-----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, DhpauyLwdSx0OTTFo535DK9ZO2ob+UHll9E3Q1+5im9Didu4/ygjoXeDdKOKpvT3 OUNuNn4Z3+8hl32L9v2LNA== 0000068270-97-000010.txt : 19970827 0000068270-97-000010.hdr.sgml : 19970827 ACCESSION NUMBER: 0000068270-97-000010 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 12 CONFORMED PERIOD OF REPORT: 19960531 FILED AS OF DATE: 19970826 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: RUBY TUESDAY INC CENTRAL INDEX KEY: 0000068270 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-EATING PLACES [5812] IRS NUMBER: 630475239 STATE OF INCORPORATION: GA FISCAL YEAR END: 0605 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 001-12454 FILM NUMBER: 97669691 BUSINESS ADDRESS: STREET 1: 4721 MORRISON DR STREET 2: P O BOX 160266 CITY: MOBILE STATE: AL ZIP: 36625 BUSINESS PHONE: 2053443000 FORMER COMPANY: FORMER CONFORMED NAME: MORRISON RESTAURANTS INC/ DATE OF NAME CHANGE: 19930923 FORMER COMPANY: FORMER CONFORMED NAME: MORRISON INC /DE/ DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: MORRISON CAFETERIAS CONSOLIDATED INC DATE OF NAME CHANGE: 19680605 10-K405 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended May 31, 1997 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED) For the transition period from to Commission file number 1-12454 RUBY TUESDAY, INC. (Exact name of Registrant as specified in its charter) GEORGIA 63-0475239 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 4721 Morrison Drive, Mobile, Alabama 36609 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (334)344-3000 SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: Name of each exchange Title of each class on which registered $0.01 par value Common Stock New York Stock Exchange SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: None (Title of class) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such 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, based upon the closing sale price of Common Stock on August 4, 1997 as reported on the New York Stock Exchange, was approximately $380,296,315. The number of shares of the Registrant's common stock outstanding at August 4, 1997 was 17,098,350. DOCUMENTS INCORPORATED BY REFERENCE: Portions of the Registrant's Annual Report to Shareholders for the fiscal year ended May 31, 1997 are incorporated by reference into Parts I and II. Portions of the Registrant's definitive proxy statement dated August 25, 1997 are incorporated by reference into Part III. INDEX PART I Page Number Item 1. Business 4 - 9 Item 2. Properties 9 -10 Item 3. Legal Proceedings 10 Item 4. Submission of Matters to a Vote of Security Holders 11 Executive Officers of the Company 11-12 PART II Item 5. Market for the Registrant's Common Equity and Related Shareholder Matters 12 Item 6. Selected Financial Data 12 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 13 Item 8. Financial Statements and Supplementary Data 13 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 13 PART III Item 10. Directors and Executive Officers of the Registrant 13-14 Item 11. Executive Compensation 14 Item 12. Security Ownership of Certain Beneficial Owners and Management 14 Item 13. Certain Relationships and Related Transactions 14 PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 14-21 PART I Item 1. Business. General Prior to March 9, 1996, Ruby Tuesday, Inc. (the "Company") was known as Morrison Restaurants Inc. ("Morrison"). Morrison operated three businesses in the foodservice industry. These businesses were organized into two operating groups, the Ruby Tuesday Group, consisting of the Company's casual dining concepts, and the Morrison Group which was comprised of Morrison's family dining restaurant and health care food and nutrition services businesses. On March 7, 1996, the shareholders of Morrison approved the distribution (the "Distribution") of its family dining restaurant business (Morrison Fresh Cooking, Inc. ("MFCI")) and its health care food and nutrition services business (Morrison Health Care, Inc. ("MHCI")) to its shareholders effective March 9, 1996. In conjunction with the Distribution, the Company reincorporated in the state of Georgia, effected a one-for-two reverse stock split of its common stock and changed its name to Ruby Tuesday, Inc. The first Ruby Tuesday restaurant was opened in 1972 in Knoxville, Tennessee near the campus of the University of Tennessee. The Ruby Tuesday concept, with 16 operational units, was acquired by Morrison in 1982. During the following years, Morrison added other casual dining concepts, including the internally-developed Mozzarella's American Cafe ("Mozzarella's", formerly "Silver Spoon") and L&N Seafood Grill ("L&N"). In June 1994, Morrison's Board of Directors approved the plan to phase out the L&N concept in an attempt to align all of the concepts into the strategic focus of "feeding America for under $10." A majority of the L&Ns were converted primarily to either Ruby Tuesday or Mozzarella's restaurants and the remaining locations were either sold or closed. Based on favorable operating results, Morrison subsequently decided to continue to operate four of the L&N units as L&N's through the remainder of their lease terms. In January 1995, Morrison completed the acquisition of Tias, Inc., a chain of Tex-Mex restaurants, which allowed it to enter into one of the fastest growing segments of the casual dining market. The information presented below relates to the business of the Company following the Distribution unless the context otherwise requires. Operations The Company operates three separate and distinct casual dining concepts comprised of Ruby Tuesday, Mozzarella's and Tia's. As of May 31, 1997, the Company operated 393 casual dining restaurants in 33 states. Ruby Tuesday Ruby Tuesdays are casual, full-service restaurants with mahogany woods and whimsical artifacts, classic brass and Tiffany lamps which create a comfortable, nostalgic look and feel. This year the Company continued to focus on making Ruby Tuesdays feel even more fun and a little more casual, with black and white checked table cloths, servers dressed in red polo shirts, black pants, and short black aprons, and lighter, brighter wall colors. Ruby Tuesday's menu is based on variety, with something for just about everyone. Some of Ruby Tuesday's most popular entree items which are prepared fresh daily are: fajitas, baby-back ribs, chicken entrees, soups, sandwiches, salad bar, and signature Tallcake desserts in strawberry and chocolate-Oreo varieties. Entree selections range in price from $4.99 to $12.99. At May 31, 1997, the Company operated 325 Ruby Tuesday units concentrated primarily in the Southeast, Northeast, Mid-Atlantic and Midwest. Ruby Tuesday is the Company's primary growth vehicle. The Company intends to open approximately 36 additional units in fiscal 1998 with the majority of new units expected to be opened in existing markets. While the concept has historically been mall-based, current development plans call for approximately 85% of new units to be freestanding. Existing prototypes range in size from 4,500 to 5,500 square feet with seating for 170 to 205 guests. Located on smaller, and therefore less expensive, parcels of land, the Company's new 4,500 square-foot, 185-seat units are more efficient and cost less to build. They are being operated by Managing Partners who have a financial stake in the success of their restaurants and generate average- unit volume that exceeds the system average. Because they cost less to open but are able to generate sales at the same level as larger units, the Company believes they provide the opportunity for improved unit-level returns on investment. Other than population and traffic volume, site criteria requirements for new units include annual household incomes ranging from $30,000 to $50,000 and good accessibility and visibility of the location. Mozzarella's American Cafe Mozzarella's is a Company-developed, full-service restaurant with a menu that features a variety of pastas and thin-crust gourmet pizzas, along with made-from-scratch soups, entree salads and sandwiches, fresh seafood selections, prime steak and grilled chicken all prepared with signature recipes. Entree selections range in price from $5.49 to $12.99. Mozzarella's decor is upbeat and colorful with polished wood trim and paneling, European poster art, strings of overhead lights and tile floors. Displays of olive oil, tomatoes, pasta and other food products contribute to the appeal of the restaurant. Servers approach the guests dressed in white button-down shirts and black trousers accented with a colorful tie. Mozzarella's are primarily located in the Southeast and Mid-Atlantic with particular concentration in the Washington, D.C. area, Florida and Virginia. At May 31, 1997, the Company operated 48 Mozzarella's. The Company intends to open approximatley two units in fiscal 1998 in order to concentrate on improving the operational efficiency and effectiveness of existing units. The current prototype for new restaurants is 5,300 square feet and seats approximately 190 visitors. Tia's Tex-Mex Tia's, the Company's newest concept, is a full-service, casual dining restaurant. The decor is reminiscent of an authentic Mexican restaurant with chandeliers replicating those of an old Mexican hotel and colors, textures and artifacts that reflect the restaurants' genuine Southwestern heritage. Tortillas are made by hand in a display station which contributes to Tia's unique atmosphere. Tia's menu items, which are all fresh and made from scratch, include an array of traditional Tex-Mex favorites such as: fajitas, enchiladas, tacos, nachos and quesadillas and a selection of unique grilled and sauteed dishes. The menu also provides the guest with a variety of appetizers and desserts. Entree items range in price from $4.49 to $16.49. Chips are cooked fresh throughout the day and served with just-made salsa to every guest. Each guest is greeted by a casually dressed server wearing a red polo shirt, blue jeans and a short black apron. The Company had 20 Tia's operational at the end of fiscal 1997 and plans to open approximately three units in fiscal 1998. New and existing units are located in the Southwest, Southeast and Mid-Atlantic regions. New units will have approximately 6,112 square feet with seating capacity for 215 visitors. New Tia's restaurants are considered in areas with annual household incomes greater than $40,000, with sites which are visible, accessible and meet certain population and traffic criteria. Franchising In fiscal year 1997, the Company began identifying a group of potential restaurant owners-internal and external-to become Ruby Tuesday franchisees. The franchise program, the Company's external partnership program, allows the Company to become a financial partner with approximately ten regional restaurant operators from the casual-dining industry who are expected to build approximately ten units each over the next five years in new and existing markets. In addition, the domestic franchise program calls for the selling and franchising of certain Company-owned locations outside the Company's priority-growth markets. Pursuant to this program, in July 1997, the Company entered into a series of agreements with three limited partnerships providing, among other things, for the sale of 29 Company- owned units in Florida. After completion of the sale, these units will be operated as Ruby Tuesday restaurants under franchising agreements. The Company will also pursue the continuation of international license and franchise development with large and experienced partners in broad geographic territories. The Company's first domestic franchise opened in May 1997, while Jardine Pacific operates four Ruby Tuesdays in Hong Kong. Research and Development The Company does not engage in any material research and development activities. The Company, however, engages in on-going studies in connection with the development of menu items for all of its restaurant concepts. Additionally, it conducts consumer research to determine guest preferences, trends, and opinions. Raw Materials Raw materials essential to the operation of the Company's business are obtained through MRT Purchasing, LLC ("MRT"). MRT was organized to serve as a purchasing cooperative to allow the Company, MHCI, and MFCI to pool their collective purchasing power and to coordinate the purchase of certain food, equipment and services. The Company is obligated to purchase all core products through MRT arrangements; non-core products may be purchased independently. The Company is committed to this purchasing arrangement for an initial term of five years from March 9, 1996, the effective date of the Distribution, and the agreement will automatically renew for additional five-year terms. The Company may terminate its participation in these purchasing arrangements upon six months prior written notice, provided it continues to honor its purchase commitments under any then existing contracts to which MRT is a party that extend beyond the termination date. Raw materials are purchased by MRT principally from Specialty Distribution (a division PYA/Monarch) under a cost-plus arrangement. The purchases from Specialty Distribution are in accordance with a Supply Agreement entered into on July 8, 1988, as amended. Purchasing obligations have been allocated to the Company, MHCI, and MFCI based on past practice. If Specialty Distribution is unable to meet the Company's supply needs, the Company negotiates directly with primary suppliers to obtain competitive prices. The Company uses purchase commitment contracts to stabilize the potentially volatile pricing associated with certain commodities. Because of the relatively short storage life of inventories, limited storage facilities at the restaurants themselves, the Company's requirement for freshness and the numerous sources of goods, a minimum amount of inventory is maintained at the units. If necessary, all essential food, beverage and operational products are available and can be obtained from alternative suppliers in all cities in which the Company operates. Trademarks of the Company The Company has registered certain trademarks and service marks, with the United States Patent and Trademark Office, including Ruby Tuesdayr, Mozzarella'sr, and Tia'sr. The Company believes that these and other related marks are of material importance to the Company's business. Registrations of the trademarks listed above expire from 2004 to 2005, unless renewed. Seasonality The Company's business is moderately seasonal. Average restaurant sales of the Company are slightly higher during the winter months than during the summer months as the Company is currently concentrated in mall-based units which generally peak during the holiday season. Freestanding restaurant sales are higher in the summer months Customer Dependence No material part of the business of the Company is dependent upon a single customer, or very few customers, the loss of any one of which would have a material adverse effect on the Company. Competition The Company's activities in the restaurant industry are subject to vigorous competition relating to restaurant location and service, as well as quality, variety and value perception of the food products offered. The Company is in competition with other food service operations, with locally- owned operations, as well as national and regional chains that offer the same type of services and products as the Company. Government Compliance The Company is subject to various licensing requirements and regulations at both the state and local levels for items such as zoning, land use, sanitation, alcoholic beverage control, and health and fire safety, all of which could delay the opening of a new restaurant or the operation of an existing unit. The Company's business is subject to various other regulations at the federal level such as health care, minimum wage, and fair labor standards. Compliance with these regulations has not had, and is not expected to have, a material adverse effect on the Company's operations. There is no material portion of the Company's business that is subject to renegotiation of profits or termination of contracts or sub-contracts at the election of the Government. Environmental Compliance Compliance with federal, state and local laws and regulations which have been enacted or adopted regulating the discharge of materials into the environment, or otherwise relating to the protection of the environment, is not expected to have a material effect upon the capital expenditures, earnings or competitive position of the Company. Personnel The Company employs approximately 10,900 full-time and 13,500 part-time employees. The Company believes working conditions are favorable and employee compensation is comparable with its competition. None of the Company's employees are covered by a collective bargaining agreement International Operations On March 30, 1995, the Company entered into a development agreement (the "Agreement") with Jardine Pacific Restaurants Group Limited (the "Developer") to open a minimum of eight, 20, and 38 Ruby Tuesday restaurants in the Asia- Pacific region by the end of the third, sixth, and tenth anniversaries of the date of the Agreement, respectively. Under the terms of the Agreement the Company is to receive a licensing fee on the first seven Ruby Tuesday restaurants opened by the Developer in the Asia-Pacific region and royalties from all units, derived as applicable, from sales or profits as defined in the Agreement. As of May 31, 1997, the Developer had opened two Ruby Tuesday restaurants. Two additional units have opened since that date. The Company does not expect this Agreement to have a material effect on future operations, nor is it currently engaged in material operations in foreign countries. All Company-owned operations are located within the United States; however, in conjunction with the franchise program discussed above, the Company established a new International Division in 1997. Our International Division is developing relationships with large companies around the world for global expansion of the Ruby Tuesday brand that builds on our initial development success in Hong Kong. Item 2. Properties. Information regarding the locations of the Company's Ruby Tuesdays, Mozzarella's and Tia's operations is shown in the list below. Of the 393 Company-operated restaurants as of May 31, 1997, the Company owned the building and held long-term land leases for 46 restaurants, owned the land and building for 54 restaurants, and held leases covering land and building for 293 restaurants. Administrative personnel of the Company are located in the executive and administrative headquarters building located in Mobile, Alabama. The administrative headquarters has a lease term ending in 1998 and provides an option to purchase at a nominal amount at the end of the initial lease term. This building was financed through the sale of Industrial Development Revenue Bonds from the Industrial Development Board of the City of Mobile, Alabama. Additional information concerning the properties of the Company and its lease obligations is incorporated herein by reference to Note 6 of the Notes to Consolidated Financial Statements included in the Annual Report to Shareholders for the fiscal year ended May 31, 1997. As of May 31, 1997, the Company operated 393 restaurants, including 325 Ruby Tuesday, 48 Mozzarella's American Cafes and 20 Tia's Tex-mex restaurants in the following locations: Alabama (23) Kansas (1) New Jersey (11) Arizona (4) Kentucky (2) New York (23) Arkansas (3) Louisiana (4) North Carolina (7) Colorado (9) Maine (1) Ohio (14) Connecticut (9) Maryland (19) Oklahoma (1) Delaware (3) Massachusetts (6) Pennsylvania (20) Florida (56) Michigan (17) Rhode Island (1) Georgia (34) Minnesota (3) South Carolina (9) Illinois (10) Mississippi (5) Tennessee (29) Indiana (6) Missouri (8) Texas (14) Iowa (1) Nebraska (2) Virginia (38) Item 3. Legal Proceedings. The Company is currently, and from time to time, subject to pending claims and lawsuits arising in the ordinary course of its business. In addition, the Company, as successor to Morrison Restaurants Inc., is a party to a case (Morrison Restaurants Inc. v. United States of America, et al.), originally filed by Morrison in 1994 to claim a refund of taxes paid in the amount of approximately $3,000 and abatement of taxes assessed by the Internal Revenue Service ("IRS") against Morrison on account of the employer's share of FICA taxes on unreported tips allegedly received by employees. The IRS filed a counterclaim for approximately $7,000 in additional taxes. The case was decided favorably by the Company in February, 1996 on summary judgment. The IRS appealed the District Court's decision and, on August 12, 1997 the U.S. Court of Appeals for the Eleventh Circuit reversed the award of summary judgment and remanded the case to the District Court for proceedings consistent with the Court's opinion. In its reversal, the Eleventh Circuit upheld the IRS' enforcement policy with respect to the employer's share of FICA taxes on allegedly unreported tips. The Company intends to petition the U.S. Court of Appeals for a review of the matter by the full Court and, if necessary, appeal the reversal of the decision. There can be no assurance, however, the that Company's position will prevail. Although the amount in dispute is not material, it is possible that if the Company's position does not prevail, the IRS will attempt to assess taxes in additional units of the Company (as well as other restaurant companies). In the event the IRS' enforcement policy with respect to such assessments is ultimately upheld, the Company believes that a dollar-for-dollar business tax credit would be available to the Company to offset, over a period of four years, any taxes determined to be due. Moreover, the Company is a participant in an IRS enforcement program which would eliminate the risk of additional assessments by the IRS in return for a restaurant employer's proactive role in encouraging employee tip reporting. The protection against additional assessment afforded by the agreement should be available to the Company. In the opinion of management, the ultimate resolution of all pending legal proceedings will not have a material adverse effect on the Company's operations or financial position. Item 4. Submission of Matters to a Vote of Security Holders. None. Executive Officers of the Company. Executive officers of the Company are appointed by and serve at the discretion of the Company's Board of Directors. Information regarding the Company's executive officers as of August 4, 1997 is provided below. Executive Officer Name Age Position with the Company Since S. E. Beall, III 47 Chairman of the Board and 1982 Chief Executive Officer R. D. McClenagan 49 President- Ruby Tuesday 1985 Division P. G. Hunt 61 Senior Vice President, 1972 General Counsel and Secretary J. R. Mothershed 49 Senior Vice President and 1992 Chief Financial Officer, Treasurer and Assistant Secretary M. S. Ingram 44 Senior Vice President, 1996 Human Resources Mr. Beall has been Chairman of the Board and Chief Executive Officer of the Company and prior to the Distribution, Morrison, since May 5, 1995. Mr. Beall served as President and Chief Executive Officer of Morrison from June 6, 1992 to May 4, 1995 and as President and Chief Operating Officer of Morrison from September 1986 to June 1992. Mr. McClenagan has been President of the Ruby Tuesday Division of the Company and prior to the Distribution, Morrison, since March 1994. He served as President of the Ruby Tuesday Group of Morrison from April 1990 to March 1994 and as Senior Vice President of the Specialty Rest- aurant Division of Morrison from March 1985 to April 1990. Mr. Hunt joined Morrison in June 1968 and was named Senior Vice President, General Counsel and Secretary of Morrison in September 1985 and has served in the same capacity at the Company since the Distribution. From December 1984 to September 1985, he served as Vice President, General Counsel and Secretary of Morrison. Mr. Mothershed joined Morrison in July 1972 and was named Senior Vice President, Finance in March 1994. Mr. Mothershed has been Senior Vice President of the Company since the Distribution and in June 1996 was also named Chief Financial Officer of the Company. He served as Vice President, Controller and Treasurer of Morrison from March 1989 until March 1994. Mr. Ingram joined Morrison in September 1979 as a General Manager for Ruby Tuesday. Since that time, Mr. Ingram has held various positions with Morrison and following the Distribution the Company, including Area Director (1982-1987), Regional Vice President for Mozzarella's (1987- 1990), Division Vice President(1990-1994) and Senior Vice President, Operations (1994-1996). Mr. Ingram was promoted to Senior Vice President of Human Resources of the Company in September 1996. PART II Item 5. Market for the Registrant's Common Equity and Related Shareholder Matters. Certain information required by this item is incorporated herein by reference to Note 12 of the Notes to Consolidated Financial Statements of the Registrant's Annual Report to Shareholders for the fiscal year ended May 31, 1997. The Company has not paid dividends to shareholders since the Distribution. During fiscal 1997, the Board of Directors approved a dividend policy as a means of returning excess capital to its shareholders. This policy calls for payment of semi-annual dividends of approximately $3.0 million annually. Accordingly, the Company intends to pay its first dividend beginning in the third quarter of fiscal 1998. Under various financing agreements, the Company has agreed to restrict dividend payments (other than stock dividends) and purchases of its capital stock (collectively, "Restricted Payments") to amounts based on earnings after fiscal year 1996. Specifically, the maximum amount available for Restricted Payments at any time is the excess of shareholders' equity above the amount equal to the sum of $180 million plus 50% (or minus 100% in the case of a deficit) of Consolidated Net Earnings for the period commencing on June 2, 1996, and terminating at the end of the last fiscal quarter preceding the date of any proposed Restricted Payment. At May 31, 1997, the maximum amount of permissible Restricted Payments was $31.1 million. Item 6. Selected Financial Data. The information contained under the caption "Summary of Operations" of the Registrant's Annual Report to Shareholders for the fiscal year ended May 31, 1997 is incorporated herein by reference. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. The information contained under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations" of the Registrant's Annual Report to Shareholders for the fiscal year ended May 31, 1997 is incorporated herein by reference. Item 8. Financial Statements and Supplementary Data. The following consolidated financial statements and the related report of the Company's independent auditors contained in the Registrant's Annual Report to Shareholders for the fiscal year ended May 31, 1997 are incorporated herein by reference: Consolidated Statements of Income - Fiscal years ended May 31, 1997, June 1, 1996 and June 3, 1995. Consolidated Balance Sheets - As of May 31, 1997 and June 1, 1996. Consolidated Statements of Shareholders' Equity - Fiscal years ended May 31, 1997, June 1, 1996 and June 3, 1995. Consolidated Statements of Cash Flows - Fiscal years ended May 31, 1997, June 1, 1996 and June 3, 1995. Notes to Consolidated Financial Statements. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. None. PART III Item 10. Directors and Executive Officers of the Company. (a) The information regarding directors of the Company is incorporated herein by reference to the information set forth in the table captioned "Director and Director Nominee Information" under "Election of Directors" in the definitive proxy statement of the Registrant dated August 25, 1997 relating to the Registrant's annual meeting of shareholders to be held on September 29, 1997. (b) Pursuant to Form 10-K General Instruction G(3), the information regarding executive officers of the Company has been included in Part I of this Report under the caption "Executive Officers of the Company". Item 11. Executive Compensation. The information required by this Item 11 is incorporated herein by reference to the information set forth under the captions "Executive Compensation" and "Directors' Fees and Attendance" in the definitive proxy statement of the Registrant dated August 25, 1997 relating to the Registrant's annual meeting of shareholders to be held on September 29, 1997. Item 12. Security Ownership of Certain Beneficial Owners and Management. The information required by this Item 12 is incorporated herein by reference to the information set forth in the table captioned "Beneficial Ownership of Common Stock" under "Election of Directors" in the definitive proxy statement of the Registrant dated August 25, 1997 relating to the Registrant's annual meeting of shareholders to be held on September 29, 1997. Item 13. Certain Relationships and Related Transactions. None. PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K. (a) The following documents are incorporated by reference into or are filed as a part of this report: 1. Financial Statements: The following consolidated financial statements and the independent auditors' report thereon, included in the Registrant's Annual Report to Shareholders for the fiscal year ended May 31, 1997, a copy of which is contained in the exhibits to this report, are incorporated herein by reference: Page Reference in paper version of Annual Report to Shareholders Consolidated Statements of Income for the fiscal years ended May 31, 1997, June 1, 1996 and June 3, 1995 26 Consolidated Balance Sheets as of May 31, 1997 and June 1, 1996 27 Consolidated Statements of Shareholders' Equity for the fiscal years ended May 31, 1997, June 1, 1996 and June 3, 1995 28 Consolidated Statements of Cash Flows for the fiscal years ended May 31, 1997, June 1, 1996 and June 3, 1995 29 Notes to Consolidated Financial Statements 30-42 Report of Independent Auditors 43 2. Financial Statement Schedules: Financial statement schedules are omitted because they are either not required or the required information is shown in the financial statements or notes thereto. 3. Exhibits The following exhibits are filed as part of this report: RUBY TUESDAY, INC. AND SUBSIDIARIES LIST OF EXHIBITS Exhibit Number Description 3.1 Articles of Incorporation and all mergers of Ruby Tuesday, Inc. (1) 3.2 Bylaws of Ruby Tuesday, Inc.(1) 4.1 Specimen Common Stock Certificate. (1) 4.2 Articles of Incorporation and all mergers of Ruby Tuesday, Inc. (filed as Exhibit 3.1 hereto). (1) 4.3 Bylaws of Ruby Tuesday, Inc. (filed as Exhibit 3.2 hereto). (1) 10.1 Executive Supplemental Pension Plan together with First Amendment made June 30, 1994 and Second Amendment made July 31, 1995.* (2) Exhibit Number Description 10.2 Master Agreement dated as of May 30, 1997 among Ruby Tuesday, Inc., as Lessee and Guarantor, Atlantic Financial Group , LTD., as lessor, AmSouth Bank of Alabama, as a Lender, Barnett Bank of Jacksonville, N.A., as a Lender, First American National Bank, as a Lender, Wachovia Bank of Georgia, N.A., as a Lender, Hibernia National Bank, as a Lender, First Tennessee Bank, as a Lender, and SunTrust Bank, Atlanta, as Agent and as a Lender; together with the Lease Agreement dated as of May 31, 1997 between Atlantic Financial Group, LTD., as lessor and Ruby Tuesday, Inc. as lessee; and the Loan Agreement dated as of May 31, 1997 among Atlantic Financial Group, LTD., as lessor and borrower, the financial institutions party hereto, as lenders, and SunTrust Bank Atlanta, as Agent. 10.3 Morrison Restaurants Inc. Stock Incentive and Deferred Compensation Plan for Directors together with First Amendment dated June 29, 1995.*(3) 10.4 1993 Executive Stock Option Program.* (4) 10.5 1993 Management Stock Option Program (July 1, 1993 - June 30, 1996).* (5) 10.6 [Reserved] 10.7 Morrison Restaurants Inc. 1987 Stock Bonus and Non-Qualified Stock Option Plan, and Related Agreement.* (6) 10.8 Morrison Restaurants Inc. 1993 Non-Executive Stock Incentive Plan.* (7) 10.9 Morrison Restaurants Inc. Deferred Compensation Plan, as restated effective January 1, 1994, together with amended and restated Trust Agreement (dated December 1, 1992) to Deferred Compensation Plan.* (8) 10.10 Supply Agreement Between Morrison Restaurants Inc. and PYA/Monarch, Inc. dated July 8, 1988. (9) 10.11 Letter Agreement dated March 5, 1996 amending Supply Agreement between Morrison Restaurants Inc. and PYA/Monarch, Inc. (1) 10.12 Morrison Restaurants Inc. Management Retirement Plan together with First Amendment made June 30, 1994 and Second Amendment made July 31, 1995.*(10) Exhibit Number Description 10.13 Asset Purchase Agreement dated June 27, 1994, by and among Morrison Restaurants Inc. and Gardner Merchant Food Services, Inc. and the related exhibits to such agreement. (11) 10.14 Morrison Restaurants Inc. Salary Deferral Plan, as amended and restated December 31, 1993, together with First and Second Amendments to the Plan dated October 21, 1994 and June 30, 1995, respectively.* (12) 10.15 Executive Group Life and Executive Accidental Death and Dismemberment Plan.* (13) 10.16 Ruby Tuesday, Inc. Salary Deferral Plan Trust Agreement dated July 1, 1997. 10.17 Ruby Tuesday, Inc. Deferred Compensation Plan Trust Agreement dated July 1, 1997. 10.18 Form of Non-Qualified Stock Option Agreement for Executive Officers Pursuant to the Morrison Restaurants Inc. Stock Incentive Plan.* (14) 10.19 [Reserved] 10.20 [Reserved] 10.21 Amendments to Morrison Restaurants Inc. 1987 Stock Bonus and Non-Qualified Stock Option Plan.* (15) 10.22 Morrison Restaurants Inc. Executive Life Insurance Plan.* (16) 10.23 Distribution Agreement dated as of March 2, 1996 among Morrison Restaurants Inc., Morrison Fresh Cooking, Inc. and Morrison Health Care, Inc. (1) 10.24 Amended and Restated Tax Allocation and Indemnification Agreement dated as of March 2, 1996 among Morrison Restaurants Inc., Custom Management Corporation of Pennsylvania, Custom Management Corporation, John C. Metz & Associates, Inc., Morrison International, Inc., Morrison Custom Management Corporation of Pennsylvania, Morrison Fresh Cooking, Inc., Ruby Tuesday, Inc., a Delaware corporation, Ruby Tuesday (Georgia), Inc., a Georgia corporation, Tias, Inc. and Morrison Health Care, Inc. (1) 10.25 Agreement Respecting Employee Benefit Matters dated as of March 2, 1996 among Morrison Restaurants Inc., Morrison Fresh Cooking, Inc. and Morrison Health Care, Inc. (1) 10.26 License Agreement dated as of March 2, 1996 between Ruby Tuesday (Georgia), Inc. and Morrison Health Care, Inc. (1) Exhibit Number Description 10.27 Amended and Restated Operating Agreement of MRT Purchasing, LLC dated as of March 2, 1996 among Morrison Restaurants Inc., Ruby Tuesday, Inc., Morrison Fresh Cooking, Inc. and Morrison Health Care, Inc. (1) 10.28 Form of 1996 Stock Incentive Plan.* (1) 10.29 Form of Second Amendment to Stock Incentive and Deferred Compensation Plan for Directors.* (1) 10.30 Form of First Amendment to 1993 Non-Executive Stock Incentive Plan.* (1) 10.31 Form of Third Amendment to Executive Supplemental Pension Plan.* (1) 10.32 Form of Third Amendment to Management Retirement Plan.* (1) 10.33 Form of Third Amendment to Salary Deferral Plan.* (1) 10.34 Form of First Amendment to Deferred Compensation Plan.* (1) 10.35 Form of Second Amendment to Retirement Plan.* (1) 10.36 Form of Fourth Amendment to 1987 Stock Bonus and Non-Qualified Stock Option Plan.* (1) 10.37 [Reserved] 10.38 Form of Indemnification Agreement to be entered into with executive officers and directors. (1) 10.39 Form of Change of Control Agreement to be entered into with executive officers.* (1) 10.40 Credit Agreement dated as of March 6, 1996 among Ruby Tuesday (Georgia), Inc., SunTrust Bank, Atlanta, for itself and as Agent and Administrative Agent, and the other lenders signatories thereto. (1) 10.41 Purchase agreement dated July 2, 1997 between Ruby Tuesday, Inc., a Georgia corporation, and RT Orlando Franchise, L.P., d/b/a RT Orlando Franchise Ltd., a Delaware limited partnership. 10.42 Purchase agreement dated July 2, 1997 between Ruby Tuesday, Inc., a Georgia corporation, and RT Tampa Franchise, L.P., d/b/a RT Tampa Franchise Ltd., a Delaware limited partnership. 10.43 Purchase agreement dated July 2, 1997 between Ruby Tuesday, Inc., a Georgia corporation, and RT South Florida Franchise, L.P., d/b/a RT South Florida Franchise Ltd., a Delaware limited partnership. 11 Statement regarding computation of per share earnings. 13 Annual Report to Shareholders for the fiscal year ended May 31, 1997 (Only portions specifically incorporated by reference in the Form 10-K are being filed herewith). Exhibit Number Description 21 Subsidiaries of Registrant. 23 Consent of Independent Auditors. 27 Financial Data Schedule. EXHIBIT FOOTNOTES Exhibit Footnote Description * Management contract or compensatory plan or arrangement. (1) Incorporated by reference to Exhibit of the same number on Form 8-B dated March 15, 1996 of Ruby Tuesday, Inc. (File No. 0-12454). (2) Incorporated by reference to Exhibit 10(b) to Annual Report on Form 10-K of Morrison Restaurants Inc. for the fiscal year ended June 5, 1993 (File No. 0-1750). (3) Incorporated by reference to Exhibit 10(c) to Annual Report on Form 10-K of Morrison Restaurants Inc. for the fiscal year ended June 3, 1995 (File No. 1-12454). (4) Incorporated by reference to Exhibit 10(d) to Annual Report on Form 10-K of Morrison Restaurants Inc. for the fiscal year ended June 3, 1995 (File No. 1-12454). (5) Incorporated by reference to Exhibit 10(e) to Annual Report on Form 10-K of Morrison Restaurants Inc. for the fiscal year ended June 3, 1995 (File No. 1-12454). (6) Incorporated by reference to Exhibit 28.1 to Registration Statement on Form S-8 of Morrison Restaurants Inc. (Reg. No. 33-13593). Exhibit Footnote Description (7) Incorporated by reference to Exhibit 10(h) to Annual Report on Form 10-K of Morrison Restaurants Inc. for the fiscal year ended June 5, 1993 (File No. 0-1750). (8) Incorporated by reference to Exhibit 10(i) to Annual Report on Form 10-K of Morrison Restaurants Inc. for the fiscal year ended June 5, 1993 (File No. 0-1750). (9) Incorporated by reference to Exhibit 10(m) to Annual Report on Form 10-K of Morrison Restaurants Inc. for the fiscal year ended May 28, 1988 (File No. 0-1750). (10) Incorporated by reference to Exhibit 10(n) to Annual Report on Form 10-K of Morrison Restaurants Inc. for the fiscal year ended June 3, 1995 (File No. 1-12454). (11) Incorporated by reference to Exhibit (2) to the Current Report on Form 8-K dated July 27, 1995 of Morrison Restaurants Inc. (File No. 1-12454) (12) Incorporated by reference to Exhibit 10(p) to Annual Report on Form 10-K of Morrison Restaurants Inc. for the fiscal year ended June 3, 1995 (File No. 1-12454). (13) Incorporated by reference to Exhibit 10(q) to Annual Report on Form 10-K of Morrison Restaurants Inc. for the fiscal year ended June 3, 1989 (File No. 0-1750). (14) Incorporated by reference to Exhibit 10(v) to Annual Report on Form 10-K of Morrison Restaurants Inc. for the fiscal year ended June 5, 1993 (File No. 0-1750). (15) Incorporated by reference to Exhibit 10(z) to Annual Report on Form 10-K of Morrison Restaurants Inc. for the fiscal year ended June 4, 1994 (File No. 1-12454). (16) Incorporated by reference to Exhibit 10(a)(a) to Annual Report on Form 10-K of Morrison Restaurants Inc. for the fiscal year ended June 4, 1994 (File No. 1-12454). (b) Reports on Form 8-K None. (c) Exhibits filed with this report are attached hereto. (d) The financial statement schedules listed in subsection (a) (2) above are attached hereto. 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. RUBY TUESDAY, INC. Date 8/25/97 By: /s/ Samuel E. Beall, III Samuel E. Beall, III Chairman of the Board and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated: Date 8/25/97 By: /s/ Samuel E. Beall, III Samuel E. Beall, III Chairman of the Board and Chief Executive Officer Date 8/25/97 By: /s/ J. Russell Mothershed J. Russell Mothershed Senior Vice President, Finance Chief Financial Officer Treasurer and Assistant Secretary Date 8/25/97 By:/s/J.B. McKinnon J. B. McKinnon Director Date 8/25/97 By: /s/ Dr. Donald Ratajczak Dr. Donald Ratajczak Director Date 8/25/97 By:/s/ Dolph W. von Arx Dolph W. von Arx Director Date 8/25/97 By:/s/ Claire L. Arnold Claire L. Arnold Director Date 8/25/97 By:/s/ Arthur R. Outlaw Arthur R. Outlaw Vice-Chairman of the Board Date 8/25/97 By:/s/ Dr. Benjamin F. Payton Dr. Benjamin F. Payton Director RUBY TUESDAY, INC. AND SUBSIDIARIES LIST OF EXHIBITS Exhibit Number Description 3.1 Articles of Incorporation and all mergers of Ruby Tuesday, Inc. (1) 3.2 Bylaws of Ruby Tuesday, Inc.(1) 4.1 Specimen Common Stock Certificate. (1) 4.2 Articles of Incorporation and all mergers of Ruby Tuesday, Inc. (filed as Exhibit 3.1 hereto). (1) 4.3 Bylaws of Ruby Tuesday, Inc. (filed as Exhibit 3.2 hereto). (1) 10.1 Executive Supplemental Pension Plan together with First Amendment made June 30, 1994 and Second Amendment made July 31, 1995.* (2) 10.2 Master Agreement dated as of May 30, 1997 among Ruby Tuesday, Inc., as Lessee and Guarantor, Atlantic Financial Group , LTD., as lessor, AmSouth Bank of Alabama, as a Lender, Barnett Bank of Jacksonville, N.A., as a Lender, First American National Bank, as a Lender, Wachovia Bank of Georgia, N.A., as a Lender, Hibernia National Bank, as a Lender, First Tennessee Bank, as a Lender, and SunTrust Bank, Atlanta, as Agent and as a Lender; together with the Lease Agreement dated as of May 31, 1997 between Atlantic Financial Group, LTD., as lessor and Ruby Tuesday, Inc. as lessee; and the Loan Agreement dated as of May 31, 1997 among Atlantic Financial Group, LTD., as lessor and borrower, the financial institutions party hereto, as lenders, and SunTrust Bank Atlanta, as Agent. 10.3 Morrison Restaurants Inc. Stock Incentive and Deferred Compensation Plan for Directors together with First Amendment dated June 29, 1995.*(3) 10.4 1993 Executive Stock Option Program.* (4) 10.5 1993 Management Stock Option Program (July 1, 1993 - June 30, 1996).* (5) 10.6 [Reserved] 10.7 Morrison Restaurants Inc. 1987 Stock Bonus and Non-Qualified Stock Option Plan, and Related Agreement.* (6) 10.8 Morrison Restaurants Inc. 1993 Non-Executive Stock Incentive Plan.* (7) 10.9 Morrison Restaurants Inc. Deferred Compensation Plan, as restated effective January 1, 1994, together with amended and restated Trust Agreement (dated December 1, 1992) to Deferred Compensation Plan.* (8) 10.10 Supply Agreement Between Morrison Restaurants Inc. and PYA/Monarch, Inc. dated July 8, 1988. (9) 10.11 Letter Agreement dated March 5, 1996 amending Supply Agreement between Morrison Restaurants Inc. and PYA/Monarch, Inc. (1) 10.12 Morrison Restaurants Inc. Management Retirement Plan together with First Amendment made June 30, 1994 and Second Amendment made July 31, 1995.* (10) 10.13 Asset Purchase Agreement dated June 27, 1994, by and among Morrison Restaurants Inc. and Gardner Merchant Food Services, Inc. and the related exhibits to such agreement. (11) 10.14 Morrison Restaurants Inc. Salary Deferral Plan, as amended and restated December 31, 1993, together with amended and restated Trust Agreement (effective January 1, 1994) First and Second Amendments to the Plan dated October 21, 1994 and June 30, 1995, respectively, and the First Amendment to the Trust Agreement made June 30, 1995.* (12) 10.15 Executive Group Life and Executive Accidental Death and Dismemberment Plan.* (13) 10.16 [Reserved] 10.17 [Reserved] 10.18 Form of Non-Qualified Stock Option Agreement for Executive Officers Pursuant to the Morrison Restaurants Inc. Stock Incentive Plan.* (14) 10.19 [Reserved] 10.20 [Reserved] 10.21 Amendments to Morrison Restaurants Inc. 1987 Stock Bonus and Non- Qualified Stock Option Plan.* (15) 10.22 Morrison Restaurants Inc. Executive Life Insurance Plan.* (16) 10.23 Distribution Agreement dated as of March 2, 1996 among Morrison Restaurants Inc., Morrison Fresh Cooking, Inc. and Morrison Health Care, Inc. (1) 10.24 Amended and Restated Tax Allocation and Indemnification Agreement dated as of March 2, 1996 among Morrison Restaurants Inc., Custom Management Corporation of Pennsylvania, Custom Management Corporation, John C. Metz & Associates, Inc., Morrison International, Inc., Morrison Custom Management Corporation of Pennsylvania, Morrison Fresh Cooking, Inc., Ruby Tuesday, Inc., a Delaware corporation, Ruby Tuesday (Georgia), Inc., a Georgia corporation, Tias, Inc. and Morrison Health Care, Inc. (1) 10.25 Agreement Respecting Employee Benefit Matters dated as of March 2, 1996 among Morrison Restaurants Inc., Morrison Fresh Cooking, Inc. and Morrison Health Care, Inc. (1) 10.26 License Agreement dated as of March 2, 1996 between Ruby Tuesday (Georgia), Inc. and Morrison Health Care, Inc. (1) 10.27 Amended and Restated Operating Agreement of MRT Purchasing, LLC dated as of March 2, 1996 among Morrison Restaurants Inc., Ruby Tuesday, Inc., Morrison Fresh Cooking, Inc. and Morrison Health Care, Inc. (1) 10.28 Form of 1996 Stock Incentive Plan.* (1) 10.29 Form of Second Amendment to Stock Incentive and Deferred Compensation Plan for Directors.* (1) 10.30 Form of First Amendment to 1993 Non-Executive Stock Incentive Plan.* (1) 10.31 Form of Third Amendment to Executive Supplemental Pension Plan.* (1) 10.32 Form of Third Amendment to Management Retirement Plan.* (1) 10.33 Form of Third Amendment to Salary Deferral Plan.* (1) 10.34 Form of First Amendment to Deferred Compensation Plan.* (1) 10.35 Form of Second Amendment to Retirement Plan.* (1) 10.36 Form of Fourth Amendment to 1987 Stock Bonus and Non-Qualified Stock Option Plan.* (1) 10.37 [Reserved] 10.38 Form of Indemnification Agreement to be entered into with executive officers and directors. (1) 10.39 Form of Change of Control Agreement to be entered into with executive officers.* (1) 10.40 Credit Agreement dated as of March 6, 1996 among Ruby Tuesday (Georgia), Inc., SunTrust Bank, Atlanta, for itself and as Agent and Administrative Agent, and the other lenders signatories thereto. (1) 10.41 Purchase agreement dated July 2, 1997 between Ruby Tuesday, Inc., a Georgia corporation, and RT Orlando Franchise, L.P., d/b/a RT Orlando Franchise Ltd., a Delaware limited partnership. 10.42 Purchase agreement dated July 2, 1997 between Ruby Tuesday, Inc., a Georgia corporation, and RT Tampa Franchise, L.P., d/b/a RT Tampa Franchise Ltd., a Delaware limited partnership. 10.43 Purchase agreement dated July 2, 1997 between Ruby Tuesday, Inc., a Georgia corporation, and RT South Florida Franchise, L.P., d/b/a RT South Florida Franchise Ltd., a Delaware limited partnership. 11 Statement regarding computation of per share earnings. 13 Annual Report to Shareholders for the fiscal year ended May 31, 1997 (Only portions specifically incorporated by reference in the Form 10-K are being filed herewith). 21 Subsidiaries of Registrant. 23 Consent of Independent Auditors. 27 Financial Data Schedule. RUBY TUESDAY, INC. EXHIBIT FOOTNOTES Exhibit Footnote Description * Management contract or compensatory plan or arrangement. (1) Incorporated by reference to Exhibit of the same number on Form 8-B dated March 15, 1996 of Ruby Tuesday, Inc. (File No.0-12454). (2) Incorporated by reference to Exhibit 10(b) to Annual Report on Form 10-K of Morrison Restaurants Inc. for the fiscal year ended June 5, 1993 (File No. 0-1750). (3) Incorporated by reference to Exhibit 10(c) to Annual Report on Form 10-K of Morrison Restaurants Inc. for the fiscal year ended June 3, 1995 (File No. 1-12454). (4) Incorporated by reference to Exhibit 10(d) to Annual Report on Form 10-K of Morrison Restaurants Inc. for the fiscal year ended June 3, 1995 (File No. 1-12454). (5) Incorporated by reference to Exhibit 10(e) to Annual Report on Form 10-K of Morrison Restaurants Inc. for the fiscal year ended June 3, 1995 (File No. 1-12454). (6) Incorporated by reference to Exhibit 28.1 to Registration Statement on Form S-8 of Morrison Restaurants Inc. (Reg. No. 33-13593). (7) Incorporated by reference to Exhibit 10(h) to Annual Report on Form 10-K of Morrison Restaurants Inc. for the fiscal year ended June 5, 1993 (File No. 0-1750). (8) Incorporated by reference to Exhibit 10(i) to Annual Report on Form 10-K of Morrison Restaurants Inc. for the fiscal year ended June 5, 1993 (File No. 0-1750). (9) Incorporated by reference to Exhibit 10(m) to Annual Report on Form 10-K of Morrison Restaurants Inc. for the fiscal year ended May 28, 1988 (File No. 0-1750). (10) Incorporated by reference to Exhibit 10(n) to Annual Report on Form 10-K of Morrison Restaurants Inc. for the fiscal year ended June 3, 1995 (File No. 1-12454). (11) Incorporated by reference to Exhibit (2) to the Current Report on Form 8-K dated July 27, 1995 of Morrison Restaurants Inc. (File No. 1-12454) (12) Incorporated by reference to Exhibit 10(p) to Annual Report on Form 10-K of Morrison Restaurants Inc. for the fiscal year ended June 3, 1995 (File No. 1-12454). (13) Incorporated by reference to Exhibit 10(q) to Annual Report on Form 10-K of Morrison Restaurants Inc. for the fiscal year ended June 3, 1989 (File No. 0-1750). (14) Incorporated by reference to Exhibit 10(v) to Annual Report on Form 10-K of Morrison Restaurants Inc. for the fiscal year ended June 5, 1993 (File No. 0-1750). (15) Incorporated by reference to Exhibit 10(y) to Annual Report on Form 10-K of Morrison Restaurants Inc. for the fiscal year ended June 4, 1994 (File No. 1-12454). (16) Incorporated by reference to Exhibit 10(a)(a) to Annual Report on Form 10-K of Morrison Restaurants Inc. for the fiscal year ended June 4, 1994 (File No. 1-12454). EX-10.2 2 MASTER AGREEMENT Dated as of May 30, 1997 among RUBY TUESDAY, INC., as Lessee and Guarantor, ATLANTIC FINANCIAL GROUP, LTD., as Lessor, AMSOUTH BANK OF ALABAMA, as a Lender, BARNETT BANK, N.A., as a Lender, FIRST AMERICAN NATIONAL BANK, as a Lender, WACHOVIA BANK OF GEORGIA, N.A., as a Lender, HIBERNIA NATIONAL BANK, as a Lender, FIRST TENNESSEE BANK, as a Lender, and SUNTRUST BANK, ATLANTA, as Agent and as a Lender TABLE OF CONTENTS Page SECTION 1 DEFINITIONS; INTERPRETATION 2 SECTION 2 ACQUISITION, CONSTRUCTION AND LEASE; FUNDINGS; NATURE OF TRANSACTION 2 SECTION 2.1 Agreement to Acquire, Construct, Fund and Lease (a) Land 2 (b) Building 2 SECTION 2.2 Fundings of Purchase Price, Development Costs and Construction Costs 3 (a) Initial Funding and Payment of Purchase Price for Land and Development Costs on Closing Date 3 (b) Subsequent Fundings and Payments of Construction Costs during Construction Term 3 (c) Aggregate Limits on Funded Amounts 3 (d) Notice, Time and Place of Fundings 4 (e) Lessee's Deemed Representation for Each Funding 4 (f) Not Joint Obligations 5 SECTION 2.3 Funded Amounts and Interest and Yield Thereon Unused Fee 5 SECTION 2.4 Lessee Owner for Tax Purposes 6 SECTION 2.5 Amounts Due Under Lease 6 SECTION 3 CONDITIONS PRECEDENT; DOCUMENTS 7 SECTION 3.1 Conditions to the Obligations of the Funding Parties on each Closing Date 7 (a) Documents 7 (i) Deed and Purchase Agreement 7 (ii) Lease Supplement 8 (iii) Mortgage and Assignment of Lease and Rents 8 (iv) Security Agreement and Assignment 8 (v) Survey 9 (vi) Title and Title Insurance 9 (vii) Appraisal 9 (viii) Environmental Audit and related Reliance Letter 10 (ix) Evidence of Insurance 10 (x) Officer's Certificate 11 (xi) UCC Financing Statement; Recording Fees; Transfer Taxes 11 (xii) Opinions 11 (xiii) Officer's Certificate 12 (xiv) Good Standing Certificates 12 (b) Litigation 12 (c) Legality 12 (d) No Events 12 (e) Representations 13 (f) Cutoff Date 13 (g) Transaction Expenses 13 SECTION 3.2 Additional Conditions for the Initial Closing Date 13 (i) Guaranty 13 (ii) Loan Agreement 13 (iii) Master Agreement 13 (iv) Construction Agency Agreement 13 (v) Lease 14 (vi) Lessee's Resolutions and Incumbency Certificate, etc. 14 (vii) Opinions of Counsel 14 (viii) Good Standing Certificate 14 (ix) Lessor's Consents and Incumbency Certificate, etc. 14 SECTION 3.3 Conditions to the Obligations of Lessee 15 (a) General Conditions 15 (b) Legality 15 (c) Purchase Agreement; Ground Lease 15 SECTION 3.4 Conditions to the Obligations of the Funding Parties on each Funding Date 15 (a) Funding Request 15 (b) Condition Fulfilled 15 (c) Representations 16 (d) No Bonded Stop Notice or Filed Mechanics Lien 16 (e) Lease Supplement 16 SECTION 3.5 Completion Date Conditions 16 (a) Title Policy Endorsements; Architect's Certificate 16 (b) Construction Completion 17 (c) Lessee Certification 17 SECTION 4 REPRESENTATIONS 18 SECTION 4.1 Representations of Lessee 18 (a) Organization; Corporate Powers 18 (b) Authority 18 (c) Binding Obligations 18 (d) No Conflict 19 (e) Governmental Consents 19 (f) Governmental Regulation 19 (g) Requirements of Law 20 (h) Rights in Respect of the Leased Property 20 (i) Hazardous Materials 20 (j) Leased Property 21 (k) True and Complete Disclosure 22 (l) Taxes 22 (m) Financial Statements 22 (n) No Material Litigation 22 (o) Margin Regulations 23 (p) Insurance 23 (q) No Default 23 (r) No Burdensome Restrictions 23 (s) Subsidiaries 23 (t) ERISA 24 (1) Identification of Plans 24 (2) Compliance 24 (3) Liabilities 24 (4) Funding 24 (u) Patents, Trademarks, Licenses, Etc. 25 (v) Ownership of Property 25 (w) Indebtedness 26 (x) Labor Matters 26 SECTION 4.2 Representations of the Lessor 26 (a) Securities Act 26 (b) Due Organization, etc. 26 (c) Due Authorization; Enforceability, etc. 27 (d) No Conflict 27 (e) Litigation 27 (f) Lessor Liens 27 (g) Employee Benefit Plans 27 (h) General Partner 28 (i) Financial Information 28 (j) No Offering 28 SECTION 4.3 Representations of each Lender 28 (a) Securities Act 28 (b) Employee Benefit Plans 28 SECTION 5 COVENANTS OF THE LESSEE AND THE LESSOR 29 SECTION 5.1 Affirmative Covenants 29 (a) Corporate Existence, Etc. 29 (b) Compliance with Laws, Etc. 29 (c) Payment of Taxes and Claims, Etc. 29 (d) Keeping of Books 29 (e) Visitation, Inspection, Etc 29 (f) Insurance; Maintenance of Properties 30 (g) Reporting Covenants 30 (i) Annual Financial Statements 30 (ii) Quarterly Financial Statements 31 (iii) No Default/Compliance Certificate 31 (iv) Notice of Default 31 (v) Litigation 31 (vi) Environmental Notices 32 (vii) ERISA 32 (viii) Liens 33 (ix) Public Filings, Etc. 33 (x) Accountants' Reports 33 (xi) Burdensome Restrictions, Etc. 33 (xii) New Material Subsidiaries 34 (xiii) Other Information 34 (h) Financial Covenants 34 (i) Fixed Charge Coverage 34 (ii) Consolidated Funded Debt to Total Capitalization 34 (iii) Consolidated Net Worth 34 (i) Notices Under Certain Other Indebtedness 35 SECTION 5.2 Negative Covenants 35 (a) Indebtedness 35 (b) Liens 36 (c) Mergers, Sales, Etc. 37 (d) Investments, Loans, Etc. 38 (e) Letters of Credit 40 (f) Sale and Leaseback Transactions 40 (g) Transactions with Affiliates 40 (h) Changes in Business 40 (i) ERISA 40 (j) Limitation on Payment Restrictions Affecting Consolidated Companies 41 (k) Actions Under Certain Documents 41 (l) Changes in Fiscal Year 41 (m) Issuance of Stock by Subsidiaries 41 SECTION 5.3 Further Assurances 41 SECTION 5.4 Additional Required Appraisals 42 SECTION 5.5 Lessor's Covenants 42 SECTION 6 TRANSFERS BY LESSOR AND LENDERS 43 SECTION 6.1 Lessor Transfers 43 SECTION 6.2 Lender Transfers 43 SECTION 7 INDEMNIFICATION 44 SECTION 7.1 General Indemnification 44 SECTION 7.2 Environmental Indemnity 46 SECTION 7.3 Proceedings in Respect of Claims 48 SECTION 7.4 General Tax Indemnity 50 (a) Tax Indemnity 50 (b) Exclusions from General Tax Indemnity 51 (c) Contests 53 (d) Reimbursement for Tax Savings 54 (e) Payments 55 (f) Reports 56 (g) Verification 56 SECTION 7.5 Increased Costs, etc. 56 (a) Interest Rate Not Ascertainable, etc. 56 (b) Illegality 57 (c) Increased Costs 57 (d) Conversion to Base Rate Advances 58 (e) Alternative Lending Office 59 (f) Funding Losses 59 (g) Assumptions Concerning Funding of LIBOR Advances 60 (h) Capital Adequacy 60 (i) Replacement of Lender 61 SECTION 7.6 End of Term Indemnity 61 SECTION 8 MISCELLANEOUS 62 SECTION 8.1 Survival of Agreements 62 SECTION 8.2 Notices 62 SECTION 8.3 Counterparts 62 SECTION 8.4 Amendments 63 SECTION 8.5 Headings, etc. 64 SECTION 8.6 Parties in Interest 64 SECTION 8.7 GOVERNING LAW 64 SECTION 8.8 Expenses 64 SECTION 8.9 Severability 65 SECTION 8.10 Liabilities of the Funding Parties 65 SECTION 8.11 Submission to Jurisdiction; Waivers 65 SECTION 8.12 Liabilities of the Agent 66 APPENDIX A Definitions and Interpretation SCHEDULES SCHEDULE 2.2 Commitments SCHEDULE 4.1(l) Taxes SCHEDULE 4.1(n) Litigation SCHEDULE 4.1(q) Defaults SCHEDULE 4.1(r) Burdensome Restrictions SCHEDULE 4.1(s) Subsidiaries SCHEDULE 4.1(t) ERISA SCHEDULE 4.1(u) Patents, Trademarks, Licenses SCHEDULE 4.1(v) Ownership of Property SCHEDULE 4.1(w) Indebtedness SCHEDULE 4.1(x) Labor Matters SCHEDULE 5.2(a) Indebtedness on Initial Closing Date SCHEDULE 5.2(b) Liens SCHEDULE 8.2 Notice Information EXHIBITS EXHIBIT A Form of Funding Request EXHIBIT B Form of Assignment of Lease and Rents EXHIBIT C Form of Security Agreement and Assignment EXHIBIT D Form of Mortgage EXHIBIT E [Reserved] EXHIBIT F Form of Environmental Audit Reliance Letter EXHIBIT G Forms of Opinions of Counsel EXHIBIT H Form of Lessee Certification of Construction Completion EXHIBIT I Form of Payment Date Notice EXHIBIT J Form of Assignment and Assumption Agreement || MASTER AGREEMENT THIS MASTER AGREEMENT, dated as of May 30, 1997 (as it may be amended or modified from time to time in accordance with the provisions hereof, this "Master Agreement"), is among RUBY TUESDAY, INC., a Georgia corporation ("Lessee"); ATLANTIC FINANCIAL GROUP, LTD., a Texas limited partnership (the "Lessor"), AMSOUTH BANK OF ALABAMA, an Alabama banking corporation ("AmSouth"), BARNETT BANK, N.A., a national banking association ("Barnett"), FIRST AMERICAN NATIONAL BANK, a national banking association ("First American"), WACHOVIA BANK OF GEORGIA, N.A., a national banking association ("Wachovia"), HIBERNIA NATIONAL BANK, a national banking association ("Hibernia"), FIRST TENNESSEE BANK, a Tennessee banking corporation ("First Tennessee")and SUNTRUST BANK, ATLANTA, a Georgia banking corporation ("SunTrust"; AmSouth, Barnett, First American, Wachovia, SunTrust, Hibernia and First Tennessee, together with any other financial institution that becomes a party hereto as a lender, collectively referred to as "Lenders" and individually as a "Lender"), and SUNTRUST BANK, ATLANTA, a Georgia banking corporation, as agent for the Lenders (in such capacity, the "Agent"). PRELIMINARY STATEMENT In accordance with the terms and provisions of this Master Agreement, the Lease, the Loan Agreement and the other Operative Documents, (i) the Lessor contemplates acquiring Land identified by the Lessee from time to time, and leasing such Land to the Lessee, (ii) the Lessee, as Construction Agent for the Lessor, wishes to construct Buildings on such Land for the Lessor and, when completed, to lease such Buildings from the Lessor as part of the Leased Properties under the Lease, (iii) the Lessee, as agent, wishes to obtain, and the Lessor is willing to provide, funding for the acquisition of the Land and the construction of Buildings, (iv) the Lessor wishes to obtain, and Lenders are willing to provide, from time to time, financing of a portion of the funding of the acquisition of the Land and the construction of the Buildings, and (v) the Lessee is willing to provide its Guaranty Agreement to the Lenders and the Lessor. In consideration of the mutual agreements contained in this Master Agreement and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: SECTION 2 DEFINITIONS; INTERPRETATION Unless the context shall otherwise require, capitalized terms used and not defined herein shall have the meanings assigned thereto in Appendix A hereto for all purposes hereof; and the rules of interpretation set forth in Appendix A hereto shall apply to this Master Agreement. SECTION 3 ACQUISITION, CONSTRUCTION AND LEASE; FUNDINGS; NATURE OF TRANSACTION SECTION 3.1 Agreement to Acquire, Construct, Fund and Lease. (a) Land. Subject to the terms and conditions of this Master Agreement, with respect to each parcel of Land identified by the Lessee, on the related Closing Date (i) the Lessor agrees to acquire such interest in the related Land from the applicable Seller as is transferred, sold, assigned and conveyed to the Lessor pursuant to the applicable Purchase Agreement or to lease such interest in the related Land from the applicable Ground Lessor as is leased to the Lessor pursuant to the applicable Ground Lease, (ii) the Lessor hereby agrees to lease, or sublease, as the case may be, such Land to the Lessee pursuant to the Lease, and (iii) the Lessee hereby agrees to lease, or sublease, as the case may be, such Land from the Lessor pursuant to the Lease. (b) Building. With respect to each parcel of Land, subject to the terms and conditions of this Master Agreement, from and after the Closing Date relating to such Land (i) the Construction Agent agrees, pursuant to the terms of the Construction Agency Agreement, to construct and install the Building on such Land for the Lessor prior to the Scheduled Construction Termination Date, (ii) the Lenders and the Lessor agree to fund all or a portion of the costs of such construction and installation (and interest and yield thereon), (iii) the Lessor shall lease, or sublease, as the case may be, such Building as part of such Leased Property to the Lessee pursuant to the Lease, and (iv) the Lessee shall lease, or sublease, as the case may be, such Building from the Lessor pursuant to the Lease. SECTION 3.2 Fundings of Purchase Price, Development Costs and Construction Costs. (a) Initial Funding and Payment of Purchase Price for Land and Development Costs on Closing Date. Subject to the terms and conditions of this Master Agreement, on the Closing Date for any Land, each Lender shall make available to the Lessor its initial Loan with respect to such Land in an amount equal to the product of such Lender's Commitment Percentage times the purchase price for the Land, if applicable, and the development, transaction and closing costs incurred by the Lessee through such Closing Date, which funds the Lessor shall use, together with the Lessor's own funds in an amount equal to the product of the Lessor's Commitment Percentage times the purchase price, if applicable, for the related Land and the development, transaction and closing costs incurred by the Lessee, as agent, through such Closing Date, to purchase the Land from the applicable Seller pursuant to the applicable Purchase Agreement or lease the Land from the applicable Ground Lessor pursuant to the applicable Ground Lease and to pay to the Lessee the amount of such development, transaction and closing costs, and the Lessor shall lease, or sublease, as the case may be, such Land to the Lessee pursuant to the Lease. (b) Subsequent Fundings and Payments of Construction Costs during Construction Term. Subject to the terms and conditions of this Master Agreement, on each Funding Date following the Closing Date for each parcel of Land until the related Construction Term Expiration Date, (i) each Lender shall make available to the Lessor a Loan in an amount equal to the product of such Lender's Commitment Percentage times the amount of Funding requested by the Lessee for such Funding Date, which funds the Lessor hereby directs the Lender to pay over to the Lessee as set forth in paragraph (d), and (ii) the Lessor shall pay over to the Lessee its own funds (which shall constitute a part of and an increase in the Lessor's Invested Amount with respect to such Leased Property) in an amount equal to the product of the Lessor's Commitment Percentage times the amount of Funding requested by the Lessee for such Funding Date. (c) Aggregate Limits on Funded Amounts. The aggregate amount that the Funding Parties shall be committed to provide as Funded Amounts under this Master Agreement and the Loan Agreement shall not exceed (x) with respect to each Leased Property the costs of purchase and construction of such Leased Property and the related closing and financing costs, or (y) $40,000,000 in the aggregate for all Leased Properties; provided, however, that in the event that the Lessee exercises a Partial Purchase Option, the amount set forth in this clause (y) shall be reinstated to the extent of the Funded Amounts paid by the Lessee in connection with such Partial Purchase Option. The aggregate amount that any Funding Party shall be committed to fund under this Master Agreement and the Loan Agreement shall not exceed the lesser of (i) such Funding Party's Commitment and (ii) such Funding Party's Commitment Percentage of the aggregate Fundings requested under this Master Agreement. (d) Notice, Time and Place of Fundings. With respect to each Funding, the Lessee shall give the Lessor and the Agent an irrevocable prior written notice not later than 11:00 a.m., Atlanta, Georgia time, three Business Days prior to the proposed Closing Date or other Funding Date, as the case may be, pursuant, in each case, to a Funding Request in the form of Exhibit A (a "Funding Request"), specifying the Closing Date or subsequent Funding Date, as the case may be, the amount of Funding requested, whether such Funding shall be a LIBOR Advance, a Base Rate Advance or a combination thereof and the Rent Period(s) therefor. All documents and instruments required to be delivered on such Closing Date pursuant to this Master Agreement shall be delivered at the offices of Mayer, Brown & Platt, 190 South LaSalle Street, Chicago, Illinois 60603, or at such other location as may be determined by the Lessor, the Lessee and the Agent. Each Funding shall occur on a Business Day and shall be in an amount equal to $500,000 or an integral multiple of $100,000 in excess thereof. All remittances made by any Lender and the Lessor for any Funding shall be made in immediately available funds by wire transfer to or, as is directed by, the Lessee, with receipt by the Lessee not later than 12:00 noon, Atlanta, Georgia time, on the applicable Funding Date, upon satisfaction or waiver of the conditions precedent to such Funding set forth in Section 3; such funds shall (1) in the case of the initial Funding on a Closing Date, be used to pay the purchase price to the applicable Seller for the related Land and pay the Lessee development, transaction and closing costs related to such Land, and (2) in the case of each subsequent Funding be paid to the Lessee as the Construction Agent, for the payment or reimbursement of Construction costs. (e) Lessee's Deemed Representation for Each Funding. Each Funding Request by the Lessee shall be deemed a reaffirmation of the Lessee's indemnity obligations in favor of the Indemnitees under the Operative Documents and a representation by the Lessee to the Lessor, the Agent, and the Lenders that on the proposed Closing Date or Funding Date, as the case may be, (i) the amount of Funding requested represents amounts owing in respect of the purchase price of the related Land and development, transaction and closing costs in respect of the Leased Property (in the case of the initial Funding on a Closing Date) or amounts that the Lessee reasonably believes will be due in the 90 days following such Funding from the Lessee to third parties in respect of the Construction, or amounts paid by the Lessee to third parties in respect of the Construction for which the Lessee has not previously been reimbursed by a Funding (in the case of any Funding), (ii) no Event of Default or Potential Event of Default exists, and (iii) the representations of the Lessee set forth in Section 4.1 are true and correct in all material respects as though made on and as of such Funding Date, except to the extent such representations or warranties relate solely to an earlier date, in which case such representations and warranties shall have been true and correct in all material respects on and as of such earlier date. (f) Not Joint Obligations. Notwithstanding anything to the contrary set forth herein or in the other Operative Documents, each Lender's and the Lessor's commitments shall be several, and not joint. In no event shall any Funding Party be obligated to fund an amount in excess of such Funding Party's Commitment Percentage of any Funding, or to fund amounts in the aggregate in excess of such Funding Party's Commitment. (g) Non-Pro Rata Fundings. Notwithstanding anything to the contrary set forth in this Master Agreement, at the Agent's option, Fundings may be made by drawing on the Lessor's Commitment until such Commitment is fully funded before drawing on the Lenders' Commitments. In such event, when the Lessor's Commitment is fully funded, the Lenders will fund, on a pro rata basis as among themselves, 100% of the amount of the Fundings thereafter. In no event shall any Funding Party have any obligation to fund any amount hereunder in excess of the amount of such Funding Party's Commitment. SECTION 3.3 Funded Amounts and Interest and Yield Thereon Unused Fee. (a) The Lessor's Invested Amount for any Leased Property outstanding from time to time shall accrue yield ("Yield") at the Lessor Rate, computed using the actual number of days elapsed and a 360 day year. If all or a portion of the principal amount of or yield on the Lessor's Invested Amounts shall not be paid when due (whether at the stated maturity, by acceleration or otherwise), such overdue amount shall, without limiting the rights of the Lessor under the Lease, to the maximum extent permitted by law, accrue yield at the Overdue Rate, from the date of nonpayment until paid in full (both before and after judgment). (b) Each Lender's Funded Amount for any Leased Property outstanding from time to time shall accrue interest as provided in the Loan Agreement. (c) During the Construction Term, in lieu of the payment of accrued interest, on each Payment Date, each Lender's Funded Amount in respect of a Construction Land Interest shall automatically be increased by the amount of interest accrued and unpaid on the related Loans pursuant to the Loan Agreement during the Rent Period ending immediately prior to such Payment Date (except to the extent that at any time such increase would cause such Lender's Funded Amount to exceed such Lender's Commitment, in which event the Lessee shall pay such excess amount to such Lender in immediately available funds on such Payment Date). Similarly, in lieu of the payment of accrued Yield, on each Payment Date, the Lessor's Invested Amount in respect of such Construction Land Interest shall automatically be increased by the amount of Yield accrued on the Lessor's Invested Amount in respect of such Land during the Rent Period ending immediately prior to such Payment Date (except to the extent that at any time such increase would cause the Lessor's Invested Amount to exceed the Lessor's Commitment, in which event the Lessee shall pay such excess amount to the Lessor in immediately available funds on such Payment Date). Such increases in Funded Amounts shall occur without any disbursement of funds by the Funding Parties. (d) Three Business Days prior to the last day of each Rent Period, the Lessee shall deliver to the Lessor and the Agent a notice substantially in the form of Exhibit I (each, a "Payment Date Notice"), appropriately completed, specifying the allocation of the Funded Amounts related to such Rent Period to LIBOR Advances and Base Rate Advances and the Rent Periods therefor, provided that no such allocation shall be in an amount less than $500,000. Each such Payment Date Notice shall be irrevocable. If no such notice is given, the Funded Amounts shall be allocated to a LIBOR Advance with a Rent Period of three (3) months. (e) Lessee hereby agrees to pay to each Funding Party an unused fee for each day from the date hereof until the Funding Termination Date equal to (i) 0.225% per annum times (ii) the difference between such Funding Party's Commitment and its outstanding Lessor Invested Amount or the principal of its outstanding Loans, as applicable, times (iii) 1/360. Such unused fee shall be payable in arrears on each Quarterly Payment Date. SECTION 3.4 Lessee Owner for Tax Purposes. With respect to each Leased Property, it is the intent of the Lessee and the Funding Parties that for federal, state and local tax purposes (A) the Lessee owns such Leased Property and will be entitled to all tax benefits ordinarily available to an owner of property similar to such Leased Property, (B) the Lease will be treated as a financing arrangement, and (C) the Lessor will be treated as a lender making loans to the Lessee. Each of the Lessee and each Funding Party agrees to file tax returns consistent with such intent. Nevertheless, the Lessee acknowledges and agrees that no Funding Party or any other Person has made any representations or warranties concerning the tax, financial, accounting or legal characteristics or treatment of the Operative Documents and that the Lessee has obtained and relied solely upon the advice of its own tax, accounting and legal advisors concerning the Operative Documents and the accounting, tax, financial and legal consequences of the transactions contemplated therein. SECTION 3.5 Amounts Due Under Lease. With respect to each Leased Property, anything else herein or elsewhere to the contrary notwithstanding, it is the intention of the Lessee and the Funding Parties that: (i) the amount and timing of Basic Rent due and payable from time to time from the Lessee under the Lease shall be equal to the aggregate payments due and payable with respect to interest on, and principal of, the Loans in respect of such Leased Property and Yield on, and principal of, the Lessor's Invested Amounts, if any, in respect of such Leased Property on each Payment Date; (ii) if the Lessee elects the Purchase Option or the Partial Purchase Option with respect to a Leased Property or becomes obligated to purchase such Leased Property under the Lease, the Funded Amounts in respect of such Leased Property, all interest and Yield thereon and all other obligations of the Lessee owing to the Funding Parties in respect of the Leased Property shall be paid in full by the Lessee, (iii) if the Lessee properly elects the Remarketing Option or the Surrender Option, the principal amount of, and accrued interest on, the A Loans in respect of such Leased Property, will be paid out of the Recourse Deficiency Amount, and the Lessee shall only be required to pay to the Lenders in respect of the principal amount of the B Loans in respect of such Leased Property and to the Lessor in respect of the Lessor's Invested Amounts in respect of such Leased Property, the proceeds of the sale of such Leased Property; and (iv) upon an Event of Default resulting in an acceleration of the Lessee's obligation to purchase such Leased Property under the Lease, the amounts then due and payable by the Lessee under the Lease shall include all amounts necessary to pay in full the Loans in respect of such Leased Property, and accrued interest thereon, the Lessor's Invested Amounts in respect of such Leased Property and accrued Yield thereon and all other obligations of the Lessee owing to the Funding Parties in respect of such Leased Property. SECTION 4 CONDITIONS PRECEDENT; DOCUMENTS SECTION 4.1 Conditions to the Obligations of the Funding Parties on each Closing Date. The obligations of the Lessor and each Lender to carry out their respective obligations under Section 2 of this Master Agreement to be performed on the Closing Date with respect to any Leased Property shall be subject to the fulfillment to the satisfaction of, or waiver by, each such party hereto (acting directly or through its counsel) on or prior to such Closing Date of the following conditions precedent, provided that the obligations of any Funding Party shall not be subject to any conditions contained in this Section 3.1 which are required to be performed by such Funding Party: (a) Documents. The following documents shall have been executed and delivered by the respective parties thereto: (i) Deed and Purchase Agreement. The related original Deed duly executed by the applicable Seller and in recordable form, and copies of the related Purchase Agreement, duly executed by such Seller and the Lessor, shall each have been delivered to the Agent by the Lessee, with copies thereof to each other Funding Party or the related Ground Lease duly executed by the Lessor and the related Ground Lessor shall have been delivered to the Agent, with copies thereof to each other Funding Party, as applicable (it being understood, that each Purchase Agreement and each Ground Lease shall be satisfactory in form and substance to the Lessor and the Lenders). (ii) Lease Supplement. The original of the related Lease Supplement, duly executed by the Lessee and the Lessor and in recordable form, shall have been delivered to the Agent by the Lessee. (iii) Mortgage and Assignment of Lease and Rents. Counterparts of the Mortgage (substantially in the form of Exhibit D attached hereto), duly executed by the Lessor and in recordable form, shall have been delivered to the Agent (which Mortgage shall secure all of the debt to the Agent unless such mortgage is subject to a tax based on the amount of indebtedness secured thereby, in which case the amount secured will be limited to debt in an amount equal to 125% of the projected cost of acquisition and construction of such Leased Property); and the Assignment of Lease and Rents (substantially in the form of Exhibit B attached hereto) in recordable form, duly executed by the Lessor, shall have been delivered to the Agent by the Lessor. (iv) Security Agreement and Assignment. Counterparts of the Security Agreement and Assignment (substantially in the form of Exhibit C attached hereto), duly executed by the Lessee, with an acknowledgment and consent thereto satisfactory to the Lessor and the Agent duly executed by the related General Contractor and the related Architect, as applicable, and complete copies of the related Construction Contract and the related Architect's Agreement certified by the Lessee, shall have been delivered to the Lessor and the Agent (it being understood and agreed that if no related Construction Contract or Architect's Agreement exists on such Closing Date, such delivery shall not be a condition precedent to the Funding on such Closing Date, and in lieu thereof the Lessee shall deliver complete copies of such Security Agreement and Assignment and consents concurrently with the Lessee's entering into such contracts). (v) Survey. The Lessee shall have delivered, or shall have caused to be delivered, to the Lessor and the Agent, at the Lessee's expense, an accurate survey certified to the Lessor and the Agent in a form reasonably satisfactory to the Lessor and the Agent and showing no state of facts unsatisfactory to the Lessor or the Agent and prepared within ninety (90) days of the Closing Date by a Person reasonably satisfactory to the Lessor and the Agent. Such survey shall (1) be acceptable to the Title Insurance Company for the purpose of providing extended coverage to the Lessor and a lender's comprehensive endorsement to the Agent, (2) show no encroachments on such Land by structures owned by others, and no encroachments from any part of such Leased Property onto any land owned by others, and (3) disclose no state of facts reasonably objectionable to the Lessor, the Agent or the Title Insurance Company, and be reasonably acceptable to each such Person. (vi) Title and Title Insurance. On such Closing Date, the Lessor shall receive from a title insurance company acceptable to the Lessor and the Agent an ALTA Owner's Policy of Title Insurance issued by such title insurance company and the Agent shall receive from such title insurance company an ALTA Mortgagee's Policy of Title Insurance issued by such title insurance company, in each case, in the amount of the projected cost of acquisition and construction of such Leased Property, reasonably acceptable in form and substance to the Lessor and the Agent, respectively (collectively, the "Title Policy"). The Title Policy shall be dated as of the Closing Date, and, to the extent permitted under Applicable Law, shall include a pending disbursements clause reasonably satisfactory to the Lessor and the Agent and coverage over the creditors' rights exclusion and the general exceptions to such policy, and shall contain such affirmative endorsements as to mechanic's liens, easements and rights-of-way, encroachments, the non-violation of covenants and restrictions, survey matters and other matters as the Lessor or the Agent shall reasonably request. (vii) Appraisal. Unless the Lessee shall have previously delivered to the Agent Appraisals with respect to Leased Properties that are expected by the Lessee, based on reasonable estimates, to have an aggregate Leased Property Balance in excess of $10,000,000, each Funding Party shall have received a report of the Appraiser (an "Appraisal"), paid for by the Lessee, which shall meet the requirements of the Financial Institutions Reform, Recovery and Enforcement Act of 1989, shall be satisfactory to such Funding Party and shall state in a manner satisfactory to such Funding Party the estimated "as vacant" value of such Land and the Building to be constructed thereon. Such Appraisal must show that (1) the estimated Fair Market Sales Value of the Leased Property (determined as if the Building had already been completed in accordance with the related Plans and Specifications and by excluding from such value the amount of assessments on such Leased Property) at the commencement of the Lease Term with respect thereto is equal to the projected cost of acquisition and construction of such Leased Property, and (2) the "as vacant" value described above is at least 45% of the total cost of the Leased Property, including the trade fixtures, equipment and personal property utilized in connection with the Leased Property and to be funded by the Funding Parties. Upon request by the Lessee, the Funding Parties agree to waive delivery on such Closing Date of an Appraisal, provided that no subsequent Funding with respect to such Leased Property shall occur until such Appraisal has been delivered. (viii) Environmental Audit and related Reliance Letter. The Lessor and the Agent shall have received an Environmental Audit for such Leased Property, which shall not include a recommendation for further investigation and is otherwise satisfactory to the Lessor and the Agent; and the firm that prepared the Environmental Audit for such Leased Property shall have delivered to the Lessor and the Agent a letter (substantially in the form of Exhibit F attached hereto) stating that the Lessor, the Agent and the Lenders may rely upon such firm's Environmental Audit of such Land, it being understood that the Lessor's and the Agent's acceptance of any such Environmental Audit shall not release or impair the Lessee's obligations under the Operative Documents with respect to any environmental liabilities relating to such Leased Property. (ix) Evidence of Insurance. The Lessor and the Agent shall have received from the Lessee certificates of insurance evidencing compliance with the provisions of Article VIII of the Lease (including the naming of the Lessor, the Agent and the Lenders as additional insured or loss payee with respect to such insurance), in form and substance reasonably satisfactory to the Lessor and the Agent. (x) Officer's Certificate. Each of the Agent and the Lessor shall have received an Officer's Certificate of the Lessee stating that, to the best of such officer's knowledge, (A) each and every representation and warranty of the Lessee contained in the Operative Documents is true and correct in all material respects on and as of such Closing Date as though made on and as of such Closing Date, except to the extent such representations or warranties relate solely to an earlier date, in which case such representations and warranties were true and correct in all material respects on and as of such earlier date; (B) no Event of Default, Potential Event of Default or Construction Force Majeure Event has occurred and is continuing; (C) each Operative Document to which the Lessee is a party is in full force and effect with respect to it; and (D) no event that could reasonably be expected to have a Material Adverse Effect has occurred since June 1, 1996. (xi) UCC Financing Statement; Recording Fees; Transfer Taxes. Each Funding Party shall have received satisfactory evidence of (i) the execution and delivery to Agent of a UCC- 1 and, if required by applicable law, UCC-2 financing statement to be filed with the Secretary of State of the applicable State (or other appropriate filing office) and the county where the related Land is located, respectively, and such other Uniform Commercial Code financing statements as any Funding Party deems necessary or desirable in order to perfect such Funding Party's interests and (ii) the payment of all recording and filing fees and taxes with respect to any recordings or filings made of the related Deed, the Lease, the related Lease Supplement, the related Mortgage and the related Assignment of Lease and Rents. (xii) Opinions. The opinion of local counsel for the Lessee qualified in the jurisdiction in which such Leased Property is located, substantially in the form set forth in Exhibit G-2 attached hereto, and containing such other matters as the parties to whom they are addressed shall reasonably request, shall have been delivered and addressed to each of the Lessor, the Agent and the Lenders, and to the extent requested by the Agent, opinions supplemental to those delivered under Section 3.2(vii) and reasonably satisfactory to the Agent shall have been delivered and addressed to each of the Lessor, the Agent and the Lenders. (xiii) Officer's Certificate. The Agent shall have received an Officer's Certificate of the Lessor stating that, to the best of such officer's knowledge, (A) each and every representation and warranty of the Lessor contained in the Operative Documents is true and correct in all material respects on and as of the Closing Date as though made on and as of the Closing Date, except to the extent such representations or warranties relate solely to an earlier date, in which case such representations and warranties shall have been true and correct in all material respects on and as of such earlier date; (B) no Event of Default or Potential Event of Default has occurred and is continuing; (C) each Operative Document to which the Lessor is a party is in full force and effect with respect to it; and (D) no event that could have a Material Adverse Effect has occurred since the date of the most recent financial statements of the Lessor delivered or required to be delivered to the Agent. (xiv) Good Standing Certificates. The Agent shall have received good standing certificates for the Lessor and the Lessee from the appropriate offices of the state where the related Land is located. (b) Litigation. No action or proceeding shall have been instituted or threatened nor shall any governmental action, suit, proceeding or investigation be instituted or threatened before any Governmental Authority, nor shall any order, judgment or decree have been issued or proposed to be issued by any Governmental Authority, to set aside, restrain, enjoin or prevent the performance of this Master Agreement or any transaction contemplated hereby or by any other Operative Document or which is reasonably likely to materially adversely affect the Leased Property or any transaction contemplated by the Operative Documents or which could reasonably be expected to result in a Material Adverse Effect. (c) Legality. In the opinion of such Funding Party or its counsel, the transactions contemplated by the Operative Documents shall not violate any Applicable Law, and no change shall have occurred or been proposed in Applicable Law that would make it illegal for such Funding Party to participate in any of the transactions contemplated by the Operative Documents. (d) No Events. (i) No Event of Default, Potential Event of Default, Event of Loss or Event of Taking relating to such Leased Property shall have occurred and be continuing, (ii) no action shall be pending or threatened by a Governmental Authority to initiate a Condemnation or an Event of Taking, and (iii) there shall not have occurred any event that could reasonably be expected to have a Material Adverse Effect since June 1, 1996. (e) Representations. Each representation and warranty of the parties hereto or to any other Operative Document contained herein or in any other Operative Document shall be true and correct in all material respects as though made on and as of the Closing Date, except to the extent such representations or warranties relate solely to an earlier date, in which case such representations and warranties shall have been true and correct in all material respects on and as of such earlier date. (f) Cutoff Date. No Closing Date shall occur after the Funding Termination Date. (g) Transaction Expenses. The Lessee shall have paid the Transaction Costs then accrued and invoiced which the Lessee has agreed to pay pursuant to Section 8.8. SECTION 4.2 Additional Conditions for the Initial Closing Date. The obligations of the Lessor and each Lender to carry out their respective obligations under Section 2 of this Master Agreement to be performed on the initial Closing Date shall be subject to the satisfaction of, or waiver by, each such party hereto (acting directly or through its counsel) on or prior to the initial Closing Date of the following conditions precedent in addition to those set forth in Section 3.1, provided that the obligations of any Funding Party shall not be subject to any conditions contained in this Section 3.2 which are required to be performed by such Funding Party: (i) Guaranty. Counterparts of the Guaranty Agreement, duly executed by the Lessee, shall have been delivered to each Funding Party. (ii) Loan Agreement. Counterparts of the Loan Agreement, duly executed by the Lessor, the Agent and each Lender shall have been delivered to each of the Lessor and the Agent. An A Note and a B Note, duly executed by the Lessor, shall have been delivered to each Lender. (iii) Master Agreement. Counterparts of this Master Agreement, duly executed by the parties hereto, shall have been delivered to each of the parties hereto. (iv) Construction Agency Agreement. Counterparts of the Construction Agency Agreement, duly executed by the parties thereto shall have been delivered to each of the parties hereto. (v) Lease. Counterparts of the Lease, duly executed by the Lessee and the Lessor, shall have been delivered to each Funding Party and the original, chattel paper copy of the Lease shall have been delivered to the Agent. (vi) Lessee's Resolutions and Incumbency Certificate, etc. Each of the Agent and the Lessor shall have received (x) a certificate of the Secretary or an Assistant Secretary of the Lessee, attaching and certifying as to (i) the Board of Directors' (or appropriate committee's) resolution duly authorizing the execution, delivery and performance by it of each Operative Document to which it is or will be a party, (ii) the incumbency and signatures of persons authorized to execute and deliver such documents on its behalf, (iii) its articles or certificate of incorporation, certified as of a recent date by the Secretary of State of the state of its incorporation and (iv) its by-laws, and (y) good standing certificates for the Lessee from the appropriate offices of the States of such Person's incorporation and principal place of business. (vii) Opinions of Counsel. The opinion of Powell Goldstein Frazer & Murphy LLP, dated the initial Closing Date, substantially in the form set forth in Exhibit G-1 attached hereto, and containing such other matters as the parties to whom it is addressed shall reasonably request, shall have been delivered and addressed to each of the Lessor, the Agent and the Lenders. The opinion of Grogan & Browner PC, dated the initial Closing Date, substantially in the form set forth in Exhibit G-3 attached hereto, and containing such other matters as the parties to whom it is addressed shall reasonably request, shall have been delivered to each of the Agent and the Lenders. (viii) Good Standing Certificate. The Agent shall have received a good standing certificate for the Lessor from the appropriate offices of the State of Texas. (ix) Lessor's Consents and Incumbency Certificate, etc. The Agent shall have received a certificate of the Secretary or an Assistant Secretary of the General Partner of the Lessor attaching and certifying as to (i) the consents of the partners of the Lessor duly authorizing the execution, delivery and performance by it of each Operative Document to which it is or will be a party, (ii) the incumbency and signatures of persons authorized to execute and deliver such documents on its behalf, and (iii) the Partnership Agreement. SECTION 4.3 Conditions to the Obligations of Lessee. The obligations of the Lessee to lease the Leased Property from the Lessor are subject to the fulfillment on the related Closing Date to the satisfaction of, or waiver by, the Lessee, of the following conditions precedent: (a) General Conditions. The conditions set forth in Sections 3.1 and 3.2 that require fulfillment by the Lessor or the Lenders shall have been satisfied, including the delivery of good standing certificates by the Lessor pursuant to Sections 3.1(a)(xiv) and 3.2(b)(viii) and the delivery of an opinion of counsel for the Lessor pursuant to Section 3.2(b)(vii). (b) Legality. In the opinion of the Lessee or its counsel, the transactions contemplated by the Operative Documents shall not violate any Applicable Law, and no change shall have occurred or been proposed in Applicable Law that would make it illegal for the Lessee to participate in any of the transactions contemplated by the Operative Documents. (c) Purchase Agreement; Ground Lease. The Purchase Agreement and, if applicable, the Ground Lease shall be reasonably satisfactory to the Lessee. SECTION 4.4 Conditions to the Obligations of the Funding Parties on each Funding Date. The obligations of the Lessor and each Lender to carry out their respective obligations under Section 2 of this Master Agreement to be performed on each Funding Date shall be subject to the fulfillment to the satisfaction of, or waiver by, each such party hereto (acting directly or through their respective counsel) on or prior to each such Funding Date of the following conditions precedent, provided that the obligations of any Funding Party shall not be subject to any conditions contained in this Section 3.4 which are required to be performed by such Funding Party: (a) Funding Request. The Lessor and the Agent shall have received from the Lessee the Funding Request therefor pursuant to Section 2.2(d). (b) Condition Fulfilled. As of such Funding Date, the condition set forth in Section 3.1(d)(i) shall have been satisfied. (c) Representations. As of such Funding Date, both before and after giving effect to the Funding requested by the Lessee on such date, the representations and warranties that the Lessee is deemed to make pursuant to Section 2.2(e) shall be true and correct in all material respects on and as of such Funding Date as though made on and as of such Funding Date, except to the extent such representations or warranties relate solely to an earlier date, in which case such representations and warranties shall have been true and correct in all material respects on and as of such earlier date. (d) No Bonded Stop Notice or Filed Mechanics Lien. As of each Funding Date, and as to any Funded Amount requested for any Leased Property on each such Funding Date, (i) neither the Lessor, the Agent nor any Lender has received (with respect to such Leased Property) a bonded notice to withhold Loan funds that has not been discharged by the Lessee, and (ii) no mechanic's liens or materialman's liens have been filed against such Leased Property that have not been discharged by the Lessee, bonded over in a manner reasonably satisfactory to the Agent or insured over by the Title Insurance Company. (e) Lease Supplement. If the Funding relates to a Building that will be leased under a Lease Supplement separate from the Lease Supplement for the related Land, the original of such separate Lease Supplement, duly executed by the Lessee and the Lessor and in recordable form, shall have been delivered to the Agent. SECTION 4.5 Completion Date Conditions. The occurrence of the Completion Date with respect to any Leased Property shall be subject to the fulfillment to the satisfaction of, or waiver by, each party hereto (acting directly or through its counsel) of the following conditions precedent: (a) Title Policy Endorsements; Architect's Certificate. The Lessee shall have furnished to each Funding Party (1) the following endorsements to the related Title Policy (each of which shall be subject to no exceptions other than those reasonably acceptable to the Agent): a date-down endorsement (redating and confirming the coverage provided under the Title Policy and each endorsement thereto) and a "Form 9" endorsement (if available in the applicable jurisdiction), in each case, effective as of a date not earlier than the date of completion of the Construction, and (2) a certificate of the Architect dated at or about the Completion Date, in form and substance reasonably satisfactory to the Agent, the Lessor and the Lenders, and stating that (i) the related Building has been completed substantially in accordance with the Plans and Specifications therefor, and such Leased Property is ready for occupancy, (ii) such Plans and Specifications comply in all material respects with all material Applicable Laws in effect at such time, and (iii) to the best of the Architect's knowledge, such Leased Property, as so completed, complies in all material respects with all material Applicable Laws in effect at such time. The Lessee shall also deliver to the Agent true and complete copies of: (A) an "as built" or "record" set of the Plans and Specifications, (B) a plat of survey of such Leased Property "as built" to a standard reasonably acceptable to the Agent showing all easements, paving, driveways, fences and exterior improvements, and (C) copies of a certificate or certificates of occupancy for such Leased Property or other legally equivalent permission to occupy such Leased Property. (b) Construction Completion. The related Construction shall have been completed substantially in accordance with the related Plans and Specifications, the related Deed and all Applicable Laws, and such Leased Property shall be ready for occupancy and operation. All fixtures, equipment and other property contemplated under the Plans and Specifications to be incorporated into or installed in such Leased Property shall have been substantially incorporated or installed, free and clear of all Liens except for Permitted Liens. (c) Lessee Certification. The Lessee shall have furnished the Lessor, the Agent and each Lender with a certification of the Lessee (substantially in the form of Exhibit H) that: (i) all amounts owing to third parties for the related Construction have been paid in full (other than contingent obligations for which the Lessee has made adequate reserves), and no litigation or proceedings are pending, or to the best of the Lessee's knowledge, are threatened, against such Leased Property or the Lessee which could reasonably be expected to have a Material Adverse Effect; (ii) all material consents, licenses and permits and other governmental authorizations or approvals required for such Construction and operation of such Leased Property have been obtained and are in full force and effect; (iii) such Leased Property has available all services of public facilities and other utilities necessary for use and operation of such Leased Property for its intended purposes including, without limitation, adequate water, gas and electrical supply, storm and sanitary sewerage facilities, telephone, other required public utilities and means of access between the related Building and public highways for pedestrians and motor vehicles; (iv) all material agreements, easements and other rights, public or private, which are necessary to permit the lawful use and operation of such Leased Property as the Lessee intends to use the Leased Property under the Lease and which are necessary to permit the lawful intended use and operation of all then intended utilities, driveways, roads and other means of egress and ingress to and from the same have been obtained and are in full force and effect and the Lessee has no knowledge of any pending modification or cancellation of any of the same; and the use of such Leased Property does not depend on any variance, special exception or other municipal approval, permit or consent that has not been obtained and is in full force and effect for its continuing legal use; (v) all of the requirements and conditions set forth in Section 3.5(b) hereof have been completed and fulfilled with respect to such Leased Property and the related Construction; and (vi) such Leased Property is in compliance in all material respects with all applicable zoning laws and regulations. SECTION 5 REPRESENTATIONS SECTION 5.1 Representations of Lessee. Effective as of the date of execution hereof, as of each Closing Date and as of each Funding Date, the Lessee represents and warrants to each of the other parties hereto as follows: (a) Organization; Corporate Powers. Each of the Lessee and each of its Subsidiaries (i) is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization, (ii) is duly qualified as a foreign corporation and in good standing (A) in each jurisdiction where a Leased Property is located, in the case of the Lessee, and (B) under the laws of each other jurisdiction where such qualification is required and where the failure to be duly qualified and in good standing would have a Material Adverse Effect, in the case of the Lessee and each of its Subsidiaries, and (iii) has all requisite corporate power and authority to own, operate and encumber its property and assets and to conduct its business as presently conducted and as proposed to be conducted in connection with and following the consummation of the transactions contemplated by the Operative Documents. (b) Authority. (i) The Lessee has the requisite corporate power and authority to execute, deliver and perform the Operative Documents executed by it, or to be executed by it. (ii) The execution, delivery and performance (or recording or filing, as the case may be) of the Operative Documents, and the consummation of the transactions contemplated thereby, have been duly approved by the Board of Directors of the Lessee, or an appropriate committee thereof, and no other corporate proceedings on the part of the Lessee are necessary to consummate the transactions so contemplated. (c) Binding Obligations. The Operative Documents executed by the Lessee, have been duly executed and delivered (or recorded or filed, as the case may be) by the Lessee, and constitute its legal, valid and binding obligation, enforceable against it in accordance with their respective terms, except as enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium or other laws relating to or limiting creditors' rights generally or by equitable principles generally. (d) No Conflict. The execution, delivery and performance by the Lessee of each Operative Document to which it is a party and each of the transactions contemplated thereby do not and will not (i) violate any Applicable Law or Contractual Obligation of any Person the consequences of which violation, singly or in the aggregate, would have a Material Adverse Effect, (ii) result in or require the creation or imposition of any Lien whatsoever on any Leased Property or upon any of the properties or assets of the Lessee or any of its Subsidiaries (other than Permitted Liens), or (iii) require any approval of stockholders of the Lessee which has not been obtained. (e) Governmental Consents. Except as have been made, obtained or given, and are in full force and effect, and except for routine filings with the SEC to be made in a timely fashion, no filing or registration with, consent or approval of, notice to, with or by any Governmental Authority, is required to authorize, or is required in connection with, the execution, delivery and performance by the Lessee of the Operative Documents, the use of the proceeds of the Fundings made to effect the purchase of the Land and the Construction, or the legality, validity, binding effect or enforceability of any Operative Document. (f) Governmental Regulation. Neither the Lessee nor any Subsidiary of the Lessee is an "investment company" or a company "controlled" by an "investment company", within the meaning of the Investment Company Act of 1940, as amended. The Lessee is not a "holding company" or a "subsidiary company," or an "affiliate" of a "holding company" or of a "subsidiary company" of a "holding company", within the meaning of the Public Utility Company Act of 1935, as amended. (g) Requirements of Law. The Lessee and each Subsidiary of the Lessee and each Person acting on behalf of any of them is in compliance with all Requirements of Law applicable to them and their respective businesses, in each case where the failure to so comply would have a Material Adverse Effect, either individually or together with other such cases. (h) Rights in Respect of the Leased Property. The Lessee is not a party to any contract or agreement to sell any interest in any Leased Property or any part thereof, other than pursuant to the Operative Documents. (i) Hazardous Materials. (i) To the best knowledge of the Lessee, except as described in the related Environmental Audit, on the Closing Date for each Leased Property, there are no Hazardous Materials present at, upon, under or within such Leased Property or released or transported to or from such Leased Property (except in compliance in all material respects with all Applicable Law). (ii) On the related Closing Date, no Governmental Actions have been taken or, to the best knowledge of the Lessee, are in process or have been threatened, which could reasonably be expected to subject such Leased Property, any Lender or the Lessor with respect to such Leased Property to any Claims or Liens under any Environmental Law which would have a Material Adverse Effect, or would have a materially adverse effect on the Lessor or any Lender. (iii) The Lessee has, or will obtain on or before the date required by Applicable Law, all Environmental Permits necessary to operate such Leased Property in accordance with Environmental Laws and is complying with and has at all times complied with all such Environmental Permits, except to the extent the failure to obtain such Environmental Permits or to so comply would not have a Material Adverse Effect. (iv) Except as set forth in the related Environmental Audit or in any notice subsequently furnished by the Lessee to the Agent and approved by the Agent in writing prior to the respective times that the representations and warranties contained herein are made or deemed made hereunder, no notice, notification, demand, request for information, citations, summons, complaint or order has been issued or filed to or with respect to the Lessee, no penalty has been assessed on the Lessee and no investigation or review is pending or, to its best knowledge, threatened by any Governmental Authority or other Person in each case relating to the Leased Property with respect to any alleged material violation or liability of the Lessee under any Environmental Law. To the best knowledge of the Lessee, no material notice, notification, demand, request for information, citations, summons, complaint or order has been issued or filed to or with respect to any other Person, no material penalty has been assessed on any other Person and no investigation or review is pending or threatened by any Governmental Authority or other Person relating to such Leased Property with respect to any alleged material violation or liability under any Environmental Law by any other Person. (v) Such Leased Property and each portion thereof are presently in compliance in all material respects with all Environmental Laws, and, to the best knowledge of the Lessee, there are no present or past facts, circumstances, activities, events, conditions or occurrences regarding such Leased Property (including without limitation the release or presence of Hazardous Materials) that could reasonably be anticipated to (A) form the basis of a material Claim against such Leased Property, any Funding Party or the Lessee, (B) cause such Leased Property to be subject to any material restrictions on ownership, occupancy, use or transferability under any Environmental Law, (C) require the filing or recording of any notice or restriction relating to the presence of Hazardous Materials in the real estate records in the county or other appropriate municipality in which such Leased Property is located, or (D) prevent or materially interfere with the continued operation and maintenance of such Leased Property as contemplated by the Operative Documents. (j) Leased Property. The present condition and use of such Leased Property conforms in all material respects with all conditions or requirements of all existing material permits and approvals issued with respect to such Leased Property, and the present use of such Leased Property and the Lessee's future intended use of such Leased Property under the Lease does not, in any material respect, violate any Applicable Law. To the best knowledge of the Lessee, no material notices, complaints or orders of violation or non-compliance have been issued or threatened or contemplated by any Governmental Authority with respect to such Leased Property or any present or intended future use thereof. All material agreements, easements and other rights, public or private, which are necessary to permit the lawful use and operation of such Leased Property as the Lessee intends to use such Leased Property under the Lease and which are necessary to permit the lawful intended use and operation of all presently intended utilities, driveways, roads and other means of egress and ingress to and from the same have been, or to the Lessee's best knowledge will be, obtained and are or will be in full force and effect, and the Lessee has no knowledge of any pending material modification or cancellation of any of the same. (k) True and Complete Disclosure. All factual information relating to the Lessee, or any of its assets or its financial condition, or any of the Leased Properties heretofore or contemporaneously furnished by the Lessee or on its behalf in writing to any Funding Party (including without limitation all information contained in the Operative Documents) for purposes of or in connection with any transaction contemplated by this Master Agreement is, and all other such factual information hereafter furnished by the Lessee or on its behalf in writing to any Funding Party will be, true and accurate in all material respects on the date as of which such information is dated or certified and not incomplete by omitting to state any material fact necessary to make such information, together with past written information supplied hereunder (taken as a whole) not misleading at such time in light of the circumstances under which such information was provided. (l) Taxes. Except as set forth in Schedule 4.1(l), all United States Federal income tax returns and all other material tax returns which are required to be filed have been filed by or on behalf of the Lessee and its Subsidiaries and all taxes due with respect to the Lessee and its Subsidiaries pursuant to such returns or pursuant to any assessment received by the Lessee or any Subsidiary have been paid, or are being contested by appropriate proceedings being diligently prosecuted. To the best knowledge of the Lessee, the charges, accruals and reserves on the books of the Lessee and its Subsidiaries in respect of taxes or other governmental charges are adequate. (m) Financial Statements. The consolidated statement of financial position of the Lessee as of June 1, 1996 and the related statements of income, shareholders' equity and cash flows for the fiscal year then ended, reported on by Ernst & Young and the consolidated statements of financial position of the Lessee as of August 31, 1996, November 30, 1996 and March 1, 1997 and the related statements of income, shareholders' equity and cash flows for the three, six and nine months, respectively, then ended, in each case, a copy of which has been delivered to each of the Funding Parties, present fairly in all material respects, in conformity with GAAP, the consolidated financial position of the Lessee and its Subsidiaries as of such dates and the results of operations and cash flows of the Lessee and its Subsidiaries for such fiscal year or other period then ended. (n) No Material Litigation. Except as set forth in Schedule 4.1(n), no litigation, investigations or proceedings of or before any courts, tribunals, arbitrators or governmental authorities are pending or, to the knowledge of Lessee, threatened by or against any of the Consolidated Companies, or against any of their respective properties or revenues, existing or future (a) with respect to any Operative Document, or any of the transactions contemplated hereby or thereby, or (b) seeking money damages in excess of $2,500,000, either singly or in the aggregate or which, if adversely determined, would otherwise reasonably be expected to have a Material Adverse Effect. (o) Margin Regulations. No part of the proceeds of any of the Fundings will be used for any purpose which violates, or which would be inconsistent or not in compliance with, the provisions of the applicable Margin Regulations. (p) Insurance. The Consolidated Companies currently maintain insurance with respect to their respective properties and businesses, with financially sound and reputable insurers, having coverages against losses or damages of the kinds customarily insured against by reputable companies in the same or similar businesses, such insurance being in amounts no less than those amounts which are customary for such companies under similar circumstances. The Consolidated Companies have paid all material amounts of insurance premiums now due and owing with respect to such insurance policies and coverages, and such policies and coverages are in full force and effect. (q) No Default. Except as set forth on Schedule 4.1(q), none of the Consolidated Companies is in default under or with respect to any Contractual Obligation in any respect which default or defaults would be reasonably expected in the aggregate to have a Material Adverse Effect. (r) No Burdensome Restrictions. Except as set forth on Schedule 4.1(r) or in any notice furnished to the Agent and the Lenders pursuant to Section 5.1(g)(xi)or in any notice furnished to the Lenders pursuant to Section 5.1(g)(xii) at or prior to the respective times the representations and warranties set forth in this Section 4.1(r) are made or deemed to be made hereunder, none of the Consolidated Companies is a party to or bound by any Contractual Obligation or Requirement of Law which has had or would reasonably be expected to have a Material Adverse Effect. (s) Subsidiaries. Except as disclosed on Schedule 4.1(s), on the date of this Agreement, Lessee has no Subsidiaries and neither Lessee nor any Subsidiary is a joint venture partner or general partner in any partnership. Except as disclosed on Schedule 4.1(s) or in any notice furnished to the Lenders pursuant to Section 5.1(g)(xii) at or prior to the respective times the representations and warranties set forth in this Section 4.1(s) are made or deemed to be made hereunder, Lessee has no Material Subsidiaries. (t) ERISA. Except as disclosed on Schedule 4.1(t) or in any notice to the Agent furnished pursuant to Section 5.1(g)(vii) at or prior to the respective times the representations and warranties set forth in this Section 4.1(t) are made or deemed to be made hereunder: (1) Identification of Plans. None of the Consolidated Companies nor any of their respective ERISA Affiliates maintains or contributes to, or has during the past seven years maintained or contributed to, any Plan that is subject to Title IV of ERISA; (2) Compliance. Each Plan maintained by the Consolidated Companies has at all times been maintained, by their terms and in operation, in compliance with all applicable laws, and the Consolidated Companies are subject to no tax or penalty with respect to any Plan of such Consolidated Company or any ERISA Affiliate thereof, including without limitation, any tax or penalty under Title I or Title IV of ERISA or under Chapter 43 of the Tax Code, or any tax or penalty resulting from a loss of deduction under Section 162, 404 or 419 of the Tax Code, where the failure to comply with such laws, and such taxes and penalties, together with all other liabilities referred to in this Section 4.1(t) (taken as a whole), would in the aggregate have a Material Adverse Effect; (3) Liabilities. The Consolidated Companies are subject to no liabilities (including withdrawal liabilities) with respect to any Plans of such Consolidated Companies or any of their ERISA Affiliates, including without limitation, any liabilities arising from Titles I or IV of ERISA, other than obligations to fund benefits under an ongoing Plan and to pay current contributions, expenses and premiums with respect to such Plans, where such liabilities, together with all other liabilities referred to in this Section 4.1(t) (taken as a whole), would in the aggregate have a Material Adverse Effect; (4) Funding. The Consolidated Companies and, with respect to any Plan which is subject to Title IV of ERISA, each of their respective ERISA Affiliates, have made full and timely payment of all amounts (A) required to be contributed under the terms of each Plan and applicable law, and (B) required to be paid as expenses (including PBGC or other premiums) of each Plan, where the failure to pay such amounts (when taken as a whole, including any penalties attributable to such amounts) would have a Material Adverse Effect. No Plan subject to Title IV of ERISA (other than a Multiemployer Plan) has an "amount of unfunded benefit liabilities" (as defined in Section 4001(a)(18) of ERISA), determined as if such Plan terminated on any date on which this representation and warranty is deemed made, in any amount which, together with all other liabilities referred to in this Section 4.1(t)(taken as a whole), would have a Material Adverse Effect if such amount were then due and payable. None of the Consolidated Companies would be subject to withdrawal liability with respect to any Multiemployer Plan, determined as if the event resulting in such withdrawal liability occurred on any date on which this representation is made or deemed to be made based on the most recent actuarial valuation data made available to employers participating in the Multiemployer Plan, in any amount which, together with all other liabilities referred to in this Section 4.1(t)(taken as a whole), would have a Material Adverse Effect if such amounts were then due and payable. The Consolidated Companies are subject to no liabilities with respect to post-retirement medical benefits in any amounts which, together with all other liabilities referred to in this Section 4.1(t)(taken as a whole), would have a Material Adverse Effect if such amounts were then due and payable. (u) Patents, Trademarks, Licenses, Etc. Except as set forth on Schedule 4.1(u), (i) the Consolidated Companies have obtained and hold in full force and effect all material patents, trademarks, service marks, trade names, copyrights, licenses and other such rights, free from material burdensome restrictions, which are necessary for the operation of their respective businesses as presently conducted, and (ii) to the best of Lessee's knowledge, no product, process, method, service or other item presently sold by or employed by any Consolidated Company in connection with such business infringes any patents, trademark, service mark, trade name, copyright, license or other right owned by any other person and there is not presently pending, or to the knowledge of Lessee, threatened, any claim or litigation against or affecting any Consolidated Company contesting such Person's right to sell or use any such product, process, method, substance or other item where the result of such failure to obtain and hold such benefits or such infringement would have a Material Adverse Effect. (v) Ownership of Property. Except as set forth on Schedule 4.1(v), each Consolidated Company has good and marketable fee simple title to or a valid leasehold interest in all of its real property and good title to, or a valid leasehold interest in, all of its other property, as such properties are reflected in the consolidated balance sheet of the Consolidated Companies as of June 1, 1996 referred to in Section 4.1(m), other than properties disposed of in the ordinary course of business since such date or as otherwise permitted by the terms of this Master Agreement, subject to no Lien or title defect of any kind, except Liens permitted by this Master Agreement. The Consolidated Companies enjoy peaceful and undisturbed possession under all of their respective material leases. (w) Indebtedness. Except for the Indebtedness set forth on Schedule 4.1(w), none of the Consolidated Companies is an obligor in respect of any Indebtedness for borrowed money, or any commitment to create or incur any Indebtedness for borrowed money, in an amount greater than $1,000,000 in any single case, and such Indebtedness and commitments for amounts less than $1,000,000 do not exceed $2,500,000 in the aggregate for all such Indebtedness and commitments of the Consolidated Companies. (x) Labor Matters. Except as set forth in Schedule 4.1(x) or in any notice furnished to the Lenders pursuant to Section 5.1(g)(xi) at or prior to the respective times the representations and warranties set forth in this Section 4.1(x) are made or deemed to be made hereunder, the Consolidated Companies have experienced no strikes, labor disputes, slow downs or work stoppages due to labor disagreements which have had, or would reasonably be expected to have, a Material Adverse Effect, and, to the best knowledge of Lessee, there are no such strikes, disputes, slow downs or work stoppages threatened against any Consolidated Company. The hours worked and payment made to employees of the Consolidated Companies have not been in violation in any material respect of the Fair Labor Standards Act or any other applicable law dealing with such matters. All payments due from the Consolidated Companies, or for which any claim may be made against the Consolidated Companies, on account of wages and employee health and welfare insurance and other benefits have been paid or accrued as liabilities on the books of the Consolidated Companies where the failure to pay or accrue such liabilities would reasonably be expected to have a Material Adverse Effect. SECTION 5.2 Representations of the Lessor. Effective as of the date of execution hereof, as of each Closing Date and as of each Funding Date, in each case, with respect to each of the Leased Properties, the Lessor represents and warrants to the Agent, the Lenders and the Lessee as follows: (a) Securities Act. The interest being acquired or to be acquired by the Lessor in such Leased Property is being acquired for its own account, without any view to the distribution thereof or any interest therein, provided that the Lessor shall be entitled to assign, convey or transfer its interest in accordance with Section 6.1. (b) Due Organization, etc. The Lessor is a limited partnership duly organized and validly existing in good standing under the laws of Texas and each state in which a Leased Property is located and has full power, authority and legal right to execute, deliver and perform its obligations under the Lease, this Master Agreement and each other Operative Document to which it is or will be a party. (c) Due Authorization; Enforceability, etc. This Master Agreement and each other Operative Document to which the Lessor is or will be a party have been or will be duly authorized, executed and delivered by or on behalf of the Lessor and are, or upon execution and delivery will be, legal, valid and binding obligations of the Lessor enforceable against it in accordance with their respective terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, or similar laws affecting creditors' rights generally and by general equitable principles. (d) No Conflict. The execution and delivery by the Lessor of the Lease, this Master Agreement and each other Operative Document to which the Lessor is or will be a party, are not or will not be, and the performance by the Lessor of its obligations under each will not be, inconsistent with its Partnership Agreement, do not and will not contravene any Applicable Law and do not and will not contravene any provision of, or constitute a default under, any Contractual Obligation of Lessor, do not and will not require the consent or approval of, the giving of notice to, the registration with or taking of any action in respect of or by, any Governmental Authority, except such as have been obtained, given or accomplished, and the Lessor possesses all requisite regulatory authority to undertake and perform its obligations under the Operative Documents. (e) Litigation. There are no pending or, to the knowledge of the Lessor, threatened actions or proceedings against the Lessor before any court, arbitrator or administrative agency with respect to any Operative Document or that would have a material adverse effect upon the ability of the Lessor to perform its obligations under this Master Agreement or any other Operative Documents to which it is or will be a party. (f) Lessor Liens. No Lessor Liens (other than those created by the Operative Documents) exist on the Closing Date on the Leased Property, or any portion thereof, and the execution, delivery and performance by the Lessor of this Master Agreement or any other Operative Document to which it is or will be a party will not subject the Leased Property, or any portion thereof, to any Lessor Liens (other than those created by the Operative Documents). (g) Employee Benefit Plans. The Lessor is not and will not be making its investment hereunder, and is not performing its obligations under the Operative Documents, with the assets of an "employee benefit plan" (as defined in Section 3(3) of ERISA) which is subject to Title I of ERISA, or "plan" (as defined in Section 4975(e)(1)) of the Code. (h) General Partner. The sole general partner of the Lessor is Atlantic Financial Managers, Inc. (i) Financial Information. (A) The unaudited balance sheet of the Lessor as of December 31, 1996 and the related statements of income, partners' capital and cash flows for the year then ended, copies of which have been delivered to the Agent and each Lender, fairly present, in conformity with sound accounting principles, the financial condition of the Lessor as of such dates and the results of operations and cash flows for such periods. (B) Since December 31, 1996, there has been no event, act, condition or occurrence having a material adverse effect upon the financial condition, operations, performance or properties of the Lessor, or the ability of the Lessor to perform in any material respect under the Operative Documents. (j) No Offering. The Lessor has not offered the Notes to any Person in any manner that would subject the issuance thereof to registration under the Securities Act. SECTION 5.3 Representations of each Lender. Effective as of the date of execution hereof, as of each Closing Date and as of each Funding Date, each Lender represents and warrants to the Lessor and to the Lessee as follows: (a) Securities Act. The interest being acquired or to be acquired by such Lender in the Funded Amounts is being acquired for its own account, without any view to the distribution thereof or any interest therein, provided that such Lender shall be entitled to assign, convey or transfer its interest in accordance with Section 6.2. Such Lender is an accredited investor as that term is defined in Rule 501(a) under the Securities Act. (b) Employee Benefit Plans. Such Lender is not and will not be making its investment hereunder, and is not performing its obligations under the Operative Documents, with the assets of an "employee benefit plan" (as defined in Section 3(3) of ERISA) which is subject to Title I of ERISA, or "plan" (as defined in Section 4975(e)(1)) of the Code. SECTION 6 COVENANTS OF THE LESSEE AND THE LESSOR SECTION 6.1 Affirmative Covenants. Lessee will: (a) Corporate Existence, Etc. Preserve and maintain, and cause each of its Material Subsidiaries to preserve and maintain, its corporate existence, its material rights, franchises, and licenses, and its material patents and copyrights (for the scheduled duration thereof), trademarks, trade names, and service marks, necessary or desirable in the normal conduct of its business, and its qualification to do business as a foreign corporation in all jurisdictions where it conducts business or other activities making such qualification necessary, where the failure to be so qualified would reasonably be expected to have a Material Adverse Effect. (b) Compliance with Laws, Etc. Comply, and cause each of its Subsidiaries to comply, with all Requirements of Law and Contractual Obligations applicable to or binding on any of them where the failure to comply with such Requirements of Law and Contractual Obligations would reasonably be expected to have a Material Adverse Effect. (c) Payment of Taxes and Claims, Etc. Pay, and cause each of its Subsidiaries to pay, (i) all taxes, assessments and governmental charges imposed upon it or upon its property, and (ii) all claims (including, without limitation, claims for labor, materials, supplies or services) which might, if unpaid, become a Lien upon its property, unless, in each case, the validity or amount thereof is being contested in good faith by appropriate proceedings and adequate reserves are maintained with respect thereto. (d) Keeping of Books. Keep, and cause each of its Subsidiaries to keep, proper books of record and account, containing complete and accurate entries of all their respective financial and business transactions. (e) Visitation, Inspection, Etc. Permit, and cause each of its Subsidiaries to permit, any representative of the Agent, the Lessor or any Lender to visit and inspect any of its property, to examine its books and records and to make copies and take extracts therefrom, and to discuss its affairs, finances and accounts with its officers, all at such reasonable times and as often as the Agent, the Lessor or such Lender may reasonably request. (f) Insurance; Maintenance of Properties. (i) Maintain or cause to be maintained with financially sound and reputable insurers, insurance with respect to its properties and business, and the properties and business of its Subsidiaries, against loss or damage of the kinds customarily insured against by reputable companies in the same or similar businesses, such insurance to be of such types and in such amounts as is customary for such companies under similar circumstances; provided, however, that in any event Lessee shall use its best efforts to maintain, or cause to be maintained, insurance in amounts and with coverages not materially less favorable to any Consolidated Company as in effect on the date of this Master Agreement. (ii) Cause, and cause each of the Consolidated Companies to cause, all properties used or useful in the conduct of its business to be maintained and kept in good condition, repair and working order and supplied with all necessary equipment and will cause to be made all necessary repairs, renewals, replacements, settlements and improvements thereof, all as in the judgment of Lessee may be necessary so that the business carried on in connection therewith may be properly and advantageously conducted at all times. (g) Reporting Covenants. Furnish to the Agent, the Lessor and each Lender: (i) Annual Financial Statements. As soon as available and in any event within 90 days after the end of each Fiscal Year of Lessee, balance sheets of the Consolidated Companies as at the end of such year, presented on a consolidated basis, and the related statements of income, shareholders' equity, and cash flows of the Consolidated Companies for such Fiscal Year, presented on a consolidated basis, setting forth in each case in comparative form the figures for the previous Fiscal Year, all in reasonable detail and accompanied by a report thereon of Ernst & Young or other independent public accountants of comparable recognized national standing, which such report shall be unqualified as to going concern and scope of audit and shall state that such financial statements present fairly in all material respects the financial condition as at the end of such Fiscal Year on a consolidated basis, and the results of operations and statements of cash flows of the Consolidated Companies for such Fiscal Year in accordance with GAAP and that the examination by such accountants in connection with such consolidated financial statements has been made in accordance with generally accepted auditing standards; (ii) Quarterly Financial Statements. As soon as available and in any event within 45 days after the end of each fiscal quarter of Lessee (other than the fourth fiscal quarter), balance sheets of the Consolidated Companies as at the end of such quarter presented on a consolidated basis and the related statements of income, shareholders' equity, and cash flows of the Consolidated Companies for such fiscal quarter and for the portion of Lessee's Fiscal Year ended at the end of such quarter, presented on a consolidated basis setting forth in each case in comparative form the figures for the corresponding quarter and the corresponding portion of Lessee's previous Fiscal Year, all in reasonable detail and certified by the chief financial officer or principal accounting officer of Lessee that such financial statements fairly present in all material respects the financial condition of the Consolidated Companies as at the end of such fiscal quarter on a consolidated basis, and the results of operations and statements of cash flows of the Consolidated Companies for such fiscal quarter and such portion of Lessee's Fiscal Year, in accordance with GAAP consistently applied (subject to normal year-end audit adjustments and the absence of certain footnotes); (iii) No Default/Compliance Certificate. Together with the financial statements required pursuant to subsections (i) and (ii) above, a certificate of the principal accounting officer or chief financial officer of Lessee (i) to the effect that, based upon a review of the activities of the Consolidated Companies and such financial statements during the period covered thereby, there exists no Event of Default and no Potential Event of Default, or if there exists an Event of Default or a Potential Event of Default, specifying the nature thereof and the proposed response thereto, and (ii) demonstrating in reasonable detail compliance as at the end of such Fiscal Year or such fiscal quarter with the covenants set forth in Sections 5.01 and 5.02(a) through (e). (iv) Notice of Default. Promptly after any Executive Officer of Lessee has notice or knowledge of the occurrence of an Event of Default or a Potential Event of Default, a certificate of the chief financial officer or principal accounting officer of Lessee specifying the nature thereof and the proposed response thereto; (v) Litigation. Promptly after (i) the occurrence thereof, notice of the institution of or any material adverse development in any material action, suit or proceeding or any governmental investigation or any arbitration, before any court or arbitrator or any governmental or administrative body, agency or official, against any Consolidated Company, or any material property of any thereof seeking money damages in excess of $2,500,000 or which, if adversely determined, would otherwise reasonably be expected to have a Material Adverse Effect, or (ii) actual knowledge thereof, notice of the threat of any such action, suit, proceeding, investigation or arbitration; (vi) Environmental Notices. Promptly after receipt thereof, notice of any actual or alleged violation, or notice of any action, claim or request for information, either judicial or administrative, from any governmental authority relating to any actual or alleged claim, notice of potential responsibility under or violation of any Environmental Law, or any actual or alleged spill, leak, disposal or other release of any Hazardous Materials by any Consolidated Company which could result in penalties, fines, claims or other liabilities to any Consolidated Company in amounts in excess of $500,000; (vii) ERISA. (1) Promptly after the occurrence thereof with respect to any Plan of any Consolidated Company or any ERISA Affiliate thereof, or any trust established thereunder, notice of (A) a "reportable event" described in Section 4043 of ERISA and the regulations issued from time to time thereunder (other than a "reportable event" not subject to the provisions for 30-day notice to the PBGC under such regulations), or (B) any other event which could subject any Consolidated Company to any tax, penalty or liability under Title I or Title IV of ERISA or Chapter 43 of the Tax Code, or any tax or penalty resulting from a loss of deduction under Section 162, 404 or 419 of the Tax Code, where any such taxes, penalties or liabilities exceed or could exceed $500,000 in the aggregate; (2) Promptly after such notice must be provided to the PBGC, or to a Plan participant, beneficiary or alternative payee, any notice required under Section 101(d), 302(f)(4), 303, 307, 4041(b)(1)(A) or 4041(c)(1)(A) of ERISA or under Section 401(a)(29) or 412 of the Tax Code with respect to any Plan of any Consolidated Company or any ERISA Affiliate thereof; (3) Promptly after receipt, any notice received by any Consolidated Company or any ERISA Affiliate thereof concerning the intent of the PBGC or any other governmental authority to terminate a Plan of such company or ERISA Affiliate thereof which is subject to Title IV of ERISA, to impose any liability on such company or ERISA Affiliate under Title IV of ERISA or Chapter 43 of the Tax Code; (4) Upon the request of the Agent, promptly upon the filing thereof with the Internal Revenue Service ("IRS") or the Department of Labor ("DOL"), a copy of IRS Form 5500 or annual report for each Plan of any Consolidated Company or ERISA Affiliate thereof which is subject to Title IV of ERISA; (5) Upon the request of the Agent, (A) true and complete copies of any and all documents, government reports and IRS determination or opinion letters or rulings for any Plan of any Consolidated Company from the IRS, PBGC or DOL, (B) any reports filed with the IRS, PBGC or DOL with respect to a Plan of the Consolidated Companies or any ERISA Affiliate thereof, or (C) a current statement of withdrawal liability for each Multiemployer Plan of any Consolidated Company or any ERISA Affiliate thereof; (viii) Liens. Promptly upon any Consolidated Company becoming aware thereof, notice of the filing of any federal statutory Lien, tax or other state or local government Lien or any other Lien affecting their respective properties, other than Permitted Liens; (ix) Public Filings, Etc. Promptly upon the filing thereof or otherwise becoming available, copies of all financial statements, annual, quarterly and special reports, proxy statements and notices sent or made available generally by Lessee to its public security holders, of all regular and periodic reports and all registration statements and prospectuses, if any, filed by any of them with any securities exchange, and of all press releases and other statements made available generally to the public containing material developments in the business or financial condition of Lessee and the other Consolidated Companies; (x) Accountants' Reports. Promptly upon receipt thereof, copies of all financial statements of, and all reports submitted by, independent public accountants to Lessee in connection with each annual, interim or special audit of Lessee's financial statements, including without limitation, the comment letter submitted by such accountants to management in connection with their annual audit; (xi) Burdensome Restrictions, Etc. Promptly upon the existence or occurrence thereof, notice of the existence or occurrence of (i) any Contractual Obligation or Requirement of Law described in Section 4.1(r), (ii) failure of any Consolidated Company to hold in full force and effect those material trademarks, service marks, patents, trade names, copyrights, licenses and similar rights necessary in the normal conduct of its business, and (iii) any strike, labor dispute, slow down or work stoppage as described in Section 4.1(x); (xii) New Material Subsidiaries. Within 30 days after the formation or acquisition of any Material Subsidiary, or any other event resulting in the creation of a new Material Subsidiary, notice of the formation or acquisition of such Material Subsidiary or such occurrence, including a description of the assets of such entity, the activities in which it will be engaged, and such other information as the Agent and any of the Lenders may request; and (xiii) Other Information. With reasonable promptness, such other information about the Consolidated Companies as the Agent, the Lessor or any Lender may reasonably request from time to time. (h) Financial Covenants. (i) Fixed Charge Coverage. Maintain a Fixed Charge Coverage Ratio greater than the ratio set forth opposite the periods set forth below, measured as of the last day of each fiscal quarter during such period for the immediately preceding four quarters ending on such date: Applicable Period Ratio Fiscal Year End 1996 through Fiscal Year End 1997 1.75:1.00 First day of Fiscal Year 1998 and thereafter 2.00:1.00 (ii) Consolidated Funded Debt to Total Capitalization. Maintain at all times, measured as of the last day of each fiscal quarter of the Lessee, commencing on Fiscal Year End 1996, a ratio of Consolidated Funded Debt to Total Capitalization of less than 0.60:1.0. (iii) Consolidated Net Worth. Maintain at all times Consolidated Net Worth in an amount not less than the sum of (i) $180,000,000.00, plus (ii) the greater of (x) $0, and (y) fifty percent (50%) of the Consolidated Net Income (Loss) earned by Lessee during the period commencing on June 2, 1996 and ending on the last day of the fiscal quarter of the Lessee immediately preceding the date of any calculation hereof (with such period calculated as a single accounting period and taking into account 100% of all losses during such period), plus (iii) an amount equal to 100% of the Net Proceeds of all issuances of stock, warrants, Subordinated Debt, or other equity of the Lessee issued following the date hereof. (i) Notices Under Certain Other Indebtedness. Immediately upon its receipt thereof, Lessee shall furnish the Agent a copy of any notice received by it or any other Consolidated Company from the holder(s) of Indebtedness referred to in Section 5.2(a)(ii), (iii), (vi), (vii) or (iv) (or from any trustee, agent, attorney, or other party acting on behalf of such holder(s)) in an amount which, in the aggregate, exceeds $2,500,000, where such notice states or claims (i) the existence or occurrence of any default or event of default with respect to such Indebtedness under the terms of any indenture, loan or credit agreement, debenture, note, or other document evidencing or governing such Indebtedness, or (ii) the existence or occurrence of any event or condition which requires or permits holder(s) of any Indebtedness to exercise rights under any Change in Control Provision. SECTION 6.2 Negative Covenants. Lessee will not and will not permit any Subsidiary to: (a) Indebtedness. Create, incur, assume, guarantee, suffer to exist or otherwise become liable on or with respect to, directly or indirectly, any Indebtedness, other than: (i) Indebtedness of the Lessee under the Credit Agreement and of the Material Subsidiaries of Lessee pursuant to the guaranties delivered pursuant to the Credit Agreement; (ii) Indebtedness outstanding or incurred on the initial Closing Date and described on Schedule 5.2(a); (iii) purchase money Indebtedness to the extent secured by a Lien permitted by Section 5.2(b) or Indebtedness of a Person acquired by the Lessee to the extent secured by a Lien permitted by Section 5.2(h); (iv) unsecured current liabilities (other than liabilities for borrowed money or liabilities evidenced by promissory notes, bonds or similar instruments) incurred in the ordinary course of business and either (i) not more than 30 days past due, or (ii) being disputed in good faith by appropriate proceedings with reserves for such disputed liability maintained in conformity with GAAP; (v) Indebtedness of Lessee or any of its Subsidiaries under (i) Interest Rate Contracts, (ii) the Franchisee Loan Program and (iii) to the extent constituting Indebtedness, the Operative Documents; (vi) Subordinated Debt of the Lessee (but not Subsidiaries of the Lessee); (vii) Guarantees of advances to officers and employees in the ordinary course of business, or Guarantees otherwise disclosed to and approved in writing by the Agent and the Required Lenders; (viii) Endorsements of instruments for deposit or collection in the ordinary course of business; and (ix) Other unsecured Indebtedness of the Lessee (but not Subsidiaries of the Lessee) (other than Guarantees) which does not result in a Potential Event of Default or an Event of Default. (b) Liens. Create, incur, assume or suffer to exist any Lien on any of its property now owned or hereafter acquired to secure any Indebtedness other than: (i) Liens existing on the initial Closing Date and disclosed on Schedule 5.2(b); (ii) any Lien on any property and proceeds thereof securing Indebtedness incurred or assumed for the purpose of financing all or any part of the acquisition cost of such property and any refinancing thereof, provided that such Lien does not extend to any other property (other than the proceeds of such property), including any Lien arising pursuant to the Operative Documents; (iii) Liens for taxes not yet due, and Liens for taxes or Liens imposed by ERISA which are being contested in good faith by appropriate proceedings and with respect to which adequate reserves are being maintained in accordance with GAAP; (iv) statutory Liens of landlords and Liens of carriers, warehousemen, mechanics, materialmen and other Liens imposed by law and created in the ordinary course of business for amounts not yet due or which are being contested in good faith by appropriate proceedings and with respect to which adequate reserves are being maintained in accordance with GAAP; (v) Liens incurred or deposits made in the ordinary course of business in connection with workers' compensation, unemployment insurance and other types of social security, or to secure the performance of tenders, statutory obligations, surety and appeal bonds, bids, leases, government contracts, performance and return- of-money bonds and other similar obligations (exclusive of obligations for the payment of borrowed money); (vi) zoning, easements and restrictions on the use of real property which do not materially impair the use of such property; (vii) rights in property reserved or vested in any Governmental Authority which do not materially impair the use of such property; and (viii) any Lien existing on property of a Person immediately prior to its being consolidated with or merged into the Lessee or into any Consolidated Company, or any Lien existing on any property acquired by any Consolidated Company at the time such property is so acquired (whether or not the Indebtedness secured thereby shall have been assumed), provided that (x) no such Lien shall have been created or assumed in contemplation of consolidation or merger or such Person's becoming a Consolidated Company or such acquisition of property and (y) each such Lien shall at all times be confined solely to the item or items of property so acquired and, if required by the terms of the instruments originally creating such Lien, other property which is an improvement to or is acquired for specific use in connection with such acquired property; provided that, the aggregate amount of Indebtedness secured by Liens permitted pursuant to this Section 5.2(b), excluding Indebtedness, if any, arising pursuant to the Operative Documents, shall at no time exceed 15% of the Consolidated Net Worth of the Lessee calculated as of the last day of the most recently ended fiscal quarter of the Lessee. (c) Mergers, Sales, Etc. (A) Merge or consolidate with any other Person, except that this Section 5.2(c) shall not apply to (i) any merger or consolidation of Lessee with any other Person provided that the Lessee is the surviving corporation after such merger or consolidation, (ii) any merger or consolidation of any of the Lessee's Subsidiaries with any other Person provided that any such Subsidiary shall be the surviving corporation after such merger or consolidation or (iii) any merger between Subsidiaries of Lessee, and (B) sell, lease, transfer or otherwise dispose of its accounts, property or other assets (including capital stock of any Subsidiary of Lessee), except that this Section 5.2(c) shall not apply to (i) any sale, lease, transfer or other disposition of assets of any Subsidiary of the Lessee to the Lessee or any of its Material Subsidiaries, (ii) sales of inventory in the ordinary course of business of the Lessee and its Subsidiaries, (iii) disposition of equipment or inventory determined in good faith to be obsolete or unusable by the Lessee or its Subsidiaries, or (iv) any other sale of the Lessee's assets during the Lease Term with an aggregate book value, when aggregated with all other such sales since the Initial Closing Date, not exceeding 7.5% of the aggregate book value of all of the Lessee's assets on the date of such transfer; provided, however, that no transaction pursuant to clause (A), clause (B)(i) or clause (B)(iv) above shall be permitted if any Potential Event of Default or Event of Default exists at the time of such transaction or would exist as a result of such transaction. (d) Investments, Loans, Etc. Make, permit or hold any Investments in any Person, or otherwise acquire or hold any Subsidiaries, other than: (i) Investments in Subsidiaries of Lessee existing as of the Initial Closing Date and Investments in franchisees of Lessee arising pursuant to the Franchisee Loan Program; (ii) Investments in the stock or other assets of any other Person that is engaged in a business permitted by Section 5.2(h) hereof that, as a result of such Investment, becomes a Subsidiary of Lessee (other than Hostile Acquisitions); provided, however, that the aggregate amount of Investments made pursuant to this subsection (ii) shall not exceed, during the Lease Term, a total value of ten percent (10%) of the Consolidated Net Worth of the Lessee as calculated on the last day of the most recently ended fiscal quarter of the Lessee; (iii) marketable direct obligations of the United States or any agency thereof, or obligations guaranteed by the United States or any agency thereof, in each case supported by the full faith and credit of the United States and maturing within one year from the date of creation thereof; (iv) Investments received in settlement of Indebtedness created in the ordinary course of business; (v) marketable direct obligations issued by any state of the United States of America or any political subdivision of any such state or any public instrumentality thereof, the interest from which is exempt from Federal income taxes, maturing within one year from the date of acquisition thereof and either having as at any date of determination the one of the two highest ratings obtainable from either Standard & Poor's or Moody's; (vi) unsecured commercial paper, the interest from which is exempt from Federal income taxes, maturing no more than 270 days from the date of creation and having as at any date of determination either the highest rating obtainable from either Standard & Poor's or Moody's; (vii) commercial paper issued by corporations, each of which has a consolidated net worth of not less than $500,000,000, and conducts a substantial portion of its business in the United States of America, maturing no more than 365 days from the date of acquisition thereof and having as at any date of determination the highest rating obtainable from either Standard & Poor's or Moody's; and (viii) money market or similar depository accounts, certificates of deposit or bankers acceptances, in each case redeemable upon demand or maturing within one year from the date of acquisition thereof, issued by commercial banks incorporated under the laws of the United States of America or any state thereof or the District of Columbia, provided (x) each such bank has at any date of determination combined capital and surplus of not less than $1,000,000,000 and a rating of its long-term debt of at least A by Standard & Poor's or at least A by Moody's or a long-term deposit rating of at least A issued by Standard & Poor's or at least A issued by Moody's, (y) the aggregate amount of all such certificates of deposit issued by such bank are fully insured at all times by the Federal Deposit Insurance Company; provided however, notwithstanding the foregoing, the Lessee and any Subsidiary may continue to own any Investment which (A) complied with the provisions of clause (vi), (vii) or (viii) at the time such Investment was made and (B) at any date of determination does not so comply solely because (x) such Investment no longer has the rating required from Standard & Poor's or Moody's or (y) the bank having the money market or depository account or issuing the certificate of deposit or bankers acceptance ceases to have the required level of capital and surplus or to have a rating of its long-term debt of at least A by Standard & Poor's or at least A by Moody's or to have a long-term deposit rating of at least A by Standard & Poor's or at least A by Moody's, if, and for so long as, in the good faith judgment of the relevant Executive Officer, no loss of the principal amount of such Investment would occur as the result of the Lessee or such Subsidiary continuing to own such Investment to maturity. Nothing contained in the foregoing proviso shall be deemed to be applicable to any new or renewed Investment at the time such Investment is made or renewed. (e) Letters of Credit. Create, incur, issue, assume, guarantee, suffer to exist or otherwise become liable on or with respect to, directly or indirectly, letters of credit where the maximum amount available to be drawn under all such letters of credit would exceed, at any one time outstanding, $50,000,000 in the aggregate. (f) Sale and Leaseback Transactions. Sell or transfer any property, real or personal, whether now owned or hereafter acquired, and thereafter rent or lease such property or other property which any Consolidated Company intends to use for substantially the same purpose or purposes as the property being sold or transferred; provided that, the Consolidated Companies shall be permitted to sell or transfer property and rent or lease such property or other property back so long as the aggregate market value of such property sold or transferred during the Lease Term does not exceed $5,000,000. (g) Transactions with Affiliates. (i) Enter into any transaction or series of related transactions which in the aggregate would be material, whether or not in the ordinary course of business, with any Affiliate of any Consolidated Company (but excluding any Affiliate which is also a wholly-owned Subsidiary of Lessee and any compensation arrangement with an officer or director of the Lessee or any other Consolidated Company entered into in the ordinary course of business), other than on terms and conditions substantially as favorable to such Consolidated Company as would be obtained by such Consolidated Company at the time in a comparable arm's-length transaction with a Person other than an Affiliate. (ii) Convey or transfer to any other Person (including any other Consolidated Company) any real property, buildings, or fixtures used in the manufacturing or production operations of any Consolidated Company, or convey or transfer to any other Consolidated Company any other assets (excluding conveyances or transfers in the ordinary course of business) if at the time of such conveyance or transfer any Potential Event of Default or Event of Default exists or would exist as a result of such conveyance or transfer. (h) Changes in Business. Enter into or engage in any business which is substantially different from the business engaged in by the Lessee and its Subsidiaries on the initial Closing Date. (i) ERISA. Take or fail to take any action with respect to any Plan of any Consolidated Company or, with respect to its ERISA Affiliates, any Plans which are subject to Title IV of ERISA or to continuation health care requirements for group health plans under the Tax Code, including without limitation (i) establishing any such Plan, (ii) amending any such Plan (except where required to comply with Applicable Law), (iii) terminating or withdrawing from any such Plan, or (iv) incurring an amount of unfunded benefit liabilities, as defined in Section 4001(a)(18) of ERISA, or any withdrawal liability under Title IV of ERISA with respect to any such Plan, which together with any other action or omission referred to in this Section 5.2(i) (taken as a whole) would have a Material Adverse Effect, without first obtaining the written approval of the Required Lenders. (j) Limitation on Payment Restrictions Affecting Consolidated Companies. Create or otherwise cause or suffer to exist or become effective, any consensual encumbrance or restriction on the ability of any Consolidated Company to (i) pay dividends or make any other distributions on any stock of a Subsidiary of the Lessee, or (ii) pay any intercompany debt owed to Lessee or any other Consolidated Company, or (iii) transfer any of its property or assets to Lessee or any other Consolidated Company, except any consensual encumbrance or restriction existing as of the Closing Date. (k) Actions Under Certain Documents. Without the prior written consent of the Required Lenders (i) modify, amend, cancel or rescind any agreements or documents evidencing or governing Subordinated Debt or intercompany debt, (ii) make any payment with respect to Subordinated Debt, except that current interest accrued on such Subordinated Debt as of the date of this Master Agreement and all interest subsequently accruing thereon (whether or not paid currently) may be paid unless a Potential Event of Default or Event of Default has occurred and is continuing, (iii) voluntarily prepay any portion of intercompany debt, or (iv) amend or revise the Sharing Agreements so as to materially increase the liabilities or obligations of the Consolidated Companies thereunder. (l) Changes in Fiscal Year. Change the calculation of the Fiscal Year of the Lessee. (m) Issuance of Stock by Subsidiaries. Permit any Subsidiary (either directly or indirectly by the issuance of rights or options for, or securities convertible into such shares) to issue, sell or dispose of any shares of its stock of any class (other than directors' qualifying shares, if any) except to the Lessee or another Subsidiary. SECTION 6.3 Further Assurances. Upon the written request of the Lessor or the Agent, the Lessee, at its own cost and expense, will cause all financing statements (including precautionary financing statements), fixture filings and other similar documents, to be recorded or filed at such places and times in such manner, as may be necessary to preserve, protect and perfect the interest of the Lessor, the Agent and the Lenders in the related Leased Property as contemplated by the Operative Documents. SECTION 6.4 Additional Required Appraisals. If, as a result of any change in Applicable Law after the date hereof, an appraisal of all or any of the Leased Property is required during the Lease Term under Applicable Law with respect to any Funding Party's interest therein, such Funding Party's Funded Amount with respect thereto or the Operative Documents, then the Lessee shall pay the reasonable cost of such appraisal. SECTION 6.5 Lessor's Covenants. The Lessor covenants and agrees that, unless the Agent and the Lenders shall have otherwise consented in writing: (a) it shall not amend its Partnership Agreement, except to admit limited partners in connection with lease transactions similar to the Transactions; (b) it shall not incur any indebtedness or other monetary obligation or liability, other than (i) non-recourse indebtedness incurred in connection with the Transactions or similar transactions and (ii) operating expenses incurred in the ordinary course of business that are not delinquent; (c) the proceeds of the Loans received from the Lenders will be used by the Lessor solely to acquire the Leased Property and to pay the Lessee for certain closing and transaction costs associated therewith and for the costs of Construction. No portion of the proceeds of the Loans will be used by the Lessor (i) in connection with, whether directly or indirectly, any tender offer for, or other acquisition of, stock of any corporation with a view towards obtaining control of such other corporation, (ii) directly or indirectly, for the purpose, whether immediate, incidental or ultimate, of purchasing or carrying any Margin Stock, or (iii) for any purpose in violation of any Applicable Law; (d) it shall not engage in any business or activity, or invest in any Person, except for activities similar to its activities conducted on the date hereof, the Transactions and lease transactions similar to the Transactions; (e) it will maintain tangible net worth in an amount no less than the sum of (i) $100,000 plus (ii) 3% of its total assets (calculated assuming no reduction in the value of any leased property from its original cost to the Lessor); (f) it will deliver to the Agent, as soon as available and in any event within 90 days after the end of each fiscal year, a balance sheet of the Lessor as of the end of such fiscal year and the related statements of income, partners' capital and cash flows for such fiscal year, setting forth in each case in comparative form the figures for the previous fiscal year, together with copies of its tax returns, all certified by an officer of the general partner (and if the Lessor ever prepares audited financial statements, it shall deliver copies thereto the Agent); (g) it will permit the Agent and its representatives to examine, and make copies from, the Lessor's books and records, and to visit the offices and properties of the Lessor for the purpose of examining such materials, and to discuss the Lessor's performance hereunder with any of its, or its general partner's, officers and employees; (h) it shall not consent to or suffer or permit any Lien against the Leased Property, other than as expressly contemplated pursuant to the Operative Documents; (i) it shall not consent to or suffer or permit the creation of any easement or other restriction against the Leased Property other than as permitted pursuant to Article VI of the Lease; and (j) it shall promptly discharge each Lessor Lien and shall indemnify the Lenders and the Lessee for any diminution in value of any Leased Property resulting from such Lessor Liens. SECTION 7 TRANSFERS BY LESSOR AND LENDERS SECTION 7.1 Lessor Transfers. The Lessor shall not assign, convey or otherwise transfer all or any portion of its right, title or interest in, to or under any Leased Property or any of the Operative Documents without the prior written consent of the Lenders and the Lessee. Any proposed transferee of the Lessor shall make the representation set forth in Section 4.2(b) to the other parties hereto. SECTION 7.2 Lender Transfers. No Lender may grant participations in its Commitment or sell Loans or participations in its Loan and Commitment to any Person (other than an Affiliate) without the prior written consent of the Lessee, which consent shall not be unreasonably withheld. Any approved participation buyer shall not receive voting or waiver rights except with respect to postponing maturities, decreasing interest rates, releasing all or substantially all of the collateral or increasing principal amounts. Assignments will be permitted only with the prior written consent of the Lessee and the Agent, which consent shall not be unreasonably withheld, obtained at least 14 days prior to any proposed assignment, and the payment of a processing fee of $2,500 by the assignor or assignee Lender (as agreed between such Persons) to the Agent. Assignments shall be evidenced by an assignment and assumption agreement in substantially the form set forth as Exhibit J. SECTION 8 INDEMNIFICATION SECTION 8.1 General Indemnification. The Lessee agrees, whether or not any of the transactions contemplated hereby shall be consummated, to assume liability for, and to indemnify, protect, defend, save and hold harmless each Indemnitee, on an After-Tax Basis, from and against, any and all Claims that may be imposed on, incurred by or asserted, or threatened to be asserted, against such Indemnitee (whether because of action or omission by such Indemnitee or otherwise), whether or not such Indemnitee shall also be indemnified as to any such Claim by any other Person and whether or not such Claim arises or accrues prior to any Closing Date or after the Lease Termination Date, in any way relating to or arising out of: (a) any of the Operative Documents or any of the transactions contemplated thereby, and any amendment, modification or waiver in respect thereof; or (b) any Land, any Building or any part thereof or interest therein, including any Ground Lease; (c) the purchase, design, construction, preparation, installation, inspection, delivery, non-delivery, acceptance, rejection, ownership, management, possession, operation, rental, lease, sublease, repossession, maintenance, repair, alteration, modification, addition, substitution, storage, transfer of title, redelivery, use, financing, refinancing, disposition, operation, condition, sale (including, without limitation, any sale pursuant to the Lease), return or other disposition of all or any part of any interest in any Leased Property or the imposition of any Lien, other than a Lessor Lien (or incurring of any liability to refund or pay over any amount as a result of any Lien, other than a Lessor Lien) thereon, including, without limitation: (1) Claims or penalties arising from any violation or alleged violation of law or in tort (strict liability or otherwise), (2) latent or other defects, whether or not discoverable, (3) any Claim based upon a violation or alleged violation of the terms of any restriction, easement, condition or covenant or other matter affecting title to any Leased Property or any part thereof, (4) the making of any Alterations in violation of any standards imposed by any insurance policies required to be maintained by the Lessee pursuant to the Lease which are in effect at any time with respect to any Leased Property or any part thereof, (5) any Claim for patent, trademark or copyright infringement, (6) Claims arising from any public improvements with respect to any Leased Property resulting in any charge or special assessments being levied against any Leased Property or any Claim for utility "tap-in" fees, and (7) Claims for personal injury or real or personal property damage occurring, or allegedly occurring, on any Land, Building or Leased Property; (d) the offer, issuance, sale or delivery of the Notes by the Lessee; (e) the breach or alleged breach by the Lessee of any representation or warranty made by it or deemed made by it in any Operative Document or any certificate required to be delivered by any Operative Document; (f) the retaining or employment of any broker, finder or financial advisor by the Lessee to act on its behalf in connection with this Master Agreement, or the incurring of any fees or commissions to which the Lessor, the Agent or any Lender might be subjected by virtue of their entering into the transactions contemplated by this Master Agreement (other than fees or commissions due to any broker, finder or financial advisor retained by the Lessor, the Agent or any Lender); (g) the existence of any Lien on or with respect to any Leased Property, the Construction, any Basic Rent or Supplemental Rent, title thereto, or any interest therein, including any Liens which arise out of the possession, use, occupancy, construction, repair or rebuilding of any Leased Property or by reason of labor or materials furnished or claimed to have been furnished to the Lessee, or any of its contractors or agents or by reason of the financing of any personalty or equipment purchased or leased by the Lessee or Alterations constructed by the Lessee, except in all cases the Liens listed as items (a) and (b) in the definition of Permitted Liens; (h) the transactions contemplated hereby or by any other Operative Document, in respect of the application of Parts 4 and 5 of Subtitle B of Title I of ERISA and any prohibited transaction described in Section 4975(c) of the Code; or (i) any act or omission by the Lessee under any Purchase Agreement or any other Operative Document, and any breach of any requirement, condition, restriction or limitation in any Deed, Purchase Agreement or Ground Lease; provided, however, the Lessee shall not be required to indemnify any Indemnitee under this Section 7.1 for any of the following: (1) any Claim to the extent that such Claim results from the willful misconduct, gross negligence or misrepresentation of such Indemnitee, or (2) any Claim resulting from Lessor Liens which the Lessor Indemnitee Group is responsible for discharging under the Operative Documents. It is expressly understood and agreed that the indemnity provided for herein shall survive the expiration or termination of, and shall be separate and independent from any other remedy under this Master Agreement, the Lease or any other Operative Document. SECTION 8.2 Environmental Indemnity. In addition to and without limitation of Section 7.1, the Lessee agrees to indemnify, hold harmless and defend each Indemnitee from and against any and all claims (including without limitation third party claims for personal injury or real or personal property damage), losses (including but not limited to any loss of value of any Leased Property), damages, liabilities, fines, penalties, charges, suits, settlements, demands, administrative and judicial proceedings (including informal proceedings) and orders, judgments, remedial action, requirements, enforcement actions of any kind, and all reasonable costs and expenses actually incurred in connection therewith (including, but not limited to, reasonable attorneys' and/or paralegals' fees and expenses), including, but not limited to, all costs incurred in connection with any investigation or monitoring of site conditions or any clean-up, remedial, removal or restoration work by any federal, state or local government agency, arising directly or indirectly, in whole or in part, out of (i) the presence on or under any Land of any Hazardous Materials, or any releases or discharges of any Hazardous Materials on, under, from or onto any Land, (ii) any activity, including, without limitation, construction, carried on or undertaken on or off any Land, and whether by the Lessee or any predecessor in title or any employees, agents, contractors or subcontractors of the Lessee or any predecessor in title, or any other Person, in connection with the handling, treatment, removal, storage, decontamination, clean-up, transport or disposal of any Hazardous Materials that at any time are located or present on or under or that at any time migrate, flow, percolate, diffuse or in any way move onto or under any Land, (iii) loss of or damage to any property or the environment (including, without limitation, clean-up costs, response costs, remediation and removal costs, cost of corrective action, costs of financial assurance, fines and penalties and natural resource damages), or death or injury to any Person, and all expenses associated with the protection of wildlife, aquatic species, vegetation, flora and fauna, and any mitigative action required by or under Environmental Laws, in each case to the extent related to any Leased Property, (iv) any claim concerning any Leased Property's lack of compliance with Environmental Laws, or any act or omission causing an environmental condition on or with respect to any Leased Property that requires remediation or would allow any governmental agency to record a lien or encumbrance on the land records, or (v) any residual contamination on or under any Land, or affecting any natural resources on any Land, and to any contamination of any property or natural resources arising in connection with the generation, use, handling, storage, transport or disposal of any such Hazardous Materials on or from any Leased Property; in each case irrespective of whether any of such activities were or will be undertaken in accordance with applicable laws, regulations, codes and ordinances; in any case with respect to the matters described in the foregoing clauses (i) through (v) that arise or occur (w) prior to or during the Lease Term, (x) at any time during which the Lessee or any Affiliate thereof owns any interest in or otherwise occupies or possesses any Leased Property or any portion thereof, (y) during any period after and during the continuance of any Event of Default or (z) during any period of three years following the date an Indemnitee takes possession of any Leased Property; provided, however, the Lessee shall not be required to indemnify any Indemnitee under this Section 7.2 for any Claim to the extent that such Claim results from the willful misconduct or gross negligence of such Indemnitee. It is expressly understood and agreed that the indemnity provided for herein shall survive the expiration or termination of and shall be separate and independent from any other remedy under this Master Agreement, the Lease or any other Operative Document. SECTION 8.3 Proceedings in Respect of Claims. With respect to any amount that the Lessee is requested by an Indemnitee to pay by reason of Section 7.1 or 7.2, such Indemnitee shall, if so requested by the Lessee and prior to any payment, submit such additional information to the Lessee as the Lessee may reasonably request and which is in the possession of, or under the control of, such Indemnitee to substantiate properly the requested payment. In case any action, suit or proceeding shall be brought against any Indemnitee, such Indemnitee promptly shall notify the Lessee of the commencement thereof (provided that the failure of such Indemnitee to promptly notify the Lessee shall not affect the Lessee's obligation to indemnify hereunder except to the extent that the Lessee's ability to contest is materially prejudiced by such failure), and the Lessee shall be entitled, at its expense, to participate in, and, to the extent that the Lessee desires to, assume and control the defense thereof with counsel reasonably satisfactory to such Indemnitee; provided, however, that such Indemnitee may pursue a motion to dismiss such Indemnitee from such action, suit or proceeding with counsel of such Indemnitee's choice at the Lessee's expense; and provided further that the Lessee may assume and control the defense of such proceeding only if the Lessee shall have acknowledged in writing its obligations to fully indemnify such Indemnitee in respect of such action, suit or proceeding, the Lessee shall pay all reasonable costs and expenses related to such action, suit or proceeding as and when incurred and the Lessee shall keep such Indemnitee fully apprised of the status of such action suit or proceeding and shall provide such Indemnitee with all information with respect to such action suit or proceeding as such Indemnitee shall reasonably request; and, provided further, that the Lessee shall not be entitled to assume and control the defense of any such action, suit or proceeding if and to the extent that, (A) in the reasonable opinion of such Indemnitee, (x) such action, suit or proceeding involves any possibility of imposition of criminal liability or any material risk of material civil liability on such Indemnitee or (y) such action, suit or proceeding will involve a material risk of the sale, forfeiture or loss of, or the creation of any Lien (other than a Permitted Lien) on any Leased Property or any part thereof unless the Lessee shall have posted a bond or other security satisfactory to the relevant Indemnitees in respect to such risk or (z) the control of such action, suit or proceeding would involve an actual or potential conflict of interest, (B) such proceeding involves Claims not fully indemnified by the Lessee which the Lessee and the Indemnitee have been unable to sever from the indemnified claim(s), or (C) an Event of Default has occurred and is continuing. The Indemnitee may participate in a reasonable manner at its own expense and with its own counsel in any proceeding conducted by the Lessee in accordance with the foregoing. If the Lessee fails to fulfill the conditions to the Lessee's assuming the defense of any claim after receiving notice thereof on or prior to the date that is 15 days prior to the date that an answer or response is required, the Indemnitee may undertake such defense, at the Lessee's expense. The Lessee shall not enter into any settlement or other compromise with respect to any Claim in excess of $1,000,000 which is entitled to be indemnified under Section 7.1 or 7.2 without the prior written consent of the related Indemnitee, which consent shall not be unreasonably withheld. Unless an Event of Default shall have occurred and be continuing, no Indemnitee shall enter into any settlement or other compromise with respect to any claim which is entitled to be indemnified under Section 7.1 or 7.2 without the prior written consent of the Lessee, which consent shall not be unreasonably withheld, unless such Indemnitee waives its right to be indemnified under Section 7.1 or 7.2 with respect to such Claim. Upon payment in full of any Claim by the Lessee pursuant to Section 7.1 or 7.2 to or on behalf of an Indemnitee, the Lessee, without any further action, shall be subrogated to any and all claims that such Indemnitee may have relating thereto (other than claims in respect of insurance policies maintained by such Indemnitee at its own expense), and such Indemnitee shall execute such instruments of assignment and conveyance, evidence of claims and payment and such other documents, instruments and agreements as may be reasonably necessary to preserve any such claims and otherwise cooperate with the Lessee and give such further assurances as are reasonably necessary or advisable to enable the Lessee vigorously to pursue such claims. Any amount payable to an Indemnitee pursuant to Section 7.1 or 7.2 shall be paid to such Indemnitee promptly upon, but in no event later than 30 days after, receipt of a written demand therefor from such Indemnitee, accompanied by a written statement describing in reasonable detail the basis for such indemnity and the computation of the amount so payable. If for any reason the indemnification provided for in Section 7.1 or 7.2 is unavailable to an Indemnitee or is insufficient to hold an Indemnitee harmless, then the Lessee agrees to contribute to the amount paid or payable by such Indemnitee as a result of such loss, claim, damage or liability in such proportion as is appropriate to reflect not only the relative benefits received by such Indemnitee on the one hand and by the Lessee on the other hand but also the relative fault of such Indemnitee as well as any other relevant equitable considerations. It is expressly understood and agreed that the right to contribution provided for herein shall survive the expiration or termination of and shall be separate and independent from any other remedy under this Master Agreement, the Lease or any other Operative Document. SECTION 8.4 General Tax Indemnity. (a) Tax Indemnity. Except as otherwise provided in this Section 7.4, the Lessee shall pay on an After- Tax Basis, and on written demand shall indemnify and hold each Tax Indemnitee harmless from and against, any and all fees (including, without limitation, documentation, recording, license and registration fees), taxes (including, without limitation, income, gross receipts, sales, rental, use, turnover, value-added, property, excise and stamp taxes), levies, imposts, duties, charges, assessments or withholdings of any nature whatsoever, together with any penalties, fines or interest thereon or additions thereto (any of the foregoing being referred to herein as "Taxes" and individually as a "Tax" (for the purposes of this Section 7.4, the definition of "Taxes" includes amounts imposed on, incurred by, or asserted against each Tax Indemnitee as the result of any prohibited transaction, within the meaning of Section 406 or 407 of ERISA or Section 4975(c) of the Code, arising out of the transactions contemplated hereby or by any other Operative Document)) imposed on or with respect to any Tax Indemnitee, the Lessee, any Leased Property or any portion thereof or any Land, or any sublessee or user thereof, by the United States or by any state or local government or other taxing authority in the United States in connection with or in any way relating to (i) the acquisition, financing, mortgaging, construction, preparation, installation, inspection, delivery, non-delivery, acceptance, rejection, purchase, ownership, possession, rental, lease, sublease, maintenance, repair, storage, transfer of title, redelivery, use, operation, condition, sale, return or other application or disposition of all or any part of any Leased Property or the imposition of any Lien (or incurrence of any liability to refund or pay over any amount as a result of any Lien) thereon, (ii) Basic Rent or Supplemental Rent or the receipts or earnings arising from or received with respect to any Leased Property or any part thereof, or any interest therein or any applications or dispositions thereof, (iii) any other amount paid or payable pursuant to the Notes, or any other Operative Documents, (iv) any Leased Property, any Land or any part thereof or any interest therein (including, without limitation, all assessments payable in respect thereof, including, without limitation, all assessments noted on the related Title Policy), (v) all or any of the Operative Documents, any other documents contemplated thereby, any amendments and supplements thereto, and (vi) otherwise with respect to or in connection with the transactions contemplated by the Operative Documents. (b) Exclusions from General Tax Indemnity. Section 7.4(a) shall not apply to: (i) Taxes on, based on, or measured by or with respect to net income of the Lessor, the Agent and the Lenders (including, without limitation, minimum Taxes, capital gains Taxes, Taxes on or measured by items of tax preference or alternative minimum Taxes) other than (A) any such Taxes that are, or are in the nature of, sales, use, license, rental or property Taxes, and (B) withholding Taxes imposed by the United States or any state in which Leased Property is located (i) on payments with respect to the Notes, to the extent imposed by reason of a change in Applicable Law occurring after the date on which the holder of such Note became the holder of such Note or (ii) on Rent, to the extent the net payment of Rent after deduction of such withholding Taxes would be less than amounts currently payable with respect to the Funded Amounts; (ii) Taxes on, based on, or in the nature of or measured by Taxes on doing business, business privilege, franchise, capital, capital stock, net worth, or mercantile license or similar taxes other than (A) any increase in such Taxes imposed on such Tax Indemnitee by any state in which Leased Property is located, net of any decrease in such taxes realized by such Tax Indemnitee, to the extent that such tax increase would not have occurred if on each Funding Date the Lessor and the Lenders had advanced funds to the Lessee in the form of loans secured by the Leased Property in an amount equal to the Funded Amounts funded on such Funding Date, with debt service for such loans equal to the Basic Rent payable on each Payment Date and a principal balance at the maturity of such loans in a total amount equal to the Funded Amounts at the end of the Lease Term, or (B) any Taxes that are or are in the nature of sales, use, rental, license or property Taxes relating to any Leased Property; (iii) Taxes that are based on, or measured by, the fees or other compensation received by a Person acting as Agent (in its individual capacities) or any Affiliate of any thereof for acting as trustee under the Loan Agreement; (iv) Taxes that result from any act, event or omission, or are attributable to any period of time, that occurs after the earliest of (A) the expiration of the Lease Term with respect to any Leased Property and, if such Leased Property is required to be returned to the Lessor in accordance with the Lease, such return and (B) the discharge in full of the Lessee's obligations to pay the Lease Balance, or any amount determined by reference thereto, with respect to any Leased Property and all other amounts due under the Lease, unless such Taxes relate to acts, events or matters occurring prior to the earliest of such times or are imposed on or with respect to any payments due under the Operative Documents after such expiration or discharge; (v) Taxes imposed on a Tax Indemnitee that result from any voluntary sale, assignment, transfer or other disposition or bankruptcy by such Tax Indemnitee or any related Tax Indemnitee of any interest in any Leased Property or any part thereof, or any interest therein or any interest or obligation arising under the Operative Documents, or from any sale, assignment, transfer or other disposition of any interest in such Tax Indemnitee or any related Tax Indemnitee, it being understood that each of the following shall not be considered a voluntary sale: (A) any substitution, replacement or removal of any of the Leased Property by the Lessee, (B) any sale or transfer resulting from the exercise by the Lessee of any termination option, any purchase option or sale option, (C) any sale or transfer while an Event of Default shall have occurred and be continuing under the Lease, and (D) any sale or transfer resulting from the Lessor's exercise of remedies under the Lease; (vi) any Tax which is being contested in accordance with the provisions of Section 7.4(c), during the pendency of such contest; (vii) any Tax that is imposed on a Tax Indemnitee as a result of such Tax Indemnitee's gross negligence or willful misconduct (other than gross negligence or willful misconduct imputed to such Tax Indemnitee solely by reason of its interest in any Leased Property); (viii) any Tax that results from a Tax Indemnitee engaging, with respect to any Leased Property, in transactions other than those permitted by the Operative Documents; (ix) to the extent any interest, penalties or additions to tax result in whole or in part from the failure of a Tax Indemnitee to file a return or pay a Tax that it is required to file or pay in a proper and timely manner, unless such failure (A) results from the transactions contemplated by the Operative Documents in circumstances where the Lessee did not give timely notice to such Tax Indemnitee (and such Tax Indemnitee otherwise had no actual knowledge) of such filing or payment requirement that would have permitted a proper and timely filing of such return or payment of such Tax, as the case may be, or (B) results from the failure of the Lessee to supply information necessary for the proper and timely filing of such return or payment of such Tax, as the case may be, that was not in the possession of such Tax Indemnitee; and (x) any Tax that results from the breach by the Lessor of its representation and warranty made in Section 4.2(b) or the breach of any Lender of its representation and warranty made in Section 4.3(b). (c) Contests. If any claim shall be made against any Tax Indemnitee or if any proceeding shall be commenced against any Tax Indemnitee (including a written notice of such proceeding) for any Taxes as to which the Lessee may have an indemnity obligation pursuant to Section 7.4, or if any Tax Indemnitee shall determine that any Taxes as to which the Lessee may have an indemnity obligation pursuant to Section 7.4 may be payable, such Tax Indemnitee shall promptly notify the Lessee. The Lessee shall be entitled, at its expense, to participate in, and, to the extent that the Lessee desires to, assume and control the defense thereof; provided, however, that the Lessee shall have acknowledged in writing its obligation to fully indemnify such Tax Indemnitee in respect of such action if requested to do so by the Lessee, suit or proceeding if the contest is unsuccessful; and, provided further, that the Lessee shall not be entitled to assume and control the defense of any such action, suit or proceeding (but the Tax Indemnitee shall then contest, at the sole cost and expense of the Lessee, on behalf of the Lessee with representatives reasonably satisfactory to the Lessee) if and to the extent that, (A) in the reasonable opinion of such Tax Indemnitee, such action, suit or proceeding (x) involves any meaningful risk of imposition of criminal liability or any material risk of material civil liability on such Tax Indemnitee or (y) will involve a material risk of the sale, forfeiture or loss of, or the creation of any Lien (other than a Permitted Lien) on any Leased Property or any part thereof unless the Lessee shall have posted a bond or other security satisfactory to the relevant Tax Indemnitees in respect to such risk, (B) such proceeding involves Claims not fully indemnified by the Lessee which the Lessee and the Tax Indemnitee have been unable to sever from the indemnified claim(s), (C) an Event of Default has occurred and is continuing, (D) such action, suit or proceeding involves matters which extend beyond or are unrelated to the Transaction and if determined adversely could be materially detrimental to the interests of such Tax Indemnitee notwithstanding indemnification by the Lessee or (E) such action, suit or proceeding involves the federal or any state income tax liability of the Tax Indemnitee. With respect to any contests controlled by a Tax Indemnitee, (i) if such contest relates to the federal or any state income tax liability of such Tax Indemnitee, such Tax Indemnitee shall be required to conduct such contest only if the Lessee shall have provided to such Tax Indemnitee an opinion of independent tax counsel selected by the Tax Indemnitee and reasonably satisfactory to the Lessee stating that a reasonable basis exists to contest such claim or (ii) in the case of an appeal of an adverse determination of any contest relating to any Taxes, an opinion of such counsel to the effect that such appeal is more likely than not to be successful, provided, however, such Tax Indemnitee shall in no event be required to appeal an adverse determination to the United States Supreme Court. The Tax Indemnitee may participate in a reasonable manner at its own expense and with its own counsel in any proceeding conducted by the Lessee in accordance with the foregoing. Each Tax Indemnitee shall at the Lessee's expense supply the Lessee with such information and documents in such Tax Indemnitee's possession reasonably requested by the Lessee as are necessary or advisable for the Lessee to participate in any action, suit or proceeding to the extent permitted by this Section 7.4. Unless an Event of Default shall have occurred and be continuing, no Tax Indemnitee shall enter into any settlement or other compromise with respect to any Claim which is entitled to be indemnified under this Section 7.4 without the prior written consent of the Lessee, which consent shall not be unreasonably withheld, unless such Tax Indemnitee waives its right to be indemnified under this Section 7.4 with respect to such Claim. Notwithstanding anything contained herein to the contrary, (a) a Tax Indemnitee will not be required to contest (and the Lessee shall not be permitted to contest) a claim with respect to the imposition of any Tax if such Tax Indemnitee shall waive its right to indemnification under this Section 7.4 with respect to such claim (and any related claim with respect to other taxable years the contest of which is precluded as a result of such waiver) and (b) no Tax Indemnitee shall be required to contest any claim if the subject matter thereof shall be of a continuing nature and shall have previously been decided adversely, unless there has been a change in law which in the opinion of Tax Indemnitee's counsel creates substantial authority for the success of such contest. Each Tax Indemnitee and the Lessee shall consult in good faith with each other regarding the conduct of such contest controlled by either. (d) Reimbursement for Tax Savings. If (x) a Tax Indemnitee shall obtain a credit or refund of any Taxes paid by the Lessee pursuant to this Section 7.4 or (y) by reason of the incurrence or imposition of any Tax for which a Tax Indemnitee is indemnified hereunder or any payment made to or for the account of such Tax Indemnitee by the Lessee pursuant to this Section 7.4, such Tax Indemnitee at any time realizes a reduction in any Taxes for which the Lessee is not required to indemnify such Tax Indemnitee pursuant to this Section 7.4, which reduction in Taxes was not taken into account in computing such payment by the Lessee to or for the account of such Tax Indemnitee, then such Tax Indemnitee shall promptly pay to the Lessee (xx) the amount of such credit or refund, together with the amount of any interest received by such Tax Indemnitee on account of such credit or refund or (yy) an amount equal to such reduction in Taxes, as the case may be; provided that no such payment shall be made so long as an Event of Default shall have occurred and be continuing and, provided, further, that the amount payable to the Lessee by any Tax Indemnitee pursuant to this Section 7.4(d) shall not at any time exceed the aggregate amount of all indemnity payments made by the Lessee under this Section 7.4 to such Tax Indemnitee with respect to the Taxes which gave rise to the credit or refund or with respect to the Tax which gave rise to the reduction in Taxes less the amount of all prior payments made to the Lessee by such Tax Indemnitee under this Section 7.4(d). Each Tax Indemnitee agrees to act in good faith to claim such refunds and other available Tax benefits, and take such other actions as may be reasonable to minimize any payment due from the Lessee pursuant to this Section 7.4. The disallowance or reduction of any credit, refund or other tax savings with respect to which a Tax Indemnitee has made a payment to the Lessee under this Section 7.4(d) shall be treated as a Tax for which the Lessee are obligated to indemnify such Tax Indemnitee hereunder without regard to Section 7.4(b) hereof. (e) Payments. Any Tax indemnifiable under this Section 7.4 shall be paid by the Lessee directly when due to the applicable taxing authority if direct payment is practicable and permitted. If direct payment to the applicable taxing authority is not permitted or is otherwise not made, any amount payable to a Tax Indemnitee pursuant to Section 7.4 shall be paid within thirty (30) days after receipt of a written demand therefor from such Tax Indemnitee accompanied by a written statement describing in reasonable detail the amount so payable, but not before the date that the relevant Taxes are due. Any payments made pursuant to Section 7.4 shall be made to the Tax Indemnitee entitled thereto or the Lessee, as the case may be, in immediately available funds at such bank or to such account as specified by the payee in written directions to the payor, or, if no such direction shall have been given, by check of the payor payable to the order of the payee by certified mail, postage prepaid at its address as set forth in this Master Agreement. Upon the request of any Tax Indemnitee with respect to a Tax that the Lessee is required to pay, the Lessee shall furnish to such Tax Indemnitee the original or a certified copy of a receipt for the Lessee's payment of such Tax or such other evidence of payment as is reasonably acceptable to such Tax Indemnitee. (f) Reports. If the Lessee knows of any report, return or statement required to be filed with respect to any Taxes that are subject to indemnification under this Section 7.4, the Lessee shall, if the Lessee is permitted by Applicable Law, timely file such report, return or statement (and, to the extent permitted by law, show ownership of the applicable Leased Property in the Lessee); provided, however, that if the Lessee is not permitted by Applicable Law or does not have access to the information required to file any such report, return or statement, the Lessee will promptly so notify the appropriate Tax Indemnitee, in which case Tax Indemnitee will file such report. In any case in which the Tax Indemnitee will file any such report, return or statement, the Lessee shall, upon written request of such Tax Indemnitee, prepare such report, return or statement for filing by such Tax Indemnitee or, if such Tax Indemnitee so requests, provide such Tax Indemnitee with such information as is reasonably available to the Lessee. (g) Verification. At the Lessee's request, the amount of any indemnity payment by the Lessee or any payment by a Tax Indemnitee to the Lessee pursuant to this Section 7.4 shall be verified and certified by an independent public accounting firm selected by the Lessee and reasonably acceptable to the Tax Indemnitee. Unless such verification shall disclose an error in the Lessee's favor of 5% or more of the related indemnity payment, the costs of such verification shall be borne by the Lessee. In no event shall the Lessee have the right to review the Tax Indemnitee's tax returns or receive any other confidential information from the Tax Indemnitee in connection with such verification. The Tax Indemnitee agrees to cooperate with the independent public accounting firm performing the verification and to supply such firm with all information reasonably necessary to permit it to accomplish such verification, provided that the information provided to such firm by such Tax Indemnitee shall be for its confidential use. The parties agree that the sole responsibility of the independent public accounting firm shall be to verify the amount of a payment pursuant to this Master Agreement and that matters of interpretation of this Master Agreement are not within the scope of the independent accounting firm's responsibilities. SECTION 8.5 Increased Costs, etc. (a) Interest Rate Not Ascertainable, etc. In the event that the Agent shall have determined (which determination shall be made in good faith and, absent manifest error, shall be final, conclusive and binding upon all parties) that on any date for determining the Adjusted LIBOR Rate for any Rent Period, by reason of any changes arising after the date of this Master Agreement affecting the London interbank market, or the Agent's position in such market, adequate and fair means do not exist for ascertaining the applicable interest rate on the basis provided for in the definition of Adjusted LIBOR Rate, then, and in any such event, the Agent shall forthwith give notice (by telephone confirmed in writing) to Lessee and to the Lenders, of such determination and a summary of the basis for such determination. Until the Agent notifies Lessee that the circumstances giving rise to the suspension described herein no longer exist, the obligations of the Lenders to make or permit portions of the Loans to remain outstanding past the last day of the then current Rent Periods as LIBOR Advances shall be suspended, and such affected Advances shall bear the same interest as Base Rate Advances. (b) Illegality. (i) In the event that any Lender shall have determined (which determination shall be made in good faith and, absent manifest error, shall be final, conclusive and binding upon all parties) at any time that the making or continuance of any LIBOR Advance has become unlawful by compliance by such Lender in good faith with any applicable law, governmental rule, regulation, guideline or order (whether or not having the force of law and whether or not failure to comply therewith would be unlawful), then, in any such event, the Lender shall give prompt notice (by telephone confirmed in writing) to Lessee and to the Agent of such determination and a summary of the basis for such determination (which notice the Agent shall promptly transmit to the other Lenders). (ii) Upon the giving of the notice to Lessee referred to in subsection (i) above, (A) Lessee's right to request and such Lender's obligation to make LIBOR Advances shall be immediately suspended, and such Lender shall make an Advance as part of the requested Funding of LIBOR Advances as a Base Rate Advance, which Base Rate Advance shall, for all other purposes, be considered part of such Borrowing, and (B) if the affected LIBOR Advance or Advances are then outstanding, Lessee shall immediately, or if permitted by applicable law, no later than the date permitted thereby, upon at least one Business Day's written notice to the Agent and the affected Lender, convert each such Advance into a Base Rate Advance or Advances, provided that if more than one Lender is affected at any time, then all affected Lenders must be treated the same pursuant to this Section 7.5(b). (c) Increased Costs. If, by reason of (x) after the date hereof, the introduction of or any change (including, without limitation, any change by way of imposition or increase of reserve requirements) in or in the interpretation of any law or regulation, or (y) the compliance with any guideline or request from any central bank or other governmental authority or quasi-governmental authority exercising control over banks or financial institutions generally made after the date hereof (whether or not having the force of law): (i) any Lender (or its applicable Lending Office) shall be subject to any tax, duty or other charge with respect to its LIBOR Advances or its obligation to make LIBOR Advances or the basis of taxation of payments to any Lender of the principal of or interest on its LIBOR Advances or its obligation to make LIBOR Advances shall have changed (except for changes in the tax on the overall net income of such Lender or its applicable Lending Office imposed by the jurisdiction in which such Lender's principal executive office or applicable Lending Office is located); or (ii) any reserve (including, without limitation, any imposed by the Board of Governors of the Federal Reserve System), special deposit or similar requirement against assets of, deposits with or for the account of, or credit extended by, any Lender's applicable Lending Office shall be imposed or deemed applicable or any other condition affecting its LIBOR Advances or its obligation to make LIBOR Advances shall be imposed on any Lender or its applicable Lending Office or the London interbank market; and as a result thereof there shall be any increase in the cost to such Lender of agreeing to make or making, funding or maintaining LIBOR Advances (except to the extent already included in the determination of the applicable Adjusted LIBOR Rate for LIBOR Advances) or its obligation to make LIBOR Advances, or there shall be a reduction in the amount received or receivable by such Lender or its applicable Lending Office, then Lessee shall from time to time, upon written notice from and demand by such Lender on Lessee (with a copy of such notice and demand to the Agent), pay to the Agent for the account of such Lender within five Business Days after the date of such notice and demand, additional amounts sufficient to indemnify such Lender against such increased cost. A certificate as to the amount of such increased cost, submitted to Lessee and the Agent by such Lender in good faith and accompanied by a statement prepared by such Lender describing in reasonable detail the basis for and calculation of such increased cost, shall, except for manifest error, be final, conclusive and binding for all purposes. (d) Conversion to Base Rate Advances. If any Lender shall advise the Agent that at any time, because of the circumstances described in clause (x) or (y) in Section 7.5(c) or any other circumstances beyond such Lender's reasonable control arising after the date of this Master Agreement affecting such Lender or the London interbank market or such Lender's position in such market, the Adjusted LIBOR Rate as determined by the Agent will not adequately and fairly reflect the cost to such Lender of funding its LIBOR Advances, then, and in any such event: (i) the Agent shall forthwith give notice (by telephone confirmed in writing) to Lessee and to the other Lenders of such advice; (ii) Lessee's right to request and such Lender's obligation to make or permit portions of the Loans to remain outstanding past the last day of the then current Rent Periods as LIBOR Advances shall be immediately suspended; and (iii) such Lender shall make a Loan as part of the requested Funding of LIBOR Advances as a Base Rate Advance, which such Base Rate Advance shall, for all other purposes, be considered part of such Funding. (e) Alternative Lending Office. Each Lender agrees that, if requested by Lessee, it will use reasonable efforts (subject to overall policy considerations of such Lender) to designate an alternate Lending Office with respect to any of its LIBOR Advances affected by the matters or circumstances described in paragraphs (a), (b), (c) or (d) above to reduce the liability of Lessee or avoid the results provided thereunder, so long as such designation is not disadvantageous to such Lender as reasonably determined by such Lender, which determination shall be conclusive and binding on all parties hereto. Nothing in this Section 7.5(e) shall affect or postpone any of the obligations of Lessee or any right of any Lender provided hereunder. (f) Funding Losses. Lessee shall compensate each Lender, upon its written request to Lessee (which request shall set forth the basis for requesting such amounts in reasonable detail and which request shall be made in good faith and, absent manifest error, shall be final, conclusive and binding upon all of the parties hereto), for all losses, expenses and liabilities (including, without limitation, any interest paid by such Lender to lenders of funds borrowed by it to make or carry its LIBOR Advances to the extent not recovered by such Lender in connection with the re-employment of such funds and including loss of anticipated profits), which the Lender may sustain: (i) if for any reason (other than a default by such Lender) a borrowing of, or conversion to or continuation of, LIBOR Advances to Lessee does not occur on the date specified therefor in a Funding Request or Payment Date Notice (whether or not withdrawn), (ii) if any repayment (including any conversions pursuant to this Section 7.5) of any LIBOR Advances to Lessee occurs on a date which is not the last day of a Rent Period applicable thereto, or (iii), if, for any reason, Lessee defaults in its obligation to repay the Funded Amounts when required by the terms of the Lease. (g) Assumptions Concerning Funding of LIBOR Advances. Calculation of all amounts payable to a Lender under this Section 7.5 shall be made as though that Lender had actually funded its relevant LIBOR Advances through the purchase of deposits in the relevant market bearing interest at the rate applicable to such LIBOR Advances in an amount equal to the amount of the LIBOR Advances and having a maturity comparable to the relevant Rent Period and through the transfer of such LIBOR Advances from an offshore office of that Lender to a domestic office of that Lender in the United States of America; provided, however, that each Lender may fund each of its LIBOR Advances in any manner it sees fit and the foregoing assumption shall be used only for calculation of amounts payable under this Section 7.5. (h) Capital Adequacy. Without limiting any other provision of this Master Agreement, in the event that any Lender shall have determined that any law, treaty, governmental (or quasi- governmental) rule, regulation, guideline or order regarding capital adequacy not currently in effect or fully applicable as of the initial Closing Date, or any change therein or in the interpretation or application thereof, or compliance by such Lender with any request or directive regarding capital adequacy not currently in effect or fully applicable as of the initial Closing Date (whether or not having the force of law and whether or not failure to comply therewith would be unlawful) from a central bank or governmental authority or body having jurisdiction, does or shall have the effect of reducing the rate of return on such Lender's capital as a consequence of its obligations hereunder to a level below that which such Lender could have achieved but for such law, treaty, rule, regulation, guideline or order, or such change or compliance (taking into consideration such Lender's policies with respect to capital adequacy) by an amount deemed by such Lender to be material, then within ten (10) Business Days after written notice and demand by such Lender (with copies thereof to the Agent), Lessee shall from time to time pay to such Lender additional amounts sufficient to compensate such Lender for such reduction (but, in the case of outstanding Base Rate Advances, without duplication of any amounts already recovered by such Lender by reason of an adjustment in the applicable Base Rate), provided that the Lessee shall not be obligated to pay such compensation with respect to reductions incurred by such Lender more than 120 days prior to the date that such Lender had actual knowledge thereof. Each certificate as to the amount payable under this Section 7.5(i) (which certificate shall set forth the basis for requesting such amounts in reasonable detail), submitted to Lessee by any Lender in good faith, shall, absent manifest error, be final, conclusive and binding for all purposes. (i) Replacement of Lender. In the event that any Lender makes a claim for increased costs, or is subject to a circumstance making LIBOR Advances unavailable, pursuant to this Section 7.5, the Lessee shall have the right to replace such Lender with another financial institution that is reasonably acceptable to the Agent. In the event that the Lessee identifies such a replacement financial institution, and the Agent consents thereto, the Lender that is to be replaced shall assign its Loans and its Commitment to such replacement lender pursuant to an assignment and assumption agreement in substantially the form set forth as Exhibit J hereto upon payment to it of the outstanding principal, and accrued interest on, its outstanding Loans, plus all other amounts then due to it pursuant to the Operative Documents. SECTION 8.6 End of Term Indemnity. In the event that at the end of the Lease Term for a Leased Property: (i) the Lessee elects the option set forth in Section 14.6 of the Lease, and (ii) after the Lessor receives the sales proceeds from such Leased Property under Section 14.6 or 14.7 of the Lease, together with the Lessee's payment of the Recourse Deficiency Amount, the Lessor shall not have received the entire Lease Balance, then, within 90 days after the end of the Lease Term, the Lessor or the Agent may obtain, at the Lessee's sole cost and expense, a report from the Appraiser (or, if the Appraiser is not available, another appraiser reasonably satisfactory to the Lessor or the Agent, as the case may be, and approved by the Lessee, such approval not to be unreasonably withheld) in form and substance satisfactory to the Lessor and the Agent (the "Report") to establish the reason for any decline in value of such Leased Property from the Lease Balance. The Lessee shall promptly reimburse the Lessor for the amount equal to such decline in value to the extent that the Report indicates that such decline was due to (w) extraordinary use, failure to maintain, to repair, to restore, to rebuild or to replace, failure to comply with all Applicable Laws, failure to use, workmanship, method of installation or removal or maintenance, repair, rebuilding or replacement, or any other cause or condition within the power of the Lessee to control or effect resulting in the Building failing to be a restaurant unit of the type and quality contemplated by the Appraisal (excepting in each case ordinary wear and tear), or (x) any Alteration made to, or any rebuilding of, the Leased Property or any part thereof by the Lessee, or (y) any restoration or rebuilding carried out by the Lessee or any condemnation of any portion of the Leased Property pursuant to Article X of the Lease, or (z) any use of such Leased Property or any part thereof by the Lessee other than as permitted by the Lease, or any act or omission constituting a breach of any requirement, condition, restriction or limitation set forth in the related Deed or the related Purchase Agreement. SECTION 9 MISCELLANEOUS SECTION 9.1 Survival of Agreements. The representations, warranties, covenants, indemnities and agreements of the parties provided for in the Operative Documents, and the parties' obligations under any and all thereof, shall survive the execution and delivery and the termination or expiration of this Master Agreement and any of the Operative Documents, the transfer of any Land to the Lessor as provided herein (and shall not be merged into any Deed), any disposition of any interest of the Lessor in any Leased Property, the purchase and sale of the Notes, payment therefor and any disposition thereof and shall be and continue in effect notwithstanding any investigation made by any party hereto or to any of the other Operative Documents and the fact that any such party may waive compliance with any of the other terms, provisions or conditions of any of the Operative Documents. SECTION 9.2 Notices. Unless otherwise specified herein, all notices, requests, demands or other communications to or upon the respective parties hereto shall be addressed to such parties at the addresses therefor as set forth in Schedule 8.2, or such other address as any such party shall specify to the other parties hereto, and shall be deemed to have been given (i) the Business Day after being sent, if sent by overnight courier service; (ii) the Business Day received, if sent by messenger; (iii) the day sent, if sent by facsimile and confirmed electronically or otherwise during business hours of a Business Day (or on the next Business Day if otherwise sent by facsimile and confirmed electronically or otherwise); or (iv) three Business Days after being sent, if sent by registered or certified mail, postage prepaid. SECTION 9.3 Counterparts. This Master Agreement may be executed by the parties hereto in separate counterparts (including by facsimile), each of which when so executed and delivered shall be an original, but all such counterparts shall together constitute but one and the same instrument. SECTION 9.4 Amendments. No Operative Document nor any of the terms thereof may be terminated, amended, supplemented, waived or modified with respect to the Lessee or any Funding Party, except (a) in the case of a termination, amendment, supplement, waiver or modification to be binding on the Lessee, with the written agreement or consent of the Lessee, and (b) in the case of a termination, amendment, supplement, waiver or modification to be binding on the Funding Parties, with the written agreement or consent of the Required Funding Parties; provided, however, that (x) notwithstanding the foregoing provisions of this Section 8.4, the consent of each Funding Party affected thereby shall be required for any amendment, modification or waiver directly: (i) modifying any of the provisions of this Section 8.4, changing the definition of "Required Funding Parties" or "Required Lenders", or increasing the Commitment of such Funding Party; (ii) amending, modifying, waiving or supplementing any of the provisions of Section 3 of the Loan Agreement or the representations of such Funding Party in Section 4.2 or 4.3 or the covenants of such Funding Party in Section 6 of this Master Agreement; (iii) reducing any amount payable to such Funding Party under the Operative Documents or extending the time for payment of any such amount, including, without limitation, any Rent, any Funded Amount, any fees, any indemnity, the Leased Property Balance, the Lease Balance, any Funding Party Balance, Recourse Deficiency Amount, interest or Yield; or (iv) consenting to any assignment of the Lease, releasing any of the collateral assigned to the Agent and the Lenders pursuant to any Mortgage and any Assignment of Lease and Rents (but excluding a release of any rights that the Lenders may have in any Leased Property, or the proceeds thereof as contemplated in the definition of "Release Date"), releasing the Lessee from its obligations in respect of the payments of Rent and the Lease Balance, releasing the Lessee from its obligations under the Guaranty or the other Operative Documents or changing the absolute and unconditional character of any such obligation; and (y) no such termination, amendment, supplement, waiver or modification shall, without the written agreement or consent of the Lessor and the Lenders, be made to the Lease; and (z) subject to the foregoing clauses (x) and (y), so long as no Event of Default has occurred and is continuing, the Lessor, the Agent and the Lenders may not amend, supplement, waive or modify any terms of the Loan Agreement, the Notes, the Mortgages and the Assignments of Lease and Rents without the consent of the Lessee (such consent not to be unreasonably withheld or delayed); provided that in no event may the Loan Agreement or the Notes be amended so as to increase the amount of Basic Rent payable by the Lessee without the consent of the Lessee; the Lessor and the Lessee may not amend, supplement, waive or modify any terms of the Lease or any Security Agreement and Assignment without the consent of the Agent and the Lenders. SECTION 9.5 Headings, etc. The Table of Contents and headings of the various Articles and Sections of this Master Agreement are for convenience of reference only and shall not modify, define, expand or limit any of the terms or provisions hereof. SECTION 9.6 Parties in Interest. Except as expressly provided herein, none of the provisions of this Master Agreement is intended for the benefit of any Person except the parties hereto and their respective successors and permitted assigns. SECTION 9.7 GOVERNING LAW. THIS MASTER AGREEMENT HAS BEEN DELIVERED IN, AND SHALL IN ALL RESPECTS BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF GEORGIA APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED ENTIRELY WITHIN SUCH STATE, INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE. SECTION 9.8 Expenses. Whether or not the transactions herein contemplated are consummated, the Lessee agrees to pay, as Supplemental Rent, all actual, reasonable and documented out-of-pocket costs and expenses of the Lessor, the Agent and the Lenders in connection with the preparation, execution and delivery of the Operative Documents and the documents and instruments referred to therein and any amendment, waiver or consent relating thereto (including, without limitation, the reasonable fees and disbursements of Mayer, Brown & Platt, but not including any fees and disbursements for any other outside counsel representing any Lender) and of the Lessor, the Agent and the Lenders in connection with the enforcement of the Operative Documents and the documents and instruments referred to therein (including, without limitation, the reasonable fees actually incurred and disbursements of counsel for the Lessor, the Agent and the Lenders). All references in the Operative Documents to "attorneys' fees" or "reasonable attorneys fees" shall mean reasonable attorneys' fees actually incurred, without regard to any statutory definition thereof. SECTION 9.9 Severability. Any provision of this Master Agreement that is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. SECTION 9.10 Liabilities of the Funding Parties. No Funding Party shall have any obligation to any other Funding Party or to the Lessee with respect to the transactions contemplated by the Operative Documents except those obligations of such Funding Party expressly set forth in the Operative Documents or except as set forth in the instruments delivered in connection therewith, and no Funding Party shall be liable for performance by any other party hereto of such other party's obligations under the Operative Documents except as otherwise so set forth. No Lender shall have any obligation or duty to the Lessee, any other Funding Parties or any other Person with respect to the transactions contemplated hereby except to the extent of the obligations and duties expressly set forth in this Master Agreement or the Loan Agreement. SECTION 9.11 Submission to Jurisdiction; Waivers. Each party hereto hereby irrevocably and unconditionally: (i) submits for itself and its property in any legal action or proceeding relating to this Master Agreement or any other Operative Document, or for recognition and enforcement of any judgment in respect thereof, to the non-exclusive general jurisdiction of the Courts of the State of Georgia sitting in Fulton County, Georgia, the courts of the United States of America for the Northern District of Georgia, and appellate courts from any thereof; (ii) consents that any such action or proceedings may be brought to such courts, and waives any objection that it may now or hereafter have to the venue of any such action or proceeding in any court or that such action or proceeding was brought in an inconvenient court and agrees not to plead or claim the same; (iii) agrees that service of process in any such action or proceeding may be effected by mailing a copy thereof by registered or certified mail (or any substantially similar form of mail), postage prepaid, to such party at its address set forth in Schedule 8.2 or at such other address of which the other parties hereto shall have been notified pursuant to Section 8.2; and (iv) agrees that nothing herein shall affect the right to effect service of process in any other manner permitted by law. SECTION 9.12 Liabilities of the Agent. The Agent shall have no duty, liability or obligation to any party to this Master Agreement with respect to the transactions contemplated hereby except those duties, liabilities or obligations expressly set forth in this Master Agreement or the Loan Agreement, and any such duty, liability or obligations of the Agent shall be as expressly limited by this Master Agreement or the Loan Agreement, as the case may be. IN WITNESS WHEREOF, the parties hereto have caused this Master Agreement to be duly executed by their respective officers thereunto duly authorized as of the day and year first above written. RUBY TUESDAY, INC., as the Lessee By: Name Printed: Title: ATLANTIC FINANCIAL GROUP, LTD., as Lessor By: Atlantic Financial Managers, Inc., its General Partner By: Name Printed: Title: SUNTRUST BANK, ATLANTA, as Agent and as a Lender By: Name Printed: Title: By: Name Printed: Title: AMSOUTH BANK OF ALABAMA, as a Lender By: Name Printed: Title: BARNETT BANK, N.A., as a Lender By: Name Printed: Title: FIRST AMERICAN NATIONAL BANK, as a Lender By: Name Printed: Title: WACHOVIA BANK OF GEORGIA, N.A., as a Lender By: Name Printed: Title: HIBERNIA NATIONAL BANK, as a Lender By: Name Printed: Title: FIRST TENNESSEE BANK, as a Lender By: Name Printed: Title: SCHEDULE 2.2 PAYMENT INSTRUCTIONS AND AMOUNT OF EACH FUNDING PARTY'S COMMITMENT Lessor Commitment Percentage: 3% Lessor Commitment: $1,200,000 Lender Commitment Percentages: Sun Trust Bank, Atlanta 22% AmSouth Bank 13.3333% Barnett Bank, N.A. 13.3333% First American National Bank 13.3333% Wachovia Bank of Georgia, N.A. 13.3333% Hibernia National Bank 13.3333% First Tennessee Bank 8.3333% Total 97% Lender Commitments: SunTrust Bank, Atlanta $8,800,000.00 AmSouth Bank of Alabama $5,333,333.33 Barnett Bank $5,333,333.33 First American National Bank $5,333,333.33 Wachovia Bank of Georgia $5,333,333.33 Hibernia National Bank $5,333,333.34 First Tennessee Bank $3,333,333.34 Total $38,800,000.00 SCHEDULE 8.2 ADDRESSES FOR NOTICES Lessee: Ruby Tuesday, Inc. P.O. Box 160266 Mobile, Alabama 36625-0001 Attn: J. Russell Mothershed Ruby Tuesday, Inc. 4721 Morrison Drive Mobile, Alabama 36609-3350 Attn: J. Russell Mothershed Lessor: Atlantic Financial Group, Ltd. 1000 Ballpark Way, Suite 304 Arlington, Texas 76011 Attn: Stephen Brookshire Lender and Agent: SunTrust Bank, Atlanta 25 Park Place Mail Code 120 Atlanta, Georgia 30303 Attn: Center 120/Corporate Banking South Lender: AmSouth Bank of Alabama 1900 5th Avenue North Birmingham, Alabama 35203 Attn: Alan Lott Lender: Barnett Bank, N.A. 50 North Laura Street 17th Floor Jacksonville, Florida 32203-0789 Attn: Charles Pick Lender: First American National Bank 315 Union Street First American Center 3rd Floor Nashville, Tennessee 37237-0310 Attn: Russell Rogers Lender: First Tennessee National Bank 800 South Gay Street Knoxville, Tennessee 37901 Attn: John Fisher Lender: Hibernia National Bank National Accounts 313 Carondelet Street New Orleans, Louisiana 70130 Attn: Kay St. John Lender: Wachovia Bank of Georgia, N.A. 191 Peachtree Street, N.E. Atlanta, Georgia 30303 Attn: John Canty LOAN AGREEMENT Dated as of May 30, 1997 among ATLANTIC FINANCIAL GROUP, LTD. as Lessor and Borrower, the financial institutions party hereto, as Lenders and SUNTRUST BANK, ATLANTA, as Agent TABLE OF CONTENTS Page SECTION 1 DEFINITIONS; INTERPRETATION 1 SECTION 2 AMOUNT AND TERMS OF COMMITMENTS; REPAYMENT AND PREPAYMENT OF LOANS 1 SECTION 2.1 Commitment 1 SECTION 2.2 Notes 2 SECTION 2.3 Scheduled Principal Repayment 2 SECTION 2.4 Interest 2 SECTION 2.5 Allocation of Loans to Leased Properties 3 SECTION 2.6 Prepayment 3 SECTION 3 RECEIPT, DISTRIBUTION AND APPLICATION OF CERTAIN PAYMENTS IN RESPECT OF LEASE AND LEASED PROPERTY 3 SECTION 3.1 Distribution and Application of Rent Payments 3 SECTION 3.2 Distribution and Application of Purchase Payment 4 SECTION 3.3 Distribution and Application to Funding Party Balances of Lessee Payment of Recourse Deficiency Amount Upon Exercise ofRemarketing Option or Surrender Option 4 SECTION 3.4 Distribution and Application to Funding Party Balance of Remarketing Proceeds of Leased Property 4 SECTION 3.5 Distribution and Application of Payments Received When an Event of Default Exists or Has Ceased to Exist Following Rejection of a Lease 5 SECTION 3.6 Distribution of Other Payments 6 SECTION 3.7 Timing of Agent Distributions 6 SECTION 4 THE LESSOR; EXERCISE OF REMEDIES UNDER LEASE AND GUARANTY 7 SECTION 4.1 Covenant of Lessor 7 SECTION 4.2 Lessor Obligations Nonrecourse; Payment from Certain Lease and Guaranty Obligations and Certain Proceeds of Leased Property Only 7 SECTION 4.3 Exercise of Remedies Under Lease and Guaranty 8 SECTION 5 LOAN EVENTS OF DEFAULT; REMEDIES 9 SECTION 5.1 Loan Events of Default 9 SECTION 5.2 Remedies 10 SECTION 6 THE AGENT 11 SECTION 6.1 Appointment 11 SECTION 6.2 Delegation of Duties 11 SECTION 6.3 Exculpatory Provisions 11 SECTION 6.4 Reliance by Agent 12 SECTION 6.5 Notice of Default 12 SECTION 6.6 Non-Reliance on Agent and Other Lenders 13 SECTION 6.7 Indemnification 13 SECTION 6.8 Agent in Its Individual Capacity 14 SECTION 6.9 Successor Agent 14 SECTION 7 MISCELLANEOUS 15 SECTION 7.1 Amendments and Waivers 15 SECTION 7.2 Notices 15 SECTION 7.3 No Waiver; Cumulative Remedies 15 SECTION 7.4 Successors and Assigns 15 SECTION 7.5 Counterparts 15 SECTION 7.6 GOVERNING LAW 15 SECTION 7.7 Survival and Termination of Agreement 16 SECTION 7.8 Entire Agreement 16 SECTION 7.9 Severability 16 APPENDIX A Definitions and Interpretation EXHIBITS EXHIBIT A-1 Form of A Note EXHIBIT A-2 Form of B Note THIS LOAN AGREEMENT (as it may be amended or modified from time to time in accordance with the provisions hereof, this "Loan Agreement") dated as of May 30, 1997 is among ATLANTIC FINANCIAL GROUP, LTD., a Texas limited partnership, as Lessor and Borrower (the "Lessor"); SUNTRUST BANK, ATLANTA, AMSOUTH BANK OF ALABAMA, BARNETT BANK OF JACKSONVILLE, N.A., FIRST AMERICAN NATIONAL BANK, WACHOVIA BANK OF GEORGIA, N.A., HIBERNIA NATIONAL BANK, FIRST TENNESSEE BANK and the other financial institutions which may from time to time become party hereto as lenders (the "Lenders") and SUNTRUST BANK, ATLANTA, a Georgia banking corporation, as agent for the Lenders (in such capacity, the "Agent"). PRELIMINARY STATEMENT In accordance with the terms and provisions of the Master Agreement, the Lease, this Loan Agreement and the other Operative Documents, (i) the Lessor contemplates acquiring the Leased Properties and leasing the Leased Properties to the Lessee, (ii) the Lessee, as Construction Agent for the Lessor, wishes to construct Buildings on the Land for the Lessor and, when completed, to lease the Buildings from the Lessor as part of the Leased Property under the Lease, (iii) the Lessee wishes to obtain, and the Lessor is willing to provide, funding for the acquisition of the Land and the construction of the Buildings, (iv) the Lessor wishes to obtain, and the Lenders are willing to provide, financing of a portion of the funding for the acquisition of the Land and the construction of the Buildings, and (v) the Lessee is willing to provide its Guaranty Agreement to the Funding Parties. In consideration of the foregoing and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: SECTION 2 DEFINITIONS; INTERPRETATION Unless the context shall otherwise require, capitalized terms used and not defined herein shall have the meanings assigned thereto in Appendix A hereto for all purposes hereof; and the rules of interpretation set forth in Appendix A hereto shall apply to this Loan Agreement. SECTION 3 AMOUNT AND TERMS OF COMMITMENTS; REPAYMENT AND PREPAYMENT OF LOANS SECTION 3.1 Commitment. (a) Subject to the terms and conditions hereof and of the Master Agreement, each Lender agrees to make term loans to the Lessor ("Loans") from time to time during the period from and including the Initial Closing Date through the Funding Termination Date, on each Closing Date and on each subsequent Funding Date, in the amounts required under Section 2.2 of the Master Agreement. Each such Loan shall consist of an A Loan in the amount of such Lender's Commitment Percentage of the A Percentage of the aggregate amount to be funded by the Funding Parties on such date and a B Loan in the amount of such Lender's Commitment Percentage of the B Percentage of such the aggregate amount to be funded by the Funding Parties on such date. SECTION 3.2 Notes. The A Loans made by each Lender to the Lessor shall be evidenced by a note of the Lessor (an "A Note"), substantially in the form of Exhibit A-1 with appropriate insertions, and the B Loans made by each Lender to the Lessor shall be evidenced by a note of the Lessor (a "B Note") substantially in the form of Exhibit A-2 with appropriate insertions, each duly executed by the Lessor and payable to the order of such Lender and in a principal amount equal to such Lender's Commitment Percentage of the A Percentage of the aggregate Commitments and such Lender's Commitment Percentage of the B Percentage of the aggregate Commitments, respectively (or, if less, the aggregate unpaid principal amount of all A Loans or B Loans, as the case may be, made by such Lender to the Lessor). The Notes shall be dated the Initial Closing Date and delivered to the Agent in accordance with Section 3.2 of the Master Agreement. Each Lender is hereby authorized to record the date and amount of each Loan made by such Lender to the Lessor on the Notes, but the failure by such Lender to so record such Loan shall not affect or impair any obligations with respect thereto. Each Note shall (i) be stated to mature no later than the final Lease Termination Date and (ii) bear interest on the unpaid principal amount thereof from time to time outstanding at the applicable interest rate per annum determined as provided in, and payable as specified in, Section 2.4. Upon the occurrence of an Event of Default under clause (g) of Article XII of the related Lease, or upon Acceleration as described in Section 4.3(b) hereof, each Note shall automatically become due and payable in full. SECTION 3.3 Scheduled Principal Repayment. On the Lease Termination Date, the Lessor shall pay the aggregate unpaid principal amount of all Loans with respect to the related Leased Property as of such date. SECTION 3.4 Interest. (a) Each Loan related to a LIBOR Advance shall bear interest during each Rent Period at a rate equal to the sum of (i) the Adjusted LIBO Rate for such Rent Period, computed using the actual number of days elapsed and a 360 day year, plus (ii) the Applicable Margin per annum; each Loan related to a Base Rate Advance shall bear interest at a rate equal to the Base Rate, computed using the actual number of days elapsed and a 360 day year, plus (ii) the Applicable Margin per annum. (b) If all or a portion of the principal amount of or interest on the Loans shall not be paid when due (whether at the stated maturity, by acceleration or otherwise), such overdue amount shall, without limiting the rights of the Lenders under Section 5, bear interest at the Overdue Rate, in each case from the date of nonpayment until paid in full (as well after as before judgment). (c) Interest accruing on each Loan with respect to any Leased Property during the Construction Term of such Leased Property shall, subject to the limitations set forth in Section 2.3(c) of the Master Agreement, be added to the principal amount of such Loan from time to time. Following the date each Loan is made (or in the case of Loans with respect to a Construction Land Interest, the Construction Term Expiration Date), interest on such Loan shall be payable in arrears on each Payment Date with respect thereto. (d) Any change in the interest rate on the Loans resulting from a change in the Base Rate shall become effective as of the opening of business on the day on which such Base Rate changes as provided in the definition thereof. SECTION 3.5 Allocation of Loans to Leased Properties. Pursuant to each Funding Request, each Loan shall be allocated to the Leased Property, the cost of acquisition or construction of which the proceeds of such Loan are used to pay. For purposes of the Operative Documents, the "related Loans" with respect to any Leased Property or Loans "related to" any Leased Property shall mean those Loans allocated to such Leased Property as set forth in the foregoing sentence. SECTION 3.6 Prepayment. Except in conjunction with a payment by the Lessee of the Lease Balance or a Leased Property Balance pursuant to the terms of the Lease, the Lessor shall have no right to prepay the Loans. SECTION 4 RECEIPT, DISTRIBUTION AND APPLICATION OF CERTAIN PAYMENTS IN RESPECT OF LEASE AND LEASED PROPERTY SECTION 4.1 Distribution and Application of Rent Payments. (a) Basic Rent. Each payment of Basic Rent with respect to any Leased Property (and any payment of interest on overdue installments of Basic Rent) received by the Agent shall be distributed first, pro rata to the Lenders to be applied to the amounts of accrued and unpaid interest (including overdue interest) on the Loans and second, to the Lessor to be applied to accrued and unpaid Yield (including overdue Yield) on the Lessor's Invested Amounts related to such Leased Property. (b) Supplemental Rent. Each payment of Supplemental Rent received by the Agent shall be paid to or upon the order of the Person owed the same in accordance with the Operative Documents. SECTION 4.2 Distribution and Application of Purchase Payment. With respect to any Leased Property, the payment by the Lessee of: (a) the purchase price for a consummated sale of such Leased Property received by the Agent in connection with the Lessee's exercise of the Purchase Option or Partial Purchase Option under Section 14.1 of the Lease, or (b) the Lessee's compliance with its obligation to purchase the Leased Property in accordance with Section 14.2 or 14.3 of the Lease, or (c) the payment by the Lessee to Agent of the related Leased Property Balance therefor in accordance with Section 10.1 or Section 10.2 of the Lease, shall be distributed by Agent as promptly as possible first, to the Lenders pro rata in accordance with, and for application to, their respective Funding Party Balances in respect of such Leased Property and second, to the Lessor for application to its Funding Party Balance in respect of such Leased Property. SECTION 4.3 Distribution and Application to Funding Party Balances of Lessee Payment of Recourse Deficiency Amount Upon Exercise of Remarketing Option or Surrender Option. With respect to any Leased Property, the payment by the Lessee of the Recourse Deficiency Amount to the Agent on the Lease Termination Date in accordance with Section 14.6 or Section 14.7 of the Lease upon the Lessee's exercise of the Remarketing Option or Surrender Option, shall be applied by the Agent to the accrued and unpaid interest on, and the outstanding principal of, the A Loans in respect of such Leased Property. SECTION 4.4 Distribution and Application to Funding Party Balance of Remarketing Proceeds of Leased Property. Any payments received by the Lessor as proceeds from the sale of any Leased Property sold pursuant to the Lessee's exercise of the Remarketing Option pursuant to Section 14.6 or 14.7 of the Lease, shall be distributed (or applied, in the case of clause second below) by the Lessor as promptly as possible (it being understood that any such payment received by the Lessor on a timely basis and in accordance with the provisions of the Lease shall be distributed on the date received in the funds so received) in the following order of priority: first, to the Lenders pro rata for application to their remaining Funding Party Balances in respect of such Leased Property, an amount equal to their Funding Party Balances in respect of such Leased Property; second, to the Lessor for application to its Funding Party Balance in respect of such Leased Property; and third, (i) if sold by the Lessee pursuant to Section 14.6 of the Lease, the excess, if any, to the Lessee, and (ii) otherwise, the excess, if any, to the Lessor. SECTION 4.5 Distribution and Application of Payments Received When an Event of Default Exists or Has Ceased to Exist Following Rejection of a Lease. (a) Proceeds of Leased Property. Any payments received by the Lessor or the Agent when an Event of Default exists (or has ceased to exist by reason of a rejection of the Lease in a proceeding with respect to the Lessee described in Article XII(g) of the Lease), as (i) proceeds from the sale of any or all of the Leased Property sold pursuant to the exercise of the Lessor's remedies pursuant to Article XIII of the Lease, or (ii) proceeds of any amounts from any insurer or any Governmental Authority in connection with an Event of Loss or Event of Taking shall if received by the Lessor be paid to the Agent as promptly as possible, and shall be distributed or applied in the following order of priority prior to the Release Date: first, to the Agent for any amounts expended by it in connection with such Leased Property or the Operative Documents and not previously reimbursed to it; second, to the Lenders pro rata for application to their Funding Party Balances in respect of such Leased Property, an amount equal to such Funding Party Balances in respect of such Leased Property; third, to the Lessor for application to its Funding Party Balance in respect of such Leased Property; and fourth, to the Lessee or the Person or Persons otherwise legally entitled thereto, the excess, if any; and on and after such Release Date such amounts shall be paid over to the Lessor and shall be distributed or applied by the Lessor, first to the Lessor for application to any amounts owed to it in respect of such Leased Property, and second to the Lessee or the Person or Persons otherwise legally entitled thereto, the excess, if any. (b) Proceeds of Recoveries from Lessee and Guarantor. Any payments received by any Funding Party when an Event of Default exists (or has ceased to exist by reason of a rejection of the Lease in a proceeding with respect to the Lessee described in Article XII(g) of the Lease), from (i) the Lessee as a payment in accordance with such Lease, or (ii) the Guarantor as a payment in accordance with the Guaranty Agreement, including, without limitation, any payment made by the Guarantor in satisfaction of the guaranty of payment of the Notes pursuant to the Guaranty Agreement, shall be paid to the Agent as promptly as possible, and shall then be distributed or applied by the Agent as promptly as possible in the order of priority set forth in paragraph (a) above. SECTION 4.6 Distribution of Other Payments. All payments under Section 7.6 of the Master Agreement shall be made first, to the Lenders, pro rata, until their Funding Party Balances have been paid in full, and second, to the Lessor who shall be entitled to retain all such remaining amounts. Except as otherwise provided in this Section 3, any payment received by the Lessor which is to be paid to Agent pursuant hereto or for which provision as to the application thereof is made in an Operative Document but not elsewhere in this Section 3 shall, if received by the Lessor, be paid forthwith to the Agent and when received shall be distributed forthwith by the Agent to the Person and for the purpose for which such payment was made in accordance with the terms of such Operative Document. SECTION 4.7 Timing of Agent Distributions. Payments received by the Agent in immediately available funds before 12:00 p.m. (noon), Atlanta, Georgia time, on any Business Day shall be distributed to the Funding Parties in accordance with and to the extent provided in this Section 3 on such Business Day. Payments received by the Agent in immediately available funds after 12:00 p.m. (noon), Atlanta, Georgia time shall be distributed to the Funding Parties in accordance with and to the extent provided in this Section 3 on the next Business Day. SECTION 5 THE LESSOR; EXERCISE OF REMEDIES UNDER LEASE AND GUARANTY SECTION 5.1 Covenant of Lessor. So long as any Lender's Commitment remains in effect, any Loan remains outstanding and unpaid or any other amount is owing to any Lender with respect to its Funding Party Balances, subject to Section 4.2, the Lessor will promptly pay all amounts payable by it under this Loan Agreement and the Notes issued by it in accordance with the terms hereof and thereof and shall duly perform each of its obligations under this Loan Agreement and the Notes. The Lessor agrees to provide to the Agent a copy of each estoppel certificate that the Lessor proposes to deliver pursuant to Section 17.13 of the Lease at least five (5) days prior to such delivery and to make any corrections thereto reasonably requested by the Agent prior to such delivery. The Lessor shall keep each Leased Property owned by it free and clear of all Lessor Liens. The Lessor shall not reject any sale of any Leased Property pursuant to Section 14.6 of the Lease unless all of the related Loans have been paid in full or the Lenders consent to such rejection. In the event that the Lenders reject any sale of any Leased Property pursuant to Section 14.6 of the Lease, the Lessor agrees to take such action as the Lenders reasonably request to effect a sale or other disposition of such Leased Property, provided that the Lessor shall not be required to expend its own funds in connection with such sale or disposition. SECTION 5.2 Lessor Obligations Nonrecourse; Payment from Certain Lease and Guaranty Obligations and Certain Proceeds of Leased Property Only. All payments to be made by the Lessor in respect of the Loans, the Notes and this Loan Agreement shall be made only from certain payments received under the Lease and the Guaranty Agreement and certain proceeds of the Leased Properties and only to the extent that the Lessor or the Agent shall have received sufficient payments from such sources to make payments in respect of the Loans in accordance with Section 3. Each Lender agrees that it will look solely to such sources of payments to the extent available for distribution to such Lender as herein provided and that neither the Lessor nor the Agent is or shall be personally liable to any Lender for any amount payable hereunder or under any Note. Nothing in this Loan Agreement, the Notes or any other Operative Document shall be construed as creating any liability (other than for willful misconduct, gross negligence, misrepresentation or breach of contract (other than the failure to make payments in respect of the Loans)) of the Lessor individually to pay any sum or to perform any covenant, either express or implied, in this Loan Agreement, the Notes or any other Operative Documents (all such liability, if any, being expressly waived by each Lender) and that each Lender, on behalf of itself and its successors and assigns, agrees in the case of any liability of the Lessor hereunder or thereunder (except for such liability attributable to its willful misconduct, gross negligence, misrepresentation or breach of contract (other than the failure to make payments in respect of the Loans)) that it will look solely to those certain payments received under the Lease and the Guaranty Agreement and those certain proceeds of the Leased Properties, provided, however, that the Lessor in its individual capacity shall in any event be liable with respect to (i) the removal of Lessor's Liens or involving its gross negligence, willful misconduct, misrepresentation or breach of contract (other than the failure to make payments in respect of the Loans) or (ii) failure to turn over payments the Lessor has received in accordance with Section 3; and provided further that the foregoing exculpation of the Lessor shall not be deemed to be exculpations of the Lessee, the Guarantor or any other Person. SECTION 5.3 Exercise of Remedies Under Lease and Guaranty. (a) Event of Default. With respect to any Potential Event of Default as to which notice thereof by the Lessor to the Lessee is a requirement to cause such Potential Event of Default to become an Event of Default, the Lessor may at any time in its discretion give or withhold such notice, provided that the Lessor agrees to give such notice to such Lessee promptly upon receipt of a written request by any Lender or the Agent. (b) Acceleration of Lease Balance. When an Event of Default exists, the Lessor, upon the direction of the Required Funding Parties, shall exercise remedies under Article XIII of the Lease and under the Guaranty Agreement to demand payment in full of the Lease Balance by the Lessee or the Guarantor (the "Acceleration"). Following the Acceleration, the Lessor shall consult with the Lenders regarding actions to be taken in response to such Event of Default. The Lessor (1) shall not, without the prior written consent of Required Funding Parties and (2) shall (subject to the provisions of this Section), if so directed by Required Funding Parties, do any of the following: commence eviction or foreclosure proceedings, or make a demand under the Guaranty Agreement, or file a lawsuit against the Lessee under the Lease, or file a lawsuit against the Guarantor under the Guaranty Agreement, or sell the Leased Property, or exercise other remedies against the Lessee or the Guarantor under the Operative Documents in respect of such Event of Default; provided, however, that any payments received by the Lessor shall be distributed in accordance with Section 3. Notwithstanding any such consent, direction or approval by the Required Funding Parties of any such action or omission, the Lessor shall not have any obligation to follow such direction if the same would, in the Lessor's reasonable judgment, require the Lessor to expend its own funds or expose the Lessor to liability, expense, loss or damages unless and until the Lenders advance to the Lessor an amount which is sufficient, in the Lessor's reasonable judgment, to cover such liability, expense, loss or damage (excluding the Lessor's pro rata share thereof, if any). Notwithstanding the foregoing, on and after the related Release Date, the Lenders shall have no rights to the related Leased Property or any proceeds thereof, the Lenders shall have no rights to direct or give consent to any actions with respect to such Leased Property and the proceeds thereof, the Lessor shall have absolute discretion (but in all events subject to the terms of the Operative Documents) with respect to such exercise of remedies with respect to such Leased Property, and the proceeds thereof, including, without limitation, any foreclosure or sale of such Leased Property, and the Lessor shall have no liability to the Lenders with respect to the Lessor's actions or failure to take any action with respect to such Leased Property. SECTION 6 LOAN EVENTS OF DEFAULT; REMEDIES SECTION 6.1 Loan Events of Default. Each of the following events shall constitute a Loan Event of Default (whether any such event shall be voluntary or involuntary or come about or be effected by operation of law or pursuant to or in compliance with any judgment, decree or order of any court or any order, rule or regulation of any Governmental Authority) and each such Loan Event of Default shall continue so long as, but only as long as, it shall not have been remedied: (a) Lessor shall fail to distribute in accordance with the provisions of Section 3 any amount received by the Lessor pursuant to the Lease, the Guaranty Agreement or the Master Agreement within two (2) Business Days of receipt thereof if and to the extent that the Agent or the Lenders are entitled to such amount or a portion thereof; or (b) the Lessor shall fail to pay to the Agent, within two (2) Business Days of the Lessor's receipt thereof, any amount which the Lessee or the Guarantor is required, pursuant to the Operative Documents, to pay to the Agent but erroneously pays to the Lessor; or (c) failure by the Lessor to perform in any material respect any other covenant or condition herein or in any other Operative Document to which the Lessor is a party, which failure shall continue unremedied for thirty (30) days after receipt by the Lessor of written notice thereof from the Agent or any Lender; or (d) any representation or warranty of the Lessor contained in any Operative Document or in any certificate required to be delivered thereunder shall prove to have been incorrect in a material respect when made and shall not have been cured within thirty (30) days of receipt by the Lessor of written notice thereof from the Agent or any Lender; or (e) the Lessor or the General Partner shall become bankrupt or make an assignment for the benefit of creditors or consent to the appointment of a trustee or receiver; or a trustee or a receiver shall be appointed for the Lessor or the General Partner or for substantially all of its property without its consent and shall not be dismissed or stayed within a period of sixty (60) days; or bankruptcy, reorganization or insolvency proceedings shall be instituted by or against the Lessor or the General Partner and, if instituted against the Lessor or the General Partner, shall not be dismissed or stayed for a period of sixty (60) days; or (f) any Event of Default shall occur and be continuing. SECTION 6.2 Remedies. (a) Upon the occurrence of a Loan Event of Default hereunder, (i) if such event is a Loan Event of Default specified in clause (e) of Section 5.1 with respect to the Lessor, automatically the Lenders' Commitments shall terminate and the outstanding principal of, and accrued interest on, the Loans shall be immediately due and payable, and (ii) if such event is any other Loan Event of Default, upon written request of the Required Lenders, the Agent shall, by notice of default to the Lessor, declare the Commitments of the Lenders to be terminated forthwith and the outstanding principal of, and accrued interest on, the Loans to be immediately due and payable, whereupon the Commitments of the Lenders shall immediately terminate and the outstanding principal of, and accrued interest on, the Loans shall become immediately due and payable. (b) When a Loan Event of Default exists, the Agent may, and upon the written instructions of the Required Funding Parties shall, exercise any or all of the rights and powers and pursue any and all of the remedies available to it hereunder, under the Notes, the Mortgages and the Assignments of Lease and Rents and shall have and may exercise any and all rights and remedies available under the Uniform Commercial Code or any provision of law. When a Loan Event of Default exists, the Agent may, and upon the written instructions of the Required Funding Parties shall, have the right to exercise all rights of the Lessor under the Lease pursuant to the terms and in the manner provided for in the Mortgages and the Assignments of Lease and Rents. (c) Except as expressly provided above, no remedy under this Section 5.2 is intended to be exclusive, but each shall be cumulative and in addition to any other remedy provided under this Section 5.2 or under the other Operative Documents or otherwise available at law or in equity. The exercise by the Agent or any Lender of any one or more of such remedies shall not preclude the simultaneous or later exercise of any other remedy or remedies. No express or implied waiver by the Agent or any Lender of any Loan Event of Default shall in any way be, or be construed to be, a waiver of any future or subsequent Loan Event of Default. The failure or delay of the Agent or any Lender in exercising any rights granted it hereunder upon any occurrence of any of the contingencies set forth herein shall not constitute a waiver of any such right upon the continuation or recurrence of any such contingencies or similar contingencies and any single or partial exercise of any particular right by the Agent or any Lender shall not exhaust the same or constitute a waiver of any other right provided herein. SECTION 7 THE AGENT SECTION 7.1 Appointment. Each Lender hereby irrevocably designates and appoints the Agent as the agent of such Lender under this Loan Agreement and the other Operative Documents, and each such Lender irrevocably authorizes the Agent, in such capacity, to take such action on its behalf under the provisions of this Loan Agreement and the other Operative Documents and to exercise such powers and perform such duties as are expressly delegated to the Agent by the terms of this Loan Agreement and the other Operative Documents, together with such other powers as are reasonably incidental thereto. Notwithstanding any provision to the contrary elsewhere in this Loan Agreement, the Agent shall not have any duties or responsibilities, except those expressly set forth herein, or any fiduciary relationship with any Lender, and no implied covenants, functions, responsibilities, duties, obligations or liabilities shall be read into this Loan Agreement or any other Operative Document or otherwise exist against the Agent. SECTION 7.2 Delegation of Duties. The Agent may execute any of its duties under this Loan Agreement and the other Operative Documents by or through agents or attorneys-in-fact and shall be entitled to advice of counsel concerning all matters pertaining to such duties. The Agent shall not be responsible for the negligence or misconduct of any agents or attorneys-in-fact selected by it with reasonable care. SECTION 7.3 Exculpatory Provisions. Neither the Agent nor any of its officers, directors, employees, agents, attorneys-in-fact or Affiliates shall be (a) liable for any action lawfully taken or omitted to be taken by it or such Person under or in connection with this Loan Agreement or any other Operative Document (except for its or such Person's own gross negligence or willful misconduct) or (b) responsible in any manner to any of the Lenders for any recitals, statements, representations or warranties made by the Lessor, the Guarantor or the Lessee or any officer thereof contained in this Loan Agreement or any other Operative Document or in any certificate, report, statement or other document referred to or provided for in, or received by the Agent under or in connection with, this Loan Agreement or any other Operative Document or for the value, validity, effectiveness, genuineness, enforceability or sufficiency of this Loan Agreement or any other Operative Document or for any failure of the Lessor, the Guarantor or the Lessee to perform its obligations hereunder or thereunder. The Agent shall not be under any obligation to any Lender to ascertain or to inquire as to the observance or performance of any of the agreements contained in, or conditions of, this Loan Agreement or any other Operative Document, or to inspect the properties, books or records of the Lessor, the Guarantor or the Lessee. SECTION 7.4 Reliance by Agent. The Agent shall be entitled to rely, and shall be fully protected in relying, upon any Note, writing, resolution, notice, consent, certificate, affidavit, letter, telecopy, telex or teletype message, statement, order or other document or conversation believed by it to be genuine and correct and to have been signed, sent or made by the proper Person or Persons and upon advice and statements of legal counsel (including, without limitation, counsel to the Lessor, the Guarantor or the Lessee), independent accountants and other experts selected by the Agent. The Agent may deem and treat the payee of any Note as the owner thereof for all purposes unless a written notice of assignment, negotiation or transfer thereof shall have been filed with the Agent. The Agent shall be fully justified in failing or refusing to take any action under this Loan Agreement or any other Operative Document unless it shall first receive such advice or concurrence of the Required Funding Parties as it deems appropriate or it shall first be indemnified to its satisfaction by the Funding Parties against any and all liability and expense which may be incurred by it by reason of taking or continuing to take any such action. The Agent shall in all cases be fully protected in acting, or in refraining from acting, under this Loan Agreement and the other Operative Documents in accordance with a request of the Required Lenders, and such request and any action taken or failure to act pursuant thereto shall be binding upon all the Lenders and all future holders of the Notes. SECTION 7.5 Notice of Default. The Agent shall not be deemed to have knowledge or notice of the occurrence of any Loan Potential Event of Default or Loan Event of Default hereunder unless the Agent has received notice from a Lender referring to this Loan Agreement, describing such Loan Potential Event of Default or Loan Event of Default and stating that such notice is a "notice of default". In the event that the Agent receives such a notice, the Agent shall give notice thereof to the Lenders. The Agent shall take such action with respect to such Loan Potential Event of Default or Loan Event of Default as shall be reasonably directed by the Required Lenders; provided that unless and until the Agent shall have received such directions, the Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Loan Potential Event of Default or Loan Event of Default as it shall deem advisable in the best interests of the Lenders. SECTION 7.6 Non-Reliance on Agent and Other Lenders. Each Lender expressly acknowledges that neither the Agent nor any of its officers, directors, employees, agents, attorneys-in-fact or Affiliates has made any representations or warranties to it and that no act by the Agent hereinafter taken, including any review of the affairs of the Lessor, the Guarantor or the Lessee, shall be deemed to constitute any representation or warranty by the Agent to any Lender. Each Lender represents to the Agent that it has, independently and without reliance upon the Agent or any other Lender, and based on such documents and information as it has deemed appropriate, made its own appraisal of and investigation into the business, operations, property, financial and other condition and creditworthiness of the Lessor, the Guarantor and the Lessee and made its own decision to make its Loans hereunder and enter into this Loan Agreement. Each Lender also represents that it will, independently and without reliance upon the Agent or any other Lender, and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit analysis, appraisals and decisions in taking or not taking action under this Loan Agreement and the other Operative Documents, and to make such investigation as it deems necessary to inform itself as to the business, operations, property, financial and other condition and creditworthiness of the Lessor, the Guarantor and the Lessee. Except for notices, reports and other documents expressly required to be furnished to the Lenders by the Agent hereunder, the Agent shall not have any duty or responsibility to provide any Lender with any credit or other information concerning the business, operations, property, condition (financial or otherwise), prospects or creditworthiness of the Lessor, the Guarantor or the Lessee which may come into the possession of the Agent or any of its officers, directors, employees, agents, attorneys-in-fact or Affiliates. SECTION 7.7 Indemnification. The Lenders agree to indemnify the Agent in its capacity as such (to the extent not reimbursed by the Lessee or Guarantor and without limiting the obligation of the Lessee or Guarantor to do so), ratably according to the percentage each Lender's Commitment bears to the total commitments of all of the Lenders on the date on which indemnification is sought under this Section 6.7 (or, if indemnification is sought after the date upon which the Lenders Commitments shall have terminated and the Loans shall have been paid in full, ratably in accordance with the percentage that each Lender's Commitment bears to the Commitments of all of the Lenders immediately prior to such date), from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind whatsoever which may at any time (including, without limitation, at any time following the payment of the Notes) be imposed on, incurred by or asserted against the Agent in any way relating to or arising out of, the Commitments, this Loan Agreement, any of the other Operative Documents or any documents contemplated by or referred to herein or therein or the transactions contemplated hereby or thereby or any action taken or omitted by the Agent under or in connection with any of the foregoing; provided that no Lender shall be liable for the payment of any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting solely from the Agent's gross negligence or willful misconduct. The agreements in this Section 6.7 shall survive the payment of the Notes and all other amounts payable hereunder. SECTION 7.8 Agent in Its Individual Capacity. The Agent and its Affiliates may make loans to, accept deposits from and generally engage in any kind of business with the Lessor, the Guarantor or the Lessee as though the Agent were not the Agent hereunder and under the other Operative Documents. With respect to Loans made or renewed by it and any Note issued to it, the Agent shall have the same rights and powers under this Loan Agreement and the other Operative Documents as any Lender and may exercise the same as though it were not the Agent, and the terms "Lender" and "Lenders" shall include the Agent in its individual capacity. Each Lender acknowledges that the Agent in its individual capacity has had and continues to have other business relations and transactions with the Lessee and the Lessor. SECTION 7.9 Successor Agent. The Agent may resign as Agent upon 20 days' notice to the Lenders. If the Agent shall resign as Agent under this Loan Agreement and the other Operative Documents, then the Required Funding Parties shall appoint a successor agent for the Lenders, which successor agent shall be a commercial bank organized under the laws of the United States of America or any State thereof or under the laws of another country which is doing business in the United States of America and having a combined capital, surplus and undivided profits of at least $100,000,000, whereupon such successor agent shall succeed to the rights, powers and duties of the Agent, and the term "Agent" shall mean such successor agent effective upon such appointment and approval, and the former Agent's rights, powers and duties as Agent shall be terminated, without any other or further act or deed on the part of such former Agent or any of the parties to this Loan Agreement or any holders of the Notes. After any retiring Agent's resignation as Agent, all of the provisions of this Section 6 shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Agent under this Loan Agreement and the other Operative Documents. SECTION 8 MISCELLANEOUS SECTION 8.1 Amendments and Waivers. Neither this Loan Agreement, any Note, nor any terms hereof or thereof may be amended, supplemented or modified except in accordance with the provisions of Section 8.4 of the Master Agreement. SECTION 8.2 Notices. Unless otherwise specified herein, all notices, requests, demands or other communications to or upon the respective parties hereto shall be given in accordance with Section 8.2 of the Master Agreement. SECTION 8.3 No Waiver; Cumulative Remedies. No failure to exercise and no delay in exercising, on the part of the Agent or any Lender, any right, remedy, power or privilege hereunder, shall operate as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege. The rights, remedies, powers and privileges herein provided are cumulative and not exclusive of any rights, remedies, powers and privileges provided by law. SECTION 8.4 Successors and Assigns. This Loan Agreement shall be binding upon and inure to the benefit of the Lessor, the Agent, the Lenders, all future holders of the Notes and their respective successors and permitted assigns. SECTION 8.5 Counterparts. This Loan Agreement may be executed by one or more of the parties to this Loan Agreement on any number of separate counterparts and all of said counterparts taken together shall be deemed to constitute one and the same agreement. A set of the counterparts of this Loan Agreement signed by all the parties hereto shall be lodged with the Lessor and the Agent. SECTION 8.6 GOVERNING LAW. THIS LOAN AGREEMENT AND THE NOTES AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES UNDER THIS LOAN AGREEMENT AND THE NOTES SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF GEORGIA. SECTION 8.7 Survival and Termination of Agreement. All covenants, agreements, representations and warranties made herein and in any certificate, document or statement delivered pursuant hereto or in connection herewith shall survive the execution and delivery of this Loan Agreement, and the Notes and shall continue in full force and effect so long as any Note or any amount payable to any Lender under or in connection with this Loan Agreement or the Notes is unpaid, at which time this Loan Agreement shall terminate. SECTION 8.8 Entire Agreement. This Loan Agreement and the other Operative Documents set forth the entire agreement of the parties hereto with respect to its subject matter, and supersedes all previous understandings, written or oral, with respect thereto. SECTION 8.9 Severability. Any provision of this Loan Agreement or of the Notes which is prohibited, unenforceable or not authorized in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition, unenforceability or non-authorization without invalidating the remaining provisions hereof or thereof or affecting the validity, enforceability or legality of any such provision in any other jurisdiction. IN WITNESS THEREOF, the parties hereto have caused this Loan Agreement to be duly executed and delivered by their proper and duly authorized officers as of the day and year first above written. SUNTRUST BANK, ATLANTA, as Agent By: ____________________________ Name:____________________________ Title:___________________________ By: ____________________________ Name:____________________________ Title:___________________________ ATLANTIC FINANCIAL GROUP, LTD., as Lessor and Borrower By: Atlantic Financial Managers, Inc., its General Partner By: ____________________________ Name:____________________________ Title:___________________________ SUNTRUST BANK, ATLANTA, as a Lender By: ____________________________ Name:____________________________ Title:___________________________ AMSOUTH BANK OF ALABAMA, as a Lender By: ____________________________ Name:____________________________ Title:___________________________ BARNETT BANK OF JACKSONVILLE, N.A., as a Lender By: ____________________________ Name:____________________________ Title:___________________________ FIRST AMERICAN NATIONAL BANK, as a Lender By: ____________________________ Name:____________________________ Title:___________________________ WACHOVIA BANK OF GEORGIA, N.A., as a Lender By: ____________________________ Name:____________________________ Title:___________________________ HIBERNIA NATIONAL BANK, as a Lender By: ____________________________ Name:____________________________ Title:___________________________ FIRST TENNESSEE BANK, as a Lender By: ____________________________ Name:____________________________ Title:___________________________ LEASE AGREEMENT Dated as of May 30, 1997 between ATLANTIC FINANCIAL GROUP, LTD., as Lessor, and RUBY TUESDAY, INC., as Lessee TABLE OF CONTENTS (Lease Agreement) Page ARTICLE I. DEFINITIONS 1 ARTICLE II. LEASE OF LEASED PROPERTY 1 2.1 Acceptance and Lease of Property 1 2.2 Acceptance Procedure 2 ARTICLE III. RENT 2 3.1 Basic Rent 2 3.2 Supplemental Rent 2 3.3 Method of Payment 3 3.4 Late Payment 3 3.5 Net Lease; No Setoff, Etc 3 3.6 Certain Taxes 5 3.7 Utility Charges 5 ARTICLE IV. WAIVERS 6 ARTICLE V. LIENS; EASEMENTS; PARTIAL CONVEYANCES 7 ARTICLE VI. MAINTENANCE AND REPAIR; ALTERATIONS, MODIFICATIONS AND ADDITIONS 8 6.1 Maintenance and Repair; Compliance With Law 8 6.2 Alterations 9 6.3 Title to Alterations 9 ARTICLE VII. USE 9 ARTICLE VIII. INSURANCE 9 ARTICLE IX. ASSIGNMENT AND SUBLEASING 11 ARTICLE X. LOSS, DESTRUCTION, CONDEMNATION OR DAMAGE 11 10.1 Event of Loss. 11 10.2 Event of Taking. 12 10.3 Casualty. 13 10.4 Condemnation. 13 10.5 Verification of Restoration and Rebuilding 13 10.6 Application of Payments 14 10.7 Prosecution of Awards. 15 10.8 Application of Certain Payments Not Relating to an Event of Taking 15 10.9 Other Dispositions 16 10.10 No Rent Abatement 16 ARTICLE XI. INTEREST CONVEYED TO LESSEE 16 ARTICLE XII. EVENTS OF DEFAULT 17 ARTICLE XIII. ENFORCEMENT 20 13.1 Remedies 20 13.2 Remedies Cumulative; No Waiver; Consents 22 ARTICLE XIV. SALE, RETURN OR PURCHASE OF LEASED PROPERTY;RENEWAL 23 14.1 Lessee's Option to Purchase 23 14.2 Conveyance to Lessee 24 14.3 Acceleration of Purchase Obligation 24 14.4 Determination of Purchase Price 24 14.5 Purchase Procedure 25 14.6 Option to Remarket; Surrender Option 26 14.7 Rejection of Sale 29 14.8 Return of Leased Property 29 14.9 Renewal 30 ARTICLE XV. LESSEE'S EQUIPMENT 30 ARTICLE XVI. RIGHT TO PERFORM FOR LESSEE 31 ARTICLE XVII. MISCELLANEOUS 31 17.1 Reports 31 17.2 Binding Effect; Successors and Assigns; Survival 32 17.3 Quiet Enjoyment 32 17.4 Notices 32 17.5 Severability 33 17.6 Amendment; Complete Agreements 33 17.7 Construction 33 17.8 Headings 34 17.9 Counterparts 34 17.10 GOVERNING LAW 34 17.11 Discharge of Lessee's Obligations by its Affiliates 34 17.12 Liability of Lessor Limited 34 17.13 Estoppel Certificates 35 17.14 No Joint Venture 35 17.15 No Accord and Satisfaction 35 17.16 No Merger 35 17.17 Survival 36 17.18 Chattel Paper 36 17.19 Time of Essence 36 17.20 Recordation of Lease. 36 17.21 Investment of Security Funds 36 17.22 Ground Leases 37 17.23 Land and Building 37 APPENDICES AND EXHIBITS APPENDIX A Defined Terms EXHIBIT A Lease Supplement THIS LEASE AGREEMENT (as from time to time amended or supplemented, this "Lease"), dated as of May 30, 1997, is between ATLANTIC FINANCIAL GROUP, LTD., a Texas limited partnership (together with its successors and assigns hereunder, the "Lessor"), as Lessor, and RUBY TUESDAY, INC., a Georgia corporation (together with its successors and permitted assigns hereunder, the "Lessee"), as Lessee. PRELIMINARY STATEMENT A. Lessor will purchase, or acquire a leasehold interest in, from one or more third parties designated by Lessee, on each Closing Date, certain parcels of real property to be specified by Lessee, together with any improvements thereon. B. Lessor desires to lease to Lessee, and Lessee desires to lease from Lessor, each such property. C. Lessee will construct certain improvements on such parcels of real property which as constructed will be the property of Lessor and will become part of such property subject to the terms of this Lease. In consideration of the mutual agreements herein contained and other good and valuable consideration, receipt of which is hereby acknowledged, Lessor and Lessee hereby agree as follows: ARTICLE II. DEFINITIONS Terms used herein and not otherwise defined shall have the meanings assigned thereto in Appendix A hereto for all purposes hereof. ARTICLE III. LEASE OF LEASED PROPERTY Section III.1 Acceptance and Lease of Property. On each Closing Date, Lessor, subject to the satisfaction or waiver of the conditions set forth in Section 3 of the Master Agreement, hereby agrees to accept delivery on such Closing Date of the Land designated by Lessee to be delivered on such Closing Date pursuant to the terms of the Master Agreement, together with any improvements thereon and simultaneously to lease to Lessee hereunder for the Lease Term, Lessor's interest in such Land and in such improvements, together with any Building which thereafter may be constructed thereon pursuant to the Construction Agency Agreement, and Lessee hereby agrees, expressly for the direct benefit of Lessor, commencing on such Closing Date for the Lease Term, to lease from Lessor Lessor's interest in such Land to be delivered on such Closing Date together with Lessor's interest in any Building and other improvements thereon or which thereafter may be constructed thereon pursuant to the Construction Agency Agreement. Section III.2 Acceptance Procedure. Lessor hereby authorizes one or more employees of Lessee, to be designated by Lessee, as the authorized representative or representatives of Lessor to accept delivery on behalf of Lessor of that Leased Property identified on the applicable Funding Request. Lessee hereby agrees that such acceptance of delivery by such authorized representative or representatives and the execution and delivery by Lessee on each Closing Date of a Lease Supplement in substantially the form of Exhibit A hereto (appropriately completed) shall, without further act, constitute the irrevocable acceptance by Lessee of that Leased Property which is the subject thereof for all purposes of this Lease and the other Operative Documents on the terms set forth therein and herein, and that such Leased Property, together with any improvements constructed thereon pursuant to the Construction Agency Agreement, shall be deemed to be included in the leasehold estate of this Lease and shall be subject to the terms and conditions of this Lease as of such Closing Date. The demise and lease of each Building pursuant to this Section 2.2 shall include any additional right, title or interest in such Building which may at any time be acquired by Lessor, the intent being that all right, title and interest of Lessor in and to such Building shall at all times be demised and leased to Lessee hereunder. ARTICLE IV. RENT Section IV.1 Basic Rent. Beginning with and including the first Payment Date occurring after the Closing Date, Lessee shall pay to the Agent the Basic Rent for the Leased Properties, in installments, payable in arrears on each Payment Date during the Lease Term, subject to Section 2.3(c) of the Master Agreement. Section IV.2 Supplemental Rent. Lessee shall pay to the Agent, or to whomever shall be entitled thereto as expressly provided herein or in any other Operative Document, any and all Supplemental Rent within five (5) Business Days of the date the same shall become due and payable and in the event of any failure on the part of Lessee to pay any Supplemental Rent, the Agent shall have all rights, powers and remedies provided for herein or by law or in equity or otherwise in the case of nonpayment of Basic Rent. All Supplemental Rent to be paid pursuant to this Section 3.2 shall be payable in the type of funds and in the manner set forth in Section 3.3. Section IV.3 Method of Payment. Basic Rent shall be paid to the Agent, and Supplemental Rent (including amounts due under Article XIV hereof) shall be paid to the Agent (or to such Person as may be entitled thereto) or, in each case, to such Person as the Agent (or such other Person) shall specify in writing to Lessee, and at such place as the Agent (or such other Person) shall specify in writing to Lessee, which specifications by the Agent shall be given by the Agent at least five (5) Business Days prior to the due date therefor. Each payment of Rent (including payments under Article XIV hereof) shall be made by Lessee prior to 12:00 p.m. (noon) Atlanta, Georgia time at the place of payment in funds consisting of lawful currency of the United States of America which shall be immediately available on the scheduled date when such payment shall be due, unless such scheduled date shall not be a Business Day, in which case such payment shall be made on the next succeeding Business Day. Section IV.4 Late Payment. If any Basic Rent shall not be paid on the date when due, Lessee shall pay to the Agent, as Supplemental Rent, interest (to the maximum extent permitted by law) on such overdue amount from and including the due date thereof to but excluding the Business Day of payment thereof at the Overdue Rate. Section IV.5 Net Lease; No Setoff, Etc. This Lease is a net lease and notwithstanding any other provision of this Lease, Lessee shall pay all Basic Rent and Supplemental Rent, and all costs, charges, taxes (other than taxes covered by the exclusion described in Section 7.4(b) of the Master Agreement), assessments and other expenses foreseen or unforeseen, for which Lessee or any Indemnitee is or shall become liable by reason of Lessee's or such Indemnitee's estate, right, title or interest in the Leased Properties, or that are connected with or arise out of the acquisition (except the initial costs of purchase by Lessor of its interest in any Leased Property, which costs, subject to the terms of the Master Agreement, shall be funded by the Funding Parties pursuant to the Master Agreement), installation, possession, use, occupancy, maintenance, ownership, leasing, repairs and rebuilding of, or addition to, the Leased Properties or any portion thereof, and any other amounts payable hereunder and under the other Operative Documents without counterclaim, setoff, deduction or defense and without abatement, suspension, deferment, diminution or reduction, and Lessee's obligation to pay all such amounts throughout the Lease Term, including the Construction Term, is absolute and unconditional. The obligations and liabilities of Lessee hereunder shall in no way be released, discharged or otherwise affected for any reason, including without limitation: (a) any defect in the condition, merchantability, design, quality or fitness for use of any Leased Property or any part thereof, or the failure of any Leased Property to comply with all Applicable Law, including any inability to occupy or use any Leased Property by reason of such non- compliance; (b) any damage to, removal, abandonment, salvage, loss, contamination of or Release from, scrapping or destruction of or any requisition or taking of any Leased Property or any part thereof; (c) any restriction, prevention or curtailment of or interference with any use of any Leased Property or any part thereof including eviction; (d) any defect in title to or rights to any Leased Property or any Lien on such title or rights or on any Leased Property; (e) any change, waiver, extension, indulgence or other action or omission or breach in respect of any obligation or liability of or by Lessor, the Agent or any Lender; (f) any bankruptcy, insolvency, reorganization, composition, adjustment, dissolution, liquidation or other like proceedings relating to Lessee, Lessor, any Lender, the Agent or any other Person, or any action taken with respect to this Lease by any trustee or receiver of Lessee, Lessor, any Lender, the Agent, any Ground Lessor or any other Person, or by any court, in any such proceeding; (g) any claim that Lessee has or might have against any Person, including without limitation, Lessor, any vendor, manufacturer, contractor of or for any Building or any part thereof, the Agent, any Ground Lessor or any Lender; (h) any failure on the part of Lessor to perform or comply with any of the terms of this Lease, any other Operative Document or of any other agreement; (i) any invalidity or unenforceability or illegality or disaffirmance of this Lease against or by Lessee or any provision hereof or any of the other Operative Documents or any provision of any thereof whether or not related to the Transaction; (j) the impossibility or illegality of performance by Lessee, Lessor or both; (k) any action by any court, administrative agency or other Governmental Authority; (l) any restriction, prevention or curtailment of or interference with the Construction or any use of any Leased Property or any part thereof; or (m) any other occurrence whatsoever, whether similar or dissimilar to the foregoing, whether or not Lessee shall have notice or knowledge of any of the foregoing. Except as specifically set forth in Articles XIV or X of this Lease, this Lease shall be noncancellable by Lessee in any circumstance whatsoever and Lessee, to the extent permitted by Applicable Law, waives all rights now or hereafter conferred by statute or otherwise to quit, terminate or surrender this Lease, or to any diminution, abatement or reduction of Rent payable by Lessee hereunder. Each payment of Rent made by Lessee hereunder shall be final and Lessee shall not seek or have any right to recover all or any part of such payment from Lessor, the Agent, any Lender or any party to any agreements related thereto for any reason whatsoever. Lessee assumes the sole responsibility for the condition, use, operation, maintenance, and management of the Leased Properties and Lessor shall have no responsibility in respect thereof and shall have no liability for damage to the property of either Lessee or any subtenant of Lessee on any account or for any reason whatsoever, other than solely by reason of Lessor's willful misconduct or gross negligence. Section IV.6 Certain Taxes. Without limiting the generality of Section 3.5, Lessee agrees to pay when due all real estate taxes, personal property taxes, gross sales taxes, including any sales or lease tax imposed upon the rental payments hereunder or under a sublease, occupational license taxes, water charges, sewer charges, assessments of any nature and all other governmental impositions and charges of every kind and nature whatsoever (the "tax(es)"), when the same shall be due and payable without penalty or interest; provided, however, that this Section shall not apply to any of the taxes covered by the exclusion described in Section 7.4(b) of the Master Agreement. It is the intention of the parties hereto that, insofar as the same may lawfully be done, Lessor shall be, except as specifically provided for herein, free from all expenses in any way related to the Leased Properties and the use and occupancy thereof. Any tax relating to a fiscal period of any taxing authority falling partially within and partially outside the Lease Term, shall be apportioned and adjusted between Lessor and Lessee. Lessee covenants to furnish Lessor and the Agent, upon the Agent's request, within forty-five (45) days after the last date when any tax must be paid by Lessee as provided in this Section 3.6, official receipts of the appropriate taxing, authority or other proof satisfactory to Lessor, evidencing the payment thereof. So long as no Event of Default has occurred and is continuing, Lessee may defer payment of a tax so long as the validity or the amount thereof is contested by Lessee with diligence and in good faith; provided, however, that Lessee shall furnish to Lessor and the Agent a bond or other adequate security in an amount and on terms reasonably satisfactory to Lessor and the Agent and shall pay the tax in sufficient time to prevent delivery of a tax deed. Such contest shall be at Lessee's sole cost and expense. Lessee covenants to indemnify and save harmless Lessor, the Agent and each Lender from any actual and reasonable costs or expenses incurred by Lessor, the Agent or any Lender as a result of such contest. Section IV.7 Utility Charges. Lessee agrees to pay or cause to be paid as and when the same are due and payable all charges for gas, water, sewer, electricity, lights, heat, power, telephone or other communication service and all other utility services used, rendered or supplied to, upon or in connection with the Leased Properties. ARTICLE V. WAIVERS During the Lease Term, Lessor's interest in the Building(s) (whether or not completed) and the Land is demised and let by Lessor "AS IS" subject to (a) the rights of any parties in possession thereof, (b) the state of the title thereto existing at the time Lessor acquired its interest in the Leased Properties, (c) any state of facts which an accurate survey or physical inspection might show (including the survey delivered on the Closing Date), (d) all Applicable Law, and (e) any violations of Applicable Law which may exist upon or subsequent to the commencement of the Lease Term. LESSEE ACKNOWLEDGES THAT, ALTHOUGH LESSOR WILL OWN AND HOLD TITLE TO THE LEASED PROPERTIES, LESSOR IS NOT RESPONSIBLE FOR THE DESIGN, DEVELOPMENT, BUDGETING AND CONSTRUCTION OF THE BUILDING(S) OR ANY ALTERATIONS. NEITHER LESSOR, THE AGENT NOR ANY LENDER HAS MADE OR SHALL BE DEEMED TO HAVE MADE ANY REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, OR SHALL BE DEEMED TO HAVE ANY LIABILITY WHATSOEVER AS TO THE VALUE, MERCHANTABILITY, TITLE, HABITABILITY, CONDITION, DESIGN, OPERATION, OR FITNESS FOR USE OF THE LEASED PROPERTIES (OR ANY PART THEREOF), OR ANY OTHER REPRESENTATION OR WARRANTY WHATSOEVER, EXPRESS OR IMPLIED, WITH RESPECT TO THE LEASED PROPERTIES (OR ANY PART THEREOF), ALL SUCH WARRANTIES BEING HEREBY DISCLAIMED, AND NEITHER LESSOR, THE AGENT NOR ANY LENDER SHALL BE LIABLE FOR ANY LATENT, HIDDEN, OR PATENT DEFECT THEREIN OR THE FAILURE OF ANY LEASED PROPERTY, OR ANY PART THEREOF, TO COMPLY WITH ANY APPLICABLE LAW, except that Lessor hereby represents and warrants that each Leased Property is and shall be free of Lessor Liens. As between Lessor and Lessee, Lessee has been afforded full opportunity to inspect each Leased Property, is satisfied with the results of its inspections of such Leased Property and is entering into this Lease solely on the basis of the results of its own inspections and all risks incident to the matters discussed in the two preceding sentences, as between Lessor, the Agent or the Lenders on the one hand, and Lessee, on the other, are to be borne by Lessee. The provisions of this Article IV have been negotiated, and, except to the extent otherwise expressly stated, the foregoing provisions are intended to be a complete exclusion and negation of any representations or warranties by Lessor, the Agent or the Lenders, express or implied, with respect to the Leased Properties, that may arise pursuant to any law now or hereafter in effect, or otherwise. ARTICLE VI. LIENS; EASEMENTS; PARTIAL CONVEYANCES Lessee shall not directly or indirectly create, incur or assume, any Lien on or with respect to any Leased Property, the title thereto, or any interest therein, including any Liens which arise out of the possession, use, occupancy, construction, repair or rebuilding of any Leased Property or by reason of labor or materials furnished or claimed to have been furnished to Lessee, or any of its contractors or agents or Alterations constructed by Lessee, except, in all cases, Permitted Liens. Notwithstanding the foregoing paragraph, at the request of Lessee, Lessor shall, from time to time during the Lease Term and upon reasonable advance written notice from Lessee, and receipt of the materials specified in the next succeeding sentence, consent to and join in any (i) grant of easements, licenses, rights of way and other rights in the nature of easements, including, without limitation, utility easements to facilitate Lessee's use, development and construction of the Leased Properties, (ii) release or termination of easements, licenses, rights of way or other rights in the nature of easements which are for the benefit of the Land or the Building(s) or any portion thereof, (iii) dedication or transfer of portions of the Land, not improved with a Building, for road, highway or other public purposes, (iv) execution of agreements for ingress and egress and amendments to any covenants and restrictions affecting the Land or the Building(s) or any portion thereof and (v) request to any Governmental Authority for platting or subdivision or replatting or resubdivision approval with respect to the Land or any portion thereof or any parcel of land of which the Land or any portion thereof forms a part or a request for any variance from zoning or other governmental requirements. Lessor's obligations pursuant to the preceding sentence shall be subject to the requirements that: (a) any such action shall be at the sole cost and expense of Lessee and Lessee shall pay all actual and reasonable out-of-pocket costs of Lessor, the Agent and any Lender in connection therewith (including, without limitation, the reasonable fees of attorneys, architects, engineers, planners, appraisers and other professionals reasonably retained by Lessor, the Agent or any Lender in connection with any such action), (b) Lessee shall have delivered to Lessor and Agent a certificate of a Responsible Officer of Lessee stating that (1) such action will not cause any Leased Property, the Land or any Building or any portion thereof to fail to comply in any material respect with the provisions of the Lease or any other Operative Documents, or in any material respect with Applicable Law; and (2) such action will not materially reduce the Fair Market Sales Value, utility or useful life of any Leased Property, the Land or any Building nor Lessor's interest therein; and (c) in the case of any release or conveyance, if Lessor, the Agent or any Lender so reasonably requests, Lessee will cause to be issued and delivered to Lessor and the Agent by the Title Insurance Company an endorsement to the Title Policy pursuant to which the Title Insurance Company agrees that its liability for the payment of any loss or damage under the terms and provisions of the Title Policy will not be affected by reason of the fact that a portion of the real property referred to in Schedule A of the Title Policy has been released or conveyed by Lessor. ARTICLE VII. MAINTENANCE AND REPAIR; ALTERATIONS, MODIFICATIONS AND ADDITIONS Section VII.1 Maintenance and Repair; Compliance With Law. Lessee, at its own expense, shall at all times (a) maintain each Leased Property in good repair and condition (subject to ordinary wear and tear), in accordance with prudent industry standards and, in any event, in no less a manner as other similar restaurant units owned or leased by Lessee or its Affiliates, (b) make all Alterations in accordance with, and maintain (whether or not such maintenance requires structural modifications or Alterations) and operate and otherwise keep each Leased Property in compliance in all material respects with, all Applicable Laws and insurance requirements, and (c) make all material repairs, replacements and renewals of each Leased Property or any part thereof which may be required to keep such Leased Property in the condition required by the preceding clauses (a) and (b). Lessee shall perform the foregoing maintenance obligations regardless of whether any Leased Property is occupied or unoccupied. Lessee waives any right that it may now have or hereafter acquire to (i) require Lessor, the Agent or any Lender to maintain, repair, replace, alter, remove or rebuild all or any part of any Leased Property or (ii) make repairs at the expense of Lessor, the Agent or any Lender pursuant to any Applicable Law or other agreements or otherwise. NEITHER LESSOR, THE AGENT NOR ANY LENDER SHALL BE LIABLE TO LESSEE OR TO ANY CONTRACTORS, SUBCONTRACTORS, LABORERS, MATERIALMEN, SUPPLIERS OR VENDORS FOR SERVICES PERFORMED OR MATERIAL PROVIDED ON OR IN CONNECTION WITH ANY LEASED PROPERTY OR ANY PART THEREOF. Neither Lessor, the Agent nor any Lender shall be required to maintain, alter, repair, rebuild or replace any Leased Property in any way. Section VII.2 Alterations. Lessee may, without the consent of Lessor, at Lessee's own cost and expense, make Alterations which do not materially diminish the value, utility or useful life of any Leased Property. Section VII.3 Title to Alterations. Title to all Alterations shall without further act vest in Lessor (subject to Lessee's right to remove trade fixtures, personal property and equipment which do not constitute Alterations and which were not acquired with funds advanced by Lessor or any Lender) and shall be deemed to constitute a part of the Leased Properties and be subject to this Lease. ARTICLE VIII. USE Lessee may use each Leased Property or any part thereof for any lawful purpose, and in a manner consistent with the standards applicable to properties of a similar nature in the geographic area in which such Leased Property is located, provided that such use does not materially adversely affect the Fair Market Sales Value, utility, remaining useful life or residual value of such Leased Property, and does not materially violate or conflict with, or constitute or result in a material default under, any Applicable Law or any insurance policy required hereunder. In the event Lessee's use substantially changes the character of any Building in a manner or to an extent that, in Lessor's or the Lenders' reasonable opinion, adversely affects the Fair Market Sales Value and/or marketability of such Building, Lessee shall, upon the termination or expiration of this Lease, at Lessor's request, restore such Leased Property to its general character at the Completion Date (ordinary wear and tear excepted). Lessee shall not commit or permit any waste of any Leased Property or any material part thereof. ARTICLE IX. INSURANCE (a) At any time during which any part of any Building or any Alteration is under construction and as to any part of any Building or any Alteration under construction, Lessee shall maintain, or cause to be maintained, at its sole cost and expense, as a part of its blanket policies or otherwise, "all risks" non-reporting completed value form of builder's risk insurance. (b) During the Lease Term, Lessee shall maintain, at its sole cost and expense, as a part of its blanket policies or otherwise, insurance against loss or damage to any Building by fire and other risks, including comprehensive boiler and machinery coverage, on terms and in amounts no less favorable than insurance covering other similar properties owned or leased by Lessee and that are in accordance with normal industry practice, but in no event less than the replacement cost of such Building from time to time. (c) During the Lease Term, Lessee shall maintain, at its sole cost and expense, commercial general liability insurance with respect to the Leased Properties, as is ordinarily procured by Persons who own or operate similar properties in the same geographic area. Such insurance shall be on terms and in amounts that are no less favorable than insurance maintained by Lessee or its Affiliates with respect to similar properties that it owns or leases and that are in accordance with normal industry practice, but in no event less than $1,000,000 per occurrence. Such insurance policies shall also provide that Lessee's insurance shall be considered primary insurance. Nothing in this Article VIII shall prohibit Lessor, the Agent or any Lender from carrying at its own expense other insurance on or with respect to the Leased Properties, provided that any insurance carried by Lessor, the Agent or any Lender shall not prevent Lessee from carrying the insurance required hereby. (d) Each policy of insurance maintained by Lessee pursuant to clauses (a) and (b) of this Article IX shall provide that all insurance proceeds in respect of any loss or occurrence shall be adjusted by Lessee, except if, and for so long as an Event of Default exists, all losses shall be adjusted solely by, and all insurance proceeds shall be paid solely to, the Agent (or Lessor if the Loans have been fully paid) for application pursuant to this Lease. (e) On the Closing Date for each Leased Property, on the Completion Date and on each anniversary of the Initial Closing Date, Lessee shall furnish Lessor with certificates showing the insurance required under this Article VIII to be in effect and naming Lessor, the Agent and the Lenders as additional insureds. Such certificates shall include a provision for thirty (30) days' advance written notice by the insurer to Lessor and the Agent in the event of cancellation or expiration or nonpayment of premium with respect to such insurance, and shall include a customary breach of warranty clause. (f) Each policy of insurance maintained by Lessee pursuant to this Article VIII shall (1) contain the waiver of any right of subrogation of the insurer against Lessor, the Agent and the Lenders, and (2) provide that in respect of the interests of Lessor, the Agent and the Lenders, such policies shall not be invalidated by any fraud, action, inaction or misrepresentation of Lessee or any other Person acting on behalf of Lessee. (g) All insurance policies carried in accordance with this Article VIII shall be maintained with insurers rated at least A by A.M. Best & Company, and in all cases the insurer shall be qualified to insure risks in the State where such Leased Property is located. ARTICLE X. ASSIGNMENT AND SUBLEASING Lessee may not assign any of its right, title or interest in, to or under this Lease, except as set forth in the following sentence. Lessee may (i) assign this Lease as it relates to all or any portion of any Leased Property to any Affiliate of Lessee so long as Lessee's guaranty pursuant to the Guaranty Agreement continues in full force and effect and (ii) sublease all or any portion of any Leased Property, provided that (a) all obligations of Lessee shall continue in full effect as obligations of a principal and not of a guarantor or surety, as though no sublease had been made; (b) such sublease shall be expressly subject and subordinate to this Lease, the Loan Agreement and the other Operative Documents; and (c) each such sublease shall terminate on or before the Lease Termination Date. Lessee shall give the Agent and Lessor written notice of any such assignment or sublease. Except pursuant to an Operative Document, this Lease shall not be mortgaged or pledged by Lessee, nor shall Lessee mortgage or pledge any interest in any Leased Property or any portion thereof. Any such mortgage or pledge shall be void. ARTICLE XI. LOSS, DESTRUCTION, CONDEMNATION OR DAMAGE Section XI.1 Event of Loss. Any event (i) which would otherwise constitute a Casualty during the Base Term, and (ii) which, in the good- faith judgment of Lessee, renders repair and restoration of a Leased Property impractical or uneconomical, and (iii) as to which Lessee, within sixty (60) days after the occurrence of such event, delivers to Lessor an Officer's Certificate notifying Lessor of such event and of such judgment, shall constitute an "Event of Loss". In the case of any other event which constitutes a Casualty, Lessee shall restore such Leased Property pursuant to Section 10.3. If an Event of Loss other than an Event of Taking shall occur, Lessee shall pay to Lessor on the next Payment Date following delivery of the Officer's Certificate pursuant to clause (iii) above an amount equal to the related Leased Property Balance. Upon Lessor's receipt of such Leased Property Balance on such date, Lessor shall cause Lessor's interest in such Leased Property to be conveyed to Lessee in accordance with and subject to the provisions of Section 14.5 hereof; upon completion of such purchase, but not prior thereto, this Lease and all obligations hereunder with respect to such Leased Property shall terminate, except with respect to obligations and liabilities hereunder, actual or contingent, that have arisen or relate to events occurring on or prior to such date of purchase, or which are expressly stated herein to survive termination of this Lease. Upon the consummation of the purchase of any Leased Property pursuant to this Section 10.1, any proceeds derived from insurance required to be maintained by Lessee pursuant to this Lease for any Leased Property remaining after payment of such purchase price shall be paid over to, or retained by, Lessee or as it may direct, and Lessor shall assign to Lessee, without warranty, all of Lessor's rights to and interest in insurance required to be maintained by Lessee pursuant to this Lease. Section XI.2 Event of Taking. Any event (i) which constitutes a Condemnation of all of, or substantially all of, a Leased Property, or (ii) (A) which would otherwise constitute a Condemnation, (B) which, in the good-faith judgment of Lessee, renders restoration and rebuilding of a Leased Property impossible, impractical or uneconomical, and (C) as to which Lessee, within sixty (60) days after the occurrence of such event, delivers to Lessor an Officer's Certificate notifying Lessor of such event and of such judgment, shall constitute an "Event of Taking". In the case of any other event which constitutes a Condemnation, Lessee shall restore and rebuild such Leased Property pursuant to Section 10.4. If an Event of Taking shall occur, Lessee shall pay to Lessor (1) on the next Payment Date following the occurrence of such Event of Taking, in the case of an Event of Taking described in clause (i) above, or (2) on the next Payment Date following delivery of the Officer's Certificate pursuant to clause (ii) above, in the case of an Event of Taking described in clause (ii) above, an amount equal to the related Leased Property Balance. Upon Lessor's receipt of such Leased Property Balance on such date, Lessor shall cause Lessor's interest in such Leased Property to be conveyed to Lessee in accordance with and subject to the provisions of Section 14.5 hereof (provided that such conveyance shall be subject to all rights of the condemning authority); upon completion of such purchase, but not prior thereto, this Lease and all obligations hereunder with respect to such Leased Property shall terminate, except with respect to obligations and liabilities hereunder, actual or contingent, that have arisen or relate to events occurring on or prior to such date of purchase, or which are expressly stated herein to survive termination of this Lease. Upon the consummation of the purchase of such Leased Property pursuant to this Section 10.2, all Awards received by Lessor, after deducting any reasonable costs incurred by Lessor in collecting such Awards, received or payable on account of an Event of Taking with respect to such Leased Property during the related Lease Term shall be paid to Lessee, and all rights of Lessor in Awards not then received shall be assigned to Lessee by Lessor. Section XI.3 Casualty. If a Casualty shall occur, Lessee shall rebuild and restore the affected Leased Property, will complete the same prior to the Lease Termination Date, and will cause the condition set forth in Section 3.5 (c) of the Master Agreement to be fulfilled with respect to such restoration and rebuilding prior to the Lease Termination Date, regardless of whether insurance proceeds received as a result of such Casualty are sufficient for such purpose. Section XI.4 Condemnation. If a Condemnation shall occur, Lessee shall rebuild and restore the affected Leased Property, will complete the same prior to the Lease Termination Date, and will cause the condition set forth in Section 3.5 (c) of the Master Agreement to be fulfilled with respect to such restoration and rebuilding prior to the Lease Termination Date. Section XI.5 Verification of Restoration and Rebuilding. In the event of Casualty or Condemnation, to verify Lessee's compliance with the foregoing Sections 10.3 and 10.4, Lessor, the Agent, the Lenders and their respective authorized representatives may, upon five (5) Business Days' notice to Lessee, make inspections of the affected Leased Property with respect to (i) the extent of the Casualty or Condemnation and (ii) the restoration and rebuilding of the related Building and the Land. All actual and reasonable out-of-pocket costs of such inspections incurred by Lessor, the Agent or any Lender will be paid by Lessee promptly after written request. No such inspection shall unreasonably interfere with Lessee's operations or the operations of any other occupant of such Leased Property. None of the inspecting parties shall have any duty to make any such inspection or inquiry and none of the inspecting parties shall incur any liability or obligation by reason of making or not making any such inspection or inquiry. Section XI.6 Application of Payments. All proceeds (except for payments under insurance policies maintained other than pursuant to Article VIII of this Lease) received at any time by Lessor, Lessee or the Agent from any Governmental Authority or other Person with respect to any Condemnation or Casualty to any Leased Property or any part thereof or with respect to an Event of Loss or an Event of Taking, plus the amount of any payment that would have been due from an insurer but for Lessee's self-insurance or deductibles ("Loss Proceeds"), shall (except to the extent Section 10.9 applies) be applied as follows: (a) In the event Lessee purchases such Leased Property pursuant to Section 10.1 or Section 10.2, such Loss Proceeds shall be applied as set forth in Section 10.1 or Section 10.2, as the case may be; (b) In the event of a Casualty at such time when no Event of Default has occurred and is continuing and Lessee is obligated to repair and rebuild such Leased Property pursuant to Section 10.3, Lessee may, in good faith and subsequent to the date of such Casualty, certify to Lessor and to the applicable insurer that no Event of Default has occurred and is continuing, in which event the applicable insurer shall pay the Loss Proceeds to Lessee; (c) In the event of a Condemnation at such time when no Event of Default has occurred and is continuing and Lessee is obligated to repair and rebuild such Leased Property pursuant to Section 10.4, Lessor shall upon Lessee's request assign to Lessee Lessor's interest in any applicable Awards; and (d) As provided in Section 10.8, if such section is applicable. During any period of repair or rebuilding pursuant to this Article X, this Lease will remain in full force and effect and Basic Rent shall continue to accrue and be payable without abatement or reduction. Lessee shall maintain records setting forth information relating to the receipt and application of payments in accordance with this Section 10.6. Such records shall be kept on file by Lessee at its offices and shall be made available to Lessor, the Lenders and the Agent upon request. Section XI.7 Prosecution of Awards. (a) If, during the continuance of any Event of Default, any Condemnation shall occur, Lessee shall give to Lessor and the Agent promptly, but in any event within thirty (30) days after the occurrence thereof, written notice of such occurrence and the date thereof, generally describing the nature and extent of such Condemnation. With respect to any Event of Taking or any Condemnation, Lessee shall control the negotiations with the relevant Governmental Authority as to any proceeding in respect of which Awards are required, under Section 10.6, to be assigned or released to Lessee, unless an Event of Default shall have occurred and be continuing, in which case (1) the Agent (or Lessor if the Loans have been fully paid) shall control such negotiations; and (2) Lessee hereby irrevocably assigns, transfers and sets over to Lessor all rights of Lessee to any Award made during the continuance of an Event of Default on account of any Event of Taking or any Condemnation and, if there will not be separate Awards to Lessor and Lessee on account of such Event of Taking or Condemnation, irrevocably authorizes and empowers the Agent (or Lessor if the Loans have been fully paid) during the continuance of an Event of Default, with full power of substitution, in the name of Lessee or otherwise (but without limiting the obligations of Lessee under this Article X), to file and prosecute what would otherwise be Lessee's claim for any such Award and to collect, receipt for and retain the same; provided, however, that in any event Lessor and the Agent may participate in such negotiations, and no settlement will be made without the prior consent of the Agent (or Lessor if the Loans have been fully paid), not to be unreasonably withheld. (b) Notwithstanding the foregoing, Lessee may prosecute, and Lessor shall have no interest in, any claim with respect to Lessee's personal property and equipment not financed by Lessor and Lessee's relocation expenses. Section XI.8 Application of Certain Payments Not Relating to an Event of Taking. In case of a requisition for temporary use of all or a portion of any Leased Property which is not an Event of Taking, this Lease shall remain in full force and effect with respect to such Leased Property, without any abatement or reduction of Basic Rent, and the Awards for such Leased Property shall, unless an Event of Default has occurred and is continuing, be paid to Lessee. Section XI.9 Other Dispositions. Notwithstanding the foregoing provisions of this Article X, so long as an Event of Default shall have occurred and be continuing, any amount that would otherwise be payable to or for the account of, or that would otherwise be retained by, Lessee pursuant to this Article X shall be paid to the Agent (or Lessor if the Loans have been fully paid) as security for the obligations of Lessee under this Lease and, at such time thereafter as no Event of Default shall be continuing, such amount shall be paid promptly to Lessee to the extent not previously applied by Lessor or the Agent in accordance with the terms of this Lease or the other Operative Documents. Section XI.10 No Rent Abatement. Rent shall not abate hereunder by reason of any Casualty, any Event of Loss, any Event of Taking or any Condemnation of any Leased Property, and Lessee shall continue to perform and fulfill all of Lessee's obligations, covenants and agreements hereunder notwithstanding such Casualty, Event of Loss, Event of Taking or Condemnation until the Lease Termination Date. ARTICLE XII. INTEREST CONVEYED TO LESSEE Lessor and Lessee intend that this Lease be treated, for accounting purposes, as an operating lease. For all other purposes, Lessee and Lessor intend that the transaction represented by this Lease be treated as a financing transaction; for such purposes, it is the intention of the parties hereto (i) that this Lease be treated as a mortgage or deed of trust (whichever is applicable in the jurisdictions in which the Leased Properties are located) and security agreement, encumbering the Leased Property, and that Lessee, as grantor, hereby grants to Lessor, as mortgagee or beneficiary and secured party, or any successor thereto, a first and paramount Lien on each Leased Property, (ii) that Lessor shall have, as a result of such determination, all of the rights, powers and remedies of a mortgagee, deed of trust beneficiary or secured party available under Applicable Law to take possession of and sell (whether by foreclosure or otherwise) any Leased Property, (iii) that the effective date of such mortgage, security deed or deed of trust shall be the effective date of this Lease, (iv) that the recording of this Lease or a Lease Supplement shall be deemed to be the recording of such mortgage, security deed or deed of trust, and (v) that the obligations secured by such mortgage, security deed or deed of trust shall include the Funded Amounts and all Basic Rent and Supplemental Rent hereunder and all other obligations of and amounts due from Lessee hereunder and under the Operative Documents. ARTICLE XIII. EVENTS OF DEFAULT The following events shall constitute Events of Default (whether any such event shall be voluntary or involuntary or come about or be effected by operation of law or pursuant to or in compliance with any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body): (a) Lessee shall fail to make any payment of Basic Rent when due, and such failure shall continue for five (5) or more days; (b) Lessee shall fail to make any payment of Rent (other than Basic Rent) or any other amount payable hereunder or under any of the other Operative Documents (other than Basic Rent and other than as set forth in clause (c)), and such failure shall continue for a period of ten (10) days; (c) Lessee shall fail to pay the Funded Amount or Lease Balance when due pursuant to Sections 10.1, 10.2, 14.1 or 14.2, or Lessee shall fail to pay the Recourse Deficiency Amount when required pursuant to Article XIV or Lessee shall fail to make any payment when due under the Construction Agency Agreement; (d) Lessee shall fail to maintain insurance as required by Article VIII hereof, and such failure shall continue until the earlier of (i) 15 days after written notice thereof from Lessor and (ii) the day immediately preceding the date on which any applicable insurance coverage would otherwise lapse or terminate; (e) (i) Any Consolidated Company shall fail to observe or perform any covenants or agreements (whether or not waived) contained in any agreements or instruments relating to any of its Indebtedness exceeding $2,500,000 individually or in the aggregate, or any other event shall occur if the effect of such failure or other event is to accelerate, or with notice or passage of time or both, to permit the holder of such Indebtedness or any other Person to accelerate, the maturity of such Indebtedness; or any such Indebtedness shall be required to be prepaid (other than by a regularly scheduled requirement prepayment) in whole or in part prior to its stated maturity; or (ii) any event or condition shall occur or exist which, pursuant to the terms of any Change in Control Provision, requires or permits the holder(s) of the Indebtedness subject to such Change in Control Provision to require that such Indebtedness be redeemed, repurchased, defeased, prepaid or repaid, in whole or in part, or the maturity of such Indebtedness to be accelerated; or (iii) any Consolidated Company shall fail to make when due (whether at stated maturity, by acceleration, on demand or otherwise, and after giving effect to any applicable grace period) any payment of principal of or interest on any Indebtedness (other than the Obligations) exceeding $2,500,000 individually or in the aggregate; (f) Lessee or any Material Subsidiary shall (i) apply for or consent to the appointment of a receiver, trustee or liquidator of itself or of its property, (ii) be unable, or admit in writing inability, to pay its debts as they mature, (iii) make a general assignment for the benefit of creditors, (iv) be adjudicated a bankrupt or insolvent, (v) file a voluntary petition in bankruptcy, or a petition or answer seeking reorganization or an arrangement with creditors to take advantage of any insolvency law or an answer admitting the material allegations of a bankruptcy, reorganization or insolvency petition filed against it, (vi) take corporate action for the purpose of effecting any of the foregoing, or (vii) have an order for relief entered against it in any proceeding under any bankruptcy law; (g) An order, judgment or decree shall be entered, without the application, approval or consent of Lessee, by any court of competent jurisdiction, approving a petition seeking reorganization of such entity or appointing a receiver, trustee or liquidator of such entity or of all or a substantial part of its assets, and such order, judgment or decree shall continue unstayed and in effect for any period of 60 consecutive days; (h) any representation or warranty by Lessee in any Operative Document or in any certificate or document delivered to Lessor, the Agent or any Lender pursuant to any Operative Document shall have been incorrect in any material respect when made; (i) Lessee shall repudiate or terminate the Guaranty Agreement, or the Guaranty Agreement shall at any time cease to be in full force and effect or cease to be the legal, valid and binding obligation of Lessee; (j) Lessee shall fail in any material respect to timely, perform or observe any covenant, condition or agreement (not included in clause (a), (b), (c), (d), (e), (f), (g), (h) or (i) of this Article XII) to be performed or observed by it hereunder or under any other Operative Document and such failure shall continue for a period of 30 days after Lessee's receipt of written notice thereof from Lessor, the Agent or any Lender; (k) A Plan of either a Consolidated Company or of any of its ERISA Affiliates which is subject to Title IV of ERISA: (i) shall fail to be funded in accordance with the minimum funding standard required by applicable law, the terms of such Plan, Section 412 of the Tax Code or Section 302 of ERISA for any plan year or a waiver of such standard is sought or granted with respect to such Plan under applicable law, the terms of such Plan or Section 412 of the Tax Code or Section 303 of ERISA; or (ii) is being, or has been, terminated or the subject of termination proceedings under applicable law or the terms of such Plan; or (iii) shall require a Consolidated Company to provide security under applicable law, the terms of such Plan, Section 401 or 412 of the Tax Code or Section 306 or 307 of ERISA; or (iv) results in a liability to a Consolidated Company under applicable law, the terms of such Plan, or Title IV of ERISA; and there shall result form any such failure, waiver, termination or other event described in clauses (i) through (iv) above a liability to the PBGC or a Plan that would have a Material Adverse Effect; (l) Judgments or orders for the payment of money in excess of $2,500,000 individually or in the aggregate or otherwise having a Material Adverse Effect shall be rendered against Lessee or any other Consolidated Company and such judgment or order shall continue unsatisfied (in the case of a money judgment) and in effect for a period of 30 days during which execution shall not be effectively stayed or deferred (whether by action of a court, by agreement or otherwise); (m) Any person or group (within the meaning of Rule 13d-5 of the Securities and Exchange Commission as in effect on the date hereof) shall become the owner, beneficially or of record, of shares representing more than thirty percent (30%) of the aggregate ordinary voting power represented by the issued and outstanding capital stock of the Lessee; or (n) Any party to the Sharing Agreements shall default with respect to its covenants or obligations thereunder where such default results in a Material Adverse Effect. ARTICLE XIV. ENFORCEMENT Section XIV.1 Remedies. Upon the occurrence and during the continuance of any Event of Default, Lessor may do one or more of the following as Lessor in its sole discretion shall determine, without limiting any other right or remedy Lessor may have on account of such Event of Default (including, without limitation, the obligation of Lessee to purchase the Leased Properties as set forth in Section 14.3): (a) Lessor may, by notice to Lessee, rescind or terminate this Lease as of the date specified in such notice; however, (A) no reletting, reentry or taking of possession of any Leased Property by Lessor will be construed as an election on Lessor's part to terminate this Lease unless a written notice of such intention is given to Lessee, (B) notwithstanding any reletting, reentry or taking of possession, Lessor may at any time thereafter elect to terminate this Lease for a continuing Event of Default, and (C) no act or thing done by Lessor or any of its agents, representatives or employees and no agreement accepting a surrender of any Leased Property shall be valid unless the same be made in writing and executed by Lessor; (b) Lessor may (i) demand that Lessee, and Lessee shall upon the written demand of Lessor, return the Leased Properties promptly to Lessor in the manner and condition required by, and otherwise in accordance with all of the provisions of, Articles VI and XIV hereof as if the Leased Properties were being returned at the end of the Lease Term, and Lessor shall not be liable for the reimbursement of Lessee for any costs and expenses incurred by Lessee in connection therewith and (ii) without prejudice to any other remedy which Lessor may have for possession of the Leased Properties, and to the extent and in the manner permitted by Applicable Law, enter upon any Leased Property and take immediate possession of (to the exclusion of Lessee) any Leased Property or any part thereof and expel or remove Lessee and any other person who may be occupying such Leased Property, by summary proceedings or otherwise, all without liability to Lessee for or by reason of such entry or taking of possession, whether for the restoration of damage to property caused by such taking or otherwise and, in addition to Lessor's other damages, Lessee shall be responsible for the actual and reasonable costs and expenses of reletting, including brokers' fees and the reasonable costs of any alterations or repairs made by Lessor; (c) Lessor may (i) sell all or any part of any Leased Property at public or private sale, as Lessor may determine, free and clear of any rights of Lessee and without any duty to account to Lessee with respect to such action or inaction or any proceeds with respect thereto (except to the extent required by clause (ii) below if Lessor shall elect to exercise its rights thereunder) in which event Lessee's obligation to pay Basic Rent hereunder for periods commencing after the date of such sale shall be terminated or proportionately reduced, as the case may be; and (ii) if Lessor shall so elect, demand that Lessee pay to Lessor, and Lessee shall pay to Lessor, on the date of such sale, as liquidated damages for loss of a bargain and not as a penalty (the parties agreeing that Lessor's actual damages would be difficult to predict, but the aforementioned liquidated damages represent a reasonable approximation of such amount) (in lieu of Basic Rent due for periods commencing on or after the Payment Date coinciding with such date of sale (or, if the sale date is not a Payment Date, the Payment Date next preceding the date of such sale)), an amount equal to (a) the excess, if any, of (1) the sum of (A) all Rent due and unpaid to and including such Payment Date and (B) the Funded Amounts with respect to such Leased Property, computed as of such date, over (2) the net proceeds of such sale (that is, after deducting all costs and expenses incurred by Lessor, the Agent or any Lender incident to such conveyance (including, without limitation, all costs, expenses, fees, premiums and taxes described in Section 14.5(b))); plus (b) interest at the Overdue Rate on the foregoing amount from such Payment Date until the date of payment; (d) Lessor may, at its option, not terminate this Lease, and continue to collect all Basic Rent, Supplemental Rent, and all other amounts (including, without limitation, the Funded Amount) due Lessor (together with all costs of collection) and enforce Lessee's obligations under this Lease as and when the same become due, or are to be performed, and at the option of Lessor, upon any abandonment of any Leased Property by Lessee or re-entry of same by Lessor, Lessor may, in its sole and absolute discretion, elect not to terminate this Lease with respect thereto and may make such reasonable alterations and necessary repairs in order to relet such Leased Property, and relet such Leased Property or any part thereof for such term or terms (which may be for a term extending beyond the term of this Lease) and at such rental or rentals and upon such other terms and conditions as Lessor in its reasonable discretion may deem advisable; and upon each such reletting all rentals actually received by Lessor from such reletting shall be applied to Lessee's obligations hereunder in such order, proportion and priority as Lessor may elect in Lessor's sole and absolute discretion; it being agreed that under no circumstances shall Lessee benefit from its default from any increase in market rents. If such rentals received from such reletting during any Rent Period are less than the Rent to be paid during that Rent Period by Lessee hereunder, Lessee shall pay any deficiency, as calculated by Lessor, to Lessor on the Payment Date for such Rent Period; (e) If any Leased Property has not been sold, Lessor may, whether or not Lessor shall have exercised or shall thereafter at any time exercise any of its rights under paragraph (b), (c) or (d) of this Article XIII with respect to such Leased Property, demand, by written notice to Lessee specifying a date (the "Final Rent Payment Date") not earlier than 30 days after the date of such notice, that Lessee purchase, on the Final Rent Payment Date, such Leased Property in accordance with the provisions of Sections 14.2, 14.4 and 14.5; provided, however, that (1) such purchase shall occur on the date set forth in such notice, notwithstanding the provision in Section 14.2 calling for such purchase to occur on the Lease Termination Date; and (2) Lessor's obligations under Section 14.5(a) shall be limited to delivery of a special or limited warranty deed and quit claim bill of sale of such Leased Property, without recourse or warranty, but free and clear of Lessor Liens; (f) Lessor may exercise any other right or remedy that may be available to it under Applicable Law, or proceed by appropriate court action (legal or equitable) to enforce the terms hereof or to recover damages for the breach hereof. Separate suits may be brought to collect any such damages for any Rent Period(s), and such suits shall not in any manner prejudice Lessor's right to collect any such damages for any subsequent Rent Period(s), or Lessor may defer any such suit until after the expiration of the Lease Term, in which event such suit shall be deemed not to have accrued until the expiration of the Lease Term; or (g) Lessor may retain and apply against Lessor's damages all sums which Lessor would, absent such Event of Default, be required to pay to, or turn over to, Lessee pursuant to the terms of this Lease. Section XIV.2 Remedies Cumulative; No Waiver; Consents. To the extent permitted by, and subject to the mandatory requirements of, Applicable Law, each and every right, power and remedy herein specifically given to Lessor or otherwise in this Lease shall be cumulative and shall be in addition to every other right, power and remedy herein specifically given or now or hereafter existing at law, in equity or by statute, and each and every right, power and remedy whether specifically herein given or otherwise existing may be exercised from time to time and as often and in such order as may be deemed expedient by Lessor, and the exercise or the beginning of the exercise of any power or remedy shall not be construed to be a waiver of the right to exercise at the same time or thereafter any right, power or remedy. No delay or omission by Lessor in the exercise of any right, power or remedy or in the pursuit of any remedy shall impair any such right, power or remedy or be construed to be a waiver of any default on the part of Lessee or to be an acquiescence therein. Lessor's consent to any request made by Lessee shall not be deemed to constitute or preclude the necessity for obtaining Lessor's consent, in the future, to all similar requests. No express or implied waiver by Lessor of any Event of Default shall in any way be, or be construed to be, a waiver of any future or subsequent Potential Event of Default or Event of Default. To the extent permitted by Applicable Law, Lessee hereby waives any rights now or hereafter conferred by statute or otherwise that may require Lessor to sell, lease or otherwise use any Leased Property or part thereof in mitigation of Lessor's damages upon the occurrence of an Event of Default or that may otherwise limit or modify any of Lessor's rights or remedies under this Article XIII. ARTICLE XV. SALE, RETURN OR PURCHASE OF LEASED PROPERTY; RENEWAL Section XV.1 Lessee's Option to Purchase. (a) Subject to the terms, conditions and provisions set forth in this Article XIV, Lessee shall have the option (the "Purchase Option"), to be exercised as set forth below, to purchase from Lessor, Lessor's interest in all of the Leased Properties; provided that, except as set forth in paragraph (b) below, such option must be exercised with respect to all, but not less than all, of the Leased Properties. Such option must be exercised by written notice to Lessor not later than twelve months prior to the Lease Termination Date which notice shall be irrevocable; such notice shall specify the date that such purchase shall take place, which date shall be a Rent Payment Date occurring not less than thirty (30) days after such notice or the Lease Termination Date (whichever is earlier). If the Purchase Option is exercised pursuant to the foregoing, then, subject to the provisions set forth in this Article XIV, on the applicable purchase date or the Lease Termination Date, as the case may be, Lessor shall convey to Lessee, without recourse or warranty (other than as to the absence of Lessor Liens) and Lessee shall purchase from Lessor, Lessor's interest in the Leased Properties. (b) Subject to the terms, conditions and provisions set forth in this Article XIV, Lessee shall have the option (the "Partial Purchase Option"), to be exercised as set forth below, to purchase from Lessor Lessor's interest in any Leased Property; provided that such option may be exercised only if, after giving effect thereto, there are at least 15 Leased Properties subject to this Lease, unless it is exercised with respect to all Leased Properties as set forth in paragraph (a) above. Such option must be exercised by written notice to Lessor not later than twelve months prior to the Lease Termination Date, which notice shall be irrevocable; such notice shall specify the Leased Property to be purchased and the date that such purchase shall take place, which date shall be a Rent Payment Date occurring not less than thirty (30) days after such notice or the Lease Termination Date (whichever is earlier). If a Partial Purchase Option is exercised pursuant to the foregoing, subject to the provisions set forth in this Article XIV, on the applicable purchase date or the Lease Termination Date, as the case may be, Lessor shall convey to Lessee, without recourse or warranty (other than as to the absence of Lessor Liens) and Lessee shall purchase from Lessor, Lessor's interest in the Leased Property that is the subject of such Partial Purchase Option. Section XV.2 Conveyance to Lessee. Unless (a) Lessee shall have properly exercised the Purchase Option and purchased the Leased Properties pursuant to Section 14.1(a) hereof, or (b) Lessee shall have properly exercised the Remarketing Option or the Surrender Option and shall have fulfilled all of the conditions of Section 14.6 hereof, then, subject to the terms, conditions and provisions set forth in this Article XIV, Lessee shall purchase from Lessor, and Lessor shall convey to Lessee, on the Lease Termination Date all of Lessor's interest in the Leased Properties. Lessee may designate, in a notice given to Lessor not less than ten (10) Business Days prior to the closing of such purchase (time being of the essence), the transferee to whom the conveyance shall be made (if other than to Lessee), in which case such conveyance shall (subject to the terms and conditions set forth herein) be made to such designee; provided, however, that such designation of a transferee shall not cause Lessee to be released, fully or partially, from any of its obligations under this Lease. Section XV.3 Acceleration of Purchase Obligation. Lessee shall be obligated to purchase Lessor's interest in the Leased Properties immediately, automatically and without notice upon the occurrence of any Event of Default specified in clause (g) of Article XII, for the purchase price set forth in Section 14.4. Upon the occurrence and during the continuance of any other Event of Default, Lessee shall be obligated to purchase Lessor's interest in the Leased Properties for the purchase price set forth in Section 14.4 upon notice of such obligation from Lessor. Section XV.4 Determination of Purchase Price. Upon the purchase by Lessee of Lessor's interest in the Leased Properties upon the exercise of the Purchase Option or pursuant to Section 14.2 or 14.3, the aggregate purchase price for all of the Leased Properties shall be an amount equal to the Lease Balance as of the closing date for such purchase, plus any amount due pursuant to Section 7.5(f) of the Master Agreement as a result of such purchase. Upon the purchase by Lessee of Lessor's interest in a Leased Property upon the exercise of a Partial Purchase Option, the purchase price for such Leased Property shall be an amount equal to the Leased Property Balance for such Leased Property as of the closing date for such purchase, plus any amount due pursuant to Section 7.5(f) of the Master Agreement as a result of such purchase. Section XV.5 Purchase Procedure. (a) If Lessee shall purchase Lessor's interest in a Leased Property pursuant to any provision of this Lease, (i) Lessee shall accept from Lessor and Lessor shall convey such Leased Property by a duly executed and acknowledged special or limited warranty deed and quit claim bill of sale of such Leased Property in recordable form, (ii) upon the date fixed for any purchase of Lessor's interest in Leased Property hereunder, Lessee shall pay to the order of the Agent (or Lessor if the Loans have been paid in full) the Lease Balance or Leased Property Balance, as applicable, plus any amount due pursuant to Section 7.5(f) of the Master Agreement as a result of such purchase by wire transfer of immediately available funds, and (iii) Lessor will execute and deliver to Lessee such other documents, including releases, termination agreements and termination statements, as may be legally required or as may be reasonably requested by Lessee in order to effect such conveyance, free and clear of Lessor Liens and the Liens of the Operative Documents. (b) Lessee shall, at Lessee's sole cost and expense, obtain all required governmental and regulatory approval and consents and in connection therewith shall make such filings as required by Applicable Law; in the event that Lessor is required by Applicable Law to take any action in connection with such purchase and sale, Lessee shall pay all costs incurred by Lessor in connection therewith. In addition, all costs incident to such conveyance, including, without limitation, Lessee's attorneys' fees, Lessor's attorneys' fees, commissions, Lessee's and Lessor's escrow fees, recording fees, title insurance premiums and all applicable documentary transfer or other transfer taxes and other taxes required to be paid in order to record the transfer documents that might be imposed by reason of such conveyance and the delivery of such deed shall be borne entirely by and paid by Lessee. (c) Upon expiration or termination of this Lease resulting in conveyance of Lessor's interest in the title to the Leased Properties to Lessee, there shall be no apportionment of rents (including, without limitation, water rents and sewer rents), taxes, insurance, utility charges or other charges payable with respect to the Leased Properties, all of such rents, taxes, insurance, utility or other charges due and payable with respect to the Leased Properties prior to termination being payable by Lessee hereunder and all due after such time being payable by Lessee as the then owner of the Leased Properties. Section XV.6 Option to Remarket; Surrender Option. Subject to the fulfillment of each of the conditions set forth in this Section 14.6, Lessee shall have the option to either (i) market all of, but not less than all of, the Leased Properties for Lessor (the "Remarketing Option") or (ii) surrender all of, but not less than all of, the Leased Properties to Lessor (the "Surrender Option"). Lessee's effective exercise and consummation of the Remarketing Option or the Surrender Option, as the case may be, shall be subject to the due and timely fulfillment of each of the following provisions, the failure of any of which, unless waived in writing by Lessor and the Lenders, shall render the Remarketing Option or the Surrender Option, as the case may be, and Lessee's exercise thereof null and void, in which event, Lessee shall be obligated to perform its obligations under Section 14.2. (a) Not later than twelve months prior to the Lease Termination Date, Lessee shall give to Lessor and the Agent written notice of Lessee's exercise of the Remarketing Option or the Surrender Option, as the case may be, which exercise shall be irrevocable and shall state whether Lessee has elected the Remarketing Option or the Surrender Option. (b) Not later than ten (10) Business Days prior to the Lease Termination Date, Lessee shall deliver to Lessor and the Agent an environmental assessment of each Leased Property dated not later than forty-five (45) days prior to the Lease Termination Date. Such environmental assessment shall be prepared by an environmental consultant selected by the Required Funding Parties, shall be in form, detail and substance reasonably satisfactory to the Required Funding Parties, and shall otherwise indicate the environmental condition of each Leased Property to be the same as described in the related Environmental Audit. (c) On the date of Lessee's notice to Lessor and the Agent of Lessee's exercise of the Remarketing Option, or the Surrender Option, as the case may be, each of the Construction Conditions shall have been timely satisfied and no Event of Default or Potential Event of Default shall exist, and thereafter, no Event of Default or Potential Event of Default shall exist under this Lease. (d) Lessee shall have completed all Alterations, restoration and rebuilding of the Leased Properties pursuant to Sections 6.1, 6.2, 10.3 and 10.4 (as the case may be) and shall have fulfilled all of the conditions and requirements in connection therewith pursuant to said Sections, in each case by the date on which Lessor and the Agent receive Lessee's notice of Lessee's exercise of the Remarketing Option or the Surrender Option, as the case may be (time being of the essence), regardless of whether the same shall be within Lessee's control. (e) Lessee shall promptly provide any maintenance records relating to each Leased Property to Lessor, the Agent and any potential purchaser upon request, and shall otherwise do all things necessary to deliver possession of such Leased Property to the potential purchaser. Lessee shall allow Lessor, the Agent and any potential purchaser access to any Leased Property for the purpose of inspecting the same. (f) On the Lease Termination Date, Lessee shall surrender the Leased Properties in accordance with Section 14.8 hereof. (g) In connection with any such sale of the Leased Properties, Lessee will provide to the purchaser all customary "seller's" indemnities, representations and warranties regarding title, absence of Liens (except Lessor Liens) and the condition of the Leased Properties, including, without limitation, an environmental indemnity. Lessee shall fulfill all of the requirements set forth in clause (b) of Section 14.5, and such requirements are incorporated herein by reference. As to Lessor, any such sale shall be made on an "as is, with all faults" basis without representation or warranty by Lessor, other than the absence of Lessor Liens. (h) In connection with any such sale of Leased Properties, Lessee shall pay directly, and not from the sale proceeds, all prorations, credits, costs and expenses of the sale of the Leased Properties, whether incurred by Lessor, any Lender, the Agent or Lessee, including without limitation, the cost of all title insurance, surveys, environmental reports, appraisals, transfer taxes, Lessor's and the Agent's attorneys' fees, Lessee's attorneys' fees, commissions, escrow fees, recording fees, and all applicable documentary and other transfer taxes. (i) Lessee shall pay to the Agent on the Lease Termination Date (or to such other Person as Agent shall notify Lessee in writing, or in the case of Supplemental Rent, to the Person entitled thereto) an amount equal to the Recourse Deficiency Amount, plus all accrued and unpaid Basic Rent and Supplemental Rent, and all other amounts hereunder which have accrued prior to or as of such date, in the type of funds specified in Section 3.3 hereof. If Lessee has exercised the Remarketing Option, the following additional provisions shall apply: During the period commencing on the date twelve months prior to the scheduled expiration of the Lease Term, Lessee shall, as nonexclusive agent for Lessor, use commercially reasonable efforts to sell Lessor's interest in the Leased Properties and will attempt to obtain the highest purchase price therefor. All such marketing of the Leased Properties shall be at Lessee's sole expense. Lessee shall submit all bids to Lessor and the Agent and Lessor and the Agent will have the right to review the same and the right to submit any one or more bids. All bids shall be on an all-cash basis. In no event shall such bidder be Lessee or any Subsidiary or Affiliate of Lessee. The written offer must specify the Lease Termination Date as the closing date. If, and only if, the selling price (net of closing costs and prorations, as reasonably estimated by the Agent) is less than the difference between the Lease Balance at such time minus the Recourse Deficiency Amount, then Lessor or the Agent may, in its sole and absolute discretion, by notice to Lessee, reject such offer to purchase, in which event the parties will proceed according to the provisions of Section 14.7 hereof. If neither Lessor nor the Agent rejects such purchase offer as provided above, the closing of such purchase of the Leased Properties by such purchaser shall occur on the Lease Termination Date, contemporaneously with Lessee's surrender of the Leased Properties in accordance with Section 14.8 hereof, and the gross proceeds of the sale (i.e., without deduction for any marketing, closing or other costs, prorations or commissions) shall be paid directly to the Agent (or Lessor if the Funded Amounts have been fully paid); provided, however, that if the sum of the gross proceeds from such sale plus the Recourse Deficiency Amount paid by Lessee on the Lease Termination Date pursuant to Section 14.6(i), minus any and all costs and expenses (including broker fees, appraisal costs, legal fees and transfer taxes) incurred by the Agent or Lessor in connection with the marketing of the Leased Properties or the sale thereof exceeds the Lease Balance as of such date, then the excess shall be paid to Lessee on the Lease Termination Date. Lessee shall have no right, power or authority to bind Lessor in connection with any proposed sale of the Leased Properties. Section XV.7 Rejection of Sale. Notwithstanding anything contained herein to the contrary, if Lessor or the Agent rejects the purchase offer for the Leased Properties as provided in Section 14.6, then (a) Lessee shall pay to the Agent the Recourse Deficiency Amount pursuant to Section 14.6(i), (b) Lessor shall retain title to the Leased Properties, and (c) in addition to Lessee's other obligations hereunder, Lessee will reimburse Lessor and the Agent, within ten (10) Business Days after written request, for all reasonable costs and expenses incurred by Lessor or Agent during the period ending on the first anniversary of the Lease Termination Date in connection with the marketing, sale, closing or transfer of the Leased Properties, which obligation shall survive the Lease Termination Date and the termination or expiration of this Lease. Section XV.8 Return of Leased Property. If Lessor retains title to any Leased Property pursuant to Section 14.7 hereof or Lessee has properly exercised the Surrender Option, then Lessee shall, on the Lease Termination Date, and at its own expense, return possession of such Leased Property to Lessor for retention by Lessor or, if Lessee properly exercises the Remarketing Option and fulfills all of the conditions of Section 14.6 hereof and neither Lessor nor the Agent rejects such purchase offer pursuant to Section 14.6, then Lessee shall, on such Lease Termination Date, and at its own cost, transfer possession of the Leased Property to the independent purchaser thereof, in each case by surrendering the same into the possession of Lessor or such purchaser, as the case may be, free and clear of all Liens other than Lessor Liens, in as good condition as it was on the Completion Date (as modified by Alterations permitted by this Lease), ordinary wear and tear excepted, and in compliance in all material respects with Applicable Law. Lessee shall, on and within a reasonable time before and after the Lease Termination Date, cooperate with Lessor and the independent purchaser of such Leased Property in order to facilitate the ownership and operation by such purchaser of such Leased Property after the Lease Termination Date, which cooperation shall include the following, all of which Lessee shall do on or before the Lease Termination Date or as soon thereafter as is reasonably practicable: providing all books and records regarding the maintenance and ownership of such Leased Property and all know-how, data and technical information relating thereto, providing a copy of the Plans and Specifications, granting or assigning all licenses (to the extent assignable) necessary for the operation and maintenance of such Leased Property, and cooperating in seeking and obtaining all necessary Governmental Action. Lessee shall have also paid the cost of all Alterations commenced prior to the Lease Termination Date. The obligations of Lessee under this Article XIV shall survive the expiration or termination of this Lease. Section XV.9 Renewal. Subject to the conditions set forth herein, Lessee may, by written notice to Lessor and the Agent given not later than twelve months and not earlier than sixteen months, prior to the Lease Termination Date, renew this Lease, for up to five years commencing on the date following the Lease Termination Date. No later than the date that is 45 days after the date the request to renew has been delivered to each of Lessor and the Agent, the Agent will notify Lessee whether or not Lessor and the Lenders consent to such renewal request (which consent, in the case of Lessor and the Lenders, may be granted or denied in their sole discretion, and may be conditioned on such conditions precedent as may be specified by Lessor and the Lenders). If the Agent fails to respond within such time frame, such failure shall be deemed to be a rejection of such request. If the Agent notifies Lessee of Lessor's and the Lenders' consent to such renewal, such renewal shall be effective. Any renewal of this Lease shall be on the same terms and conditions as are set forth herein for the original Lease Term, except that the amount of Basic Rent to be paid by Lessee shall be as mutually agreed upon among Lessee, Lessor and the Lenders prior to such renewal. ARTICLE XVI. LESSEE'S EQUIPMENT After any repossession of any Leased Property (whether or not this Lease has been terminated), as a result of the exercise of the Surrender Option or otherwise, Lessee, at its expense and so long as such removal of such trade fixture, personal property or equipment shall not result in a violation of Applicable Law, shall, within a reasonable time after such repossession or within sixty (60) days after Lessee's receipt of Lessor's written request (whichever shall first occur), remove all of Lessee's trade fixtures, personal property and equipment from such Leased Property (to the extent that the same can be readily removed from such Leased Property without causing material damage to such Leased Property); provided, however, that Lessee shall not remove any such trade fixtures, personal property or equipment that (i) has been financed by Lessor under the Operative Documents or otherwise constituting Leased Property (or that constitutes a replacement of such property) or (ii) with respect to which Lessor notifies Lessee that it is exercising the purchase option with respect thereto, which purchase option Lessee hereby grants to Lessor (in which case, Lessor shall pay to Lessee the fair market value of such trade fixture, personal property or equipment on such date of repossession (as determined by mutual agreement of Lessor and Lessee or, if no mutual agreement is promptly achieved, by an appraiser reasonably acceptable to Lessor and Lessee) and Lessee shall execute and deliver a bill of sale therefor to Lessor), provided that the purchase option set forth in this clause (ii) shall not apply to Lessee's inventory or to any personal property of Lessee not used or useful in connection with the Leased Property. Any of Lessee's trade fixtures, personal property and equipment not so removed by Lessee within such period shall be considered abandoned by Lessee, and title thereto shall without further act vest in Lessor, and may be appropriated, sold, destroyed or otherwise disposed of by Lessor without notice to Lessee and without obligation to account therefor and Lessee will pay Lessor, upon written demand, all reasonable costs and expenses incurred by Lessor in removing, storing or disposing of the same and all costs and expenses incurred by Lessor to repair any damage to such Leased Property caused by such removal. Lessee will immediately repair at its expense all damage to such Leased Property caused by any such removal (unless such removal is effected by Lessor, in which event Lessee shall pay all reasonable costs and expenses incurred by Lessor for such repairs). Lessor shall have no liability in exercising Lessor's rights under this Article XV except as set forth in clause (ii) of the first sentence hereof, nor shall Lessor be responsible for any loss of or damage to Lessee's personal property and equipment. ARTICLE XVII. RIGHT TO PERFORM FOR LESSEE If Lessee shall fail to perform or comply with any of its agreements contained herein, Lessor, upon notice to Lessee, may perform or comply with such agreement, and Lessor shall not thereby be deemed to have waived any default caused by such failure, and the amount of such payment and the amount of the expenses of Lessor (including actual and reasonable attorneys' fees and expenses) incurred in connection with such payment or the performance of or compliance with such agreement, as the case may be, shall be deemed Supplemental Rent, payable by Lessee to Lessor within thirty (30) days after written demand therefor. ARTICLE XVIII. MISCELLANEOUS Section XVIII.1 Reports. To the extent required under Applicable Law and to the extent it is reasonably practical for Lessee to do so, Lessee shall prepare and file in timely fashion, or, where such filing is required to be made by Lessor or it is otherwise not reasonably practical for Lessee to make such filing, Lessee shall prepare and deliver to Lessor (with a copy to the Agent) within a reasonable time prior to the date for filing and Lessor shall file, any material reports with respect to the condition or operation of such Leased Property that shall be required to be filed with any Governmental Authority. Section XVIII.2 Binding Effect; Successors and Assigns; Survival. The terms and provisions of this Lease, and the respective rights and obligations hereunder of Lessor and Lessee, shall be binding upon their respective successors, legal representatives and assigns (including, in the case of Lessor, any Person to whom Lessor may transfer any Leased Property or any interest therein in accordance with the provisions of the Operative Documents), and inure to the benefit of their respective permitted successors and assigns, and the rights hereunder of the Agent and the Lenders shall inure (subject to such conditions as are contained herein) to the benefit of their respective permitted successors and assigns. Lessee hereby acknowledges that Lessor has assigned all of its right, title and interest to, in and under this Lease to the Agent and the Lenders, and that all of Lessor's rights hereunder may be exercised by the Agent. Section XVIII.3 Quiet Enjoyment. Lessor covenants that it will not interfere in Lessee's or any of its permitted sublessees' quiet enjoyment of the Leased Properties in accordance with this Lease during the Lease Term, so long as no Event of Default has occurred and is continuing. Such right of quiet enjoyment is independent of, and shall not affect, Lessor's rights otherwise to initiate legal action to enforce the obligations of Lessee under this Lease. Section XVIII.4 Notices. Unless otherwise specified herein, all notices, offers, acceptances, rejections, consents, requests, demands or other communications to or upon the respective parties hereto shall be in writing and shall be deemed to have been given as set forth in Section 8.2 of the Master Agreement. All such notices, offers, acceptances, rejections, consents, requests, demands or other communications shall be addressed as follows or to such other address as any of the parties hereto may designate by written notice: If to Lessor: Atlantic Financial Group, Ltd. 1000 Ballpark Way, Suite 304 Arlington, Texas 76011 Attn: Stephen Brookshire If to Lessee: Ruby Tuesday, Inc. P.O. Box 160266 Mobile, Alabama 36625 Attn: J. Russell Mothershed Ruby Tuesday, Inc. 4721 Morrison Drive Mobile, Alabama 36609-3350 Attn: J. Russell Mothershed with a copy to: General Counsel at same address If to Agent: SunTrust Bank, Atlanta 25 Park Place Atlanta, Georgia 30303 Attn: Center 120/Corporate Banking South If to a Lender, to the address provided in the Master Agreement. Section XVIII.5 Severability. Any provision of this Lease that shall be prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction, and Lessee shall remain liable to perform its obligations hereunder except to the extent of such unenforceability. To the extent permitted by Applicable Law, Lessee hereby waives any provision of law that renders any provision hereof prohibited or unenforceable in any respect. Section XVIII.6 Amendment; Complete Agreements. Neither this Lease nor any of the terms hereof may be terminated, amended, supplemented, waived or modified orally, except by an instrument in writing signed by Lessor and Lessee in accordance with the provisions of Section 8.4 of the Master Agreement. This Lease, together with the other Operative Documents, is intended by the parties as a final expression of their lease agreement and as a complete and exclusive statement of the terms thereof, all negotiations, considerations and representations between the parties having been incorporated herein and therein. No course of prior dealings between the parties or their officers, employees, agents or Affiliates shall be relevant or admissible to supplement, explain, or vary any of the terms of this Lease or any other Operative Document. Acceptance of, or acquiescence in, a course of performance rendered under this or any prior agreement between the parties or their Affiliates shall not be relevant or admissible to determine the meaning of any of the terms of this Lease or any other Operative Document. No representations, undertakings, or agreements have been made or relied upon in the making of this Lease other than those specifically set forth in the Operative Documents. Section XVIII.7 Construction. This Lease shall not be construed more strictly against any one party, it being recognized that both of the parties hereto have contributed substantially and materially to the preparation and negotiation of this Lease. Section XVIII.8 Headings. The Table of Contents and headings of the various Articles and Sections of this Lease are for convenience of reference only and shall not modify, define or limit any of the terms or provisions hereof. Section XVIII.9 Counterparts. This Lease may be executed by the parties hereto in separate counterparts, each of which when so executed and delivered shall be an original, but all such counterparts shall together constitute but one and the same instrument. Section XVIII.10 GOVERNING LAW. THIS LEASE SHALL IN ALL RESPECTS BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF GEORGIA APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED ENTIRELY WITHIN SUCH STATE, EXCEPT AS TO MATTERS RELATING TO THE CREATION OF THE LEASEHOLD ESTATES HEREUNDER, AND THE EXERCISE OF RIGHTS AND REMEDIES WITH RESPECT THERETO, WHICH SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAW OF THE STATES IN WHICH SUCH ESTATES ARE LOCATED. Section XVIII.11 Discharge of Lessee's Obligations by its Affiliates. Lessor agrees that performance of any of Lessee's obligations hereunder by one or more of Lessee's Affiliates or one or more of Lessee's sublessees of the Leased Properties or any part thereof shall constitute performance by Lessee of such obligations to the same extent and with the same effect hereunder as if such obligations were performed by Lessee, but no such performance shall excuse Lessee from any obligation not performed by it or on its behalf under the Operative Documents. Section XVIII.12 Liability of Lessor Limited. Except as otherwise expressly provided below in this Section 17.12, it is expressly understood and agreed by and between Lessee, Lessor and their respective successors and assigns that nothing herein contained shall be construed as creating any liability of Lessor or any of its Affiliates or any of their respective officers, directors, employees or agents, individually or personally, to perform any covenant, either express or implied, contained herein, all such liability (other than that resulting from Lessor's gross negligence or willful misconduct, except to the extent imputed to Lessor by virtue of Lessee's action or failure to act), if any, being expressly waived by Lessee and by each and every Person now or hereafter claiming by, through or under Lessee, and that, so far as Lessor or any of its Affiliates or any of their respective officers, directors, employees or agents, individually or personally, is concerned, Lessee and any Person claiming by, through or under Lessee shall look solely to the right, title and interest of Lessor in the Leased Properties and any proceeds from Lessor's sale or encumbrance thereof (provided, however, that Lessee shall not be entitled to any double recovery) for the performance of any obligation under this Lease and under the Operative Documents and the satisfaction of any liability arising therefrom (other than that resulting from Lessor's gross negligence or willful misconduct, except to the extent imputed to Lessor by virtue of Lessee's action or failure to act). Section XVIII.13 Estoppel Certificates. Each party hereto agrees that at any time and from time to time during the Lease Term, it will promptly, but in no event later than thirty (30) days after request by the other party hereto, execute, acknowledge and deliver to such other party or to any prospective purchaser (if such prospective purchaser has signed a commitment or letter of intent to purchase any Leased Property or any part thereof or any Note or Lease Participation), assignee or mortgagee or third party designated by such other party, a certificate stating (a) that this Lease is unmodified and in force and effect (or if there have been modifications, that this Lease is in force and effect as modified, and identifying the modification agreements); (b) the date to which Basic Rent has been paid; (c) whether or not there is any existing default by Lessee in the payment of Basic Rent or any other sum of money hereunder, and whether or not there is any other existing default by either party with respect to which a notice of default has been served, and, if there is any such default, specifying the nature and extent thereof; (d) whether or not, to the knowledge of the signer after due inquiry and investigation, there are any setoffs, defenses or counterclaims against enforcement of the obligations to be performed hereunder existing in favor of the party executing such certificate and (e) other items that may be reasonably requested; provided that no such certificate may be requested unless the requesting party has a good faith reason for such request. Section XVIII.14 No Joint Venture. Any intention to create a joint venture, partnership or other fiduciary relationship between Lessor and Lessee is hereby expressly disclaimed. Section XVIII.15 No Accord and Satisfaction. The acceptance by Lessor of any sums from Lessee (whether as Basic Rent or otherwise) in amounts which are less than the amounts due and payable by Lessee hereunder is not intended, nor shall be construed, to constitute an accord and satisfaction of any dispute between Lessor and Lessee regarding sums due and payable by Lessee hereunder, unless Lessor specifically deems it as such in writing. Section XVIII.16 No Merger. In no event shall the leasehold interests, estates or rights of Lessee hereunder, or of the holder of any Notes secured by a security interest in this Lease, merge with any interests, estates or rights of Lessor in or to the Leased Properties, it being understood that such leasehold interests, estates and rights of Lessee hereunder, and of the holder of any Notes secured by a security interest in this Lease, shall be deemed to be separate and distinct from Lessor's interests, estates and rights in or to the Leased Properties, notwithstanding that any such interests, estates or rights shall at any time or times be held by or vested in the same person, corporation or other entity. Section XVIII.17 Survival. The obligations of Lessee to be performed under this Lease prior to the Lease Termination Date and the obligations of Lessee pursuant to Article III, Articles X, XI, XIII, Sections 14.2, 14.3, 14.4, 14.5, 14.8, Articles XIV, XV, and XVI, and Sections 17.10 and 17.12 shall survive the expiration or termination of this Lease. The extension of any applicable statute of limitations by Lessor, Lessee, the Agent or any Indemnitee shall not affect such survival. Section XVIII.18 Chattel Paper. To the extent that this Lease constitutes chattel paper (as such term is defined in the Uniform Commercial Code in any applicable jurisdiction), no security interest in this Lease may be created through the transfer or possession of any counterpart other than the sole original counterpart, which shall be identified as the original counterpart by the receipt of the Agent. Section XVIII.19 Time of Essence. Time is of the essence of this Lease. Section XVIII.20 Recordation of Lease. Lessee will, at its expense, cause this Lease or a memorandum of lease in form and substance reasonably satisfactory to Lessor and Lessee (if permitted by Applicable Law) to be recorded in the proper office or offices in the States and the municipalities in which the Land is located. Section XVIII.21 Investment of Security Funds. Any amounts not payable to Lessee pursuant to any provision of Article VIII, X or XIV or this Section 17.21 solely because an Event of Default shall have occurred and be continuing shall be held by the Agent (or Lessor if the Loans have been fully paid) as security for the obligations of Lessee under this Lease and the Master Agreement. At such time as no Event of Default shall be continuing, such amounts, net of any amounts previously applied to Lessee's obligations hereunder or under the Master Agreement, shall be paid to Lessee. Any such amounts which are held by the Agent (or Lessor if the Loans have been fully paid) pending payment to Lessee shall until paid to Lessee, as provided hereunder or, as long as the Loan Agreement is in effect, until applied against Lessee's obligations herein and under the Master Agreement and distributed as provided in the Loan Agreement or herein (after the Loan Agreement is no longer in effect) in connection with any exercise of remedies hereunder, be invested by the Agent or Lessor, as the case may be as directed from time to time in writing by Lessee (provided, however, if an Event of Default has occurred and is continuing it will be directed by the Agent or, if the Loans have been fully paid, Lessor) and at the expense and risk of Lessee, in Permitted Investments. Any gain (including interest received) realized as the result of any such investment (net of any fees, commissions and other expenses, if any, incurred in connection with such investment) shall be applied in the same manner as the principal invested. Section XVIII.22 Ground Leases. Lessee will, at its expense, timely perform all of the obligations of Lessor, in its capacity as ground lessee, under each Ground Lease and, if requested by Lessor shall provide satisfactory evidence to Lessor of such performance. Section XVIII.23 Land and Building. If the cost of the Land related to any Leased Property exceeds 25% of the projected Leased Property Balance for such Leased Property, the Land and the Building related to such Leased Property shall be leased under separate Lease Supplements. If any Building and the Land on which such Building is located are subject to separate Lease Supplements, at any time that Lessee exercises an option to purchase such Building or such Land, or to renew this Lease with respect to such Building or such Land, or is obligated to purchase such Building or such Land as a result of an Event of Loss, an Event of Taking or an Event of Default, such purchase or renewal shall be made simultaneously with respect to all of such Building and such Land. [Signature page follows] IN WITNESS WHEREOF, the undersigned have each caused this Lease Agreement to be duly executed and delivered and attested by their respective officers thereunto duly authorized as of the day and year first above written. Witnessed: RUBY TUESDAY, INC. as Lessee By______________________ By____________________________ Name: Name: Title: By______________________ Name: ATLANTIC FINANCIAL GROUP, LTD., as Lessor By: Atlantic Financial Managers,Inc., its General Partner Witnessed: By_______________________ By____________________________ Name: Name: Title: By_______________________ Name: Recording requested by EXHIBIT A TO and when recorded mail to: THE LEASE ____________________________ ____________________________ ____________________________ ____________________________ LEASE SUPPLEMENT NO. __ AND MEMORANDUM OF LEASE THIS LEASE SUPPLEMENT NO. __ (this "Lease Supplement") dated as of [ ], between ATLANTIC FINANCIAL GROUP, LTD., as the lessor (the "Lessor"), and RUBY TUESDAY, INC., a Georgia corporation, as lessee (the "Lessee"). WHEREAS Lessor is the owner of the Land described on Schedule I hereto and wishes to lease the Land together with any Building and other improvements thereon or which thereafter may be constructed thereon pursuant to the Lease to Lessee; NOW, THEREFORE, in consideration of the premises and the mutual agreements herein contained and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: SECTION 1. Definitions; Interpretation. For purposes of this Lease Supplement, capitalized terms used herein and not otherwise defined herein shall have the meanings assigned to them in Appendix A to the Lease Agreement, dated as of May 30, 1997, between Lessee and Lessor; and the rules of interpretation set forth in Appendix A to the Lease shall apply to this Lease Supplement. SECTION 2. The Properties. Attached hereto as Schedule I is the description of certain Land (the "Subject Property"). Effective upon the execution and delivery of this Lease Supplement by Lessor and Lessee, such Land, together with any Building and other improvements thereon or which thereafter may be constructed thereon pursuant to the Lease shall be subject to the terms and provisions of the Lease and Lessor hereby grants, conveys, transfers and assigns to Lessee those interests, rights, titles, estates, powers and privileges provided for in the Lease with respect to the Subject Property. SECTION 3. Amendments to Lease with Respect to Subject Property. Effective upon the execution and delivery of this Lease Supplement by Lessor and Lessee, the following terms and provisions shall apply to the Lease with respect to the Subject Property: [Insert Applicable Sections per Local Law as contemplated by the Master Agreement] SECTION 4. Ratification; Incorporation. Except as specifically modified hereby, the terms and provisions of the Lease are hereby ratified and confirmed and remain in full force and effect. The terms of the Lease (as amended by this Lease Supplement) are by this reference incorporated herein and made a part hereof. SECTION 5. Original Lease Supplement. The single executed original of this Lease Supplement marked "THIS COUNTERPART IS THE ORIGINAL EXECUTED COUNTERPART" on the signature page thereof and containing the receipt of the Agent therefor on or following the signature page thereof shall be the original executed counterpart of this Lease Supplement (the "Original Executed Counterpart"). To the extent that this Lease Supplement constitutes chattel paper, as such term is defined in the Uniform Commercial Code as in effect in any applicable jurisdiction, no security interest in this Lease Supplement may be created through the transfer or possession of any counterpart other than the Original Executed Counterpart. SECTION 6. GOVERNING LAW. THIS LEASE SUPPLEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAW OF THE STATE OF GEORGIA, BUT EXCLUDING ALL OTHER CHOICE OF LAW AND CONFLICTS OF LAW RULES OF SUCH STATE, EXCEPT AS TO MATTERS RELATING TO THE CREATION OF THE LEASEHOLD ESTATE HEREUNDER, AND THE EXERCISE OF RIGHTS AND REMEDIES WITH RESPECT THERETO, WHICH SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAW OF THE STATE IN WHICH SUCH ESTATE IS LOCATED. SECTION 7. Counterpart Execution. This Lease Supplement may be executed in any number of counterparts and by each of the parties hereto in separate counterparts, all such counterparts together constituting but one and the same instrument. IN WITNESS WHEREOF, each of the parties hereto has caused this Lease Supplement to be duly executed by an officer thereunto duly authorized as of the date and year first above written. ATLANTIC FINANCIAL GROUP, LTD., as the Lessor By: Atlantic Financial Managers, Inc., its General Partner By____________________________ Name: Title: RUBY TUESDAY, INC., as the Lessee By____________________________ Name: Title: STATE OF _________________ ) ) ss.: COUNTY OF ________________ ) The foregoing Lease Supplement was acknowledged before me, the undersigned Notary Public, in the County of ______________, ____ ____, this _____ day of __________, _______________, by _____________________, as ____________________ of Atlantic Financial Group, Ltd., on behalf of such partnership. [Notarial Seal] ___________________________ Notary Public My commission expires: _____________ STATE OF _________________ ) ) ss.: COUNTY OF ________________ ) The foregoing Lease Supplement was acknowledged before me, the undersigned Notary Public, in the County of ______________, ___ ____, this _____ day of __________, __________, by ___________, as _____________, of Ruby Tuesday, Inc., a Georgia corporation, on behalf of the corporation. [Notarial Seal] ______________________________ Notary Public My commission expires: ______________ Receipt of this original counterpart of the foregoing Lease Supplement is hereby acknowledged as of the date hereof. SUNTRUST BANK, ATLANTA, as the Agent By___________________________ Name: Title: By___________________________ Name: Title: EX-10.16 3 TRUST AGREEMENT TO THE RUBY TUESDAY, INC. SALARY DEFERRAL PLAN THIS TRUST AGREEMENT is made this 1st day of July, 1997, by and between RUBY TUESDAY, INC., a corporation organized and existing under the laws of the State of Georgia (the "Primary Sponsor"); each other Affiliate or other entity adopting the Ruby Tuesday, Inc. Salary Deferral Plan (the "Plan"), as provided therein and executing this trust pursuant thereto; and THE PRUDENTIAL TRUST COMPANY, a Pennsylvania corporation (the "Trustee"). W I T N E S S E T H: WHEREAS, the Primary Sponsor maintains the Plan and related trust (the "Trust"), which is intended to qualify as a profit sharing plan under section 401(a) of the Internal Revenue Code and also contains a cash or deferred arrangement as described in Section 401(k) of the Internal Revenue Code, for the exclusive benefit of Members thereunder and their Beneficiaries; WHEREAS, the Trustee has been recently appointed as trustee of the Trust; and WHEREAS, the Primary Sponsor and Trustee desire to restate the existing trust agreement (the "Existing Trust") to reflect the appointment of the Trustee and for other reasons; NOW, THEREFORE, in consideration of the foregoing and of the further obligations and undertakings as hereinafter set forth, the Primary Sponsor and Trustee hereby amend and restate the Existing Agreement, effective July 1, 1997, as follows: SECTION I. DEFINITIONS All terms and definitions contained in the Plan are hereby incorporated in the Trust Agreement by reference except to the extent that the terms of the Trust Agreement clearly indicate to the contrary. SECTION II. THE FUND The Primary Sponsor hereby establishes the Fund with the Trustee. The Fund shall be held, managed and administered by the Trustee in trust in accordance with the provisions of the Trust without distinction between principal and income; provided, however, the Trustee shall not accept interests in real estate or limited partnerships. At no time shall any part of the Fund be used for or diverted to purposes other than the exclusive benefit of the Members or their Beneficiaries, subject, however, to the payment of taxes and administrative expenses and to the return of contributions to a Plan Sponsor under the specific conditions set forth in the Plan. The Primary Sponsor's direction regarding a return of contributions shall specify (i) the reason the Primary Sponsor's contribution is being returned, which shall be consistent with the applicable requirements of the Code and ERISA, (ii) the amount of the contribution to be returned (less any Fund losses attributable thereto), and (iii) the date by which the payment to the Primary Sponsor must be made. The Trustee shall be entitled to rely on the Primary Sponsor's direction given pursuant to this Section II, and shall have no duty to inquire into the validity thereof. The Primary Sponsor agrees to indemnify and hold harmless the Trustee against and from all liabilities, claims, demands, damages, costs and expenses, including reasonable attorneys' fees, arising from the Trustee's compliance with any such direction. SECTION III. MAINTENANCE OF AND DISTRIBUTIONS FROM ACCOUNTS A. The Plan Administrator shall maintain Accounts in accordance with the Plan. B. The Trustee may rely upon a notice given in accordance with the terms of the Plan. The Trustee shall not be charged with any notice unless given in accordance with the Plan, including notification of any changes in the identity or authority of any Fiduciary (other than the Trustee) or any other person acting in regard to the Plan. C. The Trustee shall make payments out of the Fund to the persons, in the manner and in the amounts specified in directions received by it from the Plan Administrator. The Plan Administrator assumes all responsibility with respect to the directions and the application of the payments. The Trustee is under no duty to enforce payments of any contributions to the Fund and is not responsible for the adequacy of the Fund to discharge liabilities arising in connection with the Plan or Trust. D. If any dispute arises as to the persons to whom the payment of any funds or delivery of any assets shall be made by the Trustee, the Trustee may withhold the payment or delivery until the dispute has been determined by a court of competent jurisdiction or has been settled by the parties concerned and may, in its sole discretion, submit the dispute to a court of competent jurisdiction. SECTION IV. INVESTMENTS A. The Trustee shall have no authority with respect to the investment and reinvestment of the Fund except upon receipt of investment directions from the Primary Sponsor or otherwise pursuant to the provisions of Sections V, VI and IX hereof, the Trustee agrees to execute its duties hereunder with the care, skill and diligence under the circumstances then prevailing that a prudent man acting in like capacity and familiar with such matters pursuant to the Trust would use in the conduct of an enterprise of a like character and with like aims. If the Trustee holds Fund assets for which it has not received instructions, the Primary Sponsor hereby directs the Trustee to invest such assets in the Investment Fund which best preserves principal. B. Subject to the terms of the Plan and the Trust Agreement and the provisions of ERISA, the Trustee shall invest the principal and income of the Fund without distinction between principal and income, in such securities or in such property, real, personal, or mixed and wherever situated. Without limiting the foregoing, the Trustee may make investments in, and may purchase, acquire, obtain, retain, sell, transfer, pledge, hypothecate or encumber common or preferred stocks, shares of mutual funds, trust and participation certificates, bonds and mortgages, other evidences of indebtedness or ownership, annuity contracts of life insurance companies, savings accounts or plans, including, without limitation, savings accounts or plans established by the Trustee, covered call options, put options, and financial futures contracts, irrespective of whether the securities or property shall be of a character authorized by applicable state law for trust investments. C. The Trustee shall not invest in any securities issued by a Plan Sponsor or any affiliate (as defined in ERISA Section 407(d)(7)) of a Plan Sponsor unless the securities are "Qualifying Employer Securities," which means (i) securities of a Plan Sponsor or any affiliate which are stock, or (ii) a marketable obligation, as defined in ERISA Section 407(e), of a Plan Sponsor or any affiliate. Also, the Trustee shall not invest in any real property leased to or used by a Plan Sponsor or any affiliate of a Plan Sponsor unless the real property is "Qualifying Employer Real Property," which means parcels of real property and related personal property which are leased to the Plan Sponsor or to any affiliate and which are geographically dispersed and are suitable (or adaptable without excessive cost) for more than one use. All or any portion of the Fund may be invested in Qualifying Employer Securities. D. In addition to any other investments proper under the Trust, the Trustee shall, after receiving written approval from the Primary Sponsor, from time to time invest all or any part of the Fund in one or more group trusts or collective investment funds (including, without limitation, such trusts or funds now or hereafter established by the then Trustee) which contemplate the commingling for investment purposes of the funds therein with trust assets of other pension plans as defined in ERISA which are qualified under Code Section 401 and which may be established by other businesses, institutions and organizations other than the Trustee. To the extent required by Revenue Ruling 81-100 and to the extent consistent with the Trust, the terms and provisions of the declaration of trust creating any group trust or collective investment fund in which the Fund is invested are hereby adopted and made a part hereof, and any part of the Fund so invested shall be subject to all of the terms and provisions of any declaration of trust creating the group trust or collective investment fund. The Trustee shall from time to time withdraw from the group trust or collective investment fund such part of the Fund, as the Primary Sponsor directs. E. The Trustee shall invest the assets of the Plan allocated to Company Matching Accounts primarily in shares of Qualifying Employer Securities; otherwise, except as otherwise provided in accordance with the provisions of Sections V, VI and IX hereof, the normal investment goals and objectives of the Plan are capital growth, conservation of principal and production of income through the receipt of interest or dividends from investments. SECTION V. INVESTMENT MANAGER A. If an Investment Manager is designated in accordance with the Plan, the Trustee shall invest and reinvest all or such portion of the Fund as is specified in a written direction to the Trustee from the Primary Sponsor in the manner in which the Investment Manager directs the Trustee in writing. The Trustee shall have no discretion with respect to the investment or reinvestment of that portion of the Fund and shall not be liable for that portion of the Fund or for any acts or omissions of the Investment Manager or for following or for taking or refraining from taking any action at any direction of the Investment Manager given prior to receipt by the Trustee of written notice from the Primary Sponsor of revocation of the designation of the Investment Manager or for the failure of the Investment Manager to give a direction or for any act or omission in connection with its failure. The Trustee shall be entitled to rely upon notice of the designation of an Investment Manager from the Primary Sponsor until notified in writing by the designating party that the designation is no longer in effect. B. During any period of time in which an Investment Manager directs the investment of a portion of the Fund, the Trustee, or its designated agent, shall continue to receive all securities purchased against payment therefor and to deliver all securities sold against receipt of the proceeds therefrom. Any Investment Manager authorized to direct investments may issue orders on behalf of the Trustee for the purchase or sale of securities directly to a broker or dealer and for such purpose the Trustee shall, upon request, execute and deliver to the Investment Manager one or more trading authorizations. Written notification of the issuance of each order shall be given promptly to the Trustee by the Investment Manager and the execution of each order shall be confirmed by the broker to the Investment Manager and the Trustee. The notification shall be authority of the Trustee to receive securities purchased against payment therefor and to deliver securities sold against receipt of the proceeds therefrom. All directions concerning investments of the Investment Manager shall be signed by any person acting on behalf of the Investment Manager as may be duly authorized in writing. The transmission by the Investment Manager to the Trustee of directions by photostatic teletransmission with duplicate or facsimile signatures shall be considered a delivery in writing of the directions until the Trustee is notified in writing by the Primary Sponsor that the use of any device transmitting duplicate or facsimile signatures is no longer authorized. The Trustee may rely upon directions which it receives by photostatic teletransmission prior to receipt of notice from the Primary Sponsor that they are no longer authorized, and the Trustee shall not be responsible for the consequences of any unauthorized use of a device which use was not known by the Trustee at the time to be unauthorized. C. The Trustee shall be under no duty to make any review of investments acquired for the Plan at the direction or order of an Investment Manager or to make any recommendation with respect to disposing of or continuing to retain any such investment. D. The Trustee shall have no obligation to determine the existence of any conversion, redemption, exchange, subscription or other right relating to any securities purchased, of which notice was given prior to the purchase of the securities, and shall have no obligation to exercise any right unless the Trustee is informed of its existence by the Investment Manager and is requested in writing by the Investment Manager to exercise the right within a reasonable time before the time for its exercise expires. E. In the event that the Trustee is directed to purchase securities issued by any foreign government or agency thereof, or by any corporation domiciled outside of the continental limits of the United States or its territories, it shall be the responsibility of the Investment Manager to advise the Trustee in writing with respect to any laws or regulations of any such foreign countries which shall apply to the securities, including, but not limited to, receipt of dividends or interest by the Trustee from such securities. SECTION VI. INVESTMENT COMMITTEE A. If an Investment Committee is designated by the Primary Sponsor in accordance with the Plan, the Trustee shall, unless the Primary Sponsor otherwise directs the Trustee in writing, invest the Fund as the Investment Committee directs. B. The Primary Sponsor may in writing direct that only a portion of the Fund shall be invested as the Investment Committee directs, in which case the Trustee shall invest the balance of the Fund pursuant to Section IV hereof, subject to Sections V and IX hereof. SECTION VII. TRUSTEE POWERS As directed by the Primary Sponsor, in the administration of the Trust, in addition to, and not in limitation of, any powers or authority of the Trustee under the Trust or which the Trustee may have under applicable law in addition thereto (all such additional powers and authority being specifically hereby granted to the Trustee), the Trustee is authorized and empowered to do the follow- ing, without advertisement and without order of court and without having to post bond or make any returns or report of its doings to any court: A. To purchase or subscribe for any securities or property, including, without limitation, shares of mutual funds and to retain the same in trust; B. To sell, exchange, convey, transfer, or otherwise dispose of, any securities or property held by it, by private contract or at public auction, with or without advertising, and no person dealing with the Trustee shall be bound to see to the application of the purchase money or to inquire into the validity, expediency or propriety of any sale or other disposition; C. To vote any stocks, bonds or other securities; to give general or special proxies or powers of attorney with or without power of substitution; to exercise any conversion privileges, subscription rights or other options, and to make any payments incidental thereto; to oppose or to consent to, or otherwise participate in, corporate reorganizations or other changes affecting corporate securities, and to delegate discretionary powers, and to pay any assessments or charges in connection therewith; and generally to exercise any of the powers of an owner with respect to stocks, bonds, securities or other property held as part of the Fund; provided, however, that the voting, tendering or similar rights with respect to any Qualifying Employer Securities which are subject to investment direction by Members shall be exercised by Members or, where applicable, their Beneficiaries; D. To register any investment held as a part of the Fund in its own name or in the name of a nominee, and to hold any invest- ment in bearer form or through or by a central clearing corporation maintained by institutions active in the national securities markets, but the books and records of the Trustee shall at all times show that all investments are part of the Fund; E. To write covered call options and to purchase or sell put options and financial futures contracts; F. To employ and act through suitable agents, accountants, appraisers and attorneys (who may be counsel for the Trustee) and to pay their reasonable expenses and compensation, and the Trustee may consult with counsel (who, without limitation, may be counsel to the Trustee or to a Plan Sponsor), and shall be protected to the extent the law permits in acting upon the advice of counsel in regard to legal questions, and may also employ agents and expert assistants and delegate to them the ministerial duties which it sees fit, in which event the Trustee shall periodically review the performance of the persons to whom these duties have been delegated; G. To borrow or raise money for the purposes of the Trust; and for any sums so borrowed to issue its promissory note as Trustee, and to secure the repayment thereof by pledging all or any part of the Fund; and no person lending money to the Trustee shall be bound to see to the application of the money lent or to inquire into the validity, expediency or propriety of the borrowing; H. To make, execute, acknowledge and deliver any and all documents of transfer and conveyance and all other instruments or agreements that may be necessary or appropriate to carry out the powers of the Trustee under the Trust or incidental thereto; I. To settle, compromise or submit to arbitration any claims, debts or damages due or owing to or from the Fund, to commence or defend any legal or administrative proceedings arising, necessary or appropriate in connection with the Plan, the Trust, the Fund, the administration thereof or the powers or authority of the Trustee under the Trust, and to represent the Plan, the Trust, and the Fund in all legal and administrative proceedings; J. To keep such portions of the Fund in cash or cash balances as necessary to meet anticipated distributions from or administrative costs of the Plan or Fund, it being understood that the Trustee shall not be required to pay any interest on any cash balances; and K. Generally, to do all acts and to execute and deliver all instruments as in the judgment of the Trustee may be necessary or desirable to carry out any powers or authority of the Trustee, without advertisement, without order of court and without having to post bond or make any returns or report of its doings to any court. SECTION VIII. INVESTMENT FUNDS A. The assets of the Fund shall be invested in at least four (4) Investment Funds, with varying investment objectives, as the Primary Sponsor shall from time to time determine. One such Investment Fund shall be established for investments in Qualifying Employee Securities. B. The Primary Sponsor, in its sole discretion may, from time to time, establish one or more additional Investment Funds, or may change or terminate the availability of any then existing Investment Fund or Investment Funds for all Members, provided, however, that four (4) or more Investment Funds remain available. C. Pursuant to directions from the Primary Sponsor, the Trustee will keep a portion of the Fund in cash or cash balances as required for the proper administration of Plan contributions and disbursements, which amounts may be held in a separate suspense account maintained by an affiliate of the Trustee. The expense of operating and maintaining such suspense account will be charged against earnings, if any, of such suspense account but will not otherwise be charged back to the Fund to the extent expenses exceed earnings. The Primary Sponsor and Trustee hereby acknowledge that such earnings are never expected to exceed the expenses allocable to the suspense account. D. The Trustee, to the extent directed, may purchase for an Investment Fund any property of another Investment Fund which would then be appropriate for purchase by that Investment Fund and may exchange property of one Investment Fund for property of another Investment Fund if the exchanged properties would be appropriate for purchase by the respective Investment Funds. Each purchase or exchange shall be made at the fair market value of the property so purchased or exchanged. E. The terms and provisions of this Section shall not in any way limit the authority, powers, and duties of the Trustee as set forth in this Trust except to the extent that Section 404(c) of ERISA applies to the investment election made by any Member pursuant to the Plan and Trust. The Trustee shall exercise or perform the same in regard to any Investment Fund only in accordance with the purposes thereof. Further, the authority, powers, and duties of the Trustee shall be subject to the limitations provided in Sections V and VI of the Trust if an Investment Manager or an Investment Committee is appointed as provided therein, which Investment Manager or Investment Committee may be appointed in respect of all or a part of any Investment Fund or the Fund, but shall exercise or perform its authority, powers, and duties only in a manner consistent with the purpose of the Investment Fund or the Fund, as the case may be. F. If the Plan permits loans to Plan participants, the Trustee may delegate to an affiliate the responsibility for holding and safeguarding the documents evidencing such participant loans. The Trustee will deem any direction to disburse Fund assets for a participant loan as a direction to transfer an equivalent amount of assets to a suspense account maintained by the affiliate for disbursement as a loan thereunder. SECTION IX. INVESTMENT DIRECTION BY MEMBERS A. Subject to any other rules and restrictions as the Plan Administrator may prescribe from time to time, with respect to amounts allocated to Accounts other than post-1989 Company Matching Accounts only, each Member may (1) direct that a portion or all of his interest in one or more of the Investment Funds be transferred to one or more of the other Investment Funds or (2) change his election as to the Investment Funds in which future contributions on his behalf to his Employee Deferred Account, Voluntary Contribution Account and Rollover Account shall be invested. The provisions of this Section are contingent upon the availability of transfers among the Investment Funds under the terms of the investments made by each Investment Fund. An investment direction, once given, shall be deemed to be a continuing direction until changed as otherwise provided herein. B. If no investment election is outstanding, all such contributions shall be allocated to such Investment Fund as the Plan Administrator shall, in its sole discretion, determine. C. Investment directions by Members shall be subject to the following: 1. Investment directions by Members to the Plan Administrator shall be made in the manner and pursuant to the rules established by the Plan Administrator and shall indicate the manner in which contributions are to be invested in, or the allocation of a Member's Account among, the available Investment Funds. 2. Directions provided to the Trustee shall remain in effect until superseded by subsequent directions. D. Each direction under the preceding paragraphs received by the Plan Administrator shall be promptly delivered to the Trustee, and shall be effective as to the Trustee only when received by the Trustee. If a Member directs that all or a portion of his Account be invested in a particular Investment Fund, the Trustee shall use its best efforts to carry out the investment as soon as practicable. However, the Trustee shall never be held liable for failure to carry out an investment direction within the terms of the Trust if the Trustee has made a bona fide effort to follow the direction. E. Any distribution to a Member pursuant to the Plan shall be pro rata from each Investment Fund, except as otherwise determined by the Plan Administrator. SECTION X. VALUATION AND ALLOCATION A. For all purposes under the Plan and the Trust, including particularly, but without limitation, valuing the Fund and each Member's Account and allocating to each Member's Account its share of the net income or net loss of the Fund, the following rules shall apply: 1. Transfers or payments of funds or assets and the income, gain, loss, or expenses attributable thereto between Investment Funds shall be deemed made as of the Valuation Date coinciding with or immediately following the actual receipt of transfer or payment instructions in good order, and the funds or assets shall not be credited or charged after such date with any earnings or losses of the Investment Fund from which transferred or paid but shall be credited or charged after such date with any earnings or losses of the Investment Fund to which transferred or paid. 2. Transfers or payments from an Investment Fund to a Member or his Beneficiary between Valuation Dates shall be charged against the interest of the Member in the Investment Fund as of the Valuation Date coinciding with or immediately following the actual receipt of transfer or payment instructions in good order and contributions to an Investment Fund which are allocated to the Account of a Member between Valuation Dates shall be credited to the interest of such Member in such Investment Fund as of the Valuation Date coinciding with or immediately following the actual receipt of transfer or payment instructions in good order. 3. Fair market value of the assets of each Investment Fund shall be determined separately and the net income or net loss of each Investment Fund shall be determined separately. 4. The value of a Member's Account, to the extent invested in Investment Funds, shall be the sum of his proportionate interests in each of the Investment Funds, and the aggregate net income or net loss allocated to a Member's Account shall be the aggregate of the net income or net loss allocated to his proportionate interests in each of the Investment Funds. B. Subject to the provisions of Subsections C. and D. below, the Trustee shall as of each Valuation Date, determine the net income or net loss and the fair market value of the assets in the Fund and each Investment Fund, respectively, as determined below: 1. To the cash income, if any, since the last Valuation Date, there shall be added or subtracted, as the case may be, any net increase or decrease, since the last Valuation Date, in the fair market value of the assets of the Fund or Investment Fund, as applicable, since the last Valuation Date, any gain or loss on the sale or exchange of assets of the Fund or Investment Fund, as applicable, since the last Valuation Date, accrued interest since the last Valuation Date with respect to any interest-bearing security as to which the purchaser would be required to pay the accrued interest in addition to the quoted price, the amount of any dividend which shall have been declared since the last Valuation Date but not paid on shares of stock owned by the Trustee if the market quotation used in determining the value of such shares is ex-dividend, and the amount of any other assets of the Fund or Investment Fund determined by the Trustee to be income since the last Valuation date; 2. From the sum thereof there shall be deducted all charges, expenses, and liabilities accrued since the last Valuation Date which are proper under the provisions of the Plan and the Trust and which in the discretion of the Trustee are properly chargeable against income for the period. C. Notwithstanding Subsection B hereof, in the event that an Investment Manager is designated by the Primary Sponsor and if the Investment Manager either directs the investment of or itself invests any assets of the Fund, or in the event that an Investment Committee is appointed by the Primary Sponsor and directs the investment of any assets of the Fund, and if any of such assets are non-listed securities or are not publicly traded or if the fair market value of any of such assets cannot be readily determined, then the Investment Manager or the Investment Committee, whichever is applicable, shall determine the net income or net loss and the fair market value of such assets and the Trustee shall be entitled to rely upon such determination. D. In the event that an Investment Manager is designated by the Plan Sponsor and if the Trustee gives the Investment Manager possession of any portion of the assets of the Fund, then the Investment Manager shall determine the net income or net loss and the fair market value of those assets and the Trustee shall be entitled to rely upon the determination. SECTION XI. TRUSTEE COMPENSATION A. The Trustee's compensation shall be the amount agreed upon in a separate written agreement between the Primary Sponsor and the Trustee. The Trustee is authorized to use the assets held by it under the Trust to pay its reasonable compensation and expenses. The Trustee shall deliver an invoice for such compensation and expenses to the Primary Sponsor no less than thirty (30) days prior to deducting same from the Fund. No person who serves as the Trustee and who receives full-time pay from a Plan Sponsor shall be entitled to receive any compensation from the Fund, except for the reimbursement of expenses properly and actually incurred by him in his role as Trustee. B. All taxes of whatever kind or nature that may be levied or assessed under existing or future laws upon, or in respect of, the Plan, the Trust, the Fund or the income or gains thereof or therefrom shall be paid from the Fund. SECTION XII. TRUSTEE RESPONSIBILITY The Trustee is not responsible for the application, investment or other disposition of any funds or property held or managed by, or otherwise subject to direction by, any person other than the Trustee. The Trustee is not responsible for the application of any funds or property held by it under the Trust which have been paid to the Plan Administrator or which have been paid pursuant to the Plan and Trust or as directed by the Plan Administrator. The Trustee has no responsibility with respect to any administration of the Plan or the payment of any benefits under the Plan. When determining the nature and extent of its responsibilities, the Trustee is not required to obtain or review the Plan. The Trustee shall not be liable for the validity or legality of any changes made to the Plan by the Primary Sponsor. SECTION XIII. RECORDKEEPING The Trustee shall keep accurate and detailed accounts of all investments, receipts, disbursements and other transactions pursuant to the Plan and the Trust, and all books and records relating thereto shall be open to inspection and audit at all reasonable times by the Plan Administrator. Within ninety (90) days following the later of the close of each Plan year or the receipt of a Plan Sponsor's contribution, and within ninety (90) days after a Report Date (which for purposes of this Trust shall mean the date of the death, removal or resignation of any Trustee from time to time serving hereunder, or the date of the termination of the Trust) the Trustee shall file with the Plan Administrator its written account. The account shall set forth (i) all investments, receipts, disbursements and other transactions effected by it during such Plan Year or during the period from the last Valuation Date to the Report Date and (ii) the determination of the Trustee of the net income or net loss of the Fund for such Plan Year or during the period from the last Valuation Date to the Report Date and the determination of the Trustee of the fair market value of the assets of the Fund as at the Valuation Date or as at the Report Date, as the case may be. Unless a Report Date is also a Valuation Date, no allocation of earnings, gains or losses shall be made to a Member's Account. SECTION XIV. REMOVAL OR RESIGNATION OF TRUSTEE, AND AMENDMENT OR TERMINATION OF TRUST A. The Trustee, or an individual Trustee, as applicable, may be removed by the Primary Sponsor at any time upon sixty (60) days' notice in writing to the Trustee and the Plan Administrator. Any Trustee serving hereunder may resign at any time without leave of court, upon sixty (60) days' notice in writing to the Plan Sponsor and the Plan Administrator. B. Upon the death, removal or resignation of a Trustee, the Primary Sponsor shall appoint a successor Trustee as soon as possible. If the former Trustee was one of several Trustees, the remaining persons constituting the Trustee may continue to act as Trustee until the Primary Sponsor appoints a successor co-Trustee. C. Any removal of a Trustee or appointment of a successor Trustee shall be without leave of court by notice in writing signed by the Primary Sponsor and delivered to the Trustee being removed or appointed, with a copy to the Plan Administrator. Any successor Trustee serving at any time hereunder shall serve with the same powers and duties as the Trustee named herein. D. Upon receipt by the Trustee (or by the Primary Sponsor in the event of the death of a last remaining individual Trustee) of the designated successor's acceptance of its appointment as successor Trustee hereunder, the funds and properties then constituting the Fund shall be transferred to the successor Trustee. However, the Trustee is not required to transfer funds and properties to a successor trustee unless the Trustee is discharged from all liability for any taxes which may be due and owing by the Plan and Trust, or unless either (1) the successor trustee, who must be acceptable to the Trustee, indemnifies the Trustee against any such liability or (2) each Plan Sponsor so indemnifies the Trustee in a manner acceptable to the Trustee. E. If the Primary Sponsor fails to appoint a successor trustee before the expiration of the sixty (60) day notice period, or no written acceptance is received from a successor Trustee, then at any time after the end of the sixty (60) day notice period the Trustee may file an appropriate action in a court of competent jurisdiction and assign to the custody of the court the funds and properties then held by the Trustee constituting the Fund. F. Upon the transfer of the Fund to a successor trustee or to a court of competent jurisdiction, as the case may be, the Trustee shall be relieved of all further responsibilities in connection with the Plan, the Trust or the Fund. The Trustee is authorized, however, to reserve therefrom such money or property as it may deem advisable for payment of its fees and expenses in connection with the settlement of its account or otherwise, and any balance of the reserve remaining after the payment of such fees and expenses shall be paid over to the successor trustee or to the court. G. The Primary Sponsor reserves the right to amend this Trust Agreement by written notice to the Trustee. However, no amendment which affects the rights, duties or responsibilities of the Trustee may be made without the Trustee's consent. H. The Trust shall continue for such time as may be necessary to accomplish the purposes for which it was created and shall terminate only upon the complete distribution of the Fund. The Trust may be terminated as of any date by the Primary Sponsor by written notice to the Trustee and the Plan Administrator given in the manner prescribed in the Plan which specifies the date as of which the Trust shall terminate. Upon termination of the Trust, if the Trustee has not received instructions to the contrary from the Primary Sponsor, the Trustee shall liquidate the Fund and, after paying the reasonable expenses of the Trust, including expenses involved in the termination, distribute the balance thereof according to the written directions of the Plan Administrator. The Trustee is not required to make any distribution until it is reasonably satisfied that adequate provision has been made for the payment of all taxes which may be due and owing by the Trust. In no event shall any distribution be made by the Trustee until the Trustee is reasonably satisfied that the distribution will not be contrary to the applicable provisions of the Plan dealing with terminations of the Plan and the Trust. I. The Trust and the contributions made by each Plan Sponsor to the Trustee are conditioned upon the conditions set forth in the Plan as to qualification and returns of contributions, and the returns of contributions by the Trustee to the Plan Sponsors in certain events is governed by such provisions of the Plan. J. If at any time more than one person or entity is serving as the Trustee, the persons or entities so serving shall act by the action of a majority, with or without a meeting, and any action may be evidenced by a writing executed by a majority of the persons or entities constituting the Trustee. K. The Trust shall be administered, construed and enforced according to the laws of the Commonwealth of Pennsylvania to the extent not preempted by federal laws, and the Trustee shall be liable to account only in the courts of that state and in any court of appropriate jurisdiction of the United States of America. All transfers of funds or other property to or from the Trustee shall be deemed to take place in the Commonwealth of Pennsylvania. SECTION XV. INDEMNIFICATION In consideration of the Trustee's agreeing to enter into this Agreement, the Primary Sponsor hereby agrees to hold harmless The Prudential Trust Company, individually and as trustee under said Agreement, and its directors, officers, and employees, from and against all amounts, including without limitation taxes, expenses (including reasonable counsel fees), liabilities, claims, damages, actions, suits or other charges, incurred by or assessed against The Prudential Trust Company, individually or as trustee, or its directors, officers, or employees, (i) as a direct or indirect result of anything done in good faith, or alleged to have been done, by or on behalf of The Prudential Trust Company in reliance upon the directions of the Primary Sponsor, or any Investment Manager appointed by the Primary Sponsor, or any person or committee authorized to act on behalf of the Primary Sponsor, or anything omitted to be done in good faith, or alleged to have been omitted, in the absence of such directions, (ii) as a direct or indirect result of the failure of the Primary Sponsor or any person or committee to adequately, carefully or diligently discharge its responsibilities under the Plan, this Agreement, or applicable Department of Labor or Treasury regulations or rulings, or (iii) if the Trustee is named as a defendant in any lawsuit or other proceeding involving the Plan or the Fund for any reason including, without limitation, an alleged breach by the Trustee of its responsibilities under the Agreement, unless the final judgment entered in the lawsuit or proceeding holds the Trustee guilty of gross negligence, willful misconduct, or an intentional breach of fiduciary responsibility under ERISA. If the final judgment holds the Trustee guilty of gross negligence, willful misconduct, or an intentional breach of fiduciary responsibility under ERISA, the Primary Sponsor hereby agrees to indemnify the Trustee only against liability in excess of the Trustee's allocable share of such liability. The Primary Sponsor further agrees that the undertakings made by it in this Agreement shall be binding on its successors or assigns and shall survive termination, amendment or restatement of this Agreement, or the resignation or removal of the Trustee. [REMAINDER OF PAGE LEFT INTENTIONALLY BLANK] IN WITNESS WHEREOF, the parties hereto have caused this Trust Agreement to be executed on the day and year first above written. PRIMARY SPONSOR: RUBY TUESDAY, INC. By:/s/ Franklin E. Southall, Jr. Title: Vice President and Controller ATTEST: /s/ Walter Cole Title: Assistant Secretary [CORPORATE SEAL] TRUSTEE: THE PRUDENTIAL TRUST COMPANY By:/s/ Daniel Arcure Title:Vice President and Assistant Secretary ATTEST: /s/ Deborah L. Kennedy Title: Assistant Comptroller [SEAL] EX-10.17 4 TRUST AGREEMENT FOR THE RUBY TUESDAY, INC. DEFERRED COMPENSATION PLAN THIS TRUST AGREEMENT is made this 1st day of July, 1997, between RUBY TUESDAY, INC., a corporation organized under the laws of the State of Georgia (the "Primary Sponsor"), each related corporation or business executing this Trust Agreement (the Primary Sponsor and each related corporation or business being sometimes hereinafter referred to as a "Plan Sponsor"); and THE PRUDENTIAL TRUST COMPANY, a Pennsylvania corporation (the "Trustee"). W I T N E S S E T H: WHEREAS, the Primary Sponsor maintains the Ruby Tuesday, Inc. Deferred Compensation Plan (the "Plan"), which was established by indenture dated December 18, 1989, to provide benefits in the form of deferred compensation to a select group of management or highly compensated employees of the Primary Sponsor or any of its related corporations or businesses; and WHEREAS, Morrison Restaurants Inc., as predecessor-in-interest to the Primary Sponsor, by agreement dated June 16, 1988 established an irrevocable grantor trust (the "Trust"), within the meaning of Section 671 of the Internal Revenue Code of 1986, as amended (the "Code") to assist it and any of its related corporations or businesses in meeting its obligations under the Plan; and WHEREAS, the Primary Sponsor desires to amend and restate the existing trust agreement originally executed by and between Morrison Restaurants Inc. and AmSouth Bank N.A., dated December 1, 1992, which agreement, as amended, contains the existing terms of the Trust (the "Prior Trust Agreement"); and WHEREAS, the Board of Directors of the Primary Sponsor has approved the amendment and restatement of the Prior Trust Agreement as embodied herein (the "Trust Agreement"); NOW, THEREFORE, the Primary Sponsor hereby restates the Trust, effective as of July 1, 1997, as follows: SECTION I. INCORPORATION OF PLAN All terms and conditions set forth in the Plan are incorporated by reference except to the extent that the terms of the Trust indicate to the contrary. In the event of a conflict between the terms and provisions of the Trust Agreement and those the Plan, the terms and provisions of the Trust Agreement shall be given precedence. However, nothing contained in the Trust Agreement is intended to diminish the amount of benefits required to be paid for the benefit of any participant under the terms of the Plan. To the extent possible, the terms and provisions of the Plan and those of the Trust Agreement shall be interpreted as mutually consistent. SECTION II. ESTABLISHMENT OF THE FUND The Primary Sponsor has established a fund with the Trustee (the "Fund") to be held and administered in accordance with this Trust. The Trustee shall accept as part of the Fund all assets as may be delivered by a Plan Sponsor to the Trustee and shall also include all income accruing thereon, except as otherwise provided in this Trust Agreement; provided, however, the Trustee shall not accept interests in real estate or limited partnerships. SECTION III. MAINTENANCE OF AND DISTRIBUTIONS FROM ACCOUNTS A. The Plan Administrator shall maintain Accounts in accordance with the Plan. B. The Trustee may rely upon a notice given in accordance with the Plan. The Trustee shall not be charged with any notice unless given in accordance with the Plan, including notification of any changes in the identity or authority of any person acting in regard to the Plan. SECTION IV. INVESTMENT OF THE FUND A. The Trustee shall have no authority with respect to the investment and reinvestment of the Fund except upon receipt of investment directions from the Primary Sponsor or otherwise pursuant to the provisions of Subsection B below and Section VII, the Trustee shall invest the principal and income of the Fund without distinction between principal and income in securities or in property, real or personal and wherever situated. Without limiting the foregoing, the Trustee may purchase, acquire, retain, sell, transfer, pledge or encumber common or preferred stocks, including stock of the Primary Sponsor or any affiliate, shares of mutual funds, including mutual funds for which the Trustee is an advisor, trust and participation certificates, bonds and mortgages, other evidences of indebtedness or ownership, annuity contracts and ordinary and term life insurance contracts of life insurance companies, savings accounts or plans, including savings accounts or plans established or to be established by the Trustee, and group trusts or collective investment funds including group trusts or collective investment funds operated by the Trustee. If the Trustee holds Fund assets for which it has not received instructions, the Primary Sponsor hereby directs the Trustee to invest such assets in the Investment Fund which best preserves principal. B. Prior to the date a Change of Control (as defined in Section XVI.C hereof) occurs, the Primary Sponsor, and on or after the date a Change of Control occurs, the Trustee, may appoint one or more investment managers (the "Investment Managers") which shall be banks, investment advisers registered under the Investment Advisers Act of 1940, or insurance companies, to direct the Trustee as to the investment of all or a portion of the Fund for the exclusive benefit of the participants of the Plans and their beneficiaries. Notwithstanding the foregoing, prior to the date a Change of Control occurs, the Primary Sponsor may appoint the Trustee (or any of its affiliates) as an Investment Manager, if it is otherwise qualified to serve as an Investment Manager and in such instance, the Trustee shall have discretion over the investment of the Fund. The Primary Sponsor shall notify the Trustee of the appointment of any Investment Manager (other than the Trustee) under this Subsection by delivering to the Trustee (i) an executed copy of an instrument under which the Investment Manager was appointed to act hereunder and setting forth the investment powers of the Investment Manager and (ii) a written instrument executed by the Investment Manager in which it acknowledges that it has agreed to act as such. Any notice of appointment pursuant to this Subsection shall constitute a representation and warranty by the Primary Sponsor that the Investment Manager is qualified under and has been appointed in accordance with the provisions hereof. Notwithstanding anything herein contained to the contrary, during the term of its appointment, the Investment Manager shall have the sole responsibility for the investment and reinvestment of the portion of the Fund for which it was appointed to act, and shall have full power in its discretion to direct the Trustee with respect to the exercise by it of its investment powers, including the voting of shares (except as otherwise provided by Section XVI.D hereof). Pending receipt of instructions from any Investment Manager with respect thereto and subject to any investment guidelines agreed to in writing from time to time, any cash received by the Trustee from time to time shall be invested by the Trustee in demand and term notes (including those commonly known as "master notes") maturing not more than three years after the date of purchase thereof, United States Treasury bills, other government and agency obligations maturing not more than three years after the date of purchase thereof, group annuity or other contracts providing a guaranteed rate of return with a maturity not exceeding three years, certificates of deposit, commercial paper, government guaranteed paper, common or collective trust funds, money market mutual funds, other money market instruments, savings accounts or other deposits with a financial institution (including the Trustee, if a financial institution is serving as such) and part interests in any one or more of the foregoing. The Primary Sponsor may terminate its appointment of an Investment Manager at any time and shall in writing notify the Trustee of such termination, and may thereafter appoint a successor Investment Manager in the same manner as provided above in this Subsection. Any successor Investment Manager shall thereafter, until its appointment is terminated, be deemed to be an "Investment Manager" for all purposes of this Agreement. If there shall be more than one Investment Manager, the portion of the Fund to be invested by each Investment Manager shall be held in a separate account and the powers and authority of each Investment Manager shall be divided as set forth in the instruments appointing such Investment Managers. So long as an Investment Manager (other than the Trustee or one of its affiliates) is serving as such, the Trustee shall be under no duty or obligation to review the assets comprising any portion of the Fund managed by the Investment Manager, to make any recommendations with respect to the investment or reinvestment thereof, or to determine whether any direction received from any Investment Manager is proper or within the terms of this Trust Agreement or to monitor the activities of any Investment Manager. C. The Trustee shall have no liability or responsibility to the Primary Sponsor or any persons claiming any interest in the Fund for acting without question on the direction of, or for failing to act in the absence of any direction from, any Investment Manager unless the Trustee participated knowingly in, or knowingly undertook to conceal, an act or omission of any Investment Manager constituting a breach of its duties hereunder, knowing such act or omission was a breach of such duties; provided, however, that the Trustee shall not be deemed to have "participated" in a breach by any Investment Manager for the purposes of this undertaking solely as a result of the performance by the Trustee or its officers, employees or agents of any custodial, reporting, recording, and bookkeeping functions with respect to any assets of the Fund managed by any Investment Manager or solely as a result of settling purchase and sale transactions entered into or directed by any Investment Manager, or to have "knowledge" of any such breach solely as a result of the information received by the Trustee or its officers, employees or agents in the normal course in performing such functions or settling such transactions. If the Trustee has actual knowledge of a breach committed by any Investment Manager, it shall promptly notify the Primary Sponsor in writing thereof, and the Trustee, except as required by applicable law, shall thereafter have no responsibility to remedy such breach. D. The Primary Sponsor may, prior to a Change of Control, direct the Trustee in writing to transfer any portion of the Fund to a subtrustee and to enter into an agreement with the subtrustee reflecting the subtrust arrangement. In the event of a Change of Control, the Primary Sponsor may only direct the Trustee to transfer a portion of the Fund to a subtrustee with the consent of a majority of the participants of the Plan and the designated beneficiaries of deceased participants. The Trustee may terminate a subtrust at any time and direct the subtrustee to return the portion of the Fund held by the subtrustee; provided that prior to a Change of Control the subtrust may only be terminated with the consent of the Primary Sponsor. SECTION V. POWERS OF THE TRUSTEE In the administration of the Trust, in addition to any powers or authority of the Trustee under this Trust or which the Trustee may have under applicable law, the Trustee is authorized and empowered to do the following, without advertisement, without order of court and without having to post bond or make any returns or report of its doings to any court: A. To purchase or subscribe for any securities or property including, without limitation, securities of a Plan Sponsor and real property leased to or used by a Plan Sponsor; B. To sell, exchange, convey, transfer, or otherwise dispose of any securities or property held by it, by private contract or at public auction, with or without advertising, and no person dealing with the Trustee shall be bound to see to the application of the purchase money or to inquire into the validity, expediency or propriety of any disposition; C. Except as provided in Section XVI.D hereof, to vote any stocks, bonds or other securities, including securities of the Plan Sponsor; to give general or special proxies or powers of attorney with or without power of substitution; to exercise any conversion privileges, subscription rights or other options, and to make any payments incidental thereto; to oppose, consent to, or otherwise participate in corporate reorganizations or other changes affecting corporate securities, to delegate discretionary powers, and to-pay any assessments or charges in connection therewith; and generally to exercise any of the powers of an owner with respect to securities or other property held-as part of the Fund; D. To register any investment in its own name or in the name of a nominee, and-to hold any investment in bearer form or through or by a central clearing corporation maintained by institutions active in the national securities markets, but the records of the Trustee shall at all times show that all the investments are part of the Trust; E. To write covered call options and to purchase or sell put options and financial futures contracts; F. To employ and act through suitable agents, accountants, appraisers, actuaries and attorneys (who may be counsel for the Trustee) and to pay their reasonable expenses and compensation, to consult with counsel (who, without limitation, may be counsel to the Trustee).and shall be protected to the extent the law permits in acting upon the advice of counsel in regard to legal questions, and the Trustee shall periodically review the performance of the persons to whom these duties have been delegated, but the Trustee shall not be liable for relying upon the advice and expertise of any such person to the extent permitted by law, provided the Trustee's decisions in selecting and retaining such person were prudently made (it is specifically understood that the Trustee may hire an independent accounting firm to assist in making any insolvency determination and an independent law firm to assist in making any Change in Control determination); G. To borrow or raise moneys for the purposes of the Trust in the amounts, and upon the terms and conditions, as the Trustee in its discretion may deem advisable; and for any sums borrowed to issue its promissory note as Trustee, and to secure the repayment thereof by pledging all or any part of the Trust; and no person lending money to the Trustee shall be bound to see to the application of the money lent or to inquire into the validity, expediency or propriety of any borrowing; H. To make, execute, acknowledge and deliver any documents of transfer and conveyance and any other instruments or agreements that may be necessary or appropriate to carry out the powers of the Trustee under the Trust or incidental thereto; I. To settle, compromise or submit to arbitration any claims, debts or damages due or owing to or from the Trust, to commence or defend any suits or legal or administrative proceedings arising, necessary or appropriate in connection with the Trust, the administration and operation thereof or the powers or authority of the Trustee under the Trust, and to represent the Trust in all suits and legal and administrative proceedings; J. To keep portions of the Trust in cash or cash balances as the Trustee may deem to be in the best interest of the Trust; K. To register any investment in its own name or in the name of a nominee, and to hold any investment in bearer form or through or by a central clearing corporation maintained by institutions active in the national securities markets, but the records of the Trustee shall at all times show that all the investments are part of the Trust; and L. Generally, to do all acts and to execute and deliver all instruments as in the judgment of the Trustee may be necessary or desirable to carry out any powers or authority of the Trustee. SECTION VI. INVESTMENT FUNDS A. The assets of the Fund shall be invested in individual funds (each of which is sometimes hereinafter referred to as an "Individual Fund"), with varying investment objectives, as the Primary Sponsor shall from time to time determine. B. The Primary Sponsor, in its sole discretion may, from time to time, establish one or more additional Individual Funds, or may change or terminate the availability of any then existing Individual Fund or Individual Funds for all Members. C. Pursuant to directions from the Primary Sponsor, the Trustee will keep a portion of the Fund in cash or cash balances as required for the proper administration of Plan contributions and disbursements, which amounts may be held in a separate suspense account maintained by an affiliate of the Trustee. The expense of operating and maintaining such suspense account will be charged against earnings, if any, of such suspense account but will not otherwise be charged back to the Fund to the extent expenses exceed earnings. The Primary Sponsor and Trustee hereby acknowledge that such earnings are never expected to exceed the expenses allocable to the suspense account. D. The Trustee, to the extent directed, may purchase for an Individual Fund any property of another Individual Fund which would then be appropriate for purchase by that Individual Fund and may exchange property of one Individual Fund for property of another Individual Fund if the exchanged properties would be appropriate for purchase by the respective Individual Funds. Each purchase or exchange shall be made at the fair market value of the property so purchased or exchanged. E. The authority, powers and duties of the Trustee as described in this Trust Agreement shall be subject to and exercised only in a manner consistent with any selection of Investment Funds by the Primary Sponsor. SECTION VII. INVESTMENT DIRECTION BY MEMBERS A. Subject to any other rules and restrictions as the Plan Administrator may prescribe from time to time, with respect to amounts allocated to Employee Deferred Accounts only, each Member may (1) direct that a portion or all of his interest in one or more of the Investment Funds be transferred to one or more of the other Investment Funds or (2) change his election as to the Investment Funds in which future contributions on his behalf to his Employee Deferred Account shall be invested. The provisions of this Section are contingent upon the availability of transfers among the Investment Funds under the terms of the investments made by each Investment Fund. An investment direction, once given, shall be deemed to be a continuing direction until changed as otherwise provided herein. B. If no investment election is outstanding, all such contributions shall be allocated to such Investment Fund as the Plan Administrator shall, in its sole discretion, determine. C. Investment directions by Members shall be subject to the following: 1. Investment directions by Members to the Plan Administrator shall be made in the manner and pursuant to the rules established by the Plan Administrator and shall indicate the manner in which contributions are to be invested in, or the allocation of a Member's Account among, the available Investment Funds. 2. Directions provided to the Trustee shall remain in effect until superseded by subsequent directions. D. Each direction under the preceding paragraphs received by the Plan Administrator shall be promptly delivered to the Trustee, and shall be effective as to the Trustee only when received by the Trustee. If a Member directs that all or a portion of his Account be invested in a particular Investment Fund, the Trustee shall use its best efforts to carry out the investment as soon as practicable. However, the Trustee shall never be held liable for failure to carry out an investment direction within the terms of the Trust if the Trustee has made a bona fide effort to follow the direction. E. Any distribution to a Member pursuant to the Plan shall be pro rata from each Investment Fund, except as otherwise directed by the Plan Administrator. SECTION VIII. VALUATION AND ALLOCATION A. For all purposes under the Plan and the Trust, including particularly, but without limitation, valuing the Fund and each Member's Account and allocating to each Member's Account its share of the net income or net loss of the Fund, the following rules shall apply: 1. Transfers or payments of funds or assets and the income, gain, loss, or expenses attributable thereto between Investment Funds shall be deemed made as of the Valuation Date coinciding with or immediately following the actual receipt of transfer or payment instructions in good order, and the funds or assets shall not be credited or charged after such date with any earnings or losses of the Investment Fund from which transferred or paid but shall be credited or charged after such date with any earnings or losses of the Investment Fund to which transferred or paid. 2. Transfers or payments from an Investment Fund to a Member or his Beneficiary between Valuation Dates shall be charged against the interest of the Member in the Investment Fund as of the Valuation Date coinciding with or immediately following the actual receipt of transfer or payment instructions in good order and contributions to an Investment Fund which are allocated to the Account of a Member between Valuation Dates shall be credited to the interest of such Member in such Investment Fund as of the Valuation Date coinciding with or immediately following the actual receipt of transfer or payment instructions in good order. 3. Fair market value of the assets of each Investment Fund shall be determined separately and the net income or net loss of each Investment Fund shall be determined separately. 4. The value of a Member's Account, to the extent invested in Investment Funds, shall be the sum of his proportionate interests in each of the Investment Funds, and the aggregate net income or net loss allocated to a Member's Account shall be the aggregate of the net income or net loss allocated to his proportionate interests in each of the Investment Funds. B. Subject to the provisions of Subsections C and D below, the Trustee shall as of each Valuation Date, and at such additional times as the Primary Sponsor may in writing direct, determine the net income or net loss and the fair market value of the assets in the Fund and each Investment Fund, respectively, as determined below: 1. To the cash income, if any, since the last Valuation Date, there shall be added or subtracted, as the case may be, any net increase or decrease, since the last Valuation Date, in the fair market value of the assets of the Fund or Investment Fund, as applicable, since the last Valuation Date, any gain or loss on the sale or exchange of assets of the Fund or Investment Fund, as applicable, since the last Valuation Date, accrued interest since the last Valuation Date with respect to any interest-bearing security as to which the purchaser would be required to pay the accrued interest in addition to the quoted price, the amount of any dividend which shall have been declared since the last Valuation Date but not paid on shares of stock owned by the Trustee if the market quotation used in determining the value of such shares is ex-dividend, and the amount of any other assets of the Fund or Investment Fund determined by the Trustee to be income since the last Valuation Date; 2. From the sum thereof there shall be deducted all charges, expenses, and liabilities accrued since the last Valuation Date which are proper under the provisions of the Plan and the Trust and which in the discretion of the Trustee are properly chargeable against income for the period. C. Notwithstanding Subsection B hereof, in the event that an Investment Manager is designated by the Primary Sponsor, or the Trustee after a Change of Control, and if the Investment Manager either directs the investment of or itself invests any assets of the Fund, and if any of such assets are non-listed securities or are not publicly traded or if the fair market value of any of such assets cannot be readily determined, then the Investment Manager shall determine the net income or net loss and the fair market value of such assets and the Trustee shall be entitled to rely upon such determination. D. In the event that an Investment Manager is designated by the Plan Sponsor, or the Trustee after a Change of Control, and if the Trustee gives the Investment Manager possession of any portion of the assets of the Fund, then the Investment Manager shall determine the net income or net loss and the fair market value of those assets and the Trustee shall be entitled to rely upon the determination. SECTION IX. DUTIES OF THE TRUSTEE A. Except for records dealing solely with the Trust and its investments and disbursements, which shall be maintained by the Trustee, each Plan Sponsor shall maintain all records contemplated by the Plan. B. Each Plan Sponsor shall furnish to the Trustee all the information necessary to determine the benefits payable to or with respect to each Member in the Plan, including any benefits payable after a Member's death. Each Plan Sponsor shall from time to time, and at least annually, and promptly upon the request of the Trustee furnish updated information to the Trustee. In the event the Plan Sponsor refuses or neglects to provide any updated information as contemplated herein, the Trustee shall rely upon the most recent information furnished to it by the Plan Sponsor; provided, however, that on or after a Change of Control, the Trustee shall rely in its discretion upon (1) information furnished to it by the Plan Sponsor prior to a Change of Control, (2) information furnished to it by the Plan Sponsor on or after a Change of Control and/or (3) any information received by it from a Member or designated beneficiary unless the recipient actually knows that any such information is false. The Trustee has no responsibility to verify information provided to them by the Plan Sponsor or any Member or designated beneficiary. C. Upon proper notification from the Plan Sponsor prior to a Change of Control or upon an independent determination by the Trustee on or after a Change of Control (based on such information as the Trustee shall be entitled to rely upon pursuant to Subsection B above), when, in the opinion of the Plan Sponsor prior to a Change of Control or Trustee on or after a Change of Control, as applicable, a Member's benefits under the Plan have become payable, the Plan Sponsor or Trustee, as applicable, shall notify the Member or the beneficiary of a deceased Member and, if applicable, the Trustee. Such notice shall include the amount of such benefits, the terms of payment, the amount of any taxes required to be withheld from such amount, and the name, address and social security number of the recipient. Upon the receipt of a notification or after making its determination, as applicable, the Trustee shall commence distributions from the Fund in accordance therewith to the person or persons so indicated. D. The Plan Sponsors shall have full responsibility for the payment of all taxes of any nature levied, assessed or imposed upon the Fund, including the payment of all withholding taxes to the appropriate taxing authority and shall provide the Trustee with such information as necessary to allow it to furnish each Member or beneficiary with the appropriate tax information form evidencing such payment and the amount thereof. E. Prior to a Change of Control, the Trustee shall have no responsibility for determining whether any Member or beneficiary has died or whether a Member's rights under the terms of the Plan have been forfeited and shall be entitled to rely upon information furnished by the Plan Sponsor. On or after a Change of Control, the Trustee shall determine whether a Member's benefit shall be deemed forfeited or whether a Member or beneficiary has died based on information supplied under Subsection B hereof; provided, however, that a certified death certificate received by the Trustee shall be conclusive evidence of the death of any person regardless of the source of such certificate. F. Nothing provided in this Trust Agreement shall relieve a Plan Sponsor of its liabilities to pay the benefits provided under the Plan except to the extent such liabilities are met by application of Fund assets. G. Each Plan Sponsor agrees that by the establishment of this Trust it hereby forgoes any judicial review of any independent determination by the Trustee as to the benefit payable to any persons hereunder. If a dispute arises as to the amounts or timing of any such benefits or the persons entitled thereto under the Plans or this Trust Agreement, the Plan Sponsor agrees that such dispute shall be resolved by binding arbitration proceedings convened in Atlanta, Georgia and conducted in accordance with the rules of the American Arbitration Association and that the results of such proceedings shall be conclusive and shall not be subject to judicial review. It is expressly understood that pending the resolution of any such dispute, payment of benefits shall be made and continued by the Trustee in accordance with its independent determination and that the Trustee shall have no liability with respect to such payments. The Plan Sponsor also agrees to pay the entire cost of any arbitration or legal proceeding initiated by it or by the Trustee or by any Member or beneficiary, including the legal fees of the Trustee and the Member or other claimant regardless of the outcome of any such proceeding. SECTION X. DISTRIBUTIONS FROM THE FUND A. Consistent with the provisions of Section XII hereof, the Trustee is authorized to pay from the Fund reasonable expenses of the Trustee, including fees of accountants and legal counsel to the Trust, and the Trustee's compensation. B. The Trustee shall make any distribution required pursuant to this Trust Agreement by mailing its check or other evidence of payment to the person to whom such distribution or payment is to be made at such address as was last furnished to the Trustee or, if agreeable to the Plan Sponsor and the affected Member and so directed in a written notice to the Trustee by those parties, by crediting the account of such person or by transferring funds to such person's account by bank or wire transfer. The Trustee shall not be required to make any investigation to determine the whereabouts or mailing address of any person. If the person to receive a distribution can not be found, the Trustee shall hold payment or deposit same in a bank (including the Trustee, if a financial institution is serving as such) for the credit of that person without liability for interest thereon. If a check or other evidence of payment of the benefit hereunder has been mailed to the last address of the person furnished the Trustee and is returned unclaimed, the Trustee shall notify the Plan Sponsor and shall discontinue further payments to the payee until it receives instructions from the Plan Sponsor. C. The Trustee shall not be bound by any instruction, direction or notice unless and until it has been received in writing by the Trustee and may rely upon any instruction, direction or notice of a continuing nature until the Trustee receives a writing which revokes that instruction, direction or notice. The Trustee may without liability assume that any such instruction, direction or notice is genuine unless it has actual knowledge or, after receiving notification of a problem, has reasonably determined that the instruction, direction or notice is not genuine. D. The Trustee shall not be responsible for the application of any assets held as part of the Fund which have been distributed pursuant to the Plan and the Trust Agreement. E. If any dispute arises as to the persons to whom the payment of any funds or delivery of any assets shall be made by the Trustee, the Trustee may withhold payment or delivery until the dispute has been determined by a court of competent jurisdiction or has been settled by the parties concerned and may, in its sole discretion, submit the dispute to a court of competent jurisdiction. SECTION XI. CLAIMS OF CREDITORS A. The Fund assets shall be treated as general assets of the Plan Sponsor and shall remain subject to claims of the general creditors of the Plan Sponsor under applicable state and federal law. Nothing in the Trust Agreement shall affect the rights of any Member as general creditor of the Plan Sponsor. No Member shall have a preferred claim on or any beneficial ownership in the Fund prior to the time for distribution to the Member under the terms of a Plan or the terms of this Trust Agreement. In the event that the Plan Sponsor becomes insolvent as described in Subsection C below, each Member shall be deemed to waive any priority the Member may have under law as an employee with respect to any claim against the Plan Sponsor and the Trust beyond the rights the Member would have as a general creditor of the Plan Sponsor. B. Except as otherwise provided by Subsection C below, no benefit which shall be payable under the Trust to any person shall be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance or charge, and any attempt to anticipate, alienate, sell, transfer, assign, pledge, encumber, charge or otherwise dispose of the same shall be void. No benefit shall in any manner be subject to the debts, contracts, liabilities, engagements or torts of any person, nor shall it be subject to attachment or legal process for or against any person, except to the extent provided by Subsection C below and as may otherwise be required by law. C. The board of directors of a Plan Sponsor shall immediately notify the Trustee in writing of the insolvency of the Plan Sponsor. For purposes of this Subsection C, the term "insolvency" shall mean the inability of the Plan Sponsor to pay its debts as they become due in the usual course of its business or that the liabilities of the Plan Sponsor are in excess of its assets. Upon receipt of the written notice, the Trustee shall suspend all further payments to Members or their beneficiaries and shall hold the assets of the Trust for the benefit of the creditors of the Plan Sponsor in the manner directed by a court of competent jurisdiction. If the Trustee should receive any written allegation of the insolvency of the Plan Sponsor, the Trustee shall suspend payments to Members and hold the assets of the Trust for the benefit of the creditors of the Plan Sponsor and, within a period of sixty (60) days after the receipt of the written allegation, determine whether the Plan Sponsor is insolvent. If the Trustee determines that the Plan Sponsor is solvent, it shall immediately resume payments to the Members or their beneficiaries. In the event that the Trustee has actual knowledge of the insolvency of the Plan Sponsor, the Trustee shall hold the assets of the Trust for the benefit of the creditors of the Plan Sponsor in the manner directed by a court of competent jurisdiction. Unless the Trustee (1) has been notified in writing by the board of directors of a Plan Sponsor of the insolvency of a Plan Sponsor, (2) has received any written allegation of the insolvency of a Plan Sponsor or (3) has actual knowledge of the insolvency of a Plan Sponsor, the Trustee shall have no duty to inquire whether a Plan Sponsor is insolvent. The Trustee is hereby authorized to request and rely on a letter from the Primary Sponsor's independent auditors as to the Primary Sponsor's financial status. The Primary Sponsor agrees to exert its best efforts to promote the production of such letter within thirty (30) days after receipt of a request from the Trustee. SECTION XII. FEES AND EXPENSES The compensation and expenses of the Trustee shall be paid from the assets of the Fund. Expenses of the Trustee shall include the reasonable expenses and compensation of third parties employed by the Trustee pursuant to Section IV.F hereof. The Trustee shall be authorized to deduct its compensation and expenses from the Fund no earlier than thirty (30) days after it delivers an invoice for same to the Primary Sponsor. SECTION XIII. ACCOUNTS A. The Trustee shall keep such records as the Trustee considers necessary for the management of the Trust. The Trustee's books and records of the Fund shall be open to inspection by the Plan Sponsor and Members during regular business hours of the Trustee. B. The Trustee may establish separate accounts within the Fund for any group or category of the Plan as it determines appropriate to maintain its books of accounts and other records in accordance with the provisions of the Plan and the Trust Agreement. The Plan Sponsors shall maintain or cause to be maintained accounting records for the Plan sufficient to allow the determination of the portion of the Fund which is allocable both to each of the Plan Sponsors. Irrespective of the commingling of assets of the Plan for investment in the Fund, no portion of the Fund which is allocable to any one of the Plan Sponsors shall be used to pay benefits or discharge liabilities or obligations specifically allocable or attributable, respectively, to any other Plan or any other Plan Sponsor. C. Within ninety (90) days after the close of each calendar year, the date of the removal or resignation of the Trustee, or the termination of the Trust, the Trustee shall render to the Primary Sponsor a written account of its management of the Fund covering the period since the previous account and report. The written approval of that accounting and report by the Primary Sponsor or the failure of the Primary Sponsor to notify the Trustee of its disapproval of such accounting within one hundred and eighty (180) days after its receipt shall be final and binding as to the Trustee's administration of the Trust for the period upon the Primary Sponsor and all persons who have or may thereafter have an interest in the Trust. SECTION XIV. RESIGNATION, REMOVAL AND SUCCESSION A. The Trustee may resign at any time upon giving sixty (60) days' prior written notice to the Primary Sponsor. B. The Trustee may be removed by the Primary Sponsor at any time; provided, however, that in the event of a Change of Control, the Trustee may thereafter be removed only after securing the written consent of a majority of the Members of the Plan and the designated beneficiaries of deceased Members. C. Upon the removal or resignation of the Trustee, any successor appointed shall have the same powers and duties as those conferred upon the Trustee under this Trust. Prior to a Change of Control, the appointment of any successor Trustee shall be in the sole discretion of the Primary Sponsor. On or after a Change of Control, the appointment of any successor Trustee shall be made only with the consent of a majority of the Members of the Plans and the designated beneficiaries of deceased Members. Upon receipt by the Trustee of a written acceptance of the appointment by the successor Trustee, the Trustee shall transfer to the successor Trustee the assets constituting the Trust; provided, however, the Trustee shall not be required to pay over assets to a successor Trustee unless the Trustee shall be discharged from all liability for any taxes which may be due and owing by the Trust, or unless the successor Trustee, who must be acceptable to the Trustee, indemnifies the Trustee and the Trustee in its sole discretion agrees to accept indemnification. In the event that within ninety (90) days after the removal or resignation of the Trustee the Primary Sponsor shall have failed to appoint a successor Trustee or the Trustee shall not have received a written acceptance from a successor Trustee, then the Trustee may file an appropriate action in a court of competent jurisdiction and transfer to the custody of the court the assets then held by the Trustee constituting the Trust. Upon transfer to a successor Trustee or to the court, as the case may be, the Trustee shall be relieved of all further responsibilities and liabilities in connection with the Trust. The Trustee is authorized, however, to reserve therefrom any assets as it may deem advisable for payment of its fees and expenses in connection with the settlement of its account or otherwise, and any balance of the reserve remaining after the payment of the Trustee's fees and expenses shall be paid over to the successor Trustee or to the court. SECTION XV. AMENDMENT AND TERMINATION A. Prior to a Change of Control, the Trust Agreement may be amended any time and to any extent by a written instrument executed by the Primary Sponsor, provided, however, that no such amendment shall be effective to the extent that it purports to make the Trust revocable. In addition, no such amendment shall have the effect of reducing benefits accrued by Members under the Plan, delaying the times at which distributions are made from the Fund to Members and their beneficiaries or allowing a Plan Sponsor or any other person to receive distributions of the assets of the Fund not then permitted under the terms of the Trust Agreement. On or after a Change of Control, this Trust Agreement may only be amended with the consent of a majority of the Members of the Plan and the designated beneficiaries of deceased Members. No amendment that purports to increase the duties or responsibilities of the Trustee or to alter materially the manner in which the Trustee is to discharge any continuing duties or responsibilities shall be given effect without the consent of the Trustee and no other amendment shall be given effect without first providing notice of same to the Trustee. The Trustee and Primary Sponsor or, if applicable, a majority of the Members of the Plan and the designated beneficiaries of deceased Members may amend the Trust Agreement in any manner not otherwise specifically precluded by this Subsection, including any amendment regarding the removal of an existing Trustee or the appointment of a successor Trustee. B. Notwithstanding any other provisions of the Trust Agreement to the contrary, the Trust shall terminate and all Fund assets shall be distributed (1) on the complete distribution of the Fund in accordance with the terms and provisions of the Plan; (2) upon the delivery to the Trustee of a writing terminating the Trust signed by the Primary Sponsor, all Members of the Plan and the designated beneficiaries of deceased Members; or (3) in the event the Internal Revenue Service makes a final determination that the assets of the Fund constitute compensation currently taxable as income to Members. Any assets remaining in the Fund after satisfaction of all liabilities and expenses of the Plan shall be returned to the Plan Sponsors. SECTION XVI. MISCELLANEOUS A. The Trustee shall under no circumstances be required to recognize any conveyance, transfer, assignment, mortgage, pledge or encumbrance by any Member or any person entitled to receive benefits under the Plan, any part of it, or any interest in it, or to pay any money or thing of value to any creditor or assignee of any Member or person for any cause whatsoever; provided, however, this Subsection A does not affect the provisions of Section VIII of the Trust Agreement. B. The Primary Sponsor hereby agrees to indemnify and hold harmless the Trustee from and against any and all losses, claims, damages, liabilities, costs and expenses, including but not limited to, liability for any judgments or settlements consented to in writing by the Trustee, as applicable, which consents will not be unreasonably withheld, and reasonable attorneys' fees arising out of or in connection with or as a direct or indirect result of its serving, respectively, as the trustee (including but not limited to the Trustee's acts or omissions with respect to (1) the voting of any share of stock held as part of the assets of the Trust; (2) establishing or maintaining investment funds or effecting investments therein in accordance with the terms and provisions of the Trust; or (3) the determinations by the Trustee of insolvency or of a Change of Control (including acts or omissions in accordance with the terms and provisions of the Trust following any determination of insolvency or a Change of Control); except those losses, claims, damages, liabilities, costs and expenses, if any, arising out of or in connection with or as a direct or indirect result of the Trustee's gross negligence or willful neglect. The Trustee shall promptly notify the Primary Sponsor of any claim, action or proceeding for which it may seek indemnity. This indemnity is a continuing obligation and shall be binding on the Primary Sponsor and its successors, whether by merger or otherwise, and assigns. In addition, this indemnity shall survive the resignation or removal of the Trustee, the liquidation of the Trust, or both events. C. As used in this Trust Agreement, the term "Change of Control" means any event that pursuant to the requirements of Article X of the Primary Sponsor's Certificate of Incorporation, as amended from time to time, requires the affirmative vote of the holders of not less than eighty percent (80%) of the Voting Stock (as defined therein); provided, however, that no event shall constitute a Change of Control if approved by the Board of Directors of the Primary Sponsor a majority of whom are "present directors" and "new directors." For purposes of the preceding sentence, "present directors" shall mean individuals who as of the date of this Trust Agreement were members of the Board of Directors of the Primary Sponsor and "new directors" shall mean any director whose election by the Board of Directors of the Primary Sponsor (in the event of vacancy) or whose nomination for election by the Primary Sponsor's stockholders was approved by a vote of at least three-fourths of the directors then still in office who are present directors and new directors; provided that any director elected to the Board of Directors of the Primary Sponsor solely to settle a threatened or actual proxy contest shall in no event be deemed to be a new director. The board of directors of the Primary Sponsor shall immediately notify the Trustee of the occurrence of a Change of Control. Upon receipt of such written notice or in the event the Trustee has actual knowledge that a Change of Control has occurred, the Trustee shall take no action nor facilitate the taking of any action contemplated by the Trust Agreement as being taken-prior to a Change-of Control if (1) an alternative procedure for taking such action is prescribed on or after a Change of Control, or (2) any action of the type described is expressly limited to the period prior to a Change of Control. If the Trustee should receive any written allegation to the effect that a Change of Control has occurred, the Trustee shall take no action nor facilitate the taking of any action described: in the immediately preceding sentence until making an independent determination as to whether a Change of Control has occurred. The Trustee shall make this determination within a period of sixty (60) days after the receipt of the written allegation. Following the determination, the Trustee shall discharge its duties under the Trust Agreement in a manner consistent with that determination. D. Prior to a Change of Control, authority and responsibility with regard to the voting of and control over any securities of a Plan Sponsor held in the Trust shall be exercised as follows: (1) the Primary Sponsor shall direct the Trustee in writing as to the manner in which such securities are to be voted; and (2) all other decisions affecting such securities, including, limitation, decisions to oppose or consent to tender or exchange offers, shall be similarly directed by the Primary Sponsor. The Trustee shall take such steps as may be necessary or appropriate to carry out the directions of the Primary Sponsor given pursuant to this Subsection. On or after a Change of Control, voting and all other decisions relating to the securities of a Plan Sponsor shall be made by the Trustee or, if such securities are subject to the investment authority of an Investment Manager, by that Investment Manager. E. The Trustee shall be required to take any and all reasonable legal action to enforce the obligations of each Plan Sponsor under the Trust Agreement. F. Whenever the context requires, words of the masculine gender used herein shall include the feminine and the neuter, and the words used in the singular shall include the plural. G. Each provision of the Trust Agreement is severable and if any provision is found to be void as against public policy it shall not affect the validity of any other provision hereof. H. The Trust Agreement shall be binding upon the successors and assigns of each Plan Sponsor and the Trustee. I. The provisions of the Trust shall be construed according to the laws of the Commonwealth of Pennsylvania and, to the extent applicable, according to the laws of the United States. [REMAINDER OF PAGE LEFT INTENTIONALLY BLANK] IN WITNESS WHEREOF, the parties have hereunto set their hands and seals the day and year first above written. PRIMARY SPONSOR: RUBY TUESDAY, INC. By:/s/ Franklin E. Southall, Jr. Title: Vice President and Controller ATTEST: By:/s/ Walter Cole Title: Assistant Secretary [CORPORATE SEAL] TRUSTEE: THE PRUDENTIAL TRUST COMPANY By:/s/ Daniel Arcure Title: Vice President and Assistant Secretary ATTEST: By:/s/ Deborah L. Kennedy Title: Assistant Comptroller [SEAL] EX-10.41 5 PURCHASE AGREEMENT This Purchase Agreement (the "Agreement") is made as of the 2nd day of July, 1997, between RUBY TUESDAY, INC., a Georgia corporation, whose address is 4721 Morrison Drive, Mobile, Alabama 36609-3350 (herein "Seller"), and RT ORLANDO FRANCHISE, L.P., d/b/a RT Orlando Franchise, Ltd., a Delaware limited partnership, whose address is 8042 Monier Way, Orlando, Florida 32835 (herein "Buyer"). 1. Introduction. Seller is currently engaged in the business of operating restaurants under the trade name, trademark and service mark "Ruby Tuesday" at each of the locations listed on Exhibit A attached hereto (hereinafter, the business of operating each such restaurant at each such location being referred to individually, as the "Business" and collectively as the "Businesses"). Seller wishes to sell to Buyer, and Buyer wishes to purchase from Seller, certain assets of Seller used exclusively in operating the Businesses, upon the terms and conditions set out in this Agreement. Therefore, in consideration of the premises, the mutual representations, warranties, covenants and agreements hereinafter set forth and other good and valuable consideration, the receipt and sufficiency of which is acknowledged, the parties agree as follows: 2. Sale and Purchase of Assets; Assumption of Liabilities. The consummation of the transactions provided for herein (the "Closing") shall take place at the offices of Seller at such time and place as the parties may hereto agree in writing (the "Closing Date"), provided, however, the Closing shall take place on the date that is the later to occur of (i) the date that the temporary liquor licenses for the Businesses have been issued to Buyer by the Florida Division of Alcoholic Beverages and Tobacco, or (ii) the date that Buyer has received a firm commitment for financing for the purchase of the Businesses on terms reasonably acceptable to Buyer; provided, however, the Closing shall not take place unless ten (10) business days have passed after the date that Buyer receives Seller's Uniform Franchise Offering Circular without Buyer's exercising any rescission rights available to Buyer under applicable franchise law. On the Closing Date: (a) Sale and Purchase of Assets. Subject to the terms and conditions of this Agreement, Buyer shall purchase from Seller, and Seller shall sell, transfer, assign, convey and deliver, all of Seller's right, title and interest in and to the following assets of Seller used exclusively in the operation of the Businesses (the "Assets"), which Assets shall be conveyed AS-IS, WHERE-IS: (i) all stock in trade and merchandise in Seller's inventory used by Seller exclusively in the conduct of the Businesses as of the Closing Date (the "Inventory"); (ii) all furniture, fixtures, furnishings, equipment and leasehold improvements used by Seller exclusively in the conduct of the Businesses as of the Closing Date (the "Personal Property"); (iii) all rights of Seller to the software used exclusively in the conduct of the Businesses as of the Closing Date and located at the premises where the Businesses are conducted, including, without limitation, all rights of Seller to use such software and the documentation related thereto (the "Software"); (iv) all rights of Seller pursuant to all contracts, leases (except for any interest of Seller in any lease with any third party regarding the premises at which the Businesses are conducted, other than the interest(s), if any, to be subleased to Buyer pursuant to the Sublease(s) defined below), warranties, commitments, agreements, purchase and sale orders and other executory commitments of Seller related solely to the Businesses as of the Closing Date (the "Contracts"); (v) all rights of Seller in and to the underlying land, if any, described on Exhibit G attached hereto, together with the structure(s) building(s) and other improvements owned by Seller and located on such land; (vi) all rights of Seller (to the extent assignable) pursuant to any governmental permits and licenses used exclusively in the operation of the Businesses (the "Permits"); (vii) Seller's telephone numbers for the Businesses (the "Telephone Numbers"); (viii) Seller's petty cash on hand at the Businesses as of the Closing Date (the "Petty Cash"). Notwithstanding the foregoing, the Assets do not include the following assets of Seller: (i) Seller's accounts or notes receivable; (ii) Seller's cash on hand at or with respect to the Businesses (other than the Petty Cash); (iii) Seller's trade name, trademarks, service marks, copyrights and all other intellectual property or intangible property of Seller; and (iv) to the extent that the Businesses are conducted on premises leased by Seller from a third party (or third parties), all rights of Seller in any leasehold or other interest in the premises at which the Businesses are conducted (except for any interest(s) to be subleased to Buyer pursuant to the Sublease(s), defined below). (b) Assumption of Liabilities. Subject to the terms and conditions of this Agreement, Seller shall assign, and Buyer shall assume and agree to satisfy, pay, discharge, perform and fulfill, as applicable, as they become due, without charge or cost to Seller except as provided for in this Agreement, and agrees to hold Seller harmless with respect to, the following liabilities and obligations of Seller (the "Assumed Liabilities"): (i) all liabilities and obligations of Seller related to owning the Assets and operating the Businesses on and after the Closing Date except for the Excluded Liabilities described below; and (ii) all liabilities and obligations of Seller under the Contracts, the Permits and the Telephone Numbers that arise or are attributable to events or conditions occurring on or after the Closing Date. Notwithstanding the foregoing, the Assumed Liabilities shall not include the following liabilities or obligations of Seller (the "Excluded Liabilities"): (i) except to the extent otherwise provided in this Agreement, any liabilities or obligations, whether or not known, of Seller to be performed prior to the Closing Date or arising out of or relating to Seller's ownership of the Assets or operation of the Businesses prior to the Closing Date; and (ii) Seller's accounts payable, notes payable and other obligations for or related to Seller's indebtedness to banks or financial institutions. 3. Purchase Price. In consideration of the sale of Assets and assumption of the Assumed Liabilities, at the Closing, Buyer shall deliver to Seller the following: (i) Five Million Eight Hundred Sixteen Thousand Three Hundred Thirty-One Dollars ($5,816,331) (the "Purchase Price"); and (ii) any sales or other taxes due on the sale of Assets and assumption of the Assumed Liabilities contemplated by this Agreement (the "Transaction Taxes"). (a) Payment of the Purchase Price. The Purchase Price shall be paid as follows: (i) by the delivery of the sum of (A) seventy-five (75%) percent of the Purchase Price, plus (B) the Transaction Taxes, all to be paid by certified check drawn on a local bank or by wire transfer of funds; and (ii) by the delivery to Seller of Buyer's promissory note, dated the Closing Date, in favor of Seller in the original principal amount equal to twenty-five (25%) percent of the Purchase Price (the "Note") in the form attached hereto as Exhibit B. As security for the payment of the Note, Buyer shall deliver to Seller a Security Agreement, dated the Closing Date, in the form attached hereto as Exhibit C and such other documents as may be reasonably required by Seller to perfect a security interest for the benefit of Seller in and to Buyer's assets (including, without limitation, UCC-1 financing statements in favor of Seller), and Buyer shall cause Ray Manning to enter into a Guaranty in the form attached hereto as Exhibit D. (b) Other Adjustments to Purchase Price. At the Closing, or as soon as practicable after the Closing, the Purchase Price shall be adjusted, on a dollar-for-dollar basis, to reflect the proration of all items of expense or income directly relating to the Assets and the operation of the Businesses as of the Closing Date, and the net adjustments for all such items shall be paid in immediately available funds on or before the date that occurs sixty (60) days after the Closing Date (the "Adjustment Payment Date"). Prorated items shall include the following: rent, real and personal property taxes, payroll and payroll taxes, insurance premiums, utilities, security deposits, other prepaid items and other items customarily prorated. To the extent possible, any prorations not determinable as of the Closing Date shall be prorated on the basis of the most current information available at Closing; provided, however, Seller and Buyer agree that, upon presentation, on or before the Adjustment Payment Date, of written confirmation of (i) a change in an estimated amount, or (ii) a determination of the amount of any proration that cannot be determined as of the Closing Date, such amount will be reflected in the payment(s) to be made pursuant to this Section 3(b) on or before the Adjustment Payment Date. (c) Allocation of Purchase Price. The aggregate amount of the Purchase Price and the Assumed Liabilities shall be allocated among the Assets substantially in accordance with Schedule 3(c) attached hereto. Seller and Buyer hereby agree to use such allocation to complete and file Internal Revenue Service Form 8594 with the Internal Revenue Service. 4. Delivery of Documents and Related Transactions. (a) At the Closing, the following documents (the "Closing Documents"), together with the cash portion of the Purchase Price, shall be delivered as follows: (i) Seller shall deliver to Buyer the following executed documents (the "Seller's Documents"): 1) a bill of sale, assignment and assumption agreement for the Assets substantially in the form of Exhibit E attached hereto (the "Bill of Sale"), transferring to Buyer all of Seller's right, title and interest in and to said Assets, free and clear of all encumbrances except for Permitted Encumbrances (as defined in Section 5(c) below), pursuant to which Buyer will accept such Assets and assume the Assumed Liabilities; 2) a Certificate of Occasional or Isolated Sale substantially in the form of Exhibit F attached hereto (the "Certificate of Occasional or Isolated Sale"); 3) to the extent that the Businesses are conducted on premises leased by Seller from a third party (or third parties), the following: (A) a sublease or subleases between Seller, as sublessor, and Buyer, as sublessee, of such premises, in form satisfactory to the parties hereto (the "Sublease(s)"); and (B) the written consent of each landlord to the Sublease(s), if required; 4) to the extent that the Businesses are conducted on premises owned by Seller, a deed conveying Seller's interest in and to the underlying land, together with structure(s), building(s) and other improvements at the premises described on Exhibit G attached hereto (the "Deed"); 5) an operating agreement, a development agreement and a support services agreement, substantially in the form of the drafts dated July 2, 1997, July 2, 1997, and July 2, 1997, respectively, presented by Seller to Buyer (collectively, the "Franchise Documents"); and 6) other related documents that Buyer may have reasonably requested on or prior to the Closing Date. (ii) Buyer shall deliver to Seller (x) the cash portion of the Purchase Price, and (y) the following executed documents (the "Buyer's Documents"): 1) the Note; 2) the Bill of Sale; 3) to the extent that the Businesses are conducted on premises leased by Seller from a third party (or third parties), the Sublease(s); 4) the Security Agreement and other security documents referred to in Section 3(a)(ii) of this Agreement; 5) the Guaranty; 6) the Franchise Documents; and 7) other related documents that Seller may have reasonably requested on or prior to the Closing Date. (b) Further Assurances and Cooperation Post-Closing. Seller and Buyer, from time to time after the Closing (but without obligation separate from the obligations expressly provided by this Agreement), hereby agree to execute, acknowledge and deliver to each other such instruments of conveyance and transfer, and will take such other actions and execute and deliver such other documents, certifications and further assurances, as either party may reasonably request with respect to the assignment, transfer and delivery of the Assets and the assumption of the Assumed Liabilities and the perfection of Seller's security interest in the Assets pursuant to Section 3(a)(ii), in order to consummate in full the transactions provided for herein. (c) Employees. Buyer and Seller agree as follows: (i) Buyer's Responsibilities. Buyer shall offer employment, on substantially the same terms and conditions as currently in effect, to commence on and as of the Closing Date, to each employee of the Businesses as of the Closing Date (including, without limitation, any employee who is absent from work on the Closing Date on paid vacation or pursuant to any leave of absence authorized by Seller or required by law (hereinafter, all employees accepting employment with Buyer being referred to collectively as the "Transferred Employees")). Buyer agrees to give the Transferred Employees credit for their years of service with Seller for the purpose of determining any eligibility or vesting provisions that may be contained in employee plans provided to such Transferred Employees by Buyer in connection with their employment with Buyer. Buyer also agrees to give the Transferred Employees credit for all vacation and sick leave accrued during their employment with Seller and to provide, for the fiscal year ending June 6, 1998, the same vacation and sick leave benefits to all Transferred Employees as they would have been eligible to receive under the Seller's policies now in effect. (ii) Seller's Responsibilities. Seller agrees that, except as provided in Section 4(c)(i) above, Buyer shall not be subject to any liability with respect to, or resulting from the termination by Seller of any of its employees from, any profit sharing, 401(k), pension, stock option, vacation pay, sick pay, personal leave, severance pay, retirement, bonus, deferred compensation, group life and health insurance or other employee benefit plan, agreement or commitment of Seller. The foregoing Section 4(c) does not, and shall not be deemed or construed to, create any right in, or confer any right on, any employee or any other third party. (d) Bulk Sales. Buyer hereby waives compliance with any applicable "bulk sales law" or similar law by Seller, and Seller shall indemnify and hold Buyer harmless against any liability under any such laws for losses resulting from non-compliance therewith or Seller's application of the proceeds of the sale of Assets contemplated by this Agreement. 5. Seller's Representations and Warranties. Seller represents and warrants to Buyer the following: (a) Organization and Authority. Seller is a corporation duly organized, validly existing and in good standing under the laws of the State of Georgia. Seller possesses all requisite corporate power and authority to own the Assets and operate the Businesses and to enter into and perform this Agreement and the Seller's Documents. The execution and delivery and performance of each of this Agreement and the Seller's Documents by Seller have been duly authorized by all necessary corporate action. This Agreement has been duly executed and delivered on behalf of Seller by duly authorized officers of Seller, and this Agreement constitutes, and the Seller's Documents, when executed and delivered, will constitute, the legal, valid and binding obligation of Seller, enforceable against Seller in accordance with their respective terms, subject to the effects of bankruptcy, insolvency, reorganization, moratorium and similar laws relating to or affecting the rights of creditors and general principles of equity. (b) Compliance with Laws and Instruments. Subject to the consents and approvals listed on Schedule 5(b), the execution, delivery and performance by Seller of this Agreement and the Seller's Documents will not result in any material violation of or be in conflict with or constitute a material default under any applicable statute, regulation, order, rule, writ, injunction or decree of any court or governmental authority or of the Articles of Incorporation or Bylaws of Seller or of any material agreement or other material instrument to which Seller is a party or is a subject, or constitute a default thereunder. (c) Title to Assets. Seller has good, valid and marketable title to all of the Assets, free and clear of all mortgages, liens, pledges, security interests, charges, claims, restrictions and other encumbrances and defects of title of any nature whatsoever, except for (i) liens for current real, personal or other property taxes not yet due and payable, and (ii) the liens described on Schedule 5(c) (the "Permitted Encumbrances"). There are no existing agreements, options, commitments or rights with, of or to any person (other than Buyer) to acquire any of Seller's interests in the Assets. (d) Condition of Assets. Seller makes no representation or warranty as to the condition of the Assets, which shall be conveyed to Buyer on an AS IS, WHERE IS basis. (e) No Finder's Fees. Seller has not employed any broker or finder or incurred any liability for any brokerage fees or commissions or any finder's fees in connection with the negotiations related to this Agreement or the consummation of the transactions contemplated hereby. (f) No Litigation. No suit, action or other proceeding, or any injunction or final judgment relating thereto, is pending or, to the knowledge of Seller, threatened, before any court or governmental or regulatory official, body or authority in which it is sought to restrain or prohibit or to obtain damages or other relief in connection with this Agreement or the Seller's Documents, or the consummation of the transactions contemplated hereby and thereby, and no investigation that might result in any such suit, action or proceeding is pending or, to the knowledge of Seller, threatened. (g) Legal Compliance. To the knowledge of Seller, except as disclosed on Schedule 5(g), Seller has complied with all laws (including rules, regulations, codes, plans, injunctions, judgments, orders, decrees, rulings and charges thereunder) of federal, state, local and foreign governments (and all agencies thereof), applicable to the Assets and the operation of the Businesses for which the failure to so comply would have a material adverse effect on the Assets or the Businesses, and no action, suit, proceedings, hearing, investigation, charge, complaint, claim, demand, or notice has been filed or commenced against Seller alleging any failure so to comply, (h) Tax Matters. (i) Seller has filed all state, local and federal tax returns required to be filed in connection with the ownership of the Assets and the operation of the Businesses. All such tax returns were correct and complete in all material respects. All state, local and federal taxes currently due and payable by Seller in connection with the Businesses have been paid. (ii) Seller has withheld and paid all taxes required to have been withheld and paid in connection with amounts paid or owing to any employee, independent contractor, creditor, shareholder, or other third party employed by or relating to the Businesses. (i) Real Property. With respect to each Sublease and, if applicable, the Deed: (i) the underlying lease or sublease to which Seller is a party (the "Lease") is the legal, valid, binding and enforceable obligation of the Seller and is in full force and effect; (ii) subject to any applicable consent or approval listed in Schedule 5(b), the Lease will continue to be legal, valid, binding, enforceable, and in full force and effect on identical terms following the consummation of the transactions contemplated hereby (including the assignments and assumptions referred to in Section 4 above); (iii) to the knowledge of Seller, no party to the Lease is in breach or default, and no event has occurred which, with notice or lapse of time, would constitute a breach or default or permit termination, modification, or acceleration thereunder; (iv) to the knowledge of Seller, no party to the Lease has repudiated any provision thereof; (v) to the knowledge of Seller, there are no disputes, oral agreements or forbearance programs in effect as to the Lease or Sublease; (vi) Seller has not assigned, transferred, conveyed, mortgaged, deeded in trust, or encumbered any interest in the Lease, or, if applicable, the real property that is subject to the Deed, except for Permitted Liens; (vii) except as disclosed on Schedule 5(g), to the knowledge of Seller, all premises subject to any Lease, or, if applicable, the Deed, (A) have received all approvals of governmental authorities (including licenses and permits) required in connection with the operation of the Businesses and for which failure to receive such approval would have a material adverse effect on the Assets or the Businesses, and (B) have been operated and maintained in accordance with all laws, rules and regulations applicable to the operation of the Businesses and for which failure to be so operated and maintained would have a material adverse effect on the Assets of the Businesses; and (viii) Seller has good and marketable title to the parcel of real property subject to the Deed, free and clear of any security interest, lien, covenant or other restriction, installments of special liens or assessments not yet delinquent and recorded easements, covenants, and other restrictions which do not impair the current use, occupancy, or value, or the marketability of title, of the property subject thereto. (j) Intellectual Property. To the knowledge of the Seller, Seller has the right to use the Software, pursuant to license, sublease, agreement or permission. After the Closing, the Software will be owned or available for use by Buyer on substantially the same terms and conditions as by Seller prior to the Closing. (k) Contracts. Seller represents and warrants to Buyer with respect to each Contract assigned to Buyer that (i) such Contract is legal, valid, binding, enforceable, and in full force and effect; (ii) subject to any applicable consents and approvals listed on Schedule 5(b), such Contract will continue to be legal, valid, binding, enforceable, and in full force and effect on identical terms following the consummation of the transactions contemplated hereby (including the assignments and assumptions); (iii) to the knowledge of Seller, no party is in breach or default, and no event has occurred which with notice or lapse of time would constitute a breach or default, or permit termination, modification, or acceleration, under such Contract; and (iv) to the knowledge of the Seller, no party has repudiated any provision of such Contract. (l) Other Litigation. Seller represents and warrants to Buyer that Seller: (i) is not subject to any outstanding injunction, judgment, order, decree, ruling, or charge affecting the Businesses, and (ii) is not a party or, to the knowledge of Seller, is not threatened to be made a party to any action, suit, proceeding, hearing, or investigation affecting the Businesses of, in, or before any court or quasi-judicial or administrative agency of any federal, state, local, or foreign jurisdiction or before any arbitrator. (m) Environmental, Health and Safety Matters. To the knowledge of Seller: (i) Seller has complied and is in compliance with all Environmental, Health, and Safety Requirements for which failure to so comply would have a material adverse effect on the Assets or the Businesses. (As used herein, Environmental, Health, and Safety Requirements shall mean all federal, state, local and foreign statutes, regulations, ordinances and other provisions having the force or effect of law, all judicial and administrative orders and determinations, all contractual obligations and all common law concerning public health and safety, worker health and safety, and pollution or protection of the environment.) (ii) Seller has not received any written or oral notice, report or other information regarding any actual or alleged violation of Environmental, Health, and Safety Requirements, or any liabilities or potential liabilities (whether accrued, absolute, contingent, unliquidated or otherwise), including any investigatory, remedial or corrective obligations, relating to any of them or its facilities arising under Environmental, Health, and Safety Requirements. 6. Buyer's Representations. Buyer represents and warrants to Seller the following: (a) Organization and Authority. Buyer is a limited partnership, duly organized, validly existing and in good standing under the laws of the State of Delaware. The sole general partner of Buyer is R. Manning, Inc., a Florida corporation, and the sole limited partner of Buyer is RT Orlando, Inc. a Georgia corporation. Buyer is duly qualified to do business and is in good standing in each jurisdiction where the conduct of its business currently requires it to be qualified or would require it to be qualified after the consummation of the transactions provided for in this Agreement and the Buyer's Documents. Buyer possesses all requisite power and authority to enter into and perform this Agreement and the Buyer's Documents. The execution and delivery and performance of this Agreement and the Buyer's Documents by Buyer have been duly authorized by all necessary action (including, without limitation, all necessary action by the general partner of Buyer). This Agreement has been duly executed and delivered on behalf of Buyer by the sole general partner, as duly authorized by Buyer, and this Agreement constitutes, and the Buyer's Documents, when executed and delivered, will constitute, the legal, valid and binding obligation of Buyer, enforceable against Buyer in accordance with their respective terms, subject to the effects of bankruptcy, insolvency, reorganization, moratorium and similar laws relating to or affecting the rights of creditors and general principles of equity. (b) Compliance with Laws and Instruments. The execution, delivery and performance by Buyer of this Agreement and the Buyer's Documents will not result in any material violation of or be in conflict with or constitute a material default under any applicable statute, regulation, order, rule, writ, injunction or decree of any court or governmental authority or of the Certificate of Limited Partnership or Limited Partnership Agreement of Buyer or of any material agreement or other material instrument to which Buyer is a party or is subject, or constitute a default thereunder. (c) No Finder's Fees. Buyer has not employed any broker or finder or incurred any liability for any brokerage fees or commissions or any finder's fees in connection with the negotiations related to this Agreement or the consummation of the transactions contemplated hereby. (d) Independent Investigation. Buyer has had full opportunity to inspect the Businesses and the Assets and to ask all questions of Seller regarding the Businesses and the Assets. Buyer has had the opportunity to conduct its own independent investigation relating to all aspects of the Businesses and to obtain whatever opinions of specialists and experts it has deemed necessary in making the decisions to enter into this Agreement and the Buyer's Documents and to consummate the transactions contemplated hereby and thereby. In making such decisions, (i) Buyer has not relied on information received by it from Seller regarding the past or present earnings of the Businesses as a determinant or indicator of future earnings of the Businesses, and (ii) Buyer has not relied on information received from Seller regarding the prospects of future earnings of the Businesses. (e) Condition of Assets. BUYER ACKNOWLEDGES AND AGREES THAT ALL ASSETS TO BE TRANSFERRED, ASSIGNED OR LICENSED PURSUANT TO THIS AGREEMENT AND THE CLOSING DOCUMENTS SHALL BE TRANSFERRED, ASSIGNED OR LICENSED ON AN "AS IS, WHERE IS" BASIS, AND THAT, EXCEPT AS EXPRESSLY SET FORTH IN SECTION 5 OF THIS AGREEMENT, SELLER IS MAKING, AND SHALL MAKE, NO REPRESENTATION OR WARRANTY OF ANY KIND, EXPRESS OR IMPLIED, RESPECTING ANY OF THE ASSETS, AS TO MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE OR ANY OTHER MATTER. FURTHER, BUYER ACKNOWLEDGES THAT BUYER HAS INFORMED ITSELF AS TO THE BUSINESSES, AND BUYER FURTHER ACKNOWLEDGES AND AGREES THAT SELLER MAKES, AND SHALL MAKE, NO REPRESENTATION OR WARRANTY OF ANY KIND WITH RESPECT TO THE BUSINESSES. (f) No Litigation. No suit, action or other proceeding, or any injunction or final judgment relating thereto, is pending or, to the knowledge of Buyer, threatened before any court or governmental or regulatory official, body or authority in which it is sought to restrain or prohibit or to obtain damages or other relief in connection with this Agreement or the Buyer's Documents, or the consummation of the transactions contemplated hereby, and no investigation that might result in any such suit, action or proceeding is pending or, to the knowledge of Buyer, threatened. (g) Other Litigation. Buyer represents and warrants to Seller that Buyer: (i) is not subject to any outstanding injunction, judgment, order, decree, ruling or charge, and (ii) is not a party or, to the knowledge of Buyer, is not threatened to be made a party to any action, suit, proceeding, hearing, or investigation of, in, or before any court or quasi-judicial or administrative agency of any federal, state, local, or foreign jurisdiction or before any arbitrator. 7. Conditions to Closing. (a) Conditions to Obligations of Buyer. All obligations of Buyer under this Agreement are subject to the fulfillment or satisfaction, prior to or at the Closing, of each of the following conditions precedent: (i) The representations and warranties of Seller contained in this Agreement shall have been true on the date hereof in all material respects, and shall be true in all material respects as of the Closing as if made at the Closing. (ii) Seller shall have performed and complied in all material respects with all agreements and conditions required by this Agreement to be performed or complied with by or prior to or at the Closing. (iii) As of the Closing, no suit, action or other proceeding, or any injunction or final judgment relating thereto, shall be threatened or be pending before any court or governmental or regulatory official, body or authority in which it is sought to restrain or prohibit or to obtain damages or other relief in connection with this Agreement or the consummation of the transactions contemplated hereby, and no investigation that might result in any such suit, action or proceeding shall be pending or threatened. (iv) Each consent or approval listed on Schedule 7(a)(iv) as required or necessary under contract or applicable law for the consummation of the transactions contemplated hereby shall have been obtained; provided, however, those certain consents or approvals identified on such Schedule 7(a)(iv) as being subject to deferral need not have been obtained on or before the Closing to the extent that Seller shall have made appropriate arrangements to secure to Buyer the practical and economic benefits of the agreements or other arrangements to which such consents or approvals relate. (v) The documents to be delivered by Seller at Closing pursuant to Section 4(a) shall have been executed and delivered. (vi) Buyer shall have received a certificate from Seller, dated the Closing Date and certifying in such detail as Buyer may reasonably request, that the conditions specified in Sections 7(a)(i), 7(a)(ii) and 7(a)(iv) hereof have been fulfilled. (b) Conditions to Obligations of Seller. All obligations of Seller under this Agreement are subject to the fulfillment or satisfaction prior to or at the Closing, of each of the following conditions precedent: (i) The representations and warranties of Buyer contained in this Agreement shall have been true on the date hereof in all material respects, and shall be true in all material respects as of the Closing if made at the Closing. (ii) Buyer shall have performed and complied in all material respects with all agreements and conditions required by this Agreement to be performed or complied with by it prior to or at the Closing. (iii) As of the Closing, no suit, action or other proceedings, or any injunction or final judgment relating thereto, shall be threatened or be pending before any court or governmental or regulatory official, body or authority in which it is sought to restrain or prohibit or to obtain damages or other relief in connection with this Agreement or the consummation of the transactions contemplated hereby, and no investigation that might result in any such suit, action or proceeding shall be pending or threatened. (iv) Each consent or approval listed on Schedule 7(a)(iv) as required or necessary under contract or applicable law of the consummation of the transactions contemplated hereby shall have been obtained; provided, however, those certain consents or approvals identified on such Schedule 7(a)(iv) as being subject to deferral need not have been obtained on or before the Closing, to the extent that Seller shall have made appropriate arrangements to secure to Buyer the practical and economic benefits of the agreements or other arrangements to which such consents or approvals relate. (v) The documents to be delivered by Buyer at Closing pursuant to Section 4(a) shall have been executed and delivered. (vi) Seller shall have received a certificate from Buyer dated the Closing Date and certifying in such detail as Seller may reasonably request, that the conditions specified in Sections 7(b)(i) and 7(b)(ii) hereof have been fulfilled and that all consents and approvals required or necessary to transfer to Buyer all licenses or permits held by Seller or the Businesses with respect to the sale or consumption of alcoholic beverages on the premises at which the Businesses are conducted have been obtained. 8. Term and Termination. This Agreement may be terminated and the transactions contemplated hereby may be abandoned at any time prior to the Closing: (a) by mutual consent of Seller and Buyer; (b) by either Seller or Buyer, if such terminating party is not otherwise in default in this Agreement and if the Closing shall not have occurred on or before January 2, 1998, or such other extended date, if any, mutually agreed to by the parties in writing; and (c) by either party if there has been a material breach of any representation, warranty, covenant or agreement by the other party that has not been cured or for which adequate assurance (reasonably acceptable to such terminating party) of cure has not been given, in either case within fifteen (15) business days following receipt of notice of such breach. If either party terminates this Agreement pursuant to the provisions hereof, such termination shall be effected by notice to the other party specifying the provision hereof pursuant to which such termination is made. Except for any liability for the breach of this Agreement, upon the termination of this Agreement pursuant to this Section 8, this Agreement shall forthwith become null and void and there shall be no further liability or the obligation on the part of Seller or Buyer hereunder or with respect hereto. 9. Indemnification. (a) Indemnification of Buyer. Subject to the limitations set forth in Sections 9(c), 9(d), and 9(e), Seller shall indemnify and hold Buyer, its partners and their respective officers, directors, shareholders, employees, agents and representatives (the "Buyer Indemnified Parties") harmless from, against, for and in respect of any and all damages, losses, settlement payments, obligations, liabilities, claims, actions or causes of action (whether as a result of direct claims or third-party claims) actually suffered, sustained, incurred or required to be paid by Buyer Indemnified Parties, net of any resulting income tax benefits to Buyer Indemnified Parties, because of (i) the breach of any written representation, warranty, agreement or covenant of Seller contained in this Agreement (as the same shall have been modified at any time at or before Closing including, without limitation, any modification contained in any certificate of Seller concerning such matters delivered at the Closing) or the Closing Documents; (ii) any and all Excluded Liabilities; (iii) any contamination on or under the property that is subject to the Deed or the Sublease(s) or in any of the Assets caused by Seller prior to the Closing Date, or any liability for remediation or clean-up of environmental conditions as a result of Seller's operations, whether on or under the property that is subject to the Deed or the Sublease(s) or elsewhere; (iv) all reasonable costs and expenses (including, without limitation, attorneys' fees, interest and penalties) actually incurred by Buyer Indemnified Parties in connection with any action, suit, proceeding, demand, assessment or judgment incident to any of the matters indemnified against in this Section 9(a). (b) Indemnification of Seller. Subject to the limitations set forth in Sections 9(c), 9(d) and 9(e), Buyer shall indemnify and hold Seller, its affiliated corporations and their respective officers, directors, shareholders, employees, agents and representatives (the "Seller Indemnified Parties") harmless from, against, for and in respect of any and all damages, losses, settlement payments, obligations, liabilities, claims, actions or causes of action (whether as a result of direct claims or third-party claims) actually suffered, sustained, incurred or required to be paid by Seller Indemnified Parties, net of any resulting income tax benefits to Seller Indemnified Parties, because of (i) the breach of any written representation, warranty, agreement or covenant of Buyer contained in this Agreement (as the same shall have been modified at any time at or before Closing, including, without limitation, any modification contained in any certificate of Buyer concerning such matters delivered at the Closing) or the Closing Documents; (ii) any and all Assumed Liabilities and all liabilities in connection with the operation of the Businesses in respect of periods on and after the Closing Date; (iii) any contamination on or under the property that is subject to the Deed or Sublease(s) or in any of the Assets caused by Buyer on or after the Closing Date or any liability for remediation or clean-up of environmental conditions as a result of Buyer's operations, whether on or under the property that is subject to the Deed or the Sublease(s) or elsewhere; and (iv) all reasonable costs and expenses (including, without limitation, attorneys' fees, interest and penalties) incurred by Seller Indemnified Parties in connection with any action, suit, proceeding, demand, assessment or judgment incident to any of the matters indemnified against in this Section 9(b). (c) Survival of Indemnification Obligations. Notice of any claim under Section 9(a)(i) or Section 9(b)(i) of the indemnification provisions hereof must be given prior to the date that occurs two (2) years after the Closing Date, and any such claims not made within such period shall be of no force or effect. Notice of any other claim under the indemnification provisions hereof must be given within the applicable time period of any applicable statute of limitations. (d) General Rules Regarding Indemnification. The obligations and liabilities of each indemnifying party hereunder with respect to claims resulting from the assertion of liability by the other party shall be subject to the following terms and conditions: (i) The indemnified party shall give prompt (so as not to materially prejudice the position of the indemnifying party) written notice (which in no event shall exceed 30 days from the date on which the indemnified party first became aware of such claim or assertion) to the indemnifying party of any claim which might give rise to a claim by the indemnified party against the indemnifying party based on the indemnity agreements contained in Sections 9(a) or 9(b) hereof, stating the nature and basis of said claims and the amounts thereof, to the extent known: (ii) If any action, suit or proceeding is brought against the indemnified party with respect to which the indemnifying party may have liability under the indemnity agreements contained in Sections 9(a) or 9(b) hereof, the action, suit or proceeding shall, at the election of the indemnifying party, be defended (including all proceedings on appeal or for review which counsel for the indemnified party shall deem appropriate) by the indemnifying party. The indemnified party shall have the right to employ its own counsel in any such case, but the fees and expenses of such counsel shall be at the indemnified party's own expense unless the employment of such counsel and the payment of such fees and expenses both shall have been specifically authorized in writing by the indemnifying party in connection with the defense of such action, suit or proceeding. Notwithstanding the foregoing, (A) if there are defenses available to the indemnified party that are inconsistent with those available to the indemnifying party to such extent as to create a conflict of interest between the indemnifying party and the indemnified party, the indemnified party shall have the right to direct the defense of such action, suit or proceeding insofar as it relates to such inconsistent defenses, and the indemnifying party shall be responsible for the reasonable fees and expenses of the indemnified party's counsel insofar as they relate to such inconsistent defenses, and (B) if such action, suit or proceeding involves or could have an effect on matters beyond the scope of the indemnity agreements contained in Sections 9(a) or 9(b) hereof, the indemnified party shall have the right to direct (at its own expense) the defense of such action, suit or proceeding insofar as it relates to such other matters. The indemnified party shall be kept fully informed of such action, suit or proceeding at all stages thereof whether or not it is represented by separate counsel. (iii) The indemnified party shall make available to the indemnifying party and its attorneys and accountants all books and records of the indemnified party relating to such proceedings or litigation and the parties hereto agree to render to each other such assistance as they may reasonably require of each other in order to ensure the proper and adequate defense of any such action, suit or proceeding. Whether or not the indemnifying party chooses to defend or prosecute any claim involving a third party, all parties hereto shall cooperate in the defense or prosecution thereof and shall furnish such records, information and testimony and attend such conferences, discovery proceedings, hearings, trials and appeals as may be reasonably requested in connection therewith. (iv) The indemnified party shall not make any settlement of any claims without the written consent of the indemnifying party. (e) Limits on Indemnification Obligation. Notwithstanding anything in Sections 9(a) and 9(b) to the contrary or in conflict, any amount for which Seller is obligated to reimburse Buyer may, in Seller's sole discretion, be satisfied by reducing amounts currently due to Seller under the Note or the Operating Agreement included in the Franchise Documents by a like amount. (f) Insurance Proceeds. (i) In determining the amount of any loss, liability or expense for which any indemnified party is entitled to indemnification under this Agreement, the gross amount thereof will be reduced by any insurance proceeds actually paid to any indemnified party; provided, however, if such party has been indemnified hereunder but does not actually receive such insurance proceeds until after being indemnified, such party shall reimburse the indemnifying party for amounts paid to such party to the extent of the insurance proceeds so received. (ii) Following the Closing Date, if Buyer should suffer any loss, liability or expense covered by any of Seller's insurance policies and wishes to make a claim against the issuer of such policy, Seller shall use its best efforts to assist Buyer in ascertaining and establishing coverage, pursuing such claim and collecting under such policy. In connection with the foregoing sentence, Seller shall not be required to incur any costs (including attorneys' fees or demonstrable increases in insurance premiums), other than normal overhead expenses, or to forego any similar claim of its own with respect to the same occurrence, in assisting Buyer in these efforts, unless Seller shall otherwise be obligated to indemnify Buyer pursuant to Section 9(a). (iii) Following the Closing Date, if Seller should suffer any loss, liability or expense covered by any of Buyer's insurance policies and wish to make a claim against the issuer of such policy, Buyer shall use its best efforts to assist Seller ascertaining and establishing coverage, pursuing such claim and collecting under such policy. In connection with the foregoing sentence, Buyer shall not be required to incur any costs (including attorneys' fees or demonstrable increases in insurance premiums), other than normal overhead expenses, or to forego any similar claim of its own with respect to the same occurrence, in assisting Seller in these efforts, unless Buyer shall otherwise be obligated to indemnify Seller pursuant to Section 9(b). (iv) If both an indemnifying party and an indemnified party have insurance coverage respecting a particular claim for which indemnification is provided pursuant to Sections 9(a) and 9(b), the parties agree that the insurance coverage of the indemnifying party will be called upon before the insurance coverage of the indemnified party is called upon. 10. Miscellaneous. (a) Survival. Unless this Agreement is terminated pursuant to Section 8(a) or Section 8(b) hereof, all representations, warranties, covenants and agreements made in this Agreement or in a certificate delivered pursuant hereto by the parties hereto shall survive the termination of this Agreement or the consummation of the transactions contemplated hereby for a period of two (2) years after the Closing Date, except for the provisions of Section 9 hereof, which provisions shall survive the consummation of the transactions contemplated hereby in accordance with the terms of such Section 9. (b) Notices. All notices, requests, or other communications hereunder shall be in writing and shall be deemed to have been duly given when delivered or refused, if delivered personally, or, if delivered by overnight carrier, such as Federal Express, when delivered as follows: If delivered to Seller: Ruby Tuesday, Inc. Attention: Legal Department 4721 Morrison Drive Mobile, Alabama 36609-3350 If delivered to Buyer: RT Orlando Franchise, L.P. 8042 Monier Way Orlando, Florida 32835 (c) Mail Addressed to Seller. After the Closing Date, Buyer may open all mail addressed to Seller at the premises of the Businesses. Buyer shall promptly forward to Seller any mail that does not require Buyer's action. (d) Expenses. Except as otherwise provided in this Agreement, all costs and expenses incurred in connection with this Agreement and the transactions contemplated hereby shall be paid by the party incurring such expenses. (e) Sales, Transfer, Documentary and Other Taxes. In addition to the Transaction Taxes paid herewith, Buyer shall pay all federal, state and local sales, documentary, transfer or other taxes or recording fees, if any, due as a result of the purchase, sale or transfer of the Assets hereunder, whether imposed by law on Seller or Buyer, and Buyer shall indemnify, reimburse and hold harmless Seller in respect of the liability for payment of or failure to pay any such taxes or the filing of or failure to file any reports required to be filed in connection therewith. (f) Entire Agreement. This Agreement, together with the Closing Documents, sets forth the entire understanding of the parties hereto with respect to the transactions contemplated hereby, and shall not be amended or modified except by written instrument duly executed by each of the parties hereto. Any and all previous agreements and understandings between or among the parties regarding the subject matter hereof, whether written or oral, are superseded by this Agreement, together with the Closing Documents. (g) Assignment and Binding Effect. This Agreement may not be assigned by either party hereto without the prior written consent of the other party. Subject to the foregoing, all of the terms and provisions of this Agreement shall be binding upon and inure to the benefit of and be enforceable by the successors and assigns of Seller and Buyer, but shall not be construed as conferring any other rights on any other person. (h) Waiver. Any term or provision of this Agreement may be waived at any time by the party entitled to the benefit thereof by a written instrument duly executed by such party. (i) Construction. All headings contained in this Agreement are for convenience of reference only, and do not form a part of this Agreement and shall not affect in any way the meaning or interpretation of this Agreement. (j) Exhibits and Schedules. All Exhibits and Schedules referred to herein are intended to and hereby are specifically made part of this Agreement. (k) Severability. Any provision of this Agreement that is invalid or enforceable in any jurisdiction shall be ineffective to the extent of such invalidity or unenforceability without invalidating or rendering unenforceable the remaining provisions hereof, and any such invalidity or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provisions in any other jurisdiction. (l) Counterparts. This Agreement may be executed in any number of counterparts, each of which when executed and delivered shall be deemed to be an original, and all of which counterparts taken together shall constitute one and the same instrument. (m) Applicable Law. This Agreement shall be construed in accordance with the laws of the State of Florida. IN WITNESS WHEREOF, the parties have duly executed and delivered this Agreement as of the date first above written. SELLER: RUBY TUESDAY, INC. By:/s/ J. Russell Mothershed Name: J. Russell Mothershed Title: Senior Vice President BUYER: RT ORLANDO FRANCHISE, L.P., d/b/a RT Orlando Franchise, Ltd. By:/s/ Ray G. Manning, Jr. R. Manning, Inc., General Partner Name: Ray G. Manning, Jr. Title:President LIST OF SCHEDULES AND EXHIBITS Schedules Schedule 3(c) Allocation of Purchase Price Schedule 5(b) Seller's Consents and Approvals Schedule 5(c) Permitted Encumbrances Schedule 5(g) Compliance Disclosure Schedule 7(a)(iv) Required Consents and Approvals Exhibits Exhibit A List of Restaurant Locations Exhibit B Form of Note Exhibit C Form of Security Agreement Exhibit D Form of Guaranty Exhibit E Form of Bill of Sale Exhibit F Form of Certificate of Occasional or Isolated Sale Exhibit G Legal Description for Owned Real Property Schedule 3(c) ALLOCATION OF PURCHASE PRICE Schedule 5(b) SELLER'S CONSENTS AND APPROVALS 1. All consents and approvals required or necessary to transfer to Buyer all licenses or permits currently held by Seller or the Businesses with respect to the sale or consumption of alcoholic beverages on the premises at which the Businesses are conducted. 2. All consents required or necessary from any third party (or third parties) with respect to the Sublease(s) or the Contracts. Schedule 5(c) PERMITTED ENCUMBRANCES 1. Liens that are immaterial in character, amount or extent, and that do not materially affect the value, or do not materially interfere with the present use, of the Assets. 2. UCC-1 Financing Statement filed August 5, 1996, as File No.960000161575 with the Florida Secretary of State, showing Ruby Tuesday, Inc. as Debtor, and CLG, Inc., as Secured Party, covering equipment leased and located as follows: (n) Location 3929 - Pembroke Lakes Mall, 11401 Pines Blvd., Pembroke, FL 33026 (RT South Florida Franchise, L.P.) (o) Location 2681 - Fashion Island Mall, 18801-B Biscayne Blvd., Miami, FL 33180 (RT South Florida Franchise, L.P.) (p) Location 2878 - 1808 Volusia Ave., Daytona Beach, FL 32114 (RT Orlando Franchise, L.P.) (q) Location 3919 - 2675 Roosevelt Blvd., Clearwater, FL 34620 (RT Tampa Franchise, L.P.) (r) Location 2860 - 9457 W.Atlantic Ave., Coral Springs, FL 33071 (RT South Florida Franchise, L.P.) 3. UCC-1 Financing Statement filed August 5, 1996, as File No. 960000161579 with the Florida Secretary of State, showing Ruby Tuesday, Inc., as Debtor, and CLG, Inc., as Secured Party, covering equipment leased and located as follows: (a) Location 2878 - 1808 Volusia Ave., Daytona Beach, FL 32114 (RT Orlando Franchise, L.P.) b. Location 3679 - 3500 S.W. College Rd., Ste. 104, Ocala, FL 33474 (RT Orlando Franchise, L.P.) c. Location 3919 - 2675 Roosevelt Blvd., Clearwater, FL 34620 (RT Tampa Franchise, L.P.) d. Location 3929 - Pembroke Lakes Mall, 11401 Pines Blvd., Pembroke, FL 33026 (RT South Florida Franchise, L.P.) e. Location 2609 - 1950 N. Tamiami Trail, Naples, FL 33940 (RT Tampa Franchise, L.P.) f. Location 3924 - 777 East Merritt Causeway, Merritt Island, FL 32952 (RT Orlando Franchise, L.P.) 4. UCC-1 Financing Statement filed September 13, 1996, as File No. 960000192921 with the Florida Secretary of State, showing Ruby Tuesday, Inc., as Debtor and Orix Credit Alliance, Inc., as Secured Party. Schedule 5(g) COMPLIANCE DISCLOSURE The Businesses are not in full compliance with certain requirements of the Americans with Disabilities Act of 1990. Schedule 7(a)(iv) REQUIRED CONSENTS AND APPROVALS 1. All consents and approvals required or necessary to transfer to Buyer all licenses or permits currently held by Seller or the Businesses with respect to the sale or consumption of alcoholic beverages on the premises at which the Businesses are conducted. 2. All consents required or necessary from any third party (or third parties) with respect to the Sublease(s). 3. All consents required by Seller's current lender(s). EX-10.42 6 PURCHASE AGREEMENT This Purchase Agreement (the "Agreement") is made as of the 2nd day of July, 1997, between RUBY TUESDAY, INC., a Georgia corporation, whose address is 4721 Morrison Drive, Mobile, Alabama 36609-3350 (herein "Seller"), and RT TAMPA FRANCHISE, L.P., d/b/a RT Tampa Franchise, Ltd., a Delaware limited partnership, whose address is 1017 Frankland Road, Tampa, Florida 33629 (herein "Buyer"). 1. Introduction. Seller is currently engaged in the business of operating restaurants under the trade name, trademark and service mark "Ruby Tuesday" at each of the locations listed on Exhibit A attached hereto (hereinafter, the business of operating each such restaurant at each such location being referred to individually, as the "Business" and collectively as the "Businesses"). Seller wishes to sell to Buyer, and Buyer wishes to purchase from Seller, certain assets of Seller used exclusively in operating the Businesses, upon the terms and conditions set out in this Agreement. Therefore, in consideration of the premises, the mutual representations, warranties, covenants and agreements hereinafter set forth and other good and valuable consideration, the receipt and sufficiency of which is acknowledged, the parties agree as follows: 2. Sale and Purchase of Assets; Assumption of Liabilities. The consummation of the transactions provided for herein (the "Closing") shall take place at the offices of Seller at such time and place as the parties may hereto agree in writing (the "Closing Date"), provided, however, the Closing shall take place on the date that is the later to occur of (i) the date that the temporary liquor licenses for the Businesses have been issued to Buyer by the Florida Division of Alcoholic Beverages and Tobacco, or (ii) the date that Buyer has received a firm commitment for financing for the purchase of the Businesses on terms reasonably acceptable to Buyer; provided, however, the Closing shall not take place unless ten (10) business days have passed after the date that Buyer receives Seller's Uniform Franchise Offering Circular without Buyer's exercising any rescission rights available to Buyer under applicable franchise law. On the Closing Date: (a) Sale and Purchase of Assets. Subject to the terms and conditions of this Agreement, Buyer shall purchase from Seller, and Seller shall sell, transfer, assign, convey and deliver, all of Seller's right, title and interest in and to the following assets of Seller used exclusively in the operation of the Businesses (the "Assets"), which Assets shall be conveyed AS-IS, WHERE-IS: (i) all stock in trade and merchandise in Seller's inventory used by Seller exclusively in the conduct of the Businesses as of the Closing Date (the "Inventory"); (ii) all furniture, fixtures, furnishings, equipment and leasehold improvements used by Seller exclusively in the conduct of the Businesses as of the Closing Date (the "Personal Property"); (iii) all rights of Seller to the software used exclusively in the conduct of the Businesses as of the Closing Date and located at the premises where the Businesses are conducted, including, without limitation, all rights of Seller to use such software and the documentation related thereto (the "Software"); (iv) all rights of Seller pursuant to all contracts, leases (except for any interest of Seller in any lease with any third party regarding the premises at which the Businesses are conducted, other than the interest(s), if any, to be subleased to Buyer pursuant to the Sublease(s) defined below), warranties, commitments, agreements, purchase and sale orders and other executory commitments of Seller related solely to the Businesses as of the Closing Date (the "Contracts"); (v) all rights of Seller in and to the underlying land, if any, described on Exhibit G attached hereto, together with the structure(s) building(s) and other improvements owned by Seller and located on such land; (vi) all rights of Seller (to the extent assignable) pursuant to any governmental permits and licenses used exclusively in the operation of the Businesses (the "Permits"); (vii) Seller's telephone numbers for the Businesses (the "Telephone Numbers"); (viii) Seller's petty cash on hand at the Businesses as of the Closing Date (the "Petty Cash"). Notwithstanding the foregoing, the Assets do not include the following assets of Seller: (i) Seller's accounts or notes receivable; (ii) Seller's cash on hand at or with respect to the Businesses (other than the Petty Cash); (iii) Seller's trade name, trademarks, service marks, copyrights and all other intellectual property or intangible property of Seller; and (iv) to the extent that the Businesses are conducted on premises leased by Seller from a third party (or third parties), all rights of Seller in any leasehold or other interest in the premises at which the Businesses are conducted (except for any interest(s) to be subleased to Buyer pursuant to the Sublease(s), defined below). (b) Assumption of Liabilities. Subject to the terms and conditions of this Agreement, Seller shall assign, and Buyer shall assume and agree to satisfy, pay, discharge, perform and fulfill, as applicable, as they become due, without charge or cost to Seller except as provided for in this Agreement, and agrees to hold Seller harmless with respect to, the following liabilities and obligations of Seller (the "Assumed Liabilities"): (i) all liabilities and obligations of Seller related to owning the Assets and operating the Businesses on and after the Closing Date except for the Excluded Liabilities described below; and (ii) all liabilities and obligations of Seller under the Contracts, the Permits and the Telephone Numbers that arise or are attributable to events or conditions occurring on or after the Closing Date. Notwithstanding the foregoing, the Assumed Liabilities shall not include the following liabilities or obligations of Seller (the "Excluded Liabilities"): (i) except to the extent otherwise provided in this Agreement, any liabilities or obligations, whether or not known, of Seller to be performed prior to the Closing Date or arising out of or relating to Seller's ownership of the Assets or operation of the Businesses prior to the Closing Date; and (ii) Seller's accounts payable, notes payable and other obligations for or related to Seller's indebtedness to banks or financial institutions. 3. Purchase Price. In consideration of the sale of Assets and assumption of the Assumed Liabilities, at the Closing, Buyer shall deliver to Seller the following: (i) Nine Million Seven Hundred Thirteen Thousand Four Hundred Forty-One Dollars ($9,713,441) (the "Purchase Price"); and (ii) any sales or other taxes due on the sale of Assets and assumption of the Assumed Liabilities contemplated by this Agreement (the "Transaction Taxes"). (a) Payment of the Purchase Price. The Purchase Price shall be paid as follows: (i) by the delivery of the sum of (A) seventy-five (75%) percent of the Purchase Price, plus (B) the Transaction Taxes, all to be paid by certified check drawn on a local bank or by wire transfer of funds; and (ii) by the delivery to Seller of Buyer's promissory note, dated the Closing Date, in favor of Seller in the original principal amount equal to twenty-five (25%) percent of the Purchase Price (the "Note") in the form attached hereto as Exhibit B. As security for the payment of the Note, Buyer shall deliver to Seller a Security Agreement, dated the Closing Date, in the form attached hereto as Exhibit C and such other documents as may be reasonably required by Seller to perfect a security interest for the benefit of Seller in and to Buyer's assets (including, without limitation, UCC-1 financing statements in favor of Seller), and Buyer shall cause Gary E. Gallagher to enter into a Guaranty in the form attached hereto as Exhibit D. (b) Other Adjustments to Purchase Price. At the Closing, or as soon as practicable after the Closing, the Purchase Price shall be adjusted, on a dollar-for-dollar basis, to reflect the proration of all items of expense or income directly relating to the Assets and the operation of the Businesses as of the Closing Date, and the net adjustments for all such items shall be paid in immediately available funds on or before the date that occurs sixty (60) days after the Closing Date (the "Adjustment Payment Date"). Prorated items shall include the following: rent, real and personal property taxes, payroll and payroll taxes, insurance premiums, utilities, security deposits, other prepaid items and other items customarily prorated. To the extent possible, any prorations not determinable as of the Closing Date shall be prorated on the basis of the most current information available at Closing; provided, however, Seller and Buyer agree that, upon presentation, on or before the Adjustment Payment Date, of written confirmation of (i) a change in an estimated amount, or (ii) a determination of the amount of any proration that cannot be determined as of the Closing Date, such amount will be reflected in the payment(s) to be made pursuant to this Section 3(b) on or before the Adjustment Payment Date. (c) Allocation of Purchase Price. The aggregate amount of the Purchase Price and the Assumed Liabilities shall be allocated among the Assets substantially in accordance with Schedule 3(c) attached hereto. Seller and Buyer hereby agree to use such allocation to complete and file Internal Revenue Service Form 8594 with the Internal Revenue Service. 4. Delivery of Documents and Related Transactions. (a) At the Closing, the following documents (the "Closing Documents"), together with the cash portion of the Purchase Price, shall be delivered as follows: (i) Seller shall deliver to Buyer the following executed documents (the "Seller's Documents"): 1) a bill of sale, assignment and assumption agreement for the Assets substantially in the form of Exhibit E attached hereto (the "Bill of Sale"), transferring to Buyer all of Seller's right, title and interest in and to said Assets, free and clear of all encumbrances except for Permitted Encumbrances (as defined in Section 5(c) below), pursuant to which Buyer will accept such Assets and assume the Assumed Liabilities; 2) a Certificate of Occasional or Isolated Sale substantially in the form of Exhibit F attached hereto (the "Certificate of Occasional or Isolated Sale"); 3) to the extent that the Businesses are conducted on premises leased by Seller from a third party (or third parties), the following: (A) a sublease or subleases between Seller, as sublessor, and Buyer, as sublessee, of such premises, in form satisfactory to the parties hereto (the "Sublease(s)"); and (B) the written consent of each landlord to the Sublease(s), if required; 4) to the extent that the Businesses are conducted on premises owned by Seller, a deed conveying Seller's interest in and to the underlying land, together with structure(s), building(s) and other improvements at the premises described on Exhibit G attached hereto (the "Deed"); 5) an operating agreement, a development agreement and a support services agreement, substantially in the form of the drafts dated July 2, 1997, July 2, 1997, and July 2, 1997, respectively, presented by Seller to Buyer (collectively, the "Franchise Documents"); and 6) other related documents that Buyer may have reasonably requested on or prior to the Closing Date. (ii) Buyer shall deliver to Seller (x) the cash portion of the Purchase Price, and (y) the following executed documents (the "Buyer's Documents"): 1) the Note; 2) the Bill of Sale; 3) to the extent that the Businesses are conducted on premises leased by Seller from a third party (or third parties), the Sublease(s); 4) the Security Agreement and other security documents referred to in Section 3(a)(ii) of this Agreement; 5) the Guaranty; 6) the Franchise Documents; and 7) other related documents that Seller may have reasonably requested on or prior to the Closing Date. (b) Further Assurances and Cooperation Post-Closing. Seller and Buyer, from time to time after the Closing (but without obligation separate from the obligations expressly provided by this Agreement), hereby agree to execute, acknowledge and deliver to each other such instruments of conveyance and transfer, and will take such other actions and execute and deliver such other documents, certifications and further assurances, as either party may reasonably request with respect to the assignment, transfer and delivery of the Assets and the assumption of the Assumed Liabilities and the perfection of Seller's security interest in the Assets pursuant to Section 3(a)(ii), in order to consummate in full the transactions provided for herein. (c) Employees. Buyer and Seller agree as follows: (i) Buyer's Responsibilities. Buyer shall offer employment, on substantially the same terms and conditions as currently in effect, to commence on and as of the Closing Date, to each employee of the Businesses as of the Closing Date (including, without limitation, any employee who is absent from work on the Closing Date on paid vacation or pursuant to any leave of absence authorized by Seller or required by law (hereinafter, all employees accepting employment with Buyer being referred to collectively as the "Transferred Employees")). Buyer agrees to give the Transferred Employees credit for their years of service with Seller for the purpose of determining any eligibility or vesting provisions that may be contained in employee plans provided to such Transferred Employees by Buyer in connection with their employment with Buyer. Buyer also agrees to give the Transferred Employees credit for all vacation and sick leave accrued during their employment with Seller and to provide, for the fiscal year ending June 6, 1998, the same vacation and sick leave benefits to all Transferred Employees as they would have been eligible to receive under the Seller's policies now in effect. (ii) Seller's Responsibilities. Seller agrees that, except as provided in Section 4(c)(i) above, Buyer shall not be subject to any liability with respect to, or resulting from the termination by Seller of any of its employees from, any profit sharing, 401(k), pension, stock option, vacation pay, sick pay, personal leave, severance pay, retirement, bonus, deferred compensation, group life and health insurance or other employee benefit plan, agreement or commitment of Seller. The foregoing Section 4(c) does not, and shall not be deemed or construed to, create any right in, or confer any right on, any employee or any other third party. (d) Bulk Sales. Buyer hereby waives compliance with any applicable "bulk sales law" or similar law by Seller, and Seller shall indemnify and hold Buyer harmless against any liability under any such laws for losses resulting from non-compliance therewith or Seller's application of the proceeds of the sale of Assets contemplated by this Agreement. 5. Seller's Representations and Warranties. Seller represents and warrants to Buyer the following: (a) Organization and Authority. Seller is a corporation duly organized, validly existing and in good standing under the laws of the State of Georgia. Seller possesses all requisite corporate power and authority to own the Assets and operate the Businesses and to enter into and perform this Agreement and the Seller's Documents. The execution and delivery and performance of each of this Agreement and the Seller's Documents by Seller have been duly authorized by all necessary corporate action. This Agreement has been duly executed and delivered on behalf of Seller by duly authorized officers of Seller, and this Agreement constitutes, and the Seller's Documents, when executed and delivered, will constitute, the legal, valid and binding obligation of Seller, enforceable against Seller in accordance with their respective terms, subject to the effects of bankruptcy, insolvency, reorganization, moratorium and similar laws relating to or affecting the rights of creditors and general principles of equity. (b) Compliance with Laws and Instruments. Subject to the consents and approvals listed on Schedule 5(b), the execution, delivery and performance by Seller of this Agreement and the Seller's Documents will not result in any material violation of or be in conflict with or constitute a material default under any applicable statute, regulation, order, rule, writ, injunction or decree of any court or governmental authority or of the Articles of Incorporation or Bylaws of Seller or of any material agreement or other material instrument to which Seller is a party or is a subject, or constitute a default thereunder. (c) Title to Assets. Seller has good, valid and marketable title to all of the Assets, free and clear of all mortgages, liens, pledges, security interests, charges, claims, restrictions and other encumbrances and defects of title of any nature whatsoever, except for (i) liens for current real, personal or other property taxes not yet due and payable, and (ii) the liens described on Schedule 5(c) (the "Permitted Encumbrances"). There are no existing agreements, options, commitments or rights with, of or to any person (other than Buyer) to acquire any of Seller's interests in the Assets. (d) Condition of Assets. Seller makes no representation or warranty as to the condition of the Assets, which shall be conveyed to Buyer on an AS IS, WHERE IS basis. (e) No Finder's Fees. Seller has not employed any broker or finder or incurred any liability for any brokerage fees or commissions or any finder's fees in connection with the negotiations related to this Agreement or the consummation of the transactions contemplated hereby. (f) No Litigation. No suit, action or other proceeding, or any injunction or final judgment relating thereto, is pending or, to the knowledge of Seller, threatened, before any court or governmental or regulatory official, body or authority in which it is sought to restrain or prohibit or to obtain damages or other relief in connection with this Agreement or the Seller's Documents, or the consummation of the transactions contemplated hereby and thereby, and no investigation that might result in any such suit, action or proceeding is pending or, to the knowledge of Seller, threatened. (g) Legal Compliance. To the knowledge of Seller, except as disclosed on Schedule 5(g), Seller has complied with all laws (including rules, regulations, codes, plans, injunctions, judgments, orders, decrees, rulings and charges thereunder) of federal, state, local and foreign governments (and all agencies thereof), applicable to the Assets and the operation of the Businesses for which the failure to so comply would have a material adverse effect on the Assets or the Businesses, and no action, suit, proceedings, hearing, investigation, charge, complaint, claim, demand, or notice has been filed or commenced against Seller alleging any failure so to comply, (h) Tax Matters. (i) Seller has filed all state, local and federal tax returns required to be filed in connection with the ownership of the Assets and the operation of the Businesses. All such tax returns were correct and complete in all material respects. All state, local and federal taxes currently due and payable by Seller in connection with the Businesses have been paid. (ii) Seller has withheld and paid all taxes required to have been withheld and paid in connection with amounts paid or owing to any employee, independent contractor, creditor, shareholder, or other third party employed by or relating to the Businesses. (i) Real Property. With respect to each Sublease and, if applicable, the Deed: (i) the underlying lease or sublease to which Seller is a party (the "Lease") is the legal, valid, binding and enforceable obligation of the Seller and is in full force and effect; (ii) subject to any applicable consent or approval listed in Schedule 5(b), the Lease will continue to be legal, valid, binding, enforceable, and in full force and effect on identical terms following the consummation of the transactions contemplated hereby (including the assignments and assumptions referred to in Section 4 above); (iii) to the knowledge of Seller, no party to the Lease is in breach or default, and no event has occurred which, with notice or lapse of time, would constitute a breach or default or permit termination, modification, or acceleration thereunder; (iv) to the knowledge of Seller, no party to the Lease has repudiated any provision thereof; (v) to the knowledge of Seller, there are no disputes, oral agreements or forbearance programs in effect as to the Lease or Sublease; (vi) Seller has not assigned, transferred, conveyed, mortgaged, deeded in trust, or encumbered any interest in the Lease, or, if applicable, the real property that is subject to the Deed, except for Permitted Liens; (vii) except as disclosed on Schedule 5(g), to the knowledge of Seller, all premises subject to any Lease, or, if applicable, the Deed, (A) have received all approvals of governmental authorities (including licenses and permits) required in connection with the operation of the Businesses and for which failure to receive such approval would have a material adverse effect on the Assets or the Businesses, and (B) have been operated and maintained in accordance with all laws, rules and regulations applicable to the operation of the Businesses and for which failure to be so operated and maintained would have a material adverse effect on the Assets of the Businesses; and (viii) Seller has good and marketable title to the parcel of real property subject to the Deed, free and clear of any security interest, lien, covenant or other restriction, installments of special liens or assessments not yet delinquent and recorded easements, covenants, and other restrictions which do not impair the current use, occupancy, or value, or the marketability of title, of the property subject thereto. (j) Intellectual Property. To the knowledge of the Seller, Seller has the right to use the Software, pursuant to license, sublease, agreement or permission. After the Closing, the Software will be owned or available for use by Buyer on substantially the same terms and conditions as by Seller prior to the Closing. (k) Contracts. Seller represents and warrants to Buyer with respect to each Contract assigned to Buyer that (i) such Contract is legal, valid, binding, enforceable, and in full force and effect; (ii) subject to any applicable consents and approvals listed on Schedule 5(b), such Contract will continue to be legal, valid, binding, enforceable, and in full force and effect on identical terms following the consummation of the transactions contemplated hereby (including the assignments and assumptions); (iii) to the knowledge of Seller, no party is in breach or default, and no event has occurred which with notice or lapse of time would constitute a breach or default, or permit termination, modification, or acceleration, under such Contract; and (iv) to the knowledge of the Seller, no party has repudiated any provision of such Contract. (l) Other Litigation. Seller represents and warrants to Buyer that Seller: (i) is not subject to any outstanding injunction, judgment, order, decree, ruling, or charge affecting the Businesses, and (ii) is not a party or, to the knowledge of Seller, is not threatened to be made a party to any action, suit, proceeding, hearing, or investigation affecting the Businesses of, in, or before any court or quasi-judicial or administrative agency of any federal, state, local, or foreign jurisdiction or before any arbitrator. (m) Environmental, Health and Safety Matters. To the knowledge of Seller: (i) Seller has complied and is in compliance with all Environmental, Health, and Safety Requirements for which failure to so comply would have a material adverse effect on the Assets or the Businesses. (As used herein, Environmental, Health, and Safety Requirements shall mean all federal, state, local and foreign statutes, regulations, ordinances and other provisions having the force or effect of law, all judicial and administrative orders and determinations, all contractual obligations and all common law concerning public health and safety, worker health and safety, and pollution or protection of the environment.) (ii) Seller has not received any written or oral notice, report or other information regarding any actual or alleged violation of Environmental, Health, and Safety Requirements, or any liabilities or potential liabilities (whether accrued, absolute, contingent, unliquidated or otherwise), including any investigatory, remedial or corrective obligations, relating to any of them or its facilities arising under Environmental, Health, and Safety Requirements. 6. Buyer's Representations. Buyer represents and warrants to Seller the following: (a) Organization and Authority. Buyer is a limited partnership, duly organized, validly existing and in good standing under the laws of the State of Delaware. The sole general partner of Buyer is Gallagher Family, Inc., a Florida corporation, and the sole limited partner of Buyer is RT Tampa, Inc. a Georgia corporation. Buyer is duly qualified to do business and is in good standing in each jurisdiction where the conduct of its business currently requires it to be qualified or would require it to be qualified after the consummation of the transactions provided for in this Agreement and the Buyer's Documents. Buyer possesses all requisite power and authority to enter into and perform this Agreement and the Buyer's Documents. The execution and delivery and performance of this Agreement and the Buyer's Documents by Buyer have been duly authorized by all necessary action (including, without limitation, all necessary action by the general partner of Buyer). This Agreement has been duly executed and delivered on behalf of Buyer by the sole general partner, as duly authorized by Buyer, and this Agreement constitutes, and the Buyer's Documents, when executed and delivered, will constitute, the legal, valid and binding obligation of Buyer, enforceable against Buyer in accordance with their respective terms, subject to the effects of bankruptcy, insolvency, reorganization, moratorium and similar laws relating to or affecting the rights of creditors and general principles of equity. (b) Compliance with Laws and Instruments. The execution, delivery and performance by Buyer of this Agreement and the Buyer's Documents will not result in any material violation of or be in conflict with or constitute a material default under any applicable statute, regulation, order, rule, writ, injunction or decree of any court or governmental authority or of the Certificate of Limited Partnership or Limited Partnership Agreement of Buyer or of any material agreement or other material instrument to which Buyer is a party or is subject, or constitute a default thereunder. (c) No Finder's Fees. Buyer has not employed any broker or finder or incurred any liability for any brokerage fees or commissions or any finder's fees in connection with the negotiations related to this Agreement or the consummation of the transactions contemplated hereby. (d) Independent Investigation. Buyer has had full opportunity to inspect the Businesses and the Assets and to ask all questions of Seller regarding the Businesses and the Assets. Buyer has had the opportunity to conduct its own independent investigation relating to all aspects of the Businesses and to obtain whatever opinions of specialists and experts it has deemed necessary in making the decisions to enter into this Agreement and the Buyer's Documents and to consummate the transactions contemplated hereby and thereby. In making such decisions, (i) Buyer has not relied on information received by it from Seller regarding the past or present earnings of the Businesses as a determinant or indicator of future earnings of the Businesses, and (ii) Buyer has not relied on information received from Seller regarding the prospects of future earnings of the Businesses. (e) Condition of Assets. BUYER ACKNOWLEDGES AND AGREES THAT ALL ASSETS TO BE TRANSFERRED, ASSIGNED OR LICENSED PURSUANT TO THIS AGREEMENT AND THE CLOSING DOCUMENTS SHALL BE TRANSFERRED, ASSIGNED OR LICENSED ON AN "AS IS, WHERE IS" BASIS, AND THAT, EXCEPT AS EXPRESSLY SET FORTH IN SECTION 5 OF THIS AGREEMENT, SELLER IS MAKING, AND SHALL MAKE, NO REPRESENTATION OR WARRANTY OF ANY KIND, EXPRESS OR IMPLIED, RESPECTING ANY OF THE ASSETS, AS TO MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE OR ANY OTHER MATTER. FURTHER, BUYER ACKNOWLEDGES THAT BUYER HAS INFORMED ITSELF AS TO THE BUSINESSES, AND BUYER FURTHER ACKNOWLEDGES AND AGREES THAT SELLER MAKES, AND SHALL MAKE, NO REPRESENTATION OR WARRANTY OF ANY KIND WITH RESPECT TO THE BUSINESSES. (f) No Litigation. No suit, action or other proceeding, or any injunction or final judgment relating thereto, is pending or, to the knowledge of Buyer, threatened before any court or governmental or regulatory official, body or authority in which it is sought to restrain or prohibit or to obtain damages or other relief in connection with this Agreement or the Buyer's Documents, or the consummation of the transactions contemplated hereby, and no investigation that might result in any such suit, action or proceeding is pending or, to the knowledge of Buyer, threatened. (g) Other Litigation. Buyer represents and warrants to Seller that Buyer: (i) is not subject to any outstanding injunction, judgment, order, decree, ruling or charge, and (ii) is not a party or, to the knowledge of Buyer, is not threatened to be made a party to any action, suit, proceeding, hearing, or investigation of, in, or before any court or quasi-judicial or administrative agency of any federal, state, local, or foreign jurisdiction or before any arbitrator. 7. Conditions to Closing. (a) Conditions to Obligations of Buyer. All obligations of Buyer under this Agreement are subject to the fulfillment or satisfaction, prior to or at the Closing, of each of the following conditions precedent: (i) The representations and warranties of Seller contained in this Agreement shall have been true on the date hereof in all material respects, and shall be true in all material respects as of the Closing as if made at the Closing. (ii) Seller shall have performed and complied in all material respects with all agreements and conditions required by this Agreement to be performed or complied with by or prior to or at the Closing. (iii) As of the Closing, no suit, action or other proceeding, or any injunction or final judgment relating thereto, shall be threatened or be pending before any court or governmental or regulatory official, body or authority in which it is sought to restrain or prohibit or to obtain damages or other relief in connection with this Agreement or the consummation of the transactions contemplated hereby, and no investigation that might result in any such suit, action or proceeding shall be pending or threatened. (iv) Each consent or approval listed on Schedule 7(a)(iv) as required or necessary under contract or applicable law for the consummation of the transactions contemplated hereby shall have been obtained; provided, however, those certain consents or approvals identified on such Schedule 7(a)(iv) as being subject to deferral need not have been obtained on or before the Closing to the extent that Seller shall have made appropriate arrangements to secure to Buyer the practical and economic benefits of the agreements or other arrangements to which such consents or approvals relate. (v) The documents to be delivered by Seller at Closing pursuant to Section 4(a) shall have been executed and delivered. (vi) Buyer shall have received a certificate from Seller, dated the Closing Date and certifying in such detail as Buyer may reasonably request, that the conditions specified in Sections 7(a)(i), 7(a)(ii) and 7(a)(iv) hereof have been fulfilled. (b) Conditions to Obligations of Seller. All obligations of Seller under this Agreement are subject to the fulfillment or satisfaction prior to or at the Closing, of each of the following conditions precedent: (i) The representations and warranties of Buyer contained in this Agreement shall have been true on the date hereof in all material respects, and shall be true in all material respects as of the Closing if made at the Closing. (ii) Buyer shall have performed and complied in all material respects with all agreements and conditions required by this Agreement to be performed or complied with by it prior to or at the Closing. (iii) As of the Closing, no suit, action or other proceedings, or any injunction or final judgment relating thereto, shall be threatened or be pending before any court or governmental or regulatory official, body or authority in which it is sought to restrain or prohibit or to obtain damages or other relief in connection with this Agreement or the consummation of the transactions contemplated hereby, and no investigation that might result in any such suit, action or proceeding shall be pending or threatened. (iv) Each consent or approval listed on Schedule 7(a)(iv) as required or necessary under contract or applicable law of the consummation of the transactions contemplated hereby shall have been obtained; provided, however, those certain consents or approvals identified on such Schedule 7(a)(iv) as being subject to deferral need not have been obtained on or before the Closing, to the extent that Seller shall have made appropriate arrangements to secure to Buyer the practical and economic benefits of the agreements or other arrangements to which such consents or approvals relate. (v) The documents to be delivered by Buyer at Closing pursuant to Section 4(a) shall have been executed and delivered. (vi) Seller shall have received a certificate from Buyer dated the Closing Date and certifying in such detail as Seller may reasonably request, that the conditions specified in Sections 7(b)(i) and 7(b)(ii) hereof have been fulfilled and that all consents and approvals required or necessary to transfer to Buyer all licenses or permits held by Seller or the Businesses with respect to the sale or consumption of alcoholic beverages on the premises at which the Businesses are conducted have been obtained. 8. Term and Termination. This Agreement may be terminated and the transactions contemplated hereby may be abandoned at any time prior to the Closing: (a) by mutual consent of Seller and Buyer; (b) by either Seller or Buyer, if such terminating party is not otherwise in default in this Agreement and if the Closing shall not have occurred on or before January 2, 1998, or such other extended date, if any, mutually agreed to by the parties in writing; and (c) by either party if there has been a material breach of any representation, warranty, covenant or agreement by the other party that has not been cured or for which adequate assurance (reasonably acceptable to such terminating party) of cure has not been given, in either case within fifteen (15) business days following receipt of notice of such breach. If either party terminates this Agreement pursuant to the provisions hereof, such termination shall be effected by notice to the other party specifying the provision hereof pursuant to which such termination is made. Except for any liability for the breach of this Agreement, upon the termination of this Agreement pursuant to this Section 8, this Agreement shall forthwith become null and void and there shall be no further liability or the obligation on the part of Seller or Buyer hereunder or with respect hereto. 9. Indemnification. (a) Indemnification of Buyer. Subject to the limitations set forth in Sections 9(c), 9(d), and 9(e), Seller shall indemnify and hold Buyer, its partners and their respective officers, directors, shareholders, employees, agents and representatives (the "Buyer Indemnified Parties") harmless from, against, for and in respect of any and all damages, losses, settlement payments, obligations, liabilities, claims, actions or causes of action (whether as a result of direct claims or third-party claims) actually suffered, sustained, incurred or required to be paid by Buyer Indemnified Parties, net of any resulting income tax benefits to Buyer Indemnified Parties, because of (i) the breach of any written representation, warranty, agreement or covenant of Seller contained in this Agreement (as the same shall have been modified at any time at or before Closing including, without limitation, any modification contained in any certificate of Seller concerning such matters delivered at the Closing) or the Closing Documents; (ii) any and all Excluded Liabilities; (iii) any contamination on or under the property that is subject to the Deed or the Sublease(s) or in any of the Assets caused by Seller prior to the Closing Date, or any liability for remediation or clean-up of environmental conditions as a result of Seller's operations, whether on or under the property that is subject to the Deed or the Sublease(s) or elsewhere; (iv) all reasonable costs and expenses (including, without limitation, attorneys' fees, interest and penalties) actually incurred by Buyer Indemnified Parties in connection with any action, suit, proceeding, demand, assessment or judgment incident to any of the matters indemnified against in this Section 9(a). (b) Indemnification of Seller. Subject to the limitations set forth in Sections 9(c), 9(d) and 9(e), Buyer shall indemnify and hold Seller, its affiliated corporations and their respective officers, directors, shareholders, employees, agents and representatives (the "Seller Indemnified Parties") harmless from, against, for and in respect of any and all damages, losses, settlement payments, obligations, liabilities, claims, actions or causes of action (whether as a result of direct claims or third-party claims) actually suffered, sustained, incurred or required to be paid by Seller Indemnified Parties, net of any resulting income tax benefits to Seller Indemnified Parties, because of (i) the breach of any written representation, warranty, agreement or covenant of Buyer contained in this Agreement (as the same shall have been modified at any time at or before Closing, including, without limitation, any modification contained in any certificate of Buyer concerning such matters delivered at the Closing) or the Closing Documents; (ii) any and all Assumed Liabilities and all liabilities in connection with the operation of the Businesses in respect of periods on and after the Closing Date; (iii) any contamination on or under the property that is subject to the Deed or Sublease(s) or in any of the Assets caused by Buyer on or after the Closing Date or any liability for remediation or clean-up of environmental conditions as a result of Buyer's operations, whether on or under the property that is subject to the Deed or the Sublease(s) or elsewhere; and (iv) all reasonable costs and expenses (including, without limitation, attorneys' fees, interest and penalties) incurred by Seller Indemnified Parties in connection with any action, suit, proceeding, demand, assessment or judgment incident to any of the matters indemnified against in this Section 9(b). (c) Survival of Indemnification Obligations. Notice of any claim under Section 9(a)(i) or Section 9(b)(i) of the indemnification provisions hereof must be given prior to the date that occurs two (2) years after the Closing Date, and any such claims not made within such period shall be of no force or effect. Notice of any other claim under the indemnification provisions hereof must be given within the applicable time period of any applicable statute of limitations. (d) General Rules Regarding Indemnification. The obligations and liabilities of each indemnifying party hereunder with respect to claims resulting from the assertion of liability by the other party shall be subject to the following terms and conditions: (i) The indemnified party shall give prompt (so as not to materially prejudice the position of the indemnifying party) written notice (which in no event shall exceed 30 days from the date on which the indemnified party first became aware of such claim or assertion) to the indemnifying party of any claim which might give rise to a claim by the indemnified party against the indemnifying party based on the indemnity agreements contained in Sections 9(a) or 9(b) hereof, stating the nature and basis of said claims and the amounts thereof, to the extent known: (ii) If any action, suit or proceeding is brought against the indemnified party with respect to which the indemnifying party may have liability under the indemnity agreements contained in Sections 9(a) or 9(b) hereof, the action, suit or proceeding shall, at the election of the indemnifying party, be defended (including all proceedings on appeal or for review which counsel for the indemnified party shall deem appropriate) by the indemnifying party. The indemnified party shall have the right to employ its own counsel in any such case, but the fees and expenses of such counsel shall be at the indemnified party's own expense unless the employment of such counsel and the payment of such fees and expenses both shall have been specifically authorized in writing by the indemnifying party in connection with the defense of such action, suit or proceeding. Notwithstanding the foregoing, (A) if there are defenses available to the indemnified party that are inconsistent with those available to the indemnifying party to such extent as to create a conflict of interest between the indemnifying party and the indemnified party, the indemnified party shall have the right to direct the defense of such action, suit or proceeding insofar as it relates to such inconsistent defenses, and the indemnifying party shall be responsible for the reasonable fees and expenses of the indemnified party's counsel insofar as they relate to such inconsistent defenses, and (B) if such action, suit or proceeding involves or could have an effect on matters beyond the scope of the indemnity agreements contained in Sections 9(a) or 9(b) hereof, the indemnified party shall have the right to direct (at its own expense) the defense of such action, suit or proceeding insofar as it relates to such other matters. The indemnified party shall be kept fully informed of such action, suit or proceeding at all stages thereof whether or not it is represented by separate counsel. (iii) The indemnified party shall make available to the indemnifying party and its attorneys and accountants all books and records of the indemnified party relating to such proceedings or litigation and the parties hereto agree to render to each other such assistance as they may reasonably require of each other in order to ensure the proper and adequate defense of any such action, suit or proceeding. Whether or not the indemnifying party chooses to defend or prosecute any claim involving a third party, all parties hereto shall cooperate in the defense or prosecution thereof and shall furnish such records, information and testimony and attend such conferences, discovery proceedings, hearings, trials and appeals as may be reasonably requested in connection therewith. (iv) The indemnified party shall not make any settlement of any claims without the written consent of the indemnifying party. (e) Limits on Indemnification Obligation. Notwithstanding anything in Sections 9(a) and 9(b) to the contrary or in conflict, any amount for which Seller is obligated to reimburse Buyer may, in Seller's sole discretion, be satisfied by reducing amounts currently due to Seller under the Note or the Operating Agreement included in the Franchise Documents by a like amount. (f) Insurance Proceeds. (i) In determining the amount of any loss, liability or expense for which any indemnified party is entitled to indemnification under this Agreement, the gross amount thereof will be reduced by any insurance proceeds actually paid to any indemnified party; provided, however, if such party has been indemnified hereunder but does not actually receive such insurance proceeds until after being indemnified, such party shall reimburse the indemnifying party for amounts paid to such party to the extent of the insurance proceeds so received. (ii) Following the Closing Date, if Buyer should suffer any loss, liability or expense covered by any of Seller's insurance policies and wishes to make a claim against the issuer of such policy, Seller shall use its best efforts to assist Buyer in ascertaining and establishing coverage, pursuing such claim and collecting under such policy. In connection with the foregoing sentence, Seller shall not be required to incur any costs (including attorneys' fees or demonstrable increases in insurance premiums), other than normal overhead expenses, or to forego any similar claim of its own with respect to the same occurrence, in assisting Buyer in these efforts, unless Seller shall otherwise be obligated to indemnify Buyer pursuant to Section 9(a). (iii) Following the Closing Date, if Seller should suffer any loss, liability or expense covered by any of Buyer's insurance policies and wish to make a claim against the issuer of such policy, Buyer shall use its best efforts to assist Seller ascertaining and establishing coverage, pursuing such claim and collecting under such policy. In connection with the foregoing sentence, Buyer shall not be required to incur any costs (including attorneys' fees or demonstrable increases in insurance premiums), other than normal overhead expenses, or to forego any similar claim of its own with respect to the same occurrence, in assisting Seller in these efforts, unless Buyer shall otherwise be obligated to indemnify Seller pursuant to Section 9(b). (iv) If both an indemnifying party and an indemnified party have insurance coverage respecting a particular claim for which indemnification is provided pursuant to Sections 9(a) and 9(b), the parties agree that the insurance coverage of the indemnifying party will be called upon before the insurance coverage of the indemnified party is called upon. 10. Miscellaneous. (a) Survival. Unless this Agreement is terminated pursuant to Section 8(a) or Section 8(b) hereof, all representations, warranties, covenants and agreements made in this Agreement or in a certificate delivered pursuant hereto by the parties hereto shall survive the termination of this Agreement or the consummation of the transactions contemplated hereby for a period of two (2) years after the Closing Date, except for the provisions of Section 9 hereof, which provisions shall survive the consummation of the transactions contemplated hereby in accordance with the terms of such Section 9. (b) Notices. All notices, requests, or other communications hereunder shall be in writing and shall be deemed to have been duly given when delivered or refused, if delivered personally, or, if delivered by overnight carrier, such as Federal Express, when delivered as follows: If delivered to Seller: Ruby Tuesday, Inc. Attention: Legal Department 4721 Morrison Drive Mobile, Alabama 36609-3350 If delivered to Buyer: RT Tampa Franchise, L.P. 1017 Frankland Road Tampa, Florida 33629 (c) Mail Addressed to Seller. After the Closing Date, Buyer may open all mail addressed to Seller at the premises of the Businesses. Buyer shall promptly forward to Seller any mail that does not require Buyer's action. (d) Expenses. Except as otherwise provided in this Agreement, all costs and expenses incurred in connection with this Agreement and the transactions contemplated hereby shall be paid by the party incurring such expenses. (e) Sales, Transfer, Documentary and Other Taxes. In addition to the Transaction Taxes paid herewith, Buyer shall pay all federal, state and local sales, documentary, transfer or other taxes or recording fees, if any, due as a result of the purchase, sale or transfer of the Assets hereunder, whether imposed by law on Seller or Buyer, and Buyer shall indemnify, reimburse and hold harmless Seller in respect of the liability for payment of or failure to pay any such taxes or the filing of or failure to file any reports required to be filed in connection therewith. (f) Entire Agreement. This Agreement, together with the Closing Documents, sets forth the entire understanding of the parties hereto with respect to the transactions contemplated hereby, and shall not be amended or modified except by written instrument duly executed by each of the parties hereto. Any and all previous agreements and understandings between or among the parties regarding the subject matter hereof, whether written or oral, are superseded by this Agreement, together with the Closing Documents. (g) Assignment and Binding Effect. This Agreement may not be assigned by either party hereto without the prior written consent of the other party. Subject to the foregoing, all of the terms and provisions of this Agreement shall be binding upon and inure to the benefit of and be enforceable by the successors and assigns of Seller and Buyer, but shall not be construed as conferring any other rights on any other person. (h) Waiver. Any term or provision of this Agreement may be waived at any time by the party entitled to the benefit thereof by a written instrument duly executed by such party. (i) Construction. All headings contained in this Agreement are for convenience of reference only, and do not form a part of this Agreement and shall not affect in any way the meaning or interpretation of this Agreement. (j) Exhibits and Schedules. All Exhibits and Schedules referred to herein are intended to and hereby are specifically made part of this Agreement. (k) Severability. Any provision of this Agreement that is invalid or enforceable in any jurisdiction shall be ineffective to the extent of such invalidity or unenforceability without invalidating or rendering unenforceable the remaining provisions hereof, and any such invalidity or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provisions in any other jurisdiction. (l) Counterparts. This Agreement may be executed in any number of counterparts, each of which when executed and delivered shall be deemed to be an original, and all of which counterparts taken together shall constitute one and the same instrument. (m) Applicable Law. This Agreement shall be construed in accordance with the laws of the State of Florida. IN WITNESS WHEREOF, the parties have duly executed and delivered this Agreement as of the date first above written. SELLER: RUBY TUESDAY, INC. By:/s/ J. Russell Mothershed Name: J. Russell Mothershed Title: Senior Vice President BUYER: RT TAMPA FRANCHISE, L.P., d/b/a RT Tampa Franchise, Ltd. By: /s/ Gary E. Gallagher Gallagher Family, Inc., General Name: Gary E. Gallagher Title: President LIST OF SCHEDULES AND EXHIBITS Schedules Schedule 3(c) Allocation of Purchase Price Schedule 5(b) Seller's Consents and Approvals Schedule 5(c) Permitted Encumbrances Schedule 5(g) Compliance Disclosure Schedule 7(a)(iv) Required Consents and Approvals Exhibits Exhibit A List of Restaurant Locations Exhibit B Form of Note Exhibit C Form of Security Agreement Exhibit D Form of Guaranty Exhibit E Form of Bill of Sale Exhibit F Form of Certificate of Occasional or Isolated Sale Exhibit G Legal Description for Owned Real Property Schedule 3(c) ALLOCATION OF PURCHASE PRICE Schedule 5(b) SELLER'S CONSENTS AND APPROVALS 1. All consents and approvals required or necessary to transfer to Buyer all licenses or permits currently held by Seller or the Businesses with respect to the sale or consumption of alcoholic beverages on the premises at which the Businesses are conducted. 2. All consents required or necessary from any third party (or third parties) with respect to the Sublease(s) or the Contracts. Schedule 5(c) PERMITTED ENCUMBRANCES 1. Liens that are immaterial in character, amount or extent, and that do not materially affect the value, or do not materially interfere with the present use, of the Assets. 2. UCC-1 Financing Statement filed August 5, 1996, as File No.960000161575 with the Florida Secretary of State, showing Ruby Tuesday, Inc. as Debtor, and CLG, Inc., as Secured Party, covering equipment leased and located as follows: (n) Location 3929 - Pembroke Lakes Mall, 11401 Pines Blvd., Pembroke, FL 33026 (RT South Florida Franchise, L.P.) (o) Location 2681 - Fashion Island Mall, 18801-B Biscayne Blvd., Miami, FL 33180 (RT South Florida Franchise, L.P.) (p) Location 2878 - 1808 Volusia Ave., Daytona Beach, FL 32114 (RT Orlando Franchise, L.P.) (q) Location 3919 - 2675 Roosevelt Blvd., Clearwater, FL 34620 (RT Tampa Franchise, L.P.) (r) Location 2860 - 9457 W.Atlantic Ave., Coral Springs, FL 33071 (RT South Florida Franchise, L.P.) 3. UCC-1 Financing Statement filed August 5, 1996, as File No. 960000161579 with the Florida Secretary of State, showing Ruby Tuesday, Inc., as Debtor, and CLG, Inc., as Secured Party, covering equipment leased and located as follows: (a) Location 2878 - 1808 Volusia Ave., Daytona Beach, FL 32114 (RT Orlando Franchise, L.P.) b. Location 3679 - 3500 S.W. College Rd., Ste. 104, Ocala, FL 33474 (RT Orlando Franchise, L.P.) c. Location 3919 - 2675 Roosevelt Blvd., Clearwater, FL 34620 (RT Tampa Franchise, L.P.) d. Location 3929 - Pembroke Lakes Mall, 11401 Pines Blvd., Pembroke, FL 33026 (RT South Florida Franchise, L.P.) e. Location 2609 - 1950 N. Tamiami Trail, Naples, FL 33940 (RT Tampa Franchise, L.P.) f. Location 3924 - 777 East Merritt Causeway, Merritt Island, FL 32952 (RT Orlando Franchise, L.P.) 4. UCC-1 Financing Statement filed September 13, 1996, as File No. 960000192921 with the Florida Secretary of State, showing Ruby Tuesday, Inc., as Debtor and Orix Credit Alliance, Inc., as Secured Party. Schedule 5(g) COMPLIANCE DISCLOSURE The Businesses are not in full compliance with certain requirements of the Americans with Disabilities Act of 1990. Schedule 7(a)(iv) REQUIRED CONSENTS AND APPROVALS 1. All consents and approvals required or necessary to transfer to Buyer all licenses or permits currently held by Seller or the Businesses with respect to the sale or consumption of alcoholic beverages on the premises at which the Businesses are conducted. 2. All consents required or necessary from any third party (or third parties) with respect to the Sublease(s). 3. All consents required by Seller's current lender(s). EX-10.43 7 PURCHASE AGREEMENT This Purchase Agreement (the "Agreement") is made as of the 2nd day of July, 1997, between RUBY TUESDAY, INC., a Georgia corporation, whose address is 4721 Morrison Drive, Mobile, Alabama 36609-3350 (herein "Seller"), and RT SOUTH FLORIDA FRANCHISE, L.P., d/b/a RT South Florida Franchise, Ltd., a Delaware limited partnership, whose address is 2045 Bradbury Drive East, Mobile, Alabama 36695 (herein "Buyer"). 1. Introduction. Seller is currently engaged in the business of operating restaurants under the trade name, trademark and service mark "Ruby Tuesday" at each of the locations listed on Exhibit A attached hereto (hereinafter, the business of operating each such restaurant at each such location being referred to individually, as the "Business" and collectively as the "Businesses"). Seller wishes to sell to Buyer, and Buyer wishes to purchase from Seller, certain assets of Seller used exclusively in operating the Businesses, upon the terms and conditions set out in this Agreement. Therefore, in consideration of the premises, the mutual representations, warranties, covenants and agreements hereinafter set forth and other good and valuable consideration, the receipt and sufficiency of which is acknowledged, the parties agree as follows: 2. Sale and Purchase of Assets; Assumption of Liabilities. The consummation of the transactions provided for herein (the "Closing") shall take place at the offices of Seller at such time and place as the parties may hereto agree in writing (the "Closing Date"), provided, however, the Closing shall take place on the date that is the later to occur of (i) the date that the temporary liquor licenses for the Businesses have been issued to Buyer by the Florida Division of Alcoholic Beverages and Tobacco, or (ii) the date that Buyer has received a firm commitment for financing for the purchase of the Businesses on terms reasonably acceptable to Buyer; provided, however, the Closing shall not take place unless ten (10) business days have passed after the date that Buyer receives Seller's Uniform Franchise Offering Circular without Buyer's exercising any rescission rights available to Buyer under applicable franchise law. On the Closing Date: (a) Sale and Purchase of Assets. Subject to the terms and conditions of this Agreement, Buyer shall purchase from Seller, and Seller shall sell, transfer, assign, convey and deliver, all of Seller's right, title and interest in and to the following assets of Seller used exclusively in the operation of the Businesses (the "Assets"), which Assets shall be conveyed AS-IS, WHERE-IS: (i) all stock in trade and merchandise in Seller's inventory used by Seller exclusively in the conduct of the Businesses as of the Closing Date (the "Inventory"); (ii) all furniture, fixtures, furnishings, equipment and leasehold improvements used by Seller exclusively in the conduct of the Businesses as of the Closing Date (the "Personal Property"); (iii) all rights of Seller to the software used exclusively in the conduct of the Businesses as of the Closing Date and located at the premises where the Businesses are conducted, including, without limitation, all rights of Seller to use such software and the documentation related thereto (the "Software"); (iv) all rights of Seller pursuant to all contracts, leases (except for any interest of Seller in any lease with any third party regarding the premises at which the Businesses are conducted, other than the interest(s), if any, to be subleased to Buyer pursuant to the Sublease(s) defined below), warranties, commitments, agreements, purchase and sale orders and other executory commitments of Seller related solely to the Businesses as of the Closing Date (the "Contracts"); (v) all rights of Seller in and to the underlying land, if any, described on Exhibit G attached hereto, together with the structure(s) building(s) and other improvements owned by Seller and located on such land; (vi) all rights of Seller (to the extent assignable) pursuant to any governmental permits and licenses used exclusively in the operation of the Businesses (the "Permits"); (vii) Seller's telephone numbers for the Businesses (the "Telephone Numbers"); (viii) Seller's petty cash on hand at the Businesses as of the Closing Date (the "Petty Cash"). Notwithstanding the foregoing, the Assets do not include the following assets of Seller: (i) Seller's accounts or notes receivable; (ii) Seller's cash on hand at or with respect to the Businesses (other than the Petty Cash); (iii) Seller's trade name, trademarks, service marks, copyrights and all other intellectual property or intangible property of Seller; and (iv) to the extent that the Businesses are conducted on premises leased by Seller from a third party (or third parties), all rights of Seller in any leasehold or other interest in the premises at which the Businesses are conducted (except for any interest(s) to be subleased to Buyer pursuant to the Sublease(s), defined below). (b) Assumption of Liabilities. Subject to the terms and conditions of this Agreement, Seller shall assign, and Buyer shall assume and agree to satisfy, pay, discharge, perform and fulfill, as applicable, as they become due, without charge or cost to Seller except as provided for in this Agreement, and agrees to hold Seller harmless with respect to, the following liabilities and obligations of Seller (the "Assumed Liabilities"): (i) all liabilities and obligations of Seller related to owning the Assets and operating the Businesses on and after the Closing Date except for the Excluded Liabilities described below; and (ii) all liabilities and obligations of Seller under the Contracts, the Permits and the Telephone Numbers that arise or are attributable to events or conditions occurring on or after the Closing Date. Notwithstanding the foregoing, the Assumed Liabilities shall not include the following liabilities or obligations of Seller (the "Excluded Liabilities"): (i) except to the extent otherwise provided in this Agreement, any liabilities or obligations, whether or not known, of Seller to be performed prior to the Closing Date or arising out of or relating to Seller's ownership of the Assets or operation of the Businesses prior to the Closing Date; and (ii) Seller's accounts payable, notes payable and other obligations for or related to Seller's indebtedness to banks or financial institutions. 3. Purchase Price. In consideration of the sale of Assets and assumption of the Assumed Liabilities, at the Closing, Buyer shall deliver to Seller the following: (i) Two Million Three Hundred Seventy-Six Thousand One Hundred Thirty-Nine Dollars ($2,376,139) (the "Purchase Price"); and (ii) any sales or other taxes due on the sale of Assets and assumption of the Assumed Liabilities contemplated by this Agreement (the "Transaction Taxes"). (a) Payment of the Purchase Price. The Purchase Price shall be paid as follows: (i) by the delivery of the sum of (A) seventy-five (75%) percent of the Purchase Price, plus (B) the Transaction Taxes, all to be paid by certified check drawn on a local bank or by wire transfer of funds; and (ii) by the delivery to Seller of Buyer's promissory note, dated the Closing Date, in favor of Seller in the original principal amount equal to twenty-five (25%) percent of the Purchase Price (the "Note") in the form attached hereto as Exhibit B. As security for the payment of the Note, Buyer shall deliver to Seller a Security Agreement, dated the Closing Date, in the form attached hereto as Exhibit C and such other documents as may be reasonably required by Seller to perfect a security interest for the benefit of Seller in and to Buyer's assets (including, without limitation, UCC-1 financing statements in favor of Seller), and Buyer shall cause M. Ashton Pond to enter into a Guaranty in the form attached hereto as Exhibit D. (b) Other Adjustments to Purchase Price. At the Closing, or as soon as practicable after the Closing, the Purchase Price shall be adjusted, on a dollar-for-dollar basis, to reflect the proration of all items of expense or income directly relating to the Assets and the operation of the Businesses as of the Closing Date, and the net adjustments for all such items shall be paid in immediately available funds on or before the date that occurs sixty (60) days after the Closing Date (the "Adjustment Payment Date"). Prorated items shall include the following: rent, real and personal property taxes, payroll and payroll taxes, insurance premiums, utilities, security deposits, other prepaid items and other items customarily prorated. To the extent possible, any prorations not determinable as of the Closing Date shall be prorated on the basis of the most current information available at Closing; provided, however, Seller and Buyer agree that, upon presentation, on or before the Adjustment Payment Date, of written confirmation of (i) a change in an estimated amount, or (ii) a determination of the amount of any proration that cannot be determined as of the Closing Date, such amount will be reflected in the payment(s) to be made pursuant to this Section 3(b) on or before the Adjustment Payment Date. (c) Allocation of Purchase Price. The aggregate amount of the Purchase Price and the Assumed Liabilities shall be allocated among the Assets substantially in accordance with Schedule 3(c) attached hereto. Seller and Buyer hereby agree to use such allocation to complete and file Internal Revenue Service Form 8594 with the Internal Revenue Service. 4. Delivery of Documents and Related Transactions. (a) At the Closing, the following documents (the "Closing Documents"), together with the cash portion of the Purchase Price, shall be delivered as follows: (i) Seller shall deliver to Buyer the following executed documents (the "Seller's Documents"): 1) a bill of sale, assignment and assumption agreement for the Assets substantially in the form of Exhibit E attached hereto (the "Bill of Sale"), transferring to Buyer all of Seller's right, title and interest in and to said Assets, free and clear of all encumbrances except for Permitted Encumbrances (as defined in Section 5(c) below), pursuant to which Buyer will accept such Assets and assume the Assumed Liabilities; 2) a Certificate of Occasional or Isolated Sale substantially in the form of Exhibit F attached hereto (the "Certificate of Occasional or Isolated Sale"); 3) to the extent that the Businesses are conducted on premises leased by Seller from a third party (or third parties), the following: (A) a sublease or subleases between Seller, as sublessor, and Buyer, as sublessee, of such premises, in form satisfactory to the parties hereto (the "Sublease(s)"); and (B) the written consent of each landlord to the Sublease(s), if required; 4) to the extent that the Businesses are conducted on premises owned by Seller, a deed conveying Seller's interest in and to the underlying land, together with structure(s), building(s) and other improvements at the premises described on Exhibit G attached hereto (the "Deed"); 5) an operating agreement, a development agreement and a support services agreement, substantially in the form of the drafts dated July 2, 1997, July 2, 1997, and July 2, 1997, respectively, presented by Seller to Buyer (collectively, the "Franchise Documents"); and 6) other related documents that Buyer may have reasonably requested on or prior to the Closing Date. (ii) Buyer shall deliver to Seller (x) the cash portion of the Purchase Price, and (y) the following executed documents (the "Buyer's Documents"): 1) the Note; 2) the Bill of Sale; 3) to the extent that the Businesses are conducted on premises leased by Seller from a third party (or third parties), the Sublease(s); 4) the Security Agreement and other security documents referred to in Section 3(a)(ii) of this Agreement; 5) the Guaranty; 6) the Franchise Documents; and 7) other related documents that Seller may have reasonably requested on or prior to the Closing Date. (b) Further Assurances and Cooperation Post-Closing. Seller and Buyer, from time to time after the Closing (but without obligation separate from the obligations expressly provided by this Agreement), hereby agree to execute, acknowledge and deliver to each other such instruments of conveyance and transfer, and will take such other actions and execute and deliver such other documents, certifications and further assurances, as either party may reasonably request with respect to the assignment, transfer and delivery of the Assets and the assumption of the Assumed Liabilities and the perfection of Seller's security interest in the Assets pursuant to Section 3(a)(ii), in order to consummate in full the transactions provided for herein. (c) Employees. Buyer and Seller agree as follows: (i) Buyer's Responsibilities. Buyer shall offer employment, on substantially the same terms and conditions as currently in effect, to commence on and as of the Closing Date, to each employee of the Businesses as of the Closing Date (including, without limitation, any employee who is absent from work on the Closing Date on paid vacation or pursuant to any leave of absence authorized by Seller or required by law (hereinafter, all employees accepting employment with Buyer being referred to collectively as the "Transferred Employees")). Buyer agrees to give the Transferred Employees credit for their years of service with Seller for the purpose of determining any eligibility or vesting provisions that may be contained in employee plans provided to such Transferred Employees by Buyer in connection with their employment with Buyer. Buyer also agrees to give the Transferred Employees credit for all vacation and sick leave accrued during their employment with Seller and to provide, for the fiscal year ending June 6, 1998, the same vacation and sick leave benefits to all Transferred Employees as they would have been eligible to receive under the Seller's policies now in effect. (ii) Seller's Responsibilities. Seller agrees that, except as provided in Section 4(c)(i) above, Buyer shall not be subject to any liability with respect to, or resulting from the termination by Seller of any of its employees from, any profit sharing, 401(k), pension, stock option, vacation pay, sick pay, personal leave, severance pay, retirement, bonus, deferred compensation, group life and health insurance or other employee benefit plan, agreement or commitment of Seller. The foregoing Section 4(c) does not, and shall not be deemed or construed to, create any right in, or confer any right on, any employee or any other third party. (d) Bulk Sales. Buyer hereby waives compliance with any applicable "bulk sales law" or similar law by Seller, and Seller shall indemnify and hold Buyer harmless against any liability under any such laws for losses resulting from non-compliance therewith or Seller's application of the proceeds of the sale of Assets contemplated by this Agreement. 5. Seller's Representations and Warranties. Seller represents and warrants to Buyer the following: (a) Organization and Authority. Seller is a corporation duly organized, validly existing and in good standing under the laws of the State of Georgia. Seller possesses all requisite corporate power and authority to own the Assets and operate the Businesses and to enter into and perform this Agreement and the Seller's Documents. The execution and delivery and performance of each of this Agreement and the Seller's Documents by Seller have been duly authorized by all necessary corporate action. This Agreement has been duly executed and delivered on behalf of Seller by duly authorized officers of Seller, and this Agreement constitutes, and the Seller's Documents, when executed and delivered, will constitute, the legal, valid and binding obligation of Seller, enforceable against Seller in accordance with their respective terms, subject to the effects of bankruptcy, insolvency, reorganization, moratorium and similar laws relating to or affecting the rights of creditors and general principles of equity. (b) Compliance with Laws and Instruments. Subject to the consents and approvals listed on Schedule 5(b), the execution, delivery and performance by Seller of this Agreement and the Seller's Documents will not result in any material violation of or be in conflict with or constitute a material default under any applicable statute, regulation, order, rule, writ, injunction or decree of any court or governmental authority or of the Articles of Incorporation or Bylaws of Seller or of any material agreement or other material instrument to which Seller is a party or is a subject, or constitute a default thereunder. (c) Title to Assets. Seller has good, valid and marketable title to all of the Assets, free and clear of all mortgages, liens, pledges, security interests, charges, claims, restrictions and other encumbrances and defects of title of any nature whatsoever, except for (i) liens for current real, personal or other property taxes not yet due and payable, and (ii) the liens described on Schedule 5(c) (the "Permitted Encumbrances"). There are no existing agreements, options, commitments or rights with, of or to any person (other than Buyer) to acquire any of Seller's interests in the Assets. (d) Condition of Assets. Seller makes no representation or warranty as to the condition of the Assets, which shall be conveyed to Buyer on an AS IS, WHERE IS basis. (e) No Finder's Fees. Seller has not employed any broker or finder or incurred any liability for any brokerage fees or commissions or any finder's fees in connection with the negotiations related to this Agreement or the consummation of the transactions contemplated hereby. (f) No Litigation. No suit, action or other proceeding, or any injunction or final judgment relating thereto, is pending or, to the knowledge of Seller, threatened, before any court or governmental or regulatory official, body or authority in which it is sought to restrain or prohibit or to obtain damages or other relief in connection with this Agreement or the Seller's Documents, or the consummation of the transactions contemplated hereby and thereby, and no investigation that might result in any such suit, action or proceeding is pending or, to the knowledge of Seller, threatened. (g) Legal Compliance. To the knowledge of Seller, except as disclosed on Schedule 5(g), Seller has complied with all laws (including rules, regulations, codes, plans, injunctions, judgments, orders, decrees, rulings and charges thereunder) of federal, state, local and foreign governments (and all agencies thereof), applicable to the Assets and the operation of the Businesses for which the failure to so comply would have a material adverse effect on the Assets or the Businesses, and no action, suit, proceedings, hearing, investigation, charge, complaint, claim, demand, or notice has been filed or commenced against Seller alleging any failure so to comply, (h) Tax Matters. (i) Seller has filed all state, local and federal tax returns required to be filed in connection with the ownership of the Assets and the operation of the Businesses. All such tax returns were correct and complete in all material respects. All state, local and federal taxes currently due and payable by Seller in connection with the Businesses have been paid. (ii) Seller has withheld and paid all taxes required to have been withheld and paid in connection with amounts paid or owing to any employee, independent contractor, creditor, shareholder, or other third party employed by or relating to the Businesses. (i) Real Property. With respect to each Sublease and, if applicable, the Deed: (i) the underlying lease or sublease to which Seller is a party (the "Lease") is the legal, valid, binding and enforceable obligation of the Seller and is in full force and effect; (ii) subject to any applicable consent or approval listed in Schedule 5(b), the Lease will continue to be legal, valid, binding, enforceable, and in full force and effect on identical terms following the consummation of the transactions contemplated hereby (including the assignments and assumptions referred to in Section 4 above); (iii) to the knowledge of Seller, no party to the Lease is in breach or default, and no event has occurred which, with notice or lapse of time, would constitute a breach or default or permit termination, modification, or acceleration thereunder; (iv) to the knowledge of Seller, no party to the Lease has repudiated any provision thereof; (v) to the knowledge of Seller, there are no disputes, oral agreements or forbearance programs in effect as to the Lease or Sublease; (vi) Seller has not assigned, transferred, conveyed, mortgaged, deeded in trust, or encumbered any interest in the Lease, or, if applicable, the real property that is subject to the Deed, except for Permitted Liens; (vii) except as disclosed on Schedule 5(g), to the knowledge of Seller, all premises subject to any Lease, or, if applicable, the Deed, (A) have received all approvals of governmental authorities (including licenses and permits) required in connection with the operation of the Businesses and for which failure to receive such approval would have a material adverse effect on the Assets or the Businesses, and (B) have been operated and maintained in accordance with all laws, rules and regulations applicable to the operation of the Businesses and for which failure to be so operated and maintained would have a material adverse effect on the Assets of the Businesses; and (viii) Seller has good and marketable title to the parcel of real property subject to the Deed, free and clear of any security interest, lien, covenant or other restriction, installments of special liens or assessments not yet delinquent and recorded easements, covenants, and other restrictions which do not impair the current use, occupancy, or value, or the marketability of title, of the property subject thereto. (j) Intellectual Property. To the knowledge of the Seller, Seller has the right to use the Software, pursuant to license, sublease, agreement or permission. After the Closing, the Software will be owned or available for use by Buyer on substantially the same terms and conditions as by Seller prior to the Closing. (k) Contracts. Seller represents and warrants to Buyer with respect to each Contract assigned to Buyer that (i) such Contract is legal, valid, binding, enforceable, and in full force and effect; (ii) subject to any applicable consents and approvals listed on Schedule 5(b), such Contract will continue to be legal, valid, binding, enforceable, and in full force and effect on identical terms following the consummation of the transactions contemplated hereby (including the assignments and assumptions); (iii) to the knowledge of Seller, no party is in breach or default, and no event has occurred which with notice or lapse of time would constitute a breach or default, or permit termination, modification, or acceleration, under such Contract; and (iv) to the knowledge of the Seller, no party has repudiated any provision of such Contract. (l) Other Litigation. Seller represents and warrants to Buyer that Seller: (i) is not subject to any outstanding injunction, judgment, order, decree, ruling, or charge affecting the Businesses, and (ii) is not a party or, to the knowledge of Seller, is not threatened to be made a party to any action, suit, proceeding, hearing, or investigation affecting the Businesses of, in, or before any court or quasi-judicial or administrative agency of any federal, state, local, or foreign jurisdiction or before any arbitrator. (m) Environmental, Health and Safety Matters. To the knowledge of Seller: (i) Seller has complied and is in compliance with all Environmental, Health, and Safety Requirements for which failure to so comply would have a material adverse effect on the Assets or the Businesses. (As used herein, Environmental, Health, and Safety Requirements shall mean all federal, state, local and foreign statutes, regulations, ordinances and other provisions having the force or effect of law, all judicial and administrative orders and determinations, all contractual obligations and all common law concerning public health and safety, worker health and safety, and pollution or protection of the environment.) (ii) Seller has not received any written or oral notice, report or other information regarding any actual or alleged violation of Environmental, Health, and Safety Requirements, or any liabilities or potential liabilities (whether accrued, absolute, contingent, unliquidated or otherwise), including any investigatory, remedial or corrective obligations, relating to any of them or its facilities arising under Environmental, Health, and Safety Requirements. 6. Buyer's Representations. Buyer represents and warrants to Seller the following: (a) Organization and Authority. Buyer is a limited partnership, duly organized, validly existing and in good standing under the laws of the State of Delaware. The sole general partner of Buyer is A. Pond, Inc., a Florida corporation, and the sole limited partner of Buyer is RT South Florida, Inc. a Georgia corporation. Buyer is duly qualified to do business and is in good standing in each jurisdiction where the conduct of its business currently requires it to be qualified or would require it to be qualified after the consummation of the transactions provided for in this Agreement and the Buyer's Documents. Buyer possesses all requisite power and authority to enter into and perform this Agreement and the Buyer's Documents. The execution and delivery and performance of this Agreement and the Buyer's Documents by Buyer have been duly authorized by all necessary action (including, without limitation, all necessary action by the general partner of Buyer). This Agreement has been duly executed and delivered on behalf of Buyer by the sole general partner, as duly authorized by Buyer, and this Agreement constitutes, and the Buyer's Documents, when executed and delivered, will constitute, the legal, valid and binding obligation of Buyer, enforceable against Buyer in accordance with their respective terms, subject to the effects of bankruptcy, insolvency, reorganization, moratorium and similar laws relating to or affecting the rights of creditors and general principles of equity. (b) Compliance with Laws and Instruments. The execution, delivery and performance by Buyer of this Agreement and the Buyer's Documents will not result in any material violation of or be in conflict with or constitute a material default under any applicable statute, regulation, order, rule, writ, injunction or decree of any court or governmental authority or of the Certificate of Limited Partnership or Limited Partnership Agreement of Buyer or of any material agreement or other material instrument to which Buyer is a party or is subject, or constitute a default thereunder. (c) No Finder's Fees. Buyer has not employed any broker or finder or incurred any liability for any brokerage fees or commissions or any finder's fees in connection with the negotiations related to this Agreement or the consummation of the transactions contemplated hereby. (d) Independent Investigation. Buyer has had full opportunity to inspect the Businesses and the Assets and to ask all questions of Seller regarding the Businesses and the Assets. Buyer has had the opportunity to conduct its own independent investigation relating to all aspects of the Businesses and to obtain whatever opinions of specialists and experts it has deemed necessary in making the decisions to enter into this Agreement and the Buyer's Documents and to consummate the transactions contemplated hereby and thereby. In making such decisions, (i) Buyer has not relied on information received by it from Seller regarding the past or present earnings of the Businesses as a determinant or indicator of future earnings of the Businesses, and (ii) Buyer has not relied on information received from Seller regarding the prospects of future earnings of the Businesses. (e) Condition of Assets. BUYER ACKNOWLEDGES AND AGREES THAT ALL ASSETS TO BE TRANSFERRED, ASSIGNED OR LICENSED PURSUANT TO THIS AGREEMENT AND THE CLOSING DOCUMENTS SHALL BE TRANSFERRED, ASSIGNED OR LICENSED ON AN "AS IS, WHERE IS" BASIS, AND THAT, EXCEPT AS EXPRESSLY SET FORTH IN SECTION 5 OF THIS AGREEMENT, SELLER IS MAKING, AND SHALL MAKE, NO REPRESENTATION OR WARRANTY OF ANY KIND, EXPRESS OR IMPLIED, RESPECTING ANY OF THE ASSETS, AS TO MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE OR ANY OTHER MATTER. FURTHER, BUYER ACKNOWLEDGES THAT BUYER HAS INFORMED ITSELF AS TO THE BUSINESSES, AND BUYER FURTHER ACKNOWLEDGES AND AGREES THAT SELLER MAKES, AND SHALL MAKE, NO REPRESENTATION OR WARRANTY OF ANY KIND WITH RESPECT TO THE BUSINESSES. (f) No Litigation. No suit, action or other proceeding, or any injunction or final judgment relating thereto, is pending or, to the knowledge of Buyer, threatened before any court or governmental or regulatory official, body or authority in which it is sought to restrain or prohibit or to obtain damages or other relief in connection with this Agreement or the Buyer's Documents, or the consummation of the transactions contemplated hereby, and no investigation that might result in any such suit, action or proceeding is pending or, to the knowledge of Buyer, threatened. (g) Other Litigation. Buyer represents and warrants to Seller that Buyer: (i) is not subject to any outstanding injunction, judgment, order, decree, ruling or charge, and (ii) is not a party or, to the knowledge of Buyer, is not threatened to be made a party to any action, suit, proceeding, hearing, or investigation of, in, or before any court or quasi-judicial or administrative agency of any federal, state, local, or foreign jurisdiction or before any arbitrator. 7. Conditions to Closing. (a) Conditions to Obligations of Buyer. All obligations of Buyer under this Agreement are subject to the fulfillment or satisfaction, prior to or at the Closing, of each of the following conditions precedent: (i) The representations and warranties of Seller contained in this Agreement shall have been true on the date hereof in all material respects, and shall be true in all material respects as of the Closing as if made at the Closing. (ii) Seller shall have performed and complied in all material respects with all agreements and conditions required by this Agreement to be performed or complied with by or prior to or at the Closing. (iii) As of the Closing, no suit, action or other proceeding, or any injunction or final judgment relating thereto, shall be threatened or be pending before any court or governmental or regulatory official, body or authority in which it is sought to restrain or prohibit or to obtain damages or other relief in connection with this Agreement or the consummation of the transactions contemplated hereby, and no investigation that might result in any such suit, action or proceeding shall be pending or threatened. (iv) Each consent or approval listed on Schedule 7(a)(iv) as required or necessary under contract or applicable law for the consummation of the transactions contemplated hereby shall have been obtained; provided, however, those certain consents or approvals identified on such Schedule 7(a)(iv) as being subject to deferral need not have been obtained on or before the Closing to the extent that Seller shall have made appropriate arrangements to secure to Buyer the practical and economic benefits of the agreements or other arrangements to which such consents or approvals relate. (v) The documents to be delivered by Seller at Closing pursuant to Section 4(a) shall have been executed and delivered. (vi) Buyer shall have received a certificate from Seller, dated the Closing Date and certifying in such detail as Buyer may reasonably request, that the conditions specified in Sections 7(a)(i), 7(a)(ii) and 7(a)(iv) hereof have been fulfilled. (b) Conditions to Obligations of Seller. All obligations of Seller under this Agreement are subject to the fulfillment or satisfaction prior to or at the Closing, of each of the following conditions precedent: (i) The representations and warranties of Buyer contained in this Agreement shall have been true on the date hereof in all material respects, and shall be true in all material respects as of the Closing if made at the Closing. (ii) Buyer shall have performed and complied in all material respects with all agreements and conditions required by this Agreement to be performed or complied with by it prior to or at the Closing. (iii) As of the Closing, no suit, action or other proceedings, or any injunction or final judgment relating thereto, shall be threatened or be pending before any court or governmental or regulatory official, body or authority in which it is sought to restrain or prohibit or to obtain damages or other relief in connection with this Agreement or the consummation of the transactions contemplated hereby, and no investigation that might result in any such suit, action or proceeding shall be pending or threatened. (iv) Each consent or approval listed on Schedule 7(a)(iv) as required or necessary under contract or applicable law of the consummation of the transactions contemplated hereby shall have been obtained; provided, however, those certain consents or approvals identified on such Schedule 7(a)(iv) as being subject to deferral need not have been obtained on or before the Closing, to the extent that Seller shall have made appropriate arrangements to secure to Buyer the practical and economic benefits of the agreements or other arrangements to which such consents or approvals relate. (v) The documents to be delivered by Buyer at Closing pursuant to Section 4(a) shall have been executed and delivered. (vi) Seller shall have received a certificate from Buyer dated the Closing Date and certifying in such detail as Seller may reasonably request, that the conditions specified in Sections 7(b)(i) and 7(b)(ii) hereof have been fulfilled and that all consents and approvals required or necessary to transfer to Buyer all licenses or permits held by Seller or the Businesses with respect to the sale or consumption of alcoholic beverages on the premises at which the Businesses are conducted have been obtained. 8. Term and Termination. This Agreement may be terminated and the transactions contemplated hereby may be abandoned at any time prior to the Closing: (a) by mutual consent of Seller and Buyer; (b) by either Seller or Buyer, if such terminating party is not otherwise in default in this Agreement and if the Closing shall not have occurred on or before January 2, 1998, or such other extended date, if any, mutually agreed to by the parties in writing; and (c) by either party if there has been a material breach of any representation, warranty, covenant or agreement by the other party that has not been cured or for which adequate assurance (reasonably acceptable to such terminating party) of cure has not been given, in either case within fifteen (15) business days following receipt of notice of such breach. If either party terminates this Agreement pursuant to the provisions hereof, such termination shall be effected by notice to the other party specifying the provision hereof pursuant to which such termination is made. Except for any liability for the breach of this Agreement, upon the termination of this Agreement pursuant to this Section 8, this Agreement shall forthwith become null and void and there shall be no further liability or the obligation on the part of Seller or Buyer hereunder or with respect hereto. 9. Indemnification. (a) Indemnification of Buyer. Subject to the limitations set forth in Sections 9(c), 9(d), and 9(e), Seller shall indemnify and hold Buyer, its partners and their respective officers, directors, shareholders, employees, agents and representatives (the "Buyer Indemnified Parties") harmless from, against, for and in respect of any and all damages, losses, settlement payments, obligations, liabilities, claims, actions or causes of action (whether as a result of direct claims or third-party claims) actually suffered, sustained, incurred or required to be paid by Buyer Indemnified Parties, net of any resulting income tax benefits to Buyer Indemnified Parties, because of (i) the breach of any written representation, warranty, agreement or covenant of Seller contained in this Agreement (as the same shall have been modified at any time at or before Closing including, without limitation, any modification contained in any certificate of Seller concerning such matters delivered at the Closing) or the Closing Documents; (ii) any and all Excluded Liabilities; (iii) any contamination on or under the property that is subject to the Deed or the Sublease(s) or in any of the Assets caused by Seller prior to the Closing Date, or any liability for remediation or clean-up of environmental conditions as a result of Seller's operations, whether on or under the property that is subject to the Deed or the Sublease(s) or elsewhere; (iv) all reasonable costs and expenses (including, without limitation, attorneys' fees, interest and penalties) actually incurred by Buyer Indemnified Parties in connection with any action, suit, proceeding, demand, assessment or judgment incident to any of the matters indemnified against in this Section 9(a). (b) Indemnification of Seller. Subject to the limitations set forth in Sections 9(c), 9(d) and 9(e), Buyer shall indemnify and hold Seller, its affiliated corporations and their respective officers, directors, shareholders, employees, agents and representatives (the "Seller Indemnified Parties") harmless from, against, for and in respect of any and all damages, losses, settlement payments, obligations, liabilities, claims, actions or causes of action (whether as a result of direct claims or third-party claims) actually suffered, sustained, incurred or required to be paid by Seller Indemnified Parties, net of any resulting income tax benefits to Seller Indemnified Parties, because of (i) the breach of any written representation, warranty, agreement or covenant of Buyer contained in this Agreement (as the same shall have been modified at any time at or before Closing, including, without limitation, any modification contained in any certificate of Buyer concerning such matters delivered at the Closing) or the Closing Documents; (ii) any and all Assumed Liabilities and all liabilities in connection with the operation of the Businesses in respect of periods on and after the Closing Date; (iii) any contamination on or under the property that is subject to the Deed or Sublease(s) or in any of the Assets caused by Buyer on or after the Closing Date or any liability for remediation or clean-up of environmental conditions as a result of Buyer's operations, whether on or under the property that is subject to the Deed or the Sublease(s) or elsewhere; and (iv) all reasonable costs and expenses (including, without limitation, attorneys' fees, interest and penalties) incurred by Seller Indemnified Parties in connection with any action, suit, proceeding, demand, assessment or judgment incident to any of the matters indemnified against in this Section 9(b). (c) Survival of Indemnification Obligations. Notice of any claim under Section 9(a)(i) or Section 9(b)(i) of the indemnification provisions hereof must be given prior to the date that occurs two (2) years after the Closing Date, and any such claims not made within such period shall be of no force or effect. Notice of any other claim under the indemnification provisions hereof must be given within the applicable time period of any applicable statute of limitations. (d) General Rules Regarding Indemnification. The obligations and liabilities of each indemnifying party hereunder with respect to claims resulting from the assertion of liability by the other party shall be subject to the following terms and conditions: (i) The indemnified party shall give prompt (so as not to materially prejudice the position of the indemnifying party) written notice (which in no event shall exceed 30 days from the date on which the indemnified party first became aware of such claim or assertion) to the indemnifying party of any claim which might give rise to a claim by the indemnified party against the indemnifying party based on the indemnity agreements contained in Sections 9(a) or 9(b) hereof, stating the nature and basis of said claims and the amounts thereof, to the extent known: (ii) If any action, suit or proceeding is brought against the indemnified party with respect to which the indemnifying party may have liability under the indemnity agreements contained in Sections 9(a) or 9(b) hereof, the action, suit or proceeding shall, at the election of the indemnifying party, be defended (including all proceedings on appeal or for review which counsel for the indemnified party shall deem appropriate) by the indemnifying party. The indemnified party shall have the right to employ its own counsel in any such case, but the fees and expenses of such counsel shall be at the indemnified party's own expense unless the employment of such counsel and the payment of such fees and expenses both shall have been specifically authorized in writing by the indemnifying party in connection with the defense of such action, suit or proceeding. Notwithstanding the foregoing, (A) if there are defenses available to the indemnified party that are inconsistent with those available to the indemnifying party to such extent as to create a conflict of interest between the indemnifying party and the indemnified party, the indemnified party shall have the right to direct the defense of such action, suit or proceeding insofar as it relates to such inconsistent defenses, and the indemnifying party shall be responsible for the reasonable fees and expenses of the indemnified party's counsel insofar as they relate to such inconsistent defenses, and (B) if such action, suit or proceeding involves or could have an effect on matters beyond the scope of the indemnity agreements contained in Sections 9(a) or 9(b) hereof, the indemnified party shall have the right to direct (at its own expense) the defense of such action, suit or proceeding insofar as it relates to such other matters. The indemnified party shall be kept fully informed of such action, suit or proceeding at all stages thereof whether or not it is represented by separate counsel. (iii) The indemnified party shall make available to the indemnifying party and its attorneys and accountants all books and records of the indemnified party relating to such proceedings or litigation and the parties hereto agree to render to each other such assistance as they may reasonably require of each other in order to ensure the proper and adequate defense of any such action, suit or proceeding. Whether or not the indemnifying party chooses to defend or prosecute any claim involving a third party, all parties hereto shall cooperate in the defense or prosecution thereof and shall furnish such records, information and testimony and attend such conferences, discovery proceedings, hearings, trials and appeals as may be reasonably requested in connection therewith. (iv) The indemnified party shall not make any settlement of any claims without the written consent of the indemnifying party. (e) Limits on Indemnification Obligation. Notwithstanding anything in Sections 9(a) and 9(b) to the contrary or in conflict, any amount for which Seller is obligated to reimburse Buyer may, in Seller's sole discretion, be satisfied by reducing amounts currently due to Seller under the Note or the Operating Agreement included in the Franchise Documents by a like amount. (f) Insurance Proceeds. (i) In determining the amount of any loss, liability or expense for which any indemnified party is entitled to indemnification under this Agreement, the gross amount thereof will be reduced by any insurance proceeds actually paid to any indemnified party; provided, however, if such party has been indemnified hereunder but does not actually receive such insurance proceeds until after being indemnified, such party shall reimburse the indemnifying party for amounts paid to such party to the extent of the insurance proceeds so received. (ii) Following the Closing Date, if Buyer should suffer any loss, liability or expense covered by any of Seller's insurance policies and wishes to make a claim against the issuer of such policy, Seller shall use its best efforts to assist Buyer in ascertaining and establishing coverage, pursuing such claim and collecting under such policy. In connection with the foregoing sentence, Seller shall not be required to incur any costs (including attorneys' fees or demonstrable increases in insurance premiums), other than normal overhead expenses, or to forego any similar claim of its own with respect to the same occurrence, in assisting Buyer in these efforts, unless Seller shall otherwise be obligated to indemnify Buyer pursuant to Section 9(a). (iii) Following the Closing Date, if Seller should suffer any loss, liability or expense covered by any of Buyer's insurance policies and wish to make a claim against the issuer of such policy, Buyer shall use its best efforts to assist Seller ascertaining and establishing coverage, pursuing such claim and collecting under such policy. In connection with the foregoing sentence, Buyer shall not be required to incur any costs (including attorneys' fees or demonstrable increases in insurance premiums), other than normal overhead expenses, or to forego any similar claim of its own with respect to the same occurrence, in assisting Seller in these efforts, unless Buyer shall otherwise be obligated to indemnify Seller pursuant to Section 9(b). (iv) If both an indemnifying party and an indemnified party have insurance coverage respecting a particular claim for which indemnification is provided pursuant to Sections 9(a) and 9(b), the parties agree that the insurance coverage of the indemnifying party will be called upon before the insurance coverage of the indemnified party is called upon. 10. Miscellaneous. (a) Survival. Unless this Agreement is terminated pursuant to Section 8(a) or Section 8(b) hereof, all representations, warranties, covenants and agreements made in this Agreement or in a certificate delivered pursuant hereto by the parties hereto shall survive the termination of this Agreement or the consummation of the transactions contemplated hereby for a period of two (2) years after the Closing Date, except for the provisions of Section 9 hereof, which provisions shall survive the consummation of the transactions contemplated hereby in accordance with the terms of such Section 9. (b) Notices. All notices, requests, or other communications hereunder shall be in writing and shall be deemed to have been duly given when delivered or refused, if delivered personally, or, if delivered by overnight carrier, such as Federal Express, when delivered as follows: If delivered to Seller: Ruby Tuesday, Inc. Attention: Legal Department 4721 Morrison Drive Mobile, Alabama 36609-3350 If delivered to Buyer: RT South Florida Franchise, L.P. 2045 Bradbury Drive East Mobile, Alabama 36695 (c) Mail Addressed to Seller. After the Closing Date, Buyer may open all mail addressed to Seller at the premises of the Businesses. Buyer shall promptly forward to Seller any mail that does not require Buyer's action. (d) Expenses. Except as otherwise provided in this Agreement, all costs and expenses incurred in connection with this Agreement and the transactions contemplated hereby shall be paid by the party incurring such expenses. (e) Sales, Transfer, Documentary and Other Taxes. In addition to the Transaction Taxes paid herewith, Buyer shall pay all federal, state and local sales, documentary, transfer or other taxes or recording fees, if any, due as a result of the purchase, sale or transfer of the Assets hereunder, whether imposed by law on Seller or Buyer, and Buyer shall indemnify, reimburse and hold harmless Seller in respect of the liability for payment of or failure to pay any such taxes or the filing of or failure to file any reports required to be filed in connection therewith. (f) Entire Agreement. This Agreement, together with the Closing Documents, sets forth the entire understanding of the parties hereto with respect to the transactions contemplated hereby, and shall not be amended or modified except by written instrument duly executed by each of the parties hereto. Any and all previous agreements and understandings between or among the parties regarding the subject matter hereof, whether written or oral, are superseded by this Agreement, together with the Closing Documents. (g) Assignment and Binding Effect. This Agreement may not be assigned by either party hereto without the prior written consent of the other party. Subject to the foregoing, all of the terms and provisions of this Agreement shall be binding upon and inure to the benefit of and be enforceable by the successors and assigns of Seller and Buyer, but shall not be construed as conferring any other rights on any other person. (h) Waiver. Any term or provision of this Agreement may be waived at any time by the party entitled to the benefit thereof by a written instrument duly executed by such party. (i) Construction. All headings contained in this Agreement are for convenience of reference only, and do not form a part of this Agreement and shall not affect in any way the meaning or interpretation of this Agreement. (j) Exhibits and Schedules. All Exhibits and Schedules referred to herein are intended to and hereby are specifically made part of this Agreement. (k) Severability. Any provision of this Agreement that is invalid or enforceable in any jurisdiction shall be ineffective to the extent of such invalidity or unenforceability without invalidating or rendering unenforceable the remaining provisions hereof, and any such invalidity or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provisions in any other jurisdiction. (l) Counterparts. This Agreement may be executed in any number of counterparts, each of which when executed and delivered shall be deemed to be an original, and all of which counterparts taken together shall constitute one and the same instrument. (m) Applicable Law. This Agreement shall be construed in accordance with the laws of the State of Florida. IN WITNESS WHEREOF, the parties have duly executed and delivered this Agreement as of the date first above written. SELLER: RUBY TUESDAY, INC. By:/s/ J. Russell Mothershed Name: J. Russell Mothershed Title: Senior Vice President BUYER: RT SOUTH FLORIDA FRANCHISE, L.P., d/b/a RT South Florida Franchise, Ltd. By:/s/ M. Ashton Pond A. Pond, Inc., General Partner Name: M. Ashton Pond Title: President LIST OF SCHEDULES AND EXHIBITS Schedules Schedule 3(c) Allocation of Purchase Price Schedule 5(b) Seller's Consents and Approvals Schedule 5(c) Permitted Encumbrances Schedule 5(g) Compliance Disclosure Schedule 7(a)(iv) Required Consents and Approvals Exhibits Exhibit A List of Restaurant Locations Exhibit B Form of Note Exhibit C Form of Security Agreement Exhibit D Form of Guaranty Exhibit E Form of Bill of Sale Exhibit F Form of Certificate of Occasional or Isolated Sale Exhibit G Legal Description for Owned Real Property Schedule 3(c) ALLOCATION OF PURCHASE PRICE Schedule 5(b) SELLER'S CONSENTS AND APPROVALS 1. All consents and approvals required or necessary to transfer to Buyer all licenses or permits currently held by Seller or the Businesses with respect to the sale or consumption of alcoholic beverages on the premises at which the Businesses are conducted. 2. All consents required or necessary from any third party (or third parties) with respect to the Sublease(s) or the Contracts. Schedule 5(c) PERMITTED ENCUMBRANCES 1. Liens that are immaterial in character, amount or extent, and that do not materially affect the value, or do not materially interfere with the present use, of the Assets. 2. UCC-1 Financing Statement filed August 5, 1996, as File No.960000161575 with the Florida Secretary of State, showing Ruby Tuesday, Inc. as Debtor, and CLG, Inc., as Secured Party, covering equipment leased and located as follows: (n) Location 3929 - Pembroke Lakes Mall, 11401 Pines Blvd., Pembroke, FL 33026 (RT South Florida Franchise, L.P.) (o) Location 2681 - Fashion Island Mall, 18801-B Biscayne Blvd., Miami, FL 33180 (RT South Florida Franchise, L.P.) (p) Location 2878 - 1808 Volusia Ave., Daytona Beach, FL 32114 (RT Orlando Franchise, L.P.) (q) Location 3919 - 2675 Roosevelt Blvd., Clearwater, FL 34620 (RT Tampa Franchise, L.P.) (r) Location 2860 - 9457 W.Atlantic Ave., Coral Springs, FL 33071 (RT South Florida Franchise, L.P.) 3. UCC-1 Financing Statement filed August 5, 1996, as File No. 960000161579 with the Florida Secretary of State, showing Ruby Tuesday, Inc., as Debtor, and CLG, Inc., as Secured Party, covering equipment leased and located as follows: (a) Location 2878 - 1808 Volusia Ave., Daytona Beach, FL 32114 (RT Orlando Franchise, L.P.) b. Location 3679 - 3500 S.W. College Rd., Ste. 104, Ocala, FL 33474 (RT Orlando Franchise, L.P.) c. Location 3919 - 2675 Roosevelt Blvd., Clearwater, FL 34620 (RT Tampa Franchise, L.P.) d. Location 3929 - Pembroke Lakes Mall, 11401 Pines Blvd., Pembroke, FL 33026 (RT South Florida Franchise, L.P.) e. Location 2609 - 1950 N. Tamiami Trail, Naples, FL 33940 (RT Tampa Franchise, L.P.) f. Location 3924 - 777 East Merritt Causeway, Merritt Island, FL 32952 (RT Orlando Franchise, L.P.) 4. UCC-1 Financing Statement filed September 13, 1996, as File No. 960000192921 with the Florida Secretary of State, showing Ruby Tuesday, Inc., as Debtor and Orix Credit Alliance, Inc., as Secured Party. Schedule 5(g) COMPLIANCE DISCLOSURE The Businesses are not in full compliance with certain requirements of the Americans with Disabilities Act of 1990. Schedule 7(a)(iv) REQUIRED CONSENTS AND APPROVALS 1. All consents and approvals required or necessary to transfer to Buyer all licenses or permits currently held by Seller or the Businesses with respect to the sale or consumption of alcoholic beverages on the premises at which the Businesses are conducted. 2. All consents required or necessary from any third party (or third parties) with respect to the Sublease(s). 3. All consents required by Seller's current lender(s). EX-11 8 RUBY TUESDAY, INC. AND SUBSIDIARIES EXHIBIT 11 COMPUTATION OF EARNINGS PER SHARE (IN THOUSANDS EXCEPT PER-SHARE DATA) Fiscal Year Ended May 31, June 1, June 3, 1997 1996 1995 PRIMARY EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE Average common shares outstanding......... 17,595 17,689 17,321 Average additional common shares issuable on exercise of dilutive stock options (computed by use of the "treaury stock method", at the average market price)..................... 280 640 Number of shares used in computation of primary earnings per share.............. 17,875 17,689 17,961 Net income (loss)....................... $25,045 $(2,884) $62,171 Primary earnings (loss) per common and common equivalent share................. $ 1.40 $ (0.16) $ 3.46 Fiscal Year Ended May 31, June 1, June 3, 1997 1996 1995 FULLY DILUTED EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE Average common shares outstanding......... 17,595 17,689 17,321 Average additional common shares issuable on exercise of dilutive stock options (computed by use of the "treasury stock method", at the higher of period-end or average market price)................ 314 664 Number of shares used in computation of fully diluted earnings per share........ 17,909 17,689 17,985 Net income (loss)....................... $25,045 $(2,884) $62,171 Fully diluted earnings (loss) per common and common equivalent share............. $ 1.40 $ (0.16) $ 3.46 Weighted average shares and all per-share data for prior years have been restated to give effect to common stock dividends and common stock splits through May 31, 1997. EX-13 9 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS General Ruby Tuesday, Inc. owns and operates three casual dining restaurant concepts: Ruby Tuesday, Mozzarella's, and Tia's. As of May 31, 1997, the Company's operations included 393 restaurants located in 33 states. On March 7, 1996 the shareholders of Morrison Restaurants Inc. ("Morrison") approved the distribution (the "Distribution") of its family dining restaurant business (Morrison Fresh Cooking, Inc. ("MFC")) and its health care food and nutrition services business (Morrison Health Care, Inc. ("MHC")) to its shareholders effective March 9, 1996. Morrison shareholders received one share of MFC stock for every four shares of Morrison stock then held and one share of MHC stock for every three shares of Morrison stock then held. In accordance with Accounting Principles Board Opinion No. 30, the financial results of these two businesses, together referred to as the Morrison Group, are reported as discontinued operations. For accounting purposes, the Distribution is reflected as if it occurred on March 2, 1996, the last day of the fiscal 1996 third quarter. In conjunction with the Distribution, Morrison reincorporated in Georgia and changed its name to Ruby Tuesday, Inc. (the "Company"). For an understanding of the significant factors that influenced the Company's performance during the past three fiscal years, the following should be read in conjunction with the Consolidated Financial Statements and related Notes found on pages 26 to 43. Results of Operations The following table sets forth selected restaurant operating data as a percentage of revenues for the periods indicated. All information is derived from the Consolidated Financial Statements of the Company included elsewhere in this Annual Report. 1997 1996 1995 Revenues 100.0% 100.0% 100.0% Operating costs and expenses: Cost of merchandise 27.1 27.5 26.9 Payroll and related costs 32.5 33.7 33.0 Other 21.5 21.6 20.6 Selling, general and administrative 6.5 6.3 7.3 Depreciation and amortization 5.9 5.5 5.2 L&N conversion/closing costs 3.8 Interest expense, net 0.6 0.8 0.1 Loss on impairment of assets 4.2 Restructure charges 0.8 Total operating costs and expenses 94.1 100.4 96.9 Income (loss) from continuing operations before income taxes 5.9 (0.4) 3.1 Provision (benefit) for federal and state income taxes 2.1 (0.3) 0.9 Income (loss) from continuing operations 3.8 (0.1) 2.2 Income (loss) from discontinued operations, net of applicable income taxes (0.4) 9.9 Net income (loss) 3.8% (0.5)% 12.1% During fiscal 1996, the Company recorded $31.1 million in charges related to asset impairment and restructure charges. The effect of these charges on fiscal 1996 results of operations is discussed below. During fiscal 1995, the Company phased out its L&N Seafood Grill ("L&N") concept. In connection therewith, the Company recorded $19.7 million in costs to close or convert into other concepts all L&N units. Fiscal 1997 compared to Fiscal 1996 Overview During fiscal 1997, the Company opened 30 Ruby Tuesdays, two Mozzarella's, and three Tia's restaurants while closing six Ruby Tuesdays and one Tia's restaurants. Also in 1997, the Company began its domestic franchise program with the sale of one owned unit to a franchisee. During fiscal 1997, the Company focused on same-store sales, average- unit volume, customer frequency, and check average. The Company also plans to further its franchise programs in fiscal 1998 by becoming a financial partner with selected regional operators in the casual dining industry, by franchising units located in areas outside of the Company's primary growth markets, and by pursuing the continuation of international license and franchise development with large and experienced partners in broad geographic territories. The Company anticipates a 10% increase in owned units in fiscal 1998; however, there can be no assurance growth will be achieved in fiscal 1998. See "Special Note Regarding Forward-Looking Information." Revenues The Company's revenues increased to $655.4 million in fiscal 1997 from $620.1 million in fiscal 1996. The 5.7% revenue increase was the result of the net addition of 28 units during the year, comprised of 24 Ruby Tuesdays, two Mozzarella's, and two Tia's. For the Ruby Tuesday concept, same-store sales decreased 0.8% in fiscal 1997. Same-store sales for Tia's also declined, while Mozzarella's experienced positive same- store sales. Operating Profits Pre-tax income from continuing operations increased $41.1 million in fiscal 1997 to $38.8 million. The increase was due in part to $31.1 million of unusual non-recurring charges recorded in fiscal 1996 for restructure charges and loss on impairment of assets. The remaining increase in pre-tax income is the result of the net addition of 28 units coupled with cost decreases discussed below. Cost of merchandise as a percentage of revenues decreased 0.4% due to a new menu which was implemented in October 1996 which lowered food costs significantly. Also, there was an increased focus on food cost management at the unit level in fiscal 1997, and the Company experienced an improvement in rebates and volume discounts. Payroll and related costs decreased 1.2% as a percentage of revenues in fiscal 1997. The decrease is due to a reduction in management labor resulting from a strategic decision to reduce unit managers to a level that more accurately matches unit volume. The remaining portion of the decrease is the result of reduced workers' compensation expense as a percentage of revenues associated with favorable experience ratings in the current year. Other operating expenses decreased slightly as a percentage of revenues (0.1%) due to a decrease in supplies expense resulting from tighter controls over such items. Selling, general and administrative expenses increased 0.2% as a percentage of revenues. The increase resulted from additional advertising in fiscal 1997, including coupon redemptions associated with the Company's "Neighborhood Introduction Program" which began in the third quarter. Depreciation increased 0.4% as a percentage of revenues due to depreciation expense on information technology projects completed during the prior year and a higher mix of free-standing units. Net interest expense decreased 0.2% as a percentage of revenues from $4.6 million in fiscal 1996 to $3.9 million in fiscal 1997 due to a decrease in average debt outstanding during the year. The increase in income from continuing operations compared to the prior year primarily relates to unusual non-recurring charges recorded in fiscal 1996. In fiscal 1996, the Company recorded charges of $31.1 million for loss on asset impairment and restructure charges (see further discussion below). The unusual charges referred to previously also contributed to the unusual effective tax rate in fiscal 1996. Excluding the effects of these charges in fiscal 1996, the effective income tax rate decreased slightly in fiscal 1997 to 35.5% from 35.8% in fiscal 1996. Fiscal 1996 compared to Fiscal 1995 Overview During fiscal 1996, the Company opened 43 Ruby Tuesdays, five Mozzarella's, and four Tia's and closed 17 Ruby Tuesdays and three Mozzarella's. The Company experienced weak sales and declining profits in the first two quarters of fiscal 1996. In response, the Company instituted a plan to lower operating costs while increasing guest frequency and check average. The implementation of this plan contributed to the significant improvement in sales and profits (excluding the effect of the restructuring and asset impairment charges) in the second half of fiscal 1996. Revenues The Company's sales increased to $620.1 million in fiscal 1996 from $515.3 million in fiscal 1995. The 20.3% revenue increase was the result of the net addition of 32 units during the year, comprised of 26 Ruby Tuesdays, two Mozzarella's, and four Tia's. For the Ruby Tuesday concept, same-store sales decreased 1.3% in fiscal 1996. Same-store sales for Mozzarella's and Tia's also declined. Operating Profits Pre-tax income (loss) from continuing operations decreased $18.4 million in fiscal 1996 to $(2.3) million. The decrease was due in part to $11.4 million of unusual non-recurring charges recorded in fiscal 1996 in excess of non-recurring charges incurred in fiscal 1995. In fiscal 1996, the Company recorded $31.1 million for restructure charges and loss on impairment of assets. As previously discussed, in fiscal 1995, a $19.7 million charge was recorded to reflect the estimated cost to convert or close the Company's L&N units. The remaining decrease in pre-tax income (loss) is the result of the decrease in same-store sales coupled with cost increases discussed below. Cost of merchandise as a percentage of revenues increased 0.6% from the prior year due to new menu variations which include higher cost items. Additionally, the percentage of revenues generated from sales of lower margin menu items increased during the year. Payroll and related costs increased 0.7% as a percentage of revenues in fiscal 1996. The increase is due to additional staffing levels and service programs at Ruby Tuesdays designed to improve guest service and the fixed nature of Mozzarella's management and kitchen payroll coupled with its decreasing same-store sales and increases in hourly wage rates. These increases were offset in part by a decrease in the number of managers per unit, an improvement in the Company's workers' compensation claims experience as well as a decrease in other fringe benefits. Other operating expenses increased 0.1% as a percentage of revenues primarily due to an increase in insurance expense associated with higher general liability rates. Selling, general and administrative expenses decreased 1.0% as a percentage of revenues. The decrease resulted from the Company's achievement of its objective of reducing or keeping general and administrative expenses flat for the year while increasing sales. Depreciation increased 0.3% as a percentage of revenues due to the Company's focus on expansion through freestanding units which are typically owned as opposed to mall or strip units which are leased. Net interest expense increased 0.7% as a percentage of revenues from $0.7 million in fiscal 1995 to $4.6 million in fiscal 1996 due to the net addition of $44.2 million in long-term borrowings. The decline in income from continuing operations compared to the prior year primarily relates to an increase in the amount incurred for unusual non-recurring charges. In fiscal 1996, the Company recorded charges of $31.1 million for loss on asset impairment and restructure charges (see further discussion below). In fiscal 1995, the Company recorded charges of $19.7 million related to management's decision to phase out the L&N Seafood Grill concept. The unusual charges referred to above also contributed to the decrease in the provision for income taxes in fiscal 1996 from fiscal 1995. Excluding the effects of these charges in fiscal 1996 and fiscal 1995, the effective income tax rate increased slightly in fiscal 1996 to 35.8% from 35.6% in fiscal 1995. Asset Impairment/Restructure Charges The Company adopted Statement of Financial Accounting Standards No. 121 ("FAS 121"), "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of", in the third quarter of fiscal 1996. FAS 121 establishes accounting standards that require an entity to review long-lived assets and certain identifiable intangibles for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Long-lived assets and certain identifiable intangibles to be disposed of are generally to be reported at the lower of carrying amount or fair value less cost to sell. Historically, the Company recognized such impairment upon the decision to close a unit. As a result of the adoption of FAS 121, the Company recorded a third quarter pre-tax charge for asset impairment of $3.9 million. This amount is the difference between fair value and net realizable value of impaired assets. An additional $22.0 million pre-tax charge for asset impairment was recorded which did not relate to the adoption of FAS 121. The total charge of $25.9 million (of which $3.9 million is the result of the adoption of FAS 121) is comprised of the following: impairment on 16 units approved for closure within one year by the Board of Directors on January 10, 1996 ($10.0 million); impairment on in-unit computer equipment ($0.8 million) and write-offs resulting from management's decision to abandon an information technology plan ($3.8 million) approved on that same date; and impairment on units remaining open ($11.3 million). The Board approved the closing of ten Ruby Tuesdays, four Mozzarella's and two Tia's restaurants based upon management's review of negative cash flow and operating loss units and other considerations. The expected loss on disposal of the long-term assets of these units was recorded at $10.0 million (net of an assumed salvage value of $0.9 million). Included in this amount was $0.6 million which represented the goodwill associated with two Tia's units to be closed. During the remainder of fiscal 1996, nine of these units were closed (six Ruby Tuesdays and three Mozzarella's). Prior to the announcement on September 27, 1995 of the Company's plans to pursue a spin-off, Morrison was undertaking an information technology project intended, among other things, to update or replace certain accounting and human resource systems for all of Morrison. Upon the September 27, 1995 announcement, management initiated a project by project review of the information technology plan. Upon completion of its review, management decided to abandon certain projects in development, including the project to update or replace certain accounting and human resource systems. In connection therewith, the Company disposed of certain in-unit computer equipment and replaced that equipment with computers more technologically advanced. At the January 10, 1996 board meeting, such actions were approved by the Board of Directors. Accordingly, during the quarter ended March 2, 1996, the Company recorded a charge of $3.8 million for the write-off of the information technology projects and $0.8 million for the remaining carrying value of certain in-unit computer equipment. Negative cash flow and operating loss units not recommended for closure were reviewed for impairment. Management believed these units had been impaired based upon poor operating performance. Accordingly, management estimated the undiscounted future cash flows to be generated by these units and determined that certain of them would not likely generate net cash flows in excess of carrying value. Management then estimated the fair value of those units using discounted net cash flow as a measure of fair value. Based upon third quarter operating and cash flow results, two additional units were identified as impaired. Accordingly, the charge of $11.3 million was recorded to reduce the carrying value of the impaired assets (including the two units identified during the third quarter) to their estimated fair value, as determined by using discounted estimated future cash flows. Future cash flows were estimated based on management judgment. Thus, actual cash flows could vary from such estimates. In addition to the write-down of fixed assets on the 16 units to be closed, the Company accrued charges of $3.4 million relating to the settlement of the related lease obligations. Management estimated it could negotiate lease settlements within 36 months on a majority of those units which could not be sublet. The Company believed that it could sublease six of the units approved by the Board for closing. One of the units closed was Company-owned. The Company also recognized charges associated with the Distribution of MFC and MHC and recognized charges of $5.3 million for other costs associated with the closing of 16 restaurants that had not met management's financial performance requirements. Other charges of $1.8 million were also recorded during the third quarter. These charges consisted primarily of estimated professional and other fees incurred in accordance with the Distribution ($1.3 million); severance pay for staff reductions expected during the quarter ($0.2 million) and miscellaneous other asset write-offs ($0.3 million). Income from Discontinued Operations Income (loss) from discontinued operations in fiscal 1996 was $(2.2) million compared to $51.1 million in fiscal 1995. The decrease in income from discontinued operations results from several factors including the fact that fiscal 1996 only included the results of operations for MFC and MHC prior to the Distribution date (three quarters) as opposed to a full year in fiscal 1995. Also, fiscal 1995 included a $46.8 million gain ($25.8 million net of tax) on the sale of certain of MHC's business and industry contracts and assets, while fiscal 1996 included a pre-tax charge of $23.7 million recognized in fiscal 1996 for costs associated with asset impairment and restructuring. LIQUIDITY AND CAPITAL RESOURCES Cash Flow Cash provided by operating activities was $79.2 million in fiscal 1997 and exceeded capital expenditures by approximately $5.1 million. Borrowings under the Company's credit facilities were reduced by $3.6 million. Pursuant to the Company's financial strategy approved by the Board during fiscal 1994, $3.3 million of the Company's stock was reacquired during fiscal 1997 from cash available after the Company's investments in new units. (See the Consolidated Statements of Cash Flow for more information.) In addition, shortly after year-end the Company completed its dutch auction tender offer (as announced on May 1, 1997) to purchase up to one million shares of its common stock. The number of shares acquired pursuant to the offer was 670,512 at a purchase price of $22.00 per share, for a total aggregate purchase price of $14.8 million, plus fees and expenses associated with the offer. The shares repurchased were financed through the Company's $50.0 million five-year revolving credit facility and bank lines of credit. Capital Expenditures The Company requires capital principally for new restaurants, equipment replacement and remodeling of existing units. Property and equipment expenditures for fiscal 1997 were $74.0 million for new units, capitalized costs of existing units and information technology projects. During fiscal 1997, 30 Ruby Tuesdays, two Mozzarella's and three Tia's Tex-Mex restaurants were opened. Capital expenditures for fiscal 1998 are projected to be $77.9 million. Planned openings for fiscal 1998 include approximately 36 Ruby Tuesday, two Mozzarella's and three Tia's Tex-Mex restaurants. There can be no assurance, however, that the Company will be able to open the projected number of restaurants in fiscal 1998 or invest the projected amount of money in capital expenditures. See "Special Note Regarding Forward-Looking Information." Borrowings and Credit Facilities At May 31, 1997, the Company had committed lines of credit amounting to $25.0 million (of which $24.5 million remained available at May 31, 1997) and non-committed lines of credit amounting to $15.0 million with several banks at various interest rates. All of these lines are subject to periodic review by each bank and may be canceled by the Company at any time. The Company utilized its lines of credit to meet operational cash needs during fiscal 1997. Borrowings on these lines of credit were $0.5 million and $6.0 million at May 31, 1997 and June 1, 1996, respectively. In addition to these lines of credit, the Company entered into a five- year credit facility with several banks which allows the Company to borrow up to $100.0 million under various interest rate options. The $100.0 million credit facility is comprised of a $50.0 million five-year interest only term note and a $50.0 million five-year revolving credit facility. The Company had $78.0 million of borrowings outstanding under this agreement at May 31, 1997 classified by the Company as long-term debt based upon the Company's ability and intent to refinance those borrowings on a long-term basis. The credit facility contains certain restrictions on incurring additional indebtedness and certain funded debt, net worth, and fixed charge coverage requirements. On June 2, 1997, the Company entered into a $40.0 million master operating lease agreement for the purpose of leasing new free-standing units and a new corporate headquarters. An operating lease agreement will be entered into for each facility providing for an initial lease term of five years with two five-year renewal options. The leases will also provide for substantial residual value guarantees and include purchase options at the lessor's original cost of the properties. During 1998, the Company intends to enter into leases for 13 units (ten of which are expected to be opened in fiscal year 1998) and the new Maryville, Tennessee corporate headquarters at an aggregated original cost to the lessor of approximately $23.0 million. See "Special Note Regarding Forward-Looking Information." During fiscal 1998, the Company expects to fund operations, capital expansion, and the repurchase of common stock from operating cash flows, bank lines of credit, the five-year revolving line of credit, and through operating leases. (See Note 5 of Notes to Consolidated Financial Statements for a detailed discussion of borrowings and credit facilities.) Long-term debt increased a net $1.9 million in 1997 due to greater utilization of the revolving credit facility while short-term debt (bank lines) decreased $5.5 million. The Company anticipates the need for additional borrowings under its revolving lines of credit should repurchases of Company stock be made as planned in fiscal 1998. The actual amount needed to be borrowed from the revolving lines of credit could differ from the amount currently anticipated if actual cash flow from operations is higher or lower than currently anticipated or if capital expenditures are greater or less than budgeted amounts. See "Special Note Regarding Forward-Looking Information." Working Capital The Company's working capital and current ratio as of May 31, 1997 were $(33.6) million and 0.5:1, respectively. The Company typically carries current liabilities in excess of current assets because cash generated from operating activities is reinvested in capital expenditures. Dividends The Company has not paid cash dividends since the Distribution. During fiscal 1997, the Board of Directors approved a dividend policy as a means of returning excess capital to its shareholders. This policy calls for payment of semi-annual dividends of approximately $3.0 million annually. Accordingly, the Company intends to pay its first dividend beginning in the third quarter of fiscal 1998. See "Special Note Regarding Forward-Looking Information." KNOWN EVENTS, UNCERTAINTIES AND TRENDS Financial and Stock Repurchase Plan The Company employs a financial strategy which utilizes a prudent amount of debt to minimize the weighted average cost of capital while allowing the Company to maintain financial flexibility and the equivalent of an investment-grade (BBB) bond rating. This financial strategy sets a target debt-to-capital ratio of 60%, including operating leases. The strategy also provides for repurchasing Ruby Tuesday stock whenever cash flow exceeds funding requirements while maintaining the target capital structure. On May 2, 1997, the Company commenced a tender offer for up to one million shares of the Company's common stock in a dutch auction at a price between $20 and $22 per share. The tender offer was completed on June 2, 1997 with the Company purchasing 670,512 shares at $22 per share, for an aggregate purchase price of $14.8 million plus fees and expenses associated with the offer. After the dutch auction was completed, 1.3 million shares remained available for repurchase under the Company's stock repurchase program. Franchising and Development Agreements On July 2, 1997, the Company entered into a series of agreements with three limited partnerships. These agreements provide, among other things, for the sale of 29 Company-owned units in Florida to the limited partnerships upon the transfer of the liquor licenses from the Company to the partnerships. Upon completion of the sale, the 29 units will be operated as Ruby Tuesday restaurants under separate franchising agreements. On that same date, the Company also entered into development agreements with these three limited partnerships whereby each of them will open eight to ten franchise restaurants in their respective areas of Florida over the next five years. New Accounting Standards In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128, "Earnings Per Share" ("FAS 128"), which the Company is required to adopt on February 28, 1998. At that time, the Company will be required to change the method currently used to compute earnings per share and to restate all prior periods. Under the new requirements for calculating primary earnings per share, the dilutive effect of stock options will be excluded. The impact is expected to result in an increase in primary earnings per share for the year ended May 31, 1997 of $0.02 per share. The impact of FAS 128 on the calculation of fully diluted earnings per share is not expected to be material. Impact of Inflation Historically, the Company has been able to recover inflationary cost increases to items such as food and beverages through increased menu prices. There have been, and there may be in the future, delays in the implementation of such menu price increases. Competitive pressures may also limit the Company's ability to recover such cost increases in their entirety. Historically, the effect of inflation on the Company's net income has not been materially adverse. Management's Outlook The Company has made many advances to strategically position itself for growth via a diversified group of casual dining concepts. Ruby Tuesday, with its menu of burgers, ribs, fajitas, chicken, soups, salads and sandwiches, will maintain its aggressive posture. The Mozzarella's concept will follow a year of moderate expansion with a concentration primarily on improved sales at existing units. The concept specializes in gourmet pizzas, pastas, soups, salads and sandwiches, with a $9 average check. Tia's, the Tex-Mex concept acquired in 1995, with freshly prepared menu items, offers the Company an attractive opportunity to enter a high growth segment of the industry. The Company's focus for Tia's is to expand from the base acquired while maintaining the new unit sales volumes. Management believes that it is positioned to take advantage of growth opportunities well into the future. In fiscal year 1997, the Company began identifying a group of potential restaurant operators - internal and external - to become Ruby Tuesday managing partners and franchisees. Approximately one-third of the Company's restaurant managers have a financial stake in the success of their units as internal managing partners. The franchise partner program - the Company's external partnership program - will allow the Company to become a financial partner with approximately 10 regional operators from the casual-dining industry who will be expected to build approximately 10 units each over the next five years in new and existing markets. See "Special Note Regarding Forward Looking Information." In order to facilitate this development, the Company negotiated a $35.0 million credit agreement with several banks which will be used by these franchise partners to help finance their expansion. The Company is a partial guarantor on this credit facility. SPECIAL NOTE REGARDING FORWARD-LOOKING INFORMATION The foregoing section contains various "forward-looking statements" which represent the Company's expectations or beliefs concerning future events, including the following: statements regarding unit growth, future capital expenditures and future borrowings. The Company cautions that a number of important factors could, individually or in the aggregate, cause actual results to differ materially from those included in the forward-looking statements including, without limitation, the following: consumer spending trends and habits; mall-traffic trends; increased competition in the casual dining restaurant market; weather conditions in the regions in which the Company operates restaurants; consumers' acceptance of the Company's development concepts; laws and regulations affecting labor and employee benefit costs; the Company's ability to attract qualified managers and franchisees; and changes in the availability of capital. RUBY TUESDAY, INC. AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS CONSOLIDATED STATEMENTS OF INCOME (In thousands except per-share data)
For the Fiscal Year Ended May 31, June 1, June 3, 1997 1996 1995 Revenues: Net sales and operating revenues.................... $ 654,464 $ 618,803 $ 514,292 Other revenues...................................... 943 1,331 1,020 655,407 620,134 515,312 Operating costs and expenses: Cost of merchandise 177,835 170,352 138,665 Payroll and related costs 213,323 209,007 169,881 Other 140,619 134,043 106,028 Selling, general and administrative 42,346 39,139 37,521 Depreciation and amortization 38,560 34,131 26,634 L&N conversion/closing costs 19,727 Interest expense, net of interest income totaling $205 in 1997, $160 in 1996, and $736 in 1995 3,911 4,637 744 Loss on impairment of assets 25,881 Restructure charges.................................. 5,257 616,594 622,447 499,200 Income (loss) from continuing operations before income taxes 38,813 (2,313) 16,112 Provision (benefit) for federal and state income taxes 13,768 (1,651) 5,027 Income (loss) from continuing operations 25,045 (662) 11,085 Income (loss) from discontinued operations, net of applicable income taxes ............................. (2,222) 51,086 Net income (loss)..................................... $ 25,045 $ (2,884) $ 62,171 Earnings (loss) per common and common equivalent share: Continuing operations............................... $ 1.40 $ (0.03) $ 0.62 Discontinued operations............................. (0.13) 2.84 Earnings (loss) per common and common equivalent share............................................... $ 1.40 $ (0.16) $ 3.46 Weighted average common and common equivalent shares ........................... 17,875 17,689 17,961 The accompanying notes are an integral part of the consolidated financial statements. RUBY TUESDAY, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In thousands) May 31, June 1, Assets 1997 1996 Current assets: Cash and short-term investments................................. $ 7,608 $ 7,139 Accounts and notes receivables.................................. 4,621 2,040 Inventories: Merchandise................................................... 6,088 5,678 China, silver and supplies.................................... 3,562 3,003 Income tax receivable........................................... 2,178 4,243 Prepaid expenses................................................ 7,047 8,167 Prepaid income taxes............................................ 4,388 2,988 Total current assets......................................... 35,492 33,258 Property and equipment - at cost: Land.......................................................... 35,643 25,663 Buildings..................................................... 70,163 55,284 Improvements.................................................. 195,034 175,102 Restaurant equipment.......................................... 137,830 120,144 Other equipment............................................... 38,284 28,122 Construction in progress...................................... 35,450 39,160 512,404 443,475 Less accumulated depreciation and amortization................ 165,640 129,937 346,764 313,538 Costs in excess of net assets acquired.......................... 20,396 21,058 Other assets.................................................... 16,219 13,262 Total assets.................................................... $ 418,871 $ 381,116 Liabilities and shareholders' equity Current liabilities: Accounts payable.............................................. $ 28,828 $ 26,386 Short-term borrowings......................................... 534 6,001 Accrued liabilities: Taxes, other than income taxes.............................. 11,425 10,602 Payroll and related costs................................... 8,982 6,917 Insurance................................................... 8,800 7,478 Rent and other.............................................. 10,393 9,112 Current portion of long-term debt............................. 102 95 Total current liabilities................................... 69,064 66,591 Long-term debt.................................................. 78,006 76,108 Deferred income taxes........................................... 13,552 8,232 Other deferred liabilities...................................... 34,609 32,842 Shareholders' equity: Common stock, $0.01 par value; authorized: 100,000 shares; issued: 1997 - 17,720 shares, 1996 - 17,598 shares......... 177 176 Capital in excess of par value............................... 2,729 1,762 Retained earnings............................................ 223,399 198,354 226,305 200,292 Less cost of Company stock held by deferred compensation plan 2,665 2,949 223,640 197,343 Total liabilities and shareholders' equity...................... $ 418,871 $ 381,116 The accompanying notes are an integral part of the consolidated financial statements.
RUBY TUESDAY, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (In thousands except per-share data) Capital in Total
Common Stock Issued Treasury Stock Excess of Retained Shareholders' Shares Amount Shares Amount Par Value Earnings Equity Balance, June 4, 1994........................ 43,644 $436 (8,335) $(105,000) $77,656 $248,044 $221,136 Net income................................. 62,171 62,171 Shares issued under stock bonus and stock option plans.............................. 562 7,792 3,132 10,924 Shares issued pursuant to Tias, Inc. acquisition.............................. 355 5,273 3,727 9,000 Cash dividends of $0.6916 per common share.................. (12,034) (12,034) Purchase of treasury stock including deferred compensation plan................ (1,701) (45,704) (45,704) Balance, June 3, 1995........................ 43,644 436 (9,119) (137,639) 84,515 298,181 245,493 Net income (loss)......................... (2,884) (2,884) Shares issued under stock bonus and stock option plans............................. 84 1 129 1,926 1,663 251 3,841 Cash dividends of $0.543 per common share. (9,377) (9,377) Purchase of treasury stock, net of changes in deferred compensation plan............ 240 (858) (858) Equity transfers to MFC and MHC........... 5,080 (43,952) (38,872) Retirement of treasury stock.............. (8,616) (86) 8,616 128,542 (84,416) (44,040) 0 1-for-2 reverse stock split............... (17,514) (175) 175 0 Balance, June 1, 1996........................ 17,598 176 (134) (2,949) 1,762 198,354 197,343 Net income................................ 25,045 25,045 Shares issued under stock bonus and stock options plans............................ 310 3 4,249 4,252 Purchase of treasury stock, net of changes in deferred compensation plan............ (188) (2) 7 284 (3,282) (3,000) Balance, May 31, 1997........................ 17,720 $177 (127) $(2,665) $2,729 $223,399 $223,640 The accompanying notes are an integral part of the consolidated financial statements.
Ruby Tuesday, Inc. and Subsidiaries Consolidated Statements of Cash Flows (in thousands)
For the Fiscal Year Ended May 31, June 1, June 3, 1997 1996 1995 Operating activities: Income (loss) from continuing operations......... $ 25,045 $ (662) $ 11,085 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Loss on impairment of assets................... 25,881 Depreciation and amortization.................. 38,560 34,131 26,634 Amortization of intangibles.................... 734 699 607 Other, net..................................... (1,118) Deferred income taxes.......................... 3,712 (7,157) 2,501 Loss on disposition of assets.................. 331 2,592 4,419 Changes in operating assets and liabilities: Increase in receivables...................... (2,581) (282) (213) Increase in inventories...................... (969) (1,197) (1,059) Decrease in prepaid and other assets................................ 2,610 721 3,355 Increase in accounts payable, accrued and other liabilities.............. 9,456 14,989 18,810 Increase/(decrease) in income taxes payable.. 2,273 (4,493) 1,205 Cash provided by continuing operations........... 79,171 64,104 67,344 Cash provided (used) by discontinued operations.. 10,030 (11,128) Net cash provided by operating activities......... 79,171 74,134 56,216 Investing activities: Purchases of property and equipment............. (74,049) (109,164) (108,452) Proceeds from disposal of assets................ 818 3,444 153 Other, net...................................... (3,161) (4,475) 2,701 Discontinued operations investing activities, net.............................. (14,448) 71,693 Net cash used by investing activities............. (76,392) (124,643) (33,905) Financing activities: Proceeds from long-term debt.................... 2,000 44,200 30,800 Net change in short-term borrowings............. (5,467) (6,637) (11,828) Principal payments on long-term debt and capital leases................................. (95) (87) (7,438) Proceeds from issuance of stock, including treasury stock....................... 4,252 3,841 10,924 Stock repurchases, net of changes in in deferred compensation plan.................. (3,000) (858) (45,704) Dividends paid.................................. (9,377) (12,034) Discontinued operations financing activities, net.............................. 20,609 14,506 Net cash provided (used) by financing activities.. (2,310) 51,691 (20,774) Increase in cash and short-term investments...................................... 469 1,182 1,537 Cash and short-term investments: Beginning of period.............................. 7,139 5,957 4,420 End of period.................................... $ 7,608 7,139 $ 5,957 Supplemental disclosure of cash flow information- cash paid for: Interest (net of amount capitalized)............ $ 3,599 $ 4,252 $ 1,547 Income taxes, net............................... $ 7,783 $ 2,605 $ 5,200 The accompanying notes are an integral part of the consolidated financial statements.
RUBY TUESDAY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) 1. Summary of Significant Accounting Policies-(Continued) Inventories Inventories consist of materials, food supplies, china and silver and are stated at the lower of cost (first-in, first-out) or market. Property and Equipment and Depreciation Depreciation for financial reporting purposes is computed using the straight- line method over the estimated useful lives of the assets or, for capital lease property, over the term of the lease, if shorter. Annual rates of depreciation range from 3% to 5% for buildings and improvements and from 8% to 34% for restaurant and other equipment. Income Taxes Deferred income taxes are determined utilizing a liability approach. This method gives consideration to the future tax consequences associated with differences between financial accounting and tax bases of assets and liabilities. Pre-Opening Expenses Salaries, personnel training costs and other expenses of opening new facilities are charged to expense as incurred. Intangible Assets Excess of costs over the fair value of net assets acquired of purchased businesses generally is amortized on a straight-line basis over 40 years. At May 31, 1997 and June 1, 1996, accumulated amortization for costs in excess of net assets acquired was $6.0 million and $5.3 million, respectively. Advertising Costs The Company generally expenses advertising costs as incurred. Advertising expense as a percentage of revenues ranged from 1.2% to 1.5% for fiscal years 1997, 1996, and 1995. Fair Value of Financial Instruments The Company's financial instruments at May 31, 1997 and June 1, 1996 consisted of cash and short-term investments, notes receivable, short-term borrowings and long-term debt. The fair value of these financial instruments approximated the carrying amounts reported in the consolidated balance sheets. Earnings Per Share Earnings per share are based on the weighted average number of shares outstanding during each year and are adjusted, when the effect is dilutive, for the assumed exercise of options, after the assumed repurchase of shares with the related proceeds, after adjustment for stock splits and stock dividends through May 31, 1997. In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128, "Earnings Per Share" ("FAS 128"), which the Company is required to adopt on February 28, 1998. At that time, the Company will be required to change the method currently used to compute earnings per share and to restate all prior periods. Under the new requirements for calculating primary earnings per share, the dilutive effect of stock options will be excluded. The impact is expected to result in an increase in primary earnings per share for the year ended May 31, 1997 of $0.02 per share. The impact of FAS 128 on the calculation of fully diluted earnings per share is not expected to be material. Stock-Based Employee Compensation Plans The Company has elected to follow Accounting Principles Board Opinion No. 25, "Accounting for Stock issued to Employees" ("APB 25") and related Interpretations in accounting for its employee stock options and adopted the disclosure-only provisions of Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("FAS 123"). The Company grants stock options for a fixed number of shares to employees with an exercise price equal to the fair value of the shares at the date of grant and, accordingly, recognizes no compensation expense for the stock option grants. 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 amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. 2. Discontinued Operations As previously mentioned, in fiscal 1996, Morrison distributed the common stock of its family dining restaurant business (Morrison Fresh Cooking, Inc., or "MFC") and its health care contract food and nutrition business (Morrison Health Care, Inc., or "MHC") to itsshareholders. Morrison shareholders received one share of MFC stock for every four shares of Morrison stock and one share of MHC stock for every three shares of Morrison stock. In accordance with Accounting Principles Board Opinion No. 30, the financial results of the two businesses, together referred to as the Morrison Group, are reported as discontinued operations in the accompanying consolidated financial statements. The condensed results presented below include an allocation of general expenses of Morrison, such as legal, data processing and interest, on a specific identification method, where appropriate. Management believes the allocation methods used are reasonable. Condensed results of the discontinued operations are as follows: (In Thousands) Fiscal Yea 1996 1995 Revenues......................... $ 370,439 $ 519,777 Income (loss) before provision for income taxes............... $ (2,434) $ 88,600 Provision (benefit) for federal and state income taxes......... $ (212) $ 37,514 Net income (loss)................ $ (2,222) $ 51,086 Included in the June 3, 1995 income before provision for income taxes is a $46.8 million gain on sale of certain business and industry contracts and assets of MHC. Included in the June 1, 1996 income before provision for income taxes is a charge of $23.7 million for costs associated with asset impairment and restructuring. As a result of the Distribution, the Company does not have any ownership interest in either MFC or MHC, except for stock held within the rabbi trust associated with the Company's Deferred Compensation Plan. (See Note 8 of Notes to Consolidated Financial Statements for more information.) Prior to the spin- off, the Company entered into agreements with both MFC and MHC governing certain operating relationships among the Company, MFC and MHC subsequent to the Distribution including (i) an agreement providing for assumptions of liabilities and cross-indemnities to allocate responsibilities for liabilities arising out of or in connection with business activities prior to the Distribution; (ii) a tax indemnity agreement which provides that none of the three companies will take any action that would jeopardize the intended tax free consequences of the Distribution; (iii) a tax allocation agreement to the effect that MFC and MHC will pay their respective shares of the Company's consolidated tax liability for the tax years that MFC and MHC were included in the Company's consolidated federal income tax return; (iv) a shared services agreement pursuant to which each of the three companies agreed to provide to the other parties certain services, subject to certain conditions, on an "as needed" basis; (v) intellectual property license agreements which provided for the licensing of rights currently owned by the Company to the three companies; and (vi) an agreement providing for the allocation of employee benefit rights and responsibilities among the three companies. 3.Impairment of Long-Lived Assets/Restructure Charges In fiscal 1996, the Company adopted Statement of Financial Accounting Standards No. 121 ("FAS 121"), "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." A pre-tax charge of $25.9 million was recorded of which $3.9 million, the difference between fair value and net realizable value of the impaired assets, resulted from the adoption of FAS 121. The $25.9 million charge is comprised of the following: impairment on 16 units approved for closure within one year by the Board of Directors on January 10, 1996, ($10.0 million); impairment on in-unit computer equipment ($0.8 million) and write-offs resulting from management's decision to abandon an information technology plan ($3.8 million) approved on that same date; and impairment on units remaining open ($11.3 million). The Board approved the closing of ten Ruby Tuesdays, four Mozzarella's and two Tia's restaurants based upon management's review of negative cash flow and operating loss units and other considerations. The expected loss on the disposal of the long-lived assets of these units is $10.0 million (net of an assumed salvage value of $0.9 million). Included in this amount is $0.6 million which represents the goodwill associated with two Tia's units to be closed. Subsequently, a decision was made to keep two of the units open because of operational improvements at those units. As of May 31, 1997, the remaining 14 units have been closed. Prior to the initiation of the Distribution, Morrison was undertaking an information technology project intended, among other things, to update or replace certain accounting and human resource systems for all of Morrison. Upon initiation of the intended Distribution, management commenced a project by project review of the information technology plan. Upon completion of its review, management decided to abandon certain projects in development, including the project to update or replace certain accounting and human resource systems. In connection therewith, the Company instituted a plan to dispose of certain in-unit computer equipment and replace that equipment with computers more technologically advanced. Accordingly, in fiscal 1996 the Company recorded a charge of $3.8 million for the write-off of the information technology projects and $0.8 million for the remaining carrying value of certain in-unit computer equipment. Negative cash flow and operating loss units not recommended for closure were also reviewed for impairment. Management believed these units might have been impaired based upon poor operating performance. Accordingly, management estimated the undiscounted future cash flows to be generated by these units and determined that certain of them would not likely generate net cash flows in excess of carrying value. Based upon third quarter fiscal 1996 operating and cash flow results, two additional units were identified as impaired. Accordingly, the charge of $11.3 million was recorded to reduce the carrying value of the impaired assets (including the two units identified during the third quarter) to their estimated fair value, as determined by using discounted estimated future cash flows. Future cash flows were estimated based on management judgment. Thus, actual cash flows could vary from such estimates. In addition to the write-down of fixed assets on the units to be closed, the Company accrued charges not included above of $3.4 million relating to the settlement of the related lease obligations. Management estimated it could negotiate lease settlements within 36 months on a majority of those units which could not be sublet. During fiscal 1997, the Company paid approximately $3.2 million in lease obligations and settlement costs relating to these units. The remaining cost accrued for lease settlements was $1.8 million and $3.0 million at May 31, 1997 and June 1, 1996, respectively. Other charges of $1.8 million were also recorded during the third quarter of fiscal 1996. These charges consisted of estimated professional and other fees incurred in accordance with the Distribution ($1.3 million); severance pay for staff reductions expected during the quarter ($0.2 million) and miscellaneous other asset write-offs ($0.3 million). Professional fees and severance pay approximating the amounts accrued were paid prior to the end of fiscal 1996. 4. Phase Out of the L&N Seafood Grill Concept On June 27, 1994, plans to phase out the L&N Seafood Grill concept were announced by the Company. The original plan, as approved by the Board of Directors, called for the conversion of 30 L&N units into other Company concepts. All remaining units were to be sold or closed. The Company accrued $19.7 million for costs to be incurred as a result of the phase-out. This amount, originally accrued to cover the costs to convert 30 L&N units and close the remaining eight, consisted primarily of the following: losses on disposal of fixed assets net of anticipated proceeds and the net cost of related lease obligations for the units to be closed (approximately $11.6 million), expected operating losses during the phase-out period (approximately $4.8 million), severance pay (approximately $1.1 million) and other losses on the conversion of units, consisting primarily of the write-off of fixed assets, inventory, and unamortized cost in excess of net assets acquired ($2.2 million). The Company originally estimated that, of the $19.7 million charge, asset write-offs (including inventory, fixed assets and goodwill) would total $9.2 million. Cash proceeds from disposal of the properties were anticipated to be $0.7 million. The remaining $11.2 million represented the estimated cash outlay for lease settlements, severance pay and other operating expenditures. The original plan assumed that no units would be sublet and that buyout of leases could occur. Determination of the number of months assumed in which buyouts could occur was made on an individual unit basis. Subsequent to the June 1994 announcement, the Company reacquired three additional L&N units as a result of a default on a licensing agreement. These three units were closed. Based upon favorable operating results, in the third quarter of fiscal 1995, management decided to continue to operate four of the L&N units as L&Ns through the remainder of their lease terms. During fiscal 1995, 21 of the L&N units were converted and are operating as other restaurant concepts. In fiscal 1996, two additional units were converted and reopened as Tia's. The increase from the original plan in the number of units to be closed did not result in a material increase to the $11.6 million closing cost estimate as the increases necessary for the six additional units ultimately closed were offset by decreases in estimates for the other units closed and the decrease which resulted from the decision to continue to operate the four units discussed above. Reserves totaling $1.6 million and $1.0 million remained outstanding as of May 31, 1997 and June 1, 1996, respectively. 5. Long-Term Debt Long-term debt consists of the following: (In Thousands) Fiscal Year 1997 1996 Revolving credit facility $27,000 $25,000 Term notes payable to banks 50,000 50,000 Other long-term debt 1,108 1,203 78,108 76,203 Less current maturities 102 95 $78,006 $76,108 Annual maturities of long-term debt at May 31, 1997 are as follows: (In Thousands) 1998 $ 102 1999 113 2000 121 2001 77,132 2002 143 Subsequent years 497 Total $ 78,108 The Company has a five-year credit facility with several banks which allows the Company to borrow up to $100.0 million under various interest rate options. The $100.0 million credit facility is comprised of a $50.0 million five-year interest only term note and a $50.0 million five-year revolving credit facility. Commitment fees equal to 0.1875% per annum are payable quarterly on the unused portion of the revolving credit facility. At May 31, 1997, the Company had $27.0 million of borrowings outstanding with various banks under the revolving credit facility at interest rates ranging from 6.05% to 6.31% per annum. Such borrowings (with maturities up to 90 days) have been classified as long-term based on the Company's ability and intent to refinance such borrowings under the revolving facility. The credit facility contains certain restrictions on incurring additional indebtedness and certain funded debt, net worth, and fixed charge coverage requirements. At May 31, 1997, retained earnings in the amount of $31.1 million were available for distribution under the debt restrictions. In order to control interest costs on the term loan, the Company entered into an interest rate swap agreement in March 1996. The agreement effectively limited the interest rate to 6.25% for the period ended March 4, 2001. Based on current projections of long term interest rates, the Company elected to unwind its interest rate swap agreement because it felt its net effective floating interest rate for the five-year period would be less than the 6.25% fixed rate associated with the swap agreement. The Company terminated the interest rate swap agreement on September 10, 1996 and received approximately $1.7 million in cash. The gain on the interest rate swap agreement is being amortized to interest expense over the previously remaining life of the swap agreement. At May 31, 1997, the balance of the unamortized interest was approximately $1.4 million. In addition, at May 31, 1997, the Company had committed lines of credit amounting to $25.0 million (of which $24.5 million remained available at May 31, 1997) and non-committed lines of credit amounting to $15.0 million with several banks at various interest rates. All of these lines are subject to periodic review by each bank and may be canceled by the Company at any time. The Company utilized its lines of credit to meet operational cash needs during fiscal year 1997. Borrowings on these lines of credit were $0.5 and $6.0 million at May 31, 1997 and June 1, 1996, respectively. Interest expense capitalized in connection with financing additions to property and equipment amounted to approximately $1.2 and $1.6 million for the years ended May 31, 1997 and June 1, 1996, respectively. 6. Leases Various operations of the Company are conducted in leased premises. Initial lease terms expire at various dates over the next 22 years and may provide for escalation of rent during the lease term. Most of these leases provide for additional contingent rents based upon sales volume and contain options to renew (at adjusted rentals for some leases). The administrative headquarters has a lease term ending in 1998 and provides an option to purchase at a nominal amount at the end of the initial lease term. At May 31, 1997, the future minimum lease payments under operating leases for the next five years and in the aggregate are as follows: (In Thousands) 1998 $ 34,767 1999 34,155 2000 32,496 2001 30,466 2002 29,897 Subsequent years 198,968 Total minimum lease payments $360,749 Rental expense pursuant to operating leases is summarized as follows: (In Thousands) 1997 1996 1995 Minimum rent $36,813 $33,930 $30,099 Contingent rent 2,421 2,195 1,654 $39,234 $36,125 $31,753 On June 2, 1997, the Company entered into a $40.0 million operating lease agreement for the purpose of leasing new free-standing units and a new corporate headquarters. An operating lease agreement will be entered into for each facility providing for an initial lease term of five years with two five- year renewal options. The lease will also provide for substantial residual value guarantees and include purchase options at the lessor's original cost of the properties. During 1998, the Company intends to enter into leases for 13 units (ten of which are expected to be opened in fiscal year 1998) and the new Maryville, Tennessee corporate headquarters at an aggregated original cost to the lessor of approximately $23.0 million. 7. Income Taxes The components of income tax expense (benefit) are as follows: (In Thousands) 1997 1996 1995 Current: Federal $ 7,953 $ 4,323 $ 1,959 State 2,103 1,183 567 10,056 5,506 2,526 Deferred: Federal 3,167 (5,949) 2,313 State 545 (1,208) 188 3,712 (7,157) 2,501 $ 13,768 $ (1,651) $ 5,027 Deferred tax assets and liabilities are comprised of the following: (In Thousands) 1997 1996 Deferred tax assets: Employee benefits $ 8,022 $ 7,626 Insurance reserves 4,107 4,005 Escalating rents 4,398 3,451 Acquired net operating losses 2,202 2,551 Restructuring and FAS 121 reserves 699 1,264 Unit closing reserve 755 313 Other 834 687 Total deferred tax assets 21,017 19,897 Deferred tax liabilities: Depreciation 27,569 20,493 Prepaid deductions 741 1,010 Retirement plans 422 833 Other 1,449 2,805 Total deferred tax liabilities 30,181 25,141 Net deferred tax liability $ (9,164) $ (5,244) At May 31, 1997, the Company had net operating loss carryforwards for tax purposes of approximately $ 5.6 million as a result of the acquisition of Tias, Inc., which expire through 2005. The Company's net operating loss carryforwards are subject to an annual limitation due to the change in ownership of the acquired company. Management does not believe a valuation allowance is necessary. A reconciliation from the statutory federal income tax expense (benefit) to the reported income tax expense is as follows: (In Thousands) 1997 1996 1995 Statutory federal income taxes $ 13,585 $ (810) $ 5,639 State income taxes, net of federal income tax benefit 1,721 (68) 549 Tax credits (1,220) (1,349) (2,964) Other, net (318) 576 1,803 $ 13,768 $(1,651) $ 5,027 The effective income tax rate (benefit) was 35.5%, (71.4)%, and 31.2% in 1997, 1996, and 1995, respectively. The high effective tax benefit rate for 1996 is attributable to the tax credits which were available to the Company. 8. Employee Benefit Plans Salary Deferral Plan - Under the Ruby Tuesday, Inc. Salary Deferral Plan, each eligible employee may elect to make pre-tax contributions to a trust fund in amounts ranging from 2% to 10% of their annual earnings. Employees contributing a pre-tax contribution of at least 2% may elect to make after-tax contributions not in excess of 10% of annual earnings. The Company contribution to the Plan is based on the employee's pre-tax contribution and years of service. After three years of service, the Company contributes 20% of the employee's pre-tax contribution, 30% after ten years of service and 40% after 20 years of service. The Company's contributions to the trust fund approximated $0.2 million for 1997 and 1996 and $0.1 million for 1995. Deferred Compensation Plan - The Company maintains the Ruby Tuesday, Inc. Deferred Compensation Plan for certain selected employees. The provisions of this Plan are similar to those of the Salary Deferral Plan. The Company's contributions under the Plan approximated $0.1 million for each of 1997, 1996, and 1995. Company assets earmarked to pay benefits under the Plan are held by a rabbi trust. Assets of a rabbi trust must be accounted for as if they are assets of the Company, therefore, all earnings and expenses are recorded in the Company's financial statements. The Plan's assets, which approximated $10.8 million and $9.5 million in 1997 and 1996, respectively, are included in Other Assets in the Consolidated Balance Sheets. Retirement Plan - The Company, along with MFC and MHC, sponsors the Morrison Restaurants Inc. Retirement Plan. Effective December 31, 1987, the Plan was amended so that no additional benefits will accrue and no new participants will enter the Plan after that date. Participants receive benefits based upon salary and length of service. Certain responsibilities involving the administration of the Plan are jointly shared by each of the three companies. No contribution was made in 1997, 1996, or 1995. Executive Supplemental Pension Plan - Under the Ruby Tuesday, Inc. Executive Supplemental Pension Plan, employees with an average annual compensation of at least $120,000 and who have completed five years in a qualifying position become eligible to earn supplemental retirement income based upon salary and length of service, reduced by social security benefits and amounts otherwise receivable under the Retirement Plan. Expenses under the Plan approximated $1.0 million, $0.6 million, and $0.5 million for 1997, 1996, and 1995, respectively. Management Retirement Plan - Under the Ruby Tuesday, Inc. Management Retirement Plan, individuals actively employed by the Company as of June 1, 1989, or thereafter, who have 15 years of credited service and whose average annual compensation equals or exceeds $40,000, become participants. Participants will receive benefits based upon salary and length of service, reduced by social security benefits and benefits payable under the Retirement Plan. The Company recognized approximately $0.7 million in income in 1997 and expenses of $0.3 million and $0.1 million in 1996 and 1995, respectively. To provide a source for the payment of benefits under the Executive Supplemental Pension Plan and the Management Retirement Plan, the Company owns whole-life insurance contracts on some of the participants. The cash value of these policies net of policy loans is $4.0 million at May 31, 1997. The Company maintains a rabbi trust to hold the policies and death benefits as they are received. The following table details the components of pension expense, the funded status and amounts recognized in the Company's Consolidated Financial Statements for the Management Retirement Plan, the Executive Supplemental Pension Plan, and the Retirement Plan. Amounts presented are in thousands.
Assets Exceed Accumulated Benefits Exceed Assets- Accumulated Benefits- Executive Supplemental Pension Plan Retirement Plan and Management Retirement Plan 1997 1996 1995 1997 1996 1995 Components of pension expense (income): Service cost......................... $ $ $ $ 43 $ 96 $ 73 Interest cost........................ 329 334 31 207 525 276 Actual return on plan assets......... (661) (787) (10) Amortization and deferral............ 313 497 (23) 90 294 123 Other................................ 89 $ (19) $ 44 $ (2) $ 340 $ 915 $ 561 Plan assets at fair value............ $ 4,730 $ 4,502 $ 382 $ 0 $ 0 $ 0 Actuarial present value of projected benefit obligations: Accumulated benefit obligations: Vested............................ 4,286 4,432 374 7,315 7,479 3,434 Nonvested......................... 109 63 8 Provision for future salary increases........................ 1,964 1,960 883 Total projected benefit obligations... 4,286 4,432 374 9,388 9,502 4,325 Excess (deficit) of plan assets over projected benefit obligations........ 444 70 8 (9,388) (9,502) (4,325) Unrecognized net loss (gain).......... 318 607 74 703 235 (265) Unrecognized prior service cost....... 671 840 665 Unrecognized net transition obligation 324 389 41 939 1,510 993 Additional minimum liability.......... (643) (1,164) (578) Prepaid (accrued) pension cost........ $ 1,086 $ 1,066 $ 123 $(7,718) $ (8,081) $(3,510) The Retirement Plan's assets include common stock, fixed income securities, short-term investments and cash. The weighted-average discount rate for all three plans was 8.25%, 7.75%, and 8.5% for 1997, 1996, and 1995, respectively. The rate of increase in compensation levels for the Executive Supplemental Pension Plan and Management Retirement Plan was 4% for all three years. The expected long-term rate of return on plan assets for the Retirement Plan was 10% for all three years.
9. Capital Stock, Options, and Bonus Plans Preferred Stock - Under its Certificate of Incorporation, the Company is authorized to issue preferred stock with a par value of $0.01 in an amount not to exceed 250,000 shares which may be divided into and issued in designated series, with dividend rates, rights of conversion, redemption, liquidation prices and other terms or conditions as determined by the Board of Directors. No preferred shares have been issued as of May 31, 1997. The Ruby Tuesday, Inc. 1996 Stock Incentive Plan - The Ruby Tuesday, Inc. 1996 Stock Incentive Plan is an amendment and restatement of the Morrison Restaurants Inc. 1992 Stock Incentive Plan. A Committee, appointed by the Board, administers the Plan on behalf of the Company and has complete discretion to determine participants and the terms and provisions of Stock Incentives, subject to the Plan. The Plan permits the Committee to make awards of shares of common stock, awards of derivative securities related to the value of the common stock, and certain cash awards to eligible persons. These discretionary awards may be made on an individual basis or pursuant to a program approved by the Committee for the benefit of a group of eligible persons. All options awarded under this plan have been at the prevailing market value at the time of grant. At May 31, 1997, the Company had reserved a total of 1,032,000 shares of common stock for this Plan. The Ruby Tuesday, Inc. Stock Incentive and Deferred Compensation Plan for Directors - The Ruby Tuesday, Inc. Stock Incentive and Deferred Compensation Plan for Directors is a continuation of the similarly titled 1994 Morrison plan. To defer the receipt of their retainer fees or to allocate their retainer fees to the purchase of shares of the Company, the Plan provides that the directors must use 60% of their retainer to purchase shares of the Company if they have not attained a specified level of ownership of shares of Company common stock. Each director purchasing stock receives additional shares equal to 15% of the shares purchased and three times the total shares in options which after six months are exercisable for five years from the grant date. All options awarded under this Plan have been at the prevailing market value at the time of grant. A Committee, appointed by the Board, administers the Plan on behalf of the Company. At May 31, 1997, the Company had reserved 92,000 shares of common stock for the Plan. The Ruby Tuesday, Inc. 1996 Non-Executive Stock Incentive Plan - The Ruby Tuesday, Inc. 1996 Non-Executive Stock Incentive Plan is an amendment and restatement of the similarly titled 1993 Morrison plan. A Committee, appointed by the Board, administers the Plan on behalf of the Company and has full authority in its discretion to determine the officers and key employees to whom Stock Incentives are granted and the terms and provisions of Stock Incentives, subject to the Plan. The Plan permits the Committee to make awards of shares of common stock, awards of derivative securities related to the value of the common stock, and certain cash awards to eligible persons. These discretionary awards may be made on an individual basis or pursuant to a program approved by the Committee for the benefit of a group of eligible persons. All options awarded under this Plan have been at the prevailing market value at the time of grant. At May 31, 1997, the Company had reserved a total of 1,262,000 shares of common stock for this Plan. In March 1996, the number and exercise price of all outstanding options were adjusted for the spin-off of MFC and MHC and the concurrent reverse one-for-two split of the Company shares. In addition to the above plans, stock options are outstanding under a terminated plan, the Ruby Tuesday, Inc. Stock Bonus and Non-Qualified Stock Option Plan, which was effective from 1986 to 1992. Options to purchase 344,000 shares remain outstanding under the terms of this Plan at May 31, 1997. The Company applies APB Opinion No. 25 and related interpretations in accounting for its employee stock options. In contrast to the intrinsic value based method employed by APB 25, Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation," ("FAS 123") utilizes a fair value based method. FAS 123 requires the use of option valuation models developed for estimating the fair value of traded options which are fully transferable and have no vesting restrictions. Option valuation models also utilize highly subjective assumptions such as expected stock price volatility. Changes in the assumptions can materially impact the fair value estimate and, in management's opinion, do not necessarily provide a reliable single measure of the fair value of its employee stock options. Since the Company has elected to account for its employee stock options in accordance with APB 25, the required pro forma disclosures as if the option valuation models were used in 1996 are presented below in accordance with FAS 123. All stock options are awarded at the prevailing market rate on the date of grant; therefore, under the intrinsic value method employed by APB 25 no compensation expense is recognized. For purposes of FAS 123 disclosure, the estimated fair value of the options is expensed over the vesting period of the options. Fair value was estimated at the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions for 1997 and 1996: (i) risk-free interest rate of 6.00%, (ii) dividend yield of 0.00%, (iii) stock price volatility factor of .373 and (iv) expected option lives ranging from 3 to 7 years, depending on the plan under which the options were granted. If the Company had adopted FAS 123 in accounting for its stock options granted in fiscal years 1997 and 1996, its net income and earnings per share would approximate the pro forma amounts below (in thousands except for per-share data): 1997 1996 As Pro As Pro Reported Forma Reported Forma Net income(loss) $ 25,045 $ 22,331 $ (2,884) $ (4,671) Earnings per share $ 1.40 $ 1.25 $ (0.16) $ (0.26) The following table summarizes the activity in options under these stock option plans (option amounts and prices for 1995 are derived from the historical financial statements of Morrison Restaurants Inc. and do not reflect the Distribution and the March 1996 reverse stock split): Number of Shares Under Option (In Thousands Except Per-Share Data) Wtd. Wtd. Wtd. Avg. Avg. Avg. Exercise Exercise Exercise 1997 Price 1996 Price 1995 Price Beginning of year....... 2,465 $17.48 2,695 $15.49 2,717 $14.05 Adjustment due to MFC and MHC spin-off and reverse stock split (1,368) $14.84 Granted 669 $17.79 1,340 $18.55 343 $24.94 Exercised (156) $10.87 (87) $10.14 (258) $11.47 Forfeited (215) $17.79 (115) $20.62 (107) $18.28 End of year 2,763 $17.74 2,465 $17.48 2,695 $15.49 Exercisable 883 $17.02 808 $15.71 971 $10.58 Outstanding options' prices ................. $ 8.69-$30.57 $ 8.09-$30.57 $ 7.61-$28.75 Exercised options' prices................. $ 8.09-$17.10 $ 7.61-$14.09 $ 5.40-$25.38 Granted options' prices................. $16.13-$21.25 $13.62-$23.50 $14.01-$28.75 Weighted avg. fair value of options granted during the year........ $ 6.60 $ 3.75 The weighted average remaining contractual life of the options outstanding at May 31, 1997, was 3.51 years. On May 1, 1997, the Company announced its dutch auction tender offer to purchase up to one million shares of its Common Stock at prices not in excess of $22.00 nor less than $20.00 per share. That tender offer expired on June 2, 1997. The number of shares acquired pursuant to the offer aggregated 670,512 at a purchase price of $22.00 per share, for a total aggregate purchase price of $14.8 million, plus fees and expenses associated with the offer. The shares repurchased were financed through the Company's $50.0 million five-year revolving credit facility and bank lines of credit. 10. Commitments and Contingencies At May 31, 1997, the Company was committed under letters of credit of $16.8 million issued primarily in connection with its workers' compensation and casualty insurance programs. The Company is presently, and from time to time, subject to pending claims and lawsuits arising in the ordinary course of its business. In the opinion of management, the ultimate resolution of these pending legal proceedings will not have a material adverse effect on the Company's operations or consolidated financial position. 11. Subsequent Event On July 2, 1997, the Company entered into a series of agreements with three limited partnerships. These agreements provide, among other things, for the sale of 29 Company-owned units in Florida to the limited partnerships upon the transfer of the liquor licenses from the Company to the partnerships. Upon completion of the sale, the 29 units will be operated as Ruby Tuesday restaurants under separate franchising agreements. The Company will be paid an aggregate purchase price of $17.9 million, of which approximately $13.4 million will be paid in cash. The remaining approximate $4.5 million will be in the form of a 10.0% interest bearing note. The sale of the Florida units, anticipated to close late in the first quarter or early in the second quarter of fiscal 1998, is expected to result in a minimal pre-tax gain. Fiscal 1997 revenue from these 29 units totaled $45.6 million, with operating profits of $2.4 million. On that same date, the Company also entered into development agreements with these three limited partnerships whereby each of them will open eight to ten franchise restaurants in their respective areas of Florida over the next five years. For these development rights, fees totaling $0.3 million will be paid to the Company upon the completion of certain financing arrangements. 12. Supplemental Quarterly Financial Data (Unaudited) Quarterly financial results for the years ended May 31, 1997 and June 1, 1996, are summarized below. All quarters are composed of 13 weeks.
FIRST SECOND THIRD FOURTH (In Thousands Except Per-Share Data) QUARTER QUARTER QUARTER QUARTER TOTAL For The Year Ended May 31, 1997 Revenues $157,282 $156,318 $172,605 $169,202 $655,407 Gross profit* $ 28,261 $ 27,956 $ 34,807 $ 32,606 $123,630 Income before income taxes $ 8,509 $ 6,116 $ 12,771 $ 11,417 $ 38,813 Provision for federal and state income taxes 3,020 2,170 4,536 4,042 13,768 Net income $ 5,489 $ 3,946 $ 8,235 $ 7,375 $ 25,045 Earnings per common and common equivalent share $ 0.31 $ 0.22 $ 0.46 $ 0.41 $ 1.40 FIRST SECOND THIRD FOURTH (In Thousands Except Per-Share Data) QUARTER QUARTER QUARTER QUARTER TOTAL For The Year Ended June 1, 1996 Revenues $145,964 $152,001 $163,957 $158,212 $620,134 Gross profit* $ 25,448 $ 23,068 $ 30,435 $ 27,781 $106,732 Income (loss) before income taxes $ 6,211 $ 3,125 $(20,981)** $ 9,332 $ (2,313) Provision (benefit) for federal and state income taxes 2,000 1,038 (8,142) 3,453 (1,651) Income (loss) from continuing operations 4,211 2,087 (12,839) 5,879 (662) Income (loss) from discontinued operations 5,245 4,647 (12,114)** (2,222) Net income (loss) $ 9,456 $ 6,734 $(24,953) $ 5,879 $ (2,884) Earnings (loss) per common and common equivalent share: Continuing operations $ 0.24 $ 0.13 $ (0.73) $ 0.33 $ (0.03) Discontinued operations 0.29 0.26 (0.68) (0.13) $ 0.53 $ 0.39 $ (1.41) $ 0.33 $ (0.16) * The Company defines gross profit as revenue less cost of merchandise, payroll and related costs, and other operating costs and expenses. ** Continuing operations includes a pre-tax loss of $25.9 million recognized as a result of the implementation of FAS 121, other asset impairment charges and a $5.3 million restructure charge. Discontinued operations includes a pre-tax loss of $23.7 million recognized for costs associated with asset impairment and restructurings.
Morrison Restaurants Inc. common stock was publicly traded on the New York Stock Exchange under the ticker symbol RI. In connection with the Distribution, Morrison effected a one-for-two reverse stock split and changed its name to Ruby Tuesday, Inc. Ruby Tuesday, Inc. common stock is now publicly traded on the New York Stock Exchange under the ticker symbol RI. The following table sets forth the reported high and low prices for each quarter during fiscal 1997 and 1996 for (i) the common stock of Morrison Restaurants Inc. prior to the Distribution, not adjusted for either the Distribution or the reverse stock split; and (ii) the common stock of Ruby Tuesday, Inc. after the Distribution.
Fiscal Year Ended May 31, 1997 Fiscal Year Ended June 1, 1996 As Ruby Tuesday, Inc. As Morrison Restaurants Inc. Per Share Per Share Cash Cash Quarter High Low Dividends Quarter High Low Dividends First $22.88 $19.38 _ First $25.75 $19.13 $0.1750 Second $22.00 $15.38 _ Second $20.63 $15.50 $0.1840 Third $19.00 $16.25 _ Third $17.38 $12.50 $0.1840 Fourth $21.75 $17.13 _ As Ruby Tuesday, Inc. Per Share Cash Quarter High Low Dividends Fourth $23.00 $17.25 _ In the fourth quarter of fiscal 1997, the Board of Directors approved the reinstatement of a dividend policy. This policy calls for payment of semi-annual dividends of approximately $3.0 million annually with the first dividend expected to be paid in the third quarter of fiscal 1998.
Report of Independent Auditors Shareholders and Board of Directors Ruby Tuesday, Inc. and Subsidiaries We have audited the accompanying consolidated balance sheets of Ruby Tuesday, Inc. and Subsidiaries as of May 31, 1997 and June 1, 1996, and the related consolidated statements of income, shareholders' equity and cash flows for each of the three fiscal years in the period ended May 31, 1997. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits 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 Ruby Tuesday, Inc. and Subsidiaries at May 31, 1997 and June 1, 1996, and the consolidated results of their operations and their cash flows for each of the three fiscal years in the period ended May 31, 1997, in conformity with generally accepted accounting principles. As discussed in Note 3 to the consolidated financial statements, in fiscal 1996 the Company changed its method of accounting for the impairment of long-lived assets and for long-lived assets to be disposed of. Ernst & Young LLP Birmingham, Alabama June 19, 1997 Exhibit 13 EX-21 10 RUBY TUESDAY, INC. AND SUBSIDIARIES EXHIBIT 21 SUBSIDIARIES OF REGISTRANT (a) The Registrant has no parent. (b) The Registrant's subsidiaries and their jurisdictions of each organization are as follows (100% of voting securities of each subsidiary owned by the Registrant): Delaware: Morrison International, Inc. Texas: Tias, Inc. In addition to the subsidiaries listed above, the Registrant has a minority ownership in several operating subsidiaries and several wholly-owned and minority interests in non-operating subsidiaries created solely for the purpose of holding certain licenses. EX-23 11 Exhibit 23 - Consent of Independent Auditors We consent to the incorporation by reference in the Registration Statement (Form S-8 No. 33-32697) pertaining to the Ruby Tuesday, Inc. Deferred Compensation Plan, in the Registration Statement (Form S-8 No. 333-03165) pertaining to the Ruby Tuesday, Inc. Deferred Compensation Plan , in the Registration Statement (Form S-8 No. 33-20585) pertaining to the Ruby Tuesday, Inc. Salary Deferral Plan, in the Registration Statement (Form S-8 No. 333- 03153) pertaining to the Ruby Tuesday, Inc. Salary Deferral Plan, in the Registration Statement (Form S-8 No. 2-97120) pertaining to Ruby Tuesday, Inc. Long-Term Incentive Plan, in the Registration Statement (Form S-8 No. 33-13593) pertaining to the Ruby Tuesday, Inc. 1987 Stock Bonus and Non-Qualified Stock Option Plan, in the Registration Statement (Form S-8 No. 33-46220) pertaining to the Ruby Tuesday, Inc. Compensatory Non-Qualified Stock Option Arrangements, in the Registration Statement (Form S-8 No. 33-56452) pertaining to the Ruby Tuesday, Inc. Stock Incentive and Compensation Plan for Directors, Stock Incentive Plan and Non-Qualified Management Stock Option Agreements, in the Registration Statement (Form S-8 No. 333-03155) pertaining to the Ruby Tuesday, Inc. 1996 Stock Incentive Plan, in the Registration Statement (Form S-8 No. 333-03157) pertaining to the Ruby Tuesday, Inc. 1993 Non-Executive Stock Incentive Plan, in the Registration Statement (Form S-8 No. 33-70490) pertaining to the Ruby Tuesday, Inc. 1993 Non-Executive Stock Incentive Plan, in the Registration Statement (Form S-8 No. 33-46218) pertaining to the Ruby Tuesday, Inc. 1989 Non-Qualified Stock Option Plan, and in the Registration Statement (Form S-3 No. 33-57159) of Ruby Tuesday, Inc., of our report dated June 19, 1997, with respect to the consolidated financial statements of Ruby Tuesday, Inc. incorporated by reference in the Annual Report (Form 10-K) for the year ended May 31, 1997. /s/ Ernst & Young LLP Birmingham, Alabama August 22 , 1997 EX-27 12
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM RUBY TUESDAY, INC. FINANCIAL STATEMENTS AS OF AND FOR THE PERIOD ENDED MAY 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 YEAR MAY-31-1997 MAY-31-1997 7,608 0 4,621 0 9,650 35,492 512,404 165,640 418,871 69,064 78,006 0 0 177 223,463 418,871 654,464 655,407 177,835 392,502 0 0 3,911 38,813 13,768 25,045 0 0 0 25,045 $1.40 $1.40
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