpetition liabilities and allowed claims, the Company adopted "fresh-start" reporting in accordance with the American Institute of Certified Public Accountants' Statement of Position 90-7. Accordingly, assets have been restated to reflect reorganization value, which approximates fair value at the Reorganization Date. In determining the applicability of fresh-start reporting, the reorganization value of the Company was determined based on the reorganization value of the Predecessor Company prior to the confirmation of the Reorganization Plan. As the Company currently has no operations, management did not anticipate future earnings in determining reorganization value. Accordingly, reorganization value equals management's estimates of the fair value of assets prior to the confirmation of the Reorganization Plan. As a result of adjusting the assets to fair value with the adoption of fresh-start reporting, the Company increased the carrying value of real estate held for sale by $961,000. F-21 I.C.H. CORPORATION NOTES TO CONSOLIDATED BALANCE SHEET, Continued 4. Account Receivable: Account receivable represents a receivable from the Trust in accordance with the Reorganization Plan. The Company was to receive $2,500,000 in cash, plus proceeds of $500,000 from the settlement of a claim with a former affiliate, for a total of $3,000,000. This receivable balance includes the total of $3,000,000, less approximately $200,000 in costs related to the pending acquisition (see Note 10). The Company received the balance in full within two days of the reorganization in accordance with the Reorganization Plan. 5. Subsidiary Held for Sale: BML is a property and casualty insurer domiciled in the state of Illinois and licensed in all fifty states. As of February 19, 1997, BML has ceded 100% of its insurance operations and holds debt securities to maintain its insurance licenses, as well as limited partnership investments, real estate and affiliated common stock. Per the Reorganization Plan, the Trust has legal title to net tangible assets of BML which, as of February 19, 1997, included total assets and total liabilities (unaudited) of approximately $34,400,000 and $1,700,000, respectively, recorded in accordance with statutory accounting principles. Under the terms of the Reorganization Plan, the Company has the option through May 22, 1997 to transfer to the Trust all of the outstanding capital stock of BML in return for a payment of $5,000,000 from the Trust. The Company plans to sell BML, effectively for the value of its insurance licenses, prior to May 22, 1997 or exercise its option to the Trust for $5,000,000. 6. Real Estate: Real estate consists of Perry Park, a property located in Owen County, Kentucky consisting of 2,397 acres, including an 18 hole golf course, club house, restaurant, approximately 227 salable lots (232 have been sold and developed), three lakes, additional platted but undeveloped lots, and vacant acreage. As of March 6, 1997, the appraised value of the Perry Park property established a value ranging from $3,700,000 to $4,300,000. F-22 I.C.H. CORPORATION NOTES TO CONSOLIDATED BALANCE SHEET, Continued 7. Equity: On the Reorganization Date, all of the outstanding equity securities ("Predecessor common stock" and "Predecessor preferred stock") of the Predecessor Company were canceled. The Company's Restated Certificate of Incorporation authorizes the issuance of 9,000,000 shares of common stock ("the Company's common stock") and 1,000,000 shares of preferred stock. Holders of the Predecessor stocks have a two-year period in which to exchange the canceled shares for the Company's common stock. Holders of Predecessor stock will receive 0.0269 shares of the Company's common stock for each share of Predecessor common stock and 0.2 shares of the Company's common stock for each share of Predecessor preferred stock. For a period 40 days from the Reorganization Date, holders of Predecessor preferred stock could elect to receive a single cash payment of $0.36 per share, to a maximum of $234, in lieu of receiving the Company's common stock. For that same 40 day period, holders of Predecessor common stock could elect to receive a single cash payment of $0.05 per share, to a maximum of $250, in lieu of receiving the Company's common stock. Holders of less than 101 shares of Predecessor common stock and 14 shares of Predecessor preferred stock (collectively, the "nominal shareholders") are excluded from the conversion into the Company's common stock and from any cash payments. Based on the number of outstanding shares of Predecessor common and preferred stock on the Reorganization Date, after considering the nominal shareholders, approximately 2,881,000 shares of the Company's common stock could be issued. Upon conversion, the par value of the issued common stock will be transferred from paid-in capital to common stock. As a result of the cash payment option and the likelihood that some Predecessor shareholders may not exercise their conversion option during the two-year period, management has not determined the ultimate number of shares of common stock which will be issued upon conversion. F-23 I.C.H. CORPORATION NOTES TO CONSOLIDATED BALANCE SHEET, Continued As of February 19, 1997, the Company declared a dividend of one right (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 have an exercise price of $10.07 per right and are exercisable until February 19, 1999. One thousand shares of the Company's authorized preferred stock have been reserved for issuance upon the exercise of the Rights. 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 noncash 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. 8. Stock Options: The Company has two stock option plans, the Employee Stock Option Plan (the "ESP") and the Director Stock Option Plan (the "DSP", collectively the "Option plans"). The ESP provides for the grant of incentive stock options and nonqualifying options to eligible officers and employees. The DSP authorizes annual grants of 5,000 options to eligible directors subject to an individual maximum of 40,000 options and an aggregate maximum of 280,000 options. The DSP also authorizes grants to individuals who have provided special services to the Company and special grants to eligible participants, at the discretion of the Option Committee of the Board of Directors. Options granted under the Option plans expire ten years from the date of grant. The Company has reserved 1,000,000 shares and 400,000 shares of the Company's common stock for the ESP and the DSP, respectively. Effective February 19, 1997, the Company granted 221,000 options under the ESP, including 176,000 to an officer and director of the Company as part of his two-year employment agreement, and 35,000 options under the DSP. The options were granted at the estimated fair value of the stock on February 19, 1997 with an exercise price of $2.17 per share. F-24 I.C.H. CORPORATION NOTES TO CONSOLIDATED BALANCE SHEET, Continued 9. Income Taxes: Differences exist between the Company's carrying amounts of assets for financial reporting purposes and the amounts used for tax purposes. The Company's tax basis in the BML stock significantly exceeds its carrying value for financial reporting purposes; however, as any tax loss generated on the sale of BML stock could be limited pursuant to the Internal Revenue Code and Treasury regulations thereunder, no deferred tax asset has been recorded for the difference. The Company's tax basis in real estate held for sale is approximately $8,000,000, resulting in a deferred tax asset of $1,460,000 using a 34% federal rate. The Company recorded a full valuation allowance against this deferred tax asset due to the uncertainty surrounding its realizability as of February 19, 1997. 10. Pending Acquisition: Effective February 7, 1997, the Company entered into an agreement to purchase all of the outstanding capital stock of Sybra, Inc. ("Sybra"), a Michigan corporation. Sybra operates a chain of fast food restaurants (150 at September 28, 1996) clustered in four regions, primarily Texas, Michigan, Pennsylvania and Florida, as a franchisee of Arby's, Inc. The purchase price is approximately $40,000,000, and the expected closing date of the acquisition is before April 30, 1997. As a condition to the agreement, the Company must obtain formal commitment letters for the financing of at least $31,000,000 to fund the acquisition. F-25 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 Amendment 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) 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) 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 Amended and Restated Employment Agreement, effective as of January 1, 1998, by and between James R. Arabia and I.C.H. Corporation 10.13 I.C.H. Corporation 1997 Employee Stock Option Plan 10.14 I.C.H. Corporation 1997 Director Stock Option Plan 10.15 Commitment Letter, dated July 25, 1997, between FFCA Acquisition Corporation and Sybra, Inc. 10.16 Form of Loan Agreement between FFCA Acquisition Corporation and Sybra, Inc. 10.17 Form of Promissory Note from Sybra, Inc. to FFCA Acquisition Corporation 10.18 Form of Mortgage between Sybra, Inc. and FFCA Acquisition Corporation 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. 10.20 Development Agreement, dated as of October 30, 1997, between Arby's, Inc. and Sybra, Inc. 27.1 Financial Data Schedule EX-10.12 2 AMENDED AND RESTATED EMPLOYMENT AGREEMENT ICH CORPORATION AMENDED AND RESTATED EMPLOYMENT AGREEMENT JAMES R. ARABIA THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT ("Agreement") is entered into as of this 1st day of January, 1998, by and between, I.C.H. Corporation (the "Company"), a Delaware corporation with offices at 9404 Genesee Avenue, Suite 330, LaJolla, CA 92037 and James R. Arabia, an individual residing at 4230 Arguello Street, San Diego, CA 92103 (the "Executive"). WHEREAS, the Executive has served as President and Chief Executive Officer of the Company pursuant to his prior employment agreement dated as of February 11, 1997 (the "Prior Agreement") and prior thereto and has recently taken the position as President and Chief Executive Officer of Sybra, Inc., the principal operating subsidiary of the Company, and through such service, has acquired special and unique knowledge, abilities and expertise; and WHEREAS, the Company desires to continue to employ the Executive as its President and Chief Executive Officer and to have the Executive serve as Chairman of the Board of Directors of the Company (the "Board") and President and Chief Executive Officer of Sybra, Inc. and wishes to be assured of his continued services on the terms and conditions hereinafter set forth; and WHEREAS, the Executive desires to continue to be employed by the Company as its President and Chief Executive Officer and serve as Chairman of the Board and to perform and to serve the Company 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. The Prior Agreement is hereby amended and restated in its entirety as of the date of this Agreement. (a) Duties. The Company hereby agrees to employ the Executive, and the Executive hereby accepts such employment, as the President and Chief Executive Officer of the Company and agrees to serve as Chairman of the Board. In his role as President and Chief Executive Officer of the Company, the 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 Board provided that such duties are reasonable and customary for a President and Chief Executive Officer including his managerial role with respect to the operations of Sybra, Inc. The 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 the 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; (iii) attending to personal business including conducting non-competing and non-conflicting business activities including without limitation activities related to the maintenance and continuation of the Executive's stock broker's license and related practice; provided, however, that no such service or activity permitted in this Section 1(a) shall materially interfere with the performance by the Executive of his duties hereunder. The Executive shall report directly to the Board. (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 anniversary of the date of this Agreement and on each anniversary thereafter, the Employment Period shall be extended for one additional year, unless (A) the Company or Executive elects not to extend the term of this Agreement by giving written notice to the other party no more than ninety (90) days and no less than thirty (30) days prior to the applicable anniversary date ("Notice of Non-Renewal"), in which case, the term of this Agreement shall become fixed, or (B) Executive's employment terminates hereunder. (ii) Notwithstanding anything contained herein to the contrary, (A) Executive's employment with the Company may be terminated by the Company 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 the Board and Executive may mutually agree. (iii) If Executive's employment with the Company 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 day the Employment Period would have terminated in the absence of such employment termination and without further renewals. 2 (c) Location/Travel. The Executive shall work at the Company's headquarters in San Diego County, California. The Executive shall not be required to relocate from the San Diego area during the Employment Period. 2. Compensation. (a) Salary. The Executive shall receive an annual base salary of $235,000 which shall be payable to the Executive in accordance with the Company's regular payroll practices. The annual base salary payable to the Executive pursuant to this Section 2(a), which may be increased but not decreased by the Board or the Compensation Committee of the Board (the "Compensation Committee"), as the case may be, shall be hereinafter referred to as the "Annual Base Salary." (b) Annual Bonus. The Executive shall be entitled to receive an annual cash bonus based upon a formula and subject to certain performance goals having been achieved (the "Formula"), determined by the Board, in its sole discretion, by the end of the first quarter of each year. The target bonus payable to the Executive for the 1998 fiscal year based upon the Formula established by the Board shall be $100,000. (c) Bonus Payment. The bonus shall be paid to the Executive no later than one hundred and twenty (120) days following the end of the period for which the bonus is being paid. (d) Reimbursement of Business Expenses. The Company shall reimburse the Executive for all reasonable out-of-pocket expenses incurred by him during the Employment Period including without limitation expenses in connection with the Company's headquarters in San Diego, California. Such expenses may include, but shall not be limited to, expenses incurred in connection with the leasing of office space and office equipment and the purchase of all reasonable and necessary office supplies. The Company shall also promptly reimburse the Executive for reasonable out-of-pocket expenses incurred by him pursuant to his employment hereunder, including but not limited to all reasonable travel and entertainment expenses. The Executive may only obtain reimbursement under this Section 2(d) upon submission of such receipts and records as may be initially required by the Board and, thereafter, as may be required under the reimbursement policies established by the Company. (e) Additional Benefits; General Rights. The Executive shall be entitled to participate in all employee stock option, pension, savings, and other benefit plans including other welfare plans established by the Company such as life insurance, medical, disability, and business travel accident plans and programs. Executive shall be entitled to a minimum $300.00 per month local travel allowance. In addition, the Company shall reimburse Executive for any premium costs Executive may incur with respect to the health insurance plan currently maintained by the Company (and which 3 may be maintained by the Company from time to time) in which Executive participates. The Executive shall be entitled to four weeks paid vacation per year and any other benefits provided by the Company to its executive officers. (f) Withholding. The Company shall deduct from all compensation paid to the 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 Company pursuant to Federal, State or city laws, rules or regulations. 3. Option Grant. (a) Upon execution of the Prior Agreement, Executive received options issued pursuant to the Company's 1997 Employee Stock Option Plan (the "Stock Option Plan"), to purchase up to 176,000 shares of common stock of the Company, $0.01 par value (the "Common Stock"), at an exercise price per share equal to $ 2.17 (such options plus any additional options granted to the Executive in the future shall collectively be referred to herein as the "Options"). Subject to Sections 3(b) and 6 below, such Options shall have vested or vest, as applicable, and be exercisable as follows: 58,667 Options, effective upon execution of the Prior Agreement; 58,667 Options, effective February 11th, 1998; and the balance 58,666, effective February 11th, 1999. The terms and conditions of the Options granted to the Executive pursuant hereto are memorialized in the written option grant agreement between the Company and Executive dated February 11, 1997 ("Option Grant Agreement"), attached to the Prior Agreement as Exhibit A. Such Options shall expire on February 11, 2007. The Options granted to the Executive (as well as any which may be granted to Executive) 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 of such Options do not satisfy the requirements of Section 422(b) of the Code either before or after exercise including, without limitation, disposition of the underlying stock acquired by the exercise of Options prior to the requisite hold period, then 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 the Company and the Executive that the Options are non-qualified and a Taxable Event has occurred, the Company shall make an additional single sum cash payment to the Executive in an amount equal to thirty (30%) percent of Executive's taxable income resulting from the Taxable Event. Such payment shall only be made in the event Executive's employment with the Company has not terminated for Cause within the meaning of Section 5(a)(i) of this Agreement. 4 (c) Executive shall have thirty-six (36) months from the date of termination of his employment to exercise Options; provided, however, that such period does not extend beyond February 11, 2007. 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) To the extent any Options are not vested upon a "Change in Control" of the Company, such unvested Options shall become fully vested and immediately exercisable upon a "Change in Control" of the Company. A "Change in Control" of the Company shall be deemed to have occurred upon the happening of any of the following events: (i) approval by the Board of Directors or stockholders of the Company of a transaction that would result in the reorganization, merger, or consolidation of the Company 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 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 71% of the outstanding equity ownership interests in the Company; and (B) at least 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 71% of the securities entitled to vote generally in the election of directors of the Company; (ii) the acquisition of all or substantially all of the assets of the Company; 5 (iii) a complete liquidation or dissolution of the Company, or approval by the stockholders of the Company 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(d) if, immediately following such event, at least seventy-five (75%) percent of the members of the Board do not belong to any of the following groups: (A) individuals who were members of the Company's Board on the date of this Agreement; or (B) individuals who first became members of the Board after the date of this Agreement either: (I) upon election to serve as a member of the Board by affirmative vote of three-quarters of the members of such Board, or of a nominating committee thereof, in office at the time of such first election; or (II) upon election by the stockholders of the Company to serve as a member of the Board, but only if nominated for election by affirmative vote of three-quarters of the members of the 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 Board. (v) one or more other "Persons" within the meaning of Sections 13(d)(3) or 14(d)(2) of the Exchange Act, other than an employee benefit plan sponsored by the Company, becomes the "beneficial owner," as such term is used in Section 13 of the Exchange Act, of thirty (30%) percent or more of the Common Stock of the Company issued and outstanding prior to such acquisition. 4. Loan. The Company hereby agrees to make a loan to Executive at such time as Executive elects during the Employment Period in a principal amount of $100,000 for the purchase of a principal residence (the "Loan"). The Loan shall accrue 6 interest at an annual rate of eight and one-half (8.5%) percent with interest only payable quarterly in arrears through payroll deduction in years one (1) through seven (7). Principal plus interest shall be repayable on a self-amortizing basis in years eight (8) through ten (10). All payments owed by Executive shall be deducted from Executive's salary on a quarterly basis. To the extent such salary payments are insufficient, the Executive shall pay any balance owed on a timely basis after receipt of written notification from the Company. The Executive shall be required to execute such evidences of indebtedness and other documents as are reasonably necessary to effectuate the Loan. 5. 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 the Company shall have given the Executive notice of the termination of his employment for "Cause". For purposes of this Agreement, "Cause" shall mean (A) the commission by the Executive of fraud, embezzlement or an act of serious, criminal moral turpitude; (B) the commission of an act by the Executive constituting material financial dishonesty against the Company; or (C) the Executive's gross neglect in carrying out his material duties and responsibilities under this Agreement which has a material adverse effect on the Company and which is not cured within thirty (30) days subsequent to written notice from the Company to the 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 the Company shall have given the 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, the Executive shall be deemed to be physically or mentally incapacitated or disabled on a permanent basis if the 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 the Executive terminates his employment with the Company for "Good Reason." For purposes 7 of this Agreement, "Good Reason" shall mean (A) any material and substantial breach of this Agreement by the Company, (B) a diminution of Executive's responsibilities, loss of title, failure to reelect Executive to the Board or reappoint Executive Chairman of the Board, (C) a Change in Control occurs and the Executive voluntarily quits at any time within the six (6) month period on or immediately following the Change in Control, (D) the Company issues a Notice of Non-Renewal to the Executive, (E) a reduction in the 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 Company to comply with Sections 2 and 3, hereof, (F) the relocation of the Executive's office outside the San Diego area, or (G) this Agreement is not assumed by a successor to the Company. (v) Without Cause. The Company shall have the right to terminate the 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 as of which the Company terminates the Executive's employment for reasons other than for Cause. (vi) Without Good Reason. The 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 the Executive shall have given the Board of Directors notice of his termination without Good Reason. (b) Notice of Termination. Any termination of Executive's employment by the Company 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) Death, Disability, Without Cause or for Good Reason. If the Executive's employment is terminated due to death or disability of the Executive (pursuant to Section 5(a)(ii) or (iii)), by the Company without Cause (pursuant to Section 5(a)(v)), or by the Executive for Good Reason (pursuant to 8 Section 5(a)(iv)), the Executive (or, in the event of his death, his estate or beneficiaries) shall be entitled to a payment in the amount of four hundred and seventy thousand ($470,000) dollars payable in equal monthly installments over a period of twelve (12) months beginning on the first day of the month next following the date of termination of employment unless Executive makes an election prior to receipt of the first installment hereunder to increase the duration of such period up to a maximum of thirty-six (36) months; provided however, that if such termination occurs pursuant to the provisions of Section 5(a)(iv)(C) above such payment shall be made in a single sum on the date of termination without discount for early payment (the "Severance Period"). In addition, any outstanding balance of the Loan (principal and interest) shall become due on the date of such termination and shall be payable in equal installments over the Severance Period with all repayments owed by Executive being deducted from Executive's monthly installments or single sum payment as the case may be or alternatively, on such other terms as Executive and the Company may agree. Executive shall also be entitled to any bonuses which have been earned but not been paid prior to such termination. Executive shall not be entitled to any other bonuses. Executive's health insurance benefits specified in Section 2(e) shall terminate on the last day of the Unexpired Employment Period. Executive shall be entitled to COBRA continuation coverage thereafter, at his cost. Additionally, 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 agreement. In the event the Executive is terminated by the Company without Cause, or Executive terminates his employment with the Company for Good Reason, the Executive shall have no duty to mitigate the amount of the payment received pursuant to this Section 6(a), it being understood that the Executive's acceptance of other employment shall not reduce the Company's obligations hereunder. (b) Termination With Cause or Voluntary Quit. If the Company terminates the Executive's employment for Cause (pursuant to Section 5(a)(i)) or in the event the Executive voluntarily terminates his employment without Good Reason (pursuant to Section 5(a)(vi)), the Executive shall be entitled to his Annual Base Salary through the date of the termination of his employment and the Executive shall be entitled to any bonuses which have been earned but not paid prior to such termination. The Executive shall not be entitled to any other bonuses. The Executive's additional benefits specified in Section 2(e) shall terminate at the time of such termination and the entire outstanding balance of the Loan (principal and interest) shall be due and owing on date of termination. Additionally, the Executive shall be entitled to all Options that have vested as of the date of termination. All outstanding Options, which have not vested, if any, as of date of termination shall be forfeited, and if the termination is for Cause, no further payments pursuant to Section 3(b) shall be made to the Executive. 7. Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the Company, its successors and assigns. The Company shall 9 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 the Company would be required to perform if no such succession had taken place. 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 the Executive's legal representative. 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 California without regard to conflicts of law principles thereof. 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. 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 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 the Company: ICH Corporation 9404 Genesee Avenue Suite 330 LaJolla, California 92037 Attention: Corporate Secretary Facsimile Number: (619) 535-1634 10 With a copy to: Michael D. Dunn 1409 Weller Boulevard Fort Worth, Texas 76112 If to the Executive: Mr. James Arabia 4230 Arguello 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 10. 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. IN WITNESS WHEREOF, the Company and the Executive have executed this Agreement as of the date first above written. EXECUTIVE ICH CORPORATION /s/ James R. Arabia /s/ Michael D. Dunn - ------------------- -------------------- James R. Arabia Name: Michael D. Dunn Title: President 11 EX-10.13 3 EMPLOYEE STOCK OPTION PLAN ICH CORPORATION 1997 EMPLOYEE STOCK OPTION PLAN ARTICLE I Purpose The ICH Corporation 1997 Employee Stock Option Plan is intended to advance the best interests of the Company and its stockholders by providing executives and other key employees possessing substantial responsibility for the management and development of the Company and its subsidiaries with additional incentives to contribute to its growth and prosperity by allowing such executives and key employees to acquire an ownership interest in the Company. It is believed that the availability and granting of stock option awards increases the Company's ability to attract and retain key personnel with exceptional skills and outstanding experience. ARTICLE II Definitions The following capitalized terms used in the Plan shall have the respective meanings set forth in this Article: 2.1 Board: The Board of Directors of ICH Corporation. 2.2 Code: The Internal Revenue Code of 1986, as amended, and the rules and regulations promulgated thereunder. 2.3 Committee: The Compensation Committee of the Board; provided, however, the Compensation Committee shall not take any action under this Plan unless it is at all times composed solely of not less than three "Non-Employee Directors" within the meaning of Rule 16b-3, as promulgated under the Securities Exchange Act of 1934, as amended. In the event the Compensation Committee is unable to act, the Board shall take any and all actions required or permitted to be taken by the Committee under this Plan. 2.4 Common Stock: The common stock, par value $0.01, of ICH Corporation. 2.5 Company: ICH Corporation and any of its Subsidiaries. 2.6 Disability: Disability within the meaning of Section 22(e)(3) of the Code, as determined by the Committee or as defined in the Optionee's Employment Agreement, if any. 2.7 Effective Date: February 7, 1997. 2.8 Employer: The corporation that employs the employee or Optionee. 2.9 Fair Market Value: Fair Market Value shall mean with respect to a share of Common Stock the value determined on any relevant date in accordance with the following provisions: (i) if the Common Stock is at the time traded on the Nasdaq National Market, then the Fair Market Value shall be the closing selling price per share of Common Stock on the date in question, as such price is reported by the National Association of Securities Dealers on the Nasdaq National Market or any successor system. If there is no closing selling price for the Common Stock on the date in question, then the Fair Market Value shall be the closing selling price on the last preceding date for which such quotation exists, or (ii) if the Common Stock is at the time listed on any national Stock Exchange, then the Fair Market Value shall be the closing selling price per share of Common Stock on the date in question on the national Stock Exchange determined by the Committee to be the primary market for the Common Stock, as such price is officially quoted in the composite tape of transactions on such exchange. If there is no closing selling price for the Common Stock on the date in question, then the Fair Market Value shall be the closing selling price on the last preceding date for which such quotation exists, or (iii) if shares of the Common Stock are not then traded on a national market (e.g., the over the counter dealers market) or are not then publicly traded, Fair Market Value shall be determined by the Committee after taking into account such factors as the Committee shall deem appropriate. 2.10 ISO: An "incentive stock option" within the meaning of Section 422 of the Code. 2.11 Non-Employee Director: A director who: (i) is not currently an officer or employee of ICH Corporation or of any Subsidiary; (ii) (A) does not receive compensation, either directly or indirectly, for any non-director service in an amount that would be required to be disclosed under Item 404(a) of Regulation S-K or (B) possess an interest in any other transaction requiring disclosure 2 under such Item; and (iii) is not engaged in a business relationship disclosable under Item 404(b) of Regulation S-K. 2.12 Non-ISO: A stock option that is not an ISO. 2.13 Option: A stock option granted under the Plan. 2.14 Option Price: The purchase price of a share of Common Stock under an Option. 2.15 Optionee: An employee of the Company who has been granted one or more Options under this Plan. 2.16 Retirement: Retirement on or after age sixty-five, or, with the advance consent of the Company, at an earlier age. 2.17 Subsidiary: A subsidiary corporation, as defined in Section 424(f) of the Code. 2.18 Termination Date: A date fixed by the Committee but not later, with respect to an ISO, than the day preceding the tenth anniversary of the date on which the Option is granted or, with respect to a Non-ISO, than the day following the tenth anniversary of the date on which the Option is granted. ARTICLE III Administration 3.1 Except as otherwise provided in the Plan, the Committee shall administer the Plan and shall have full power to grant Options, construe and interpret the Plan, establish and amend rules and regulations for its administration, and perform all other acts relating to the Plan, including the delegation of administrative responsibilities, which it believes reasonable and proper. 3.2 The Committee shall consist of not less than three members of the Board, all of whom shall be Non-Employee Directors, and appointed by the Board. The members of the Committee shall serve at the pleasure of the Board, which shall have the power, at any time and from time to time, to remove members from the Committee or to add members thereto. Vacancies on the Committee, however caused, shall be filled by the Board. The Board shall take all steps necessary to assure that the Committee is composed of Non-Employee Directors within the meaning of Rule 16b-3 as promulgated under the Securities Exchange Act of 3 1934, as amended, and that Options granted under this Plan comply in all respects with the requirements of Rule 16b-3. Options granted hereunder shall be approved by the Committee. However, if the Committee, for whatever reason, is unable to act, then Options granted under this Plan shall be approved by the Board. 3.3 Subject to the provisions of the Plan, the Committee shall establish the policies and criteria pursuant to which it shall grant Options and administer the Plan. Subject to the provisions of the Plan, the Committee shall, in its discretion, determine which employees of the Company shall be granted Options, the number of shares subject to any such Options, the dates after which Options may be exercised, in whole or in part, and the terms and conditions of the Options. This shall include Options granted with terms and conditions that will permit their designation as ISOs or Non-ISOs. 3.4 The Committee may at any time, with the consent of the Optionee, in its sole discretion, cancel any Option and issue to the Optionee a new Option for an equivalent or lesser number of Common Stock shares, and at a lesser Option Price. 3.5 Any decision made, or action taken, by the Committee or the Board arising out of or in connection with the interpretation and administration of the Plan shall be final and conclusive. ARTICLE IV Shares Subject to the Plan 4.1 The total number of shares of Common Stock available for grants of Options under the Plan shall be 1,000,000, subject to adjustment in accordance with Article VIII of the Plan. These shares may be either authorized but unissued shares or treasury shares. If an Option or portion thereof shall expire, terminate or be cancelled for any reason without having been exercised in full, the unpurchased shares covered by such Option shall be available for future grants of Options. 4 ARTICLE V Eligibility 5.1 Options may be granted to employees of the Company or, with respect to Non-ISO's, to persons who have been engaged to become employees of the Company, provided however, that in the latter case, the effective date of the grant shall be the commencement date of employment. Members of the Board who are not employees of the Company shall not be eligible for Option grants hereunder. ARTICLE VI Terms of Options 6.1 Option Agreements. All Options shall be evidenced by written agreements executed by the Company and the Optionee. Such Options shall be subject to the applicable provisions of the Plan, and shall contain such provisions as are required by the Plan and any other provisions the Committee may prescribe. All agreements evidencing Options shall specify the total number of shares subject to each grant, the Option Price and the Termination Date. Those Options that comply with the requirements for an ISO set forth in Section 422 of the Code at the discretion of the Committee shall be designated ISOs, and all other Options shall be designated Non-ISOs. 6.2 Option Price. The Option Price, regardless of whether the Option is intended to be an ISO or Non-ISO shall not be less than the Fair Market Value of a share of Common Stock on the date the Option is granted. 6.3 Vesting. Unless otherwise determined by the Committee (which determination shall be evidenced by specification in a written grant agreement), all Options granted pursuant to this Plan shall vest over a period of four (4) years, with twenty five (25) percent of the Option vesting on each of the first, second, third and fourth anniversaries of the date the Option is granted, subject to accelerated vesting upon certain events as may be determined by the Committee. 6.4 Period of Exercise. The Committee shall determine the dates after which Options may be exercised in whole or in part for any reason whatsoever. If Options are exercisable in installments, installments or portions thereof that are exercisable and not exercised shall accumulate and remain exercisable. The Committee may also amend an Option to accelerate the dates after which 5 Options may be exercised in whole or in part. However, no Option or portion thereof shall be exercisable after the Termination Date; in addition, unless the Committee determines otherwise (which determination shall be evidenced by specification in a written grant agreement), no Option or portion thereof granted to any Optionee subject to the restrictions of Section 16(b) of the Securities Exchange Act of 1934, as amended, shall be made exercisable during the six month period beginning on the date such Option was granted. 6.5 Special Rules Regarding ISOs Granted to Certain Employees. Notwithstanding any contrary provisions of Section 6.2 and 6.4 of the Plan, no ISO shall be granted to any employee who, at the time the Option is granted, owns (directly, or within the meaning of Section 424(d) of the Code) more than ten percent of the total combined voting power of all classes of stock of the Employer or of any Subsidiary or Parent Corporation thereof, unless (a) the Option Price under such Option is at least one hundred and ten percent (110%) of the Fair Market Value of a share of Common Stock on the date the Option is granted and (b) the Termination Date of such Option is a date not later than the day preceding the fifth anniversary of the date on which the Option is granted. 6.6 Manner of Exercise and Payment. An Option, or portion thereof, shall be exercised by delivery of a written notice of exercise to the Company and payment of the full price of the shares being purchased pursuant to the Option. An Optionee may exercise an Option with respect to less than the full number of shares for which the Option may then be exercised, but an Optionee must exercise the Option in full shares of Common Stock. The price of Common Stock purchased pursuant to an Option, or portion thereof, may be paid in United States dollars in cash or by check, bank draft or money order payable to the order of the Company, or, if specifically permitted under the terms of the Option, through the delivery of shares of Common Stock with an aggregate Fair Market Value on the date of exercise equal to the Option Price, or by any combination of the above methods of payment. The Committee shall determine acceptable methods for tendering Common Stock as payment upon exercise of an Option and may impose such limitations and prohibitions on the use of Common Stock to exercise an Option as it deems appropriate, including, without limitation, any limitation or prohibition designed to avoid certain accounting consequences which may result from the use of Common Stock as payment upon exercise of an option. The Committee may in its discretion allow an Optionee to exercise his Options through a special sale and remittance procedure. To the extent the option is exercised for vested shares, through a special sale and remittance procedure pursuant to which the Optionee shall concurrently provide irrevocable written instructions to (a) a Company designated brokerage firm to effect the immediate sale of the purchased shares and remit to the Company, out of the 6 sale proceeds available on the settlement date, sufficient funds to cover the aggregate exercise price payable for the purchase shares plus all applicable Federal, state and local income and employment taxes required to be withheld by the Company by reason of such exercise and (b) the Company to deliver the certificates for the purchased shares directly to such brokerage firm in order to complete the sale. Except to the extent such sale and remittance procedure is utilized, payment of the exercise price for the purchased shares must be made on the exercise date. 6.7 Withholding Taxes. The Company may, in its discretion, require an Optionee to pay to the Company the amount, or make such other arrangements, at the time of exercise or thereafter, that the Company deems necessary to satisfy its obligation to withhold Federal, state or local income or other taxes incurred by reason of the exercise. 6.8 Nontransferability of Options. Each Option shall, during the Optionee's lifetime, be exercisable only by the Optionee, and neither it nor any right hereunder shall be transferable otherwise than by will, the laws of descent and distribution, or, solely with respect to Non-ISO's, a qualified domestic relations order (as defined in the Code or Title I of the Employee Retirement Income Security Act, or the rules thereunder) nor will any Option granted hereunder be subject to attachment, execution or other similar process. In the event of any attempt by the Optionee to alienate, assign, pledge, hypothecate or otherwise dispose of an Option or of any right hereunder, except as provided for herein, or in the event of any levy or any attachment, execution or similar process upon the rights of interests hereby conferred, the Company may terminate the Option by notice to the Optionee and the Option shall thereupon become null and void. 6.9 Cessation of Employment of Optionee. Unless otherwise determined by the Committee (which determination shall be evidenced by specification in a written grant agreement), the following provisions shall apply upon cessation of employment of the Optionee. (a) Cessation of Employment other than by Reason of Retirement, Disability, or Death. If an Optionee shall cease to be employed by the Company otherwise than by reason of Retirement, Disability, or death, unless otherwise determined by the Committee (which determination shall be evidenced by specification in a written grant agreement) each Option held by the Optionee, together with all rights hereunder, shall be exercisable only to the extent exercisable on the date of the cessation of employment, and shall terminate on the earlier of the Termination Date or 7 ninety (90) days following the date of cessation of employment, to the extent not previously exercised; provided, however, that in the event the Optionee's employment with the Company is terminated due to his gross misconduct, the Options granted to such Optionee hereunder shall be null and void after such termination occurs or such determination is made by the Committee. In the event any Options are exercised more than ninety (90) days after an Optionee's Termination Date, and those Options had previously been designated as ISO's, such Options shall automatically convert to non-ISO's. (b) Cessation of Employment by Reason of Retirement or Disability. If an Optionee shall cease to be employed by the Company by reason of Retirement or Disability, each Option held by the Optionee shall remain exercisable, to the extent it was exercisable at the time of cessation of employment, until the earliest of: i. the Termination Date; ii. the death of the Optionee, or such later date not more than one year after the death of the Optionee as the Committee, in its discretion, may provide pursuant to section 6.9(c) of the Plan; or iii. ninety (90) days following the date of the cessation of the Optionee's employment by reason of Retirement; or iv. one year after the date of cessation of the Optionee's employment by reason of Disability; and thereafter all such Options shall terminate together with all rights hereunder, to the extent not previously exercised. (c) Cessation of Employment by Reason of Death. In the event of the death of the Optionee, while employed by the Company, an Option may be exercised at any time or from time to time prior to the earlier of the Termination Date or the first anniversary of the date of the Optionee's death, by the person or persons to whom the Optionee's rights under each Option shall pass by will or by the applicable laws of descent and distribution, to the extent that the Optionee was entitled to exercise it on the Optionee's date of death. In the event of the death of the Optionee while entitled to exercise an option pursuant to Section 6.9(b), the Committee, in its discretion, may permit such Option to be exercised at any time or from time to time prior to the Termination Date during a period 8 of up to one year from the death of the Optionee, as determined by the Committee, by the person or persons to whom the Optionee's rights under each Option shall pass by will or by the applicable laws of descent and distribution; provided, that, such Option shall be exercisable only to the extent that the Option was exercisable under Section 6.9(b) above and that the Optionee's rights under an Option have passed by will or by the applicable laws of descent and distribution; and further provided that the Option and any exercise thereof by any person shall be subject to all terms and conditions of the Plan and the Option applicable to the Optionee. 6.10 Notification of Sales of Common Stock. Any Optionee who disposes of shares of Common Stock acquired upon the exercise of an ISO: (a) within two years after date of the grant of the ISO under which the shares were acquired; (b) within one year after the transfer of such shares to the Optionee; or (c) more than ninety (90) days after his termination of employment with the Company, shall notify the Company of such disposition and of the amount realized upon such disposition. In the event an Optionee terminates employment with the Company due to Disability, the words "ninety (90) days" in this Section 6.10 shall be replaced with the words "one year." ARTICLES VII Limitation on Grants of ISOs 7.1 The aggregate Fair Market Value (determined as of the date the Option is granted) of the Common Stock which any employee may exercise for the first time in any calendar year under this or any other stock option plan maintained by the Employer or by any Subsidiary as an ISO shall be limited to $100,000 or such higher amount as may be permitted from time to time under the Code. ARTICLE VIII Adjustments 8.1 If (a) the Company shall at any time be involved in a transaction to which Section 424(a) of the Code is applicable; (b) the Company shall declare a dividend payable in, or shall subdivide or combine, its Common Stock; or (c) any other event shall occur which in the judgment of the Committee necessitates action by way of adjusting the terms of the outstanding Options, the Committee shall take any such action, including price adjustment, as in its judgment shall be 9 necessary to preserve the Optionee's rights substantially proportionate to the rights existing prior to such event, and to the extent that such action shall include an increase or decrease in the number of shares of Common Stock subject to outstanding Options, the number of shares available under Article IV above shall be increased or decreased, as the case may be, proportionately. The judgment of the Committee with respect to any matter referred to in this Article shall be conclusive and binding upon each Optionee. ARTICLE IX Amendment and Termination of Plan 9.1 The Board may at any time, or from time to time, suspend or terminate the Plan in whole or in part or amend it in such respects as the Board may deem appropriate. 9.2 No amendment, suspension or termination of this Plan shall, without the Optionee's consent, alter or impair any of the rights or obligations under any Option theretofore granted to an Optionee under the Plan. 9.3 The Board may amend this Plan, subject to the limitations cited above, in such matter as it deems necessary to permit the granting of Options meeting the requirements of future amendments or issued regulations, if any, to the Code and Rule 16b-3. ARTICLE X Government and Other Regulations 10.1 The obligation of the Company to issue, or transfer and deliver shares for Options exercised under the Plan shall be subject to all applicable laws, regulations, rules, orders and approvals which shall then be in effect and required by governmental entities and any stock exchanges on which Common Stock is traded. 10.2 In addition to, and without limiting the Company's rights and obligations under the preceding paragraph, the Committee may postpone any exercise of an Option for such time as the Committee in its discretion may deem necessary in order to permit the Company with reasonable diligence (i) to effect or maintain the listing of the Common Stock in the New York Stock Exchange or to effect or 10 maintain registration under the Securities Act of 1933, as amended, of the Plan or the shares issuable upon the exercise of the Option; (ii) to determine that such shares and Plan are exempt from registration; or (iii) to comply with any applicable laws, regulations, rules, orders, or approval requirements then in effect and required by governmental entities or any stock exchange on which the Common Stock is traded. Any such postponement shall not extend the term of an Option, and neither the Company nor its directors or officers shall have any obligation or liability to any Optionee or Optionee's successor with respect to any shares subject to an Option that lapses unexercised because of such postponement. ARTICLE XI Miscellaneous Provisions 11.1 Plan Does Not Confer Employment or Stockholder Rights. The right of the Company to terminate (whether by dismissal or otherwise) the Optionee's employment with it at any time at will, or as otherwise provided by any agreement between the Company and the Optionee, is specifically reserved. Neither the Optionee nor any person entitled to exercise the Optionee's rights in the event of the Optionee's death shall have any rights of a stockholder with respect to the shares subject to each Option, except to the extent that, and until, such shares shall have been issued upon the exercise of each Option. 11.2 Plan Expenses. Any expenses of administering this Plan shall be borne by the Company. 11.3 Use of Exercise Proceeds. Payments received from Optionees upon the exercise of Options shall be used for the general corporate purposes of the Company, except that any Common Stock received in payment may be retired, or retained in the Company's treasury and reissued. ARTICLE XII Effective Date and Shareholder Approval 12.1 The Effective Date of the Plan is February 7, 1997. The Plan has been approved by Shareholders pursuant to the First Amended Joint Plan of Reorganization under Chapter 11 (Dated: November 15, 1996), filed in the United States Bankruptcy Court for the Northern District of Texas, Dallas 11 Division and the applicable disclosure statement filed in such Court with respect thereto. The Bankruptcy Court authorized and approved the adoption of the Plan. 12 EX-10.14 4 1997 DIRECTOR STOCK OPTION PLAN ICH CORPORATION 1997 DIRECTOR STOCK OPTION PLAN ARTICLE I Purpose The ICH Corporation 1997 Director Stock Option Plan is intended to encourage outside directors and others selected for participation in the Plan to continue their association with the Company by providing them with incentives designed to enable them to acquire an ownership interest in the Company. It is believed that the availability and granting of stock option awards increases the Company's ability to attract and retain individuals with outstanding qualifications and experience. ARTICLE II Definitions The following capitalized terms used in the Plan shall have the respective meanings set forth in this Article: 2.1 Board: The Board of Directors of ICH Corporation. 2.2 Code: The Internal Revenue Code of 1986, as amended, and the rules and regulations promulgated thereunder. 2.3 Committee: The Compensation Committee of the Board; provided, however, the Compensation Committee shall not take any action under this Plan unless it is at all times composed solely of not less than three "Non-Employee Directors" within the meaning of Rule 16b-3, as promulgated under the Securities Exchange Act of 1934, as amended. In the event the Compensation Committee is unable to act, the Board shall take any and all actions required or permitted to be taken by the Committee under this Plan. For purposes of this Section a "Non-Employee Director" shall be a director who: (i) is not currently an officer or employee of ICH Corporation or of any Subsidiary; (ii) (A) does not receive compensation, either directly or indirectly, for any non-director service in an amount that would be required to be disclosed under Item 404(a) of Regulation S-K or (B) possess an interest in any other transaction requiring disclosure under such Item; and (iii) is not engaged in a business relationship disclosable under Item 404(b) of Regulation S-K. 2.4 Common Stock: The common stock, par value $0.01, of ICH Corporation. 2.5 Company: ICH Corporation and any of its Subsidiaries. 2.6 Disability: Disability within the meaning of Section 22(e)(3) of the Code, as determined by the Committee. 2.7 Effective Date: February 7, 1997 2.8 Eligible Director: A non-employee member of the Board of Directors. 2.9 Eligible Participant: An Eligible Director or consultant selected by the Committee to participate in the Plan. 2.10 Fair Market Value: Fair Market Value shall mean with respect to a share of Common Stock the value determined on any relevant date in accordance with the following provisions: (i) if the Common Stock is at the time traded on the Nasdaq National Market, then the Fair Market Value shall be the closing selling price per share of Common Stock on the date in question, as such price is reported by the National Association of Securities Dealers on the Nasdaq National Market or any successor system. If there is no closing selling price for the Common Stock on the date in question, then the Fair Market Value shall be the closing selling price on the last preceding date for which such quotation exists, or (ii) if the Common Stock is at the time listed on any national Stock Exchange, then the Fair Market Value shall be the closing selling price per share of Common Stock on the date in question on the national Stock Exchange determined by the Committee to be the primary market for the Common Stock, as such price is officially quoted in the composite tape of transactions on such exchange. If there is no closing selling price for the Common Stock on the date in question, then the Fair Market Value shall be the closing selling price on the last preceding date for which such quotation exists, or (iii) if shares of the Common Stock are not then traded on a national market (e.g., the over the counter dealers market) or are not then publicly traded, Fair Market Value shall be determined by the Committee after taking into account such factors as the Committee shall deem appropriate. 2.11 Option: A stock option granted under the Plan that does not qualify as an 2 "incentive stock option" under Section 422 of the Code. 2.12 Option Price: The purchase price of a share of Common Stock under an Option. 2.13 Optionee: An Eligible Participant who has been granted one or more Options under this Plan. 2.14 Plan: The ICH Corporation 1997 Director Stock Option Stock Plan, as from time to time amended. 2.15 Subsidiary: A subsidiary corporation, as defined in Section 424(f) of the Code. 2.16 Termination Date: A date fixed by the Committee but not later than the day following the tenth anniversary of the date on which the Option is granted. ARTICLE III Administration 3.1 Except as otherwise provided in the Plan, the Committee shall administer the Plan and shall have full power to grant Options, construe and interpret the Plan, establish and amend rules and regulations for its administration, and perform all other acts relating to the Plan, including the delegation of administrative responsibilities, which it believes reasonable and proper. 3.2 The Committee shall consist of not less than three members of the Board. The members of the Committee shall serve at the pleasure of the Board, which shall have the power, at any time and from time to time, to remove members from the Committee or to add members thereto. Vacancies on the Committee, however caused, shall be filled by the Board. 3.3 Subject to the provisions of the Plan, the Committee shall establish the policies and criteria pursuant to which it shall grant Options and administer the Plan. Subject to the provisions of the Plan, the Committee shall, in its discretion, determine which Eligible Participants shall be granted discretionary Options, the number of shares subject to any such Options, the dates after which Options may be exercised, in whole or in part, and the terms and conditions of the Options. 3.4 The Committee may at any time, with the consent of the Optionee, in its sole discretion, cancel any Option and issue to the Optionee a new Option for an equivalent or lesser number of Common Stock shares, and at a lesser Option Price. 3 3.5 Any decision made, or action taken, by the Committee or the Board arising out of or in connection with the interpretation and administration of the Plan shall be final and conclusive. ARTICLE IV Shares Subject to the Plan 4.1 The total number of shares of Common Stock available for grants of Options under the Plan shall be 400,000 subject to adjustment in accordance with Article IXof the Plan. These shares may be either authorized but unissued shares or treasury shares. If an Option or portion thereof shall expire or terminate for any reason without having been exercised in full, the unpurchased shares covered by such Option shall be available for future grants of Options. ARTICLE V Automatic Grant of Options 5.1 Options granted pursuant to this Article V shall only be granted to Eligible Directors. 5.2 Grant Dates. Option grants shall be made on the dates specified below: a) Each Eligible Director, as of the date of adoption of the Plan by the Board or, if later, the date such Director is first elected or appointed as a non employee Director, shall be granted an Option to purchase 5,000 shares of Common Stock provided, however, that such Options shall be exercisable only after the date of the approval of the Plan by the shareholders of the Company. b) On each anniversary date of such grant thereafter, each Eligible Director shall automatically be granted an Option to purchase 5,000 shares of Common Stock; provided, however, Options shall not be granted under this Section 5.2 of the Plan if such grant or grants would cause any Eligible Director, individually, to accumulate Options to purchase more than an aggregate of 40,000 shares of Common Stock under the Plan or if such grant or grants would cause all Eligible Directors, together as a group, to accumulate Options to purchase more that an aggregate of 280,000 shares of Common Stock under the Plan. ARTICLE VI DISCRETIONARY GRANT OF OPTION 4 6.1 Options granted pursuant to this Article VI may be granted to any Eligible Participant. 6.2 The Committee may, from time to time select one or more Eligible Directors who may be granted Options at such time an in such amounts as the Committee may determine in its discretion, provided, however, no Options shall not be granted under this Section 6.2 of the Plan if such grant or grants would cause any Eligible Director, individually, to accumulate Options to purchase more than an aggregate of 40,000 shares of Common Stock under the Plan or if such grant or grants would cause all Eligible Directors, together as a group, to accumulate Options to purchase more that an aggregate of 280,000 shares of Common Stock under the Plan. 6.3 The Committee may, from time to time select one or more consultants who are neither non-employee members of the Board nor employees of the Company to participate in the Plan. A person so selected shall become an "Eligible Participant". The Committee may grant Options to such Eligible Participants at such time and in such amounts as the Committee may determine in its discretion, subject to any maximum limitation the Board of Directors may institute with respect to the aggregate amount of shares of Common Stock that may be subject to Options held by such Optionee or Optionees, either individually or together as a group, under the Plan. ARTICLE VII Terms of Options 7.1 Option Agreements: All Options shall be evidenced by written agreements executed by the Company and the Optionee. Such Options shall be subject to the applicable provisions of the Plan, and shall contain such provisions as are required by the Plan and any other provisions the Committee may prescribe. All agreements evidencing Options shall specify the total number of shares subject to each grant, the Option Price and the Termination Date. 7.2 Option Price: The Option Price shall not be less than the Fair Market Value of a share of Common Stock on the date the Option is granted. 7.3 Vesting: Unless otherwise determined by the Committee (which determination shall be evidenced by specification in a written grant agreement), all Options granted pursuant Sections 5.2 and 6.2 of this Plan shall be fully vested upon the date such Option is granted and all Options granted pursuant to Section 6.3 of this Plan shall vest over a period of four (4) years, with twenty-five (25%) percent of the Option vesting on each of the first, second, third and fourth anniversaries 5 of the date the Option is granted, subject to accelerated vesting upon certain events as may be determined by the Committee. 7.4 Period of Exercise: Unless the Committee provides otherwise in an Optionee's written agreement, Options, to the extent vested, shall be exercisable at any time after the date of the Option grant. However, no Option or portion thereof shall be exercisable after the Termination Date which, unless the Committee provides otherwise in an Optionee's written agreement, shall be the day following the tenth anniversary of the date on which the Option is granted. 7.5 Manner of Exercise and Payment: An option, or portion thereof, shall be exercised by delivery of a written notice of exercise to the Company and payment of the full price of the shares being purchased pursuant to the Option. An Optionee may exercise an Option with respect to less than the full number of shares for which the Option may then be exercised, but an Optionee must exercise the Option in full shares of Common Stock. The price of Common Stock purchased pursuant to an Option, or portion thereof, may be paid: (a) in United States dollars in cash or by check, bank draft or money order payable to the order of the Company; (b) through the delivery of shares of Common Stock with an aggregate Fair Market Value on the date of exercise equal to the Option Price, if so specified in the relevant Option agreement; or (c) by any combination of the above methods of payment. The Committee shall determine acceptable methods for tendering Common Stock as payment upon exercise of an Option and may impose such limitations and prohibitions on the use of Common Stock to exercise an Option as it deems appropriate, including, without limitation, any limitation or prohibition designed to avoid certain accounting consequences which may result from the use of Common Stock as payment upon exercise of an Option. The Committee may in its discretion allow an Optionee to exercise his Options through a special sale and remittance procedure. To the extent the option is exercised for vested shares through a special sale and remittance procedure the Optionee shall concurrently provide irrevocable written instructions to (a) a Company designated brokerage firm to effect the immediate sale of the purchased shares and remit to the Company, out of the sale proceeds available on the settlement date, sufficient funds to cover the aggregate exercise price payable for the purchase shares plus all applicable Federal, state and local income required to be withheld by the Company by reason of such exercise and (b) the Company to deliver the certificates for the purchased shares directly to such brokerage firm in order to complete the sale. Except to the extent such sale and remittance procedure is utilized, payment of the exercise price for the purchased shares 6 must be made on the exercise date. 7.6 Nontransferability of Options: Each Option shall, during the Optionee's lifetime, be exercisable only by the Optionee, and neither it nor any right hereunder shall be transferable otherwise than by will or the laws of descent and distribution or be subject to attachment, execution or other similar process. In the event of any attempt by the Optionee to alienate, assign, pledge, hypothecate or otherwise dispose of an Option or of any right hereunder, except as provided for herein, or in the event of any levy or any attachment, execution or similar process upon the rights or interests hereby conferred, the Company may terminate the Option by notice to the Optionee and the Option shall thereupon become null and void. 7.7 Termination of the Optionee's Services: If an Optionee's service on the Board or for the Company as applicable, shall cease for any reason, each Option held by the Optionee, to the extent vested on the date the Optionee's service ceases, shall remain exercisable until the earlier of: i. the Option's Termination Date; ii. the first anniversary of the date of the cessation of the Optionee's service for any reason including due to death or Disability; and thereafter, all such Options to the extent not previously exercised shall terminate together with all rights hereunder. All Options not vested as of the date of termination of Optionee's service shall be forfeited. ARTICLE VIII Adjustments 8.1 If (a) the Company shall at any time be involved in a transaction to which Section 424(a) of the Code is applicable; (b) the Company shall declare a dividend payable in, or shall subdivide or combine, its Common Stock; or (c) any other event shall occur which in the judgment of the Committee necessitates action by way of adjusting the terms of the outstanding Options, the Committee shall take any such action, including price adjustment, as in its judgment shall be necessary to preserve the Optionee's rights substantially proportionate to the rights existing prior to such event, and to the extent that such action shall include an increase or decrease in the number of shares of Common Stock subject to outstanding Options, the number of shares available under Article IV above shall be increased or decreased, as the case may be, proportionately. The judgment of the Committee with respect to any matter referred to in this Article VIII shall be conclusive and binding upon each Optionee. 7 ARTICLE IX Amendment and Termination of Plan 9.1 The Board may at any time, or from time to time, suspend or terminate the Plan in whole or in part, or amend it in such respects as the Board may deem appropriate. 9.2 No amendment, suspension or termination of this Plan shall, without the Optionee's consent, alter or impair any of the rights or obligations under any Option theretofore granted to an Optionee under the Plan. 9.3 The Board may amend this Plan, subject to the limitations cited above, in such manner as it deems necessary to permit the granting of Options meeting the requirements of future amendments or issued regulations, if any, to the Code and to Rule 16b-3, promulgated under the Securities Exchange Act of 1934, as amended. ARTICLE X Government and Other Regulations 10.1 The obligation of the Company to issue, or transfer and deliver shares for Options exercised under the Plan shall be subject to all applicable laws, regulations, rules, orders and approvals which shall then be in effect and required by governmental entities and any stock exchanges on which Common Stock is traded. 10.2 In addition to, and without limiting, the Company's rights and obligations under the preceding paragraph, the Committee may postpone any exercise of an Option for such time as the Committee in its discretion may deem necessary in order to permit the Company with reasonable diligence (i) to effect or maintain the listing of the Common Stock on the New York Stock Exchange or to effect or maintain registration under the Securities Act of 1933, as amended, of the Plan or the shares issuable upon the exercise of the Option; (ii) to determine that such shares and Plan are exempt from registration; or (iii) to comply with any applicable laws, regulations, rules, orders or approval requirements then in effect and required by governmental entities or any stock exchange on which the Common Stock is traded. Any such postponement shall not extend the term of an Option, and neither the Company nor its directors or officers shall have any obligation or liability to any Optionee or Optionee's successor with respect to any shares subject to an Option that lapses unexercised because of such 8 postponement. ARTICLE XI Miscellaneous Provisions 11.1 Plan Does Not Confer Stockholder Rights: Neither the Optionee nor any person entitled to exercise the Optionee's rights in the event of the Optionee's death shall have any rights as a stockholder with respect to the shares subject to each Option, except to the extent that, and until, such shares shall have been issued as soon as practicable after the exercise of each Option. 11.2 Plan Expenses: Any expenses of administering this Plan shall be borne by the Company. 11.3 Use of Exercise Proceeds: Payments received from Optionees upon the exercise of Options shall be used for the general corporate purposes of the Company, except that any Common Stock received in payment may be retired, or retained in the Company's treasury and reissued. ARTICLE XII Effective Date and Shareholder Approval of Plan 12.1 The Effective Date of the Plan is February 7, 1997. The Plan has been approved by shareholders pursuant to the First Amended Joint Plan of Reorganization under Chapter 11 (Dated: November 15, 1996), filed in the United States Bankruptcy Court for the Northern District of Texas, Dallas Division and the applicable disclosure statement filed in such Bankruptcy Court with respect thereto. The Bankruptcy Court authorized and approved the adoption of the Plan. 9 EX-10.15 5 COMMITMENT LETTER [FRANCHISE FINANCE CORPORATION OF AMERICA Letterhead] July 25, 1997 VIA TELECOPY AND AIRBORNE EXPRESS Mr. James R. Arabia Sybra, Inc. 9404 Genesee Avenue Suite 330 La Jolla, California 92037 Dear Jim: Sybra, Inc. ("Borrower") has advised FFCA Acquisition Corporation ("FFCA") that Borrower desires to obtain mortgage financing for up to twelve (12) new Arby's restaurants (individually, a "Property" and collectively, the "Properties") during the next twenty-four (24) months. For each Property, Borrower desires to obtain a construction/long term mortgage loan secured by a first lien mortgage or deed of trust, as determined by FFCA (individually, the "Mortgage Loan" and collectively the "Mortgage Loans"). Up to one (1) of the Mortgage Loans may involve land (the "Land") which shall be leased by Borrower pursuant to a long term ground lease (the "Ground Lease Site") and shall be secured by a first lien mortgage or deed of trust on the Improvements and Borrower's leasehold interest in the Land. Each of the remaining Mortgage Loans shall be secured by a first lien mortgage or deed of trust on the land, building and other improvements (collectively, the "Improvements") at a Property which shall be owned by Borrower in fee simple (individually, a "Fee Site" and collectively, the "Fee Sites"). At the time of the final construction draw of each Mortgage Loan, Borrower also desires to obtain an equipment loan (individually an "Equipment Loan" and collectively, the "Equipment Loans") secured by a first lien security interest in the new furniture, equipment and other trade fixtures at the Property (collectively, the "Equipment"). Upon the acceptance of this commitment letter (the "Commitment") by Borrower, FFCA commits to make to Borrower (i) up to twelve (12) Mortgage Loans, and (ii) up to twelve (12) Equipment Loans, all on the terms set forth in this Commitment (individually, a "Transaction" and collectively, the "Transactions"). A. Basic Commitment Terms. Background: This Commitment outlines certain basic terms and conditions of the Transactions; however, it is not meant to define all of the terms and conditions of the Transactions, which will be set forth more fully in a separate term sheet (the "Term Sheet") and the final documentation for each Transaction. The Transactions are subject to, among other things, the approval by FFCA's in-house site review and valuation department of the Properties and the Loan Amount (as defined below), Borrower's compliance with all of the requirements set forth in this Commitment and the receipt by FFCA of all documents and other information reasonably requested by FFCA and its counsel. Acceptance: Borrower may accept this Commitment by signing and returning a copy of this Commitment, together with a check for the Fee (as defined below), to FFCA within 10 days of the date hereof. Fee: Borrower shall pay FFCA a $24,000.00 fee for this Commitment. Refundability of Fee: Although the Fee shall be nonrefundable and fully earned when received by FFCA, all or part of the Fee may be applied to the Property Commitment Fees as described in the Property Commitment Fee Section below. If Borrower and FFCA are unable to agree upon loan documents for use in connection with this Transaction, the Fee shall be refunded to _______________________. Loan Amount Cap: Notwithstanding anything herein to the contrary, the sum of the Loan Amount and the Equipment Loan Amount for any Fee Site shall not exceed $1,000,000.00 (including financed soft costs and closing costs); and the sum of the Loan Amount and the Equipment Loan Amount for the Ground Lease Site shall not exceed $1,000,000 minus the base annual rental under the ground lease during the first year of the term of the Mortgage Loan times 10 (including financed soft costs and closing costs). Transaction Processing: Borrower will notify FFCA as soon as Borrower has identified a Property. Such notice shall include a copy of the proposed purchase agreement or ground lease, as the case may be, a description of the Property, including the proposed Improvements, a budget for the proposed 2 Improvements, a description and cost estimate for the Equipment and any other documents and information available regarding the Property (the "Property Notice"). Upon receipt of the Property Notice, FFCA's in-house site review and inspection department will inspect the Property identified by Borrower. If the identified Property is approved by FFCA, FFCA will prepare a Term Sheet in the form attached hereto as Exhibit A outlining the specific terms and conditions upon which FFCA would be willing to enter into the Transaction. FFCA will not order a title insurance commitment and phase I environmental report or instruct its counsel to begin preparing any of the documentation, until Borrower has accepted the Term Sheet and returned it to FFCA. Commitment Term: The term of this Commitment shall commence on the date this Commitment is accepted and automatically expire and be of no further force or effect 24 months after the date it is accepted by Borrower. Any Property Notice received by FFCA after such date shall be ineffective. Property Locations: Each of the Properties shall be located in one of the following states: (i) Florida, (ii) Michigan, (iii) Pennsylvania, or (iv) Texas. B. Basic Mortgage Loan Terms Property Commitment For each Transaction Borrower shall pay FFCA an Fee: underwriting and processing fee equal to the sum of one percent (1%) of the sum of the Loan Amount and the Equipment Loan Amount. Borrower shall be entitled to a $2,000.00 credit towards the Property Commitment Fee owing under each Term Sheet. One-half of the balance of the Property Commitment Fee shall be due upon Borrower's acceptance of a Term Sheet; the balance of the Property Commitment Fee shall be due at the Closing. Documentation: FFCA shall provide Borrower with FFCA's proposed form of promissory note ("Note"), loan agreement ("Loan Agreement"), mortgage or deed of trust, as determined by FFCA, and security agreement (Deed of Trust"), assignment of leases and rents, UCC-1 financing statements and such other documents as may be reasonably required by FFCA or the title company. The 3 ground lease involved in any Transaction shall be satisfactory to FFCA in its sole and absolute discretion. Loan Amount: In the case of the Mortgage Loan involving the Ground Lease Site the sum of (i) the actual and reasonable cost to construct the Improvements, as determined by FFCA's in-house site inspection and review department, (ii) the Property Commitment Fee, and (iii) such soft costs and closing costs as FFCA may approve in its sole discretion. In the case of a Mortgage Loan involving a Fee Site, the sum of (a) the fair market value of the land as determined by FFCA's in-house site inspection and review department, (b) the actual and reasonable cost to construct the Improvements, as determined by FFCA's in-house site inspection and review department, (c) the Property Commitment Fee, and (d) such soft costs and closing costs as FFCA may approve in its sole discretion. Loan Amounts on all of the Properties shall not exceed the sum of $9,600,000.00 (inclusive of the cost of the Land, the Development Price (as defined below), and all financed soft costs and closing costs. Development Price: After Borrower purchases the Land, FFCA will fund the sum of (i) the actual and reasonable hard costs incurred to construct the improvements at the Property as determined by FFCA's in-house site inspection and valuation department and (ii) Borrower's actual and reasonable out-of-pocket soft costs relating to the construction of the Improvements as may be approved as to category and amount by FFCA, in its sole discretion. Basic Construction The disbursement agreement shall provide that FFCA will Funding Terms: agree to fund the Development Price in progress payments through the title company, and Borrower will agree to complete the Improvements as provided therein. Note Terms: During the construction period, interest shall accrue at a variable rate equal to the 30-day LIBOR Rate then in effect plus 3.00%; thereafter, interest shall accrue at an annual rate equal to the 10-year U.S. Treasury Note Rate in effect 10 days prior to final disbursement of the Development Price plus 3.00%. Principal and interest shall be paid in equal monthly installments due on the first day of each month based on a twenty (20) year amortization schedule. 4 Prepayment: Subject to the terms of the Fixed Charge Coverage paragraph below, the Note may not be prepaid in whole or in part during the first five years of the term of the Note. Thereafter, Borrower may prepay the Note, in whole but not in part, on any regularly scheduled payment date; provided, however, any prepayment during the sixth year of the term of the Mortgage Loan shall include a prepayment premium equal to 5% of the then outstanding amount of the loan; any prepayment during the seventh year of the term of the Mortgage Loan shall include a prepayment premium equal to 4% of the then outstanding amount of the loan; any prepayment during the eighth year of the term of the Mortgage Loan shall include a prepayment premium equal to 3% of the then outstanding amount of the loan; any prepayment during the ninth year of the term of the Mortgage Loan shall include a prepayment premium equal to 2% of the then outstanding amount of the loan; and any prepayment during the tenth year of the term of the Mortgage Loan shall include a prepayment premium equal to 1% of the then outstanding amount of the loan. Fixed Charge Coverage Prior to the securitization (as defined below) of any of Ratio: the Mortgage Loans, Borrower will maintain an annual fixed charge ratio, tested on a consolidated basis as to all of the Properties subject to the Mortgage Loans that are being securitized equal to or greater than 1.3:1 (the "SFCCR"). FFCA will notify Borrower as to the actual date for the calculation of the SFCCR (the "SFCCR Calculation Date") at least 60 days prior to the SFCCR Calculation Date. The SFCCR Calculation Date shall be no more than 30 days prior to the anticipated date of the Securitization. In calculating the SFCCR, FFCA will use actual performance data for any Properties that have been operated for more than 4 months as of the SFCCR Calculation Date. For any Properties that have been operated for less than 4 months as of the SFCCR Calculation Date, FFCA shall use pro forma data to calculate the SFCCR. FFCA will not exclude from any Securitization any of the fully funded Mortgage Loans in FFCA's inventory if the exclusion of the Mortgage Loan causes the SFCCR on the remaining Mortgage Loans to be lower than 1.30:1. Furthermore, the FCCR Calculation Date for any Property shall be no more than one year after the date that the Mortgage Loan for such Property was fully funded. The Loan 5 Documents shall further provide that after the Mortgage Loan has been securitized, Borrower shall maintain an annual fixed charge coverage ratio, tested on a consolidated basis as to all of Borrower's Arby's restaurants, equal to or greater than 1.3:1, with such ratio to be calculated as of each fiscal year end of Borrower ("FCCR") (any annual FCCR calculation below 1.3:1 shall be subject to cure, consistent with provisions in the loan documents between Sybra and the Atherton Group). Borrower's fiscal year 1997 year end will be based on a year to date performance as there are less than 12 full months of operation from April 30, 1997, the acquisition date of Borrower by ICH. Both the SFCCR and the FCCR shall be calculated in accordance with the following formula: The ratio of the sum of: 1. Net income according to GAAP (after income tax); plus 2. Income tax; plus 3. Interest expense, plus 4. All non-cash charges including depreciation and amortization; plus 5. All corporate and regional overhead (defined as non-store level general and administrative expense consistent with the method of accounting used for Borrower's 1996 audited report, including, but not limited to, expenses related to automobiles, administrative fees, legal, accounting and other professional services, office supplies, travel and entertainment; plus 6. Non-recurring expenses; minus 7. A standardized management fee representing 2.0% of gross sales for any 12 month period; plus 8. Rent expense (defined as 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 and inactive units); 6 To the sum of: 1. All corporate debt service for the period being measured (interest and required principal payments during such period); plus 2. Rent expense as defined above in number 8 above; plus 3. Interest and required principal payments on all Capital Lease obligations during such period. If Borrower does not achieve either the required SFCCR or the FCCR, within 30 days following notice from FFCA, Borrower shall be required to cure such failure through one of the following remedies: (i) pay off the Mortgage Loan(s) on the poorest performing Property or Properties, (ii) prepay the Mortgage Loan(s) on the poorest performing Property or Properties by an amount sufficient to raise the ratio to the required level and the corresponding Note or Notes shall be amended to reamortize the remaining payments due thereunder, (iii) substitute the poorest performing Properties with similar Properties upon terms that are mutually acceptable to the parties, or (iv) pay off the Notes on the poorest performing Properties and enter into a sale-leaseback transaction with FFCA on terms and conditions that are mutually satisfactory to the parties. Closing Costs: Borrower shall pay its attorneys' fees, the cost of FFCA's in-house site inspection expenses, FFCA's reasonable attorneys' fees, the cost of the phase I environmental report, and all other Mortgage Loan closing costs, including, without limitation, all mortgage and stamp taxes, construction consultant fees, soil report expenses, disbursement agent costs, survey expenses, and title insurance premiums, and escrow, filing and recording fees. Basic Construction The Loan Agreement shall provide that FFCA will agree to Funding Terms: fund the Loan Amount in progress payments through the title company and Borrower will agree to complete the Improvements as provided therein. 7 C. Basic Equipment Loan Terms: Documentation: FFCA's counsel will prepare and submit to Borrower the form of equipment note (the "Equipment Note"), equipment loan agreement (the "Equipment Loan Agreement"), security agreement (the "Security Agreement") and UCC-1 Financing Statements previously agreed upon by FFCA and Borrower. The Security Agreement shall grant FFCA a first priority purchase money security interest in the Equipment, and the Equipment Loan Agreement shall (i) contain such representations, warranties, covenants and agreements as are customary in loan transactions of this type, and (ii) provide that Borrower will indemnify FFCA against all claims, suits and costs whatsoever relating to any breach of Borrower's representations and warranties. At the Equipment Loan closing, Borrower shall (i) provide FFCA with proof of insurance and copies of all bills of sale, invoices and purchase agreements relating to the Equipment, and (ii) execute the Equipment Note, the Equipment Loan Agreement, the Security Agreement, the UCC-1 financing statements and such other documents as may be reasonably required by FFCA or the title company (collectively, the "Equipment Loan Documents"). Equipment The actual and reasonable cost of the Equipment at each Loan Amount: Property, but in no event shall the cost of the Equipment at all of the Properties exceed the sum of $2,400,000.00 in the aggregate or the cost of the Equipment at any Property exceed $200,000.00. Note Terms: Interest shall accrue at the rate per annum equal to the 10-year U.S. Treasury Note Rate in affect 10 days prior to closing plus 3.00%. Principal and interest shall be paid in equal monthly installments due on the first day of each month based on a seven (7) year amortization schedule. Prepayment: Borrower may not prepay any Note in whole or in part during the first four (4) years thereof; thereafter, Borrower may prepay the Note in whole only on any regularly scheduled payment date; provided, however, any prepayment during the fifth year of the term of the Equipment Loan shall include a prepayment premium equal to 3% of the then outstanding amount of the 8 Equipment Loan; any prepayment during the sixth year of the term of the Equipment Loan shall include a prepayment premium equal to 2% of the then outstanding amount of the Equipment Loan; and any prepayment during the seventh year of the term Equipment Loan shall include a prepayment premium equal to 1% of the then outstanding amount of the Equipment Loan. Equipment Loan The date of the final funding of the Loan Amount. Closing Date: D. Other Material Transaction Terms. Ground Lease Approval: Prior to the closing of any Transaction involving a Ground Lease Site, FFCA's Legal Department shall have received and approved the related ground lease. Financial Statements: Within forty-five days following the end of each quarter during the Commitment Term, Borrower shall provide FFCA with Borrower's financial statements for the preceding quarter. Securitization: The Loan Documents shall provide that FFCA may, at any time, sell, transfer or assign any Note, Deed of Trust and any of the other Loan Documents and Equipment Loan Documents, and any or all servicing rights with respect thereto (each, a "Transfer"), or grant participations therein (each, a "Participation"), or complete an asset securitization vehicle selected by FFCA, in accordance with all requirements which may be imposed by the investors or the rating agencies involved in such securitized financing transaction, as selected by FFCA, or which may be imposed by applicable securities, tax or other laws or regulations, including, without limitation, laws relating to FFCA's status as a real estate investment trust (each, a "Securitization"). Borrower agrees to reasonably cooperate in good faith with FFCA in connection with any Transfer, Participation and/or Securitization, including, without limitation, (i) providing such documents, financial and other data, and other information and materials (the "Disclosures") which would typically be required with respect to Borrower by a purchaser, transferee, assignee, servicer, participant, investor or rating agency involved with respect to such Transfer, Participation and/or the Securitization, as applicable; provided, however, Borrower shall not be required to make Disclosures of any 9 confidential information or any information which has not previously been made public unless required by applicable federal or state securities laws; and (ii) amending the terms of the transactions evidenced by the Loan Documents to the extent necessary so as to satisfy the requirements of purchasers, transferees, assignees, servicers, participants, investors or selected rating agencies involved in any such Transfers, Participations or Securitization, so long as such amendments would not have a material adverse effect upon Borrower or the transactions contemplated by this Commitment or make any of the mortgage and equipment loan repayment or covenants more burdensome on the Borrower. Borrower consents to FFCA providing the Disclosures, as well as any other information which FFCA may now have or hereafter acquire with respect to the Property or the financial condition of Borrower, to each purchaser, transferee, assignee, servicer, participant, investor or rating agency involved with respect to each Transfer, Participation and/or Securitization, as applicable. FFCA shall pay the reasonable and customary expenses incurred in connection with the performance of the obligations under this Paragraph. Cross-Default and The Mortgage Loan Documents and Equipment Loan Documents Cross- between FFCA and Borrower with respect to the Mortgage Collateralization: Loans and the Equipment Loans shall be cross-defaulted and cross-collateralized with all other loan agreements, notes, mortgages, deeds of trust and other agreements in connection with the Transactions now or hereafter entered into between (or, in the case of notes and guaranties, in favor of) (i) FFCA, Franchise Finance Corporation of America or any of its other subsidiaries and affiliates, on the one hand, and (ii) Borrower, on the other hand. Contingencies: Prior to the Closing, FFCA shall have received a satisfactory post acquisition balance sheet and 1997 pro-forma income statement for Sybra, Inc. E. Other Matters. THE FOREGOING SUMMARY OF BASIC TERMS AND CONDITIONS IS NOT MEANT TO BE NOR SHOULD IT BE CONSTRUED AS AN ATTEMPT TO DEFINE ALL OF THE TERMS AND CONDITIONS REGARDING THE TRANSACTIONS AND THE EQUIPMENT LOANS. INSTEAD, IT IS INTENDED ONLY TO OUTLINE 10 CERTAIN BASIC POINTS OF THE BUSINESS UNDERSTANDING AROUND WHICH LEGAL DOCUMENTATION WILL BE STRUCTURED. THE OUTLINED TERMS AND CONDITIONS ARE SUBJECT TO FINAL DOCUMENTATION SATISFACTORY TO ALL PARTIES AND COMPLETE LEGAL REVIEW AND APPROVAL OF ALL PERTINENT MATTERS. This Commitment and the Transactions and the Equipment Loans contemplated hereby (i) shall be subject to, in FFCA's judgment, there being no adverse material change in Borrower's financial condition, (ii) shall not be assignable by Borrower or relied upon by any third party without the prior written consent of FFCA, and (iii) shall be governed by the internal laws of the State of Arizona, without giving effect to conflict of law principles. This Commitment may be assigned by FFCA without the consent of Borrower. This Commitment (i) supersedes any previous discussions, agreements and/or proposal/commitment letters relating to the Transactions, and the Equipment Loans, and (ii) may only be amended by a written agreement executed by FFCA and Borrower. FFCA reserves the right to cancel this Commitment in the event Borrower has made any misrepresentations or has withheld any information with regard to the Transactions. ANY ACTION ARISING OUT OF THIS COMMITMENT SHALL BE PROSECUTED ONLY IN THE STATE OR FEDERAL COURTS LOCATED IN THE STATE OF ARIZONA. FFCA AND BORROWER WAIVES ANY RIGHT MAY HAVE TO A TRIAL BY JURY IN RESPECT TO ANY ACTION ARISING OUT OF THIS COMMITMENT. BORROWER WAIVES ANY RIGHT BORROWER HAS OR MAY HAVE TO SEEK OR RECOVER FROM FFCA OR ANY OF ITS AFFILIATES, OFFICERS, DIRECTORS AND EMPLOYEES ANY AWARD OF SPECIAL, INDIRECT, CONSEQUENTIAL OR PUNITIVE DAMAGES IN CONNECTION WITH ANY DEFAULT BY FFCA UNDER THIS COMMITMENT. Please indicate your acceptance of this Commitment by having a copy of this Commitment signed and returned to FFCA to the attention of Maggie Craft, FFCA Acquisition Corporation, 17207 North Perimeter Drive, Scottsdale, Arizona 85255, together with a check in the sum of $24,000.00 payable to "FFCA Acquisition Corporation", within ten (10) days from the date hereof or this Commitment will automatically expire. FFCA Acquisition Corporation, a Delaware corporation /s/ Rob Roach Rob Roach Senior Vice President Corporate Finance 11 cc: Mr. Charles Hyslop ACCEPTED AND AGREED TO on this 1st day of August, 1997. Sybra, Inc., a Michigan corporation By /s/ James R. Arabia ------------------- Printed Name James R. Arabia Title Chairman EXHIBIT A --------- TERM SHEET ---------- This Term Sheet is subject to the terms and conditions of that certain commitment letter dated July 15, 1997, between FFCA Acquisition Corporation ("FFCA"), as lender, and Sybra, Inc. ("Borrower"), as borrower (the "Commitment Letter"). In the event of any conflict between the provisions of the Commitment Letter and the terms of this Term Sheet, the terms of the Commitment Letter shall prevail. Any capitalized terms used herein without definition shall have the same meaning given in the Commitment Letter. Date: -------------------------------------- Lender: FFCA. Borrower: Borrower. Property Location: -------------------------------------- FFCA Store Number: -------------------------------------- Property Legal Description: See attached Exhibit "A" Property Type: Fee Site Ground Lease Site ---- ---- Loan Amount: -------------------------------------- Property Commitment Fee: -------------------------------------- Interest Rate: During the construction period, interest shall accrue at a variable rate equal to the 30-day LIBOR Rate then in effect plus 3.00%; thereafter, interest shall accrue at an annual rate equal to the 10-year U.S. Treasury Note Rate in effect 10 days prior to final disbursement of the Development Price plus 3.00%. Principal and interest shall be paid in equal monthly installments due on the first day of each month based on a twenty (20) year amortization schedule. Equipment Loan Amount: -------------------------------------- Interest Rate: Interest shall accrue at an annual rate equal to the 10-year U.S. Treasury Note Rate in effect 10 days prior to final disbursement of the Development Price plus 3.00%. Principal and interest shall be paid in equal monthly installments due on the first day of each month based on a seven (7) year amortization schedule. It is expressly acknowledged that the Transaction is subject to Borrower satisfying all of the conditions and requirements contained in the Commitment Letter. ACCEPTED AND AGREED TO this _ day of _______________________, 1997. FFCA: BORROWER: FFCA ACQUISITION CORPORATION, SYBRA, INC. a Delaware corporation a Michigan corporation By By ----------------------------------- ------------------------------------- Printed Name: Printed Name: ------------------------ -------------------------- Title Title -------------------------------- ---------------------------------- EX-10.16 6 FORM OF LOAN AGREEMENT FORM OF LOAN AGREEMENT THIS LOAN AGREEMENT (this "Agreement") is made as of , 1997, by and between FFCA ACQUISITION CORPORATION, a Delaware corporation ("FFCA"), whose address is 17207 North Perimeter Drive, Scottsdale, Arizona 85255, and SYBRA, INC., a Michigan corporation ("Debtor"), whose address is 8300 Dunwoody Place, Suite 300, Atlanta, Georgia 30350-1296. PRELIMINARY STATEMENT: Unless otherwise expressly provided herein, all defined terms used in this Agreement shall have the meanings set forth in Section 1. Debtor has requested from FFCA, and applied for, the Loan to provide long-term financing for the Premises, and for no other purpose whatsoever. The Loan will be evidenced by the Note and secured by a first priority security interest in the Premises pursuant to the Deed of Trust. FFCA has committed to make the Loan pursuant to the terms and conditions of the Commitment, this Agreement and the other Loan Documents. AGREEMENT: In consideration of the mutual covenants and provisions of this Agreement, the parties agree as follows: 1. Definitions. The following terms shall have the following meanings for all purposes of this Agreement: "Affiliate" means any Person controlling, controlled by or under common control with any other Person. For purposes of this definition, "control" (including "controlled by" and "under common control with") means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership or voting securities or otherwise. "Closing" shall have the meaning set forth in Section 4. "Closing Date" means the date specified as the closing date in Section 4. "Code" means the United States Bankruptcy Code, 11 U.S.C. Sec. 101 et seq., as amended. "Commitment" means that certain Commitment Letter dated July 25, 1997, between FFCA and Debtor, and any amendments or supplements thereto. "Counsel" means legal counsel to Debtor licensed in the state in which the Premises are located, and legal counsel to Debtor licensed in the state in which Debtor is incorporated, as selected, in each case, by Debtor and approved by FFCA in its reasonable discretion. "Deed of Trust" means the deed of trust or mortgage, assignment of rents and leases, security agreement and fixture filing to be executed for the Premises substantially in the form of Exhibit C attached to this Agreement. "DeMinimis Amounts" means quantities of chemicals and products containing Hazardous Materials in quantities customary and necessary for the intended use of the Premises (including but not limited to cleaning supplies, insecticides, paints, paint removers, toner for copiers, etc.) provided such use, storage or handling of such DeMinimis Amounts of Hazardous Materials are in compliance with Environmental Laws. "Environmental Condition" means any condition with respect to soil, surface waters, groundwaters, land, stream sediments, surface or subsurface strata, ambient air and any environmental medium comprising or surrounding the Premises, whether or not yet discovered, which could or does result in any damage, loss, cost, expense, claim, demand, order or liability to or against Debtor or FFCA by any third party (including, without limitation, any government entity), including, without limitation, any condition resulting from the operation of Debtor's business and/or the operation of the business of any other property owner or operator in the vicinity of the Premises and/or any activity or operation formerly conducted by any person or entity on or off the Premises. "Environmental Indemnity Agreement" means that certain Environmental Indemnity Agreement to be executed by Debtor for the benefit of FFCA for the Premises substantially in the form of Exhibit F attached to this Agreement. "Environmental Laws" means any present and future federal, state and local laws, statutes, ordinances, rules, regulations and the like relating to protection of human health or the environment, relating to Hazardous Materials, relating to liability for or costs of Remediation or prevention of Releases or relating to liability for or costs of other actual or threatened danger to human health or the environment. "Environmental Laws" includes, but is not limited to, the following statutes, as amended, any successor thereto, and any regulations promulgated pursuant thereto, and any state or local statutes, ordinances, rules, regulations and the like addressing similar issues: the Comprehensive Environmental Response, Compensation and Liability Act; the Emergency Planning and Community Right-to-Know Act; the Hazardous Materials Transportation Act; the Resource Conservation and Recovery Act (including but not limited to Subtitle I relating to underground storage tanks); the Solid Waste Disposal Act; the Clean Water Act; the Clean Air Act; the Toxic Substances Control Act; the Safe Drinking Water Act; the Occupational Safety and Health Act; the Federal Water Pollution Control Act; the Federal Insecticide, Fungicide and Rodenticide Act; the Endangered Species Act; the National Environmental Policy Act; and the River and Harbors Appropriation Act. "Environmental Laws" also includes, but is not limited to, any present and future federal, state and local laws, statutes, ordinances, rules, regulations and the like: conditioning transfer of property upon a negative declaration or other approval of a governmental authority of the environmental condition of the property; requiring notification or disclosure of Releases or other environmental condition of the Premises to any governmental authority or other person or entity, whether or not in connection with transfer of title to or interest in property; imposing conditions or requirements in connection with permits or other authorization for lawful activity. "Equipment Loan" means that certain equipment loan described in the Equipment Loan Agreement. "Equipment Loan Agreement" means that certain Equipment Loan Agreement dated as of the date of this Agreement between FFCA and Debtor. "Equipment Loan Amount" shall have the meaning set forth in the Equipment Loan Agreement. "Event of Default" has the meaning set forth in Section 10. "Fee" means an underwriting, site assessment, valuation, processing and commitment fee equal to one percent (1%) of the Loan Amount, which Fee shall be payable as set forth in Section 3. "Hazardous Materials" means (a) any toxic substance or hazardous waste, substance or related material, or any pollutant or contaminant; (b) radon gas, asbestos in any form which is or could become friable, urea formaldehyde foam insulation, transformers or other equipment which contains dielectric fluid containing levels of polychlorinated biphenyls in excess of federal, state or local safety guidelines, whichever are more stringent, or any petroleum product; (c) any other substance, gas, material or chemical which is or may be defined as or included in the definition of "hazardous substances," "toxic substances," "hazardous materials," hazardous wastes" or words of similar import under any Environmental Laws. "Licensor" means ARBY'S, INC., a Delaware corporation, and its successors. "Loan" means the loan described in Section 2. The Loan will be evidenced by the Note and secured by the Deed of Trust. "Loan Amount" means the amount set forth in Section 2. The sum of the Loan Amount and the Equipment Loan Amount shall not exceed $1,000,000.00. "Loan Documents" means, collectively, this Agreement, the Note, the Deed of Trust, the Environmental Indemnity Agreement, the UCC-1 Financing Statements, the Commitment and all other documents executed in connection therewith or contemplated thereby. "Note" means the promissory note substantially in the form of Exhibit B attached to this Agreement to be executed by Debtor in favor of FFCA. The Note will be executed in the Loan Amount. "Other Note" or "Other Notes" means, as the context requires, any one or all promissory notes (other than the Note) or debt instruments executed by Debtor and payable to FFCA or any FFCA Affiliate. "Other Property" or "Other Properties" means, as the context requires, any one or all parcels of real estate, owned or leased by Debtor, wherever located (other than the Premises), that are encumbered by one or more deeds of trust, mortgages or other lien instruments in favor of FFCA or any FFCA Affiliate to secure payment of the Other Note or Other Notes. "Permitted Exceptions" means real estates taxes, not then due or payable, and such other exceptions to title as may be approved in writing by FFCA in its reasonable discretion. "Person" or "Persons" means, as the context requires, any individual, corporation, trust, partnership, limited liability company, unincorporated organization, governmental authority or any other form of entity. "Premises" means the parcel or parcels of real estate described in Exhibit A attached hereto, and all rights, privileges and appurtenances associated therewith, and all buildings, fixtures and other improvements now or hereafter located thereon (whether or not affixed to such real estate). "Release" means any presence, release, deposit, discharge, emission, leaking, spilling, seeping, migrating, injecting, pumping, pouring, emptying, escaping, dumping, disposing or other movement of Hazardous Materials. "Remediation" means any response, remedial, removal, or corrective action, any activity to cleanup, detoxify, decontaminate, contain or otherwise remediate any Hazardous Material, any actions to prevent, cure or mitigate any Release, any action to comply with any Environmental Laws or with any permits issued pursuant thereto, any inspection, investigation, study, monitoring, assessment, audit, sampling and testing, laboratory or other analysis, or any evaluation relating to any Hazardous Materials. "Securitization" shall have the meaning set forth in Section 13.P hereof. "Securitized Loan Pool" means any pool or group of loans that are part of any Securitization transaction. "Soft Costs" means certain fees, costs and expenses relating to the transaction contemplated by this Agreement, including, without limitation, the cost of title insurance, the reasonable attorneys' fees of Debtor, the cost of surveys, stamp taxes, transfer taxes, and escrow and recording fees, which shall be approved as to category and amount by FFCA in its (i) reasonable discretion to the extent such fees, costs and expenses do not exceed $10,000.00, and (ii) sole discretion to the extent such fees, costs and expenses exceed $10,000.00. "Threatened Release" means a substantial likelihood of a Release which requires action to prevent or mitigate damage to the soil, surface waters, groundwaters, land, stream sediments, surface or subsurface strata, ambient air or any other environmental medium comprising or surrounding the Premises which may result from such Release. "Title Company" means the title insurance company described in Section 4. "UCC-1 Financing Statements" means such UCC-1 Financing Statements as FFCA shall require to be executed and delivered by Debtor. 2. Transaction. On the terms and subject to the conditions set forth in the Loan Documents, FFCA shall make the Loan. The Loan will be evidenced by the Note and secured by the Deed of Trust. Debtor shall repay the outstanding principal amount of the Loan together with interest thereon in the manner and in accordance with the terms and conditions of the Note and the other Loan Documents. The Note will mature on the twentieth anniversary of the Note. The Loan Amount shall be $803,019.00, inclusive of Soft Costs. The Loan shall be advanced at the Closing in cash or its equivalent subject to any prorations and adjustments required by this Agreement. 3. Fee. Debtor paid FFCA a portion of the Fee in the amount of $2,000.00 pursuant to the Commitment, and such portion was deemed nonrefundable and fully earned when received. The remainder of the Fee shall be paid at the Closing and shall be deemed nonrefundable and fully earned upon the Closing. The Fee constitutes FFCA's underwriting, valuation, processing and commitment fee. In the event the transaction set forth in this Agreement fails to close due to a breach or default by Debtor under this Agreement, FFCA shall retain the portion of the Fee received by FFCA (without affecting or limiting FFCA's remedies set forth in this Agreement). 4. Closing. (a) The Loan shall be closed (the "Closing") within 30 days following the satisfaction of all of the terms and conditions contained in this Agreement, but in no event shall the date of the Closing be extended beyond November 26, 1997 (the "Closing Date"), unless such extension shall be approved by FFCA in its sole discretion. (b) FFCA has ordered a title insurance commitment for the Premises from Lawyers Title Insurance Corporation or an alternative title company approved by FFCA ("Title Company"). Prior to the Closing Date, the parties hereto shall deposit with Title Company all documents and moneys necessary to comply with their obligations under this Agreement. Title Company shall not cause the transaction to close unless and until it has received written instructions from FFCA to do so. All costs of such transaction shall be borne by Debtor, including, without limitation, FFCA's reasonable and actual in-house site inspection costs and expenses, the cost of the environmental reports to be delivered pursuant to Section 9.E, the reasonable fees and expenses of FFCA's attorneys, the cost of title insurance, the attorneys' fees of Debtor, the cost of the surveys, stamp taxes, transfer fees, escrow and recording fees and reasonable and actual site inspection fees for the Premises. All real and personal property and other applicable taxes and assessments and other charges relating to the Premises which are due and payable on or prior to the Closing Date as well as taxes and assessments due and payable subsequent to the Closing Date but which Title Company requires to be paid at Closing as a condition to the issuance of the title insurance policy described in Section 9.C, shall be paid by Debtor at or prior to the Closing, and all other taxes and assessments shall be paid by Debtor. The closing documents shall be dated as of the Closing Date. Debtor and FFCA hereby employ Title Company to act as escrow agent in connection with this transaction. Debtor and FFCA will deliver to Title Company all documents, pay to Title Company all reasonable sums and do or cause to be done all other things reasonably necessary or required by this Agreement, in the reasonable judgment of Title Company, to enable Title Company to comply herewith and to enable any title insurance policy provided for herein to be issued. Title Company is authorized to pay, from any funds held by it for FFCA's or Debtor's respective credit all amounts necessary to procure the delivery of such documents and to pay, on behalf of FFCA and Debtor, all charges and obligations payable by them, respectively. Debtor will pay all charges payable by it to Title Company. Title Company is authorized, in the event any conflicting demand is made upon it concerning these instructions or the escrow, at its election, to hold any documents and/or funds deposited hereunder until an action shall be brought in a court of competent jurisdiction to determine the rights of Debtor and FFCA or to interplead such documents and/or funds in an action brought in any such court. Deposit by Title Company of such documents and funds, after deducting therefrom its charges and its reasonable and actual expenses and attorneys' fees incurred in connection with any such court action, shall relieve Title Company of all further liability and responsibility for such documents and funds. Title Company's receipt of this Agreement and opening of an escrow pursuant to this Agreement shall be deemed to constitute conclusive evidence of Title Company's agreement to be bound by the terms and conditions of this Agreement pertaining to Title Company. Disbursement of any funds shall be made by check, certified check or wire transfer, as directed by FFCA. Title Company shall be under no obligation to disburse any funds represented by check or draft, and no check or draft shall be payment to Title Company in compliance with any of the requirements hereof, until it is advised by the bank in which such check or draft is deposited that such check or draft has been honored. The employment of Title Company as escrow agent shall not affect any rights of subrogation under the terms of any title insurance policy issued pursuant to the provisions thereof. 5. Representations and Warranties of FFCA. The representations and warranties of FFCA contained in this Section are being made to induce Debtor to enter into this Agreement and consummate the transactions contemplated herein, and Debtor has relied, and will continue to rely, upon such representations and warranties from and after the execution of this Agreement and the Closing. FFCA represents and warrants to Debtor as follows: A. Organization of FFCA. FFCA has been duly formed, is validly existing and has taken all necessary action to authorize the execution, delivery and performance by FFCA of this Agreement. B. Authority of FFCA. The person who has executed this Agreement on behalf of FFCA is duly authorized so to do. C. Enforceability. Upon execution by FFCA, this Agreement shall constitute the legal, valid and binding obligation of FFCA, enforceable against FFCA in accordance with its terms. D. Action by FFCA. All necessary corporate action has been taken by FFCA to authorize the execution, delivery and performance of this Agreement by FFCA and of the other documents, instruments and agreements provided for herein by FFCA. All representations and warranties of FFCA made in this Agreement shall be and will remain true and complete as of the Closing Date as if made and restated in full as of such date, and shall survive the Closing. 6. Representations and Warranties of Debtor. The representations and warranties of Debtor contained in this Section are being made to induce FFCA to enter into this Agreement and consummate the transactions contemplated herein, and FFCA has relied, and will continue to rely, upon such representations and warranties from and after the execution of this Agreement and the Closing. Debtor represents and warrants to FFCA as follows: A. Information and Financial Statements. Debtor has delivered to FFCA financial statements (either audited financial statements or, if Debtor does not have audited financial statements, certified financial statements) and certain other written information concerning its financial condition and the Premises, which financial statements and other written information are true, correct and complete in all material respects; and no material adverse change has occurred with respect to any such financial statements or other written information provided to FFCA since the date of such financial statements and other written information, except as otherwise disclosed in writing to FFCA. Debtor understands that FFCA is relying upon such financial statements and other written information and Debtor represents that such reliance is reasonable. All such financial statements were prepared in all material respects in accordance with generally accepted accounting principles consistently applied and accurately reflect as of the date of such financial statements the financial condition of each individual or entity to which they pertain. B. Organization and Authority of Debtor. (1) Debtor is duly incorporated, validly existing and in good standing under the laws of its state of incorporation and qualified as a foreign corporation to do business in any jurisdiction where such qualification is required. All necessary corporate action has been taken to authorize the execution, delivery and performance of this Agreement and of the other documents, instruments and agreements provided for herein. (2) The persons who have executed this Agreement on behalf of Debtor are duly authorized so to do. C. Enforceability of Documents. Upon execution by Debtor, the Loan Documents shall constitute the legal, valid and binding obligations of Debtor, enforceable against Debtor in accordance with their respective terms, subject to limitations imposed by law in connection with bankruptcy, insolvency, fraudulent conveyance, moratorium, reorganization or similar laws affecting creditors' rights generally and general equitable principles. D. Litigation. There are no suits, actions, proceedings or investigations pending or, to Debtor's knowledge, threatened against or involving Debtor or the Land before any court, arbitrator, or administrative or governmental body which might reasonably result in any material adverse change in the contemplated business, condition, worth or operations of Debtor or the Premises. E. Absence of Breaches or Defaults. Debtor is not, and the authorization, execution, delivery and performance of the Loan Documents by Debtor will not result, in any breach or default under any other document, instrument or agreement to which Debtor is a party or by which Debtor, the Land or any of the property of Debtor is subject or bound, where such breach or default might reasonably be expected to result in a material adverse effect on the business, operations, assets or financial condition of Debtor. The authorization, execution, delivery and performance of this Agreement and the documents, instruments and agreements provided for herein will not violate any applicable law, statute, regulation, rule, ordinance, code, rule or order, where such violation might reasonably be expected to result in a material adverse effect on the business, operations, assets or financial condition of Debtor. F. Utilities. At the Closing Date, all utility services and easements necessary for the use and occupancy of the Premises and the operation thereof for their intended purpose are available at the Premises and at the improvements located thereon, including water supply, storm and sanitary sewer facilities, gas, electric and telephone facilities. G. Intended Use and Zoning; Compliance With Laws. Debtor intends to use the Premises solely for the operation of a Licensor restaurant, and related ingress, egress and parking, and for no other purposes. Such intended use will not violate any zoning or other governmental requirement applicable to the Premises. The Premises comply in all material respects with all applicable statutes, regulations, rules, ordinances, codes, licenses, permits, orders and approvals of any governmental agencies, departments, commissions, bureaus, boards or instrumentalities of the United States, the state in which the Premises are located and all political subdivisions thereof, including, without limitation, all health, building, fire, safety and other codes, ordinances and requirements, all applicable standards of the National Board of Fire Underwriters and the Americans With Disabilities Act of 1990, where such failure to so comply might reasonably be expected to result in a material adverse effect on the business, operations, assets or financial condition of Debtor. H. Area Development; Wetlands. No condemnation or eminent domain proceedings affecting the Premises have been commenced or, to Debtor's knowledge, are contemplated. To Debtor's knowledge, the area where the Premises are located has not been declared blighted by any governmental authority. To Debtor's knowledge, the Premises and/or the real property bordering the Premises is not designated by any applicable federal, state and/or local governmental authority as a wetlands. I. Licenses and Permits; Access. Prior to the Closing Date, Debtor shall have obtained all required licenses and permits, both governmental and private, to use and operate the Premises in the intended manner, where the failure to obtain such licenses and permits might reasonably be expected to result in a material adverse effect on the Premises or on Debtor's ability to use or operate the Premises in the manner set forth in the Loan Documents. There are adequate rights of access to public roads and ways available to the Premises to permit full utilization of the Premises for their intended purposes and all such public roads and ways have been completed and dedicated to public use. J. Condition of Premises. As of the Closing Date, the Premises will be in good condition and repair, free from structural defects and well-maintained. K. Environmental. To Debtor's knowledge, and except as set forth in Exhibit D attached hereto: (i) no Hazardous Materials have been disposed of or otherwise Released on or about the Premises causing or resulting in an Environmental Condition; (ii) the Premises does not contain Hazardous Materials or underground storage tanks except in compliance with Environmental Laws; (iii) there is no Release migrating to the Premises from adjacent properties that would cause or result in an Environmental Condition; (iv) there is no past or present non-compliance with Environmental Laws, or with permits issued pursuant thereto, in connection with the Premises; (v) Debtor does not know of, and has not received, any written or oral notice or other communication from any person or entity (including but not limited to a governmental entity) relating to Hazardous Materials or Remediation thereof, of possible liability of any person or entity pursuant to any Environmental Law, other Environmental Conditions in connection with the Premises, or any actual or potential administrative or judicial proceedings in connection with any of the foregoing; and (vi) Debtor has truthfully and fully provided to FFCA, in writing, any and all information relating to Environmental Conditions in, on, under or from the Premises that is known to Debtor and that is contained in Debtor's files and records, including but not limited to any reports relating to Hazardous Materials in, on, under or from the Premises and/or to Environmental Conditions of the Premises. L. Title to Premises; First Priority Lien. Upon Closing, title to the Premises will be vested in Debtor, free and clear of all liens, encumbrances, charges and security interests of any nature whatsoever, except the Permitted Exceptions. Upon Closing, FFCA shall have a first priority lien on the Premises pursuant to the Deed of Trust and the UCC-1 Financing Statements. M. No Other Agreements and Options. Neither Debtor nor the Premises are subject to any commitment, obligation, or agreement, including, without limitation, any right of first refusal, option to purchase or lease granted to a third party, which could or would prevent or hinder FFCA in making the Loan or prevent or hinder Debtor from fulfilling its obligations under this Agreement or the other Loan Documents. N. No Mechanics' Liens. Other than Permitted Exceptions, there are no outstanding accounts payable, mechanics' liens, or rights to claim a mechanics' lien in favor of any materialman, laborer, or any other person or entity in connection with labor or materials furnished to or performed on any portion of the Premises; no work has been performed or is in progress nor have materials been supplied to the Premises or agreements entered into for work to be performed or materials to be supplied to the Premises prior to the date hereof, which will not have been fully paid for on or before the Closing Date or which might provide the basis for the filing of such liens against the Premises or any portion thereof; Debtor shall be responsible for any and all claims for mechanics' liens and accounts payable that have arisen or may subsequently arise due to agreements entered into for and/or any work performed on, or materials supplied to the Premises prior to the Closing Date; Debtor has made no contract or arrangement of any kind the performance of which by the other party thereto would give rise to a lien on the Premises except as permitted by the Disbursement Agreement; and (except for mechanic's liens or accounts payable relating to work performed at the Premises pursuant to the express written request of FFCA, the performance of which was not otherwise required under any of the Loan Documents) Debtor shall and does hereby agree to defend, indemnify and forever hold FFCA and FFCA's designees harmless from and against any and all such mechanics' lien claims, accounts payable or other commitments relating to the Premises. O. No Reliance. Debtor acknowledges that FFCA is not affiliated with, and has no business relationship with, Licensor, other than landlord/tenant and/or creditor/debtor relationships unrelated to the transaction set forth in this Agreement, and that FFCA did not prepare or assist in the preparation of any of the projected financial information used by Debtor in analyzing the economic viability and feasibility of the transaction contemplated by this Agreement. Furthermore, Debtor acknowledges that it has not relied upon, nor may it hereafter rely upon, the analysis undertaken by FFCA in determining the amount of the Loan, and such analysis will not be made available to Debtor. P. Licensor Provisions. Prior to the Closing Date, Debtor will have entered into a license agreement with Licensor for the conduct of business at the Premises. Such license agreement will be in full force and effect, will permit Debtor to operate the Premises as a Licensor restaurant, and will have a term which will not expire before the scheduled maturity date of the Note. All representations and warranties of Debtor made in this Agreement shall be and will remain true and complete as of the Closing Date as if made and restated in full as of such Closing Date and shall survive the Closing. 7. Covenants. Debtor covenants to FFCA from and after the Closing Date as follows: A. Inspections. Debtor shall, at all reasonable times upon reasonable notice to Debtor (except in cases of emergency), (i) provide FFCA and FFCA's officers, employees, agents, advisors, attorneys, accountants, architects, and engineers (collectively, "FFCA's Representatives") with access to the Premises, all drawings, plans, and specifications for the improvements located on the Premises in possession of Debtor, all engineering reports relating to the Premises in the possession of Debtor, the files and correspondence relating to the ownership of the Premises, and (ii) allow such persons to make such inspections or tests (other than an inspection or test of any Environmental Conditions), copies, and verifications as FFCA considers reasonably necessary; provided, however, that (except as otherwise provided in any of the Loan Documents, including the Environmental Indemnity Agreement) prior to an Event of Default, FFCA may not, without the prior written consent of Debtor, which consent shall not be unreasonably withheld, (aa) seek any information relative to Debtor from any of Debtor's vendors or suppliers (other than Licensor); or (bb) contract with any third parties to make inspections or tests at the Premises. Notwithstanding the foregoing, in the event that FFCA has reason to believe that an Environmental Condition may exist on the Premises, or, upon and following an Event of Default hereunder (after the expiration of any applicable cure or grace periods), if FFCA shall have another reasonable basis for requiring or performing it, FFCA may perform or cause Debtor to perform any environmental site assessment or other investigation of such Environmental Condition in accordance with the terms of the Deed of Trust. In each case, FFCA shall be responsible at its sole cost and expense for restoring the Premises, if applicable, following completion of any such inspection by FFCA and FFCA's Representatives, to substantially the same condition that existed prior to FFCA's inspection. In each case, any inspection of the Premises by FFCA and FFCA's Representatives shall be done in a manner that minimizes the disruption to Debtor's business. B. Fixed Charge Coverage Ratio. (i) Fixed Charge Coverage Ratio. Until such time as all of Debtor's obligations under the Note and the Other Notes are paid, satisfied and discharged in full, Debtor shall maintain a Fixed Charge Coverage Ratio at the Premises and at all of the Other Properties of at least 1.3:1, provided that the Note (and the Premises) shall only be included in the Fixed Charge Coverage Ratio determination hereunder if the term of the Note (at the time of a Determination Date, as defined hereinbelow) shall not have reached the first anniversary of the date of such Note (to be counted from the Closing) and if the Note, at the time of a Determination Date, shall not have been placed in a Securitization, and only those Other Notes (and corresponding premises) that have not been placed in a Securitization whose terms thereof (at the time of a Determination Date) shall not have reached the first anniversary of the dates of such Other Notes (to be counted from the date of the closing in the case of a mortgage loan or from the date of the final disbursement in the case of a construction loan under such Other Notes) shall be included in the Fixed Charge Coverage Ratio to be determined pursuant to this Subsection 7.B(i). For purposes of this Subsection 7.B, the term "Fixed Charge Coverage Ratio" shall mean, with respect to the twelve month period of time (a "Twelve Month Period") preceding the date of determination (which date of determination shall be selected by FFCA)(a "Determination Date") the ratio calculated for such Twelve Month Period (a) the sum of Net Income, Debtor's income tax, Interest Expense, all non-cash charges, including, without limitation, Depreciation and Amortization, Debtor's Overhead, Debtor's non-recurring expenses determined in accordance with generally accepted accounting principles and Rent Expenses, less the Management Fee, to (b) the sum of Debtor's corporate debt service (interest and required principal) for such Twelve Month Period (including, without limitation, the FFCA Payments, Ground Lease Expense, and Equipment Payment Amount), Rent Expense and interest and required principal payments under all Capital Leases for such Twelve Month Period. FFCA shall notify Debtor of a Determination Date no later than that date that is 60 days prior to such Determination Date. A Determination Date shall occur no more frequently than once per calendar year, unless FFCA, or an Affiliate of FFCA, and Debtor, or an Affiliate of Debtor, shall have consummated a transaction evidenced by one or more Other Notes since the previous Determination Date; provided, however, that a Determination Date may occur more frequently than once per calendar year if made in connection with a Securitization. For purposes of determining the Fixed Charge Coverage Ratio pursuant to this Subsection 7.B(i) only, a Determination Date shall be no later than that date that is 30 days prior to the anticipated date of a Securitization. In calculating the Fixed Charge Coverage Ratio, FFCA shall use actual performance data for such of the Other Properties and the Premises that have been operated for more than four (4) months as of a Determination Date. For such of the Other Properties and the Premises that have been operated for less than four (4) months as of the Determination Date, FFCA shall use pro forma data to calculate the Fixed Charge Coverage Ratio. Notwithstanding the foregoing, a Fixed Charge Coverage Ratio determination made as of Debtor's 1997 fiscal year will be based on a year-to-date performance since there are less than 12 full months of operation from April 30, 1997, the date of Debtor's acquisition by I.C.H. Corporation. Furthermore, FFCA agrees not to exclude the Premises or any of the Other Properties from a Securitization if the Fixed Charge Coverage Ratio calculated, in the aggregate, on the properties that are not to be included in such Securitization will be lower than 1.3:1 as a result of such exclusion. For purposes of this Subsection 7.B, the following terms shall be defined as set forth below: "Capital Lease" shall mean any lease of any property (whether real, personal or mixed) by Debtor with respect to the Premises and all of the Other Properties, which lease or leases would, in conformity with generally accepted accounting principles consistently applied, be required to be accounted for as a capital lease or capital leases on the balance sheet of Debtor. The term "Capital Lease" shall not include any operating lease. "Debt" shall mean as directly related to the Premises and all of the Other Properties and the Twelve Month Period (i) indebtedness for borrowed money, (ii) obligations evidenced by bonds, indentures, notes or other similar instruments, (iii) obligations to pay the deferred purchase price of property or services, (iv) obligations under leases which shall have been or should be, in accordance with generally accepted accounting principles consistently applied, recorded as Capital Leases, (v) obligations under direct or indirect guarantees in respect of, and obligations (contingent or otherwise) to purchase or otherwise acquire, or otherwise to assure a creditor against loss in respect of, indebtedness or obligations of others of the kinds referred to in clauses (i) through (iv) above, and (vi) any other liability required by generally accepted accounting principles to be reported on Debtor's balance sheet. "Debtor's Overhead" shall mean all non-store level general and administrative expenses of Debtor on a corporate- and regional-wide basis allocated on a fair and reasonable basis to the Premises and all of the Other Properties consistent with the method of accounting employed by Debtor in preparing Debtor's 1996 audited financial statements and report, including, without limitation, expenses related to automobiles, administrative fees and costs, legal fees and costs, accounting and other professional fees and costs, office supplies, and travel and entertainment costs and expenses. "Depreciation and Amortization" shall mean the depreciation and amortization accruing during the Twelve Month Period with respect to the Premises and all of the Other Properties as determined in accordance with generally accepted accounting principles consistently applied. "Equipment Payment Amount" shall mean for any Twelve Month Period the sum of all amounts payable during such Twelve Month Period under (i) all equipment leases for equipment located at the Premises and all of the Other Properties, and (ii) all loans secured by equipment located at the Premises and all of the Other Properties. "FFCA Payments" shall mean for any Twelve Month Period, the sum of all amounts due and payable under the Note and all of the Other Notes during such Twelve Month Period. "Gross Sales" shall mean all sales or other income arising from all business conducted on the Premises and all of the Other Properties during the Twelve Month Period, less sales tax and any amounts received from not-for-profit sales of all non-food items approved for use in connection with promotional campaigns, if any, pursuant to the license agreement with Licensor. "Ground Lease Expense" shall mean for any Twelve Month Period, the sum of all amounts payable under any ground lease with respect to the Premises and the Other Properties. "Interest Expense" shall mean for any Twelve Month Period, the sum of all interest accrued or which should be accrued in respect of all Debt of Debtor allocable to the Premises and all of the Other Properties and all business operations thereon during such period (including interest attributable to Capital Leases), as determined in accordance with generally accepted accounting principles consistently applied. "Management Fee" shall mean a standardized management fee representing two percent (2%) of Gross Sales relative to the Premises and the Other Properties for any Twelve Month Period. "Net Income" shall mean with respect to the Twelve Month Period, the net income or net loss of Debtor allocable to the Premises and all of the Other Properties. In determining the amount of Net Income, (i) adjustments shall be made for nonrecurring gains and losses allocable to such Twelve Month Period, (ii) deductions shall be made for, among other things, Depreciation and Amortization, Interest Expense and Operating Lease Expense allocable to such Twelve Month Period, and (iii) no deductions shall be made for income taxes or charges equivalent to income taxes allocable to such Twelve Month Period, as determined in accordance with generally accepted accounting principles consistently applied. "Operating Lease Expense" shall mean for any Twelve Month Period, the sum of all amounts payable by Debtor under any operating leases with respect to the Premises and the Other Properties and/or the business operations thereon as determined in accordance with generally accepted accounting principles consistently applied. "Rent Expense" shall mean the sum of building and ground Operating Lease Expense, any percentage rents, amounts of capitalized building lease expenses (net of principal and interest) relative to the Premises and the Other Properties, less rent payable on regional and corporate offices and restaurants constituting the Premises and the Other Properties that are not then open and operating for business. (ii) Other Arby's Restaurants. Notwithstanding any provision of this Subsection 7.B to the contrary, until such time as all of Debtor's obligations under the Note are paid, satisfied and discharged in full, Debtor shall maintain a Fixed Charge Coverage Ratio of at least 1.3:1 at the Premises, the Other Properties, and all of the parcels of real estate owned or leased by Debtor, wherever located, that are used or operated by Debtor or Debtor's Affiliates (or their respective tenants or subtenants) as a Licensor restaurant (collectively, the "Other Arby's Restaurants). For purposes of determining whether the Fixed Charge Coverage Ratio requirement contained in this Subsection 7.B(ii) has been satisfied, the definitions relating to the Fixed Charge Coverage Ratio shall be deemed to be modified, as applicable, to provide for the calculation of the Fixed Charge Coverage Ratio relative to the Premises, the Other Properties, and to all of the Other Arby's Restaurants rather than a calculation of the Fixed Charge Coverage Ratio for the Premises and all of the Other Properties. For purposes of this Subsection 7.B(ii), the Note (and the Premises) shall be included in the Fixed Charge Coverage Ratio to be determined pursuant to this Subsection 7.B(ii) only if the Note, at the time of a Determination Date, shall have been placed in a Securitization or if the term of the Note shall have reached the first anniversary of the date thereof, and only those Other Notes that have either been placed in a Securitization or whose terms thereof (at the time of a Determination Date) shall have reached the first anniversary of the dates of such Other Notes (to be counted from the date of the closing in the case of a mortgage loan or from the date of the final disbursement in the case of a construction loan under such Other Notes) shall be included in the Fixed Charge Coverage Ratio to be determined pursuant to this Subsection 7.B(ii). C. Lost Note. Debtor shall, if the Note or any Other Note is mutilated, destroyed, lost or stolen (a "Lost Note"), promptly deliver to FFCA, upon receipt of an affidavit from FFCA stipulating that such Note has been mutilated, destroyed, lost or stolen, in substitution therefor, a new promissory note containing the same terms and conditions as such Lost Note with a notation thereon of the unpaid principal and accrued and unpaid interest. Debtor shall provide fifteen (15) days' prior notice to FFCA before making any payments to third parties (other than the servicer of any Securitized Loan Pool) in connection with a Lost Note. 8. Transaction Characterization. This Agreement is a contract to extend a financial accommodation (as such term is used in the Code) for the benefit of Debtor. It is the intent of the parties hereto that the business relationship created by this Agreement, the Note, the Deed of Trust and the other Loan Documents is solely that of creditor and debtor and has been entered into by both parties in reliance upon the economic and legal bargains contained in the Loan Documents. None of the agreements contained in the Loan Documents is intended, nor shall the same be deemed or construed, to create a partnership between Debtor and FFCA, to make them joint venturers, to make Debtor an agent, legal representative, partner, subsidiary or employee of FFCA, nor to make FFCA in any way responsible for the debts, obligations or losses of Debtor. 9. Conditions of Closing. The obligation of FFCA to consummate the transaction contemplated by this Agreement is subject to the fulfillment or waiver of each of the following conditions: A. Title. Title to the Premises shall be vested in Debtor, free of all liens, encumbrances, restrictions, encroachments and easements, except Permitted Exceptions. Upon Closing, FFCA will obtain a valid and perfected first priority lien upon and security interest in the Premises. B. Condition of Premises. FFCA shall have inspected and approved the Premises, the Premises shall be in good condition and repair, and the Premises shall have a suitable location, all as determined by FFCA in its sole discretion. C. Evidence of Title. FFCA shall have received for the Premises a preliminary title report and irrevocable commitment to insure title by means of a mortgagee's ALTA extended coverage policy of title insurance (or its equivalent, in the event such form is not issued in the jurisdiction where the Premises is located) issued by Title Company showing good and marketable title in the Premises in Debtor, committing to insure FFCA's first priority lien upon and security interest in the Premises subject only to Permitted Exceptions and containing such endorsements as FFCA may reasonably require. D. Survey. FFCA shall have received a current ALTA survey of the Premises, the form and substance of which shall be satisfactory to FFCA in its sole discretion. Debtor shall have provided FFCA with evidence satisfactory to FFCA that the location of the Premises is not within the 100-year flood plain or identified as a special flood hazard area as defined by the Federal Insurance Administration. E. Environmental. FFCA shall have received a Phase I environmental report (and a Phase II environmental report, if necessary, as determined by FFCA in its sole discretion) for the Premises, the form, substance and conclusions of which shall be satisfactory to FFCA in its sole discretion. F. Compliance With Representations, Warranties and Covenants; Certification. All obligations of Debtor under this Agreement shall have been fully performed and complied with, and no event shall have occurred or condition shall exist which would, upon the Closing Date, or, upon the giving of notice and/or passage of time, constitute a breach or default hereunder or under the Loan Documents, the franchise, license and/or area development agreement with Licensor or any other agreement between or among FFCA, Debtor or Licensor pertaining to the subject matter hereof, and no event shall have occurred or condition shall exist or information shall have been disclosed by Debtor or discovered by FFCA which has had or would have a material adverse effect on the Land or Debtor, as determined by FFCA in its sole and absolute discretion. G. Proof of Insurance. Debtor shall have delivered to FFCA copies of insurance policies, showing that all insurance required by the Loan Documents and providing coverage and limits satisfactory to FFCA are in full force and effect. H. Opinion of Counsel to Debtor. Debtor shall have caused Counsel to prepare and deliver an opinion substantially in the form and as indicated in the attached Exhibit E. I. License Agreement. FFCA shall have received a certificate from Licensor in form and substance reasonably acceptable to FFCA that the license agreement between Debtor and Licensor with respect to the Premises is valid, binding and in full force and effect, with a term that will not expire before the scheduled maturity date of the Note, no events have occurred which could constitute a default under the Loan Documents, and Licensor waives all rights of first refusal set forth in such agreement as to FFCA and its successors and assigns. J. Closing of Equipment Loan Agreement. All of the transactions described in the Equipment Loan Agreement shall have closed prior to or concurrently with the Closing of the transaction described in this Agreement. K. Closing Documents. At or prior to the Closing Date, FFCA and/or Debtor, as may be appropriate, shall execute and deliver or cause to be executed and delivered to Title Company or FFCA, as may be appropriate, all documents required to be delivered by this Agreement, and such other documents, payments, instruments and certificates, as FFCA may require in form reasonably acceptable to FFCA, including, without limitation, the following: (1) Note; (2) Deed of Trust; (3) Environmental Indemnity Agreement; (4) Licensor's Certificate; (5) Proof of Insurance; (6) Opinion of Counsel to Debtor; and (7) UCC-1 Financing Statements. Upon fulfillment or waiver of all of the above conditions, FFCA shall deposit funds necessary to close this transaction with the Title Company and this transaction shall close in accordance with the terms and conditions of this Agreement. 10. Default and Remedies. A. Each of the following shall be deemed an event of default by Debtor (an "Event of Default"): (1) If any representation or warranty of Debtor is false in any material respect when made or becomes false in any material respect prior to the Closing Date, or, in the event any such representation or warranty is continuing after the Closing, if any such representation or warranty becomes false in any material respect at any time, or if Debtor renders any written statement to FFCA relative to the Premises, the Loan or the financial condition of Debtor which at the time of such written statement was false in any material respect; (2) If any principal, interest or other monetary sum due under the Note, the Deed of Trust or any other Loan Document is not paid within five days after the date when due; (3) If Debtor fails to observe or perform any of the other covenants, conditions, or obligations of this Agreement or any other Loan Document within the applicable grace or cure period; (4) If Debtor: (A) becomes insolvent within the meaning of the Code, (B) files or notifies FFCA that it intends to file a petition under the Code, (C) initiates a proceeding under any similar law or statute relating to bankruptcy, insolvency, reorganization, winding up or adjustment of debts (collectively, hereinafter, an "Action"), (D) is not generally paying its debts as the same become due, and/or (E) becomes the subject of an involuntary petition under the Code or other similar involuntary Action (in which case Debtor shall be required to provide FFCA with immediate notice of the commencement or filing of such involuntary proceeding, petition or Action), and any of the following shall have occurred: (i) the involuntary petition or involuntary Action shall not have been dismissed within sixty (60) days of the date on which it was filed or otherwise commenced, (ii) an order for relief under the Code (or similar order) shall have been entered by the court in the involuntary proceeding, or (iii) the court having jurisdiction over such involuntary proceeding (at Debtor's motion or request for relief) shall not have granted FFCA full and final relief from the automatic stay of Section 362 of the Code and from any stay issued under Section 105 of the Code (or any similar stays or injunctions) within sixty (60) days of the filing or commencement of such involuntary petition or involuntary Action so that FFCA is thereafter free to exercise any and all of its rights and remedies under the Loan Documents, and FFCA hereby agrees not to exercise any of its rights or remedies under the Loan Documents until such time as an Event of Default (other than the filing of an involuntary petition under the Code or other similar involuntary Action) shall have occurred; (5) If there is an event of default (after the expiration of any applicable grace and cure period) under the Equipment Loan Agreement or a breach or default (after the expiration of any applicable grace and cure period) under any other agreement or instrument, including, without limitation, promissory notes and guaranties, between, among or by (1) Debtor, and, or for the benefit of, (2) FFCA or any corporation, partnership, joint venture, limited liability company, association or other form of entity affiliated with FFCA; (6) If any event occurs or condition exists on the Closing Date which constitutes a material breach or default under any of the Loan Documents or any other agreement between Debtor and FFCA pertaining to the subject matter hereof. B. If any Event of Default occurs pursuant to subsection A(2) above, FFCA shall not be entitled to exercise its remedies set forth in subsection D below unless and until FFCA shall have given Debtor notice thereof and a period of five days from the delivery of such notice shall have elapsed without such Event of Default being cured. C. If any event occurs pursuant to subsection A(3) subsequent to the Closing and does not involve the payment of any monetary sum to FFCA, is not willful, intentional or being contested in good faith in accordance with the terms of the Deed of Trust, does not place any material rights, collateral or property of FFCA in immediate jeopardy in any material respect, and is within the reasonable power of Debtor to promptly cure after receipt of notice thereof, all as determined by FFCA in its reasonable discretion, then such event shall not constitute an Event of Default hereunder, unless otherwise expressly provided herein, unless and until FFCA shall have given Debtor notice thereof and a period of 30 days shall have elapsed, during which period Debtor may correct or cure such event, upon failure of which an Event of Default shall be deemed to have occurred hereunder without further notice or demand of any kind. If such event cannot reasonably be cured within such 30-day period, as determined by FFCA in its reasonable discretion, and Debtor is diligently pursuing a cure of such event, then Debtor shall have a reasonable period to cure such event, which shall not exceed 90 days after receiving notice of the event from FFCA. If Debtor shall fail to correct or cure such event within such 90-day period, an Event of Default shall be deemed to have occurred hereunder without further notice or demand of any kind. D. Upon the occurrence of an Event of Default, subject to the limitation set forth in subsection B and C, FFCA shall be entitled to exercise, at its option, concurrently, successively or in any combination, all remedies set forth in the Loan Documents and otherwise available at law or in equity, including without limitation any one or more of the following (provided, however, the remedies set forth in subitem (1) shall only be applicable to any such breach or default occurring prior to the Closing): (1) To terminate this Agreement by giving written notice to Debtor, in which case neither party shall have any further obligation or liability, except such liabilities as Debtor may have for such Event of Default; (2) To bring an action for damages against Debtor; (3) To bring an action to require Debtor specifically to perform its obligations hereunder; and/or (4) To recover from Debtor all sums loaned and/or advanced by FFCA to Debtor pursuant to the Loan Documents and all expenses, including attorneys' fees, paid or incurred by FFCA as a result of such Event of Default. E. If a default occurs pursuant to subsection A(3) above as a result of the failure of Debtor to maintain the Fixed Charge Coverage Ratio covenants set forth in Subsection 7.B, such default shall not constitute an Event of Default if Debtor, within 30 days from the delivery of a notice from FFCA to Debtor of such failure, at Debtor's election, performs any one of the following: (i) Pay the FCCR Amount. Pays to FFCA (without prepayment premium or penalty) the FCCR Amount (as defined below) relative to any one or more of the Other Notes (and/or the Note, if applicable) that cause or contribute to cause the Fixed Charge Coverage Ratio to be less than 1.3:1. If Debtor elects to pay the FCCR Amount, promptly after Debtor's payment of the FCCR Amount, Debtor and FFCA agree to execute an amendment to the Note and/or Other Note or Other Notes to which the FCCR Amount relates, as the case may be, in form and substance acceptable to FFCA reducing the principal amount payable to FFCA thereunder and reamortizing the principal amount thereunder over the then remaining term of the Note and/or Other Note or Other Notes, as the case may be. Debtor shall be responsible for the payment of FFCA's out-of-pocket attorneys' fees incurred in connection with the preparation of such amendments. As used herein, the phrase "FCCR Amount" shall mean that sum of money which, when subtracted from the outstanding principal amount of the Note (and/or the Other Note or Other Notes that cause or contribute to cause the Fixed Charge Coverage Ratio to be less than 1.3:1, as the case may be), and assuming the reamortization of the adjusted principal amount of the Note (and/or Other Note or Other Notes, as the case may be) over the then remaining term of the Note (and/or Other Note or Other Notes), will result in an adjusted Fixed Charge Coverage Ratio of at least 1.3:1. (ii) Pay the Entire Amount Owing. Pays to FFCA (without prepayment premium or penalty) the entire amount owing under any one or more of the Other Notes (and/or the Note, if applicable) that cause or contribute to cause the Fixed Charge Coverage Ratio to be less than 1.3:1, but only to the extent necessary to achieve a Fixed Charge Coverage Ratio of not less than 1.3:1; (iii) Substitution. Delivers to FFCA Debtor's notice of election to substitute (in accordance with this Subsection) the Other Properties (and/or the Premises, if applicable) that cause or contribute to cause the Fixed Charge Coverage Ratio to be less than 1.3:1 with a Substitute Site or Substitute Sites, as the case may be (as those terms are defined below), to serve as FFCA's replacement collateral for repayment of the obligations evidenced by the Other Notes (and/or the Note, if applicable) that are secured by such Other Properties, including the Premises, if applicable, and thereafter performs in the exercise of reasonable diligence all of the duties and obligations of Debtor and satisfies or cause to be satisfied all of the conditions set forth in this Subsection 10.E(iii). For purposes of this Subsection 10.E(iii), the following terms shall have the following meanings: "Substitute Site" or "Substitute Sites" means, as the context requires, one or more parcels of real property substituted for the Other Properties and/or the Premises, as applicable, in accordance with the requirements of Subsection 10.E(iii), together with all rights, privileges and appurtenances associated therewith, and buildings, fixtures and other improvements located thereon (whether or not affixed to such real estate). "Substitute Site Permitted Exceptions" means real estates taxes, not then due or payable, relating to the Substitute Site, and such other exceptions to title affecting the Substitute Site as may be approved in writing by FFCA in its reasonable discretion. 1. Conditions. Debtor may substitute a Substitute Site for such of the Other Properties (including the Premises, if applicable) that cause or contribute to cause the Fixed Charge Coverage Ratio to be less than 1.3:1, subject to the restrictions set forth in this Subsection and the fulfillment of the following conditions: i. Debtor shall establish a proposed date for the consummation of such substitution and shall provide FFCA with notice of such date at least 45 days before the proposed date of such substitution; provided however, such notice may not be delivered more than 90 days before the date proposed in such notice for the substitution. Consummation of the substitution shall take place no later than the proposed date of such substitution and in the event the substitution is not consummated by such proposed date, an Event of Default shall be deemed to have occurred under this Agreement; ii. Debtor shall identify a proposed Substitute Site and the proposed Substitute Site must: (1) be improved with a building and other structures and improvements to permit its use and operation as a Licensor restaurant. The building and other improvements must be of good workmanship and in good condition and repair; (2) be owned by and vested in Debtor, free and clear of all liens and encumbrances, except the Substitute Site Permitted Exceptions; and (3) have a fair market value equal to or greater than the fair market value of the Other Property (or the Premises, if applicable) being substituted as of the date of consummation of the substitution, as such fair market value shall be determined by FFCA in its reasonable discretion. iii. Debtor shall have reimbursed FFCA, in addition to all costs applicable to the proposed substitution, for FFCA's third-party and/or in-house site inspectors' reasonable and actual costs and expenses, including reasonable and actual attorneys' fees, with respect to the proposed substitution and Substitute Site; iv. FFCA shall have received a preliminary title report and irrevocable commitment (subject only to payment of premium) to insure title by means of a mortgagee's ALTA extended coverage policy of title insurance (or its equivalent, in the event such form is not issued in the jurisdiction where the proposed Substitute Site is located) for such proposed Substitute Site issued by a nationally recognized title company acceptable to FFCA, showing good and marketable title in Debtor and committing to insure the lien of FFCA's mortgage or deed of trust, as applicable, as a first-priority lien on the proposed Substitute Site, subject only to the Substitute Site Permitted Exceptions and containing such title endorsements as FFCA may reasonably require; v. FFCA shall have received a current ALTA survey of such proposed Substitute Site, the form and substance of which shall be reasonably acceptable to FFCA and to the title company; vi. FFCA shall have received a Phase I environmental site assessment performed in accordance with the requirements of ASTM 1527 which is acceptable to FFCA in its discretion (and, if reasonably necessary based on the result of the Phase I report, a Phase II environmental report) with respect to such proposed Substitute Site; vii. Debtor shall deliver, or cause to be delivered, opinions of counsel in form and substance reasonably acceptable to FFCA issued by legal counsel reasonably approved by FFCA; viii. there shall be no Event of Default (other than Debtor's failure to maintain the Fixed Charge Coverage Ratio which the substitution pursuant to this Subsection 10.E(iii) is intended to cure); ix. Debtor shall have executed such documents as are comparable to the Loan Documents, including, without limitation, a loan agreement, a deed of trust, a promissory note, an environmental indemnity agreement, and uniform commercial code financing statements (the "Substitute Documents"), to provide FFCA with a first priority lien on the proposed Substitute Site, subject only to the Substitute Site Permitted Exceptions, and all other rights, remedies and benefits with respect to the proposed Substitute Site, all of which documents shall be in form and substance reasonably satisfactory to FFCA; x. the representations, warranties and covenants set forth in the Substitute Documents shall be substantially similar to the representations, warranties and covenants contained in this Agreement relative to the Premises and shall all be true and correct in all material respects as of the date of consummation of the substitution; xi. Debtor shall have delivered to FFCA certificates of insurance showing that insurance required by the Substitute Documents is in full force and effect; and xii. Debtor shall have entered into (and delivered a copy thereof to FFCA) a license agreement with Licensor for the conduct of Debtor's business at the Substitute Site that will permit Debtor to operate a Licensor restaurant at the Substitute Site having a term that will not expire before the scheduled maturity date of the promissory note associated with the Substitute Site. FFCA shall order the uniform commercial code financing statement searches, title commitment, ALTA survey and Phase I environmental report described above, and, upon receipt of such items, FFCA agrees to exercise reasonable diligence in completing its review and analysis of the proposed Substitute Site. 2. Effect of Substitution. Upon satisfaction of the foregoing conditions with respect to a proposed Substitute Site: i. the Substitute Site shall be deemed substituted for the Other Property (or the Premises, if applicable) that is being replaced; ii. the Substitute Documents shall be dated as of the date of consummation of the substitution; and iii. FFCA will release, or cause to be released, the Deed of Trust encumbering the substituted Other Property (or the Premises, if applicable) and promptly deliver documents, including, without limitation, UCC-3 termination statements, reasonably requested by Debtor to effect such release. 3. Costs. Debtor shall be solely responsible for the payment of all reasonable and actual costs and expenses relating to any substitution contemplated by this Subsection (whether incurred by Debtor or FFCA) at or prior to the consummation of such substitution (and regardless of whether consummation of such substitution occurs). (iv) Sale-Leaseback Transaction. Pays to FFCA (without prepayment premium or penalty) the entire amount owing under any one or more of the Other Notes (and/or the Note, if applicable) that are secured by such of the Other Properties (including the Premises, if applicable) that cause or contribute to cause the Fixed Charge Coverage Ratio to be less than 1.3:1, but only to the extent necessary to achieve an Fixed Charge Coverage Ratio of not less than 1.3:1, and enters into a sale-leaseback transaction with FFCA, as buyer and lessor, and Debtor, as seller and lessee, relative to such Other Properties (including the Premises, if applicable), all on terms and conditions (including written documentation) acceptable to Debtor and FFCA; or (v) Escrow Account. Deposits into an interest-bearing, federally insured escrow account (reasonably acceptable to FFCA) established by Debtor at Debtor's sole cost with a title or escrow company acceptable to FFCA an amount in cash such that the interest income thereon (less all escrow fees, costs and expenses) will be sufficient in amount to cause the Fixed Charge Coverage Ratio for the next period of determination to be equal to or greater than 1.3:1 based upon the current Fixed Charge Coverage Ratio calculation. The funds in such escrow account shall, upon their deposit therein, be pledged to FFCA (with such pledge being a first-priority perfected lien and security interest in favor of FFCA) to secure payment of all loans made by FFCA or an FFCA Affiliate to Debtor or an Affiliate of Debtor, including, without limitation, the Loan, as FFCA shall determine in FFCA's sole discretion, pursuant to a pledge agreement or similar agreement in form and substance acceptable to FFCA in its sole discretion. Debtor agrees to execute and deliver (and cause escrow agent to execute and deliver) such other documents and agreements as are reasonably necessary to perfect FFCA's lien and security interest in such escrow account and funds. The funds in the escrow account shall be released to Debtor no later than 10 days after Debtor demonstrates to FFCA's reasonable satisfaction that the Fixed Charge Coverage Ratio (calculated without taking into account the funds in the escrow account) for the next period of determination is no less than 1.3:1. In the event the Fixed Charge Coverage Ratio for the next period of determination is less than 1.3:1, the funds in the escrow account shall be released to FFCA for application in accordance with either Subsection 10.E(i) or 10.E(ii), in order to cure Debtor's failure to maintain the Fixed Charge Coverage Ratio, as FFCA shall determine in its reasonable discretion, and in such event, Debtor agrees to authorize and instruct the escrow agent to immediately release and pay the funds to FFCA in accordance with this Subsection. In no event shall Debtor be required to maintain funds in the escrow account in excess of the outstanding aggregate principal balance of the loans made by FFCA or its Affiliate to Debtor or its Affiliate, including, without limitation, the Loan. Without limiting any of the foregoing provisions, Debtor agrees that, in the event more than one of the Other Properties (and/or the Premises, if applicable) causes or contributes to cause the Fixed Charge Coverage Ratio to be less than 1.3:1, Debtor will select and identify (for purposes of performing Debtor's duties and obligations in accordance with Subsections 10.E(i), 10.E(ii), 10.E(iii) and/or 10.E(iv)) that Other Property or those Other Properties (including the Premises, if applicable) whose Fixed Charge Coverage Ratio, calculated on an individual store/restaurant basis, is or are, as the case may be, most significantly below (or less than) 1.3:1. 11. Assignments. A. FFCA may assign in whole or in part its rights under this Agreement, including, without limitation, any Transfer, Participation and/or Securitization (all as defined in Section 13.P hereof). In the event of any unconditional assignment of FFCA's entire right and interest hereunder, and execution and delivery to Debtor of an assumption of FFCA's duties and obligations hereunder by such assignee, FFCA shall automatically be relieved, from and after the date of such assignment, of liability for the performance of any obligation of FFCA contained herein. B. Debtor shall not, without the prior written consent of FFCA, sell, assign, transfer, mortgage, convey, encumber or grant any easements or other rights or interests of any kind in the Premises (other than the Permitted Exceptions and except, subsequent to the Closing, as expressly permitted by the Deed of Trust), any of Debtor's rights under this Agreement or any interest in Debtor, whether voluntarily, involuntarily or by operation of law or otherwise, including, without limitation, by merger, consolidation, dissolution or otherwise, except, subsequent to the Closing, as expressly permitted by the Deed of Trust. 12. Indemnity. Debtor agrees to indemnify, hold harmless and defend FFCA and its directors, officers, shareholders, employees, successors, assigns, agents, contractors, subcontractors, affiliates, and trustees, as applicable (collectively, the "Indemnified Parties"), from and against any and all losses, costs, claims, liabilities, damages and expenses, including, without limitation, reasonable attorneys' fees, arising as the result of an Environmental Condition and/or a breach of any of the representations, warranties, covenants, agreements or obligations of Debtor set forth in this Agreement and the Development Documents, except to the extent such liability, loss, cost, claim, damages and expenses arise as a result of the gross negligence or willful misconduct of an Indemnified Party. Without limiting the generality of the foregoing, such indemnity shall include, without limitation, any engineering, governmental inspection and reasonable attorneys' fees and expenses that the Indemnified Parties may incur by reason of any representation set forth in this Agreement being false, or by reason of any investigation or claim of any governmental agency in connection therewith. 13. Miscellaneous Provisions. A. Notices. All notices, consents, approvals or other instruments required or permitted to be given by either party pursuant to this Agreement shall be in writing and given by (i) hand delivery, (ii) facsimile followed by a copy sent by mail in accordance with clause (iv) hereof, (iii) express overnight delivery service or (iv) certified or registered mail, return receipt requested, postage prepaid, and shall be deemed to have been delivered upon (a) receipt, if hand delivered, (b) transmission, if delivered by facsimile, (c) the next business day, if delivered by express overnight delivery service, or (d) the fifth business day following the day of deposit of such notice with the United States Postal Service, if sent by certified or registered mail, return receipt requested, postage prepaid. Notices shall be provided to the parties and addresses (or facsimile numbers, as applicable) specified below: If to Debtor: Sybra, Inc. 8300 Dunwoody Place, Suite 300 Atlanta, Georgia 30350-1296 Attention: President Telephone: (770) 587-0290 Telecopy: (770) 594-7044 With a copy to: Robert H. Drechsler, Esq. Pryor, Cashman, Sherman & Flynn 410 Park Avenue New York, New York 10016 Telephone: (212) 421-4100 Telecopy: (212) 326-0806 If to FFCA: Robin L. Roach Senior Vice President, Corporate Finance FFCA Acquisition Corporation 17207 North Perimeter Drive Scottsdale, Arizona 85255 Telephone: (602) 585-4500 Telecopy: (602) 585-2228 With a copy to: Dennis L. Ruben, Esq. Executive Vice President and General Counsel FFCA Acquisition Corporation 17207 North Perimeter Drive Scottsdale, Arizona 85255 Telephone: (602) 585-4500 Telecopy: (602) 585-2226 B. Real Estate Commission. FFCA and Debtor represent and warrant to each other that they have dealt with no real estate or mortgage broker, agent, finder or other intermediary in connection with the transactions contemplated by this Agreement (other than a real estate broker, agent or finder employed by Debtor ("Debtor's Broker") pursuant to a written agreement between Debtor and Debtor's Broker. Debtor shall be solely responsible for payment of any and all commissions, charges and fees owing to Debtor's Broker). FFCA and Debtor shall indemnify and hold each other harmless from and against any costs, claims or expenses, including attorneys' fees, arising out of the breach of their respective representations and warranties contained within this Section, and Debtor shall indemnify and hold FFCA and the Premises harmless from and against any costs, claims or expenses arising out of any commission, charge, fee or other amounts owing to Debtor's Broker. C. Waiver and Amendment. No provisions of this Agreement shall be deemed waived or amended except by a written instrument unambiguously setting forth the matter waived or amended and signed by the party against which enforcement of such waiver or amendment is sought. Waiver of any matter shall not be deemed a waiver of the same or any other matter on any future occasion unless otherwise specifically stated therein. D. Captions. Captions are used throughout this Agreement for convenience of reference only and shall not be considered in any manner in the construction or interpretation hereof. E. Liability. (i) Notwithstanding anything to the contrary provided in this Agreement, it is specifically understood and agreed, such agreement being a primary consideration for the execution of this Agreement by FFCA, that (i) there shall be absolutely no personal liability on the part of any shareholder, director, officer or employee of FFCA, with respect to any of the terms, covenants and conditions of this Agreement or the other Loan Documents, (ii) Debtor waives all claims, demands and causes of action against FFCA's officers, directors, employees and agents in the event of any breach by FFCA of any of the terms, covenants and conditions of this Agreement or the other Loan Documents to be performed by FFCA and (iii) Debtor shall look solely to the assets of FFCA for the satisfaction of each and every remedy of Debtor in the event of any breach by FFCA of any of the terms, covenants and conditions of this Agreement or the other Loan Documents to be performed by FFCA, such exculpation of liability to be absolute and without any exception whatsoever. (ii) Notwithstanding anything to the contrary provided in this Agreement, it is specifically understood and agreed, such agreement being a primary consideration for the execution of this Agreement by Debtor, that (i) there shall be absolutely no personal liability on the part of any shareholder, director, officer or employee of Debtor, with respect to any of the terms, covenants and conditions of this Agreement or the other Loan Documents (other than liability arising out of the gross negligence or wilful misconduct of any shareholder, director, officer or employee of Debtor), (ii) FFCA waives all claims, demands and causes of action against Debtor's officers, directors, employees and agents in the event of any breach by Debtor of any of the terms, covenants and conditions of this Agreement or the other Loan Documents to be performed by Debtor (other than claims, demands and causes of action arising out of the gross negligence or wilful misconduct of any shareholder, director, officer or employee of Debtor), and (iii) FFCA shall look solely to the assets of Debtor for the satisfaction of each and every remedy of FFCA in the event of any breach by Debtor of any of the terms, covenants and conditions of this Agreement or the other Loan Documents to be performed by Debtor (except as otherwise provided in this subsection 13.E(ii) with respect to liabilities, claims, demands and causes of action arising out of the gross negligence or wilful misconduct of any shareholder, director, officer or employee of Debtor), such exculpation of liability to be absolute and without any exception whatsoever. Nothing in this subsection 13.E(ii) or elsewhere in the Loan Documents shall limit, restrict or impair FFCA's rights to look to any and all assets of Debtor for the satisfaction of each and every remedy of FFCA in the event of any breach by Debtor of any of the terms, covenants and conditions of this Agreement or the other Loan Documents to be performed by Debtor. F. Severability. The provisions of this Agreement shall be deemed severable. If any part of this Agreement shall be held unenforceable, the remainder shall remain in full force and effect, and such unenforceable provision shall be reformed by such court so as to give maximum legal effect to the intention of the parties as expressed therein. G. Construction Generally. This is an agreement between parties who are experienced in sophisticated and complex matters similar to the transaction contemplated by this Agreement and is entered into by both parties in reliance upon the economic and legal bargains contained herein and shall be interpreted and construed in a fair and impartial manner without regard to such factors as the party which prepared the instrument, the relative bargaining powers of the parties or the domicile of any party. Debtor and FFCA were each represented by legal counsel competent in advising them of their obligations and liabilities hereunder. H. Other Documents. Each of the parties agrees to sign such other and further documents as may be necessary to carry out the intentions expressed in this Agreement. I. Attorneys' Fees. In the event of any judicial or other adversarial proceeding between the parties concerning this Agreement, the prevailing party shall be entitled to recover its reasonable and actual attorneys' fees and other costs in addition to any other relief to which it may be entitled. References in this Agreement to the attorneys' fees and/or costs of FFCA shall mean only the fees and costs of independent outside counsel retained by FFCA with respect to this transaction and not the fees and costs of FFCA's in-house counsel incurred in connection with this transaction. J. Entire Agreement. This Agreement and the other Loan Documents, together with any other certificates, instruments or agreements to be delivered in connection therewith, constitute the entire agreement between the parties with respect to the subject matter hereof, and there are no other representations, warranties or agreements, written or oral, between Debtor and FFCA with respect to the subject matter of this Agreement. Notwithstanding anything in this Agreement to the contrary, upon the execution and delivery of this Agreement by Debtor and FFCA, the Commitment shall be deemed null and void and of no further force and effect (with respect to the Premises only) and the terms and conditions of this Agreement shall control notwithstanding that such terms may be inconsistent with or vary from those set forth in the Commitment. K. Forum Selection; Jurisdiction; Venue; Choice of Law. Debtor acknowledges that this Agreement was substantially negotiated in the State of Arizona, the Agreement was signed by FFCA in the State of Arizona and delivered by Debtor in the State of Arizona, all payments under the Note will be delivered in the State of Arizona and there are substantial contacts between the parties and the transactions contemplated herein and the State of Arizona. For purposes of any action or proceeding arising out of this Agreement, the parties hereto hereby expressly submit to the jurisdiction of all federal and state courts located in the State of Arizona and Debtor consents that it may be served with any process or paper by registered mail or by personal service within or without the State of Arizona in accordance with applicable law. Furthermore, Debtor waives and agrees not to assert in any such action, suit or proceeding that it is not personally subject to the jurisdiction of such courts, that the action, suit or proceeding is brought in an inconvenient forum or that venue of the action, suit or proceeding is improper. It is the intent of the parties hereto that all provisions of this Agreement shall be governed by and construed under the laws of the State of Arizona. To the extent that a court of competent jurisdiction finds Arizona law inapplicable with respect to any provisions hereof, then, as to those provisions only, the laws of the states where the Premises are located shall be deemed to apply. Nothing in this Section shall limit or restrict the right of FFCA to commence any proceeding in the federal or state courts located in the states in which the Premises are located to the extent FFCA deems such proceeding necessary or advisable to exercise remedies available under this Agreement or the other Loan Documents. L. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original. M. Binding Effect. This Agreement shall be binding upon and inure to the benefit of Debtor and FFCA and their respective successors and permitted assigns, including, without limitation, any United States trustee, any debtor in possession or any trustee appointed from a private panel. N. Survival. Except for the conditions of Closing set forth in Sections 2 and 9, which shall be satisfied or waived as of the Closing Date, all representations, warranties, agreements, obligations and indemnities of Debtor and FFCA set forth in this Agreement shall survive the Closing. O. Waiver of Jury Trial and Punitive, Consequential, Special and Indirect Damages. DEBTOR AND FFCA HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE THE RIGHT EITHER MAY HAVE TO A TRIAL BY JURY WITH RESPECT TO ANY AND ALL ISSUES PRESENTED IN ANY ACTION, PROCEEDING, CLAIM OR COUNTERCLAIM BROUGHT BY EITHER OF THE PARTIES HERETO AGAINST THE OTHER OR ITS SUCCESSORS WITH RESPECT TO ANY MATTER ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT OR ANY DOCUMENT CONTEMPLATED HEREIN OR RELATED HERETO. THIS WAIVER BY THE PARTIES HERETO OF ANY RIGHT EITHER MAY HAVE TO A TRIAL BY JURY HAS BEEN NEGOTIATED AND IS AN ESSENTIAL ASPECT OF THEIR BARGAIN. FURTHERMORE, DEBTOR HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES THE RIGHT IT MAY HAVE TO SEEK PUNITIVE, CONSEQUENTIAL, SPECIAL AND INDIRECT DAMAGES FROM FFCA WITH RESPECT TO ANY AND ALL ISSUES PRESENTED IN ANY ACTION, PROCEEDING, CLAIM OR COUNTERCLAIM BROUGHT BY DEBTOR AGAINST FFCA OR ITS SUCCESSORS WITH RESPECT TO ANY MATTER ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT OR ANY DOCUMENT CONTEMPLATED HEREIN OR RELATED HERETO. THE WAIVER BY DEBTOR OF ANY RIGHT IT MAY HAVE TO SEEK PUNITIVE, CONSEQUENTIAL, SPECIAL AND INDIRECT DAMAGES HAS BEEN NEGOTIATED BY THE PARTIES HERETO AND IS AN ESSENTIAL ASPECT OF THEIR BARGAIN. P. Transfers, Participations and Securitization. A material inducement to FFCA's willingness to complete the transactions contemplated by the Loan Documents is Debtor's agreement that FFCA may, at any time, sell, transfer or assign the Note, the Deed of Trust and the other Loan Documents, and any or all servicing rights with respect thereto (each, a "Transfer"), or grant participations therein (each, a "Participation"), or complete an asset securitization vehicle selected by FFCA, in accordance with all requirements which may be imposed by the investors or the rating agencies involved in such securitized financing transaction, as selected by FFCA, or which may be imposed by applicable securities, tax or other laws or regulations, including, without limitation, laws relating to FFCA's status as a real estate investment trust (each, a "Securitization"). Debtor agrees to reasonably cooperate in good faith with FFCA in connection with any Transfer, Participation and/or Securitization, including, without limitation, (i) providing such documents, financial and other data, and other information and materials (the "Disclosures") which would typically be required with respect to Debtor by a purchaser, transferee, assignee, servicer, participant, investor or rating agency involved with respect to such Transfer, Participation and/or the Securitization, as applicable; provided, however, Debtor shall not be required to make Disclosures of any confidential information or any information which has not previously been made public unless required by applicable federal or state securities laws; and (ii) amending the terms of the transactions evidenced by the Loan Documents to the extent necessary so as to satisfy the requirements of purchasers, transferees, assignees, servicers, participants, investors or selected rating agencies involved in any such Transfers, Participations or Securitization, so long as such amendments would not have a material adverse effect upon Debtor or the transactions contemplated hereunder or make any of the covenants of Debtor or repayment terms contained in any of the Loan Documents more burdensome on Debtor. Debtor consents to FFCA providing the Disclosures, as well as any other information which FFCA may now have or hereafter acquire with respect to the Premises or the financial condition of Debtor, to each purchaser, transferee, assignee, servicer, participant, investor or rating agency involved with respect to each Transfer, Participation and/or Securitization, as applicable. FFCA shall pay the reasonable and customary out-of-pocket expenses incurred in connection with the performance of the obligations under this Section. IN WITNESS WHEREOF, Debtor and FFCA have entered into this Agreement as of the date first above written. FFCA: FFCA ACQUISITION CORPORATION, a Delaware corporation By:_________________________________________ Name: Robin L. Roach Its: Senior Vice President Corporate Finance DEBTOR: SYBRA, INC., a Michigan corporation By:__________________________________________ Name:________________________________________ Its:_________________________________________ STATE OF ARIZONA ] ] SS. COUNTY OF MARICOPA ] The foregoing instrument was acknowledged before me on , 1997, by Robin L. Roach, Senior Vice President, Corporate Finance of FFCA Acquisition Corporation, a Delaware corporation, on behalf of the corporation. ---------------------------------------------- Notary Public My Commission Expires: - ----------------------------- STATE OF ] ] SS. COUNTY OF ] The foregoing instrument was acknowledged before me on , 1997, by _______________________________________, the ___________________________ of SYBRA, INC., a Michigan corporation, on behalf of the corporation. ---------------------------------------------- Notary Public My Commission Expires: - ----------------------------- EXHIBIT A DESCRIPTION OF PREMISES EXHIBIT B NOTE EXHIBIT C DEED OF TRUST EXHIBIT D ENVIRONMENTAL DISCLOSURE EXHIBIT E OPINION EXHIBIT F ENVIRONMENTAL INDEMNITY AGREEMENT EX-10.17 7 PROMISSORY NOTE FORM OF PROMISSORY NOTE Dated as of November , 1997 $803,019.00 Scottsdale, Arizona SYBRA, INC., a Michigan corporation ("Debtor"), for value received, hereby promises to pay to FFCA ACQUISITION CORPORATION, a Delaware corporation ("FFCA"), whose address is 17207 North Perimeter Drive, Scottsdale, Arizona 85255, or order, on or before December 1, 2017, as herein provided, the principal sum of EIGHT HUNDRED THREE THOUSAND NINETEEN AND NO/100 DOLLARS ($803,019.00), and to pay interest on the unpaid principal amount of this Note from the date hereof to maturity at the rate of 8.822% per annum ("Base Interest Rate") on the basis of a 360-day year of twelve 30-day months, such principal and interest to be paid in immediately available funds and in lawful money of the United States. Interest on the principal amount of this Note for the period commencing with the date set forth above through the last day in the month in which this Note is dated shall be due and payable upon execution of this Note. Thereafter, principal and interest shall be payable in consecutive monthly installments of Seven Thousand One Hundred Thirty-Three and 30/100 DOLLARS ($7,133.30) commencing on January 1, 1998, and continuing on the first day of each month thereafter until maturity of this Note on December 1, 2017, at which time, the outstanding principal and unpaid accrued interest shall be due and payable. Prior to the fifth anniversary of this Note Debtor may not prepay this Note, except as otherwise specifically provided in the Loan Agreement between Debtor and FFCA of even date herewith (the "Loan Agreement") relative to a payment from Debtor to FFCA in order to maintain the Fixed Charge Coverage Ratio (as defined in the Loan Agreement). From and after the fifth anniversary of this Note, Debtor may prepay this Note in full, but not in part, including all accrued but unpaid interest hereunder and all sums advanced by FFCA pursuant to any of the Loan Documents (as defined below), provided that (i) any such prepayment shall only be made on a regularly scheduled payment date upon 30 days' prior written notice from the Debtor to FFCA; and (ii) any such prepayment shall be made together with payment of a prepayment premium equal to: (a) 5% of the amount prepaid if the prepayment is made on or following the fifth anniversary of this Note but prior to the sixth anniversary of this Note; (b) 4% of the amount prepaid if the prepayment is made on or following the sixth anniversary of this Note but prior to the seventh anniversary of this Note; (c) 3% of the amount prepaid if the prepayment is made on or following the seventh anniversary of this Note but prior to the eighth anniversary of this Note; (d) 2% of the amount prepaid if the prepayment is made on or following the eighth anniversary of this Note but prior to the ninth anniversary of this Note; and (e) 1% of the amount prepaid if the prepayment is made on or following the ninth anniversary of this Note but prior to the tenth anniversary of this Note. If this Note is prepaid on or following the tenth anniversary of this Note there shall be no prepayment premium. The foregoing prepayment premium shall be due and payable if this Note is prepaid prior to the tenth anniversary of this Note regardless of whether such prepayment is the result of a voluntary prepayment by Debtor or as a result of FFCA declaring the unpaid principal balance of this Note, accrued interest and all other sums due under this Note, the Mortgage (as defined below), the other Loan Documents and any other document further securing this Note, due and payable as contemplated below (the "Acceleration"); provided, however, such prepayment premium shall not be payable if this Note is prepaid as a result of the application of casualty or condemnation proceeds as contemplated by the Mortgage. If this Note is prepaid as a result of an Acceleration prior to the fifth anniversary of this Note, a prepayment premium of 5% of the principal amount prepaid shall be due and payable to FFCA by Debtor at the time of such prepayment. Upon execution of this Note, Debtor shall establish arrangements whereby all payments of principal and interest hereunder are transferred by wire or other means directly from Debtor's bank account to such account as FFCA may designate or as FFCA may otherwise designate. Each payment of principal and interest hereunder shall be applied first toward any past due payments under this Note (including payment of all Costs (as herein defined)), then to accrued interest, and the balance, after the payment of such accrued interest, if any, shall be applied to the unpaid principal balance of this Note; provided, however, each payment hereunder while a default under this Note has occurred and is continuing shall be applied as FFCA in its sole discretion may determine. This Note is secured by that certain Deed of Trust or Mortgage, Assignment of Rents and Leases, Security Agreement and Fixture Filing dated of even date herewith executed by Debtor for the benefit of FFCA (the "Mortgage"). If any installment or payment due under this Note remains unpaid for five (5) days after written notice thereof to Debtor, or upon the occurrence and continuation of an event of default (after the expiration of any applicable grace and cure period) under (i) the Loan Agreement, (ii) the Mortgage, (iii) any of the other Loan Documents (as defined in the Loan Agreement), or (iv) any other document further securing this Note, then, in any of such event, time being of the essence hereof, FFCA may declare the entire unpaid principal balance of this Note, accrued interest, if any, and all other sums due under this Note, the Loan Agreement, the other Loan Documents and any other document further securing this Note, due and payable at once without written notice to Debtor. All past-due principal and/or interest shall bear interest at the lesser of the highest rate for which the undersigned may legally contract, or the rate of 4% per annum above the Base Interest Rate (the "Default Rate"), and such Default Rate shall continue to apply following a judgment in favor of FFCA under this Note. If Debtor fails to make any payment or installment due under this Note within five days of its due date, Debtor shall pay to FFCA in addition to any other sum due FFCA under this Note or any other Loan Document a late charge equal to 5% of such past-due payment or installment. All payments of principal and interest due hereunder shall be made (i) without deduction of any present and future taxes, levies, imposts, deductions, charges or withholdings, which amounts shall be paid by Debtor, and (ii) without any other right of abatement, reduction, setoff, defense, counterclaim, interruption, deferment or recoupment for any reason whatsoever. Debtor will pay the amounts necessary such that the gross amount of the principal and interest received by FFCA is not less than that required by this Note. No delay or omission on the part of FFCA in exercising any remedy, right or option under this Note shall operate as a waiver of such remedy, right or option. In any event, a waiver on any one occasion shall not be construed as a waiver or bar to any such remedy, right or option on a future occasion. Debtor hereby waives presentment, demand for payment, notice of dishonor, notice of protest, and protest, and all other notices or demands in connection with delivery, acceptance, performance, default or endorsement of this Note. All notices, consents, approvals or other instruments required or permitted to be given by either party pursuant to this Note shall be in writing and given by (i) hand delivery, (ii) facsimile followed by a copy sent by mail in accordance with clause (iv) hereof, (iii) express overnight delivery service or (iv) certified or registered mail, return receipt requested, postage prepaid, and shall be deemed to have been delivered upon (a) receipt, if hand delivered, (b) transmission, if delivered by facsimile, (c) the next business day, if delivered by express overnight delivery service, or (d) the fifth business day following the day of deposit of such notice with the United States Postal Service, if sent by certified or registered mail, return receipt requested, postage prepaid. Notices shall be provided to the parties and addresses (or facsimile numbers, as applicable) specified below: If to Debtor: Sybra, Inc. 8300 Dunwoody Place Suite 300 Atlanta, Georgia 30350-1296 Attention: President Telephone: (770) 587-0290 Telecopy: (770) 594-7044 With a copy to: Robert H. Drechsler, Esq. Pryor, Cashman, Sherman & Flynn 410 Park Avenue New York, New York 10016 Telephone: (212) 421-4100 Telecopy: (212) 326-0806 If to FFCA: Robin L. Roach Senior Vice President, Corporate Finance FFCA Acquisition Corporation 17207 North Perimeter Drive Scottsdale, Arizona 85255 Telephone: (602) 585-4500 Telecopy: (602) 585-2228 With a copy to: Dennis L. Ruben, Esq. Executive Vice President and General Counsel FFCA Acquisition Corporation 17207 North Perimeter Drive Scottsdale, Arizona 85255 Telephone: (602) 585-4500 Telecopy: (602) 585-2226 or to such other address or such other person as either party may from time to time hereafter specify to the other party in a notice delivered in the manner provided above. Should any indebtedness represented by this Note be collected at law or in equity, or in bankruptcy or other proceeding, or should this Note be placed in the hands of attorneys for collection after default, Debtor shall pay, in addition to the principal and interest due and payable hereon, all reasonable costs of collecting or attempting to collect this Note (the "Costs"), including reasonable attorneys' fees and expenses of FFCA (including those fees and expenses incurred in connection with any appeal) whether or not a judicial action is commenced by FFCA. This Note may not be amended or modified except by a written agreement duly executed by Debtor and FFCA. Notwithstanding anything to the contrary contained in any of the Loan Documents, the obligations of Debtor to FFCA under this Note and any other Loan Documents are subject to the limitation that payments of interest and late charges to FFCA shall not be required to the extent that receipt of any such payment by FFCA would be contrary to provisions of applicable law limiting the maximum rate of interest that may be charged or collected by FFCA. The portion of any such payment received by FFCA that is in excess of the maximum interest permitted by such provisions of law shall be credited to the principal balance of this Note or if such excess portion exceeds the outstanding principal balance of this Note, then such excess portion shall be refunded to Debtor. All interest paid or agreed to be paid to FFCA shall, to the extent permitted by applicable law, be amortized, prorated, allocated and/or spread throughout the full term of this Note (including, without limitation, the period of any renewal or extension thereof) so that interest for such full term shall not exceed the maximum amount permitted by applicable law. It is the intent of the parties hereto that the business relationship created by this Note and the other Loan Documents is solely that of creditor and debtor and has been entered into by both parties in reliance upon the economic and legal bargains contained in the Loan Documents. None of the agreements contained in the Loan Documents, is intended, nor shall the same be deemed or construed, to create a partnership between FFCA and Debtor, to make them joint venturers, to make Debtor an agent, legal representative, partner, subsidiary or employee of FFCA, nor to make FFCA in any way responsible for the debts, obligations or losses of Debtor. Debtor acknowledges that FFCA (or any partner of FFCA) and Licensor (as defined in the Mortgage) are not affiliates, agents, partners or joint venturers, nor do they have any other legal, representative or fiduciary relationship. FFCA, by accepting this Note, and Debtor acknowledge and warrant to each other that each has been represented by independent counsel and Debtor has executed this Note after being fully advised by said counsel as to its effect and significance. This Note shall be interpreted and construed in a fair and impartial manner without regard to such factors as the party which prepared the instrument, the relative bargaining powers of the parties or the domicile of any party. Debtor acknowledges that this Note was substantially negotiated in the State of Arizona, the executed Note was delivered in the State of Arizona, all payments under this Note will be delivered in the State of Arizona and there are substantial contacts between the parties and the transactions contemplated herein and the State of Arizona. For purposes of any action or proceeding arising out of this Note, the parties hereto expressly submit to the jurisdiction of all federal and state courts located in the State of Arizona. Debtor consents that it may be served with any process or paper by registered mail or by personal service within or without the State of Arizona in accordance with applicable law. Furthermore, Debtor waives and agrees not to assert in any such action, suit or proceeding that it is not personally subject to the jurisdiction of such courts, that the action, suit or proceeding is brought in an inconvenient forum or that venue of the action, suit or proceeding is improper. It is the intent of Debtor and FFCA that all provisions of this Note shall be governed by and construed under the laws of the State of Arizona. Nothing contained in this paragraph shall limit or restrict the right of FFCA to commence any proceeding in the federal or state courts located in the state in which the Premises is located to the extent FFCA deems such proceeding necessary or advisable to exercise remedies available under the Loan Documents. FFCA, BY ACCEPTING THIS NOTE, AND DEBTOR HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE THE RIGHT EITHER MAY HAVE TO A TRIAL BY JURY WITH RESPECT TO ANY AND ALL ISSUES PRESENTED IN ANY ACTION, PROCEEDING, CLAIM OR COUNTERCLAIM BROUGHT BY EITHER OF THE PARTIES HERETO AGAINST THE OTHER OR ITS SUCCESSORS WITH RESPECT TO ANY MATTER ARISING OUT OF OR IN CONNECTION WITH THIS NOTE, THE RELATIONSHIP OF FFCA AND DEBTOR, DEBTOR'S USE OR OCCUPANCY OF THE PREMISES, AND/OR ANY CLAIM FOR INJURY OR DAMAGE, OR ANY EMERGENCY OR STATUTORY REMEDY. THIS WAIVER BY THE PARTIES HERETO OF ANY RIGHT EITHER MAY HAVE TO A TRIAL BY JURY HAS BEEN NEGOTIATED AND IS AN ESSENTIAL ASPECT OF THEIR BARGAIN. FURTHERMORE, DEBTOR HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES THE RIGHT IT MAY HAVE TO SEEK PUNITIVE, CONSEQUENTIAL, SPECIAL AND INDIRECT DAMAGES FROM FFCA WITH RESPECT TO ANY AND ALL ISSUES PRESENTED IN ANY ACTION, PROCEEDING, CLAIM OR COUNTERCLAIM BROUGHT BY DEBTOR AGAINST FFCA OR ITS SUCCESSORS WITH RESPECT TO ANY MATTER ARISING OUT OF OR IN CONNECTION WITH THIS NOTE OR ANY DOCUMENT CONTEMPLATED HEREIN OR RELATED HERETO. THE WAIVER BY DEBTOR OF ANY RIGHT IT MAY HAVE TO SEEK PUNITIVE, CONSEQUENTIAL, SPECIAL AND INDIRECT DAMAGES HAS BEEN NEGOTIATED BY THE PARTIES HERETO AND IS AN ESSENTIAL ASPECT OF THEIR BARGAIN. All obligations, covenants and duties of Debtor relating to the indemnification or defense of FFCA as contained in the Loan Documents shall survive the repayment of the obligations of Debtor to FFCA under this Note. This obligation shall bind Debtor and its successors and assigns, and the benefits hereof shall inure to FFCA and its successors and assigns. FFCA may assign its rights under this Note as set forth in Section 13.P of the Loan Agreement. IN WITNESS WHEREOF, Debtor has executed and delivered this Note as of the date first set forth above. DEBTOR: SYBRA, INC., a Michigan corporation By__________________________________________ Name________________________________________ Its_________________________________________ EX-10.18 8 MORTGAGE FORM OF MORTGAGE THIS MORTGAGE, containing an Assignment of Rents and Leases, Security Agreement and Fixture Filing ("Mortgage"), is made as of , 1997, by and between SYBRA, INC., a Michigan corporation ("Debtor"), whose address is 8300 Dunwoody Place, Suite 300, Atlanta, Georgia 30350-1296, and FFCA ACQUISITION CORPORATION, a Delaware corporation ("Mortgagee"), whose address is 17207 North Perimeter Drive, Scottsdale, Arizona 85255. PRELIMINARY STATEMENT: The capitalized terms used in this Mortgage, if not elsewhere defined herein, have the meanings set forth in Article I. Debtor holds a fee simple interest in the Premises, subject to Permitted Exceptions. Debtor is executing this Mortgage for the purpose of granting the interest of Debtor in and to the Mortgaged Property (as defined in the Granting Clauses below) as security for the payment of the Obligations. The Mortgaged Property shall be and remain subject to the lien of this Mortgage and shall constitute security for the Obligations so long as the Obligations shall remain outstanding. GRANTING CLAUSES: Debtor, in consideration of the premises and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, by these presents does hereby create a security interest in, mortgage, grant, bargain, sell, assign, pledge, give, transfer, set over and convey unto Mortgagee and to its successors and assigns WITH POWER OF SALE, for the benefit of Mortgagee, all of Debtor's estate, right, title and interest in, to and under any and all of the following property (the "Mortgaged Property"), subject only to Permitted Exceptions: Premises, Rents and Derivative Interests The Premises; all rents, issues, profits, royalties, income and other benefits derived from the Premises (collectively the "Rents"); all estate, right, title and interest of Debtor in and to all leases or subleases covering the Premises or any portion thereof now or hereafter existing or entered into, including, without limitation, all cash or security deposits, advance rentals and deposits or payments of similar nature; all right, title and interest of Debtor in and to all options to purchase or lease the Premises or any portion thereof or interest therein, and any greater estate in the Premises owned or hereafter acquired; all interests, estate or other claims, both in law and in equity, which Debtor now has or may hereafter acquire in the Premises; all easements, rights-of-way and rights used in connection therewith or as a means of access thereto, and all tenements, hereditaments and appurtenances thereof and thereto, and all water rights and shares of stock evidencing the same; all right, title and interest of Debtor, now owned or hereafter acquired, in and to any land lying within the right-of-way of any street, open or proposed, adjoining the Premises and any and all sidewalks, alleys and strips and gores of land adjacent to or used in connection with the Premises; Personal Property All right, title and interest of Debtor in and to all tangible personal property now owned or hereafter acquired by Debtor and now or at any time hereafter located on or at the Premises or used in connection therewith, including, without limitation, all goods, machinery, tools, equipment, lobby and all other indoor and outdoor furniture, copies of books, copies of records, manuals, computer systems (other than license rights and agreements owned by third parties relating to the software programs used in connection with such computer systems), furnishings, inventory, rugs, and maintenance and other supplies (the "Personal Property"); Intangibles All of Debtor's interest in all existing and future accounts, contract rights, general intangibles, copies of files, copies of books of account, agreements, permits, licenses (other than franchise, license or area development agreements with Licensor) and certificates necessary or desirable in connection with the acquisition, ownership, leasing, construction, operation, servicing or management of the Mortgaged Property, whether now existing or entered into or obtained after the date hereof, and all existing and future telephone numbers and listings, advertising and marketing materials and good will in any way relating to the Mortgaged Property or any portion thereof; and Claims and Awards All the estate, interest, right, title, other claim or demand, including claims or demands with respect to the proceeds of insurance in effect with respect thereto, which Debtor now has or may hereafter acquire in the Mortgaged Property, and any and all awards made for the taking by eminent domain, or by any proceeding or purchase in lieu thereof, of the whole or any part of the Mortgaged Property, including, without limitation, any awards resulting from a change of grade of streets and awards for severance damages, and Debtor hereby authorizes, directs and empowers Mortgagee, at its option, on Debtor's behalf, or on behalf of the successors or assigns of Debtor, to adjust, compromise, claim, collect and receive such proceeds and to give proper receipts and acquittances therefor, subject to the terms hereof. TO HAVE AND TO HOLD the Mortgaged Property hereby granted or mortgaged or intended to be granted or mortgaged, unto Mortgagee, and its successors, heirs and assigns, upon the terms, provisions and conditions set forth herein. THIS MORTGAGE SHALL SECURE THE FOLLOWING INDEBTEDNESS AND OBLIGATIONS (the "Obligations"): (i) Payment of indebtedness evidenced by the Note together with all extensions, renewals, amendments and modifications thereof; (ii) Payment of all other indebtedness and performance of all other obligations and covenants of Debtor contained in any Loan Document, together with any other instrument given to evidence or further secure the payment and performance of any obligation secured hereby or thereby; (iii) Payment of all indebtedness and performance of all other obligations and covenants under any other agreement or instrument, including, without limitation, promissory notes and guaranties, between, among or by (1) Debtor (the "Debtor Entities"), and, or for the benefit of, (2) Mortgagee or any corporation, partnership, joint venture, limited liability company, association or other form of entity affiliated with Mortgagee (the "Mortgagee Entities"); provided, however, Obligations shall not include the payment of the indebtedness and the performance of the other obligations of Debtor pursuant to the Equipment Loan Agreement; and (iv) Payment of all other sums, with interest thereon, which may hereafter be owed by Debtor or its successors or assigns pursuant to the Loan Documents to Mortgagee or its successors or assigns. This Mortgage is a "Future Advance Mortgage" under Act No. 348 of Public Acts of Michigan 1990. It is the intention of the parties hereto that the Mortgaged Property shall secure all of the Obligations presently or hereafter owed, and that the priority of the security interest created by this Mortgage for all such Obligations shall be controlled by the time of proper recording of this Mortgage. In addition, this Mortgage shall also secure unpaid balances of advances made with respect to the Mortgaged Property for the payment of taxes, assessments, insurance premiums, costs or any other advances incurred for the protection of the Mortgaged Property, together with interest thereon until paid at the rate provided for in Section 2.15 hereof, all as contemplated in this Mortgage, all of which shall constitute a part of the Obligations. This paragraph shall serve as notice to all persons who may seek or obtain a lien on the Mortgaged Property subsequent to the date of recording of this Mortgage, that until this Mortgage is released, any debt owed Mortgagee by Debtor, including advances made subsequent to the recording of this Mortgage, shall be secured with the priority afforded this Mortgage as recorded. IT IS HEREBY COVENANTED, DECLARED AND AGREED that the Note and the other Loan Documents are to be executed, delivered and secured and that the Mortgaged Property is to be held and disposed of by Mortgagee, upon and subject to the provisions of this Mortgage. ARTICLE I DEFINED TERMS Unless the context otherwise specifies or requires, the following terms shall have the meanings specified (such definitions to be applicable equally to singular and plural nouns and verbs of any tense): "Affiliate" means any Person controlling, controlled by or under common control with any other Person. For purposes of this definition, "control" (including "controlled by" and "under common control with") means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership or voting securities or otherwise. "Code" means the United States Bankruptcy Code, 11 U.S.C. ss.ss. 101 et seq., as amended. "De Minimis Amounts" shall mean quantities of chemicals and products containing Hazardous Materials in quantities customary and necessary for the intended use of the Premises including but not limited to cleaning supplies, insecticides, paints, paint removers, toner for copiers, etc.) provided such use, storage or handling of such DeMinimis Amounts of Hazardous Materials are in compliance with Environmental Laws. "Environmental Condition" means any condition with respect to soil, surface waters, groundwaters, Premises, stream sediments, surface or subsurface strata, ambient air and any environmental medium comprising or surrounding the Premises, whether or not yet discovered, which could or does result in any damage, loss, cost, expense, claim, demand, order or liability to or against Debtor or FFCA by any third party (including, without limitation, any government entity), including, without limitation, any condition resulting from the operation of Debtor's business and/or the operation of the business of any other property owner or operator in the vicinity of the Premises and/or any activity or operation formerly conducted by any person or entity on or off the Premises. "Environmental Indemnity Agreement" means that certain Environmental Indemnity Agreement dated as of the date of this Mortgage executed by Debtor for the benefit of Mortgagee with respect to the Premises. "Environmental Laws" means any present and future federal, state and local laws, statutes, ordinances, rules, regulations and the like, relating to protection of human health or the environment, relating to Hazardous Materials, relating to liability for or costs of Remediation or prevention of Releases or relating to liability for or costs of other actual or threatened danger to human health or the environment. "Environmental Laws" includes, but is not limited to, the following statutes, as amended, any successor thereto, and any regulations promulgated pursuant thereto, and any state or local statutes, ordinances, rules, regulations and the like addressing similar issues: the Comprehensive Environmental Response, Compensation and Liability Act; the Emergency Planning and Community Right-to-Know Act; the Hazardous Materials Transportation Act; the Resource Conservation and Recovery Act (including but not limited to Subtitle I relating to underground storage tanks); the Solid Waste Disposal Act; the Clean Water Act; the Clean Air Act; the Toxic Substances Control Act; the Safe Drinking Water Act; the Occupational Safety and Health Act; the Federal Water Pollution Control Act; the Federal Insecticide, Fungicide and Rodenticide Act; the Endangered Species Act; the National Environmental Policy Act; and the River and Harbors Appropriation Act. "Environmental Laws" also includes, but is not limited to, any present and future federal, state and local laws, statutes, ordinances, rules, regulations and the like: conditioning transfer of property upon a negative declaration or other approval of a governmental authority of the environmental condition of the property; requiring notification or disclosure of Releases or other environmental condition of the Mortgaged Property to any governmental authority or other person or entity, whether or not in connection with transfer of title to or interest in property; imposing conditions or requirements in connection with permits or other authorization for lawful activity. "Equipment Loan Agreement" means that certain Equipment Loan Agreement dated as of the date of this Mortgage between Debtor and Mortgagee. "Hazardous Materials" means (i) any toxic substance or hazardous waste, substance or related material, or any pollutant or contaminant; (ii) radon gas, asbestos in any form which is or could become friable, urea formaldehyde foam insulation, transformers or other equipment which contains dielectric fluid containing levels of polychlorinated biphenyls in excess of federal, state or local safety guidelines, whichever are more stringent, or any petroleum product; (iii) any other substance, gas, material or chemical which is or may be defined as or included in the definition of "hazardous substances," "toxic substances," "hazardous materials," hazardous wastes" or words of similar import under any Environmental Laws. "Indemnified Parties" means Mortgagee and any person or entity who is or will have been involved in the origination of the loan evidenced by the Note (the "Loan"), any person or entity who is or will have been involved in the servicing of the Loan, any person or entity in whose name the encumbrance created by this Mortgage is or will have been recorded, persons and entities who may hold or acquire or will have held a full or partial interest in the Loan (including, but not limited to, investors in the securities contemplated by Section 5.18, as well as custodians, trustees and other fiduciaries who hold or have held a full or partial interest in the Loan for the benefit of third parties), as well as the respective directors, officers, shareholders, partners, members, employees, agents, servants, representatives, contractors, subcontractors, affiliates, subsidiaries, participants, successors and assigns of any and all of the foregoing (including but not limited to any other person or entity who holds or acquires or will have held a participation or other full or partial interest in the Loan or the Mortgaged Property, whether during the term of the Loan or as a part of or following a foreclosure of the Loan and including, but not limited to, any successors by merger, consolidation or acquisition of all or a substantial portion of Mortgagee's assets and business). "Licensor" means Arby's, Inc., a Delaware corporation, or its successors. "Loan Agreement" means the Loan Agreement dated as of even date herewith between Debtor and Mortgagee. "Loan Documents" means this Mortgage, the Note, the Loan Agreement, the Environmental Indemnity Agreement and such other notes, deeds of trust or mortgages and other documents or instruments contemplated thereby, all as amended and supplemented. "Losses" means any and all claims, suits, liabilities (including, without limitation, strict liabilities), actions, proceedings, obligations, debts, damages, losses, costs, expenses, diminutions in value, fines, penalties, charges, fees, expenses, judgments, awards, amounts paid in settlement and damages of whatever kind or nature (including, without limitation, attorneys' fees and other costs of defense). "Note" means the promissory note dated as of even date herewith in the amount of $803,019.00 executed by Debtor and payable to Mortgagee which is secured by this Mortgage and any amendments, extensions or modifications thereof. "Permitted Exceptions" shall have the meaning set forth in the Loan Agreement, subject to the terms and provisions of Section 2.12 hereof. "Person" or "Persons" means, as the context requires, any individual, corporation, trust, partnership, limited liability company, unincorporated organization, governmental authority or any other form of entity. "Premises" means the parcel or parcels of real estate legally described on Exhibit A attached hereto, and all buildings, fixtures and other improvements now or hereafter located on the Land (whether or not affixed to the real estate). "Release" means any presence, release, deposit, discharge, emission, leaking, spilling, seeping, migrating, injecting, pumping, pouring, emptying, escaping, dumping, disposing or other movement of Hazardous Materials. "Remediation" means any response, remedial, removal, or corrective action, any activity to cleanup, detoxify, decontaminate, contain or otherwise remediate any Hazardous Material, any actions to prevent, cure or mitigate any Release, any action to comply with any Environmental Laws or with any permits issued pursuant thereto, any inspection, investigation, study, monitoring, assessment, audit, sampling and testing, laboratory or other analysis, or any evaluation relating to any Hazardous Materials. "Restoration" means the restoration, replacement or rebuilding of the Premises, or any part thereof, as nearly as possible to its value, condition and character immediately prior to any damage, destruction or Taking (as defined in Section 3.01 hereof). "State" means the State of Michigan. ARTICLE II REPRESENTATIONS, WARRANTIES AND COVENANTS OF DEBTOR Debtor hereby represents, warrants, covenants and agrees as follows until this Mortgage has been discharged: Section 2.01. Payment of the Note. Debtor shall punctually pay, or cause to be paid, the principal, interest and all other sums to become due in respect of the Note and the Loan Documents in accordance with the Note and the Loan Documents. Section 2.02. Title to the Mortgaged Property. Debtor has good and marketable fee simple title to the Mortgaged Property, free and clear of all liens, encumbrances, charges and other exceptions to title, except Permitted Exceptions. Debtor has and shall have full power and lawful authority to grant the Mortgaged Property to Mortgagee in the manner and form herein done or intended, preserve its title to its interest in the Mortgaged Property, subject only to Permitted Exceptions, and forever warrant and defend the same to Mortgagee against the claims of all persons. This Mortgage constitutes a valid first lien upon and security interest in the Mortgaged Property. Section 2.03. Organization and Status of Debtor; Enforceability. (a) Debtor has been duly incorporated, is validly existing and in good standing under the laws of its state of incorporation and is qualified as a foreign corporation to do business in any jurisdiction where such qualification is required. Debtor is not a "foreign corporation", "foreign partnership", "foreign trust" or "foreign estate", as those terms are defined in the Internal Revenue Code and the regulations promulgated thereunder. Debtor's United States tax identification number is correctly set forth on the signature page of this Mortgage. The persons who have executed this Mortgage on behalf of Debtor are duly authorized to do so. (b) This Mortgage constitutes the legal, valid and binding obligation of Debtor, enforceable against Debtor in accordance with its terms. Section 2.04. Litigation; Absence of Breaches or Defaults. (a) There are no suits, actions, proceedings or investigations pending, or to Debtor's knowledge, threatened against or involving Debtor before any court, arbitrator, or administrative or governmental body which might reasonably result in any material adverse change in the contemplated business, condition, worth or operations of Debtor or the Mortgaged Property. (b) Debtor is not, and the execution, delivery and performance of this Mortgage and the documents, instruments and agreements provided for herein will not result, in any breach of or default under any other document, instrument or agreement to which Debtor is a party or by which Debtor, the Mortgaged Property or any of Debtor's property is subject or bound. Section 2.05. Licensor Provisions; Licenses and Permits. (a) Debtor has entered into a franchise or license agreement with Licensor for conduct of the business at the Mortgaged Property. Such franchise or license agreement is valid, binding and in full force and effect, permits Debtor to operate a Licensor's restaurant on the Mortgaged Property and has a term which will not expire prior to the scheduled maturity date of the Note. (b) Debtor has obtained all required licenses and permits, both governmental and private, to use and operate the Mortgaged Property in the intended manner. Section 2.06. Financial Condition; Information Provided to Mortgagee. The financial statements, all financial data and all other documents and information heretofore delivered to Mortgagee by or with respect to Debtor and/or the Mortgaged Property in connection with this Mortgage and/or relating to Debtor and/or the Mortgaged Property are true, correct and complete in all material respects, and there have been no amendments to such financial statements, financial data and other documents and information since the date such financial statements, financial data, documents and other information were prepared or delivered to Mortgagee, and no material adverse change has occurred to any such financial statements, financial data, documents and other information not disclosed in writing to Mortgagee. Section 2.07. Recording. Debtor shall, upon the execution and delivery hereof and thereafter from time to time, take such actions as Mortgagee may reasonably request to cause this Mortgage, each supplement and amendment to such instrument and financing statements with respect thereto and each instrument of further assurance (collectively, the "Recordable Documents") to be filed, registered and recorded as may be required by law to publish notice and maintain the first security interest hereof upon the Mortgaged Property and to publish notice of and protect the validity of the Recordable Documents. Debtor shall, from time to time, perform or cause to be performed any other act and shall execute or cause to be executed any and all further instruments (including financing statements, continuation statements and similar statements with respect to any of said documents) requested by Mortgagee for carrying out the intention of, or facilitating the performance of, this Mortgage. If Debtor shall fail to comply with this Section, Mortgagee shall be and is hereby irrevocably appointed the agent and attorney-in-fact of Debtor to comply therewith (including the execution, delivery and filing of such financing statements and other instruments), which appointment is coupled with an interest, but this sentence shall not prevent any default in the observance of this Section from constituting an Event of Default. To the extent permitted by law, Debtor shall pay or cause to be paid recording taxes and fees incident thereto and all expenses, taxes and other governmental charges incident to or in connection with the preparation, execution, delivery or acknowledgment of the Recordable Documents, any instruments of further assurance and the Note. Section 2.08. Use; Maintenance and Repair. (a) Except as otherwise may be permitted by the terms of Subsection 2.16.C below, Debtor shall use the Mortgaged Property solely for the operation of a restaurant in accordance with a license agreement with Licensor and for no other purpose. Except as set forth below, Debtor shall at all times while this Mortgage is in effect occupy the Mortgaged Property and diligently operate its business on the Mortgaged Property. Debtor may cease diligent operation of business for a period not to exceed 90 days and may do so only once within any five-year period while this Mortgage is in effect. If Debtor does discontinue operation pursuant to this Section, Debtor shall (i) give written notice to Mortgagee 60 days prior to the day Debtor ceases operation, (ii) provide adequate protection and maintenance of the Mortgaged Property during any period of vacancy and (iii) pay all costs necessary to restore the Mortgaged Property to their condition on the day operation of the business ceased at such time as the Mortgaged Property is reopened for Debtor's business operations or other substituted use. Notwithstanding anything herein to the contrary, Debtor shall pay monthly the principal and interest due under the Note during any period in which Debtor discontinues operation. Debtor shall not, by itself or through any lease or other type of transfer, convert the Premises to an alternative use while this Mortgage is in effect without Mortgagee's consent, which consent shall not be unreasonably withheld or delayed. Mortgagee may consider any or all of the following in determining whether to grant its consent, without being deemed to be unreasonable: (i) whether the converted use will be consistent with the highest and best use of the Mortgaged Property, and (ii) whether the converted use will increase Mortgagee's risks or decrease the value of the Mortgaged Property. (b) Debtor shall (i) maintain the Mortgaged Property in good condition and repair, subject to reasonable and ordinary wear and tear, free from actual or constructive waste, (ii) operate, remodel, update and modernize the Mortgaged Property in accordance with those standards adopted from time to time by Licensor on a system-wide basis for Licensor restaurants, with such remodeling and modernizing being undertaken in accordance with Licensor's system-wide timing schedules for such activities, and (iii) pay all operating costs of the Premises in the ordinary course of business. Section 2.09. Compliance With Laws. (a) Debtor's use and occupation of the Mortgaged Property, and the condition thereof, including, without limitation, any Restoration, shall, at Debtor's sole cost and expense, comply in all material respects with all applicable statutes, regulations, rules, ordinances, codes, licenses, permits, orders and approvals of any governmental agencies, departments, commissions, bureaus, boards or instrumentalities of the United States, the State and all political subdivisions thereof, including, without limitation, all health, building, fire, safety and other codes, ordinances and requirements and all applicable standards of the National Board of Fire Underwriters ("Applicable Regulations"), where the failure to so comply might reasonably be expected to result in a material adverse effect on the Mortgaged Property or the business, operations, assets or financial condition of Debtor. (b) Without limiting the generality of the other provisions of this Section, Debtor agrees that it shall be responsible for complying in all material respects with the Americans with Disabilities Act of 1990, as such act may be amended from time to time, and all regulations promulgated thereunder (collectively, the "ADA"), as it affects the Mortgaged Property, including, without limitation, making required "readily achievable" changes to remove any architectural or communications barriers, and providing auxiliary aides and services within the Mortgaged Property, where the failure to so comply might reasonably be expected to result in a material adverse effect on the Mortgaged Property or the business, operations, assets or financial condition of Debtor. Debtor further agrees that any and all alterations made to the Mortgaged Property while this Mortgage is in effect will comply in all material respects with the requirements of the ADA, where the failure to so comply might reasonably be expected to result in a material adverse effect on the Mortgaged Property or the business, operations, assets or financial condition of Debtor. All plans for alterations which must be submitted to Mortgagee under the provisions of Section 2.10 must include a statement from a licensed Architect or Engineer certifying that they have reviewed the plans, and that the plans comply in all material respects with all applicable provisions of the ADA. Any subsequent approval or consent to the plans by the Mortgagee shall not be deemed to be a representation on Mortgagee's part that the plans comply with the ADA, which obligation shall remain with Debtor. Debtor agrees that it will defend, indemnify and hold harmless Mortgagee and Mortgagee's shareholders, directors, officers, agents, attorneys and employees from and against any and all claims, demands, causes of action, suits, proceedings, liabilities, damages (including consequential and punitive damages), losses, costs and expenses, including attorneys' fees, caused by, incurred or resulting from Debtor's failure to comply with its obligations under this Section. (c) In addition to the other requirements of this Section, Debtor shall, at all times while this Mortgage is in effect, comply with all federal, state or local statutes, laws, rules, regulations, ordinances, codes, policies or rules of common law now or hereafter in effect and in each case, as amended, and any judicial or administrative interpretation thereof, including any judicial order, consent, decree or judgment, applicable to Debtor relating to the Mortgaged Property and the use thereof. (d) To Debtor's knowledge, the Mortgaged Property and Debtor are not in violation of or subject to any existing, pending or threatened investigation or inquiry by any governmental authority or to any remedial obligations under any Environmental Laws, where such violation, investigation, inquiry or obligations might reasonably be expected to result in a material adverse effect on Debtor or the Mortgaged Property, or any portion thereof, and this representation and warranty would continue to be true and correct following disclosure to the applicable governmental authorities of all relevant facts, conditions and circumstances, if any, pertaining to the Mortgaged Property. If any such investigation or inquiry is subsequently initiated, Debtor will promptly notify Mortgagee. (e) Debtor has obtained any permits, licenses or similar authorizations that are necessary to construct, occupy, operate or use any buildings, improvements, fixtures and equipment forming a part of the Mortgaged Property in compliance with Environmental Laws. (f) To Debtor's knowledge, and except as set forth in Exhibit D of the Loan Agreement: (i) no Hazardous Materials have been disposed of or otherwise Released on or about the Mortgaged Property causing or resulting in an Environmental Condition; (ii) the Mortgaged Property does not contain Hazardous Materials or underground storage tanks except in compliance with Environmental Laws; (iii) there is no Release migrating to the Mortgaged Property from adjacent properties that would cause or result in an Environmental Condition; (iv) there is no past or present non-compliance with Environmental Laws, or with permits issued pursuant thereto, in connection with the Mortgaged Property; (v) Debtor does not know of, and has not received, any written or oral notice or other communication from any person or entity (including but not limited to a governmental entity) relating to Hazardous Materials or Remediation thereof, of possible liability of any person or entity pursuant to any Environmental Law, other Environmental Conditions in connection with the Mortgaged Property, or any actual or potential administrative or judicial proceedings in connection with any of the foregoing; and (vi) Debtor has truthfully and fully provided to Mortgagee, in writing, any and all information relating to Environmental Conditions in, on, under or from the Mortgaged Property that is known to Debtor and that is contained in Debtor's files and records, including but not limited to any reports relating to Hazardous Materials in, on, under or from the Mortgaged Property and/or to Environmental Conditions of the Mortgaged Property. (g) Debtor covenants and agrees that: (i) all uses and operations on or of the Mortgaged Property, whether by Debtor or any other person or entity, shall be in material compliance with all Environmental Laws and permits issued pursuant thereto; (ii) Debtor shall immediately notify Mortgagee of any Release that exceeds a reportable quantity and shall take Remedial Action required by Environmental Law to abate such Release; (iii) Debtor shall not use, store, generate, transport or otherwise handle any Hazardous Materials at the Mortgaged Property, except in De Minimis Amounts; (iv) Debtor shall keep the Mortgaged Property free and clear of all liens and other encumbrances imposed pursuant to any Environmental Law, whether due to any act or omission of Debtor or any other person or entity (the "Environmental Liens") provided, however, that Debtor shall have the right, at its own cost and expense, to contest, object or appeal by appropriate legal proceeding the validity of such liens. The commencement of such legal proceedings shall suspend Debtor's obligation to eliminate the Environmental Lien, provided Debtor shall have furnished Mortgagee with such financial assurances and protections in favor of Mortgagee and the Mortgaged Property as Mortgagee shall request, including, without limitation, the posting of bonds in form and amount acceptable to Mortgagee; (v) Debtor shall, at its sole cost and expense, fully and expeditiously cooperate in all activities pursuant to subsection (h) below, including but not limited to providing all relevant information and making knowledgeable persons available for interviews; (vi) in the event that Mortgagee has reason to believe that an Environmental Condition may exist on the Mortgaged Property, or, upon and following an Event of Default hereunder, if Mortgagee shall have another reasonable basis for requiring it, Debtor shall, at its sole cost and expense, perform any environmental site assessment or other investigation of such Environmental Condition, pursuant to any reasonable written request of Mortgagee (including but not limited to sampling, testing and analysis of soil, water, air, building materials and other materials and substances whether solid, liquid or gas), and share with Mortgagee the reports and other results thereof, and Mortgagee and other Indemnified Parties (as defined below) shall be entitled to rely on such reports and other results thereof provided Mortgagee and other Indemnified Parties shall not disclose the results of such assessment or investigation to any governmental authority or third party except where required by law and, in such event, shall give Debtor prior written notice of its intent to disclose the results and shall consult with Debtor regarding the form, substance and timing of any such disclosure; (vii) Debtor shall, at its sole cost and expense, comply with all reasonable written requests of Mortgagee to (1) reasonably effectuate Remediation of any condition (including but not limited to a Release) in, on, under or from the Mortgaged Property; (2) comply with any Environmental Law; (3) comply with any directive from any governmental authority; and (4) take any other reasonable action necessary or appropriate for protection of human health or the environment; (viii) Debtor shall not do or allow any tenant or other user of the Mortgaged Property to do any act that materially increases the dangers to human health or the environment, poses an unreasonable risk of harm to any person or entity (whether on or off the Mortgaged Property), impairs or may impair the value of the Mortgaged Property, is contrary to any requirement of any insurer, constitutes a public or private nuisance, constitutes waste, or violates any covenant, condition, agreement or easement applicable to the Mortgaged Property; and (ix) Debtor shall immediately notify Mortgagee in writing of (A) any presence of Releases or threatened Releases that exceed a reportable quantity at the Mortgaged Property; (B) any material non-compliance with any Environmental Laws related in any way to the Mortgaged Property; (C) any actual or potential Environmental Lien; (D) any required or proposed Remediation of Environmental Conditions relating to the Mortgaged Property; and (E) any written or oral notice or other communication which Debtor becomes aware from any source whatsoever (including but not limited to a governmental entity) relating in any way to Hazardous Materials or Remediation thereof, possible liability of any person or entity pursuant to any Environmental Law, other Environmental Conditions in connection with the Mortgaged Property, or any actual or potential administrative or judicial proceedings in connection with anything referred to in this Section. (h) In the event that Mortgagee has reason to believe that an Environmental Condition may exist on the Mortgaged Property, or, upon and following an Event of Default hereunder (after the expiration of any applicable cure or grace period), if Mortgagee shall have another reasonable basis for requiring or performing it, Mortgagee and any other person or entity designated by Mortgagee, including but not limited to any receiver and any environmental consultant, shall have the right, but not the obligation, to enter upon the Mortgaged Property at all reasonable times and after reasonable notice (except in emergencies, in which case entry may be made at any time) to assess any and all aspects of any Environmental Condition, including but not limited to conducting any environmental assessment or audit (the scope of which shall be determined in Mortgagee's sole and absolute discretion) and taking samples of soil, groundwater or other water or air samples, and conducting other invasive testing ("Inspection"); provided, however, that Mortgagee shall be responsible at its sole cost and expense for restoring the Mortgaged Property following completion of the Inspection to substantially the same condition that existed before Mortgagee's entry and that the Inspection is done in a manner that minimizes the disruption to Debtor's business. Debtor shall have the right to have a representative accompany the environmental consultant performing the Inspection and shall have the right to receive split samples of any soil samples collected as part of the Inspection. Mortgagee agrees that the results of the environmental assessment shall not be disclosed to any governmental authority or third party except where required by law. Mortgagee shall give Debtor prior written notice of its intent to disclose the results of any Inspection to a governmental authority or third party and shall consult with Debtor regarding the form, substance and timing of any such disclosure. Debtor shall cooperate with and provide access to Mortgagee and any such person or entity designated by Mortgagee. (i) Debtor shall, at its sole cost and expense, protect, defend, indemnify, release and hold harmless the Indemnified Parties from and against any and all Losses (excluding Losses arising out of Mortgagee's gross negligence or wilful misconduct) and costs of Remediation (whether or not performed voluntarily), reasonable engineers' fees and environmental consultants' fees, and costs of investigation (including but not limited to sampling, testing, and analysis of soil, water, air, building materials and other materials and substances whether solid, liquid or gas) imposed upon or incurred by or asserted against any Indemnified Parties, and directly or indirectly arising out of or in any way relating to any one or more of the following: (i) any presence of any Hazardous Materials in, on, above, or under the Mortgaged Property in excess of DeMinimis Amounts; (ii) any past, present or threatened Release in, on, above, under or from the Mortgaged Property; (iii) any activity by Debtor, any person or entity affiliated with Debtor or any tenant or other user of the Mortgaged Property in connection with any actual, proposed or threatened use, treatment, storage, holding, existence, disposition or other Release, generation, production, manufacturing, processing, refining, control, management, abatement, removal, handling, transportation to or from the Mortgaged Property of any Hazardous Materials at any time located in, under, on or above the Mortgaged Property; (iv) any activity by Debtor, any person or entity affiliated with Debtor or any tenant or other user of the Mortgaged Property in connection with any actual or proposed Remediation of any Hazardous Materials at any time located in, under, on or above the Mortgaged Property, whether or not such Remediation is voluntary or pursuant to court or administrative order, including but not limited to any removal, remedial or corrective action; (v) any past, present or threatened non-compliance or violations of any Environmental Laws (or permits issued pursuant to any Environmental Laws) in connection with the Mortgaged Property or operations thereon, including but not limited to any failure by Debtor, any person or entity affiliated with Debtor or any tenant or other user of the Mortgaged Property to comply with any order of any governmental authority in connection with any Environmental Laws; (vi) the imposition, recording or filing or the threatened imposition, recording or filing of any Environmental Lien encumbering the Mortgaged Property; (vii) any administrative processes or proceedings or judicial proceedings in any way connected with any matter addressed in this Section; (viii) any past, present or threatened injury to, destruction of or loss of natural resources in any way connected with the Mortgaged Property, including but not limited to costs to investigate and assess such injury, destruction or loss; (ix) any acts of Debtor or other users of the Mortgaged Property in arranging for disposal or treatment, or arranging with a transporter for transport for disposal or treatment, of Hazardous Materials owned or possessed by such Debtor or other users, at any facility or incineration vessel owned or operated by another person or entity and containing such or similar Hazardous Materials; (x) any acts of Debtor or other users of the Mortgaged Property, in accepting any Hazardous Materials for transport to disposal or treatment facilities, incineration vessels or sites selected by Debtor or such other users, from which there is a Release, or a threatened Release of any Hazardous Material which causes the incurrence of costs for Remediation; (xi) any personal injury, wrongful death, or property damage arising under any statutory or common law or tort law theory caused by or resulting from an Environmental Condition, including but not limited to damages assessed for the maintenance of a private or public nuisance or for the conducting of an abnormally dangerous activity on or near the Mortgaged Property; and (xii) any material misrepresentation or inaccuracy in any representation or warranty or material breach or failure to perform any covenants or other obligations pursuant to this Section. (j) The obligations of Debtor and the rights and remedies of Mortgagee set forth in this Section are independent from those of Debtor pursuant to the Environmental Indemnity Agreement. Furthermore, such obligations of Debtor and rights and remedies of Mortgagee shall survive the termination, expiration and/or release of the Loan Agreement, the Note, the other Loan Documents, the Environmental Indemnity Agreement and/or the judicial or nonjudicial foreclosure of this Mortgage by Mortgagee or the delivery of a deed-in-lieu of foreclosure for the Premises by Debtor to Mortgagee. Section 2.10. Alterations and Improvements. Debtor shall not alter the exterior, structural, plumbing or electrical elements of the Mortgaged Property in any manner without the consent of Mortgagee, which consent shall not be unreasonably withheld, delayed or conditioned; provided, however, Debtor may undertake nonstructural alterations to the Mortgaged Property costing less than $100,000.00 without Mortgagee's consent. If Mortgagee consents to the making of any such alterations, the same shall be made by Debtor at Debtor's sole expense by a licensed contractor and according to plans and specifications approved by Mortgagee and subject to such other reasonable conditions as Mortgagee shall require. Any work at any time commenced by Debtor on the Mortgaged Property shall be prosecuted diligently to completion, shall be of good workmanship and materials and shall comply fully with all the terms of this Mortgage. Upon completion of any alterations or any Restoration, Debtor shall promptly provide Mortgagee with (i) reasonable evidence of full payment to all laborers and materialmen contributing to the alterations, (ii) a certificate from Debtor certifying that the alterations have been completed in conformity with the plans and specifications, (iii) a certificate of occupancy, if required by applicable law, and (iv) any other documents or information reasonably requested by Mortgagee. Section 2.11. After-Acquired Property. All right, title and interest of Debtor in and to all improvements, alterations, substitutions, restorations and replacements of, and all additions and appurtenances to, the Mortgaged Property, hereafter acquired by or released to Debtor, immediately upon such acquisition or release and without any further granting by Debtor, shall become part of the Mortgaged Property and shall be subject to the lien hereof fully, completely and with the same effect as though now owned by Debtor and specifically described in the Granting Clauses hereof. Debtor shall execute and deliver to Mortgagee any further assurances, mortgages, grants, conveyances or assignments thereof as the Mortgagee may reasonably require to subject the same to the lien hereof. Section 2.12. Taxes. (a) Debtor shall do or cause to be done everything necessary to preserve the lien hereof without expense to Mortgagee, including, without limitation, paying and discharging or causing to be paid and discharged, whether or not payable directly by Debtor or subject to withholding at the source, (i) all taxes, assessments, levies, fees, water and sewer rents and charges and all other governmental charges, general, special, ordinary or extraordinary, and all charges for utility or communications services, which may at any time be assessed, levied or imposed upon Debtor, the Mortgaged Property, this Mortgage, the Obligations or the revenues, rents, issues, income and profits of the Mortgaged Property or which may arise in respect of the occupancy, use, possession or operation thereof, (ii) all income, excess profits, sales, gross receipts and other taxes, duties or imposts, whether similar or not in nature, assessed, levied or imposed by any governmental authority on Debtor, the Mortgaged Property or the revenues, rents, issues, income and profits of the Mortgaged Property (iii) all lawful claims and demands of mechanics, laborers, materialmen and others which, if unpaid, might create a lien on the Mortgaged Property, or on the revenues, rents, issues, income and profits of the Mortgaged Property, unless Debtor shall contest the amount or validity thereof in accordance with subsection (b). Notwithstanding the foregoing, Debtor shall not be in breach or default under this Subsection 2.12 for failing or refusing to pay or discharge any claims or liens of mechanics, laborers, materialmen and others where (and only where) such claimants have a legal right under applicable laws to assert or impose a claim or lien against the Mortgaged Property prior to the time that amounts owing to such claimants become due or payable, so long as Debtor shall pay and discharge any and all such claims or liens (AA) no later than the date on which the amounts owing relative to such claims and liens become due and payable (and in any event before such amounts become past due or are declared to be past due by such claimants), and (BB) before such claimants commence legal proceedings (in any form or forum) to foreclose such claims or liens or to otherwise enforce such claimants' rights and remedies with respect to such claims or liens. (b) Debtor may, at its own expense, contest or cause to be contested (in the case of any item involving more than $1000.00, upon written notice to Mortgagee), by appropriate legal proceedings conducted in good faith and with due diligence, the amount or validity or application, in whole or in part, of any item specified in subsection (a) or lien therefor, provided that (i) neither the Mortgaged Property nor any interest therein would be in any danger of being sold, forfeited or lost by reason of such proceedings, (ii) Debtor shall have adequate reserves for the payment of the taxes, together with all interest and penalties thereon, unless paid in full under protest, and (iii) Debtor shall have furnished the security as may be required in the proceeding to insure payment of any contested taxes. Section 2.13. Insurance. (a) Debtor shall maintain with respect to the Mortgaged Property, at its sole expense, the following types and amounts of insurance (which may be included under a blanket insurance policy if all the other terms hereof are satisfied), in addition to such other insurance as Mortgagee may reasonably require from time to time: (i) Insurance against loss, damage or destruction by fire and other casualty, including theft, vandalism and malicious mischief, flood (if the Premises are in a location designated by the Federal Secretary of Housing and Urban Development as a flood hazard area), earthquake (if the Premises are in an area subject to destructive earthquakes within recorded history), boiler explosion (if there is any boiler upon the Premises), plate glass breakage, sprinkler damage (if the Premises have a sprinkler system), all matters covered by a standard extended coverage endorsement, special coverage endorsement commonly known as an "all risk" endorsement and such other risks as Mortgagee may reasonably require, insuring the Mortgaged Property for not less than 100% of their full insurable replacement cost. (ii) Comprehensive general liability and property damage insurance, including a products liability clause, covering Mortgagee and Debtor against bodily injury liability, property damage liability and automobile bodily injury and property damage liability, including without limitation any liability arising out of the ownership, maintenance, repair, condition or operation of the Mortgaged Property or adjoining ways, streets or sidewalks and, if applicable, insurance covering Mortgagee, against liability arising from the sale of liquor, beer or wine on the Premises. Such insurance policy or policies shall contain a broad form contractual liability endorsement under which the insurer agrees to insure Debtor's obligations under Section 5.16 hereof to the extent insurable, and a "severability of interest" clause or endorsement which precludes the insurer from denying the claim of either Debtor or Mortgagee because of the negligence or other acts of the other, shall be in amounts of not less than $1,000,000.00 per injury and occurrence with respect to any insured liability, for personal injury and not less than $500,000.00 per occurrence for property damage, or such higher limits as Mortgagee may reasonably require from time to time, and shall be of form and substance satisfactory to Mortgagee. (b) Business interruption insurance equal to 100% of the principal and interest payable under the Note for a period of not less than six months. (c) State Worker's compensation insurance in the statutorily mandated limits, employer's liability insurance with limits not less than $500,000 or such greater amount as Mortgagee may from time to time reasonably require and such other insurance as may be necessary to comply with applicable laws. All insurance policies shall: (i) Provide for a waiver of subrogation by the insurer as to claims against Mortgagee, its employees and agents; (ii) Provide that such insurance cannot be unreasonably cancelled, invalidated or suspended on account of the negligence of Debtor, its officers, directors, employees or agents; (iii) Provide that any "no other insurance" clause in the insurance policy shall exclude any policies of insurance maintained by Mortgagee and that the insurance policy shall not be brought into contribution with insurance maintained by Mortgagee; (iv) Contain a standard without contribution mortgage clause endorsement in favor of Mortgagee and any other lender designated by Mortgagee; (v) Provide that the policy of insurance shall not be terminated, cancelled or substantially modified without at least thirty (30) days' prior written notice to Mortgagee and to any lender covered by any standard mortgage clause endorsement; (vi) Provide that the insurer shall not have the option to restore the Premises if Mortgagee elects to terminate this Mortgage in accordance with the terms hereof; (vii) Be issued by insurance companies licensed to do business in the state in which the Premises is located and which are rated A:VI or better by Best's Insurance Guide or otherwise approved by Mortgagee; and (viii) Provide that the insurer shall not deny a claim because of the negligence of Debtor. It is expressly understood and agreed that the foregoing minimum limits of insurance coverage shall not limit the liability of Debtor for its acts or omissions as provided in this Mortgage. All insurance policies (with the exception of worker's compensation insurance to the extent not available under statutory law) shall designate Mortgagee as additional insured as its interests may appear and shall be payable as set forth in Article III hereof. All such policies shall be written as primary policies, with deductibles not to exceed 10% of the amount of coverage. Any other policies, including any policy now or hereafter carried by Mortgagee, shall serve as excess coverage. Debtor shall procure policies for all insurance for periods of not less than one year and shall provide to Mortgagee certificates of insurance or, upon Mortgagee's request, duplicate originals of insurance policies evidencing that insurance satisfying the requirements of this Mortgage is in effect at all times. Section 2.14. Impound Account. Nonpayment of any taxes or other sums to be paid by Debtor pursuant to Section 2.12 (after taking into consideration Debtor's right to contest as set forth in Section 2.12(b)) and nonpayment of any insurance premium to be paid by Debtor pursuant to Section 2.13 shall constitute waste, and shall entitle Mortgagee to exercise the remedies afforded by Section 600.2927 of the Michigan Revised Judicature Act of 1961, as now or hereafter amended, and by any other statute of law now or hereafter in effect, including appointment of a receiver, to which appointment Debtor consents. Upon the occurrence of an Event of Default (after the expiration of any applicable grace and cure period) under this Mortgage or any other Loan Document, Mortgagee may require Debtor to pay to Mortgagee sums which will provide an impound account (which shall not be deemed a trust fund) for paying up to the next one year of taxes, assessments and/or insurance premiums. Upon such requirement, Mortgagee will estimate the amounts needed for such purposes and will notify Debtor to pay the same to Mortgagee in equal monthly installments, as nearly as practicable, in addition to all other sums due under this Mortgage. Should additional funds be required at any time, Debtor shall pay the same to Mortgagee on demand. Debtor shall advise Mortgagee of all taxes and insurance bills which are due and shall cooperate fully with Mortgagee in assuring that the same are paid. Mortgagee may deposit all impounded funds in accounts insured by any federal or state agency and may commingle such funds with other funds and accounts of Mortgagee. Interest or other gains from such funds, if any, shall be the sole property of Mortgagee. In the event of any default by Debtor, Mortgagee may apply all impounded funds against any sums due from Debtor to Mortgagee. Mortgagee shall give to Debtor an annual accounting (or, upon reasonable request of Debtor from time to time) showing all credits and debits to and from such impounded funds received from Debtor. Section 2.15. Advances by Mortgagee. Upon the occurrence of an Event of Default (after the expiration of any applicable grace and cure period), Mortgagee may make advances to perform any of the covenants contained in this Mortgage on Debtor's behalf, and all sums so advanced shall be secured hereby prior to the Note. Debtor shall repay on demand all sums so advanced with interest thereon at the rate of 4% per annum above the rate of interest stated in the Note (or the highest rate permitted by law, whichever is less), such interest to be computed from and including the date of the making of such advance to and including the date of such repayment. Section 2.16. Negative Covenants. A. Debtor agrees that Debtor shall not, without the prior written consent of Mortgagee, which consent shall not be unreasonably withheld or delayed, sell, convey, mortgage, grant, bargain, encumber (other than the Permitted Exceptions), pledge, assign, or otherwise transfer the Mortgaged Property or any part thereof or permit the Mortgaged Property or any part thereof to be sold, conveyed, mortgaged, granted, bargained, encumbered (other than the Permitted Exceptions), pledged, assigned, or otherwise transferred. A sale, conveyance, mortgage, grant, bargain, encumbrance, pledge, assignment, or transfer within the meaning of this Section shall be deemed to include, but not limited to, (a) an installment sales agreement wherein Debtor agrees to sell the Mortgaged Property or any part thereof for a price to be paid in installments; (b) except as otherwise specifically provided in this Section 2.16, an agreement by Debtor leasing all or any part of the Mortgaged Property or a sale, assignment or other transfer of, or the grant of a security interest (other than the Permitted Exceptions) in, Debtor's right, title and interest in and to any Leases or any Rents; or (c) if Debtor is a corporation, any merger, by or with such corporation (where the surviving corporation is not Debtor), or the voluntary or involuntary sale or transfer of such corporation's stock where such stock is sold or transferred at less than the fair market value of such stock, or the repurchase by Debtor of its corporation's stock from I.C.H. Corporation, or any transferee of or successor to I.C.H. Corporation. For purposes of the preceding sentence, the fair market value of such stock shall be determined by a regionally- or nationally-recognized investment banking firm selected by Debtor and reasonably acceptable to Mortgagee. Notwithstanding the foregoing, a transfer by devise or descent or by operation of law upon the death of a stockholder of Debtor shall not be deemed to be a sale, conveyance, mortgage, grant, bargain, encumbrance, pledge, assignment, or transfer within the meaning of this Section. B. Notwithstanding the foregoing, Debtor shall have the right to sell, convey or otherwise transfer the Mortgaged Property to an Affiliate of Debtor after prior notice of such transfer is given to Mortgagee, provided that (i) the use and occupancy of the Mortgaged Property by such transferee shall be in compliance with the terms and conditions of this Mortgage, (ii) Debtor shall not be released from or of any of Debtor's duties, obligations or liabilities arising under this Mortgage, (iii) Debtor shall cause such transferee to provide Mortgagee with such information as Mortgagee shall reasonably require in order to determine compliance with the Fixed Charge Coverage Ratio requirements set forth in the Loan Agreement, and (iv) Debtor (at Debtor's cost) shall provide Mortgagee with a title endorsement (in form and substance reasonably acceptable to Mortgagee) to Mortgagee's lender's policy issued in connection with the consummation of the transaction contemplated by the Loan Agreement, insuring that the lien, including the priority of the lien, of this Mortgage shall not be affected by such transfer. C. Mortgagee shall not unreasonably withhold its consent to the leasing of the Mortgaged Property by Debtor to a franchisee or licensee approved by Licensor, or to a franchisee or franchisor of a nationally- or regionally-recognized franchised restaurant chain, provided that (i) the use and occupancy of the Mortgaged Property by such lessee shall be in compliance with the terms and conditions of this Mortgage and in compliance with all covenants, conditions and restrictions of record affecting the Mortgaged Property, (ii) Debtor shall not be released from or of any of Debtor's duties, obligations or liabilities arising under this Mortgage, (iii) Mortgagee shall have approved the form and substance of the lease between Debtor and such lessee, which consent shall not be unreasonably withheld or delayed, and (iv) Debtor shall cause such lessee to provide Mortgagee with such information as Mortgagee shall reasonably require in order to determine compliance with the Fixed Charge Coverage Ratio requirements set forth in the Loan Agreement. D. Mortgagee reserves the right to condition the consent required hereunder upon a modification of the terms hereof and on assumption of the Note, this Mortgage and the other Loan Documents as so modified by the proposed transferee, payment of all of Mortgagee's reasonable and actual expenses incurred in connection with such transfer, the proposed transferee's continued compliance with the covenants set forth in this Mortgage, or such other conditions as Mortgagee shall determine in its sole discretion to be in the interest of Mortgagee. Mortgagee shall not be required to demonstrate any actual impairment of its security or any increased risk of default hereunder in order to declare the Obligations immediately due and payable upon Debtor's sale, mortgage, grant, bargain, encumbrance, pledge, assignment, or transfer of the Mortgaged Property without Mortgagee's consent. This provision shall apply to every sale, conveyance, mortgage, grant, bargain, encumbrance, pledge, assignment, or transfer of the Mortgaged Property regardless of whether voluntary or not, or whether or not Mortgagee has consented to any previous sale, conveyance, mortgage, grant, bargain, encumbrance, pledge, assignment, or transfer of the Mortgaged Property. Section 2.17. Financial Statements. Within 45 days after the end of each fiscal quarter and within 120 days after the end of each fiscal year of Debtor, Debtor shall deliver to Mortgagee (i) complete financial statements of Debtor including a balance sheet, profit and loss statement, statement of changes in financial condition and all other related schedules for the fiscal period then ended; and (ii) income statements for the business at the Mortgaged Property. All such financial statements shall be prepared in all material respects in accordance with generally accepted accounting principles, consistently applied from period to period, and shall be certified to be accurate and complete by Debtor (or the Treasurer or other appropriate officer of Debtor). Debtor understands that Mortgagee is relying upon such financial statements and Debtor represents that such reliance is reasonable. The financial statements delivered to Mortgagee need not be audited, but Debtor shall deliver to Mortgagee copies of any audited financial statements of Debtor which may be prepared, as soon as they are available. Section 2.18. Licensor Requirements. In addition to the requirements set forth in this Mortgage, Debtor, in its ownership, use, occupancy and maintenance of the Mortgaged Property shall comply in all material respects with all requirements of its license agreement with Licensor. Debtor hereby consents to Mortgagee providing information it obtains to Licensor and to Mortgagee obtaining from Licensor information which Licensor receives relating to Debtor's operation of its business on the Premises. Section 2.19. Incorporation of Representations and Warranties. The representations and warranties of Debtor set forth in the Loan Agreement are incorporated by reference into this Mortgage as if stated in full in this Mortgage. ARTICLE III POSSESSION, USE AND RELEASE OF THE MORTGAGED PROPERTY Section 3.01. Casualty or Condemnation. Debtor, immediately upon obtaining knowledge of any casualty to any portion of the Mortgaged Property or of any proceeding or negotiation for the taking of all or any portion of the Mortgaged Property in condemnation or other eminent domain proceedings, shall notify Mortgagee of such casualty, proceeding or negotiation. Any award, compensation or other payment resulting from such casualty or condemnation or eminent domain proceeding, as applicable, shall be applied as set forth below. Mortgagee may participate in any condemnation or eminent domain proceeding, and Debtor will deliver or cause to be delivered to Mortgagee all instruments requested by Mortgagee to permit such participation. (a) Casualty. (i) In the event of any material damage to or destruction of the Mortgaged Property or any part thereof, Debtor will promptly give written notice to Mortgagee, generally describing the nature and extent of such damage or destruction. No damage to or destruction of the Mortgaged Property shall relieve Debtor of its obligation to pay any monetary sum due under the Loan Documents at the time and in the manner provided in the Loan Documents. (ii) In the event of any damage to or destruction of the Mortgaged Property or any part thereof, Debtor, whether or not the insurance proceeds, if any, on account of such damage or destruction shall be sufficient for the purpose, at its expense, shall promptly commence and complete the Restoration. (iii) Insurance proceeds received by Mortgagee and Debtor on account of any occurrence of damage to or destruction of the Mortgaged Property or any part thereof, less the costs, fees and expenses incurred by Mortgagee and Debtor in the collection thereof, including, without limitation, adjuster's fees and expenses and attorneys' fees and expenses (the "Net Insurance Proceeds"), shall be paid to (1) Debtor if the amount of such Net Insurance Proceeds is less than $100,000 and applied by Debtor toward the cost of the Restoration, and (2) Mortgagee if the amount of such Net Insurance Proceeds is $100,000 or greater. Net Insurance Proceeds paid to Mortgagee shall be held and disbursed by Mortgagee, or as Mortgagee may from time to time direct, as the Restoration progresses, to pay or reimburse Debtor for the cost of the Restoration, upon written request of Debtor accompanied by evidence, satisfactory to Mortgagee, that (v) the Restoration is in full compliance with all applicable laws, regulations, restrictions and requirements, whether governmental or private, (w) the amount requested has been paid or is then due and payable and is properly a part of such cost, (x) there are no mechanics' or similar liens for labor or materials theretofore supplied in connection with the Restoration, (y) if the estimated cost of the Restoration exceeds the Net Insurance Proceeds, Debtor has deposited into an escrow satisfactory to Mortgagee such excess amount, which sum will be disbursed pursuant to escrow instructions satisfactory to Mortgagee, and (z) the balance of such Net Insurance Proceeds, together with the funds deposited into escrow, if any, pursuant to the preceding subsection (y), after making the payment requested will be sufficient to pay the balance of the cost of the Restoration. Upon receipt by Mortgagee of evidence satisfactory to it that the Restoration has been completed and the cost thereof paid in full, and that there are no mechanics' or similar liens for labor or materials supplied in connection therewith, the balance, if any, of such Net Insurance Proceeds shall be paid to Debtor. If an Event of Default has occurred and is continuing (after the expiration of any applicable grace or cure period) at the time of the damage or destruction to the Mortgaged Property, all Net Insurance Proceeds shall be paid to Mortgagee, and Mortgagee may retain and apply the Net Insurance Proceeds toward the Obligations whether or not then due and payable, in such order, priority and proportions as Mortgagee in its discretion shall deem proper, or to cure such Event of Default, or, in Mortgagee's discretion, Mortgagee may pay such Net Insurance Proceeds in whole or in part to Debtor to be applied toward the cost of the Restoration. If Mortgagee shall receive and retain Net Insurance Proceeds, the lien of this Mortgage shall be reduced only by the amount received and retained by Mortgagee and actually applied by Mortgagee in reduction of the Obligations. (iv) In the event that the casualty is not caused by Debtor, or its agents, employees, representatives, contractors or subcontractors, and the cost of the Restoration exceeds fifty percent (50%) of the value of the Premises, excluding the value of the real estate, Debtor shall have the right, to be exercised by notice to Mortgagee no later than 20 days after the occurrence of a casualty, to either (aa) pay to Mortgagee (without prepayment premium or penalty) the entire amount owing under the Note, or (bb) substitute the Mortgaged Property with a substitute site in accordance with Subsection 10.E(iii) of the Loan Agreement, provided that Debtor shall continue to pay all sums and amounts due and payable under the Note until such time as a new promissory note is executed and delivered by Debtor to Mortgagee in connection with the consummation of such substitution. Notwithstanding the foregoing, the option to pay the entire amount owing under the Note as provided in subsection 3.01(a)(iv)(aa) hereof shall not be available to Debtor prior to the fifth (5th) anniversary of the Note. (b) Eminent Domain. (i) In case of a taking of all or any part of the Mortgaged Property or the commencement of any proceedings or negotiations which might result in a taking, for any public or quasi-public purpose by any lawful power or authority by exercise of the right of condemnation or eminent domain or by agreement between Mortgagee, Debtor and those authorized to exercise such right ("Taking"), Debtor will promptly give written notice thereof to Mortgagee, generally describing the nature and extent of such Taking. Mortgagee shall file and prosecute on behalf of Mortgagee and Debtor any and all claims for an award, and all awards and other payments on account of a Taking shall be paid to Mortgagee. (ii) In case of a Taking of the whole of the Mortgaged Property, other than for temporary use ("Total Taking"), or in case of a Taking of less than all of the Mortgaged Property ("Partial Taking"), these Loan Documents shall remain in full force and effect. Debtor, whether or not the awards or payments, if any, on account of such Partial Taking shall be sufficient for the purpose (but provided they are made available by Mortgagee for such purpose), at its own cost and expense, will promptly commence and complete the Restoration. In case of a Partial Taking, other than a temporary use, of such a substantial part of the Mortgaged Property as shall result in the Mortgaged Property remaining after such Partial Taking being unsuitable for use, such Taking shall be deemed a Total Taking. (iii) In case of a temporary use of the whole or any part of the Mortgaged Property by a Taking, these Loan Documents shall remain in full force and effect without any reduction of any monetary sum payable under these Loan Documents. Subject to the application provisions below, Debtor shall be entitled to the entire award for such Taking, whether paid by damages, rent or otherwise. In any proceeding for such Taking, Mortgagee shall have the right to intervene and participate; provided that, if such intervention shall not be permitted, Debtor shall consult with Mortgagee, its attorneys and experts, and make all reasonable efforts to cooperate with Mortgagee in the prosecution or defense of such proceeding. At the termination of any such use or occupation of the Mortgaged Property, Debtor will, at its own cost and expense, promptly commence and complete the Restoration. (iv) Awards and other payments on account of a Taking, less the costs, fees and expenses incurred by Mortgagee and Debtor in connection with the collection thereof, including, without limitation, attorneys' fees and expenses, shall be applied as follows: (x) Net awards and payments received on account of a Total Taking shall be allocated as follows: (aa) There shall be paid to the Mortgagee (without prepayment premium or penalty) an amount up to the sum of the outstanding principal, including all sums advanced by Mortgagee hereunder, and interest under the Note, all as of the date on which such payment is made, such amount shall be applied first against all sums advanced by Mortgagee under this Mortgage, second against the accrued but unpaid interest on the Note, and third to the remaining unpaid principal amount of the Note. (bb) Any remaining balance shall be paid to Debtor. (y) Net awards and payments received on account of a Partial Taking shall be held and allocated as follows: (i) toward the cost of the Restoration, such application of net awards and other payments to be made substantially in the manner provided in Section 3.01(a)(iii) of this Mortgage; (ii) to Mortgagee to cure any default first, in the Note and second, in this Mortgage; (iii) there shall be paid to Mortgagee, as the holder of this Mortgage, an amount equal to that portion of any unpaid principal amount of the Note, and any interest accrued thereon, bearing the same relationship to the total unpaid principal amount of the Note, and any interest accrued thereon, all as of the date on which such payment is made, as the square footage in the Mortgaged Property taken on account of such Partial Taking, bears to the total square footage in the Mortgaged Property prior to such Partial Taking, and such amount shall be applied against the unpaid principal amount of the Note; and (iv) any remaining balance shall be paid to Debtor. (z) Net awards and payments received on account of a Taking for temporary use shall be held and applied to the payment of the monthly installments of combined interest and principal becoming due under the Note, until such Taking for temporary use is terminated and the Restoration, if any, has been completed; provided, however, that, if any portion of any such award or payment is made by reason of any damage to or destruction of the Mortgaged Property, such portion shall be held and applied as provided in Section 3.01(a)(iii) hereof. The balance, if any, of such awards and payments shall be paid to Debtor unless Debtor is in default under the Loan Documents, in which event such awards and payments shall be paid to Mortgagee to cure such default first, in the Note and second, in this Mortgage. (v) Notwithstanding the foregoing, if at the time of any Taking or at any time thereafter an Event of Default shall have occurred and such Event of Default shall be continuing (after the expiration of any applicable grace and cure period), Mortgagee is hereby authorized and empowered, in the name and on behalf of Debtor and otherwise, to file and prosecute Debtor's claim, if any, for an award on account of any Taking and to collect such award and apply the same, after deducting all costs, fees and expenses incident to the collection thereof, to the curing of such default and any other then existing default under the Loan Documents. Section 3.02. Conveyance in Anticipation of Condemnation, Granting of Easements, Etc. If no default shall have occurred and be continuing, Debtor may, from time to time with respect to its interest in the Mortgaged Property, and with Mortgagee's prior written consent, which consent shall not be unreasonably withheld or delayed (i) sell, assign, convey or otherwise transfer any interest therein to any person legally empowered to take such interest under the power of eminent domain, (ii) grant easements and other rights in the nature of easements, (iii) release existing easements or other rights in the nature of easements which are for the benefit of the Mortgaged Property, (iv) dedicate or transfer unimproved portions of the Mortgaged Property for road, highway or other public purposes, (v) execute petitions to have the Mortgaged Property annexed to any municipal corporation or utility district, and (vi) execute and deliver to any person any instrument appropriate to confirm or effect such grants, releases, dedications and transfers. Section 3.03. Mortgagee's Power. At any time, or from time to time, without liability therefor, Mortgagee, without affecting the personal liability of any person for payment of the Obligations or the effect of this Mortgage upon the remainder of said Mortgaged Property, may from time to time without notice (i) release any part of said Mortgaged Property, (ii) consent in writing to the making of any map or plat thereof, (iii) join in granting any easement thereon, (iv) join in any extension agreement or any agreement subordinating the lien or charge hereof, (v) release any person so liable, (vi) extend the maturity or alter any of the terms of any Obligations, (vii) grant other indulgences, (viii) take or release any other or additional security for any Obligations, (ix) make compositions or other arrangements with debtors in relation thereto, or (x) advance additional funds to protect the security hereof and pay or discharge the Obligations, and all amounts so advanced shall be secured hereby and shall be due and payable upon demand by Mortgagee. ARTICLE IV EVENTS OF DEFAULT AND REMEDIES Section 4.01. Events of Default. (a) Each of the following shall be an event of default under this Mortgage (an "Event of Default"): (i) If any representation or warranty of Debtor herein was false in any material respect when made or, in the event that any such representation or warranty is continuing, becomes false in any material respect at any time, or if Debtor renders any statement to Mortgagee relative to Mortgagee or the Mortgaged Property, or any portion thereof, which at the time of such statement was false in any material respect; (ii) If any principal, interest or other monetary sum due under the Note, this Mortgage or any other Loan Document is not paid within five days after the date when due, or if Debtor fails to pay, prior to delinquency, any taxes, assessments or other charges the failure of which to pay will result in the imposition of a lien against the Mortgaged Property pursuant to Applicable Regulations, subject to the provisions of Subsection 2.12(b) hereof; (iii) If Debtor: (A) becomes insolvent within the meaning of the Code, (B) files or notifies Mortgagee that it intends to file a petition for relief under any chapter or provision of the Code, (C) initiates a proceeding under any similar law or statute relating to bankruptcy, insolvency, reorganization, winding up, or adjustment of debts (collectively, hereinafter, an "Action"), (D) is not generally paying its debts as the same become due, and/or (E) becomes the subject of an involuntary petition under the Code or other similar involuntary Action (in which case Debtor shall be required to provide Mortgagee with immediate notice of the commencement or filing of such involuntary proceeding, petition or Action), and any of the following shall have occurred: (i) the involuntary petition or involuntary Action shall not have been dismissed within sixty (60) days of the date on which it was filed or otherwise commenced, (ii) an order for relief under the Code (or similar order) shall have been entered by the court in the involuntary proceeding, or (iii) the court having jurisdiction over such involuntary proceeding (upon Debtor's motion or other request for relief) shall not have granted Mortgagee full and final relief from the automatic stay of Section 362 of the Code and from any stay issued under Section 105 of the Code (or any similar stays or injunctions) within sixty (60) days of the filing or commencement of such involuntary petition or involuntary Action so that Mortgagee is thereafter free to exercise any and all of its rights and remedies under the Loan Documents, and Mortgagee hereby agrees not to exercise any of its rights or remedies under the Loan Documents until such time as an Event of Default (other than the filing of an involuntary petition under the Code or other similar involuntary Action) shall have occurred; (iv) If Debtor fails to observe or perform any of the other covenants, conditions, or obligations of this Mortgage or any other Loan Document (after the expiration of any applicable grace and cure period); or (v) If there is a breach or default (after the expiration of any applicable grace and cure period) under the Equipment Loan Agreement or a breach or default (after the expiration of any applicable grace and cure period) under (a) any license agreement permitting Debtor to operate the Mortgaged Property in the manner authorized or if such license agreement otherwise terminates or expires (without being renewed immediately upon or prior to such expiration) prior to the scheduled maturity date of the Note, which default, termination or expiration might reasonably be expected to result in a material adverse effect on Debtor, Debtor's business operations or the Mortgaged Property, or (b) any other agreement or instrument, including, without limitation, promissory notes and guaranties, between, among or by any of the Debtor Entities and, or for the benefit of, any of the Mortgagee Entities. (b) If any Event of Default occurs pursuant to subsection (a)(ii) above, Mortgagee shall not be entitled to exercise its remedies set forth in Section 4.02 below unless and until Mortgagee shall have given Debtor notice thereof and a period of five days from the delivery of such notice shall have elapsed without such Event of Default being cured. (c) If any such event does not involve the payment of any principal, interest or other monetary sum due under the Note to Mortgagee, is not willful, intentional or being contested in good faith in accordance with the terms of this Mortgage, does not place any material rights, collateral or property of Mortgagee in immediate jeopardy in any material respect, and is within the reasonable power of Debtor to promptly cure after receipt of notice thereof, all as determined by Mortgagee in its reasonable discretion, then such event shall not constitute an Event of Default hereunder, unless otherwise expressly provided herein, unless and until Mortgagee shall have given Debtor notice thereof and a period of 30 days shall have elapsed, during which period Debtor may correct or cure such event, upon failure of which an Event of Default shall be deemed to have occurred hereunder without further notice or demand of any kind. If such event cannot reasonably be cured within such 30-day period, as determined by Mortgagee in its reasonable discretion, and Debtor is diligently pursuing a cure of such event, then Debtor shall have a reasonable period to cure such event, which shall in no event exceed 90 days after receiving notice of the event from Mortgagee. If Debtor shall fail to correct or cure such event within such 90-day period, an Event of Default shall be deemed to have occurred hereunder without further notice or demand of any kind. Section 4.02. Remedies. Upon the occurrence of any Event of Default, subject to the limitation set forth in Section 4.01(b) or (c), Mortgagee may declare all Obligations to be due and payable, and the same shall thereupon become due and payable without any presentment, demand, protest or notice (including notice of intent to accelerate) of any kind except as otherwise provided herein. Furthermore, upon the occurrence of any Event of Default, Mortgagee may: (i) Either in person or by agent, with or without bringing any action or proceeding, or by a receiver appointed by a court, and without regard to the adequacy of its security, enter upon and take possession of the Mortgaged Property or any part thereof and do any acts which it deems necessary or desirable to preserve the value, marketability or rentability of the Mortgaged Property, or part thereof or interest therein, increase the income therefrom or protect the security hereof and, with or without taking possession of the Mortgaged Property, take any action described herein, sue for or otherwise collect the Rents, issues and profits thereof, including those past due and unpaid, and apply the same, less costs and expenses of operation and collection including reasonable attorneys' fees, upon any Obligations, all in such order as Mortgagee may determine. The entering upon and taking possession of the Mortgaged Property, the taking of any action described herein, the collection of such Rents, issues and profits and the application thereof as aforesaid, shall not cure or waive any Event of Default or notice of default or invalidate any act done in response to such Event of Default or pursuant to such notice of default and, notwithstanding the continuance in possession of the Mortgaged Property or the collection, receipt and application of rents, issues or profits, Mortgagee shall be entitled to exercise every right provided for in any of the Loan Documents or by law upon any Event of Default, including the right to exercise the power of sale herein conferred; (ii) Commence an action to foreclose this Mortgage pursuant to this Mortgage in a single parcel or in several parcels, appoint a receiver, specifically enforce any of the covenants hereof or sell the Mortgaged Property pursuant to the power of sale herein conferred; (iii) Exercise any or all of the remedies available to a secured party under the Uniform Commercial Code as adopted in the State ("UCC"), and (iv) Apply any sums then deposited in the impound account described in Section 2.14 toward payment of the taxes, assessment and insurance premiums for the Mortgaged Property and/or as a credit on the Obligations in such priority and proportion as Mortgagee may determine in its sole discretion. If Mortgagee elects to sell Debtor's interest in the Mortgaged Property by exercise of the power of sale herein contained, Mortgagee shall cause such sale to be performed in the manner then required by law. (a) Mortgagee may sell the Mortgaged Property. The power is hereby granted to Mortgagee to sell the Mortgaged Property or any part thereof at public auction, after all notices required by applicable law, if any, and to convey the same to the purchaser after notice if required by the statutes of the Sate of Michigan for foreclosure of mortgages by advertisement, being Sections 600.3201 et. seq., Michigan Compiled Laws, as amended. CAUTION: This Section contains a waiver of important legal rights. This Mortgage contains a power of sale which permits the Mortgagee to cause the Mortgaged Property to be sold upon the occurrence of an Event of Default. The Mortgagee may elect to cause the Mortgaged Property to be sold by advertisement rather than pursuant to court action, and Debtor hereby voluntarily and knowingly waives any right Debtor may have by virtue of any applicable constitutional provision or statute to any notice or court hearing prior to the exercise of the power of sale, except as may be expressly required by the Michigan statute governing foreclosures by advertisement. By execution of this Mortgage, Debtor represents and acknowledges that the meaning and consequences of this Section have been discussed as fully desired by Debtor with its legal counsel. (b) As may be permitted by law, Mortgagee shall apply the proceeds of sale to payment of (i) first, to payment of all costs, fees and expenses, including attorneys' fees and expenses incurred by the Mortgagee in exercising the power of sale or foreclosing this Mortgage, and (ii) second, as directed by Mortgagee or as may be required by law. (c) Mortgagee may in the manner provided by law postpone sale of all or any portion of the Mortgaged Property. Section 4.03. Appointment of Receiver. If an Event of Default shall have occurred, Mortgagee, as a matter of right and without notice to Debtor or anyone claiming under Debtor, and without regard to the then value of the Mortgaged Property or the interest of Debtor therein, or the insolvency of Debtor or the then-owner of the Mortgaged Property, may seek the appointment of a receiver for the Mortgaged Property upon ex parte application to any court of the competent jurisdiction. Debtor waives any right to any hearing or notice of hearing prior to the appointment of a receiver. Such receiver shall be empowered (a) to take possession of the Mortgaged Property and any businesses conducted by Debtor thereon and any business assets used in connection therewith, (b) to exclude Debtor and Debtor's agents, servants and employees from the Mortgaged Property, or, at the option of the receiver, in lieu of such exclusion, to collect a fair market rental from any such persons occupying any part of the Mortgaged Property, (c) to collect the rents, issues, profits and income therefrom, (d) to complete any construction that may be in progress, (e) to continue the development, marketing and sale of the Mortgaged Property, (f) to do such maintenance and make such repairs and alterations as the receiver deems necessary, (g) to use all stores of materials, supplies and maintenance equipment on the Mortgaged Property and replace such items at the expense of the receivership estate, (h) to pay all taxes and assessments against the Mortgaged Property, all premiums for insurance thereon, all utility and other operating expenses, and all sums due under any prior or subsequent encumbrance, (i) to request that Mortgagee advance such funds as may reasonably be necessary to the effective exercise of the receiver's powers, on such terms as may be agreed upon by the receiver and Mortgagee, but not in excess of the Default Rate (as defined in the Note), and (j) generally to do anything that Debtor could legally do if Debtor were in possession of the Mortgaged Property. All expenses incurred by the receiver or his agents, including obligations to repay funds borrowed by the receiver, shall constitute a part of the Obligations. Any revenues collected by the receiver shall be applied first to the expenses of the receivership, including reasonable attorneys' fees incurred by the receiver and by Mortgagee, together with interest thereon at the highest rate of interest applicable in the Note from the date incurred until repaid, and the balance shall be applied toward the Obligations or in such other manner as the court may direct. Section 4.04. Remedies Not Exclusive. Mortgagee shall be entitled to enforce payment and performance of any Obligations and to exercise all rights and powers under this Mortgage or under any Loan Documents or other agreement or any laws now or hereafter in force, notwithstanding some or all of the Obligations may now or hereafter be otherwise secured, whether by mortgage, deed of trust, pledge, lien, assignment or otherwise. Neither the acceptance of this Mortgage nor its enforcement, whether by court action or pursuant to the power of sale or other powers herein contained, shall prejudice or in any manner affect Mortgagee's right to realize upon or enforce any other security now or hereafter held by Mortgagee, it being agreed that Mortgagee shall be entitled to enforce this Mortgage and any other security now or hereafter held by Mortgagee in such order and manner as it may in its absolute discretion determine. No remedy herein conferred upon or reserved to Mortgagee is intended to be exclusive of any other remedy given hereunder or now or hereafter existing at law or in equity or by statute. Every power or remedy given by any of the Loan Documents to Mortgagee, or to which Mortgagee may be otherwise entitled, may be exercised, concurrently or independently, from time to time and as often as may be deemed expedient by Mortgagee. Mortgagee may pursue inconsistent remedies. The acceptance by Mortgagee of any sum after the same is due shall not constitute a waiver of the right either to require prompt payment, when due, of all other sums hereby secured or to declare a subsequent Event of Default as herein provided. The acceptance by Mortgagee of any sum in an amount less than the sum then due shall be deemed an acceptance on account only and upon condition that it shall not constitute a waiver of the obligation of Debtor to pay the entire sum then due, and failure of Debtor to pay such entire sum then due as contemplated by Section 4.01(b) shall be an Event of Default, notwithstanding such acceptance of such amount on account, as aforesaid. Mortgagee shall be, at all times thereafter and until the entire sum then due shall have been paid, and notwithstanding the acceptance by Mortgagee thereafter of further sums on account, or otherwise, entitled to exercise all rights in this instrument conferred upon them or either of them, and the right to proceed with a sale under any notice of default, or an election to sell, or the right to exercise any other rights or remedies hereunder, shall in no way be impaired, whether any of such amounts are received prior or subsequent to such proceeding, election or exercise. Consent by Mortgagee to any action or inaction of Debtor which is subject to consent or approval of Mortgagee hereunder shall not be deemed a waiver of the right to require such consent or approval to future or successive actions or inactions, unless otherwise specifically provided therein. Section 4.05. Possession of Mortgaged Property. In the event of a trustee's sale or foreclosure sale hereunder and after the time of such sale, Debtor occupies the portion of the Mortgaged Property so sold, or any part thereof, Debtor shall immediately become the tenant of the purchaser at such sale, which tenancy shall be a tenancy from day to day, terminable at the will of either tenant or landlord, at a reasonable rental per day based upon the value of the portion of the Mortgaged Property so occupied, such rental to be due and payable daily to the purchaser. An action of unlawful detainer shall lie if the tenant holds over after a demand in writing for possession of such Mortgaged Property; and this agreement and a trustee's or sheriff's deed shall constitute a lease and agreement under which the tenant's possession arose and continued. Nothing contained in this Mortgage shall be construed to constitute Mortgagee as a "mortgagee in possession" in the absence of its taking actual possession of the Mortgaged Property pursuant to the powers granted herein. Section 4.06. Waiver of Rights. To the extent permitted by law, Debtor waives the benefit of all laws now existing or that hereafter may be enacted (i) providing for any appraisement before sale of any portion of the Mortgaged Property, or (ii) in any way extending the time for the enforcement of the collection of the Obligations or creating or extending a period of redemption from any sale made in collecting the Obligations. To the full extent Debtor may do so under applicable law, Debtor agrees that Debtor will not at any time insist upon, plea, claim or take the benefit or advantage of any law now or hereafter in force providing for any appraisement, valuation, stay, extension, redemption or homestead exemption, and Debtor, for Debtor, Debtor's representatives, successors and assigns, and for any and all persons ever claiming any interest in the Mortgaged Property, to the extent permitted by law, hereby waives and releases all rights of redemption, valuation, appraisement, stay of execution, homestead exemption, notice of election to mature or declare due the whole of the Obligations and marshaling in the event of foreclosure of the liens hereby created. If any law referred to in this Section and now in force, of which Debtor, Debtor's heirs, devisees, representatives, successors and assigns or other person might take advantage despite this Section, shall hereafter be repealed or cease to be in force, such law shall not thereafter be deemed to preclude the application of this Section. Debtor expressly waives and relinquishes any and all rights, remedies and defenses that Debtor may have or be able to assert by reason of the laws of the State pertaining to the rights, remedies and defenses of sureties. Section 4.07. Relief From Stay. In the event that Debtor commences a case under the Code or is the subject of an involuntary case that results in an order for relief under the Code, subject to court approval, Mortgagee shall thereupon be entitled and Debtor irrevocably consents to relief from any stay imposed by Section 362 of the Code on or against the exercise of the rights and remedies otherwise available to Mortgagee as provided in the Loan Documents and Debtor hereby irrevocably waives its rights to object to such relief. In the event Debtor shall commence a case under the Code or is the subject of an involuntary case that results in an order for relief under the Code, Debtor hereby agrees that no injunctive relief against Mortgagee shall be sought under Section 105 or other provisions of the Code by Debtor or other person or entity claiming through Debtor, nor shall any extension be sought of the stay provided by Section 362 of the Code. Section 4.08. Cash Collateral. To the fullest extent allowed by applicable law, Debtor hereby acknowledges and agrees that in the event that Debtor commences a case under the Code or is the subject of an involuntary case that results in an order for relief under the Code: (i) that all of the Rents are, and shall for purposes be deemed to be, "proceeds, product, offspring, rents, or profits" of the Premises covered by the lien of this Mortgage, as such quoted terms are used in Section 552(b) of the Code; (ii) that in no event shall Debtor assert, claim or contend that any portion of the Rents are, or should be deemed to be, "accounts" or "accounts receivable" within the meaning of the Code and/or applicable state law; (iii) that the Rents are and shall be deemed to be in any such bankruptcy proceeding "cash collateral" of Mortgagee as that term is defined in Section 363 of the Code; and (iv) that Mortgagee has valid, effective, perfected, enforceable and "choate" rights in and to the Rents without any further action required on the part of Mortgagee to enforce or perfect its rights in and to such cash collateral, including, without limitation, providing notice to Debtor under Section 546(b) of the Code. Section 4.09. Assignment of Rents and Leases. (a) Debtor hereby assigns, transfers, conveys and sets over to Mortgagee all of Debtor's estate, right, title and interest in, to and under all leases, whether existing on the date hereof or hereafter entered into (including any extensions, modifications or amendments thereto) relating to the Premises (the "Leases"), together with all rights, powers, privileges, options and other benefits of Debtor as the lessor or lessee under the Leases regarding the current tenants and any future tenants, and all the rents, revenues, profits and income from the Leases with respect to the Premises, excluding Debtor's accounts receivable and those of its tenants and subtenants, including those now due, past due or to become due. Debtor irrevocably appoints Mortgagee its true and lawful attorney-in-fact, at the option of Mortgagee, at any time and from time to time upon an Event of Default, to take possession and control of the Premises, pursuant to Debtor's rights as lessor under the Leases, and to demand, receive and enforce payment, to give receipts, releases and satisfaction and to sue, in the name of Debtor or Mortgagee, for all of the rents, revenues, profits and income thereof. It is intended by Debtor and Mortgagee that the assignment set forth herein constitutes an absolute assignment and not merely an assignment for additional security. The consideration received by Debtor to execute and deliver this assignment and the liens and security interests created herein is legally sufficient and will provide a direct economic benefit to Debtor. Notwithstanding the foregoing, however, so long as there is no Event of Default (taking into consideration the expiration of any applicable cure period), Debtor shall have a license, revocable upon such Event of Default, to possess and control the Premises and collect and receive all rents, revenues, profits and income. Upon an Event of Default (after the expiration of any applicable grace and cure period), such license shall be automatically revoked. (b) Upon any Event of Default (after the expiration of any applicable grace and cure period), Mortgagee may, at any time without notice (except if required by applicable law), either in person, by agent or by a court-appointed receiver, regardless of the adequacy of Mortgagee's security, and at its sole election (without any obligation to do so), enter upon and take possession and control of the Premises, or any part thereof, to perform all acts necessary and appropriate to operate and maintain the Premises, including, but not limited to, execute, cancel or modify the Leases, make repairs to the Premises, execute or terminate contracts providing for the management or maintenance of the Premises, all on such terms as are deemed best to protect the security of this assignment, and in Mortgagee's or Debtor's name, sue or otherwise collect such rents, revenues, profits and income from the Premises as specified in this Mortgage as the same become due and payable, including, but not limited to, rents then due and unpaid. Mortgagee may so sue for or otherwise collect such rents, revenues, profits and income with or without taking possession of the Premises. All rents collected shall be held by Debtor as trustee for the benefit of Mortgagee only. Debtor agrees that upon an Event of Default, each tenant of the Premises shall make its rent payable to and pay such rent to Mortgagee (or Mortgagee's agents) on Mortgagee's written demand therefor, delivered to such tenant personally, by mail, or by delivering such demand to each rental unit, without any liability on the part of said tenant to inquire further as to the existence of an Event of Default by Debtor. (c) All rents, revenues, profits and income collected subsequent to any Event of Default shall be applied at the direction of, and in such order as determined by, Mortgagee to the costs, if any, of taking possession and control of and managing the Premises and collecting such amounts, including, but not limited to, reasonable attorney's fees, actual receiver's fees, actual premiums on receiver's bonds, actual costs of repairs to the Premises, actual premiums on insurance policies, taxes, assessments and other charges on the Premises, and the actual costs of discharging any obligation or liability of Debtor as lessor or landlord of the Premises and to the sums secured by this assignment. Mortgagee or the receiver shall have access to the books and records used in the operation and maintenance of the Premises and shall be liable to account only for those rents actually received. Mortgagee shall not be liable to Debtor, anyone claiming under or through Debtor or anyone having an interest in the Premises by reason of anything done or left undone by Mortgagee hereunder, except to the extent of Mortgagee's gross negligence or willful misconduct. Any entering upon and taking possession and control of the Premises by Mortgagee or the receiver and any application of rents, revenues, profits and income as provided herein shall not cure or waive any Event of Default hereunder or invalidate any other right or remedy of Mortgagee under applicable law or provided therein. ARTICLE V MISCELLANEOUS Section 5.01. Satisfaction. If and when the Note shall have become due and payable (whether by lapse of time or by acceleration or by the exercise of the privilege of prepayment), and Debtor shall pay or cause to be paid (provided such payment is permitted or required hereby) the full amount thereof and shall also pay or cause to be paid all other sums then due and payable by Debtor to Mortgagee with respect to the Note and the Mortgaged Property, including, without limitation, all sums advanced by Mortgagee pursuant to this Mortgage, and provided no Event of Default shall have occurred or is continuing with respect to the Obligations, then this Mortgage shall be void (otherwise it shall remain in full force and effect in law and equity forever) and Mortgagee agrees to execute an instrument evidencing the satisfaction of all obligations under this Mortgage and releasing this Mortgage which shall be prepared and recorded at Debtor's sole expense. Section 5.02. Limitation of Rights of Others. Nothing in this Mortgage is intended or shall be construed to give to any person, other than Debtor, Mortgagee and the holder of the Note, any legal or equitable right, remedy or claim under or in respect of this Mortgage or any covenant, condition or provision herein contained. Section 5.03. Severability. In case any one or more of the provisions contained herein or in the Note shall be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provision hereof, and this Mortgage shall be construed as if such provision had never been contained herein or therein. Section 5.04. Notices; Amendments; Waiver. All notices, demands, designations, certificates, requests, offers, consents, approvals, appointments and other instruments given pursuant to this Mortgage (collectively called "Notices") shall be in writing and given by (i) hand delivery, (ii) facsimile followed by a copy sent by mail in accordance with clause (iv) hereof, (iii) express overnight delivery service or (iv) certified or registered mail, return receipt requested, postage prepaid, and shall be deemed to have been delivered upon (a) receipt, if hand delivered, (b) transmission, if delivered by facsimile, (c) the next business day, if delivered by express overnight delivery service, or (d) the fifth business day following the day of deposit of such notice with the United States Postal Service, if sent by certified or registered mail, return receipt requested, postage prepaid. Notices shall be provided to the parties and addresses (or facsimile numbers, as applicable) specified below: If to Debtor: Sybra, Inc. 8300 Dunwoody Place, Suite 300 Atlanta, Georgia 30350-1296 Attention: President Telephone: (770) 587-0290 Telecopy: (770) 594-7044 With a copy to: Robert H. Drechsler, Esq. Pryor, Cashman, Sherman & Flynn 410 Park Avenue New York, New York 10016 Telephone: (212) 421-4100 Telecopy: (212) 326-0806 If to FFCA: Robin L. Roach Senior Vice President, Corporate Finance FFCA Acquisition Corporation 17207 North Perimeter Drive Scottsdale, Arizona 85255 Telephone: (602) 585-4500 Telecopy: (602) 585-2228 With a copy to: Dennis L. Ruben, Esq. Executive Vice President and General Counsel FFCA Acquisition Corporation 17207 North Perimeter Drive Scottsdale, Arizona 85255 Telephone: (602) 585-4500 Telecopy: (602) 585-2226 or to such other address or such other person as either party may from time to time hereafter specify to the other party in a notice delivered in the manner provided above. Whenever in this Mortgage the giving of Notice is required, the giving thereof may be waived in writing at any time by the person or persons entitled to receive such Notice. Except as in this Mortgage otherwise expressly provided, (i) this Mortgage may not be modified except by an instrument in writing executed by Debtor and Mortgagee and (ii) no requirement hereof may be waived at any time except by a writing signed by the party against whom such waiver is sought to be enforced, nor shall any waiver be deemed a waiver of any subsequent breach or default. Section 5.05. Counterparts. This Mortgage may be executed in any number of counterparts and each thereof shall be deemed to be an original; and all such counterparts shall constitute but one and the same instrument. Section 5.06. Successors and Assigns. All of the provisions herein contained shall be binding upon and inure to the benefit of the respective successors and assigns of the parties hereto, to the same extent as if each such successor and assign were in each case named as a party to this Mortgage. Wherever used, the singular shall include the plural, the plural shall include the singular and the use of any gender shall include all genders. Section 5.07. Headings. The headings appearing in this Mortgage have been inserted for convenient reference only and shall not modify, define, limit or expand the express provisions of this Mortgage. Section 5.08. Security Agreement. With respect to the Personal Property or any portion of the Mortgaged Property which constitutes fixtures or other property governed by the UCC, this Mortgage shall constitute a security agreement between Debtor as the debtor and Mortgagee as the secured party, and Debtor hereby grants to Mortgagee a security interest in such portion of the Mortgaged Property. Cumulative of all other rights of Mortgagee hereunder, Mortgagee shall have all of the rights conferred upon secured parties by the UCC. Debtor will execute and deliver to Mortgagee all financing statements that may from time to time be required by Mortgagee to establish and maintain the validity and priority of the security interest of Mortgagee, or any modification thereof, and all costs and expenses of any searches required by Mortgagee. Mortgagee may exercise any or all of the remedies of a secured party available to it under the UCC with respect to such property, and it is expressly agreed that if upon an Event of Default (after the expiration of any applicable grace and cure period) Mortgagee should proceed to dispose of such property in accordance with the provisions of the UCC, 10 days' notice by Mortgagee to Debtor shall be deemed to be reasonable notice under any provision of the UCC requiring such notice; provided, however, that Mortgagee may at its option dispose of such property in accordance with Mortgagee's rights and remedies with respect to the real property pursuant to the provisions of this Mortgage, in lieu of proceeding under the UCC. Debtor shall give advance notice in writing to Mortgagee of any proposed change in Debtor's name, identity, or business form or structure and will execute and deliver to Mortgagee, prior to or concurrently with the occurrence of any such change, all additional financing statements that Mortgagee may require to establish and maintain the validity and priority of Mortgagee's security interest with respect to any of the Mortgaged Property described or referred to herein. Section 5.09. Effective as a Financing Statement. This Mortgage shall be effective as a financing statement filed as a fixture filing with respect to all fixtures included within the Mortgaged Property and is to be filed for record in the real estate records of each county where any part of the Mortgaged Property (including said fixtures) is situated. This Mortgage shall also be effective as a financing statement covering any other Mortgaged Property and may be filed in any other appropriate filing or recording office. The mailing address of Debtor is the address of Debtor set forth in the introductory paragraph of this Mortgage, and the address of the Mortgagee from which information concerning the security interests hereunder may be obtained is the address of Mortgagee as set forth in the introductory paragraph of this Mortgage. A carbon, photographic or other reproduction of this Mortgage or of any financing statement relating to this Mortgage shall be sufficient as a financing statement for any of the purposes referred to in this Section. Section 5.10. Characterization; Interpretation. It is the intent of the parties hereto that the business relationship created by the Note, this Mortgage and the other Loan Documents is solely that of creditor and debtor and has been entered into by both parties in reliance upon the economic and legal bargains contained in the Loan Documents. None of the agreements contained in the Loan Documents is intended, nor shall the same be deemed or construed, to create a partnership between Mortgagee and Debtor, to make them joint venturers, to make Debtor an agent, legal representative, partner, subsidiary or employee of Mortgagee, nor to make Mortgagee in any way responsible for the debts, obligations or losses of Debtor. Debtor acknowledges that Mortgagee and Licensor are not affiliates, agents, partners or joint venturers, nor do they have any other legal, representative or fiduciary relationship. Mortgagee and Debtor acknowledge and warrant to each other that each has been represented by independent counsel and has executed this Mortgage after being fully advised by said counsel as to its effect and significance. This Mortgage shall be interpreted and construed in a fair and impartial manner without regard to such factors as the party which prepared the instrument, the relative bargaining powers of the parties or the domicile of any party. Section 5.11. Time of the Essence. Time is of the essence in the performance of each and every obligation under this Mortgage. Section 5.12. Document Review. In the event Debtor makes any request upon Mortgagee requiring Mortgagee or its attorneys to review and/or prepare (or cause to be reviewed and/or prepared) any document or documents in connection with or arising out of or as a result of this Mortgage, then, except as expressly stated elsewhere herein, Debtor shall reimburse Mortgagee or its designee promptly upon Mortgagee's demand therefor a reasonable processing and reviewing fee in an amount not less than $500.00 for each such request. Section 5.13. Estoppel Certificate. (a) At any time, and from time to time, Debtor agrees, promptly and in no event later than 10 days after a request from Mortgagee, to execute, acknowledge and deliver to Mortgagee a certificate in the form supplied by Mortgagee, certifying: (1) the date to which principal and interest have been paid under the Note and the amount thereof then payable; (2) whether or not notice has been received by Debtor of any default under this Mortgage which has not been cured, except as to defaults specified in the certificate; (3) whether or not, to Debtor's knowledge, Debtor has any claims or causes of action against Mortgagee or any claims or rights of setoff or any defenses to the enforcement of any of the Loan Documents in accordance with their respective terms; and (4) the capacity of the person executing such certificate, and that such person is duly authorized to execute the same on behalf of Debtor. (b) If Debtor shall fail or refuse to sign a certificate in accordance with the provisions of this Section within 10 Business Days following a request by Mortgagee, Debtor irrevocably constitutes and appoints Mortgagee as its attorney-in-fact to execute and deliver the certificate to any such third party, it being stipulated that such power of attorney is coupled with an interest and is irrevocable and binding. Section 5.14. Limitation of Interest. Notwithstanding anything to the contrary contained in any of the Loan Documents, the obligations of Debtor to Mortgagee under the Note, this Mortgage and any other Loan Documents are subject to the limitation that payments of interest and late charges to Mortgagee shall not be required to the extent that receipt of any such payment by Mortgagee would be contrary to provisions of applicable law limiting the maximum rate of interest that may be charged or collected by Mortgagee. The portion of any such payment received by Mortgagee that is in excess of the maximum interest permitted by such provisions of law shall be credited to the principal balance of the Note or if such excess portion exceeds the outstanding principal balance of the Note, then such excess portion shall be refunded to Debtor. All interest paid or agreed to be paid to Mortgagee shall, to the extent permitted by applicable law, be amortized, prorated, allocated and/or spread throughout the full term of the Note (including, without limitation, the period of any renewal or extension thereof) so that interest for such full term shall not exceed the maximum amount permitted by applicable law. Section 5.15. Forum Selection; Jurisdiction; Venue; Choice of Law. Debtor acknowledges that this Mortgage was substantially negotiated in the State of Arizona, the executed Mortgage was delivered in the State of Arizona, all payments under the Loan Documents will be delivered in the State of Arizona and there are substantial contacts between the parties and the transactions contemplated herein and the State of Arizona. For purposes of any action or proceeding arising out of this Mortgage, the parties hereto expressly submit to the jurisdiction of all federal and state courts located in the State of Arizona. Debtor consents that it may be served with any process or paper by registered mail or by personal service within or without the State of Arizona in accordance with applicable law. Furthermore, Debtor waives and agrees not to assert in any such action, suit or proceeding that it is not personally subject to the jurisdiction of such courts, that the action, suit or proceeding is brought in an inconvenient forum or that venue of the action, suit or proceeding is improper. The creation of this Mortgage and the rights and remedies of Mortgagee with respect to the Mortgaged Property, as provided herein and by the laws of the State, shall be governed by and construed in accordance with the internal laws of the State without regard to principles of conflict of law. With respect to other provisions of this Mortgage, this Mortgage shall be governed by the internal laws of the State of Arizona. Nothing in this Section shall limit or restrict the right of Mortgagee to commence any proceeding in the federal or state courts located in the State to the extent Mortgagee deems such proceeding necessary or advisable to exercise remedies available under the Mortgage or the other Loan Documents. Section 5.16. Indemnification. Except for the gross negligence or willful misconduct of Mortgagee, Debtor shall indemnify and hold harmless Mortgagee and Mortgagee's shareholders, directors, officers, agents, and employees from and against any and all claims, demands, causes of action, suits, proceedings, liabilities, damages, losses, costs and expenses, including attorneys' fees, caused by, incurred or resulting from its operations of or relating in any manner to the Mortgaged Property, whether relating to their original design or construction, latent defects, alteration, maintenance, use by Debtor or any person thereon, supervision or otherwise, or from any breach of, default under or failure to perform any term or provision of this Mortgage by Debtor, its officers, employees, agents or other persons. It is expressly understood and agreed that Debtor's obligations under this Section shall survive the expiration or earlier termination of this Mortgage for any reason. Section 5.17. Waiver of Jury Trial and Punitive, Consequential, Special and Indirect Damages. MORTGAGEE, BY ACCEPTING THIS MORTGAGE, AND DEBTOR HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE THE RIGHT EITHER MAY HAVE TO A TRIAL BY JURY WITH RESPECT TO ANY AND ALL ISSUES PRESENTED IN ANY ACTION, PROCEEDING, CLAIM OR COUNTERCLAIM BROUGHT BY EITHER OF THE PARTIES HERETO AGAINST THE OTHER OR ITS SUCCESSORS WITH RESPECT TO ANY MATTER ARISING OUT OF OR IN CONNECTION WITH THIS MORTGAGE, THE RELATIONSHIP OF MORTGAGEE AND DEBTOR, DEBTOR'S USE OR OCCUPANCY OF THE MORTGAGED PROPERTY, AND/OR ANY CLAIM FOR INJURY OR DAMAGE, OR ANY EMERGENCY OR STATUTORY REMEDY. THIS WAIVER BY THE PARTIES HERETO OF ANY RIGHT EITHER MAY HAVE TO A TRIAL BY JURY HAS BEEN NEGOTIATED AND IS AN ESSENTIAL ASPECT OF THEIR BARGAIN. FURTHERMORE, DEBTOR HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES THE RIGHT IT MAY HAVE TO SEEK PUNITIVE, CONSEQUENTIAL, SPECIAL AND INDIRECT DAMAGES FROM MORTGAGEE WITH RESPECT TO ANY AND ALL ISSUES PRESENTED IN ANY ACTION, PROCEEDING, CLAIM OR COUNTERCLAIM BROUGHT BY DEBTOR AGAINST MORTGAGEE OR ITS SUCCESSORS WITH RESPECT TO ANY MATTER ARISING OUT OF OR IN CONNECTION WITH THIS MORTGAGE OR ANY DOCUMENT CONTEMPLATED HEREIN OR RELATED HERETO. THE WAIVER BY DEBTOR OF ANY RIGHT IT MAY HAVE TO SEEK PUNITIVE, CONSEQUENTIAL, SPECIAL AND INDIRECT DAMAGES HAS BEEN NEGOTIATED BY THE PARTIES HERETO AND IS AN ESSENTIAL ASPECT OF THEIR BARGAIN. Section 5.18. Transfer of Loan. Mortgagee may, at any time, sell, transfer or assign the Note, this Mortgage and the other Loan Documents, and any or all servicing rights with respect thereto, or grant participations therein or issue mortgage pass-through certificates or other securities evidencing a beneficial interest in a rated or unrated public offering or private placement as contemplated by the Loan Agreement. IN WITNESS WHEREOF, Debtor has caused this Mortgage to be executed and delivered by its duly authorized officers as of the day and year first above written. DEBTOR: SYBRA, INC., a Michigan corporation - -------------------------- By Signature of Witness ------------------------------------- Name ----------------------------------- Title - ----------------------------------- ---------------------------------- TYPED Name of Witness in BLACK TYPE Debtor's Tax Identification Number: - ----------------------------------- 38-1844678 Signature of Witness - ----------------------------------- [Corporate Seal] TYPED Name of Witness in BLACK TYPE STATE OF ] ] SS. COUNTY OF ] The foregoing instrument was acknowledged before me on ___________________ _____________________, 1997, by __________________________________, the ___________________________ of SYBRA, INC., a Michigan corporation, on behalf of the corporation. IN WITNESS WHEREOF, I hereunder set my hand and official seal. ----------------------------------------- Notary Public Typed Name of Notary Public in Black Type: ----------------------------------------- My Commission Expires: ____________________ Drafted by: Kevin J. Morris, Esq. Streich Lang Renaissance One Two North Central Avenue Phoenix, Arizona 85004 When recorded return to: Maggie Craft FFCA Acquisition Corporation 17207 North Perimeter Drive Scottsdale, Arizona 85255 EXHIBIT A LEGAL DESCRIPTION OF PREMISES EX-10.19 9 ASSET PURCHASE AGREEMENT ASSET PURCHASE AGREEMENT THIS ASSET PURCHASE AGREEMENT ("Agreement") is made and entered into as of November ___, 1997 by and among SYBRA OF CALIFORNIA, INC. a California corporation, ("Buyer"), ICH CORPORATION, a Delaware corporation and the parent corporation of Buyer ("ICH"), WILLIAM BRUSSLAN, an individual and 294, INC. a California corporation ("294"), AMERICAN FOOD CONCEPTS, INC., a California corporation ("AFC"), and WEB ACQUISITION COMPANY LLC, a California limited liability company ("WEB")(294, AFC and WEB) are collectively referred to herein as the "Sellers"). W I T N E S S E T H A. WHEREAS, the Sellers currently own those certain Arby's restaurants set forth on Schedule A attached hereto (the "Restaurants"); and B. WHEREAS, Buyer desires to purchase from the Sellers, and the Seller desires to sell to Buyer, substantially all of the assets used by the Sellers in connection with the operation of the Restaurants, and the parties hereto desire to enter into certain other agreements, all upon the terms and conditions set forth in this Agreement and the attachments hereto. NOW, THEREFORE, in consideration of the foregoing recitals and mutual representations, warranties, covenants and agreements hereinafter contained, the parties hereto agree as follows: ARTICLE 1 PURCHASE AND SALE 1.1 Purchase and Sale of Assets. Upon and subject to the terms and conditions of this Agreement, each of the Sellers shall sell, transfer, convey, assign and deliver to Purchaser, and Buyer shall purchase, acquire and accept from each of them, all of the assets and properties which are owned or leased and used by each of the Sellers in the operations of their respective Restaurants (collectively, the "Assets"), excluding, however, all of the excluded assets set forth on Schedule 1.1 ("Excluded Assets"). The Assets shall consist of, among other things, the following: (a) All of the furniture, fixtures, equipment, signs, cash registers, uniforms and other personal property (collectively, the "FF&E") owned and used by each of the Sellers in the operations of their respective Restaurants and located on the premises thereof; (b) All inventories of food, beverages, paper supplies and other consumables (collectively, the "Inventory") located on the premises thereof; (c) All of each Seller's right, title, and interest in and to the Arby's License 1 Agreement which are set forth on Schedule 1.1(c) attached hereto (the "License Agreements"), and all rights for the use of the trademarks, tradenames, and service marks arising from such agreements (subject to Arby's, Inc.'s ownership of all identifying marks and logos); (d) All of each Seller's right, title and interest in and to all of the contracts, agreements, real property leases, personal property leases, commitments and undertakings (the "Contracts") as identified in Schedule 1.1(d); (e) Petty cash in the maximum amount of One Thousand Dollars ($1,000) on hand at each of the Restaurants as of the Closing Date (the "Petty Cash") at Buyers option. (f) All of the pre-paid rent, charges and other prepayments and all of the security and other similar deposits (the "Deposits") which were previously paid by each of the Sellers and which are held by third parties pursuant to the Contracts as identified in Schedule 1.1(g); and (g) All records, technical information, price lists, marketing information, sales information, employee records, which are or have been maintained by each of the Sellers in connection with the operation of their respective Restaurants. (h) To the extent assignable, all of each Sellers right, title and interest in and to all permits, licenses, authorizations and approvals relating to the operation of the Restaurants. 1.2 Assumption of Liabilities. Except as expressly provided in this Section 1.2, Buyer shall not assume or be responsible for any liabilities, obligations or debts of any of the Sellers under or by reason of this Agreement. Upon and subject to the terms and conditions set forth in this Agreement, Buyer shall assume, become fully and solely responsible for and shall indemnify and hold Sellers harmless with respect to and shall to timely pay, perform and discharge in full all of the following liabilities, obligations and debts of each of the Sellers (collectively, the "Assumed Liabilities"): (a) All of each Sellers' liabilities, obligations and debts under the Contracts which come due or relate to time periods from and after the Closing Date in accordance with the respective terms thereof; (b) All of each Sellers' liabilities, obligations and debts in respect of unpaid rent, charges or other payments for which a Purchase Price adjustment is made pursuant to Section 1.5; (c) Any utility and telephone bills and other similar liabilities, obligations and debts arising in the ordinary course from the operations of the Restaurants which relate to time periods from and after the Closing Date; and (d) Any liabilities, expenses, or obligations relating to, based on or arising out 2 of the operations of the Restaurants by Buyer from and after the Closing Date (it being understood that the Sellers shall remain fully and solely responsible for, shall indemnify and hold Buyer harmless with respect to, and shall timely pay, perform and discharge in full any and all liabilities, expenses or obligations relating to, based upon or arising out of the operations of the Restaurants prior to the Closing Date). 1.3 Purchase Price. Subject only to the adjustments specified in this Agreement and upon and subject to all other terms and conditions set forth in this Agreement, in consideration of the sale, assignment, transfer, conveyance and delivery of the Assets pursuant to this Agreement, Buyer shall pay to the Sellers the sum of the following amounts (collectively, the "Purchase Price"): All sums payable in U.S. Dollars. (a) The sum of Six Hundred Fifty Thousand Dollars ($650,000) payable pursuant to the terms of Section 1.4 below (b) An amount equal to one-half the value (at each Seller's cost) of the Inventory. (c) An amount equal to the transferable Deposits, as set forth on Schedule 1.1(g) attached hereto; and (d) The amount equal to the value of the Petty Cash at Buyers option. (e) A grant by ICH of 20,000 Warrants (the "Warrants") to expire seven (7) years from date of grant, to acquire ICH Common Stock at the greater of Five Dollars ($5.00) or 110% of ICH's closing price as of the date of the close of this proposed transaction. (Stock symbol IH listed on AMEX, which Warrants shall be substantially in the form of Exhibit A attached hereto. 1.4 Payment of Purchase Price. The Purchase Price shall be payable by Buyer to the Sellers as follows: (a) On the Closing Date, Buyer will deposit the total amount of Three Hundred Twenty Five Thousand Dollars ($325,000) ("Escrow Deposit") to the Escrow Holder by bank cashier's check or by wire transfer of immediately available funds; (b) Upon the Closing Date, the amount payable for the Inventory and the Petty Cash if and where applicable. (c) On the Closing Date, Buyer shall deposit with the escrow holder a fully executed promissory note (the "Note") in the amount of Three Hundred Twenty-five Thousand Dollars ($325,000) with interest payable at a rate of ten percent (10%) per annum from the Closing Date on the unpaid balance, which Note shall be issued by Buyer and guaranteed (the "Guaranty") by ICH and the Note and Guaranty shall be substantially in the form of Exhibit B attached hereto. The Note shall be amortized over ten (10) years in one hundred twenty (120) 3 equal monthly installments of Four Thousand Two Hundred Ninety-five Dollars and 53/100 ($4295.53). Each of the Sellers acknowledges and agrees as evidenced by Sellers' letter of direction which shall be deposited into Escrow by Sellers that Buyer shall pay all amounts payable by Buyer under this Section 1.4 to William Brusslan, the Sellers' designated payee, and that the allocation and distribution of all such payments shall be the sole responsibility of the Sellers. 1.5 Purchase Price Adjustments. The Purchase Price shall be increased or decreased, as the case may be, by the amount of rent, taxes, assessments and other expenses prepaid or unpaid by the Sellers as of the Closing Date. 1.6 Taxes. All sales and use taxes arising out of the purchase and sale of the Assets shall be paid through the Escrow at the Closing by, and shall be exclusively the obligation of, Buyer. 1.7 License Transfer Fees. All license transfer and service or training fees due and owing to Arby's Inc. arising out of the purchase and sale of the Assets shall be paid through the Escrow at the Closing by, and be exclusively the obligation of, Buyer. 1.8 Escrow Fees. All fees of the Escrow Holder arising out of the purchase and sale of the Assets shall be paid one-half (1/2) by the Sellers and one-half (1/2) by Buyer at the Closing. 1.9 Allocation of Purchase Price. The Purchase Price shall be allocated in the Buyers sole discretion among the Assets in accordance with Schedule 1.9 attached hereto. The foregoing allocation shall be made in a manner consistent with Section 1060 of the Internal Revenue Code of 1986, as amended (the "Code"). Each party hereby agrees that it will not make any return, filing, report or other submission or take any position with or before any federal, state or local tax agency or other authority which would conflict or be inconsistent with the allocation provided in this Section 1.9. 1.10 Transfer of Employees. Each of the Sellers shall, effective as of the Closing Date, terminate the employment of all of the employees who are then employed by each of the Sellers at the premises of the Restaurants to be transferred as of the Closing Date (collectively, the "Employees"). Buyer, at its discretion, effective as the Closing Date, may hire any or all of the terminated Employees. 1.11 Accrued Vacation Pay. Each of the Sellers shall pay in full the amount of vacation pay owed to each of their respective Employees no later than the Closing Date. 1.12 Closing; Closing Deliveries. (a) The closing of the transactions contemplated by this Agreement 4 ("Closing") will take place at the offices of Capitol City Escrow, Inc. located at 3838 Watt Avenue, Suite 610, Sacramento, California 95821-2665 ("Escrow Holder") on or before December 31, 1997 ("Closing Date"), subject to such extensions or sooner as may be mutually agreed upon by the Sellers and Buyer. The Sellers and Buyer shall open an escrow (the "Escrow") with Escrow Holder immediately upon the execution of this Agreement. (b) At the Closing, each of the Sellers will deliver, or cause to be delivered, to Escrow: (i) the executed Bill of Sale substantially in the form of Annex B attached hereto; (ii) the executed Assignment and Assumption Agreement substantially in the form of Annex C attached hereto (the "Assignment and Assumption Agreement"); (iii) the executed Lease Assignment and Assumption Agreement substantially in the form of Annex D attached hereto (the "Lease Assignment and Assumption Agreement"); (iv) an Opinion of Counsel to the Sellers substantially in the form of Exhibit C attached hereto; (v) all other previously undelivered documents required to be delivered by the Sellers to Buyer at or prior to the Closing in connection with the transactions contemplated by this Agreement; and (vi) anything required pursuant to section 1.13 hereof. (c) At the Closing, Buyer will deliver or cause to be delivered to Escrow: (i) The Escrow Deposit by certified or cashier's check or by wire transfer; (ii) the Petty Cash and inventory amount, if applicable; (iii) the executed Assignment and Assumption Agreement; (iv) the executed Lease Assignment and Assumption Agreement; (v) Note and Warrants; (vi) all other previously undelivered documents required to be delivered by Buyer to the Sellers at or prior to the Closing in connection with the transactions contemplated by this Agreement and the other agreements contemplated hereby; and 5 (vii) anything required pursuant to section 1.13 hereof. (d) At the Closing, ICH will deliver or cause to be delivered the Guaranty to Escrow. (e) At the Closing, William Brusslan will deliver or cause to be delivered to Escrow anything required pursuant to section 1.13 hereof. 1.13 Concurrent Land Purchases. Buyer and Sellers hereby acknowledge that as to Unit 5803 and Unit 1381, the respective Seller or William Brusslan is attempting to purchase the fee interest in the Leased Property with respect to each of these units. As to Unit 5803, Sellers have the right to acquire the fee title to the real estate pursuant to a Right of First Refusal upon terms acceptable to Buyer in Buyer's sole discretion. If Sellers are not able to obtain the fee interest pursuant to the Right of First Refusal, then Sellers shall assign the lease to Buyer as provided herein upon the existing terms and conditions of the lease as a condition to Closing. If Sellers are not provided with a notice pursuant to the Right of First Refusal prior to the Close of Escrow, Sellers shall assign the Right of First Refusal to Buyer as provided herein upon the existing terms and conditions of the Right of First Refusal as a condition to Closing. If Sellers are successful in obtaining the fee pursuant to the Right of First Refusal upon terms acceptable to Buyer, the purchase and sales documentation shall become part of this Escrow and the respective parties shall deposit such items as are reasonably required by Escrow Holder to effect the transfer of the right to purchase the property from Sellers to Buyer and complete the transaction as a condition to Closing, provided, however, if the close of the real estate transaction cannot be completed by Closing, Buyer, in Buyer's sole discretion, may waive the condition and Close Escrow. As to Unit 1381, William Brusslan intends to enter into a contract for the purchase of the real estate substantially similar to the contract attached hereto as Schedule 1.13 and shall deliver said contract to Escrow and assign Sellers' right to purchase pursuant to the contract to Buyer as a condition to Closing. If the close of the real estate transaction cannot be completed by Closing, Buyer, in Buyer's sole discretion, may waive the condition and Close Escrow. ARTICLE 2 REPRESENTATIONS AND WARRANTIES OF THE SELLERS As a material inducement to Buyer to enter into this Agreement and to perform its obligations hereunder, each of the Sellers hereby represents and warrants to Buyer with respect to themselves and the Assets which they purport to own as follows: 2.1 Organization of the Sellers. WEB is a limited liability company duly organized, validly existing and in good standing under the laws of the State of California. 294 and AFC are corporations duly organized, validly existing and in good standing under the laws of the State of California. Each of the Sellers has all necessary power and authority to own or lease and operate its properties and to carry on its business as it is now being conducted. 6 2.2 Authorization and Approvals. Each of the Sellers has all necessary power and authority to execute and deliver this Agreement and to perform its obligations hereunder. This Agreement has been duly and validly authorized by all necessary action on the part of each of the Sellers. This Agreement constitutes the legal, valid and binding obligation of each of the Sellers, enforceable in accordance with its terms, subject to judicial discretion regarding specific performance or other equitable remedies, except as may be limited by bankruptcy, insolvency, reorganization, moratorium or other laws relating to or affecting the enforcement of creditors' rights and remedies generally. No approvals or consents by any third party, other then Arby's Inc. and each of the Landlords, or any governmental or administrative body or agency or any court is required in connection with the Sellers' execution and delivery of this Agreement or the performance of their respective obligations hereunder. 2.3 No Violations. Except for such items which would not have a materially adverse effect upon the Assets or the operations of any of the Restaurants (a "Material Adverse Effect"), neither the Sellers' execution and delivery of this Agreement nor the performance of their respective obligations hereunder will, to the knowledge of the Sellers, (a) result in a default under any of the terms, conditions or provisions of any of the Contracts, or any of the respective organizational documents of any of the Sellers, or (b) violate any existing order, writ, injunction, decree, law, statute, rule or regulation of any court or governmental authority applicable to any of the Sellers or the Assets. 2.4 Title to Properties. Each of the Sellers has good, valid and marketable title to all of the Assets that they each purport to own. The Assets owned by each of the Sellers are free and clear of any title defects or objections, liens, mechanic's liens, claims, charges, security interests or other encumbrances of any kind or nature whatsoever, except for (a) minor imperfections of title, none of which materially detract from the value or impair the use of the Assets, (b) liens for current real or property taxes not yet due and payable, and (c) the liens and encumbrances approved in writing by Buyer. 2.5 Condition of FF&E. The FF&E (excluding facsimile machines) are, and as of the Closing Date will be, in working condition and repair, normal wear and tear excepted, and none of the FF&E (excluding facsimile machines) are in need of repairs, except for ordinary, routine maintenance and repairs which are not in the aggregate material in cost. 2.6 Inventory. The Inventory is of a quality usable and saleable in the ordinary course of business of each of the Sellers in the operations of the Restaurants, and there are no obsolete items or items of below standard quality under the standards set forth in the Arby's License Agreements. 2.7 Contracts. To the knowledge of the Sellers, each of the Sellers has delivered to Buyer complete, current and correct copies of the Contracts, and no changes have been made thereto since date of delivery. Each of the Contracts is valid, binding and enforceable in accordance with its respective terms with respect to parties thereto, and is in full force and effect. To the knowledge of the Sellers, there are no existing defaults by any of the Sellers thereunder 7 which would have a Materially Adverse Effect. 2.8 Compliance with Laws. To the knowledge of the Sellers, the operations of their respective Restaurants have been conducted in all material respects in compliance with all applicable laws, statutes, ordinances, rules, regulations, orders, decrees or ruling of all governmental authorities or agencies having jurisdiction over each of the Sellers, except for items which would not have a Materially Adverse Effect. All licenses, permits and authorization issued or granted by Federal, State or local governmental authority or agency which are necessary for the conduct of the Restaurants respective businesses are validly held by the Sellers, it being understood by the Buyer that the city licenses, health department permits and shake machine permits and Sellers permit are not transferable and it shall be Buyers obligation to make the necessary applications to obtain said permits. 2.9 Litigation. To the knowledge of the Sellers, there is no pending suit, action, arbitration, proceeding, investigation or inquiry before any court or governmental or administrative body or agency which would have a Materially Adverse Effect. The Sellers are not in violation of or in default under or subject to any order, judgment, writ, injunction or decree of any court or governmental or administrative body or agency, which violation or default would a Materially Adverse Effect. 2.10 Leases. Each of the Restaurants' real property leases (collectively, the "Leases" and each a "Lease"), and all amendments, modifications and/or extensions thereto or thereof are listed on Schedule 2.10 hereto. Schedule 2.10 hereto also lists, with respect to each Lease the name of the tenant(s) and landlord(s). With respect to the Leases, (i) the Leases are in full force and effect, are unmodified (other than listed on Schedule 2.10 hereto), (ii) all rental and other charges payable pursuant to the terms and conditions of the Leases have been paid as of the Closing Date, (iii) the Sellers have not received any written notice of any defaults of any agreement, covenant or condition on the part of or to be performed by or observed by Sellers pursuant to the terms of the Leases, (iv) there are no actions or proceedings pending by any lessor under any of the Leases, (v) except for the security deposits identified on Schedule 1.1(g) hereto, no lessor holds any deposits for any Seller's account on any Lease, (vi) there are no defaults by any of the respective lessors of any agreement, covenant or condition on the part of or to be performed by or observed by such lessors pursuant to the terms of the Leases and (vii) each Lease (excluding Unit 5771) is a direct lease with the fee owner of the real property. The current expiration dates and remaining options to extend the Leases are as set forth on Schedule 2.10 hereto. Minimum monthly rent and additional rent under the Leases are also set forth on Schedule 2.10 hereto. 2.11 Normal Use. To the knowledge of the Sellers, none of the Sellers knows of any facts nor have any of the Sellers failed to disclose any fact which would prevent any of the Leased Property from being used and operated after the Closing as Arby's Restaurants in accordance in all material respects with the operational terms of the license agreements with Arby's, Inc. 8 2.12 Condemnation. None of the Sellers has received any written notice of any pending exercise of eminent domain, condemnation, environmental, zoning, other land-use regulations proceedings or any other similar action with respect to any of the Leased Property and none of the Sellers has received any written notice of any Federal, state, county, municipal or other governmental plans to restrict or change access from any highway or road bounding any of the Leased Property. 2.13 Copies. To the knowledge of the Sellers, all Leases, nondisturbance agreements, landlord estoppel certificates, certificates of occupancy, sale/leaseback agreements, leasehold mortgages and other leases in which the Sellers are a lessee or sublessee and which have been delivered or made available to Buyer pursuant to this Agreement or otherwise, in connection with the execution hereof or in connection with Buyer's due diligence review of, are true, complete and correct copies of the originals of the same documents in the Sellers' possession, and same have not been modified or amended, except pursuant to documents copies of which have been delivered to Buyer. 2.14 Violations. To the knowledge of the Sellers, all written notes or notices of violations of law or municipal ordinances, orders or requirements noted in or issued by the Department of Housing and Building, Fire, Labor, Health or other State or municipal department having jurisdiction over the Leased Property, against or affecting the Leased Property up until the date of the Closing, shall be complied with by the Sellers and the Leased Property shall be free of same, provided, however, that any applicable cure periods may extend the time for Sellers' performance hereunder. 2.15 Environmental Protection. (i) For purposes of this Section 2.15, the following definitions shall apply: (A) "Environmental Laws" shall mean all federal, state, local, and foreign laws imposing liability or establishing standards of conduct for the protection of the environment and human health; (B) "Environmental Claim" shall mean any complaint, summons, citation, notice, directive, order, claim, litigation, investigation, judicial or administrative proceeding, judgement, letter or other communication from any governmental agency, department, bureau, office or other authority having jurisdiction, or any third party, involving violations of Environmental Laws or Releases of Hazardous Materials; (C) "Environmental Liabilities" shall mean any monetary obligations, losses, damages, costs and expenses (including all reasonable out-of-pocket fees, disbursements and expenses of counsel, out-of-pocket expert and consulting fees and out-of-pocket costs for environmental site assessments, remedial investigations and feasibility studies), fines, penalties, sanctions and interest incurred as a result of any Environmental Claim filed by any governmental authority or any third party which relate to any violations of Environmental Laws, or Release of 9 Hazardous Materials generated by any of the Restaurants; (D) "Hazardous Materials" shall mean (A) any element, compound, or chemical that is defined, listed or otherwise classified as a contaminant, pollutant, toxic pollutant, toxic or hazardous substance, extremely hazardous substance or chemical, hazardous waste, medical waste, biohazardous waste or infectious waste, special waste, or solid waste under Environmental Laws; (B) petroleum and its refined products; (C) polychlorinated biphenyls; (D) any substance exhibiting a hazardous waste characteristic (as defined under Environmental Laws), including, but not limited to, corrosivity, ignitability, toxicity or reactivity as well as any radioactive or explosive materials; and (E) asbestos-containing materials; (E) "Release" shall mean any spilling, leaking, pumping, emitting, emptying, discharging, injecting, escaping, leaching, dumping, or disposing of Hazardous Materials (including the abandonment or discarding of barrels, containers or other closed receptacles containing Hazardous Materials) into the environment. (ii) To the knowledge of the Sellers during Sellers ownership, possession or leasehold interest in any of the Leased Properties, the Sellers have obtained all permits, licenses or authorizations required by Environmental Laws, except where the failure to obtain any such permit, license or authorization would not have a Material Adverse Effect, and all such permits, licenses or authorizations are in full force and effect, except for such permits, licenses and authorizations which, if not in full force and effect, would not constitute a Material Adverse Effect. (iii) To the knowledge of the Sellers, the operations of the Restaurants are in full compliance with all Environmental Laws, except where such noncompliance would not have a Material Adverse Effect. (iv) To the knowledge of the Sellers, there has been no Release at any of the Leased Properties or at any disposal or treatment facility which has received Hazardous Materials generated by any of the Restaurants which will result in Environmental Liabilities that have a Material Adverse Effect. (v) To the knowledge of the Sellers, there are no outstanding Environmental Claims that have a Material Adverse Effect. 2.16 License Agreements. The Sellers have previously delivered or made available to Buyer true, complete and correct copies of all License Agreements and other agreements between Arby's, Inc. and any of the Sellers. Set forth on Schedule 2.20 hereto is a list of all of the License Agreements, including the license agreement number, location and date of termination of each License Agreement. The Sellers have received no written notice of a violation with respect to any of the License Agreements. All renewal notices, to the extent required by the License Agreements, have been delivered by the Sellers to Arby's, Inc. on a timely basis. 10 2.17 Contracts for Improvements. At the time of Closing, there will be no outstanding contracts made by any Seller for any improvements to any of the Restaurants which have not been fully paid for, and the Sellers shall cause to be discharged all validly filed mechanic's liens or materialman's liens, if any, arising from any labor or materials furnished to the Restaurants prior to the time of Closing. 2.18 Improvements and Structural Defects. To the knowledge of the Sellers, the structural portions of the Restaurants and the plumbing, heating, air conditioning, electrical, mechanical, life safety and other systems therein are in sufficient operating condition and repair to allow them to operate as Arby's restaurants. 2.19 Brokers and Finders. Neither the Sellers nor any of their respective directors, officers, employees or other representatives has engaged or employed any broker, finder or agent or incurred any liability or obligation to pay any brokerage fees, commissions or finder's fees in connection with the transactions contemplated by this Agreement. 2.20 Accuracy of Representations and Warranties. Subject to the qualifications stated therein, no representation or warranty made by any of the Sellers in this Agreement contains any untrue statement of material fact or omits to state a material fact necessary in order to make the statements so made, in light of the circumstances under which they are made, not misleading. For all purposes within this Article 2, the phrase "to the knowledge of the Sellers" shall mean the actual knowledge, without duty of independent investigation or inquiry of William Brusslan, Anton Lufti and Doreen Weaver. ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF BUYER As a material inducement to the Sellers to enter into this Agreement and to perform its obligations hereunder, Buyer hereby represents and warrants to the Sellers as follows: 3.1 Authorization and Approvals. Buyer has all necessary power and authority to deliver this Agreement and to perform his obligations hereunder. This Agreement constitutes the legal, valid and binding obligation of Buyer enforceable in accordance with its terms, subject to judicial discretion regarding specific performance or other equitable remedies, and except as may be limited by bankruptcy, reorganization, insolvency, moratorium or other laws relating to or affecting the enforcement of creditors rights and remedies generally. No approvals or consents by any third party or any governmental or administrative body or agency or any court is required in connection with Buyer's execution and delivery of this Agreement or Buyer's performance of its obligations hereunder. 3.2 No Violation. Neither the execution and delivery of this Agreement nor the performance of the obligations hereunder will (a) result in a material default under any of the 11 terms, conditions or provisions of any contract, agreement, instrument, commitment or undertaking to which Buyer is a party or is subject, or (b) to Buyer's knowledge, materially violate any existing order, writ, injunction, decree, law, statute, rule or regulation of any court or governmental authority applicable to Buyer. 3.3 Brokers and Finders. Neither Buyer nor any of its employees or representatives has engaged or employed any broker, finder or agent or incurred any liability or obligation to pay any brokerage fees, commissions or finder's fees in connection with the transactions contemplated by this Agreement. 3.4 Accuracy of Representations and Warranties. Subject to the qualifications stated therein, to Buyer's actual knowledge, no representation or warranty made by Buyer in this Agreement contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements so made, in light of the circumstances under which they are made, not misleading. ARTICLE 4 COVENANTS OF THE SELLERS AND BUYER Pending the consummation of the transactions contemplated hereunder, the Sellers and Buyer covenant and agree as follows: 4.1 Conduct of Business. Each of the Sellers shall conduct the operations of the Restaurants in the ordinary course consistent with prior practices and pursuant to the terms and provisions of the Arby's License Agreements, except as may be consented to in writing by Buyer. Each of the Sellers shall maintain the FF&E in working condition and repair, normal wear and tear excepted. Each of the Sellers shall continue to meet the contractual obligations incurred by each of them in the ordinary course and to pay all of each of their respective obligations as they mature in the ordinary course of the operations of the Restaurants. Each of the Sellers shall also use their respective commercially reasonable efforts to keep available the services of the Employees, to maintain the Contracts in full force and effect, and to preserve the good relations of the suppliers, customers and others with whom each of the Sellers has business dealings. 4.2 Access to Buyer. During the period prior to the Closing Date and upon the prior written request of Buyer, each of the Sellers shall give Buyer, and its counsel, accountants and other representatives reasonable access, during each of the Sellers' normal business hours, to the Restaurant premises, employees, customer books, contracts and records, and all other information pertaining to the Assets and the operations of the Restaurants as Buyer may reasonably request. Provided, however, that Buyer may not interrupt or interfere with Sellers' business and Buyer hereby agrees to indemnify and hold Sellers harmless from and against any Losses (as defined in Article 7 hereof) caused by Buyers activities pursuant to this Section 4.2 4.3 Compliance with Laws; Preservation of Accuracy of Representations and 12 Warranties, Etc. Each of the Sellers shall duly comply with all of the laws applicable to it, the violation of which would have a Material Adverse Effect, and each of the Sellers shall conduct the operations of their respective Restaurants and use the Assets in such manner that on the Closing Date the representations and warranties contained in this Agreement shall be true as though such representations and warranties were made on and as of such date. 4.4 Consents and Approvals. Each of the Sellers and Buyer shall use their respective commercially reasonable efforts to acquire all necessary consents, approvals, authorizations and waivers of all third parties (including without limitation, the consent of Arby's, Inc., and the lessors under the various leases) or governmental agencies or authorities required to be respectively obtained by them in connection with their respective execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereunder. 4.5 Closing Inventory. On or prior to the Closing Date, representatives of each of the Sellers and Buyer shall jointly conduct an inventory of all the Inventory and the Petty Cash on hand at each of the Restaurants and all Inventory on order as of the Closing Date. The results of this inventory shall be reasonably satisfactory to the parties and shall be attached hereto as Schedule 4.5 as soon as practicable after the Closing Date. As of the Closing Date, each of the Sellers shall cause all of the Inventory and the Petty Cash for each of the Restaurants for operational purposes to remain at the Restaurants. 4.6 Bulk Sale; Prorations. Each of the Sellers and Buyer shall comply with the requirements of the California Commercial Code with respect to bulk sales. Each of the Sellers and Buyer agree to enter into an escrow agreement with Escrow Holder to instruct Escrow Holder to, among other things, comply with the bulk sale requirements, obtain necessary employment, sales and franchise tax releases, and make the necessary publications, prorations and payments. 4.7 Estoppel Certificates. By no later than two (2) business days following the date hereof, the Sellers shall send out for execution estoppel certificates, in the form of Exhibit D attached hereto, (the "Estoppel Certificates"), to each of their respective lessors. Each of the Sellers agrees to use its commercially reasonable efforts to obtain the return of the executed Estoppel Certificates prior to the Closing Date. The Sellers each agree to promptly deliver to Buyer copies of executed Estoppel Certificates as the Sellers prior to the Closing Date receive them. Notwithstanding anything to the contrary contained in this Agreement, the receipt of the Estoppel Certificates by Buyer or Seller prior to or after the Closing Date shall not be a condition to the Closing of this transaction. 4.8 Non-Disturbance Agreements. The Sellers shall each use their respective commercially reasonable efforts to obtain for the benefit of Buyer from any holder of a superior mortgage on any of the Leased Property, an agreement which shall provide in substance that as long as the Lease is in effect and Buyer is not in breach or default beyond applicable grace periods thereunder: (i) Buyer shall not be joined as a party defendant in any foreclosure action or 13 proceeding which may be instituted or taken by the holder of such superior mortgage, and (ii) Buyer shall not be evicted from the Leased Property nor shall Buyer's leasehold estate under the Lease be terminated or disturbed, nor shall any of Buyer's rights under the Lease be affected, by reason of any default under such superior mortgage or any disaffirmance of such superior mortgage or other termination of such superior mortgage (the "Non-Disturbance Agreements"). 4.9 Other Transactions. Unless and until the Agreement is terminated pursuant to Section 8.1 hereof, the Sellers will not, and each of the Sellers will cause its respective directors, officers, employees, agents and affiliates not to, directly or indirectly, solicit or initiate the submission of proposals of offers from, or solicit, encourage, entertain or enter into any agreement, arrangement or understanding with, or engage in any discussions with, or furnish any information to, any person or entity, other than Buyer or a representative thereof, with respect to the acquisition of all or any part of any of the Sellers, or any of their respective restaurants. 4.10 Supplemental Disclosure. Each of the Sellers agrees that, with respect to the representations and warranties made by it in this Agreement, it shall have the continuing obligation, between the date hereof and the Closing Date, to promptly supplement or amend the Schedules to this Agreement with respect to any matter hereafter arising or discovered which, if existing or known at the date of this Agreement, would have been required to be set forth or described in the Schedules to this Agreement. 4.11 Real Estate Purchase Transactions. Buyer and Seller each agree that Buyer and Seller shall perform all obligations with respect to Section 1.13. ARTICLE 5 CONDITIONS PRECEDENT TO OBLIGATIONS OF THE SELLERS The obligation of each of the Sellers to consummate the transactions contemplated by this Agreement is subject to the satisfaction, or waiver by each of the Sellers, on or prior to Closing of the following conditions: 5.1 Representations and Warranties. The representations and warranties made by Buyer herein shall be true and correct in all material respects on and as of the date hereof and as of the Closing with the same force and effect as though all such representations and warranties had been made on and as of the Closing. 5.2 Covenants and Agreements. All of the covenants and agreements of this Agreement to be complied with and performed by Buyer on or before Closing will have been complied with and performed in all material respects. 5.3 Consents. Each of the Sellers shall have obtained the consent from Arby's, Inc. to convey, transfer or assign the Arby's License Agreements to Buyer. 5.4 Litigation. No action, suit, proceeding, or investigation by or before any court, 14 administrative agency or other governmental authority shall have been instituted to restrain, prohibit or invalidate any of the transactions contemplated by this Agreement. ARTICLE 6 CONDITIONS PRECEDENT TO OBLIGATIONS OF BUYER The obligations of Buyer to consummate the transactions contemplated by this Agreement are subject to the satisfaction, or waiver by Buyer, on or prior to Closing of the following conditions: 6.1 Representations and Warranties. The representations and warranties made by each of the Sellers herein shall be true and correct in all material respects on and as of the date hereof and as of the Closing with the same force and effect as though all such representations and warranties had been made on and as of the Closing. 6.2 Covenants and Agreements. All of the covenants and agreements of this Agreement to be complied with and performed by each of the Sellers on or before Closing will have been complied with and performed in all material respects. 6.3 Consents. Each of the Sellers will have obtained the consent of Arby's Inc. to convey, transfer or assign the Arby's License Agreements to Buyer and each of the Sellers shall have obtained all other necessary consents, approvals, authorizations and waivers of all third parties (including without limitation, the consents, to the extent required, of the lessors under the various Leases) or governmental agencies or authorities required to be respectively obtained by them in connection with their respective execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereunder. Any item required by this paragraph may be waived in writing by the Buyer so that this transaction may close and Buyer obtain possession of the Restaurants. 6.4 Litigation and Claims. No action, suit, proceeding, or investigation by or before any court, administrative agency or other governmental authority will have been instituted to restrain, prohibit or invalidate any of the transactions contemplated by this Agreement. 6.5 Absence of Changes. There shall not have occurred prior to the Closing Date, (a) any material adverse change in the Assets or results of operations of any of the Restaurants, or (b) the legal inability of any of the Sellers to convey, assign and transfer the Assets to Buyer. 6.6 Estoppel Certificates. The Sellers shall have sent out and continue to use Seller's commercially reasonable efforts to obtain and deliver to Buyer executed copies of the Estoppel Certificates referred to in Section 4.7 hereof from each of their respective lessors. 6.7 Non-Disturbance Agreements. The Sellers shall have sent out and continue to use Seller's commercially reasonable efforts to obtain and deliver to Buyer executed copies of the Non-Disturbance Agreements referred to in Section 4.8 hereof from each holder of a superior 15 mortgage on any of the Lease Property. 6.8 Real Estate Purchase Transactions. Seller shall perform all obligations with respect to Section 1.13. ARTICLE 7 INDEMNIFICATION 7.1 Sellers' Indemnification. Each of the Sellers will indemnify, defend (with counsel reasonably acceptable to Buyer) and hold Buyer and each of its officers, directors, employees, representatives, agents, shareholders and affiliates (and their respective officers, directors, employees, representatives, agents, shareholders and affiliates) harmless from and against any losses, claims, damages or liabilities (including reasonable legal and other expenses incurred in investigating and defending any claims or actions) (collectively "Losses") to which Buyer or any of them may become subject insofar as such Losses arise out of or are based upon any untrue representation or warranty made by them respectively in this Agreement. Payments in respect of the indemnification provided in this Section 7.1 shall be made promptly (and currently) as Losses shall be incurred. Alternatively, Buyer shall have the right to off-set any amounts due from the Sellers pursuant to this Section 7.1 against any amounts due under the Note described in Section 1.4 hereof, provided, however, that Buyer shall not (i) receive any payment or (ii) exercise such off-set right unless and until such time as the existence and amount of such Losses have been definitively determined in the good faith judgement of the Board of Directors of Buyer after reasonable satisfaction of a prior obligation to "meet and confer" and negotiate in good faith with Sellers. Notwithstanding the foregoing, none of Sellers shall have any obligation to indemnify Buyer under this Section 7.1 unless, and then only to the extent that, Buyer shall have incurred aggregate losses, damages, liabilities, costs and expenses in excess of ONE THOUSAND DOLLARS ($1,000). 7.2 Buyer's Indemnification. Buyer will indemnify, defend (with counsel reasonably acceptable to Sellers) and hold each of the Sellers harmless from and against any Losses to which Sellers may become subject insofar as such losses arise out of or are based upon any untrue representation or warranty of Purchaser contained in this Agreement. Notwithstanding the foregoing, Buyer shall have no obligation to indemnify any of the Sellers under this Section 7.2 unless, and then only to the extent that, such Seller shall have incurred aggregate losses, damages, liabilities, costs and expenses in excess of ONE THOUSAND DOLLARS ($1,000). 7.3 Survival of Indemnification Obligations. All of the Sellers' obligations under Section 7.1 and all of Buyer's obligation under 7.2, respectively, shall survive the Closing and continue in full force and effect for until March 31, 1999. ARTICLE 8 TERMINATION 8.1 Termination. The respective obligations of the parties hereto to consummate the 16 transactions pursuant to this Agreement may be terminated as follows: (a) By mutual written agreement of the parties; (b) By Buyer or the Sellers if the Closing shall not have occurred on or before January 31, 1998; provided, however, that the party exercising such termination right shall not have negligently, intentionally or willfully caused the failure of any conditions to Closing set forth in Articles 5 or 6 hereof to be satisfied prior to such date. (c) Effect of Termination. In the event of termination of this Agreement as provided above, this Agreement shall forthwith become void and there shall be no liability on the part of any party hereto (or any of their respective officers or directors), except (i) based upon obligations set forth in Section 9.2 hereof and (ii) to the extent that failure to satisfy the conditions of Articles 5 and 6 hereof results from the grossly negligent, intentional or willful breach, violation or non-compliance by any party hereto of any covenant, agreement, obligation, representation or warranty contained in this Agreement or any other agreement referred to herein. ARTICLE 9 MISCELLANEOUS 9.1 Notices. All notices, requests, demands and other communications hereunder shall be in writing and shall be delivered personally, sent by certified mail, postage prepaid, return receipt requested, or sent by telecopier or other electronic facsimile transmission, as elected by the party giving such notice: (a) if to Buyer or ICH, to: SYBRA OF CALIFORNIA, INC. c/o I.C.H. CORPORATION 9404 Genesee Avenue Suite 330 La Jolla, CA 92037 Attn: Mr. James R. Arabia with a copy to: Pryor, Cashman, Sherman and Flynn 410 Park Avenue, 10th Floor New York, NY 10022 Attn: Robert H. Drechsler, Esq. 17 (b) if to Sellers, to: William Brusslan 16055 Ventura Boulevard, Suite 1127 Encino, California 91436 Facsimile: (818) 783-2409 with a copy to: David J. Hirsch Law Offices of David J. Hirsch 9460 Wilshire Boulevard Suite 830 Beverly Hills, California 90212 Any such notice or other communication will be deemed to have been received upon actual receipt if personally delivered, one (1) business day following transmission if sent by facsimile and appropriate confirmation is received or if sent by overnight courier, or three (3) business days following mailing. Any party hereto may change its address or facsimile number specified above by giving written notice to the other party hereto in the same manner as specified in this Section 9.1. 9.2 Expenses. Except as otherwise provided herein, whether or not the transactions contemplated by this Agreement shall be consummated, each of the parties hereto agrees that it shall bear all fees and expenses incurred by it in connection with this Agreement. 9.3 Entire Agreement. This Agreement, including the schedules and annexes attached hereto, contains the entire understanding of the parties hereto in respect of its subject matter. There are no other restrictions, promises, warranties, covenants or understandings, other than those expressly set forth herein. This Agreement supersedes all prior agreements and understandings between the parties hereto. 9.4 Amendments; Waiver. This Agreement may not be amended, supplemented, canceled or discharged except by a written instrument executed by the parties hereto. No failure to exercise and no delay in exercising, any right, power or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any right, power or privilege hereunder preclude the exercise of any other right, power or privilege (hereunder or otherwise). No waiver of any breach of any agreement hereunder or any other agreement shall be deemed to be a waiver of any preceding or succeeding breach of the same or any other agreement. No extension of time of performance of any obligations or other acts hereunder or under any other agreement shall be deemed to be an extension of the time for performance of any other obligations or any other acts. The rights and remedies of the parties under this Agreement are in addition to all other rights and remedies, at law or in equity, that either party may have against the other. 9.5 Severability. Any provision of this Agreement or any of the agreements contemplated hereby that shall be prohibited or unenforceable in any jurisdiction shall, as to such 18 jurisdiction, be ineffective to the extent of such prohibition or enforceability 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. 9.6 Headings. The descriptive headings of the Articles and Sections of this Agreement are inserted for convenience and identification only and do not constitute a part of this Agreement for purposes of interpretation. 9.7 Assignment. No party may assign its rights or delegate its duties under this Agreement without the prior written consent of the other party hereto. Whenever in this Agreement either of the parties hereto is referred to, such reference will be deemed to include the permitted successors and assigns of such party. The terms and conditions of this Agreement, the obligations imposed and the rights conferred hereby will be binding upon and inure to the benefit of the respective permitted successors and assigns of the parties hereto. 9.8 Attorneys' Fees. In the event of any action at law or suit in equity in relation to this Agreement or any schedule, annex or other instrument or agreement required hereunder, the prevailing party in such action or suit shall be entitled to receive its reasonable attorneys' fees and all other costs and expenses of such action or suit. 9.9 Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, and all of which taken together shall constitute one and the same Agreement. 9.10 Governing Law. This Agreement will be construed and interpreted according to the laws of the State of California. (the balance of this page is intentionally blank) 19 IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the date first above written. "BUYER": SYBRA OF CALIFORNIA, INC. By: /s/ James R. Arabia --------------------- Name: James R. Arabia Title: President/CEO ICH CORPORATION By: /s/ James R. Arabia --------------------- Name: James R. Arabia Title: President/CEO "SELLERS": 294, INC. By: /s/ William Brusslan --------------------- Name: William Brusslan Title: President 20 AMERICAN FOOD CONCEPTS, INC. By: /s/ William Brusslan --------------------- Name: William Brusslan Title: President WEB ACQUISITION COMPANY LLC By: /s/ William Brusslan --------------------- Name: William Brusslan Title: Member "WILLIAM BRUSSLAN": By: /s/ William Brusslan --------------------- Name: William Brusslan EX-10.20 10 DEVELOPMENT AGREEMENT [Arby's Logo] SYBRA, INC. DEVELOPMENT AGREEMENT ARBY'S, INC. DEVELOPMENT AGREEMENT TABLE OF CONTENTS PAGE 1 GRANT .............................................1 2. TERM ..............................................1 3. DEVELOPMENT FEE ...................................1 4. DEVELOPMENT SCHEDULE ..............................2 5. LOCATION OF RESTAURANTS ...........................2 6. SITE ACCEPTANCE ...................................2 7. DISCLAIMER ........................................2 8. LOCATION REQUIREMENTS .............................2 9. CONSTRUCTION ......................................3 l0. TRAINING...........................................3 11. LICENSE AGREEMENT..................................4 12. NO RIGHT TO OPERATE OR USE TRADEMARKS..............4 13. TERMINATION........................................4 14. EFFECT OF EXPIRATION OR TERMINATION................5 15. CONFIDENTIALITY....................................5 16. ASSIGNMENT.........................................5 17. NEW DEVELOPMENT AGREEMENT..........................6 18. GOVERNING LAW AND FORUM SELECTION..................6 19. DEVELOPER'S ACKNOWLEDGEMENTS.......................6 20. ENTIRE AGREEMENT...................................6 ATTACHMENTS EXHIBIT "A" - TERRITORY ............................. 7 EXHIBIT "B" - DEVELOPMENT SCHEDULE .................. 11 EXHIBIT "C" - PAYMENT SCHEDULE ...................... 12 EXHIBIT "D" - ADDITIONAL TERMS & CONDITIONS ......... 13 EXHIBIT "E" - LETTER DATED OCTOBER 30,1997 .......... 15 DEVELOPMENT AGREEMENT This is a Development Agreement ("Agreement") made in Fort Lauderdale, Florida, by and between ARBY'S, INC., a Delaware corporation with its principal office at 1000 Corporate Drive. Fort Laud., Florida 33334 ("Arby's"), and SYBRA, INC., a Michigan corporation with its principal office located at 8300 Dunwoody Place, Suite 300, Atlanta, Georgia, 30350-1296 ("Developer"). WHEREAS, Arby's owns a number of trademarks and service marks, including the trademark "ARBYS," and is a franchisor of Arby's Restaurants, which serve roast beef sandwiches and other food items; and WHEREAS, Developer desires the exclusive rights to develop Arby's Restaurants within the geographic area specified in this Development Agreement for the limited term of this Agreement; and WHEREAS, Arby's is willing to grant such rights in accordance with the terms and conditions of this Agreement; NOW, THEREFORE, it is mutually agreed as follows: 1. GRANT. Arby's hereby grants to Developer during the term of this Development Agreement and subject to the conditions hereof the exclusive right to develop Arby's Restaurants in the limited geographical area identified and set forth in Exhibit A hereto, exclusive of any Unit Trading Area or Protected Area located therein as defined in any License or Franchise Agreements currently issued to other parties; this geographical area shall be referred to as the "Territory." The operation of the restaurants developed pursuant to this Agreement will be governed by individual License Agreements issued by Arby's in accordance with Section II below. So long as Developer is in compliance with the terms and conditions of this Agreement, Arby's will not license others to operate, nor will it itself operate, any new or additional Arby's Restaurants in the Territory during the term of this Agreement. 2. TERM. Unless earlier terminated pursuant to Section 13, this Development Agreement shall expire ten (10) years and (2) months from the date of execution of this Agreement by Arby's or upon the execution by Arby's of the License Agreement for the last of the restaurants specified in Exhibit B (the "Development Schedule"), whichever first occurs. 3. DEVELOPMENT FEE. Upon execution of this Development Agreement, Developer agrees to pay to Arby's a fee of One Million Five Hundred Thousand dollars $1,500,000.00 (the "Development Fee"). This Development Fee represents two hundred and twenty thousand dollars ($220,000.00) applied from the former Development Agreement dated November 13, 1996, one hundred eighty thousand dollars ($180,000.00) applied from the transfer fee in the April 14, 1997 letter agreement between Developer and Arbys, and fifty thousand dollars ($50,000.00) payable upon execution of this development agreement and the agreed upon payment schedule specified in Exhibit C (the "Payment Schedule"). This Development Fee shall be fully earned by Arby's in consideration of its execution of this Agreement and shall be non-refundable. However, Arby's shall credit $10,000 of the Development Fee toward payment of the License Fee for each of the one hundred and fifty (150) License Agreements issued to Developer pursuant to this Development Agreement, provided that the applicable restaurants are constructed and opened in accordance with the Development Schedule. 4. DEVELOPMENT SCHEDULE. Developer shall open and continuously operate properly licensed Arby's Restaurants in accordance with the Development Schedule set forth in Exhibit B. In the event that Developer opens and continuously operates a greater number of Arby's Restaurants than required during any interim period of the Development Schedule, the requirements of the succeeding period(s) shall be deemed satisfied to the extent of such excess number of restaurants, up to the total number of restaurants specified in the Development Schedule. 5. LOCATION OF RESTAURANTS. Developer is responsible for locating proposed sites within the Teritory for each of the restaurants contemplated in the Development Schedule; during the term of this Agreement, Developer shall use its best efforts to locate suitable sites. Arby's may in its discretion offer counseling and advice in site selection. In no event, however, shall Arby's be obligated to loan money, guarantee leases, provide financing or otherwise become directly involved and/or obligated to Developer or to any third party in respect of such site selection or development; these activities and undertakings shall be the exclusive responsibility of Developer, financially and otherwise. 6. SITE ACCEPTANCE. Upon selection by Developer of a proposed site for a restaurant, Developer promptly shall submit to Arby's such specific site data and demographic and other information concerning the site as may be reasonably required by Arby's, utilizing such forms as may be required by Arby's. Arby's shall either accept or reject such site in accordance with Arby's then-current site selection policies and procedures. To be effective, any acceptance must be in writing. Developer understands and acknowledges that Arby's may reject any proposed site, in which event Developer will not proceed at the rejected site, but will seek to locate an acceptable site. The acquisition in any manner of any proposed site prior to acceptance by Arby's shall be at the sole risk and responsibility of Developer and shall not obligate Arby's in any way to accept same. 7. DISCLAIMER. In executing this Development Agreement, accepting a proposed site, giving approvals or advice or providing services or assistance in connection with this Development Agreement, Arby's does not guarantee the suitability of an accepted site or the success of any Arby's restaurant established at such site. Arby's expressly disclaims any warranties, express or implied, with respect to the suitability of any site or the success of any restaurant. Developer understands and acknowledges that the suitability of a site and the success of any restaurant depend on many factors outside the control of either Arby's or Developer (such as interest rates, unemployment rates, demographic trends and the general economic climate), but principally depend on Developer's efforts in the operation of the restaurant. 8. LOCATION REQUIREMENTS. As a condition for accepting a proposed site, Arby's may require Developer to negotiate a lease or sales contract that includes certain reasonable terms regarding duration or other specified matters. Developer understands and acknowledges that a site acceptance may be conditioned on such matters and that if Developer does not wish to, or cannot, satisfy the pertinent conditions within a reasonable time, the site will be deemed rejected. 9. CONSTRUCTION. Upon receiving acceptance for a proposed site, Developer shall excercise it's best efforts to proceed promptly to secure control of the accepted site and to obtain necessary zoning and building approvals and permits. At Arby's request, Developer shall furnish documentation satisfactorily to Arby's evidencing such best efforts. Arby's will provide generic plans for the Arby's-approved building, including specifications for fixtures, furnishings, signs and equipment. Developer must hire an architect and general contractor to adopt these generic plans to the accepted site and must submit proposed final working plans to Arby's for approval within the time limits set by Arby's. Developer shall not proceed with construction or remodeling until Developer has received Arby's written approval of the final working plans. Developer shall ensure that the building is constructed or remodeled in accordance with the final working plans and specifications designated and approved by Arby's. Developer will allow Arby's to make periodic inspections and will provide such periodic progress reports as may be requested by Arby's. 10. TRAINING. Unless Developer already is operating at least one Arby's restaurant, Developer, a partner of Developer if Developer is a partnership, or the majority shareholder of Developer if Developer is a corporation, must complete Arby's New Owner's Training Program prior to issuance of the License Agreement for the first restaurant set forth in the Development Schedule. In addition, if Developer is not operating any Arby's restaurants prior to Issuance of the License Agreement for the first restaurant set forth in the Development Schedule, two representatives of Developer must attend and be certified at Arby's Restaurant Management Training Program prior to issuance of the License Agreement for the first restaurant under the Development Schedule, another representative of Developer must attend and be certified prior to issuance of the License Agreement for the second restaurant under the Development Schedule, and Arby's in its sole discretion and prior to issuance of any further License Agreements for additional restaurants may require additional representatives of Developer to attend and be certified at the Restaurant Management Training Program or complete another comparable program approved in advance by Arby's. If Developer is an individual who intends to participate in the daily operation of the restaurant, or if Developer includes a partner or shareholder who intends to participate in the daily operation of the restaurant, that person must attend and be certified at the Restaurant Management Training Program as one of Developer's first two representatives. If Developer already is operating one, but only one, Arby's restaurant prior to issuance of the License Agreement for the first restaurant under the Development Schedule, one additional representative of Developer must attend and be certified at the Restaurant Management Training Program prior to issuance of the License Agreement for the first restaurant under the Development Schedule, and Arby's in its sole discretion and prior to issuance of any further License Agreements for additional restaurants may require additional representatives of Developer to attend and be certified at the Restaurant Management Training Program or complete another comparable program approved in advance by Arby's. If Developer already is operating two or more Arby's restaurants prior to issuance of the License Agreement for the first restaurant under the Development Schedule, Arby's in its sole discretion and prior to issuance of any License Agreement under the Development Schedule, may require an additional representative to attend and be certified at the Restaurant Management Training Program or complete another comparable training program approved in advance by Arby's. Arby's will pay tuition for training at the New Owner's Training Program and the Restaurant Management Training Program; all other expenses shall be the sole responsibility of Developer. 11. LICENSE AGREEMENT. No Arby's Restaurant may be opened or operated by Developer under any circumstances until the required License Fee has been paid and the License Agreement for such location has been executed by Arby's. The License Fee shall be thirty-seven thousand and five hundred dollars ($37,500) for Developer's first License Agreement, and twenty-five thousand dollars ($25,000) for each subsequent License Agreement. The License Fee for each License Agreement must be paid at least thirty (30) days prior to scheduled execution of the Agreement. All License Agreements issued pursuant to this Development Agreement will contain generally the same terms and conditions as are being offered to other licensees similarly situated at time of issuance, including without limitation those terms and conditions pertaining to royalties and other fees and duration of the Agreement; as a condition of Arby's execution of such License Agreement, Arby's may require Optionee or its principles to execute a corporate letter of credit or corporate guarantee to secure payment of royalties and other fees required to be paid under the License Agreement. Developer shall comply with Arby's then-current franchising policies and procedures for issuance of the License Agreements. Arby's shall be under no obligation to execute and issue a License Agreement if Developer is in breach or default of any other License or Franchise Agreement between Arby's and Developer, or if Developer is not eligible for expansion pursuant to Arby's then-current criteria for expansion. In addition, Arby's shall be under no obligation to execute and issue a License Agreement unless Developer has complied in a timely manner with all terms and conditions of this Development Agreement and has satisfied all requirements set forth herein (including construction and training requirements) with respect to the pertinent accepted site. If and when a License Agreement is executed by Arby's, it shall govern the relations between the parties with respect to the pertinent restaurant. 12. NO RIGHT TO OPERATE OR USE TRADEMARKS. Developer acknowledges that until a License Agreement has been issued for a specified site, Developer shall not have or be entitled to exercise any of the rights, powers and privileges granted by the License Agreement, including without limitation the right to use Arby's trademarks, service marks and trade names; that the execution of this Development Agreement shall not be deemed to grant any such rights, powers or privileges to Developer; and that Developer may not under any circumstances commence operation of any Arby's restaurant prior to execution by Arby's of a License Agreement for the pertinent location. 13. TERMINATION. This Agreement shall terminate immediately and without notice to either party upon: (a) the death of Developer, if Developer is an individual; or (b) the commencement of any proceedings by or against Developer under the Bankruptcy Act, under any Chapter thereof or amendment thereto, or under any other insolvency act, whether federal or state; the appointment of any trustee or receiver for the business or property of Developer; or any assignment by Developer for the benefit of creditors. Arby's shall have the right at its election to terminate this Agreement immediately upon notice to Developer, upon the occurrence of any of the following: (a) failure to comply with the Development Schedule; (b) the attempted assignment of this Agreement without the prior written approval of Arby's; (c) if Developer is a corporation or a partnership, the transfer of more than 30% of the capital stock or partnership interest of such corporation or partnership during the term of this Agreement without the prior written approval of Arby's; (d) the discovery by Arby's of any material misrepresentation in any of the information or documents submitted to Arby's by or on behalf of Developer; (e) any violation by Developer of any of the provisions of this Agreement; or (f) the termination by Arby's of any License or Franchise Agreement or other agreement between Arby's and Developer or Developer's failure to cure a default under any other agreement between Arby's and Developer within the time specified by Arby's. For purposes of Sections 11 and 13 herein, any License or Franchise Agreements issued to Developer, any affiliated company of Developer or any corporation, partnership or joint venture (or their affiliates) in which Developer or any stockholder, partner or joint venture of Developer, direct or indirect, has any interest of ownership or participation, regardless of location, shall be deemed an Agreement between Arby's and Developer. 14. EFFECT OF EXPIRATION OR TERMINATION. Upon expiration or completion of this Development Agreement, or upon termination for any reason, the rights granted to Developer pursuant to Section 1 of this Development Agreement shall be extinguished immediately. Unless the parties have executed a new development agreement, Arby's thereafter shall have the right to operate or permit others to operate Arby's Restaurants within the Territory, except as limited by the Unit Trading Area or Protected Area provisions of any then-effective License or Franchise Agreements. 15. CONFIDENTIALITY. At all times during the term of this Agreement, and after termination of this Agreement for any reason, Developer (and if a corporation or partnership, its shareholders, directors, and officers or partners, as individuals) shall not divulge, disclose or communicate, directly or indirectly, to any other person or entity any confidential or proprietary information or knowledge obtained from Arby's. 16. ASSIGNMENT. This Agreement shall inure to the benefit of and be binding upon Arby's, its successors and assigns. However, neither this Agreement nor any of Developer's rights hereunder shall be assignable or transferable by Developer, directly or indirectly, by operation of law or otherwise, without prior written approval from Arby's, which approval shall not be unreasonably withheld. 17. NEW DEVELOPMENT AGREEMENT. If Developer wishes to negotiate a new development agreement with Arby's with respect to further development of Arby's Restaurants in the Territory, Developer must so advise Arby's in writing sixty (60) days before the expiration date of this Development Agreement or sixty (60) days before the anticipated date of execution of the License Agreement for the final restaurant under the Development Schedule in Exhibit B. Subject to receipt of such notice and so long as this Development Agreement is in effect and Developer is not and has not been in default under this Development Agreement or any License or Franchise Agreement or other agreement with Arby's, Arby's then will negotiate in good faith with Developer with respect to a new development agreement during the remainder of the term of the Development Agreement. 18. GOVERNING LAW AND FORUM SELECTION. This Agreement shall be governed, construed and interpreted in accordance with the laws of the State of Florida. In the event of any dispute concerning the parties' rights or obligations under this Agreement, Developer agrees to file any suit against Arby's only in the federal or state court having jurisdiction where Arby's principal office is then located. 19. DEVELOPER'S ACKNOWLEDGEMENTS. Developer understands and acknowledges that there are significant risks in any business venture and that the primary factor in Developer's success or failure under this agreenment will be Developer's own efforts. In addition, Developer's acknowledges that Arby's and its representatives have made no representations to Developer other than or inconsistent with the matters set forth in the Franchise Offering Circular provided to Developer and that Developer has undertaken this venture solely in reliance upon the matters set forth in the Franchise Offering Circular and Developer's own independent investigation of the merits of this venture. 20. ENTIRE AGREEMENT. This Development Agreement contains the entire agreement between the parties and shall not be modified except by a written document executed by both parties. WITNESS: DEVELOPER: SYBRA, INC. /s/ Janice M. Parker By: /s/ James R. Arabia - ------------------- ------------------- James R. Arabia Chairman of the Board & President Date: 11/17/97 ------------------ WITNESS: ARBY'S, INC. [ILLEGIBLE] - ------------------- By: /s/ Kenneth A. Thomas ---------------------- Kenneth A. Thomas Senior Vice President & CFO Date: 11/17/97 ------------------- EX-27 11 FDS 5
5 $US 9-MOS Dec-31-1997 May-1-1997 Dec-31-1997 1 4,418 0 530 0 1,372 9,142 30,218 5,522 75,264 14,148 0 0 0 24 0 75,264 73,787 75,006 19,808 72,462 0 0 3,661 (1,117) (253) 0 0 0 0 (864) (.31) (.31)
-----END PRIVACY-ENHANCED MESSAGE-----