-----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, B06JvPmzHuDDfA4OnkzskjRgS4YhyQyIlpxXNStsWAtTDMjs0m0PcRjLVLkrFFr7 b6b7nvNS/7pPJifCnqzHgg== 0000849101-03-000014.txt : 20030514 0000849101-03-000014.hdr.sgml : 20030514 20030514165610 ACCESSION NUMBER: 0000849101-03-000014 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 20030330 FILED AS OF DATE: 20030514 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AVADO BRANDS INC CENTRAL INDEX KEY: 0000849101 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-EATING PLACES [5812] IRS NUMBER: 592778983 STATE OF INCORPORATION: GA FISCAL YEAR END: 0103 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-19542 FILM NUMBER: 03699840 BUSINESS ADDRESS: STREET 1: HANCOCK AT WASHINGTON CITY: MADISON STATE: GA ZIP: 30650 BUSINESS PHONE: 7063424552 MAIL ADDRESS: STREET 1: HANCOCK AT WASHINGTON CITY: MADISON STATE: GA ZIP: 30650 FORMER COMPANY: FORMER CONFORMED NAME: APPLE SOUTH INC DATE OF NAME CHANGE: 19950111 10-Q 1 q103-10q.txt FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) [X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended March 30, 2003 or [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from __________ to ___________ Commission File Number: 0-19542 AVADO BRANDS, INC. (Exact name of registrant as specified in its charter) Georgia 59-2778983 - ---------------------------------------- ------------------------------------ (State or other jurisdiction of (I.R.S. Employer Identification No.) Incorporation or organization) Hancock at Washington, Madison, GA 30650 - ---------------------------------------- ------------------------------------ (Address of principal executive offices) (Zip Code) 706-342-4552 --------------------------------------- (Registrant's telephone number, including area code) 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. X Yes No --- --- Indicate by check mark whether or not the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes X No --- --- As of May 13, 2003, there were 33,101,929 shares of common stock of the Registrant outstanding. AVADO BRANDS, INC. QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED MARCH 30, 2003 INDEX Part I - Financial Information Item 1 - Consolidated Financial Statements: Consolidated Statements of Loss.................................3 Consolidated Balance Sheets.....................................4 Consolidated Statements of Shareholders' Equity (Deficit) and Comprehensive Loss..........................................5 Consolidated Statements of Cash Flows...........................6 Notes to Consolidated Financial Statements......................7 Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations..................19 Item 3 - Quantitative and Qualitative Disclosures About Market Risk.....25 Item 4 - Controls and Procedures........................................25 Part II - Other Information Item 5 - Other Information..............................................26 Item 6 - Exhibits and Reports on Form 8-K...............................26 Signature....................................................................27 Certifications...............................................................28 Page 2 Avado Brands, Inc. Consolidated Statements of Loss (Unaudited)
(In thousands, except per share data) Quarter Ended - ----------------------------------------------------------------------------------------------------------- Mar. 30, Mar. 31, 2003 2002 - ----------------------------------------------------------------------------------------------------------- Restaurant sales: Canyon Cafe $ 1,574 7,725 Don Pablo's 57,640 61,879 Hops 37,889 45,549 - ----------------------------------------------------------------------------------------------------------- Total restaurant sales 97,103 115,153 - ----------------------------------------------------------------------------------------------------------- Operating expenses: Food and beverage 27,824 32,801 Payroll and benefits 33,602 37,759 Depreciation and amortization 3,539 3,541 Other operating expenses 24,579 30,528 General and administrative expenses 6,034 6,333 Loss (gain) on disposal of assets 1,631 (524) Asset revaluation and other special charges 4,416 650 - ----------------------------------------------------------------------------------------------------------- Operating income (loss) (4,522) 4,065 - ----------------------------------------------------------------------------------------------------------- Other income (expense): Interest expense, net (12,510) (8,233) Forgiveness of credit facility amendment and waiver fee 6,500 - Distribution expense on preferred securities (56) (1,115) Other, net 389 (412) - ----------------------------------------------------------------------------------------------------------- Total other income (expense) (5,677) (9,760) - ----------------------------------------------------------------------------------------------------------- Loss from continuing operations before income taxes (10,199) (5,695) Income tax benefit - (936) - ----------------------------------------------------------------------------------------------------------- Net loss from continuing operations (10,199) (4,759) - ----------------------------------------------------------------------------------------------------------- Discontinued operations: Loss from discontinued operations (7,602) (959) - ----------------------------------------------------------------------------------------------------------- Net loss $ (17,801) (5,718) =========================================================================================================== Basic loss per common share: Basic loss from continuing operations $ (0.31) (0.17) Basic loss from discontinued operations (0.23) (0.03) - ----------------------------------------------------------------------------------------------------------- Basic loss per common share $ (0.54) (0.20) =========================================================================================================== Diluted loss per common share: Diluted loss from continuing operations $ (0.31) (0.17) Diluted loss from discontinued operations (0.23) (0.03) - ----------------------------------------------------------------------------------------------------------- Diluted loss per common share $ (0.54) (0.20) ===========================================================================================================
See accompanying notes to consolidated financial statements. Page 3 Avado Brands, Inc. Consolidated Balance Sheets (Unaudited)
(In thousands, except share data) - ---------------------------------------------------------------------------------------------------- Mar. 30, Mar. 31, 2003 2002 - ---------------------------------------------------------------------------------------------------- Assets Current assets: Cash and cash equivalents $ 226 636 Accounts receivable 6,102 5,087 Inventories 4,911 5,283 Prepaid expenses and other 6,637 2,129 Assets held for sale 2,902 10,920 - ---------------------------------------------------------------------------------------------------- Total current assets 20,778 24,055 Premises and equipment, net 187,973 236,950 Deferred income tax benefit 11,620 11,620 Other assets 32,527 28,670 - ---------------------------------------------------------------------------------------------------- $ 252,898 301,295 ==================================================================================================== Liabilities and Shareholders' Equity Current liabilities: Accounts payable $ 12,833 11,509 Accrued liabilities 43,879 54,292 Current installments of long-term debt and capital lease obligations 4,958 30,838 Income taxes 35,599 35,038 - ---------------------------------------------------------------------------------------------------- Total current liabilities 97,269 131,677 Long-term debt 164,041 164,031 Caital lease obligations 3,840 - Other long-term liabilities 2,105 2,143 - ---------------------------------------------------------------------------------------------------- Total liabilities 267,255 297,851 - ---------------------------------------------------------------------------------------------------- Company-obligated mandatorily redeemable preferred securities of Avado Financing I, a subsidiary holding solely Avado Brands, Inc. 7% convertible subordinated debentures due March 1, 2027 3,179 3,179 Shareholders' equity: Preferred stock, $0.01 par value. Authorized 10,000,000 shares; none issued - - Common stock, $0.01 par value. Authorized - 75,000,000 shares; issued - 40,478,760 shares in 2003 and 2002; outstanding - 33,101,929 shares in 2003 and 2002 405 405 Additional paid-in capital 154,637 154,637 Accumulated deficit (75,919) (58,118) Treasury stock at cost; 7,376,831 shares in 2003 and 2002 (96,659) (96,659) - ----------------------------------------------------------------------------------------------------- Total shareholders' equity (deficit) (17,536) 265 - ----------------------------------------------------------------------------------------------------- $ 252,898 301,295 =====================================================================================================
See accompanying notes to consolidated financial statements. Page 4 Avado Brands, Inc. Consolidated Statements of Shareholders' Equity (Deficit) and Comprehensive Loss (Unaudited)
Additional Total Common Stock Paid-in Accumulated Treasury Shareholders' (In thousands) Shares Amount Capital Deficit Stock Equity (Deficit) - ------------------------------------------------------------------------------------------------------------ Balance at December 29, 2002 40,479 $405 $154,637 ($58,118) ($96,659) $265 - ------------------------------------------------------------------------------------------------------------ Net loss - - - (17,801) - (17,801) - ------------------------------------------------------------------------------------------------------------ Balance at March 30, 2003 40,479 $405 $154,637 ($75,919) ($96,659) ($17,536) ============================================================================================================
See accompanying notes to consolidated financial statements. Page 5 Avado Brands, Inc. Consolidated Statements of Cash Flows
(In thousands) Quarter Ended - --------------------------------------------------------------------------------------------------------- Mar. 30, Mar. 31, 2003 2002 - --------------------------------------------------------------------------------------------------------- Cash flows from operating activities: Net loss $ (17,801) (5,718) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation of premises and equipment 3,762 3,776 Amortization and write off of deferred costs 7,142 794 Forgiveness of credit facility amendment and waiver fee (6,500) - Asset revaluation and other special charges 4,416 650 Loss (gain) on disposal of assets 1,631 (524) Loss from discontinued operations 7,602 959 Mark-to-market adjustment on interest rate swap - 861 (Increase) decrease in assets: Accounts receivable (850) 185 Inventories 366 (30) Prepaid expenses and other (865) 54 Increase (decrease) in liabilities: Accounts payable 1,568 (5,730) Accrued liabilities (11,616) (7,639) Income taxes 561 (1,187) Other long-term liabilities (38) (96) - ---------------------------------------------------------------------------------------------------------- Net cash provided by (used in) operating activities (10,622) (13,645) - ---------------------------------------------------------------------------------------------------------- Cash flows from investing activities: Capital expenditures (246) (949) Proceeds from disposal of assets and notes receivable, net 1,524 3,666 Proceeds from sale-leaseback 20,000 - Other, net (943) (497) - ---------------------------------------------------------------------------------------------------------- Net cash provided by (used in) investing activities 20,335 2,220 - ---------------------------------------------------------------------------------------------------------- Cash flows from financing activities: Proceeds from (repayment of) revolving credit agreements (6,761) 20,473 Proceeds from (repayment of) term credit agreement (12,736) - Payment of financing costs (3,396) (8,502) Principal payments on long-term debt (7) (6) Settlement of interest rate swap agreement - (1,704) Reduction in letter of credit collateral - 1,165 - ---------------------------------------------------------------------------------------------------------- Net cash provided by (used in) financing activities (22,900) 11,426 - ---------------------------------------------------------------------------------------------------------- Cash provided by (used in) discontinued operations 12,777 (392) - ---------------------------------------------------------------------------------------------------------- Net increase (decrease) in cash and cash equivalents (410) (391) Cash and cash equivalents at the beginning of the period 636 559 - ---------------------------------------------------------------------------------------------------------- Cash and cash equivalents at the end of the period $ 226 168 ==========================================================================================================
See accompanying notes to consolidated financial statements. Page 6 AVADO BRANDS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS March 30, 2003 (Unaudited) NOTE 1 - BASIS OF PRESENTATION The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X promulgated by the Securities and Exchange Commission. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for annual financial statement reporting purposes. However, there has been no material change in the information disclosed in the consolidated financial statements included in the Company's Annual Report on Form 10-K for the year ended December 29, 2002, except as disclosed herein. In the opinion of management, all adjustments, consisting only of normal recurring accruals, considered necessary for a fair presentation have been included. Operating results for the quarter ended March 30, 2003 are not necessarily indicative of the results that may be expected for the year ending December 28, 2003. As a result of the adoption of Statement of Financial Accounting Standard ("SFAS") No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets", the Company has classified the revenues, expenses and related assets and liabilities of nine Don Pablo's restaurants and one Hops restaurant which were closed during the first quarter of 2003, plus 11 additional Don Pablo's restaurants and eight additional Hops restaurants which were closed in 2002, as discontinued operations for all periods presented in the accompanying consolidated financial statements. The revenues, expenses and related assets and liabilities of Canyon Cafe, which has been divested with the exception of two locations that are held for sale, have not been classified as discontinued operations in the accompanying consolidated financial statements. As the decision to divest the operations of Canyon Cafe was made prior to the implementation of SFAS 144 and it did not meet the criteria for classification as discontinued operations under the provisions of APB Opinion No. 30, "Reporting the Results of Operations - Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions", it is required to be classified within continuing operations under the provisions of Statement of Financial Accounting Standard ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of". NOTE 2 - STOCK BASED COMPENSATION The Company accounts for its stock based compensation by using the intrinsic value method prescribed in Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees", and related interpretations ("APB 25"), and has adopted the disclosure-only provisions of Statement of Financial Accounting Standard ("SFAS") No. 123, "Accounting for Stock-Based Compensation". Under APB 25, no stock-based compensation cost is reflected in net income for grants of stock options to employees as the Company grants stock options with an exercise price equal to the market value of the stock on the date of grant. The following table illustrates the effect on net loss and loss per share if the Company had applied the fair value recognition provisions of SFAS 123 to stock-based employee compensation for the quarters ended March 30, 2003 and March 31, 2002. Mar. 31, Mar. 30, 2003 2002 - ---------------------------------------------------- ------------ ----------- Net loss, as reported $ (17,801) $ (5,718) - ---------------------------------------------------- ------------ ----------- Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects (210) (61) - ---------------------------------------------------- ------------ ----------- Pro forma net loss $ (18,011) $ (5,779) - ---------------------------------------------------- ------------ ----------- Loss per share: Basic - as reported $ (0.54) $ (0.20) - ---------------------------------------------------- ------------ ----------- Basic - pro forma $ (0.54) $ (0.20) - ---------------------------------------------------- ------------ ----------- Diluted - as reported $ (0.54) $ (0.20) - ---------------------------------------------------- ------------ ----------- Diluted - pro forma $ (0.54) $ (0.20) - ---------------------------------------------------- ------------ ----------- Page 7 NOTE 3 - LONG-TERM DEBT On March 24, 2003, the Company obtained new financing which included a $39.0 million revolving credit facility (the "Credit Facility") and a $20.0 million sale-leaseback transaction covering 15 Don Pablo's locations (the "Don Pablo's sale-leaseback"). Proceeds from the new financing were used to pay amounts outstanding under the Company's previously existing credit agreement totaling $19.5 million and fees associated with the closing of the new financing agreements totaling $4.3 million. The Credit Facility limits total borrowing capacity at any given time to an amount equal to the lesser of $39.0 million or 1.95 times the Company's trailing 12 months earnings before interest, income taxes and depreciation and amortization as determined for the most recently completed four quarters as defined in the agreement. A portion of the facility, totaling $17.0 million, is restricted for the purchase of the Company's 9.75% Senior Notes due 2006 ("Senior Notes") and 11.75% Senior Subordinated Notes due June 2009 ("Subordinated Notes"). The agreement limits the amount the Company may pay to acquire Senior Notes and Subordinated Notes to $0.50 and $0.30 per one dollar outstanding, respectively. In addition, any unused availability under the restricted portion of the facility terminates on May 31, 2003. The Credit Facility matures on March 24, 2004 but may be extended for one year at the lender's option and subject to an extension fee equal to five percent of the total commitment amount. In certain circumstances, borrowings under the Credit Facility are required to be repaid to the lender and any such repayments are not available to be re-borrowed by the Company. Events generating a required repayment include, among other things, proceeds from asset dispositions (other than Assets Held for Sale as defined in the agreement), casualty events and tax refunds, each as defined in the Credit Facility. In addition, the lender has the right to impose certain reserves against the Company's total borrowing availability under the facility, which may limit the Company's liquidity. The loan is secured by substantially all of the Company's assets. At March 30, 2003, $4.8 million in cash borrowings were outstanding under the Credit Facility and an additional $14.0 million of the facility was utilized to secure letters of credit which primarily secure the Company's insurance programs. Although the Company had not borrowed any amounts related to the $17.0 million restricted portion of the facility, total Credit Facility availability was reduced by lender reserves of $4.0 million. These reserves relate to specific conditions the Company is required to satisfy to perfect the lender's security interest in certain properties. Although the lender reserves have reduced the total availability, the lender has not limited the Company's unrestricted availability. At March 30, 2003, $16.2 million of the facility remained unused and available, of which $13.0 million was restricted and $3.2 million was unrestricted. Subsequent to March 30, 2002, the Company satisfied certain of the required conditions related to the lender reserves and $2.0 million of the reserves were eliminated. Also subsequent to the end of the first quarter, the Company used restricted loan proceeds of $4.9 million to acquire $9.9 million in face value of its Senior Notes. The Company will recognize a gain of approximately $5.0 million during the second quarter of 2003 related to the repurchases. Interest payments on the Company's Senior Notes and Subordinated Notes are due semi-annually in each June and December. Prior to the Company's repurchase of $9.9 million in face value of its outstanding Senior Notes subsequent to March 30, 2003 and $52.4 million in face value of its outstanding Subordinated Notes in the second and third quarters of 2002, the Company's semi-annual interest payments totaled approximately $11.6 million. Subsequent to the repurchases, the Company's semi-annual interest payments will total approximately $8.0 million. Under the terms of the related note indentures, the Company has an additional 30-day period from the scheduled interest payment dates before an event of default is incurred, due to late payment of interest, and the Company utilized these provisions with respect to its June and December 2002 interest payments as well as its June and December 2001 interest payments. The Company's ability to make its June 2003 interest payments is dependent on the outcome of its initiatives to sell assets and generate cash flow from operations. NOTE 4 - LIQUIDITY The Company has suffered from recurring losses from operations, has an accumulated deficit and a Credit Facility which is due March 24, 2004 that raise substantial doubt about the Company's ability to continue as a going concern. Sufficient liquidity to make required debt service and lease payments is dependent primarily on the realization of proceeds from the sale of assets and cash flow from operations. There can be no assurance that these efforts will be successful. In the event the Company is not able to meet its financial covenant targets under the Credit Facility, an event of default would occur. An event of default would entitle the lender to, among other things, declare all obligations immediately due and payable. In the event the amounts due under the Credit Facility are accelerated, cross-default provisions contained in the indentures Page 8 to the Senior Notes and Subordinated Notes would be triggered, creating an event of default under those agreements as well. At March 30, 2003, the outstanding balances of the Senior Notes and Subordinated Notes were $116.5 million and $47.6 million respectively. An event of default under the Credit Facility would result in a cross-default under the master equipment lease but would not result in a cross-default under the Company's two sale-leaseback agreements. In the event some or all of the obligations under the Company's financing agreements become immediately due and payable, the Company does not currently have sufficient liquidity to satisfy these obligations and it is likely that the Company would be forced to seek protection from its creditors. The terms of the Credit Facility, the Company's Senior Notes and Subordinated Notes, the Don Pablo's sale-leaseback, the 2000 Hops sale-leaseback and master equipment lease collectively include various provisions which, among other things, require the Company to (i) achieve certain EBITDA targets, (ii) maintain defined net worth and coverage ratios, (iii) maintain defined leverage ratios, (iv) limit the incurrence of certain liens or encumbrances in excess of defined amounts and (v) limit certain payments. At March 30, 2003, the Company was in compliance with the requirements contained in the Credit Facility, the Don Pablo's sale-leaseback and terms of the Senior Notes and Subordinated Notes. The Company was not in compliance with a net worth requirement contained in its 2000 Hops sale-leaseback agreement. The lessor, however, has waived this requirement until March 31, 2004 at which time the minimum net worth requirement will be $150.0 million. The Company is also not in compliance with certain financial covenants contained in the master equipment lease. Under the master equipment lease, the failure to meet the financial covenants represents an event of default whereby the creditor has the right to, among other things, declare all obligations under the agreement immediately due and payable and to repossess the leased equipment, which is located primarily in the Company's restaurants. Although the lessor has not notified the Company of its intent to do so, acceleration of the obligations would have a material adverse effect on the Company. At March 30, 2003, remaining obligations under the master equipment lease totaled $4.9 million. The continuing event of default under the master equipment lease does not result in cross-defaults under the Company's Credit Facility, Senior Notes, Subordinated Notes or two sale-leaseback agreements. Although the lessor has not notified the Company of any intent to accelerate its obligations, there can be no assurances that the lessor will not exercise such remedies. Subsequent to March 30, 2003, the lessor drew down a $2.0 million letter of credit which secured the Company's obligations under the agreement, thereby reducing the Company's remaining payment obligations. This letter of credit was secured by borrowing availability under the Credit Facility thus the drawing had no net impact on the Company's overall availability. Principal financing sources in the first quarter of 2003 consisted of (i) proceeds of $20.0 million from the Don Pablo's sale-leaseback, (ii) cash provided by discontinued operations, primarily related to the sale of assets, of $12.8 million, and (iii) other proceeds from the sale of assets of $1.5 million. The primary uses of funds consisted of (i) net cash used in operations of $10.6 million which included interest payments of $10.7 million primarily related to the Senior and Subordinated Notes and Credit Facility along with operating lease payments of $5.3 million, (ii) net repayments of credit agreements of $19.5 million, and (iii) payment of financing costs related to the Credit Facility and Don Pablo's sale-leaseback totaling $4.3 million. The Company incurs various capital expenditures related to existing restaurants and restaurant equipment in addition to capital requirements for developing new restaurants. The Company does not have any contractual obligations to open any new restaurants during 2003. Capital expenditures for existing restaurants are expected to be approximately $4.5 million in 2003. The Company is also exposed to certain contingent payments. In connection with the Applebee's and Canyon Cafe divestiture transactions completed during 2002, 1999 and 1998, the Company remains contingently liable for lease obligations relating to 86 Applebee's restaurants and nine Canyon Cafe restaurants. Assuming that each respective purchaser became insolvent, an event management believes to be remote, the Company could be liable for lease payments extending through 2017 with minimum lease payments totaling $34.6 million. The Company also remains contingently liable for lease obligations relating to eight Harrigan's restaurants which were divested in 1999. Minimum lease payment obligations for those eight restaurants total $5.5 million and extend through 2012. On March 14, 2003, Harrigan's filed a bankruptcy petition under Chapter 11 of the Unites States Bankruptcy Code. Harrigan's is continuing to operate under Chapter 11 and the Company has not been notified of any intent by the respective landlords to hold the Company liable for lease obligations pertaining to any of the eight locations. Under the Company's insurance programs, coverage is obtained for significant exposures as well as those risks required to be insured by law or contract. It is the Company's preference to retain a significant portion of certain expected losses related primarily to workers' compensation, physical loss to property, and comprehensive general liability. The Company's deductibles for workers' compensation and general liability are $500,000 per claim. Losses Page 9 in excess of these risk retention levels are covered by insurance which management considers as adequate. Provision for losses expected under these programs are recorded based upon estimates of the liability for claims incurred. Such estimates are based on management's evaluation of the nature and severity of claims and future development based on the Company's historical experience, information provided by the Company's third party administrators and certain actuarial assumptions used by the insurance industry. In the first quarter of 2003, claims paid under the Company's self-insurance programs totaled $1.0 million. In addition, at March 30, 2003, the Company was contingently liable for letters of credit aggregating approximately $14.0 million, relating primarily to its insurance programs. Management believes that the ultimate disposition of these contingent liabilities will not have a material adverse effect on the Company's consolidated financial position or results of operations. The Company's 1998 Federal income tax returns are currently being audited by the Internal Revenue Service ("IRS"). The Company believes its recorded liability for income taxes of $35.6 million as of March 30, 2003 is adequate to cover its exposure that may result from the ultimate resolution of the audit. During the first quarter of 2003, the Company submitted an Offer in Compromise to the IRS whereby the Company offered to settle its potential obligations at a discounted amount. The Offer in Compromise process is a mechanism available to taxpayers to potentially reduce amounts otherwise payable to the IRS based on analysis of a taxpayer's ability to pay, the value of its assets versus its liabilities and other economic factors. Although the ultimate outcome of the audit or the Offer in Compromise cannot be determined at this time, the Company does not have sufficient liquidity to pay any significant portion of its recorded liability if resolution of the audit results in such amount being currently due and payable. Management does not currently expect that this will be the result, or that any resolution with respect to audit issues will be reached in the near future. Management has taken steps to improve cash flow from operations, including changing the Company's marketing strategy to be less reliant on expensive broadcast media, reducing overhead through consolidation of functions and personnel reductions primarily from the first quarter relocation of its Hops corporate headquarters and adjusting supervisory management level personnel in its restaurant operations. There is no assurance these efforts will be successful in improving cash flow from operations sufficiently to enable the Company to continue to meet its obligations, including scheduled interest and other required payments under its debt and lease agreements and capital expenditures necessary to maintain its existing restaurants. For the near term, cash flow from operations will need to be supplemented by asset sales. There is no assurance the Company will be able to generate proceeds from these efforts in sufficient amounts to supplement cash flow from operations, thereby enabling the Company to meet its debt and lease obligations. In addition, there is no assurance the Company will be able to comply with the financial covenants of its debt and lease agreements. NOTE 5 - SUPPLEMENTAL CASH FLOW INFORMATION For the quarters ended March 30, 2003 and March 31, 2002, the following supplements the consolidated statements of cash flows (amounts in thousands): 2003 2002 ------------ ----------- Interest paid $ 10,726 7,236 Income taxes paid (refunded) $ (561) 62 NOTE 6 - ASSET REVALUATION AND OTHER SPECIAL CHARGES For the quarter ended March 30, 2003, asset revaluation and other special charges of $4.4 million, which were predominately non-cash, include asset impairment charges of $2.9 million recorded to reduce the carrying value of the assets of four Don Pablo's restaurants to estimated fair value and $1.5 million in special charges related to costs associated with the relocation of the Hops corporate office to Madison, Georgia. Asset revaluation and other special charges for the quarter ended March 31, 2002 reflected a non-cash asset impairment charge of $0.7 million to reduce the carrying value of the assets of the Company's Canyon Cafe restaurants to estimated fair value. NOTE 7 - DISPOSAL OF ASSETS Loss on disposal of assets of $1.6 million for the quarter ended March 30, 2003, primarily reflects losses related to the sale of 15 Don Pablo's restaurants included in the Company's Don Pablo's sale-leaseback transaction which occurred during the quarter. Page 10 Gain on disposal of assets of $0.5 million for the quarter ended March 31, 2002 primarily reflects an adjustment to amounts receivable from the divestiture of McCormick & Schmick's which was somewhat offset by fees incurred in connection with the first quarter termination of the Company's interest rate swap agreement. NOTE 8 - INCOME TAXES No income tax benefit was recorded related to the loss before income taxes for the quarter ended March 30, 2003. The income tax benefit recorded for the quarter ended March 31, 2002 represents the effective rate of benefit on loss before income taxes for the quarter. The tax rate was based on the Company's expected rate for the full fiscal 2002 year. (See Note 4). NOTE 9 - DISCONTINUED OPERATIONS As discussed in Note 1 - Basis of Presentation, discontinued operations includes the revenues and expenses of nine Don Pablo's and one Hops restaurant which were closed in the first quarter of 2003, plus 11 additional Don Pablo's restaurants and eight additional Hops restaurants which were closed during 2002. The decision to dispose of these 29 locations reflects the Company's ongoing process of evaluating the performance and cash flows of its various restaurant locations and using the proceeds from the sale of closed restaurants to reduce outstanding debt. Net loss from discontinued operations for the quarter ended March 30, 2003, for which no tax benefit has been provided, of $7.6 million primarily reflects losses on the disposal of closed restaurants. Operating losses were $7.6 million for the quarter on total restaurant sales from discontinued operations of $2.2 million. Net loss from discontinued operations for the quarter ended March 31, 2002 of $1.0 million (net of income tax benefit of $0.2 million), reflects operating losses of $1.2 million on total restaurant sales from discontinued operations of $10.6 million. NOTE 10 - SALE-LEASEBACK TRANSACTIONS On March 24, 2003, the Company completed a sale-leaseback transaction covering 15 Don Pablo's locations (the "Don Pablo's sale-leaseback"). The transaction included the sale of the land and buildings for total consideration of $20.0 million. The term of the lease is 20 years with two 10-year renewal options. Total annual payments due under the lease are $2.4 million at inception and will escalate by 10% every five years. The portion of the lease attributable to the buildings has been accounted for as a capital lease while the portion attributable to the land has been accounted for as an operating lease. As a result, at March 30, 2003 the Company recorded a capital lease obligation of $3.9 million. Depreciation on the related assets will be recorded on a straight-line basis over the 20 year base-term of the lease. In addition, the Company recorded $10.3 million of prepaid interest, included in other assets in the accompanying consolidated balance sheet, which will be amortized to interest expense over the 20 year term of the lease. This prepaid interest represents the excess of estimated fair value of the 15 locations over the proceeds received from the transaction. A loss of $1.6 million, representing the excess of recorded net book value over estimated fair value for the 15 locations was recorded as a loss on disposal of assets during the quarter. In October 2000, the Company completed a sale-leaseback transaction involving 20 Hops restaurant properties. The transaction included the sale of the land and buildings for total consideration of $28.4 million. The lease covers an initial term of 20 years with options to extend the lease for four periods of five years each. Rent expense related to the sale-leaseback escalates by 1.2% each year. The transaction, which has been accounted for as an operating lease, resulted in prepaid rent, which is being amortized over the lease term as additional rent expense. NOTE 11 - CONTINGENCIES Under the Company's insurance programs, coverage is obtained for significant exposures as well as those risks required to be insured by law or contract. It is the Company's preference to retain a significant portion of certain expected losses related primarily to workers' compensation, physical loss to property, and comprehensive general liability. The Company's deductibles for workers' compensation and general liability are $500,000 per claim. Losses in excess of these risk retention levels are covered by insurance which management considers as adequate. Provisions for losses expected under these programs are recorded based on estimates of the liability for claims incurred. Such estimates are based on management's evaluation of the nature and severity of claims and future development based on the Company's historical experience, information provided by the Company's third party administrators and certain Page 11 actuarial assumptions used by the insurance industry. At March 30, 2003, the Company was contingently liable for letters of credit aggregating approximately $14.0 million related primarily to its insurance programs. The Company is also exposed to certain contingent payments. In connection with the Applebee's and Canyon Cafe divestiture transactions completed during 2002, 1999 and 1998, the Company remains contingently liable for lease obligations relating to 86 Applebee's restaurants and nine Canyon Cafe restaurants. Assuming that each respective purchaser became insolvent, an event management believes to be remote, the Company could be liable for lease payments extending through 2017 with minimum lease payments totaling $34.6 million. The Company also remains contingently liable for lease obligations relating to eight Harrigan's restaurants which were divested in 1999. Minimum lease payment obligations for those eight restaurants total $5.5 million and extend through 2012. On March 14, 2003, Harrigan's filed a bankruptcy petition under Chapter 11 of the Unites States Bankruptcy Code. Harrigan's is continuing to operate under Chapter 11 and the Company has not been notified of any intent by the respective landlords to hold the Company liable for lease obligations pertaining to any of the eight locations. In 1997, two lawsuits were filed by persons seeking to represent a class of shareholders of the Company who purchased shares of the Company's common stock between May 26, 1995 and September 24, 1996. Each plaintiff named the Company and certain of its officers and directors as defendants. The complaints alleged acts of fraudulent misrepresentation by the defendants which induced the plaintiffs to purchase the Company's common stock and alleged illegal insider trading by certain of the defendants, each of which allegedly resulted in losses to the plaintiffs and similarly situated shareholders of the Company. The complaints each sought damages and other relief. In 1998, one of these suits (Artel Foam Corporation Pension Trust, et al. v. Apple South, Inc., et al., Civil Action No. CV-97-6189) was dismissed. An amended complaint, styled John Bryant, et al. vs. Apple South, Inc., et al. consolidating previous actions was filed in January 1998. During 1999, the Company received a favorable ruling from the 11th Circuit Court of Appeals relating to the remaining suit. As a result of the ruling, the District Court again considered the motion to dismiss the case, and the defendants renewed their motion to dismiss in December 1999. In June 2000, the District Court dismissed with prejudice the remaining suit. The plaintiffs appealed the court's final decision. Upon hearing the appeal, a three-judge panel reversed the motion to dismiss and gave the plaintiffs the opportunity to amend their suit and state with more particularity their allegations. The plaintiffs have made a settlement demand of $2.5 million, which has been accepted by the Company's insurer. The Company believes that the members of the class will give final consent to the insurer's offer and, in the near future, the case will be dismissed as settled, at no additional cost to the Company. In September 2002, the Company was named as the Defendant in an action filed in the U.S. District Court for the Middle District of Georgia. The Plaintiff, Bank of America Securities, LLC, alleges that it is owed a fee of approximately $1.0 million, relating to the Company's sale of the McCormick & Schmick's brand. The Company believes that the allegations in the complaint are without merit and plans to vigorously contest the complaint. This litigation is currently at a preliminary stage. Thus, it is not possible for the Company to evaluate the likelihood of the plaintiff prevailing on its claims. Because this claim is a suit on a contract, the Company's existing insurance policies do not provide coverage. There can be no assurance that an adverse determination in this litigation would not have a material adverse effect on the Company's financial condition or results of operations. On April 3, 2003, the Company received a communication from counsel claiming to represent an ad hoc committee ("the Committee") of holders of a majority of the Company's 9.75% Senior Notes ("the Senior Notes"). The communication set forth concerns of the Committee with respect to certain actions of the Company and threatened to cause a notice of default under the indenture covering the Senior Notes to be issued and other legal action to be taken if the Committee's concerns were not addressed. On May 5, 2003, counsel for the Committee issued a press release announcing the Committee's intention to cause a notice of default to be issued, asserting that certain transactions with the Company's Chairman and CEO constituted violations of covenants in the Indenture governing the Senior Notes. Should it ultimately be determined that an event of default exists, the Senior Notes would become currently due and payable. As of May 14, 2003, the Company has not received any notice from the trustee for the Senior Notes that a notice of default has been filed, nor, to the Company's knowledge has the Committee taken any formal legal action. If the Committee were to initiate action to declare a default and to accelerate the Senior Notes, the Company intends to vigorously contest such action. While the outcome of any potential litigation is inherently uncertain, the Company does not believe that the Committee would prevail in any such attempt to accelerate the Senior Notes. In the event the Senior Notes are accelerated cross-default provisions would be triggered in the Company's Credit Facility and Subordinated Notes. Page 12 The Company is involved in various other claims and legal actions arising in the ordinary course of business. In the opinion of management, the ultimate disposition of these matters will not have a material adverse effect on the Company's consolidated financial position or results of operations. NOTE 12 - RELATED PARTY TRANSACTIONS At December 31, 2000, the Company held several notes receivable, one of which was secured by real estate, from Tom E. DuPree, Jr., Chairman of the Board and Chief Executive Officer of the Company (the "Chairman Notes" and the "Chairman"). At December 30, 2001, the due date of the Chairman Notes was June 30, 2002 with an interest rate of 11.5% payable at maturity. At December 30, 2001, total amounts owed to the Company under the Chairman Notes were $10.9 million in principal and $3.0 million in accrued interest. At that time, the Company recorded an allowance against the ultimate realization of amounts due totaling $11.1 million, resulting in a net book value of $2.8 million, the fair value of the real estate collateral held by the Company. In March 2002, The Board of Directors approved a series of transactions whereby the Chairman sold the real estate collateral securing one of the Chairman Notes and, with the $2.8 million in proceeds, purchased $14.0 million in face value of the Company's 11.75% Senior Subordinated Notes, due June 2009 (the "Subordinated Notes"). The Subordinated Notes were pledged as collateral by the Chairman to secure amounts owed by him to the Company under the Chairman Notes. On March 6, 2002 the principal and interest due on the several Chairman Notes were consolidated into one note with a principal balance of $14.1 million (the "New Chairman Note"), and the interest payment terms, interest rate and due date of the note were changed to match the terms and due date of the Subordinated Notes. All amounts of interest and principal paid by the Company on the Subordinated Notes owned by the Chairman and pledged as collateral to the Company, will be used to make simultaneous payments to the Company on amounts due to the Company under the New Chairman Note. In conjunction with the Company's July 10, 2002 payment of semi-annual interest due to holders of its Subordinated Notes, the Chairman made a simultaneous payment of principal and interest under the New Chairman Note in the amount of $0.8 million. As a result, the principal balance of the New Chairman Note was reduced to $13.7 million at December 29, 2002. In conjunction with the Company's January 9, 2003 payment of semi-annual interest to holders of its Subordinated Notes, the Chairman made a simultaneous payment of interest in the amount of $0.8 million. The balance of the New Chairman Note at March 30, 2003 was $2.6 million, net of the valuation allowance established in 2001. NOTE 13 - NEW ACCOUNTING PRONOUNCEMENTS In July 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations", which requires entities to recognize the fair value of a liability for an asset retirement obligation in the period in which it is incurred. The statement is effective for fiscal years beginning after June 15, 2002. The Company adopted SFAS 143 in the first quarter of fiscal 2003. The adoption of this standard did not have a material impact on its results of operations or financial position. In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities". SFAS 146 supersedes Emerging Issues Task Force ("EITF") Issue 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (Including Certain Costs Incurred in a Restructuring)". SFAS 146 eliminates the provisions of EITF 94-3 that required a liability to be recognized for certain exit or disposal activities at the date an entity committed to an exit plan. SFAS 146 requires a liability for costs associated with an exit or disposal activity to be recognized when the liability is incurred. SFAS 146 is effective for exit or disposal activities that are initiated after December 31, 2002. The adoption of this statement did not have a material adverse impact on the Company's results of operations or financial position during the quarter ended March 30, 2003, however it may impact the timing of expense recognition as the Company continues to execute its strategy of reducing debt with proceeds from the sale of assets. Page 13 In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure". SFAS 148 amends SFAS No. 123, "Accounting for Stock-Based Compensation," to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, the statement amends the disclosure requirements of SFAS 123 to require prominent disclosure in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results (see Note 2). The provisions of the statement are effective for financial statements for fiscal years ending after December 15, 2002. As the Company accounts for stock-based compensation using the intrinsic value method prescribed in APB No. 25, "Accounting for Stock Issued to Employee's", the adoption of SFAS 148 had no impact on the Company's financial condition or results of operations. In November 2001, the EITF reached a consensus on Issue 01-9, "Accounting for Consideration Given by a Vendor to a Customer". EITF 01-9 addresses the recognition, measurement and income statement classification for sales incentives offered to customers. Sales incentives include discounts, coupons, free products and generally any other offers that entitle a customer to receive a reduction in the price of a product. Under EITF 01-9, the reduction in the selling price of the product resulting from any sales incentives should be classified as a reduction of revenue. The Company adopted EITF 01-9 in fiscal 2002. Prior to adopting this pronouncement, the Company recognized sales incentives as restaurant operating expenses. As a result of adopting EITF 01-9, sales incentives were reclassified as a reduction of sales for all periods presented. Amounts reclassified were $2.0 million for the quarter ended March 30, 2003 and $1.5 million for the quarter ended March 31, 2002. In November 2002, the FASB issued FASB Interpretation ("FIN") No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others". FIN 45 expands the disclosure requirements to be made by a guarantor in its interim and annual financial statements about its obligations under certain guarantees that it has issued. The Interpretation also clarifies that a guarantor is required to recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. Certain guarantees, including (i) an original lessee's guarantee of the lease payments when that lessee remains secondarily liable in conjunction with being relieved from being the primary obligor and (ii) a parent's guarantee of a subsidiary's debt to a third party, and a subsidiary's guarantee of debt owed to a third party by either its parent or another subsidiary of that parent, are excluded from the provisions related to liability recognition. These guarantees, however, are subject to the disclosure requirements of the Interpretation. The liability recognition provisions of FIN 45 are applicable to guarantee's issued after December 31, 2002. The disclosure requirements of the Interpretation are effective for financial statements of interim and annual periods ending after December 15, 2002. Historically, the only guarantees issued by the Company relate to lease guarantees where the Company is no longer the primary obligor and guarantees between Avado Brands, Inc. and its wholly-owned subsidiaries related to debt owed to third parties. Currently under such guarantees, the Company could be liable for lease payments extending through 2017 with minimum lease payments totaling $40.1 million (see Note 11). The Company does not anticipate issuing any guarantees which would be required to be recognized as a liability under the provisions of FIN 45 and thus does not expect the adoption of this Interpretation to have a material impact on its results of operations or financial position. The Company has adopted the disclosure requirements of FIN 45 effective for fiscal year ended December 29, 2002. NOTE 14 - GUARANTOR SUBSIDIARIES The Company's Senior Notes and Credit Facility are fully and unconditionally guaranteed on a joint and several basis by substantially all of its wholly owned subsidiaries. Such indebtedness is not guaranteed by the Company's non-wholly owned subsidiaries. These non-guarantor subsidiaries primarily include certain partnerships of which the Company is typically a 90% owner. At March 30, 2003 and March 31, 2002, these partnerships in the non-guarantor subsidiaries operated 19 and 20 of the Company's restaurants, respectively. Accordingly, condensed consolidated balance sheets as of March 30, 2003 and December 29, 2002, and condensed consolidated statements of earnings (loss) and cash flows for the quarter ended March 30, 2003 and March 31, 2002 are provided for such guarantor and non-guarantor subsidiaries. Corporate costs associated with the maintenance of a centralized administrative function for the benefit of all Avado restaurants, as well as goodwill, have not been allocated to the non-guarantor subsidiaries. In addition, interest expense has not been allocated to the non-guarantor subsidiaries. Separate financial statements and other disclosures concerning the guarantor and non-guarantor subsidiaries are not presented because management has determined that they are not material to investors. There are no contractual restrictions on the ability of the guarantor subsidiaries to make distributions to the Company. Page 14 Condensed Consolidated Statement of Earnings (Loss) Quarter Ended March 30, 2003
- ------------------------------------------------ ---------------- ----------------- --------------- ---------------- Guarantor Non-Guarantor (In thousands) Subsidiaries Subsidiaries Eliminations Consolidated - ------------------------------------------------ ---------------- ----------------- --------------- ---------------- Restaurant sales $ 92,720 4,383 - 97,103 Operating expenses 85,491 4,053 - 89,544 General and administrative expenses 5,833 201 - 6,034 (Gain) loss on disposal of assets 1,631 - - 1,631 Asset revaluation and other special charges 4,416 - - 4,416 - ------------------------------------------------ ---------------- ----------------- --------------- ---------------- Operating income (loss) (4,651) 129 - (4,522) - ------------------------------------------------ ---------------- ----------------- --------------- ---------------- Other income (expense) (5,677) - - (5,677) Earnings (loss) before income taxes for continuing operations (10,328) 129 - (10,199) Income taxes - - - - - ------------------------------------------------ ---------------- ----------------- --------------- ---------------- Net earnings (loss) from continuing operations (10,328) 129 - (10,199) - ------------------------------------------------ ---------------- ----------------- --------------- ---------------- Net loss from discontinued operations (7,602) - - (7,602) - ------------------------------------------------ ---------------- ----------------- --------------- ---------------- Net earnings (loss) $ (17,930) 129 - (17,801) ================================================ ================ ================= =============== ================
Condensed Consolidated Statement of Earnings (Loss) Quarter Ended March 31, 2002
- ------------------------------------------------ ---------------- ----------------- --------------- ---------------- Guarantor Non-Guarantor (In thousands) Subsidiaries Subsidiaries Eliminations Consolidated - ------------------------------------------------ ---------------- ----------------- --------------- ---------------- Restaurant sales $ 101,725 13,428 - 115,153 Operating expenses 92,638 11,991 - 104,629 General and administrative expenses 5,721 612 - 6,333 (Gain) loss on disposal of assets (524) - - (524) Asset revaluation and other special charges 650 - - 650 - ------------------------------------------------ ---------------- ----------------- --------------- ---------------- Operating income 3,240 825 - 4,065 - ------------------------------------------------ ---------------- ----------------- --------------- ---------------- Other income (expense) (9,760) - - (9,760) Earnings (loss) before income taxes for continuing operations (6,520) 825 - (5,695) Income taxes (1,072) 136 - (936) - ------------------------------------------------ ---------------- ----------------- --------------- ---------------- Net earnings (loss) from continuing operations (5,448) 689 - (4,759) - ------------------------------------------------ ---------------- ----------------- --------------- ---------------- Net loss from discontinued operations (914) (45) - (959) - ------------------------------------------------ ---------------- ----------------- --------------- ---------------- Net earnings (loss) $ (6,362) 644 - (5,718) ================================================ ================ ================= =============== ================
Page 15 Condensed Consolidated Balance Sheet March 30, 2003
- ------------------------------------------------ ---------------- ----------------- --------------- ---------------- Guarantor Non-Guarantor (In thousands) Subsidiaries Subsidiaries Eliminations Consolidated - ------------------------------------------------ ---------------- ----------------- --------------- ---------------- ASSETS Current assets $ 20,032 746 - 20,778 Premises and equipment, net 165,094 22,879 - 187,973 Deferred income tax benefit 11,620 - - 11,620 Other assets 32,509 18 - 32,527 Intercompany advances 12,370 - (12,370) - Intercompany investments 11,017 - (11,017) - - ------------------------------------------------ ---------------- ----------------- --------------- ---------------- $ 252,642 23,643 (23,387) 252,898 ================================================ ================ ================= =============== ================ LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities $ 97,013 256 - 97,269 Long-term liabilities 169,986 - - 169,986 Intercompany payables - 12,370 (12,370) - Convertible preferred securities 3,179 - - 3,179 Shareholders' equity (deficit) (17,536) 11,017 (11,017) (17,536) - ------------------------------------------------ ---------------- ----------------- --------------- ---------------- $ 252,642 23,643 (23,387) 252,898 ================================================ ================ ================= =============== ================
Condensed Consolidated Balance Sheet December 29, 2002
- ------------------------------------------------ ---------------- ----------------- --------------- ---------------- Guarantor Non-Guarantor (In thousands) Subsidiaries Subsidiaries Eliminations Consolidated - ------------------------------------------------ ---------------- ----------------- --------------- ---------------- ASSETS Current assets $ 23,255 800 - 24,055 Premises and equipment, net 213,130 23,820 - 236,950 Deferred income tax benefit 11,620 - - 11,620 Other assets 28,652 18 - 28,670 Intercompany advances 12,370 - (12,370) - Intercompany investments 12,131 - (12,131) - - ------------------------------------------------ ---------------- ----------------- --------------- ---------------- $ 301,158 24,638 (24,501) 301,295 ================================================ ================ ================= =============== ================ LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities $ 131,540 137 - 131,677 Long-term liabilities 166,174 - - 166,174 Intercompany payables - 12,370 (12,370) - Convertible preferred securities 3,179 - - 3,179 Shareholders' equity (deficit) 265 12,131 (12,131) 265 - ------------------------------------------------ ---------------- ----------------- --------------- ---------------- $ 301,158 24,638 (24,501) 301,295 ================================================ ================ ================= =============== ================
Page 16 Condensed Consolidated Statement of Cash Flows Quarter Ended March 30, 2003
- ---------------------------------------------------- ---------------- ----------------- --------------- ---------------- Guarantor Non-Guarantor (In thousands) Subsidiaries Subsidiaries Eliminations Consolidated - ---------------------------------------------------- ---------------- ----------------- --------------- ---------------- Net cash provided by (used in) operating activities $ (10,904) 282 - (10,622) - ---------------------------------------------------- ---------------- ----------------- --------------- ---------------- Cash flows from investing activities: Capital expenditures (246) - - (246) Proceeds from disposal of assets, net 1,524 - - 1,524 Proceeds from sale-leaseback 20,000 - - 20,000 Other investing activities (943) - - (943) - ---------------------------------------------------- ---------------- ----------------- --------------- ---------------- Net cash provided by (used in) investing activities 20,335 - - 20,335 - ---------------------------------------------------- ---------------- ----------------- --------------- ---------------- Cash flows from financing activities: Repayment of revolving credit agreements (6,761) - - (6,761) Repayment of term credit agreement (12,736) - - (12,736) Payment of financing costs (3,396) - - (3,396) Principal payments on long-term debt (7) - - (7) Proceeds from (payment of) intercompany advances 282 (282) - - - ---------------------------------------------------- ---------------- ----------------- --------------- ---------------- Net cash provided by (used in) financing activities (22,618) (282) - (22,900) - ---------------------------------------------------- ---------------- ----------------- --------------- ---------------- Cash provided by (used in) discontinued operations 12,777 - - 12,777 - ---------------------------------------------------- ---------------- ----------------- --------------- ---------------- Net increase (decrease) in cash and cash equivalents (410) - - (410) Cash and equivalents at the beginning of the period 607 29 - 636 - ---------------------------------------------------- ---------------- ----------------- --------------- ---------------- Cash and equivalents at the end of the period $ 197 29 - 226 ==================================================== ================ ================= =============== ================
Condensed Consolidated Statement of Cash Flows Quarter Ended March 31, 2002
- ---------------------------------------------------- ---------------- ----------------- --------------- ---------------- Guarantor Non-Guarantor (In thousands) Subsidiaries Subsidiaries Eliminations Consolidated - ---------------------------------------------------- ---------------- ----------------- --------------- ---------------- Net cash provided by (used in) operating activities $ (14,760) 1,115 - (13,645) - ---------------------------------------------------- ---------------- ----------------- --------------- ---------------- Cash flows from investing activities: Capital expenditures (806) (143) - (949) Proceeds from disposal of assets, net 3,666 - - 3,666 Other investing activities (497) - - (497) - ---------------------------------------------------- ---------------- ----------------- --------------- ---------------- Net cash provided by (used in) investing activities 2,363 (143) - 2,220 - ---------------------------------------------------- ---------------- ----------------- --------------- ---------------- Cash flows from financing activities: Proceeds from revolving credit agreements 20,473 - - 20,473 Payment of financing costs (8,502) - - (8,502) Principal payments on long-term debt (6) - - (6) Settlement of interest rate swap agreement (1,704) - - (1,704) Reduction in letter of credit collateral 1,165 - - 1,165 Proceeds from (payment of) intercompany advances 918 (918) - - - ---------------------------------------------------- ---------------- ----------------- --------------- ---------------- Net cash provided by (used in) financing activities 12,344 (918) - 11,426 - ---------------------------------------------------- ---------------- ----------------- --------------- ---------------- Cash provided by (used in) discontinued operations (338) (54) - (392) - ---------------------------------------------------- ---------------- ----------------- --------------- ---------------- Net increase (decrease) in cash and cash equivalents (391) - - (391) Cash and equivalents at the beginning of the period 530 29 - 559 - ---------------------------------------------------- ---------------- ----------------- --------------- ---------------- Cash and equivalents at the end of the period $ 139 29 - 168 ==================================================== ================ ================= =============== ================
Page 17 NOTE 15 - EARNINGS PER SHARE INFORMATION The following table presents a reconciliation of weighted average shares and earnings per share amounts (amounts in thousands, except per share data):
(In thousands, except per share data) Quarter Ended - -------------------------------------------------------------------------------------------- Mar. 30, Mar. 31, 2003 2002 - -------------------------------------------------------------------------------------------- Average number of common shares used in basic calculation 33,102 29,009 Net additional shares issuable pursuant to employee stock option plans at period-end market price - - * Shares issuable on assumed conversion of convertible preferred securities - * - * - -------------------------------------------------------------------------------------------- Average number of common shares used in diluted calculation 33,102 29,009 ============================================================================================ Net loss from continuing operations $ (10,199) (4,759) Net loss from discontinued operations (7,602) (959) - -------------------------------------------------------------------------------------------- Net loss (17,801) (5,718) Distribution savings on assumed conversion of convertible preferred securities, net of income taxes - * - * - -------------------------------------------------------------------------------------------- Net loss for computation of diluted earnings per common share $ (17,801) (5,718) ============================================================================================ - -------------------------------------------------------------------------------------------- Basic loss per common share from continuing operations $ (0.31) (0.17) Basic loss per common share from discontinued operations (0.23) (0.03) - -------------------------------------------------------------------------------------------- Basic loss per common share $ (0.54) (0.20) ============================================================================================ - -------------------------------------------------------------------------------------------- Diluted loss per common share from continuing operations $ (0.31) (0.17) Diluted loss per common share from discontinued operations (0.23) (0.03) - -------------------------------------------------------------------------------------------- Diluted loss per common share $ (0.54) (0.20) ============================================================================================
* Inclusion of 771,557 shares issuable pursuant to employee stock option plans results in an increase to earnings (loss) per share ("EPS") for the quarter ended March 31, 2002. As those shares are antidilutive, they are excluded from the computation of diluted EPS. Inclusion of 214,944 shares for the quarter ended March 30, 2003 and 4,307,762 shares for the quarter ended March 31, 2002 related to the Convertible Preferred Securities results in an increase to EPS in each respective quarter. As those shares are antidilutive, they are excluded from the computation of diluted EPS. NOTE 16 - SUBSEQUENT EVENTS Subsequent to the end of the quarter, the Company repurchased $9.9 million in face value of its 9.75% Senior Notes, due 2006, for $4.5 million plus $0.4 in accrued interest. The Company will recognize a gain on debt extinguishment of approximately $5.0 million during the second quarter of 2003 related to the repurchases. Page 18 Item 2. AVADO BRANDS, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS For the First Quarter Ended March 30, 2003 Presentation In October 2001, the FASB issued Statement of Financial Accounting Standards ("SFAS") No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets". SFAS 144, which was adopted by the Company in the first quarter of 2002, supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of", and the accounting and reporting provisions of APB Opinion No. 30, "Reporting the Results of Operations - Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions", for the disposal of a "Segment" of a business as defined in that Opinion. As a result of the adoption of SFAS 144, the Company has classified the revenues, expenses and related assets and liabilities of nine Don Pablo's restaurants and one Hops restaurant which were closed during the first quarter of 2003, plus 11 additional Don Pablo's restaurants and eight additional Hops restaurants which were closed in 2002, as discontinued operations for all periods presented in the accompanying consolidated financial statements. The revenues, expenses and related assets and liabilities of Canyon Cafe, which has been divested with the exception of two locations that are held for sale, have not been classified as discontinued operations in the accompanying consolidated financial statements. As the decision to divest the operations of Canyon Cafe was made prior to the implementation of SFAS 144 and it did not meet the criteria for classification as discontinued operations under the provisions of APB Opinion No. 30, "Reporting the Results of Operations - Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions", it is required to be classified within continuing operations under the provisions of SFAS 121. Restaurant Sales Restaurant sales for the quarter ended March 30, 2003 were $97.1 million compared to $115.2 million for the corresponding period of 2002. Declining revenues were primarily due to the divestiture of Canyon Cafe which was substantially completed in the fourth quarter of 2002 and a decrease in same-store sales at Don Pablo's and Hops. Sales were adversely impacted during the quarter by the Company's limited ability to market, as well as the war in Iraq and a generally sluggish economy. The revenues and expenses related to nine Don Pablo's restaurants and one Hops restaurant which were closed during the first quarter of 2003, plus 11 additional Don Pablo's restaurants and eight Hops restaurants which were closed in 2002, have been included in discontinued operations for all periods presented in the accompanying consolidated statements of loss and consolidated statements of cash flows. Same-store sales for the first quarter of 2003 decreased by approximately 7% at Don Pablo's and 17% at Hops as compared to 2002 (same-store sales comparisons included all restaurants classified as continuing operations and open for 18 months as of the beginning of 2003). Page 19 Operating Expenses The following table sets forth the percentages which certain items of income and expense bear to total restaurant sales for the operations of the Company's restaurants for the quarters ended March 30, 2003 and March 31, 2002. Mar. 30, Mar. 31, 2003 2002 - ---------------------------------------------- -------------- -------------- Restaurant sales: Canyon Cafe 1.6 % 6.7 % Don Pablo's 59.4 % 53.7 % Hops 39.0 % 39.6 % - ---------------------------------------------- -------------- -------------- Total restaurant sales 100.0 % 100.0 % - ---------------------------------------------- -------------- -------------- Operating expenses: Food and beverage 28.7 % 28.5 % Payroll and benefits 34.6 % 32.8 % Depreciation and amortization 3.6 % 3.1 % Other operating expenses 25.3 % 26.5 % General and administrative expenses 6.2 % 5.5 % Loss (gain) on disposal of assets 1.7 % (0.5)% Asset revaluation and other special charges 4.5 % 0.6 % - ---------------------------------------------- -------------- -------------- Total operating expenses 104.7 % 96.5 % - ---------------------------------------------- -------------- -------------- Operating income (loss) (4.7)% 3.5 % - ---------------------------------------------- -------------- -------------- Certain operating expenses for the quarter ended March 30, 2003, including food and beverage costs, payroll and benefit costs, depreciation and amortization, and other operating expenses increased by 1.3%, as a percent of sales, over the prior period of 2002. This increase was largely due to decreased leverage on fixed costs due to declining sales volumes at Don Pablo's and Hops which was somewhat offset by reduced marketing expenditures. General and Administrative Expenses General and administrative expenses decreased by $0.3 million for the quarter ended March 30, 2003 compared to the quarter ended March 31, 2002 but increased as a percent of sales to 6.2% from 5.5% due to declining sales volumes. Loss (Gain) on Disposal of Assets Loss on disposal of assets of $1.6 million for the quarter ended March 30, 2003, primarily reflects losses related to the sale of 15 Don Pablo's restaurants included in the Company's Don Pablo's sale-leaseback transaction which occurred during the quarter. Gain on disposal of assets of $0.5 million for the quarter ended March 31, 2002 primarily reflects an adjustment to amounts receivable from the divestiture of McCormick & Schmick's which was somewhat offset by fees incurred in connection with the 2002 first quarter termination of the Company's interest rate swap agreement. Asset Revaluation and Other Special Charges For the quarter ended March 30, 2003, asset revaluation and other special charges of $4.4 million, which were predominately non-cash, include asset impairment charges of $2.9 million recorded to reduce the carrying value of the assets of four Don Pablo's restaurants to estimated fair value and $1.5 million in special charges related to costs associated with the relocation of the Hops corporate office to Madison, Georgia. Asset revaluation and other special charges for the quarter ended March 31, 2002 reflected a non-cash asset impairment charge of $0.7 million to reduce the carrying value of the assets of the Company's Canyon Cafe restaurants to estimated fair value. Interest and Other Expenses Net interest expense for the quarter ended March 30, 2003 was $12.5 million compared to $8.2 million for the quarter ended March 31, 2002. The increase in interest expense included $6.5 million in deferred loan costs which were charged to interest expense as a result of the Company's March 25, 2003 termination of Page 20 its previously existing credit agreement. Interest expense for the quarter ended March 31, 2002 included unfavorable mark-to-market adjustments recorded during the quarter under a fixed-to-floating interest rate swap agreement, which was terminated on March 25, 2002, and increased interest charges incurred related to past due sales and use, property and other taxes. Distribution expense on preferred securities relates to the Company's $3.50 term convertible securities with a liquidation preference of $50 per security and convertible into 3.3801 shares of Avado Brands common stock for each security (the "TECONS"). Expenses related to these securities decreased as a result of the conversion of 1,307,591 of the securities into 4,419,478 shares of common stock during 2002, all of which were issued from treasury stock. The Company has the right to defer quarterly distribution payments on the Convertible Preferred Securities for up to 20 consecutive quarters and has deferred all such payments beginning with the December 1, 2000 payment until December 1, 2005. The Company may pay all or any part of the interest accrued during the extension period at any time. In June 2002, the Company made a one-time distribution payment of accrued interest, totaling $5.4 million or $4.25 per share, to holders of its TECONS. Of the 1,307,591 shares converted during 2002, 1,200,391 shares were converted in conjunction with this distribution payment. During the quarter ended March 30, 2003, other income was recognized as a result of the abatement of previously incurred tax penalties. For the quarter ended March 31, 2002, other expenses related primarily to the incurrence of various tax penalties. No income tax benefit was recorded related to the loss before income taxes for the quarter ended March 30, 2003. The income tax benefit recorded for the quarter ended March 31, 2002 represents the effective rate of benefit on loss before income taxes for the quarter. The tax rate was based on the Company's expected rate for the full fiscal 2002 year. Discontinued Operations As discussed in Note 1 - Basis of Presentation, discontinued operations includes the revenues and expenses of nine Don Pablo's and one Hops restaurant which were closed in the first three months of 2003, plus 11 additional Don Pablo's restaurants and eight additional Hops restaurants which were closed during 2002. The decision to dispose of these 29 locations reflects the Company's ongoing process of evaluating the performance and cash flows of its various restaurant locations and using the proceeds from the sale of closed restaurants to reduce outstanding debt. Net loss from discontinued operations for the quarter ended March 30, 2003, for which no tax benefit has been provided, of $7.6 million primarily reflects losses on the disposal of closed restaurants. Operating losses were $7.6 million for the quarter on total restaurant sales from discontinued operations of $2.2 million. Net loss from discontinued operations for the quarter ended March 31, 2002 of $1.0 million (net of income tax benefit of $0.2 million), reflects operating losses of $1.2 million on total restaurant sales from discontinued operations of $10.6 million. Liquidity and Capital Resources Generally, the Company operates with negative working capital since substantially all restaurant sales are for cash while payment terms on accounts payable typically range from 0 to 45 days. Fluctuations in accounts receivable, inventories, prepaid expenses and other current assets, accounts payable and accrued liabilities typically occur as a result of restaurant openings and closings and the timing of settlement of liabilities. Decreases in accrued liabilities occurred during the first quarter of 2003 primarily as a result of interest payments made during the first quarter on the Company's Senior and Subordinated Notes. On March 24, 2003, the Company obtained new financing which included a $39.0 million revolving credit facility (the "Credit Facility") and a $20.0 million sale-leaseback transaction covering 15 Don Pablo's locations (the "Don Pablo's sale-leaseback"). Proceeds from the new financing were used to pay amounts outstanding under the Company's previously existing credit agreement totaling $19.5 million and fees associated with the closing of the new financing agreements totaling $4.3 million. Placement of the new financing allowed the Company to avoid approximately $9.5 million in fees associated with its previous credit agreement. The Credit Facility limits total borrowing capacity at any given time to an amount equal to the lesser of $39.0 million or 1.95 times the Company's trailing 12 months earnings before interest, income taxes and depreciation and amortization as determined for the most recently completed four quarters as defined in the agreement. A portion of the facility, totaling $17.0 million, is restricted for the purchase of the Company's 9.75% Senior Notes due 2006 Page 21 ("Senior Notes") and 11.75% Senior Subordinated Notes due 2009("Subordinated Notes"). The agreement limits the amount the Company may pay to acquire Senior Notes and Subordinated Notes to $0.50 and $0.30 per one dollar outstanding, respectively. In addition, any unused availability under the restricted portion of the facility terminates on May 31, 2003. The Credit Facility matures on March 24, 2004 but may be extended for one year at the lender's option and subject to an extension fee equal to five percent of the total commitment amount. In certain circumstances, borrowings under the Credit Facility are required to be repaid to the lender and any such repayments are not available to be re-borrowed by the Company. Events generating a required repayment include, among other things, proceeds from asset dispositions (other than Assets Held for Sale as defined in the agreement), casualty events and tax refunds, each as defined in the Credit Facility. In addition, the lender has the right to impose certain reserves against the Company's total borrowing availability under the facility, which may limit the Company's liquidity. The loan is secured by substantially all of the Company's assets. At March 30, 2003, $4.8 million in cash borrowings were outstanding under the Credit Facility and an additional $14.0 million of the facility was utilized to secure letters of credit which primarily secure the Company's insurance programs. Although the Company had not borrowed any amounts related to the $17.0 million restricted portion of the facility, total Credit Facility availability was reduced by lender reserves of $4.0 million. These reserves relate to specific conditions the Company is required to satisfy to perfect the lender's security interest in certain properties. Although the lender reserves have reduced the total availability, the lender has not limited the Company's unrestricted availability. At March 30, 2003, $16.2 million of the facility remained unused and available, of which $13.0 million was restricted and $3.2 million was unrestricted. Subsequent to March 30, 2002, the Company satisfied certain of the required conditions related to the lender reserves and $2.0 million of the reserves were eliminated. Also subsequent to the end of the first quarter, the Company used restricted loan proceeds of $4.9 million to acquire $9.9 million in face value of its Senior Notes. The Company will recognize a gain on debt extinguishment of approximately $5.0 million during the second quarter of 2003 related to the repurchases. The terms of the Credit Facility, the Company's Senior Notes and Subordinated Notes, the Don Pablo's sale-leaseback, the 2000 Hops sale-leaseback and master equipment lease collectively include various provisions which, among other things, require the Company to (i) achieve certain EBITDA targets, (ii) maintain defined net worth and coverage ratios, (iii) maintain defined leverage ratios, (iv) limit the incurrence of certain liens or encumbrances in excess of defined amounts and (v) limit certain payments. At March 30, 2003, the Company was in compliance with the requirements contained in the Credit Facility, the Don Pablo's sale-leaseback and terms of the Senior Notes and Subordinated Notes. The Company was not in compliance with a net worth requirement contained in its 2000 Hops sale-leaseback agreement. The lessor, however, has waived this requirement until March 31, 2004 at which time the minimum net worth requirement will be $150.0 million. The Company is also not in compliance with certain financial covenants contained in the master equipment lease. Under the master equipment lease, the failure to meet the financial covenants represents an event of default whereby the creditor has the right to, among other things, declare all obligations under the agreement immediately due and payable and to repossess the leased equipment, which is located primarily in the Company's restaurants. Although the lessor has not notified the Company of its intent to do so, acceleration of the obligations would have a material adverse effect on the Company. At March 30, 2003, remaining obligations under the master equipment lease totaled $4.9 million. The continuing event of default under the master equipment lease does not result in cross-defaults under the Company's Credit Facility, Senior Notes, Subordinated Notes or two sale-leaseback agreements. Although the lessor has not notified the Company of any intent to accelerate its obligations, there can be no assurances that the lessor will not exercise such remedies. Subsequent to March 30, 2003, the lessor drew-down a $2.0 million letter of credit which secured the Company's obligations under the agreement thereby reducing the Company's remaining payment obligations. This letter of credit was secured by borrowing availability under the Credit Facility thus the drawing had no net impact on the Company's overall availability. The Company has suffered from recurring losses from operations, has an accumulated deficit and a Credit Facility which is due March 24, 2004 that raise substantial doubt about the Company's ability to continue as a going concern. Sufficient liquidity to make required debt service and lease payments is dependent primarily on the realization of proceeds from the sale of assets and cash flow from operations. There can be no assurance that these efforts will be successful. In the event the Company is not able to meet its financial covenant targets under the Credit Facility, an event of default would occur. An event of default would entitle the lender to, among other things, declare all obligations immediately due and payable. In the event the amounts due under the Credit Facility are accelerated, cross-default provisions contained in the indentures to the Senior Notes and Subordinated Notes would be triggered, creating an event of default under those agreements as well. At March 30, 2003, the outstanding Page 22 balances of the Senior and Subordinated Notes were $116.5 million and $47.6 million respectively. An event of default under the Credit Facility would result in a cross-default under the master equipment lease but would not result in a cross-default under the Company's two sale-leaseback agreements. In the event some or all of the obligations under the Company's financing agreements become immediately due and payable, the Company does not currently have sufficient liquidity to satisfy these obligations and it is likely that the Company would be forced to seek protection from its creditors. Interest payments on the Company's Senior Notes and Subordinated Notes are due semi-annually in each June and December. Prior to the Company's repurchase of $9.9 million in face value of its outstanding Senior Notes subsequent to March 30, 2003 and $52.4 million in face value of its outstanding Subordinated Notes in the second and third quarters of 2002, the Company's semi-annual interest payments totaled approximately $11.6 million. Subsequent to the repurchases, the Company's semi-annual interest payments will total approximately $8.0 million. Under the terms of the related note indentures, the Company has an additional 30-day period from the scheduled interest payment dates before an event of default is incurred due to late payment of interest, and the Company utilized these provisions with respect to its June and December 2002 interest payments as well as its June and December 2001 interest payments. The Company's ability to make its June 2003 interest payments is dependent on the outcome of its initiatives to sell assets and generate cash flow from operations. Principal financing sources in the first quarter of 2003 consisted of (i) proceeds of $20.0 million from the Don Pablo's sale-leaseback, (ii) cash provided by discontinued operations, primarily related to the sale of assets, of $12.8 million, and (iii) other proceeds from the sale of assets of $1.5 million. The primary uses of funds consisted of (i) net cash used in operations of $10.6 million which included interest payments of $10.7 million primarily related to the Senior and Subordinated Notes and Credit Facility along with operating lease payments of $5.3 million, (ii) net repayments of credit agreements of $19.5 million, and (iii) payment of financing costs related to the Credit Facility and Don Pablo's sale-leaseback totaling $4.3 million. The Company incurs various capital expenditures related to existing restaurants and restaurant equipment in addition to capital requirements for developing new restaurants. The Company does not have any contractual obligations to open any new restaurants during 2003. Capital expenditures for existing restaurants are expected to be approximately $4.5 million in 2003. The Company is also exposed to certain contingent payments. In connection with the Applebee's and Canyon Cafe divestiture transactions completed during 2002, 1999 and 1998, the Company remains contingently liable for lease obligations relating to 86 Applebee's restaurants and nine Canyon Cafe restaurants. Assuming that each respective purchaser became insolvent, an event management believes to be remote, the Company could be liable for lease payments extending through 2017 with minimum lease payments totaling $34.6 million. The Company also remains contingently liable for lease obligations relating to eight Harrigan's restaurants which were divested in 1999. Minimum lease payment obligations for those eight restaurants totals $5.5 million and extends through 2012. On March 14, 2003, Harrigan's filed a bankruptcy petition under Chapter 11 of the Unites States Bankruptcy Code. Harrigan's is continuing to operate under Chapter 11 and the Company has not been notified of any intent by the respective landlords to hold the Company liable for lease obligations pertaining to any of the eight locations. Under the Company's insurance programs, coverage is obtained for significant exposures as well as those risks required to be insured by law or contract. It is the Company's preference to retain a significant portion of certain expected losses related primarily to workers' compensation, physical loss to property, and comprehensive general liability. The Company's deductibles for workers' compensation and general liability are $500,000 per claim. Losses in excess of these risk retention levels are covered by insurance which management considers as adequate. Provision for losses expected under these programs are recorded based upon estimates of the liability for claims incurred. Such estimates are based on management's evaluation of the nature and severity of claims and future development based on the Company's historical experience, information provided by the Company's third party administrators and certain actuarial assumptions used by the insurance industry. In the first quarter of 2003, claims paid under the Company's self-insurance programs totaled $1.0 million. In addition, at March 30, 2003, the Company was contingently liable for letters of credit aggregating approximately $14.0 million, relating primarily to its insurance programs. Management believes that the ultimate disposition of these contingent liabilities will not have a material adverse effect on the Company's consolidated financial position or results of operations. The Company's 1998 Federal income tax returns are currently being audited by the Internal Revenue Service ("IRS"). The Company believes its recorded liability for income taxes of $35.6 million as of March 30, 2003 is adequate to cover its exposure that may result from the ultimate resolution of the audit. Page 23 During the first quarter of 2003, the Company submitted an Offer in Compromise to the IRS whereby the Company offered to settle its potential obligations at a discounted amount. The Offer in Compromise process is a mechanism available to taxpayers to potentially reduce amounts otherwise payable to the IRS based on analysis of a taxpayer's ability to pay, the value of its assets versus its liabilities and other economic factors. Although the ultimate outcome of the audit or the Offer in Compromise cannot be determined at this time, the Company does not have sufficient liquidity to pay any significant portion of its recorded liability if resolution of the audit results in such amount being currently due and payable. Management does not currently expect that this will be the result, or that any resolution with respect to audit issues will be reached in the near future. On April 3, 2003, the Company received a communication from counsel claiming to represent an ad hoc committee ("the Committee") of holders of a majority of the Company's 9.75% Senior Notes ("the Senior Notes"). The communication set forth concerns of the Committee with respect to certain actions of the Company and threatened to cause a notice of default under the indenture covering the Senior Notes to be issued and other legal action to be taken if the Committee's concerns were not addressed. On May 5, 2003, counsel for the Committee issued a press release announcing the Committee's intention to cause a notice of default to be issued, asserting that certain transactions with the Company's Chairman and CEO constituted violations of covenants in the Indenture governing the Senior Notes. Should it ultimately be determined that an event of default exists, the Senior Notes would become currently due and payable. As of May 14, 2003, the Company has not received any notice from the trustee for the Senior Notes that a notice of default has been filed, nor, to the Company's knowledge has the Committee taken any formal legal action. If the Committee were to initiate action to declare a default and to accelerate the Senior Notes, the Company intends to vigorously contest such action. While the outcome of any potential litigation is inherently uncertain, the Company does not believe that the Committee would prevail in any such attempt to accelerate the Senior Notes. In the event the Senior Notes are accelerated cross-default provisions would be triggered in the Company's Credit Facility and Subordinated Notes. Management has taken steps to improve cash flow from operations, including changing the Company's marketing strategy to be less reliant on expensive broadcast media, reducing overhead through consolidation of functions and personnel reductions primarily from the first quarter relocation of its Hops corporate headquarters and adjusting supervisory management level personnel in its restaurant operations. There is no assurance these efforts will be successful in improving cash flow from operations sufficiently to enable the Company to continue to meet its obligations, including scheduled interest and other required payments under its debt and lease agreements and capital expenditures necessary to maintain its existing restaurants. For the near term, cash flow from operations will need to be supplemented by asset sales. There is no assurance the Company will be able to generate proceeds from these efforts in sufficient amounts to supplement cash flow from operations, thereby enabling the Company to meet its debt and lease obligations. In addition, there is no assurance the Company will be able to comply with the financial covenants of its debt and lease agreements or that it will be successful in defending itself against any potential legal actions that may arise. Effect of Inflation Management believes that inflation has not had a material effect on earnings during the past several years. Future inflationary increases in the cost of labor, food and other operating costs could adversely affect the Company's restaurant operating margins. In the past, however, the Company generally has been able to modify its operations to offset increases in its operating costs. Various federal and state laws increasing minimum wage rates have been enacted over the past several years. Such legislation, however, has typically frozen the wages of tipped employees at $2.13 per hour if the difference is earned in tip income. Although the Company has experienced slight increases in hourly labor costs in recent years, the effect of increases in minimum wage have been significantly diluted due to the fact that the majority of the Company's hourly employees are tipped and the Company's non-tipped employees have historically earned wages greater than federal and state minimums. As such, the Company's increases in hourly labor costs have not been proportionate to increases in minimum wage rates. Forward-Looking Information Certain information contained in this quarterly report, particularly information regarding the future economic performance and finances, restaurant development plans, capital requirements and objectives of management, is forward looking. In some cases, information regarding certain important factors that Page 24 could cause actual results to differ materially from any such forward-looking statement appear together with such statement. In addition, the following factors, in addition to other possible factors not listed, could affect the Company's actual results and cause such results to differ materially from those expressed in forward-looking statements. These factors include future compliance with debt covenants; the outcome of the audit of the Company's 1998 Federal income tax returns, competition within the casual dining restaurant industry, which remains intense; changes in economic conditions such as inflation or a recession; consumer perceptions of food safety; weather conditions; changes in consumer tastes; labor and benefit costs; legal claims; the continued ability of the Company to obtain suitable locations and financing for new restaurant development; government monetary and fiscal policies; laws and regulations; and governmental initiatives such as minimum wage rates and taxes. Other factors that may cause actual results to differ from the forward-looking statements contained in this release and that may affect the Company's prospects in general are described in Exhibit 99.1 to the Company's Form 10-Q for the fiscal quarter ended April 2, 2000, and the Company's other filings with the Securities and Exchange Commission. Item 3. Quantitative and Qualitative Disclosures About Market Risk The Company is exposed to market risk from changes in interest rates and changes in commodity prices. The Company's exposure to interest rate risk relates primarily to foreign-based rate obligations on the Company's revolving credit agreement. Interest swap agreements have historically been utilized to manage overall borrowing costs and balance fixed and floating interest rate obligations. As of March 25, 2002 the Company terminated the one such swap agreement it had in place and no further obligation remains after that date. The Company purchases certain commodities such as beef, chicken, flour and cooking oil. Purchases of these commodities are generally based on vendor agreements, which often contain contractual features that limit the price paid by establishing price floors or caps. As commodity price aberrations are generally short-term in nature and have not historically had a significant impact on operating performance, financial instruments are not used to hedge commodity price risk. Item 4. Controls and Procedures Within the 90-day period prior to the filing of this report, an evaluation was carried out under the supervision and with the participation of the Company's management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures as defined in the federal securities laws. Based on that evaluation, the Company's Chief Executive Officer and Chief Financial Officer have concluded that the Company's disclosure controls and procedures are effective. However, the design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote. There have been no significant changes in the Company's internal controls or in other factors that could significantly affect internal controls subsequent to the date of their last evaluation. Page 25 Part II. Other Information Item 5. Other Information On April 18, 2003 the Company received a comment letter from the Securities and Exchange Commission ("SEC") covering its 2002 annual report on Form 10-K. The Company responded to the SEC's letter on May 2, 2003. The SEC's comments focused on the Company providing expanded disclosure of certain matters. On April 25, 2003 the Company filed a Form 8-K addressing certain of those matters. While the Company has not received additional correspondence from the SEC, the Company will provide the requested disclosures in its quarterly reports on Form 10-Q, future annual reports on Form 10-K, and filings of Form 8-K, as applicable. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits. 4.1 Indenture dated May 1, 1996, between the Company and SunTrust Bank, Atlanta, as Trustee. (1) 4.2 Prospectus Supplement dated May 1, 1996. (2) 4.3 Resolution of the Pricing Committee, dated May 23, 2996, pursuant to Section 2.1 and 2.3 of the Indenture dated as of May 1, 1996, between the Company and SunTrust Bank, Atlanta, as Trustee. 4.4 First Supplemental Indenture, dated as of June 29, 1998, to Indenture dated May 1, 1996, between the Company and SunTrust Bank, Atlanta, as Trustee. 4.5 Second Supplemental Indenture, dated as of May 26, 1999, to Indenture dated May 1, 1996, between the Company and SunTrust Bank, Atlanta, as Trustee, as amended by a First Supplemental Indenture dated as of June 29, 1998. 10.1 Third Amended and Restated Credit Agreement dated as of March 21, 2003 by and among Avado Brands, Inc., as Borrower, the lenders signatory thereto, Drawbridge Special Opportunities Fund LP, as Collateral Agent, and Hilco Capital LP, as Administrative Agent. 10.2 First Amendment, dated May 9, 2003, to Third Amended and Restated Credit Agreement dated as of March 21, 2003 by and among Avado Brands, Inc., as Borrower, the lenders signatory thereto, Drawbridge Special Opportunities Fund LP, as Collateral Agent, and Hilco Capital LP, as Administrative Agent. 10.3 Master Land and Building Lease dated as of March 24, 2003 by and between Don Pablo's Operating Corp., a wholly owned subsidiary of Avado Brands, Inc., as Tenant and Skyline-Fri 8, L.P., as Landlord. 10.4 Purchase and Sale Agreement dated as of March 19, 2003 by and between Don Pablo's Operating Corp., a wholly owned subsidiary of Avado Brands, Inc., as Seller and Skyline-Fri 8, L.P., as Buyer. 99.1 Safe Harbor Under the Private Securities Litigation Reform Act of 1995. (3) 99.2 Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 99.3 Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (1) Incorporated by reference to Exhibit 4.1 to the registrant's registration statement on Form S-3/A (SEC File No. 333-02958), filed on May 6, 1996. (2) Incorporated by reference to Prospectus Supplement dated May 23, 1996, filed pursuant to Rule 424B2 on May 24, 1996 (SEC File No. 333-02958). (3) Incorporated by reference to the corresponding exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended April 2, 2000. (b) Reports on Form 8-K. None Page 26 Signature Pursuant to the requirements 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. Avado Brands, Inc. (Registrant) Date: May 14, 2003 By: /s/Louis J. Profumo ------------------------- Louis J. Profumo Chief Financial Officer Page 27 CERTIFICATIONS I, Tom E. DuPree, Jr., certify that: 1. I have reviewed this quarterly report on Form 10-Q of Avado Brands, Inc., 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a. designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being covered. b. evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c. presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors: a. all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: May 14, 2003 By: /s/Tom E. DuPree, Jr. ------------------------- Tom E. DuPree, Jr. Chairman and Chief Executive Officer Page 28 CERTIFICATIONS I, Louis J. Profumo, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Avado Brands, Inc., 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a. designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being covered. b. evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c. presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors: a. all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: May 14, 2003 By: /s/Louis J. Profumo ----------------------- Louis J. Profumo Chief Financial Officer Page 29 EX-4 3 resolutions.txt RESOLUTION OF PRICING COMMITTEE EXHIBIT 4.3 RESOLUTIONS OF THE PRICING COMMITTEE OF APPLE SOUTH, INC. May 23, 1996 WHEREAS, the Corporation has filed with the Securities and Exchange Commission (the "Commission") a Registration Statement on form S-3 (Registration No. 333-02958) and pursuant to the Registration Statement has prepared for filing a Prospectus Supplement dated May 23, 1996, (the "Prospectus Supplement") offering $125 million of Senior Notes due 2006 (the "Notes") of the Corporation; and WHEREAS, the Board of Directors of the Corporation has created a Pricing Committee consisting of the undersigned and has, inter alia, authorized the Pricing Committee to set the maturity date, the interest rate, price, underwriting terms and conditions, and other terms of the Notes; NOW, THEREFORE, BE IT RESOLVED, that the Notes will mature on June 1, 2006, and will bear interest at a rate of 9 3/4% per annum from May 29, 1996, payable semi-annually on June 1 and December 1 of each year, commencing on December 1, 1996 to the person in whose name the Notes are registered on the close of business on the May 15 or November 15 next preceding such interest payment date; RESOLVED FURTHER, that the price to the public for the Notes shall be 100% of the principal amount thereof, the underwriting discounts and commissions shall be 2.375% of the principal amount thereof and the price to be received by the Corporation shall be 97.625% of the principal amount thereof; RESOLVED FURTHER, that pursuant to Section 2.1 and 2.3 of the Indenture dated as of May 1, 1996, between the Corporation and SunTrust Bank, Atlanta (the "Indenture"), the terms and provisions of the Notes shall be as set forth in the Prospectus Supplement (the terms "board resolution", "officer's certificate", "opinion of counsel", "paying agent", "person", "security register", and U.S. government obligations" contained therein having the respective meanings set forth in the Indenture) and the form of the Notes are hereby adopted and approved and that the officers of the Corporation are, and each of them hereby is, authorized to execute and deliver the Notes in accordance with the terms of the Indenture and any applicable resolutions of the Board of directors, with such modifications and changes as are deemed appropriate and necessary in the judgment of such officer, whose approval thereof shall be conclusively evidenced by such officer's execution and delivery of the Notes; RESOLVED FURTHER, that the Indenture substantially in the form reviewed by the Committee, is hereby approved; RESOLVED FURTHER, that the officers of the Corporation be, and each of them hereby is, authorized to execute and deliver the Indenture with such modifications and changes as are deemed appropriate and necessary in the judgment of such officer, whose approval thereof shall be conclusively evidenced by such officer's execution and delivery of the Indenture; and RESOLVED FURTHER, that the Prospectus Supplement is hereby approved and the officers of the Corporation are hereby authorized and directed to cause the same to be filed with the Commission on May 24, 1996. EX-4 4 firstsup.txt FIRST SUPPLEMENTAL INDENTURE EXHIBIT 4.4 FIRST SUPPLEMENTAL INDENTURE FIRST SUPPLEMENTAL INDENTURE (this "Supplemental Indenture") dated as of June 29, 1998 among Apple South, Inc., a Georgia corporation (the "Company"), and SunTrust Bank, Atlanta, a Georgia banking corporation, as Trustee (the "Trustee"). WITNESSETH: WHEREAS, in accordance with Section 9.02 of the Indenture, relating to the 9 3/4 Senior Notes due 2006 of the Company (the "Notes"), dated as of May 1, 1996 (the "Indenture"), the Trustee, the Company, and the Holders of at least a majority in principal amount at maturity of the Notes outstanding as of the date hereof desire to amend certain terms of the Indenture as described below; WHEREAS, all things necessary to make this Supplemental Indenture a valid supplement to the Indenture according to its terms and the terms of the Indenture have been done; NOW, THEREFORE, the parties hereto agree as follows: SECTION 1. Certain Terms Defined in the Indenture and the Notes. All capitalized terms used herein without definition herein shall have the meanings ascribed thereto in the Indenture or the Notes, as the case may be. SECTION 2. Amendments to the Terms of the Notes. The terms of the Notes are hereby amended as follows: (a) Amendment of "Limitation on Indebtedness" Covenant. The second paragraph of the covenant "Limitations on Restricted Payments" is hereby amended to read in its entirely as follows: "The foregoing provision shall not take into account, and shall not be violated by reason of: (i) the payment of any dividend within 60 days after the date of declaration thereof if, at said date of declaration, such payment would comply with the foregoing paragraph; (ii) the redemption, repurchase, defeasance, or other acquisition or retirement for value of Indebtedness that is subordinated in right of payment to the Notes including premium, if any, and accrued and unpaid interest, with the proceeds of, or in exchange for, permitted refinancing indebtedness; (iii) the repurchase, redemption or other acquisition of Capital Stock of the Company in exchange for, or out of the proceeds of a substantially concurrent offering of, shares of Capital Stock (other than Redeemable Stock) of the Company; (iv) the acquisition of Junior Indebtedness of the Company in exchange for, or out of the proceeds of, a substantially concurrent offering of, shares of the Capital Stock of the Company (other than Redeemable Stock); (v) the purchase, redemption, acquisition, cancellation, or other retirement for value of shares of Capital Stock of the Company, options on any such shares or related stock appreciation rights or similar securities held by officers or employees or former officers or employees (or their estates or beneficiaries under their estates), upon death, disability, retirement, termination of employment, or pursuant to any agreement under which such shares of stock or related rights were issued; (vi) payments or distributions pursuant to or in connection with a consolidation, merger, or transfer of assets that complies with the provisions of the Indenture applicable to mergers, consolidations, and transfers of all or substantially all of the property and assets of the Company; or (vii) the purchase, redemption, acquisition, cancellation or other retirement for value of shares of the Company's common stock for an aggregate amount not to exceed $100,000,000; provided that, except in the case of clauses (i), (iii) and (vii), no Default or Event of Default (as defined below) shall have occurred and be continuing or occur as a consequence of the actions or payments set forth therein." (b) Addition of New "Limitation on Guarantees by Restricted Subsidiaries" Covenant. The terms of the Notes are hereby revised to add a new "Limitation on Guarantees by Restricted Subsidiaries Covenant" to read as follows: 1 "Limitation on Guarantees by Restricted Subsidiaries. The Company shall not permit any Restricted subsidiary, directly or indirectly, to Guarantee any Indebtedness of the Company which is pari passu with or subordinate in right of payment to the Notes ("Guaranteed Indebtedness"), unless (i) such Restricted Subsidiary simultaneously executes and delivers a Subsidiary Guaranty in the form of Exhibit A to the First Supplemental Indenture dated as of June 29, 1998 between the Company and the Trustee (a "Subsidiary Guaranty"). If the Guaranteed Indebtedness is (A) pari passu with the Notes, then the Guarantee of such Guaranteed Indebtedness shall be pari passu with, or subordinated to, the Subsidiary Guaranty or (B) subordinated to the Notes, then the Guarantee of such Guaranteed Indebtedness shall be subordinated to the Subsidiary Guaranty at least to the extent that the Guaranteed Indebtedness is subordinated to the Notes. Notwithstanding the foregoing, any Subsidiary Guaranty by a Restricted Subsidiary may provide by its terms that it shall be automatically and unconditionally released and discharged upon (i) any sale, exchange or transfer, to any person not an Affiliate of the Company, of all of the Company's and each Restricted Subsidiary's Capital Stock in, or all or substantially all the assets of, such Restricted Subsidiary (which sale, exchange or transfer is not prohibited by the Indenture ) or (ii) the release or discharge of the Guarantee which resulted in the creation of such Subsidiary Guaranty, except a discharge or release by, or as a result of, payment under such Guarantee." (c) Amendment of "Limitation on Indebtedness" Covenant. The "Limitation of Indebtedness" covenant is hereby amended by (i) deleting the "and" at the end of clause (iv); (ii) deleting the "." at the end of clause (v) and substituting ";" therefor; and (iii) adding new clauses "(vi)" and "(vii)" to read as follows: "(vi) Indebtedness of any Restricted Subsidiary under its Subsidiary Guaranty of the Notes required by the "Limitation on Guarantees by Restricted Subsidiaries" covenant; and "(vii) Guarantees by any Restricted Subsidiary of Indebtedness incurred by the Company in compliance with clause (i) above to the extent the obligations of such Restricted Subsidiary under such Guarantees are pari passu with, or subordinated to, the Subsidiary Guaranty of such Restricted Subsidiary." (d) Amendment to the Events of Default. The Events of Default applicable to the Notes are amended by (i) deleting the "or" that appears before clause (vii), (ii) deleting the "." at the end of clause (vii) and substituting "; or" therefor, and (iii) adding a new clause (viii) to read as follows: "(viii) Any subsidiary Guaranty ceases to be in full force and effect or is declared null and void or any Restricted Subsidiary denies that it has any further liability under any Subsidiary Guaranty, or gives notice to such effect (other than by reason of the termination of the Indenture or the release of any such Subsidiary Guaranty in accordance with the Indenture)." (e) Amendment of Definition of "Subsidiary Indebtedness." The definition of Subsidiary Indebtedness is amended by (i) deleting the "." at the end of the definition and substituting a ";" therefor, and (ii) adding a new clause to read as follows: "provided that Subsidiary Indebtedness shall not include Guarantees permitted under clauses (vi) and (vii) under the "Limitation on Indebtedness" covenant." SECTION 3. Governing Law. The laws of the State of New York shall govern this Supplemental Indenture. SECTION 4. Counterparts. This Supplemental Indenture may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. SECTION 5. Ratification. Except as expressly amended hereby, each provision of the Indenture shall remain in full force and effect and, as amended hereby, the Indenture is in all respects agreed to, ratified and confirmed by each of the Company and the Trustee. 2 IN WITNESS WHEREOF, the parties hereto have caused this First Supplemental Indenture to be duly executed as of the date first above written. AVADO BRANDS, INC. By: _________________________________ Title: SUNTRUST BANK, ATLANTA, As Trustee By: _________________________________ Title: Exhibits and schedules to this agreement are not filed pursuant to Item 601(b)(2) of SEC Regulation S-K. By the filing of this Form 10-Q, the Registrant hereby agrees to furnish supplementally a copy of any omitted exhibit or schedule to the Commission upon request. S-1 EX-4 5 secondsupp.txt SECOND SUPPLEMENTAL INDENTURE EXHIBIT 4.5 SECOND SUPPLEMENTAL INDENTURE SECOND SUPPLEMENTAL INDENTURE (this "Supplemental Indenture") dated as of May 26, 1999 among Avado Brands, Inc., a Georgia corporation (the "Company"), and SunTrust Bank, Atlanta, a Georgia banking corporation, as Trustee (the "Trustee"). WITNESSETH: WHEREAS, in accordance with Section 9.2 of the Indenture relating to the 9 3/4 % Senior Notes due 2006 of the Company (the "Notes"), dated as of May 1, 1996, as amended by a First Supplemental Indenture dated as of June 29, 1998 (as so amended, the "Indenture"), the Trustee, the Company, and the Holders of at least a majority in principal amount at maturity of the Notes outstanding as of the date hereof desire to amend certain terms of the Indenture as described below; and WHEREAS, all things necessary to make this Supplemental Indenture a valid supplement to the Indenture according to its terms and the terms of the Indenture have been done; NOW, THEREFORE, the parties hereto agree as follows: SECTION 1. Certain Terms Defined in the Indenture and the Notes. All capitalized terms used herein without definition herein shall have the meanings ascribed thereto in the Indenture or the Notes, as the case may be. SECTION 2. Amendments to the Terms of the Notes. The terms of the Notes are hereby amended as follows: (a) Amendment of "Limitation on Indebtedness" Covenant. The "Limitation of Indebtedness" covenant is hereby amended by (i) deleting the "and" at the end of clause (vi); (ii) deleting the "." at the end of clause (vii) and substituting "; and" therefor; and (iii) adding a new clause (viii) to read as follows: "(viii) Indebtedness of the Company and Restricted Subsidiaries of the Company who have executed Subsidiary Guarantees not to exceed $100 million at any time outstanding under notes that are subordinated in right of payment to the Notes and that do not mature prior to June 1, 2006." (b) Amendment of "Limitation on Restricted Payments" Covenant. The second paragraph of the covenant "Limitation on Restricted Payments" is hereby amended to read in its entirety as follows: "The foregoing provision shall not take into account, and shall not be violated by reason of: (i) the payment of any dividend within 60 days after the date of declaration thereof if, at said date of declaration, such payment would comply with the foregoing paragraph; (ii) the redemption, repurchase, defeasance, or other acquisition or retirement for value of Indebtedness that is subordinated in right of payment to the Notes including premium, if any, and accrued and unpaid interest, with the proceeds of, or in exchange for, permitted refinancing indebtedness; (iii) the repurchase, redemption or other acquisition of Capital Stock of the Company in exchange for, or out of the proceeds of a substantially concurrent offering of, shares of Capital Stock (other than Redeemable Stock) of the Company; (iv) the acquisition of Junior Indebtedness of 1 the Company in exchange for, or out of the proceeds of, a substantially concurrent offering of, shares of the Capital Stock of the Company, (other than Redeemable Stock); (v) the purchase, redemption, acquisition, cancellation, or other retirement for value of shares of Capital Stock of the Company, options on any such shares or related stock appreciation rights or similar securities held by officers or employees or former officers or employees (or their estates or beneficiaries under their estates), upon death, disability, retirement, termination of employment, or pursuant to any agreement under which such shares of stock of related rights were issued; (vi) payments or distributions pursuant to or in connection with a consolidation, merger, or transfer of assets that complies with the provisions of the Indenture applicable to mergers, consolidations, and transfers of all or substantially all of the property and assets of the Company; (vii) the purchase, redemption, acquisition, cancellation or other retirement for value of shares of the Company's common stock for an aggregate amount not to exceed $100,000,000; or (viii) Restricted Payments up to an aggregate amount that, when added to the aggregate amount previously expended for Restricted Payments after the date of the Indenture (other than those allowed under other clauses of this paragraph), does not exceed the aggregate amount allowable under the restriction set forth in the clause (C) of the foregoing provision, treating, for the purpose of such clause (C), $50 million of the aggregate net proceeds received by the Company from the sale by Avado Financing I (formerly Apple South Financing I) of Term Convertible Securities, Series A in March, 1997 as aggregate net proceeds from the issuance and sale to a person who is not a Subsidiary of the Company of Capital Stock of the Company that is not Redeemable Stock; provided that, except in the case of clauses (i), (iii) and (vii), no Default or Event of Default (as defined below) shall have occurred and be continuing or occur as a consequence of the actions or payments set forth therein." SECTION 3. Governing Law. The laws of the State of New York shall govern this Supplemental Indenture. SECTION 4. Counterparts. This Supplemental Indenture may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. SECTION 5. Ratification. Except as expressly amended hereby, each provision of the Indenture shall remain in full force and effect and, as amended hereby, the Indenture is in all respects agreed to, ratified and confirmed by each of the Company and the Trustee. 2 IN WITNESS WHEREOF, the parties hereto have caused this Second Supplemental Indenture to be duly executed as of the date first above written. AVADO BRANDS, INC. By: _________________________________ Title: SUNTRUST BANK, ATLANTA, As Trustee By: _________________________________ Title: Exhibits and schedules to this agreement are not filed pursuant to Item 601(b)(2) of SEC Regulation S-K. By the filing of this Form 10-Q, the Registrant hereby agrees to furnish supplementaly a copy of any omitted exhibit or schedule to the Commission upon request. S-1 EX-10 6 cagrmnt.txt CREDIT AGREEMENT EXHIBIT 10.1 THIRD AMENDED AND RESTATED CREDIT AGREEMENT Dated as of March 21, 2003 by and among AVADO BRANDS, INC., as Borrower, the LENDERS signatory hereto, DRAWBRIDGE SPECIAL OPPORTUNITIES FUND LP, as Collateral Agent, and HILCO CAPITAL LP, as Administrative Agent THIRD AMENDED AND RESTATED CREDIT AGREEMENT Third Amended and Restated Credit Agreement, dated as of March 21, 2003, by and among AVADO BRANDS, INC., a Georgia corporation ("Borrower"), each of the lenders that from time to time is a party hereto (such lenders, each individually a "Lender" and collectively, the "Lenders"), HILCO CAPITAL LP, as administrative agent for the Lenders (in such capacity, together with its successors and assigns, if any, in such capacity, the "Administrative Agent"), and DRAWBRIDGE SPECIAL OPPORTUNITIES FUND LP, as collateral agent for the Lenders (in such capacity, together with its successors and assigns, if any, in such capacity, the "Collateral Agent"). This Agreements amends and restates the Second Amended and Restated Credit Agreement, dated as of March 20, 2002, as amended from time to time (as so amended, the "Second Amended and Restated Credit Agreement"), by and among the Borrower, each of the Lenders party thereto, Foothill Capital Corporation, as administrative agent, and Ableco Finance LLC, as collateral agent. RECITALS WHEREAS, the Second Amended and Restated Credit Agreement amended and restated that certain Amended and Restated Credit Agreement dated as of April 2, 2001, as amended from time to time (as so amended, the "First Amended and Restated Credit Agreement"), between the Borrower, the Lenders party thereto, and Wachovia Bank, National Association, as the administrative agent. WHEREAS, the Borrower and the Lenders wish to amend and restate the Second Amended and Restated Credit Agreement as set forth herein, it being understood that no repayment of the obligations under the Second Amended and Restated Credit Agreement is being effected hereby, but merely an amendment and restatement in accordance with the terms hereof. NOW THEREFORE, in consideration of the premises and the covenants and agreements contained herein, the parties hereto agree as follows: ARTICLE I DEFINITIONS; CERTAIN TERMS SECTION 1.01. Definitions. As used in this Agreement, the following terms shall have the respective meanings indicated below, such meanings to be applicable equally to both the singular and plural forms of such terms: "Account Debtor" means any Person who is or who may become obligated under, with respect to, or on account of, an Account Receivable. "Account Receivable" means, with respect to any Person, all of such Person's now owned or hereafter acquired right, title, and interest with respect to "accounts" (as that term is defined in the UCC), and any and all "supporting obligations" (as that term is defined in the UCC) in respect thereof. "Acknowledgement Agreement" means that certain Acknowledgement Agreement dated as of the date hereof, entered into by and among each of the Borrower's Subsidiaries and the Collateral Agent in form and substance satisfactory to the Collateral Agent. "Action" has the meaning ascribed to such term in Section 14.12. "Additional SunTrust Obligation" means the Borrower's obligation to pay an additional $200,000 per month plus applicable taxes, commencing on January 1, 2002, in connection with the SunTrust Lease Agreement. "Administrative Agent" has the meaning ascribed to such term in the introductory paragraph hereto. "Administrative Agent Account" means the account identified on Schedule 1.01(A) into which the Borrower shall make all payments to the Administrative Agent for the benefit of the Agents and the Lenders under this Agreement and the other Loan Documents. "Affiliate" means, as applied to any specified Person, any other Person that directly or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with, such Person. For purposes of this definition, "control" of a Person means the power, directly or indirectly, either to (i) vote more than 10% of the Capital Stock having ordinary voting power for the election of directors of such Person or (ii) direct or cause the direction of the management and policies of such Person whether by contract or otherwise. Notwithstanding anything herein to the contrary, in no event shall any Lender be considered an "Affiliate" of any Loan Party. "After Acquired Property" has the meaning set forth in Section 8.16. "Agents" means collectively, the Administrative Agent and the Collateral Agent. "Agent-Related Persons" means the Administrative Agent and any successor agents thereto (in accordance with the terms of this Agreement), and the Collateral Agent and any successor agents thereto (in accordance with the terms of this Agreement), together with their respective Affiliates, and the officers, directors, employees, counsel, agents, and attorneys-in-fact of such Persons and their Affiliates. 2 "Agreement" means this Third Amended and Restated Agreement, together with all Exhibits and Schedules hereto, as such agreement may be amended, supplemented or otherwise modified from time to time. "Applicable Interest Rate" means, with respect to any Interest Accrual Period, a rate per annum equal to the sum of (a) the greater of (i) LIBOR or (ii) 2.0% per annum plus (b) the Applicable Margin. "Applicable Margin" means, with respect to all Obligations other than Specified Loans, 10.5% per annum, and with respect to the Specified Loans, 11.5%. "Assets Held For Sale" means those assets set forth on Schedule 1.01(B). "Assignment and Acceptance" means an Assignment and Acceptance substantially in the form of Exhibit A attached hereto and made a part hereof (with blanks appropriately completed) delivered to the Administrative Agent in connection with an assignment of a Lender's interest under this Agreement in accordance with Section 14.07. "Authorized Officer" means the chief executive officer, chief administrative officer, chief financial officer, vice president of financial compliance and reporting or chief accounting officer of the Borrower. "Availability" means, at any particular time, the amount by which the Maximum Revolving Credit Amount at such time exceeds the Revolving Credit Obligations at such time. "Bankruptcy Code" means Title 11 of the United States Code (11 U.S.C. ss.ss. 101 et seq.), as amended from time to time, and any successor statute. "Benefit Plan" means an employee pension benefit plan, excluding any Multiemployer Plan, which is covered by Title IV of ERISA or subject to the minimum funding standards under Section 412 of the Code for which the Borrower or any of its Subsidiaries or any of their ERISA Affiliates has been an "employer" (as defined in Section 3(5) of ERISA) within the preceding six years or has any liability. "Borrower" has the meaning ascribed to such term in the preamble hereto. "Borrowing Base" means, as of any date of determination, an amount equal to (a) 1.95 times EBITDA determined as of the last day of the immediately preceding fiscal month, minus (b) the sum of (i) the amount of the Delinquent Property Taxes, (ii) $2,000,000 (provided that upon satisfaction of all of the conditions set forth in Section 5.03(a) the amount in this clause (ii) shall be zero), (iii) $2,000,000 (provided that upon satisfaction of all of the conditions set forth in Section 5.03(b) the amount in this clause (iii) shall be zero), and (iv) such other reserves as the Collateral Agent may take in its reasonable discretion. "Borrowing Base Certificate" means a certificate, substantially in the form of Exhibit B attached hereto and made a part hereof, signed by an Authorized Officer of the Borrower. "Business Day" means a day, which is not a Saturday or a Sunday or a legal holiday and on which banks are not required or permitted by law or other governmental action to close in New York, New York. "Buyback Period" means the period commencing on April 1, 2003 and ending on the sixtieth (60) day following April 1, 2003. "Buyback Proposal" means the Borrower's proposal (a) to purchase Senior Notes and Senior Subordinated Notes during the Buyback Period in one or more negotiated transactions (other than a tender offer subject to Regulation 14E under the Securities Exchange Act of 1934, as amended), which transactions shall be in compliance with all state and federal securities law and all material Contractual Obligations, for a purchase price of (i) up to fifty (50) cents per one dollar outstanding with respect to the Senior Notes and (ii) up to thirty (30) cents per one dollar outstanding with respect to the Senior Subordinated Notes, in an aggregate principal amount of up to $17,000,000, and (b) promptly following the consummation of each such purchase, cancel all Senior Notes and/or Senior Subordinated Notes purchased pursuant to such purchase. "Capital Expenditures" means, with respect to any Person for any period, the sum of (i) the aggregate of all expenditures paid or payable by such Person and its Subsidiaries during such period that, in accordance with GAAP, are or should be included in "property, plant equipment" or similar fixed asset account on its balance sheet, whether such expenditures are paid in cash or financed and including all Capitalized Lease Obligations paid or payable during such period, and (ii) to the extent not covered by clause (i) above, the aggregate of all expenditures by such Person and its Subsidiaries to acquire by purchase or otherwise the business or fixed assets of, or the Capital Stock of, any other Person, excluding in each case, all expenditures made in connection with the repair, replacement or restoration of a Restaurant which is the subject of the loss, destruction, or taking by condemnation, to the extent permitted by Section 3.01(b)(iv). "Capitalized Lease" means, with respect to any Person, any lease of real or personal property by such Person as lessee which is required under GAAP to be capitalized on the balance sheet of such Person. 3 "Capitalized Lease Obligations" means, with respect to any Person, obligations of such Person and its Subsidiaries under Capitalized Leases, and, for purposes hereof, the amount of any such obligation shall be the capitalized amount thereof determined in accordance with GAAP. "Capital Stock" means (i) with respect to any Person that is a corporation, any and all shares, interests, participations or other equivalents (however designated and whether or not voting) of corporate stock, and (ii) with respect to any Person that is not a corporation, any and all partnership or other equity interests of such Person. "Change of Control" means each occurrence of any of the following: 1. the acquisition, directly or indirectly, by any person or group (within the meaning of Section 13(d)(3) of the Exchange Act) other than the Permitted Holder of beneficial ownership of more than 20% of the aggregate outstanding voting power of the Capital Stock of Borrower; 2. during any period of two consecutive years, individuals who at the beginning of such period constituted the Board of Directors of Borrower (together with any new directors whose election by such Board of Directors or whose nomination for election by the shareholders of Borrower was approved by a vote of the majority of the directors of Borrower then still in office who were either directors at the beginning of such period, or whose election or nomination for election was previously so approved) cease for any reason to constitute a majority of the Board of Directors of the Borrower; 3. Borrower shall cease to have beneficial ownership (as defined in Rule 13d-3 under the Exchange Act) of at least 90% of the aggregate voting power of the Capital Stock of each of its Subsidiaries, free and clear of all Liens, other than Permitted Liens; and (i) Borrower consolidates with or merges into another entity (except for consolidations or mergers permitted hereunder) or conveys, transfers or leases all or substantially all of its property and assets to any Person, (ii) any other Loan Party consolidates with or merges into another entity that is not a Loan Party (except where such Loan Party is the surviving entity of such merger or consolidation), or conveys, transfers or leases all or substantially all of its property and assets to another Person that is not a Loan Party, or (iii) any entity consolidates with or merges into any Loan Party in a transaction pursuant to which the outstanding voting Capital Stock of such Loan Party is reclassified or changed into or exchanged for cash, securities or other property, other than any such transaction described in this clause (iii) in which either (x) in the case of any such transaction involving Borrower, no person or group (within the meaning of Section 13(d)(3) of the Exchange Act) other than Permitted Holder has, directly or indirectly, acquired beneficial ownership of more than 20% of the aggregate outstanding voting Capital Stock of Borrower, or (y) in the case of any such transaction involving a Loan Party other than Borrower, Borrower has beneficial ownership of less than 90% of the aggregate voting power of all Capital Stock of the resulting, surviving or transferee entity. "Collateral" means all of the property and assets and all interests therein and proceeds thereof now owned or hereafter acquired by any Person upon which a Lien is granted or purported to be granted by such Person as security for all or any part of the Obligations. "Collateral Agent" has the meaning ascribed to such term in the introductory paragraph hereto. "Collections" means all cash, checks, notes, instruments, and other items of payment (including insurance and condemnation proceeds, cash proceeds of sales and other voluntary or involuntary dispositions of property, rental proceeds, and tax refunds). "Commission" means the Securities and Exchange Commission and any Person succeeding to the functions thereof. "Commitment" means, with respect to any Lender, the obligation of such Lender to make Loans pursuant to the terms and conditions of this Agreement, and which shall not exceed the principal amount set forth opposite such Lender's name on the signature pages hereof or the signature page of the Assignment and Acceptance by which it became (or becomes) a Lender, as such may be modified from time to time pursuant to the terms of this Agreement or to give effect to any applicable Assignment and Acceptance; "Commitments" means the aggregate principal amount of the Commitments of all the Lenders, which amount shall not exceed $35,000,000; provided, however, that the amount of the Commitments shall be increased (i) from $35,000,000 to $37,000,000 upon the satisfaction of all of the conditions set forth in Section 5.03(a) and (ii) from $37,000,000 to $39,000,000 upon the satisfaction of all of the conditions set forth in Section 5.03(b). The amount of the Commitments may be reduced from time to time in accordance with the terms of this Agreement. "Commitment Reduction Amount" means an amount equal to $17,000,000 minus the actual Dollar amount of the Loans used to purchase the Senior Notes and/or the Senior Subordinated Notes in accordance with the Buyback Proposal. "Commitment Termination Date" means the day which is the earlier of (a) March 24, 2004 (unless such date has been extended pursuant to Section 2.05, in which event such date shall be March 24, 2005); (b) the termination of the Commitments pursuant to Section 11.01 and (c) the date of termination in whole of the Commitments pursuant to Section 3.01. 4 "Compliance Certificate" has the meaning ascribed to such term in Section 7.01(d). "Concentration Account Agreement" has the meaning ascribed to such term in Section 12.01(a). "Concentration Accounts" has the meaning ascribed to such term in Section 12.01(a). "Concentration Account Bank" means Provident, or such other bank or financial institution which is selected by the Borrower and which is reasonably acceptable to each Agent. "Contingent Obligation" means, with respect to any Person, any obligation of such Person guaranteeing or intended to guarantee any Indebtedness ("primary obligations") of any other Person (the "primary obligor") in any manner, whether directly or indirectly, including, without limitation, (i) the direct or indirect guaranty, endorsement (other than for collection or deposit in the ordinary course of business), co-making, discounting with recourse or sale with recourse by such Person of the obligation of a primary obligor, (ii) the obligation to make take-or-pay or similar payments, if required, regardless of nonperformance by any other party or parties to an agreement, (iii) any obligation of such Person, whether or not contingent, (A) to purchase any such primary obligation or any property constituting direct or indirect security therefor, (B) to advance or supply funds (1) for the purchase or payment of any such primary obligation or (2) to maintain working capital or equity capital of the primary obligor or otherwise to maintain the net worth or solvency of the primary obligor, (C) to purchase property, assets, securities or services primarily for the purpose of assuring the owner of any such primary obligation of the ability of the primary obligor to make payment of such primary obligation or (D) otherwise to assure or hold harmless the holder of such primary obligation against loss in respect thereof, provided, however, that the term "Contingent Obligation" shall not include any products warranties extended in the ordinary course of business. The amount of any Contingent Obligation shall be deemed to be an amount equal to the stated or determinable amount of the primary obligation with respect to which such Contingent Obligation is made (or, if less, the maximum amount of such primary obligation for which such Person may be liable pursuant to the terms of the instrument evidencing such Contingent Obligation) or, if not stated or determinable, the maximum reasonably anticipated liability with respect thereto (assuming such Person is required to perform thereunder), as determined by such Person in good faith. "Contractual Obligation" means, as applied to any Person, any provision of any securities issued by that Person or any indenture, mortgage, deed of trust, security agreement, pledge agreement, guaranty, contract, undertaking, agreement or instrument to which that Person is a party or by which it or any of its properties is bound, or to which it or any of its properties is subject. "Control Agreement" means, with respect to a Securities Account or a Deposit Account, an agreement, in form and substance satisfactory to the Collateral Agent, which effectively gives "control" (as defined in the UCC) to the Collateral Agent in such Securities Account and all investment property contained therein or Deposit Account and all funds contained therein, as the case may be. "Convertible Debentures" means those certain 7% Convertible Subordinated Debentures due March 1, 2027 originally issued by Apple South, Inc., a Georgia corporation, as predecessor-in-interest to the Borrower. "Credit Card Agreements" means those certain agreements, dated as of the date hereof, by and among the Administrative Agent, the Borrower and the applicable credit card merchant, in form and substance satisfactory to the Agents. "Cure Loans" has the meaning ascribed to such term in Section 3.02(c)(iv)(C). "Default" means an event which, with the giving of notice or the lapse of time or both, would constitute an Event of Default. "Default Rate" has the meaning ascribed to such term in Section 4.01(c). "Delinquent Property Taxes" means the aggregate amount of sales and property taxes that are past due or otherwise delinquent. "Deposit Account" means a "deposit account" as that term is defined in the UCC. "Disbursement Account" means the account identified on Schedule 1.01(C). "Disposition" means any transaction, or series of related transactions, pursuant to which the Borrower or any of its Subsidiaries sells, assigns, transfers or otherwise disposes of any property or assets (whether now owned or hereafter acquired) to any other Person, in each case whether or not the consideration therefor consists of cash, securities or other assets owned by the acquiring Person, excluding (i) any sales of Inventory in the ordinary course of business on ordinary business terms, (ii) sales or other dispositions of Permitted Investments identified in clauses (i) through (vii) in the definition of "Permitted Investments", (iii) sales or other dispositions permitted by Section 9.03(c)(B) in an aggregate amount of up to $250,000, and (iv) subject to the limitations in Section 9.03(c)(C), closings of Restaurants owned or operated by the Borrower or any of its Subsidiaries, to the extent that such closings do not involve the transfer or other disposition of the Restaurant or the assets owned and/or operated by the Borrower or the applicable Subsidiary in connection with such Restaurant. 5 "Dollar", "Dollars" and the symbol "$" each means lawful money of the United States of America. "Dormant Subsidiaries" means Avado Holding Corp., a Delaware corporation, Avado Operating Corp., a Georgia corporation, and Avado SCP VIII, Inc., an Oregon corporation. "Drawbridge" means Drawbridge Special Opportunities Fund LP, a Delaware limited partnership. "EBITDA" means, with respect to any Person for any period, the Net Income of such Person for such period, plus, without duplication, the sum of the following amounts of such Person for such period and to the extent deducted in determining Net Income of such Person for such period: (A) Net Interest Expense, (B) income tax expense, (C) depreciation expense, (D) amortization expense, (E) restructuring charges, asset revaluation and other special charges, (F) extraordinary (on an after tax basis) or non-recurring losses, (G) net losses attributable to Dispositions, (H) all other non cash items (including without limitation, the cumulative effect from changes in accounting principles (on an after tax basis)), (I) expenses with respect to construction in process in a maximum aggregate amount not to exceed $234,000, (J) expenses with respect to increases in self insurance reserves, in a maximum aggregate amount not to exceed $400,000, (K) Pre-Opening Costs in an amount not to exceed $200,000, (L) items properly included in the category entitled "Other Income (Expense), Net" in Borrower's financial statements (other than payments made to any limited partner of any Non-Wholly Owned Subsidiary), and which are properly excluded from the operating income of the Borrower and its Subsidiaries, (M) the aggregate amount of all out of pocket payments made by the Borrower to Navigant Consulting, Inc. in an aggregate amount of up to $80,000, (N) the G&A Adjusted Amount, (O) the SunTrust Adjustment, and (P) cash flow from Restaurant operations for the trailing twelve month period for a store/stores that have closed during that period, in each case consistent with the past accounting practices of the Borrower and its Subsidiaries, in all instances in (A) through (P) above, reducing Net Income, minus, without duplication, the sum of the following amounts of such Person for such period and to the extent included in determining Net Income of such Person for such period: (W) extraordinary (on an after tax basis) or non-recurring gains, (X) net gains attributable to Dispositions, (Y) items properly included in the category entitled "Other Income (Expense), Net" in Borrower's financial statements (other than payments made to any limited partner of any Non-Wholly Owned Subsidiary) and which are properly excluded from the operating income of the Borrower and its Subsidiaries, in each case consistent with the past accounting practices of the Borrower and its Subsidiaries, and (Z) all other non cash items (including without limitation, the cumulative effect from changes in accounting principles (on an after tax basis)), in all instances (W) through (Z) above, increasing Net Income, if any. "Effective Date" means the date, on or before March 24, 2003, on which all of the conditions precedent set forth in Sections 5.01 and 5.02 have been satisfied (or waived by the Agents) and the initial Loan is made or the initial Letter of Credit Accommodation is extended. "Environmental Actions" means any complaint, summons, citation, notice, directive, order, claim, litigation, investigation, judicial or administrative proceeding, judgment, letter or other communication from any Governmental Authority involving violations of Environmental Laws or Releases of Hazardous Materials (i) from any assets, properties or businesses of Borrower or any of its Subsidiaries or any predecessor in interest; (ii) from adjoining properties or businesses; or (iii) onto any facilities which received Hazardous Materials generated by the Borrower or any of its Subsidiaries or any predecessor in interest. "Environmental Laws" means the Comprehensive Environmental Response, Compensation and Liability Act (42 U.S.C. ss. 9601, et seq.), the Hazardous Materials Transportation Act (49 U.S.C. ss. 1801, et seq.). the Resource Conservation and Recovery Act (42 U.S.C. ss. 6901, et seq.), the Federal Clean Water Act (33 U.S.C. ss. 1251 et seq.), the Clean Air Act (42 U.S.C. ss. 7401 et seq.),the Toxic Substances Control Act (15 U.S.C. ss. 2601 et seq. and the Occupational Safety and Health Act (29 U.S.C. ss. 651 et seq.) as such laws may be amended or otherwise modified from time to time, and any other present or future federal, state, local or foreign statute, ordinance, rule, regulation, order, judgment, decree, permit, license or other binding determination of any Governmental Authority imposing liability or establishing standards of conduct for protection of the environment. "Environmental Liabilities and Costs" means all liabilities, monetary obligations, Remedial Actions, losses, damages, punitive damages, consequential damages, treble damages, costs and expenses (including all reasonable fees, disbursements and expenses of counsel, experts and consultants and costs of investigations and feasibility studies), fines, penalties, sanctions and interest incurred as a result of any claim or demand by any Governmental Authority or any third party, and which relate to any environmental condition or a Release of Hazardous Materials from or onto (i) any property presently or formerly owned by Borrower or any of its Subsidiaries or (ii) any facility which received Hazardous Materials generated by the Borrower or any of its Subsidiaries. "Environmental Lien" means any Lien in favor of any Governmental Authority for Environmental Liabilities and Costs. 6 "Equipment" means, with respect to any Person, all of such Person's now owned or hereafter acquired right, title, and interest with respect to equipment, machinery, machine tools, motors, furniture, furnishings, fixtures, vehicles (including motor vehicles), tools, parts, goods (other than consumer goods, farm products, or Inventory), wherever located, including all attachments, accessories, accessions, replacements, substitutions, additions, and improvements to any of the foregoing. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended, and any successor statute of similar import, and regulations thereunder, in each case as in effect from time to time. References to sections of ERISA shall be construed also to refer to any successor sections. "ERISA Affiliate" means, with respect to any Person, any trade or business (whether or not incorporated) which is a member of a group of which such Person is a member and which would be deemed to be a "controlled group" within the meaning of Sections 414(b), (c), (m) and (o) of the Internal Revenue Code. "Event of Default" means any of the occurrences set forth in Section 11.01 after the expiration of any applicable grace period and the giving of any applicable notice, in each case as expressly provided in Section 11.01. "Excluded Subsidiaries" means, individually and collectively, the Liquor License Subsidiaries, the Dormant Subsidiaries and any Subsidiary that is not a Guarantor. "Existing Affiliate Advances" means all Indebtedness evidencing loans to Affiliates, employees and officers of the Borrower, made prior to March 20, 2002, to the extent disclosed on, and in an amount not in excess of the amount set forth on, Schedule 1.01(D), and extensions and renewals thereof. "Extension Date" has the meaning ascribed to such term in Section 2.05. "Federal Reserve Board" means the Board of the Federal Reserve System or any Governmental Authority succeeding to its functions. "Fee Letter" means that certain letter agreement, dated as of the date hereof, among the Borrower, the Administrative Agent and the Collateral Agent relating to certain fees to be paid to each of the Agents. "FFCA Master Lease" means that certain Master Lease Agreement dated as of October 19, 2000 by and between SPV and Hops. "Financial Statements" means the audited consolidated balance sheet of the Borrower and its Subsidiaries for the Fiscal Year ended December 29, 2002 and the related consolidated statement of operations, shareholders' equity and cash flows for the Fiscal Year then ended. "Fiscal Year" means the fiscal year of the Borrower and its Subsidiaries which shall be the 52/53 week period ending on the Sunday closest to December 31 of each year. "Fixed Charge Coverage Ratio" means, for any trailing twelve-month period, the ratio of (i) the sum of (A) the Borrower's EBITDA for such period, plus (B) Operating Lease Obligations for such period, to (ii) the sum of (A) the Operating Lease Obligations for such period, plus (B) the Capital Lease Obligations for such period, plus (C) interest on the Obligations accrued during such period (calculated on an annualized basis by determining the average per diem amount times 360), plus (D) Capital Expenditures made by Borrower and its Subsidiaries during such period, plus (E) cash dividends or distributions paid by the Borrower or any of its Subsidiaries (other than dividends or distributions paid (1) to Borrower, or (2) on account of Borrower's interest obligations with respect to the Convertible Debentures) during such period. "Forfeiture Proceeding" means any action, proceeding or investigation affecting the Borrower or any of its Subsidiaries before any court, governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, or the receipt of notice by any such party that any of them is a suspect in or a target of any governmental inquiry or investigation, which may result in an indictment of any of them or the seizure or forfeiture of any of their respective properties. "Former Administrative Agent" means Foothill Capital Corporation. "Former Mortgages" means the mortgages and deeds of trust executed and delivered by certain of the Loan Parties in favor of Former Administrative Agent, as the same have been amended, restated, supplemented or otherwise modified prior to the date hereof. "Funding Date" means the date of the funding of a Loan. "GAAP" means generally accepted accounting principles in effect from time to time in the United States, provided that for the purpose of this Agreement and the definitions used herein, "GAAP" shall mean generally accepted accounting principles in effect on the date hereof and consistent with those used in the preparation of the Financial Statements, provided, further, that if there occurs after the date of this Agreement any change in GAAP that affects in any material respect the calculation of any financial covenant contained in Article X, the Administrative Agent and the Borrower shall negotiate in good faith amendment to such financial covenant and any other provision of this Agreement that relates to the calculation of such financial covenant with the intent of having the respective positions of the Lenders and the Borrower after such change in GAAP conform as nearly as possible to their respective positions as of the date of this Agreement and, until any such amendments have been agreed upon, the covenants in Article X shall be calculated as if no such change in GAAP has occurred. 7 "G&A Adjusted Amount" means, with respect to any trailing twelve-month period, (i) $1,980,000 for the trailing twelve-month period ending on the last day of the first fiscal quarter for 2003; (ii) $1,320,000 for the trailing twelve-month period ending on the last day of the second fiscal quarter for 2003; (iii) $660,000 for the trailing twelve-month period ending on the last day of the third fiscal quarter for 2003; and (iv) $0 for all other trailing twelve-month periods. "Governing Documents" means, (a) with respect to any corporation, (i) the articles/certificate of incorporation (or the equivalent organizational documents) of such corporation, (ii) the by-laws (or the equivalent governing documents) of the corporation and (iii) any document setting forth the designation, amount and/or relative rights, limitations and preferences of any class or series of such corporation's capital stock; and (b) with respect to any general partnership, (i) the partnership agreement (or the equivalent organizational documents) of such partnership and (ii) any document setting forth the designation, amount and/or relative rights, limitations and preferences of any of the partnership interests; and (c) with respect to any limited partnership, (i) the partnership agreement (or the equivalent organizational documents) of such partnership, (ii) a certificate of limited partnership (or the equivalent organizational documents) and (iii) any document setting forth the designation, amount and/or relative rights, limitations and preferences of any of the partnership interests; and (d) with respect to any limited liability company, (i) the certificate of limited liability (or equivalent filings) of such limited liability company, (ii) the operating agreement (or the equivalent organizational documents) of such limited liability company, and (iii) any document setting forth the designation, amount and/or relative rights, limitations and preferences of any of such company's membership interests. "Governmental Authority" means any nation or government, any Federal, state, city, town, municipality, county, local or other political subdivision thereof or thereto and any department, commission, board, bureau, instrumentality, agency or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative powers or functions of or pertaining to government. "Guaranties" means the guaranty, dated as of the date hereof, made by each Subsidiary of the Borrower identified in paragraph (i) of the definition of Guarantors, in favor of the Lenders, together with any other guaranty (substantially similar to the guaranty dated the date hereof) delivered to the Lenders pursuant to Section 8.18, each in form and substance satisfactory to the Collateral Agent. "Guarantors" means, individually and collectively, jointly and severally, (i) Don Pablo's Holding Corp., a Delaware corporation, Don Pablo's Operating Corp., an Ohio corporation, Don Pablo's Limited, Inc., an Ohio corporation, Don Pablo's of Texas, LP, a Texas limited partnership, Canyon Cafe Operating Corp., a Georgia corporation, Canyon Cafe TX General, Inc., a Georgia corporation, Canyon Cafe Limited, Inc., a Georgia corporation, Canyon Cafe of Texas, LP, a Texas limited partnership, Hops of the Ohio Valley, Inc., a Florida corporation, Hops of Southwest Florida, Inc., a Florida corporation, Hops Grill & Bar, Inc., a Florida corporation, Cypress Coast Construction Corporation, a Florida corporation, Hops Marketing, Inc., a Florida corporation, Hops of Southeast Florida, Ltd., a Florida limited partnership, Hops of Coral Springs, Ltd., a Florida limited partnership, Hops of Boynton Beach, Ltd., a Florida limited partnership, Hops of South Florida, Ltd., a Florida limited partnership, Hops of Stuart, Ltd., a Florida limited partnership, Hops of the Gold Coast, Ltd., a Florida limited partnership, Hops of the Ohio Valley, Ltd., a Florida limited partnership, Hops of Bowling Green, Ltd., a Florida limited partnership, Hops of Greater Orlando, Ltd., a Florida limited partnership, Hops of Florida Mall, Ltd., a Florida limited partnership, Hops of Altamonte Springs, Ltd., a Florida limited partnership, Hops of Greater Orlando II, Ltd., a Florida limited partnership, Hops of Lakeland, Ltd., a Florida limited partnership, Hops of Southwest Florida, Ltd., a Florida limited partnership, Hops of Bradenton, Ltd., a Florida limited partnership, HNEF Area Manager II, Ltd., a Florida limited partnership, The Hops Northeast Florida Joint Venture No. I, a Florida general partnership, The Hops Northeast Florida Joint Venture No. II, a Florida general partnership, The Hops Northeast Florida Joint Venture No. III, a Florida general partnership, Hops of South Carolina, Ltd., a Florida limited partnership, Hops of the Carolinas, Ltd., a Florida limited partnership, Hops of Matthews, Ltd., a Florida limited partnership, Hops of the Carolinas II, Ltd., a Florida limited partnership, Hops of Atlanta, Ltd., a Florida limited partnership, Hops of Ohio, Ltd., a Florida limited partnership, Hops of Greater Detroit, Ltd., a Florida limited partnership, Hops of Kansas, Ltd., a Florida limited partnership, Hops of Missouri, LLC, a Florida limited liability company, Hops of Indiana, Ltd., a Florida limited partnership, Hops of Greater Boston, Ltd., a Florida limited partnership, and Hops of Rhode Island, LLC, a Rhode Island limited liability company, and (ii) each other Person which guarantees, pursuant to this Agreement or otherwise, all or any part of the Obligations. "Hazardous Materials" means (a) any element, compound or chemical that is defined, listed or otherwise classified as a contaminant, pollutant, toxic pollutant, toxic or hazardous substances, extremely hazardous substance or chemical, hazardous waste, special waste, or solid waste under Environmental Laws; (b) petroleum and its refined products; (c) polychlorinated biphenyls; (d) any substance exhibiting a hazardous waste characteristic, including but not limited to, corrosivity, ignitability, toxicity or reactivity as well as any radioactive or explosive materials; and (e) any raw materials, building components, including but not limited to asbestos-containing materials and manufactured products containing hazardous substances. 8 "Hedging Agreement" means any and all transactions, agreements, or documents now existing or hereafter entered into by the Borrower or any of its Subsidiaries, which provide for an interest rate, credit, commodity or equity swap, cap, floor, collar, forward foreign exchange transaction, currency swap, cross currency rate swap, currency option, or any combination of, or option with respect to, these or similar transactions, for the purpose of hedging the Borrower's or its Subsidiaries' exposure to fluctuations in interest or exchange rates, loan, credit exchange, security or currency valuations or commodity prices. "Highest Lawful Rate" means, with respect to any Agent or any Lender, the maximum non-usurious interest rate, if any, that at any time or from time to time may be contracted for, taken, reserved, charged or received on the Obligations under laws applicable to such Agent or such Lender which are currently in effect or, to the extent allowed by law, under such applicable laws which may hereafter be in effect and which allow a higher maximum non-usurious interest rate than applicable laws now allow. "Hilco" means Hilco Capital LP, a Delaware limited partnership. "Hops" means Hops Grill & Bar, Inc., a Florida corporation. "Hops Marks" means any trade names, trademarks, service marks and other commercial symbols and applications related to the operation of "Hops Restaurant Bar & Brewery" Restaurants on the realty which is the subject of the Sale-Leaseback Agreement. "Hops Marks License" means the License Agreement, dated as of even date with the Sale-Leaseback Agreement, between the Borrower, as licensor, and SPV, as licensee, concerning the licensing of the Hops Marks to SPV, together with all schedules and exhibits thereto, and any modifications or amendments thereof. "I Dine Properties" shall mean the Restaurants located at (a) 7600 Old Trails Road, Indianapolis, IN 46219; (b) 11715 Medlock Bride Road., Duluth, GA 30097; and (c) headquarters office buildings located at Hancock and Washington in Madison, GA 30650. "Incremental Proposal" means the Borrower's proposal (a) to purchase additional Senior Notes and Senior Subordinated Notes in one or more negotiated transactions (other than a tender offer subject to Regulation 14E under the Securities Exchange Act of 1934, as amended), which transactions shall be in compliance with all state and federal securities law and all material Contractual Obligations, for a purchase price of (i) up to fifty (50) cents per one dollar outstanding with respect to the Senior Notes and (ii) up to thirty (30) cents per one dollar outstanding with respect to the Senior Subordinated Notes, with (A) proceeds of Loans in an amount not to exceed $3,000,000 and (B) following the repayment in full of all Loans made pursuant to (A) above, an amount equal to the Net Cash Proceeds of Assets Held for Sale and applied pursuant to Section 3.01(b)(iii), provided the amount of Senior Notes and Senior Subordinated Notes purchased under clauses (A) and (B) above and the Buyback Proposal does not exceed $26,000,000, (b) promptly following the consummation of each such purchase, cancel all Senior Notes and/or Senior Subordinated Notes purchased pursuant to such purchase. "Indebtedness" means, without duplication, with respect to any Person, (i) all indebtedness of such Person for borrowed money; (ii) all obligations of such Person for the deferred purchase price of property or services (other than trade payables incurred in the ordinary course of business irrespective of when paid); (iii) all obligations of such Person evidenced by bonds, debentures, notes or other similar instruments or other similar instruments upon which interest payments are customarily made; (iv) all obligations and liabilities of such Person created or arising under any conditional sales or other title retention agreement with respect to property used and/or acquired by such Person, even though the rights and remedies of the lessor, seller and/or lender thereunder are limited to repossession or sale of such property; (v) all Capitalized Lease Obligations of such Person; (vi) all obligations and liabilities, contingent or otherwise, of such Person, in respect of letters of credit, acceptances and similar facilities; (vii) all obligations and liabilities, calculated on a basis satisfactory to the Administrative Agent and in accordance with accepted practice, of such Person under Hedging Agreements; (viii) all Contingent Obligations; (ix) all obligations referred to in clauses (i) through (viii) of this definition of another Person secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) a Lien upon property owned by such Person, even though such Person has not assumed or become liable for the payment of such Indebtedness. The Indebtedness of any Person shall include the Indebtedness of any partnership of or joint venture in which such Person is a general partner or a joint venturer. "Indemnified Matters" has the meaning ascribed to such term in Section 14.15. "Indemnitees" has the meaning ascribed to such term in Section 14.15. "Insolvency Proceeding" means any proceeding commenced by or against any Person under any provision of the Bankruptcy Code or under any other state or federal bankruptcy or insolvency law, assignments for the benefit of creditors, formal or informal moratoria, compositions, extensions generally with creditors, or proceedings seeking reorganization, arrangement, or other similar relief. 9 "Interest Accrual Period" means a one month period. "Interest Rate Determination Date" means, for each Interest Accrual Period, the second Business Day immediately preceding the first day of such Interest Accrual Period. "Intercompany Advance" means loans made in the ordinary course of business from the Borrower to one of the Borrower's Subsidiaries or from one of the Borrower's Subsidiaries to the Borrower or another of the Borrower's Subsidiaries. "Intercompany Subordination Agreement" means a subordination agreement executed and delivered by the Borrower, each of its Subsidiaries, and the Collateral Agent, the form and substance of which is reasonably satisfactory to the Collateral Agent. "Internal Revenue Code" means the Internal Revenue Code of 1986, as amended (or any successor statute thereto) and the regulations thereunder. "Inventory" means, with respect to any Person, all of such Person's now owned and/or hereafter acquired right, title, and interest with respect to inventory, including goods held for sale and/or lease or to be furnished under a contract of service, goods that are leased by such Person as lessor, goods that are furnished by such Person under a contract of service, and raw materials, work in process, and/or materials used and/or consumed in such Person's business. "Investment" means, with respect to any Person, (i) any purchase or other acquisition by that Person of Securities, or of a beneficial interest in Securities, issued by any other Person, (ii) any purchase by that Person of all or substantially all of the assets of a business conducted by another Person, and (iii) any direct or indirect loan, advance (other than prepaid expenses, accounts receivable, advances to employees and similar items made or incurred in the ordinary course of business) or capital contribution by that Person to any other Person, including all Indebtedness to such Person arising from a sale of any property or assets by such Person other than in the ordinary course of its business. "IRS" means the Internal Revenue Service or any successor federal tax Governmental Authority. "Issuer" means an issuer of a Letter of Credit Accommodation. "LC Exposure" means, without duplication, at any time, an amount equal to 100% of the aggregate undrawn face amount of all Letter of Credit Accommodations then outstanding. "LC Guaranty" and "LC Guaranties" means any guaranty pursuant to which Drawbridge or any Affiliate of Drawbridge shall guaranty the payment or performance by the Borrower of its reimbursement obligation under any Letter of Credit. "Lease" means any lease of real property to which the Borrower or any of its Subsidiaries is a party as lessor or lessee. "Lease Guaranties" means those certain guaranties executed and delivered by the Borrower or any of its Subsidiaries on account of indebtedness or other obligations of any other Person in connection with one or more real property leases (other than the Leases), including without limitation the guaranties described on Schedule 1.01(E) hereto. "Lender" and "Lenders" have the respective meanings ascribed to such term in the preamble to this Agreement, and shall include any other Person made a party to this Agreement as a "Lender" in accordance with the provisions hereof. "Lender-Related Persons" means, with respect to any Lender, such Lender, together with such Lender's Affiliates, and the officers, directors, employees, counsel, agents, and attorneys-in-fact of such Lender and such Lender's Affiliates. "Letter of Credit" means any Standby Letter of Credit. "Letter of Credit Accommodations" means Letters of Credit and LC Guaranties. "Letter of Credit Collateral Account" means a deposit account pledged to the Collateral Agent, on terms and conditions satisfactory to the Agent, and under the control of the Collateral Agent for the benefit of the Collateral Agent and the Issuer. "Letter of Credit Fee" has the meaning ascribed to such term in Section 4.02(b). "Letter of Credit Obligations" means, at any particular time, the sum of (i) all outstanding Reimbursement Obligations at such time, plus (ii) the aggregate undrawn face amount of all outstanding Letter of Credit Accommodations at such time, plus (iii) the aggregate face amount of all Letter of Credit Accommodations requested by the Borrower at such time but not yet issued, other than Letter of Credit Accommodations for which cash collateral, in an amount of 105% of the face amount of such Letter of Credit Accommodations, has been delivered to the Collateral Agent for deposit in the Letter of Credit Collateral Account. 10 "Letter of Credit Reimbursement Agreement" means, with respect to a Letter of Credit Accommodation, such form of application therefor and the form of reimbursement agreement therefor (whether in a single or several documents, taken together) as the Issuer from which the Letter of Credit Accommodation is requested may employ from time to time in the ordinary course of business for its own account (including the Reimbursement and Pledge Agreement dated as of March 20, 2003 among the Borrower, Drawbridge and Fifth Third Bank), with such modifications thereto as may be agreed upon by the Issuer and the Borrower; provided, however, that in the event of any conflict between the terms of any Letter of Credit Reimbursement Agreement and this Agreement, the terms of this Agreement shall control. "LIBOR" means, with respect to each Interest Accrual Period, the rate (expressed as a percentage per annum and rounded up to the nearest 1/8th of 1%) for deposits in Dollars for a one-month period that appears on Telerate Page 3750 (or the successor thereto) as of 11:00 a.m. (London time) on the related Interest Rate Determination Date. If such rate does not appear on Telerate Page 3750 as of 11:00 a.m. (London time) on such Interest Rate Determination Date, LIBOR shall be the arithmetic mean of the offered rates (expressed as a percentage per annum) for deposits in Dollars for a one-month period that appear on the Reuters Screen LIBO Page as of 11:00 a.m. (London time) on such Interest Rate Determination Date, if at least two (2) such offered rates so appear. If fewer than two such offered rates appear on the Reuters Screen LIBO Page as of 11:00 a.m. (London time) on such Interest Rate Determination Date, the Lender shall request the principal London, England office of any four (4) major reference banks in the London interbank market selected by the Lender to provide such bank's offered quotation (expressed as a percentage per annum) to prime banks in the London interbank market for deposits in Dollars for a one-month period as of 1:00 a.m. (London time) on such Interest Rate Determination Date for amounts of not less than One Million Dollars ($1,000,000). If at least two (2) such offered quotations are so provided, LIBOR shall be the arithmetic mean of such quotations. If fewer than two such quotations are so provided, the Lender shall request any three major banks in New York, New York selected by the Lender to provide such bank's rate (expressed as a percentage per annum) for loans in Dollars to leading European banks for a one-month period as of approximately 11:00 a.m. (New York time) on the applicable Interest Rate Determination Date for amounts of not less than One Million Dollars ($1,000,000). If at least two (2) such rates are so provided, LIBOR shall be the arithmetic mean of such rates. If fewer than two (2) rates are so provided, then LIBOR for the applicable Interest Accrual Period shall be LIBOR that was in effect for the immediately preceding Interest Accrual Period. LIBOR shall be determined by the Lender or its agent in accordance with this definition. "Lien" means any mortgage, deed of trust, pledge, hypothecation, assignment, conditional sale agreement, deposit arrangement, security interest, encumbrance, lien (statutory or other), preference, priority or other security agreement or preferential arrangement of any kind or nature whatsoever in respect of any Property of a Person, whether granted voluntarily or imposed by law, and includes the interest of a lessor under a Capital Lease or under any financing lease having substantially the same economic effect as any of the foregoing and the filing of any financing statement or similar notice (other than a financing statement filed by a "true" lessor pursuant to ss. 9-505 of the Uniform Commercial Code), naming the owner of such property as debtor, under the Uniform Commercial Code or other comparable law of any jurisdiction. "Liquor License Subsidiaries" means, individually and collectively, Don Pablo's TX Liquor, Inc., Don Pablos of Baltimore County, Inc., a Maryland corporation, Don Pablos of Howard County, Inc., a Maryland corporation, Don Pablos of Prince George's County, Inc., a Maryland corporation, SMAS, Inc., a Texas corporation, and any other Subsidiary of Borrower which does not own any assets or property other than a liquor license. "List of Closing Documents" means the List of Closing Documents attached hereto and made a part hereof as Exhibit C. "Loan Account" means an account maintained hereunder by Administrative Agent on its books of account, at Administrative Agent's office and with respect to the Borrower, in which Borrower will be charged with all Loans made to, and all other Obligations incurred by, the Borrower. "Loan Documents" means this Agreement, the Note, the Security Agreements, the Pledge Agreements, the Trademark Assignment, the Acknowledgment Agreement, the Guaranties, the Transferee Side Letter, the Skyline Sale and Leaseback Documents, the Former Mortgages, the New Mortgages, the Mortgage Assignments, the UCC Assignments, the Mortgage Amendments, the Trademark Security Agreements, the Control Agreement, the Concentration Account Agreement, the Credit Card Agreements, the Estoppel Letter, the Intercompany Subordination Agreement, the Letter of Credit Reimbursement Agreements, all other documents set forth on the List of Closing Documents, and all other agreements, instruments, and other documents executed and delivered pursuant hereto or thereto or otherwise evidencing or securing any Loan. "Loan Parties" means the Borrower and each Guarantor. "Loan Subfacility" means that portion of the Commitments equal to: (i) during the Buyback Period, $23,000,000, which amount shall be increased from $23,000,000 to $25,000,000 upon the satisfaction of all of the conditions set forth in Section 5.03(a) and from $25,000,000 to $27,000,000 upon the satisfaction of all of the conditions set forth in Section 5.03(b) (such amount set forth in clause (i) being the "Subfacility Amount"); and (ii) for all times following the Buyback Period, the Subfacility Amount less the Commitment Reduction Amount, in each case, as such amount may be reduced pursuant to the terms hereof, or such other amount as shall be agreed in writing by the Agents, the Lenders and the Borrower. 11 "Loans" has the meaning ascribed to such term in Section 2.01(a). "Material Adverse Effect" means a material adverse effect on any of (i) the operations, business, assets, properties, condition (financial or otherwise) or prospects of the Borrower or the Loan Parties, taken as a whole, (ii) the ability of any Loan Party to perform any of its obligations under any Loan Document to which it is a party, (iii) the legality, validity or enforceability of this Agreement or any other Loan Document, (iv) the rights and remedies of the Collateral Agent or the Lenders under any Loan Document, or (v) the validity, perfection or priority of a Lien in favor of the Collateral Agent or the Lenders on any material portion of the Collateral. "Material Contract" means each contract or agreement to which the Borrower or any of its Subsidiaries is a party which is material to the business, operations, condition (financial or otherwise), or performance, of the Borrower and its Subsidiaries, taken as a whole, but excluding all contracts evidencing the ownership or lease of any Restaurant, other than (i) such contracts or agreements with respect to which the net present value of all consideration payable by or to the Borrower or any of its Subsidiaries under such contract, as of the date thereof, exceeds $10,000,000, including the contracts listed on Schedule 1.01(F), and (ii) any replacement or renewal contract that is similar in all material respects to the contract that such replacement or renewal contract is replacing or renewing. "Maturity Date" means the same date as the Commitment Termination Date or such earlier date on which any Loan shall become due and payable, in whole or in part, in accordance with the terms of this Agreement and the other Loan Documents. "Maximum Revolving Credit Amount" means, at any particular time, an amount equal to the lesser of (a) the Commitments at such time and (b) the Borrowing Base as such time. "Moody's" means Moody's Investors Service, Inc. and any successor thereto. "Mortgage Amendments" means those amendments set forth on Schedule 1.01(K). "Mortgage Assignments" means those assignments set forth on Schedule 1.01(L). "Multiemployer Plan" means a "multiemployer plan" as defined in Section 4001(a)(3) of ERISA for which the Borrower or any of its Subsidiaries or any of their ERISA Affiliates has contributed to, or has been obligated to contribute to, at any time during the preceding six years, or has liability. "Net Cash Proceeds" means, (i) with respect to any Disposition by any Person, the amount of cash received (directly or indirectly) from time to time (whether as initial consideration or through the payment of deferred consideration) by or on behalf of such Person or any of its Subsidiaries or Affiliates, in connection therewith after deducting therefrom, only (A) the principal amount of any Indebtedness secured by any Permitted Lien on any asset that is the subject of the Disposition (other than Indebtedness assumed by the purchaser of such asset) which is required to be, and is, repaid in connection with such Disposition (other than Indebtedness under this Agreement), (B) reasonable expenses related thereto reasonably incurred by such Person or such Affiliate in connection therewith, (C) transfer taxes paid by such Person or such Affiliate in connection therewith and (D) a provision for net income taxes, whether paid or payable, in connection with such Disposition (after taking into account any tax credits or deductions and any tax sharing arrangements) and (ii) with respect to the issuance or incurrence of any Indebtedness by any Person, or the sale or issuance by any Person of any shares of its Capital Stock, the aggregate amount of cash received (directly or indirectly) from time to time (whether as initial consideration or through the payment of deferred consideration) by or on behalf of such Person or any of its Subsidiaries or Affiliates in connection therewith after deducting therefrom only reasonable brokerage commissions, underwriting fees and discounts, legal fees and similar fees and commissions. "Net Income" means, with respect to any Person for any period, the net income (loss) of such Person for such period, determined in accordance with GAAP. "Net Interest Expense" means, with respect to any Person for any period, gross interest expense of such Person for such period determined in conformity with GAAP (including interest expense paid to Affiliates of such Person, and accrued interest expense in connection with the TECONS), less (i) the sum of (A) interest income for such period and (B) gains for such period on Hedging Agreements (to the extent not included in interest income above and to the extent not deducted in the calculation of such gross interest expense), plus (ii) the sum of (A) losses for such period on Hedging Agreements (to the extent not included in such gross interest expense) and (B) the upfront costs or fees for such period associated with Hedging Agreements (to the extent not included in gross interest expense), each determined in accordance with GAAP for such Person. 12 "New Mortgages" means the mortgages and deeds of trust executed and delivered by certain of the Loan Parties to the Collateral Agent in favor of the Lenders, in form and substance reasonably satisfactory to the Collateral Agent. "New DuPree Note" means that certain promissory note, dated as of March 6, 2001, executed by Tom E. DuPree, Jr. in favor of the Borrower, in an aggregate amount equal to $14,130,472.99. "Non Pro Rata Loan" has the meaning ascribed to such term in Section 3.02(c)(iv). "Non-Wholly Owned Subsidiaries" means, individually and collectively, Hops of the Rockies, Ltd., a Florida limited partnership, Hops of the Rockies II, Ltd., a Florida limited partnership, Hops of Cherry Creek, Ltd., a Florida limited partnership, Hops of Colorado Springs, Ltd., a Florida limited partnership, Hops of Connecticut, Ltd., a Florida limited partnership, Hops of Minnesota, Ltd., a Florida limited partnership, Hops of Virginia, Ltd., a Florida limited partnership, Hops of Virginia II, Ltd., a Florida limited partnership, Hops of Baltimore County, LLC, a Florida limited liability company, and any other Subsidiary of Borrower which is not a Wholly Owned Subsidiary of Borrower, a Liquor License Subsidiary or a Dormant Subsidiary. "Note" has the meaning ascribed to such term in Section 2.03(a). "Notice of Borrowing" means a notice substantially in the form of Exhibit D attached hereto and made a part hereof. "Obligations" means all Loans, advances, debts, liabilities, obligations, Reimbursement Obligations, covenants and duties owing by any Loan Party to the Administrative Agent, the Collateral Agent, any Lender, any Affiliate of any Lender, any Issuer or any Person entitled to indemnification pursuant to Section 14.15 of this Agreement, of any kind or nature, present or future, whether or not evidenced by any note, guaranty or other instrument, whether or not for the payment of money, whether arising by reason of an extension of credit, loan, guaranty, indemnification, interest rate contract, foreign exchange contract or in any other manner, whether direct or indirect (including those acquired by assignment), absolute or contingent, due or to become due, but in all such circumstances only to the extent now existing or hereafter arising or however acquired, arising under or in connection with this Agreement, the Notes or any other Loan Document. The term includes all interest (including any interest that, but for the provisions of the Bankruptcy Code, would have accrued), charges, expenses, fees, attorneys' fees and disbursements and any other sum chargeable to the Loan Parties under this Agreement, the Notes or any other Loan Document. "Operating Lease Obligations" means all obligations for the payment of rent for any real or personal property under leases or agreements to lease, other than Capitalized Lease Obligations. "Other Taxes" has the meaning ascribed to such term in Section 3.03(b) "Payment Event of Default" means an Event of Default under Section 11.01(a). "PBGC" means the Pension Benefit Guaranty Corporation or any successor thereto. "Permitted Affiliate Transaction" means the cancellation by the Borrower of the New DuPree Note in exchange for the cancellation or surrender by Tom E. DuPree, Jr. of the Senior Subordinated Notes owned by Tom E. DuPree, Jr. and held in trust as security for the New Dupree Note. "Permitted Deferred Taxes" means (i) the sales taxes owed to the State of Michigan, in an aggregate outstanding amount of $263,314 payable monthly through May, 2003, and (ii) taxes owed to the State of Florida, in an aggregate outstanding amount of $88,547 payable monthly through September, 2003. "Permitted Holder" means Tom E. DuPree, Jr. "Permitted Indebtedness" means: 1. any Indebtedness owing to the Lenders or to any Issuer under the Loan Documents or pursuant to the Obligations; 2. the existing Indebtedness of the Borrower or any of its Subsidiaries' (other than the Liquor License Subsidiaries) listed on Schedule 1.01(H), including the extension of maturity, refinancing or modification of the terms thereof; provided, however, that (i) such extension, refinancing or modification is pursuant to terms that are not, in the aggregate, materially less favorable to the Borrower or any of its Subsidiaries than the terms of the Indebtedness being extended, refinanced or modified and (ii) after giving effect to the extension, refinancing or modification, such Indebtedness is not greater than the amount of Indebtedness outstanding immediately prior to such extension, refinancing or modification; 3. Capital Leases and purchase money Indebtedness incurred by the Borrower or any Guarantor to finance the acquisition of fixed assets in an aggregate amount not to exceed $1,000,000 at any time; 13 4. Indebtedness of the Borrower or any of its Subsidiaries resulting from endorsement of negotiable instruments received in the ordinary course of the Borrower's or such Subsidiary's business; 5. Contingent Obligations of the Borrower or any Guarantor with respect to Indebtedness of a Loan Party permitted to be incurred hereunder; 6. Indebtedness arising under a Concentration Account Agreement; 7. Indebtedness of Borrower or any of its Subsidiaries in connection with: beer, wine and liquor related bonds, utility bonds and other similar bonds or guaranties in respect of Restaurant operations or management in the ordinary course of business; 8. Indebtedness arising from Permitted Intercompany Advances; 9. Indebtedness of the Borrower to the Excluded Subsidiaries incurred in the ordinary course of business in an aggregate amount not to exceed $200,000 at any time; 10. Indebtedness of the Borrower and its Subsidiaries in connection with unpaid insurance premiums in the ordinary course of business in an aggregate amount not to exceed $2,000,000; 11. Indebtedness arising under the Skyline Sale and Leaseback Documents; 12. Indebtedness of any Excluded Subsidiaries in existence on the date hereof, and additional indebtedness incurred after the date hereof in an aggregate principal amount not to exceed $500,000 at any time; 13. Indebtedness of Borrower or any of its Subsidiaries in connection with construction bonds in respect of Restaurant operations in the ordinary course of business in an aggregate amount not to exceed $1,000,000 at any time; and 14. additional Indebtedness of the Borrower or any of its Subsidiaries not expressly permitted by clauses (a) through (l) above, provided that the aggregate principal amount of the Indebtedness outstanding under this clause (m) shall not at any time exceed $500,000. "Permitted Intercompany Advance" means an Intercompany Advance, so long as (a) the Intercompany Subordination Agreement is in full force and effect with respect to the proposed Intercompany Advance, and (b) the Intercompany Advance is being made by one Loan Party to another Loan Party. "Permitted Investments" means (i) marketable direct obligations issued or unconditionally guaranteed by the United States Government or issued by any agency thereof and backed by the full faith and credit of the United States, in each case maturing within six (6) months from the date of acquisition thereof; (ii) commercial paper, maturing not more than 270 days after the date of issue rated P-1 by Moody's or A-1 by Standard & Poor's; (iii) certificates of deposit maturing not more than one year after the date of issue, issued by commercial banking institutions and money market or demand deposit accounts maintained at commercial banking institutions, each of which is a member of the Federal Reserve System and has a combined capital and surplus and undivided profits of not less than $500,000,000; (iv) repurchase agreements having maturities of not more than 90 days from the date of acquisition which are entered into with major money center banks included in the commercial banking institutions described in clause (iii) above; (v) money market accounts maintained with mutual funds having assets in excess of $2,500,000,000; (vi) tax exempt securities rated A or better by Moody's or A+ or better by Standard & Poor's; (vii) loans and advances permitted under clauses (h) and (i) of the definition of "Permitted Indebtedness"; (viii) the equity interests owned by the Borrower or any of its Subsidiaries in the existing Subsidiaries of the Borrower's Subsidiaries, (ix) Existing Affiliate Advances and other existing Investments set forth on Schedule 9.05; (x) purchases of Senior Notes and Senior Subordinated Notes as permitted pursuant to Section 9.13(ii); (xi) loans and advances to employees and officers of the Borrower and its Subsidiaries from time to time in the ordinary course of business for travel expenses, moving expenses, signing bonuses and for other purposes, in an aggregate outstanding amount not to exceed $50,000 at any time; (xii) Investments in connection with the plans identified on Schedule 1.01(I); (xiii) Investments in connection with the disposition of Assets Held for Sale; (xiv) Investments permitted pursuant to Section 9.03(b); (xv) Investments received in settlement of debts of insolvent account debtors; and (xvi) Investments not otherwise described in the foregoing clauses of this definition in an aggregate outstanding amount not in excess of $100,000. "Permitted Liens" means: 1. Liens securing the Obligations; 2. Liens on property of the Borrower or its Subsidiaries' for shopping center assessments and charges, taxes, assessments and governmental charges which are not yet delinquent or which are the subject of a Permitted Protest; 3. Liens on property of the Borrower or its Subsidiaries' imposed by law, such as carriers', warehousemen's, mechanics', materialmen's and other similar Liens arising in the ordinary course of business and securing similar obligations (other than Indebtedness) that are not overdue or are being contested in good faith and by appropriate proceedings promptly initiated and diligently conducted, and a reserve or other appropriate provision, if any, as shall be required by GAAP shall have been made therefor; 14 4. existing Liens on property of the Borrower or any of its Subsidiaries', other than the Excluded Subsidiaries, described on Schedule 1.01(J), and Liens arising out of the extension of maturity, refinancing or other modification of the terms thereof, to the extent that (i) the Indebtedness secured by such existing Lien is Permitted Indebtedness and is not in an amount that exceeds the outstanding amount of such Indebtedness at the time and (ii) the scope of any Lien arising out of the extension of maturity, refinancing or other modification is not expanded to include any other property or assets; 5. Liens securing Indebtedness permitted pursuant to clause (c) of the definition of "Permitted Indebtedness"); provided, however, that (A) no such Lien shall extend to or cover any other property of the Borrower or any of its Subsidiaries, and (B) the principal amount of the Indebtedness secured by any such Lien shall not exceed the lesser of 100% of the fair market value or the cost of the property so held or acquired; 6. deposits and pledges of property of the Borrower or its Subsidiaries', other than the Excluded Subsidiaries, securing (i) obligations incurred in respect of workers' compensation, unemployment insurance or other forms of governmental insurance or benefits, (ii) the performance of bids, tenders, leases, contracts (other than for the payment of money) and statutory obligations or (iii) obligations on surety or appeal bonds, but only to the extent such deposits or pledges are incurred or otherwise arise in the ordinary course of business and secure obligations not past due; 7. the licensing of (i) the Hops Marks to SPV under the Hops Marks License (ii) trademarks with respect to Don Pablo in connection with the Skyline Sale and Leaseback Transaction; 8. easements, zoning and similar restrictions, encroachments, operation and use requirements, maintenance obligations, reservations, repurchase rights and other minor encumbrances on, and irregularities in, title thereto that do not (i) secure obligations for the payment of money, or (ii) materially impair the value of such property or its use by the Borrower or any of its Subsidiaries in the ordinary course of such Person's business. 9. Liens consisting of deposits pledged to secure Indebtedness permitted pursuant to clause (g) of the definition of "Permitted Indebtedness"; 10. Liens in cash deposited into escrow in connection with the FFCA Master Lease in an aggregate amount which as of any one time does not exceed $750,000; and 11. additional Liens in an aggregate amount not to exceed $100,000 at any one time outstanding. "Permitted Protest" means the right of the Borrower or any of its Subsidiaries to protest any Lien (other than any such Lien that secures the Obligations), taxes (other than payroll taxes or taxes that are the subject of a United States federal tax lien), or rental payment, provided that (a) a reserve with respect to such obligation is established by the Borrower in such amount as is required under GAAP, (b) any such protest is instituted promptly and prosecuted diligently by the Borrower or the applicable Subsidiary, in good faith, and (c) the Agents are satisfied that, while any such protest is pending, there will be no impairment of the enforceability, validity, and/or priority of any of the Collateral Agent's Liens on any material portion of the Collateral. "Permitted Subsidiary Activities" has the meaning ascribed to such term in Section 9.21. "Person" means an individual, corporation, limited liability company, partnership, association, joint-stock company, trust, unincorporated organization, joint venture or Governmental Authority. "Pledge Agreements" means the pledge agreements, executed and delivered by the Loan Parties and Collateral Agent, in favor of the Lenders, in respect of the outstanding Capital Stock owned by the Loan Parties, each in form and substance satisfactory to the Agents. "Pre-Opening Costs" means costs incurred by the Borrower or any of its Subsidiaries prior to opening a Restaurant location including wages and salaries, hourly employee recruiting and training, initial license fees, advertising, pre-opening parties, lease expense, food cost, utilities, meals, lodging, and travel plus the cost of hiring and training the management teams in an aggregate amount not to exceed $200,000. "Pro Rata Share" means, with respect to any Lender, the percentage obtained by dividing (i) such Lender's Commitment, by (ii) the aggregate Commitments of all Lenders. "Property" means any right or interest in or to property of any kind whatsoever, whether real, personal or mixed and whether tangible or intangible. "Provident" means The Provident Bank. "Rating Agencies" has the meaning ascribed to such term in Section 14.04. 15 "Reference Rate" means, for any period, a fluctuating interest rate per annum equal to the rate announced publicly by LaSalle National Bank, from time to time, as its prime rate. "Register" has the meaning ascribed to such term in Section 2.03(c). "Regulation T", "Regulation U", and "Regulation X" mean, respectively, Regulations T, U, and X of the Board or any successor, as the same may be amended or supplemented from time to time. "Reimbursement Date" has the meaning ascribed to such term in Section 2.02(d)(i). "Reimbursement Obligations" means the aggregate non-contingent reimbursement or repayment obligations of the Borrower with respect to amounts drawn or demanded under Letter of Credit Accommodation. "Release" means any spilling, leaking, pumping, pouring, emitting, emptying, discharging, injecting, escaping, leaching, seeping, migrating, dumping or disposing of any Hazardous Material (including the abandonment or discarding of barrels, containers and other closed receptacles containing any Hazardous Material) into the indoor or outdoor environment, including ambient air, soil, surface or ground water. "Remedial Action" means all actions taken to (i) clean up, remove, remediate, contain, treat, monitor, assess, evaluate or in any other way address Hazardous Materials in the indoor or outdoor environment; (ii) prevent or minimize a Release or threatened Release of Hazardous Materials so they do not migrate or endanger or threaten to endanger public health or welfare or the indoor or outdoor environment; (iii) perform pre-remedial studies and investigations and post-remedial operation and maintenance activities; or (iv) any other actions authorized by 42 U.S.C. ss. 9601. "Request for Issuance of Letter of Credit Accommodation" means a request substantially in the form of Exhibit E attached hereto and made a part hereof. "Required Availability" means Availability minus $17,000,000. "Required Lenders" means, at any time, Lenders whose Pro Rata Shares aggregate more than 50% of the Commitments or, if the Commitments shall have been terminated irrevocably, Lenders holding more than 50% of the Obligations then outstanding. "Requirements of Law" means, as to any Person, the charter and by-laws or other organizational or governing documents of such Person, and any law, rule or regulation, or determination of an arbitrator or a court or other Governmental Authority, in each case applicable to or binding upon such Person or any of its property or to which such Person or any of its property is subject including, without limitation, the Securities Act, the Securities Exchange Act, Regulations T, U and X, ERISA, the Fair Labor Standards Act and any certificate of occupancy, zoning ordinance, building, environmental or land use requirement or Permit or environmental, labor, employment, occupational safety or health law, rule or regulation. "Restaurant" means a restaurant or other similar establishment owned or operated by Borrower or any of its Subsidiaries. "Restricted Payments" means, with respect to any Person, (i) any dividend or other distribution, direct or indirect, on account of any shares of any class of capital stock of, partnership interest of or other equity interest of, such Person, now or hereafter outstanding, except a dividend payable solely in shares of that class of stock or in any junior class of stock to the holders of that class, (ii) any redemption, retirement, sinking fund or similar payment, purchase or other acquisition for value, direct or indirect, of any shares of any class of capital stock of, partnership interest of or other equity interest of, such Person now or hereafter outstanding, (iii) any payment or prepayment of principal of, premium, if any, or interest, fees or other charges on or with respect to, and any redemption, purchase, retirement, defeasance, sinking fund or similar payment and any claim for rescission with respect to, any subordinated indebtedness and (iv) any payment made to redeem, purchase, repurchase or retire, or to obtain the surrender of, any outstanding warrants, options or other rights to acquire shares of any class of capital stock of, partnership interest of or other equity interest of, such Person now or hereafter outstanding. "Revolving Credit Obligations" means, at any particular time, the sum of (i) the outstanding principal amount of the Loans at such time, plus (ii) the Letter of Credit Obligations outstanding at such time. "SEC" means the Securities and Exchange Commission or any other similar or successor agency of the Federal government administering the Securities Act. "Securities" means any stock, shares, voting trust certificates, bonds, debentures, notes or other evidences of indebtedness, secured or unsecured, convertible, subordinated or otherwise, or any certificates of interest, shares or participations in temporary or interim certificates for the purchase or acquisition of, or any right to subscribe to, purchase or acquire any of the foregoing, but shall not include the Obligations. "Securities Act" means the Securities Act of 1933, as amended, or any successor Federal statute, and the rules and regulations of the SEC thereunder, all as the same shall be in effect at the time. 16 "Securities Account" means a "securities account" as that term is defined in the UCC. "Security Agreements" means the security agreements executed and delivered by the Loan Parties and the Collateral Agent, in favor of the Lenders, each in form and substance satisfactory to the Collateral Agent. "Senior Debt to EBITDA Ratio" means, as of any date of determination, the ratio of (a) the aggregate amount of Obligations outstanding as of such date of determination, to (b) Borrower's EBITDA for the trailing twelve-month period ending on such date of determination. "Senior Note Documents" means, collectively, all notes, indentures, trusts, guarantees or other documents or agreements of any kind, as the same may be amended, restated supplemented or otherwise modified from time to time, which have been executed in connection with the Senior Notes. "Senior Notes" means those certain 9.75% Senior Notes due June 2006 originally issued by Apple South, Inc., a Georgia corporation, as predecessor-in-interest to Borrower. "Senior Subordinated Note Documents" means, collectively, all notes, indentures, trusts, guarantees or other documents or agreements of any kind, as the same may be amended, restated supplemented or otherwise modified from time to time, which have been executed in connection with the Senior Subordinated Notes. "Senior Subordinated Notes" means those certain 11.75% Senior Subordinated Notes due June 2009 originally issued by Apple South, Inc., a Georgia corporation, as predecessor-in-interest to the Borrower. "Skyline" means Skyline - FRI 8, L.P. "Skyline Sale and Leaseback Documents" means collectively, the agreements, instruments and documents set forth on Schedule 1.01(G), as any of the same may be amended, modified, supplemented or restated from time to time. "Skyline Sale and Leaseback Transaction" means the transactions contemplated under the Skyline Sale and Leaseback Documents. "Solvent" means, with respect to any Person on a particular date, that on such date such Person (i) has sufficient working capital and other property remaining as a result of the transaction to carry on its business as currently being conducted and as contemplated to be conducted in the future, and (ii) has the ability to pay existing indebtedness as it matures and does not intend to or believes that it will incur debts beyond its ability to pay as such debts mature in the future. "Specified Loans" means those Loans made to the Borrower during the last fifteen days of the Buyback Period, the proceeds of which are used by the Borrower to purchase Senior Notes and/or Senior Subordinated Notes pursuant to the Buyback Proposal. "SPV" means Pubs Property, LLC, a Delaware limited liability company. "Standard & Poor's" means Standard & Poor's Ratings Services, a division of The McGraw-Hill Companies, Inc. and any successor thereto. "Standby Letter of Credit" means any stand-by letter of credit issued for the account of Borrower. "Subsidiary" means, with respect to any Person at any date, any corporation, limited or general partnership, limited liability company, trust, association or other entity (i) the accounts of which would be consolidated with those of such Person in such Person's consolidated financial statements if such financial statements were prepared in accordance with GAAP or (ii) of which more than 50% of (A) the outstanding Capital Stock having (in the absence of contingencies) ordinary voting power to elect a majority of the board of directors of such corporation, (B) the interest in the capital or profits of such partnership or limited liability company or (C) the beneficial interest in such trust or estate is, at the time of determination, owned or controlled directly or indirectly through one or more intermediaries, by such Person, provided, that "Subsidiary" shall not include Apple South Financing I, a Delaware business trust or any successor entity formed pursuant to the TECON Documents. "Subsidiary Activities" has the meaning ascribed to such term in Section 9.21. "SunTrust Adjustment" means, with respect to any month, (a) an amount equal to $204,000, as such amount reduces each month by $22,600 per month commencing with April 2003; plus (b) the following amount, if applicable during such month: (1) If Schedule 2 to the SunTrust Master Lease Documents is paid off, and written evidence, in form and substance satisfactory to the Collateral Agent, of such pay-off is provided to the Collateral Agent, the adjustment will increase by $240,000, provided that such amount will be reduced by $20,000 for every month following the date of such pay-off; 17 (2) If Schedule 3 to the SunTrust Master Lease Documents is paid off, and written evidence, in form and substance satisfactory to the Collateral Agent, of such pay-off is provided to the Collateral Agent, the adjustment will increase by $436,800, provided that such amount will be reduced by $36,400 for every month following the date of such pay-off; (3) If Schedule 4 to the SunTrust Master Lease Documents is paid off, and written evidence, in form and substance satisfactory to the Collateral Agent, of such pay-off is provided to the Collateral Agent, the adjustment will increase by $680,400, provided that such amount will be reduced by $56,700 for every month following the date of such pay-off; (4) If Schedule 5 to the SunTrust Master Lease Documents is paid off, and written evidence, in form and substance satisfactory to the Collateral Agent, of such pay-off is provided to the Collateral Agent, the adjustment will increase by $696,000, provided that such amount will be reduced by $58,000 for every month following the date of such pay-off; (5) If Schedule 6 to the SunTrust Master Lease Documents is paid off, and written evidence, in form and substance satisfactory to the Collateral Agent, of such pay-off is provided to the Collateral Agent, the adjustment will increase by $415,200, provided that such amount will be reduced by $34,600 for every month following the date of such pay-off; and (6) If Schedule 7 to the SunTrust Master Lease Documents is paid off, and written evidence, in form and substance satisfactory to the Collateral Agent, of such pay-off is provided to the Collateral Agent, the adjustment will increase by $486,000, provided that such amount will be reduced by $40,500 for every month following the date of such pay-off; provided, however, if a lease under any Schedule to the SunTrust Master Lease Documents is renewed under a new monthly payment schedule the difference between the existing annual lease payment less the new annual lease payment will be the adjustment amount for purposes of clause (b) above and such amount shall be reduced by one-twelfth of such amount per month. . "SunTrust Loan Agreement" means that certain Loan and Security Agreement, dated as of September 24, 1997, by and among First Security Bank, National Association, a national banking association, as owner trustee of the Apple South Trust No. 97-1, the lenders from time to time that are parties thereto, and SunTrust Bank, a Georgia banking corporation, as agent for the lenders, together with any documents executed in connection therewith and all amendments, modifications or restatements thereto entered into on or prior to the date hereof. "SunTrust Option" means the Borrower's option to purchase the equipment which is subject to the SunTrust Master Lease Documents either (i) pursuant to the terms of the SunTrust Master Lease Documents or (ii) other than pursuant to the terms of the SunTrust Master Lease Documents for a purchase price no greater than 20% of costs. "SunTrust Participation Agreement" means that certain Participation Agreement, dated as of September 24, 1997, by and among Borrower, as lessee under the Master Equipment Lease Agreement, First Security Bank, National Association, a national banking association, as owner trustee of the Apple South Trust No. 97-1, SunTrust Bank, a Georgia banking corporation, as holder of the beneficial interest in the trust estate established under Apple South Trust No. 97-1, the financial institutions from time to time that are parties thereto, and SunTrust Bank, a Georgia banking corporation, as collateral agent and administrative agent for the lenders and the holders above referenced holder and financial institutions, together with any documents executed in connection therewith and all amendments, modifications or restatements thereto entered into on or prior to the date hereof. "SunTrust Lease Agreement" means that certain Master Equipment Lease Agreement, dated as of September 24, 1997, between First Security Bank, National Association, a national banking association, as lessor, and Borrower, as lessee, together with any documents executed in connection therewith and all amendments, modifications or restatements thereto entered into on or prior to the date hereof. "SunTrust Trust Agreement" means that certain Trust Agreement, dated as of September 24, 1997, between SunTrust Bank, a Georgia banking corporation, as holder of the beneficial interest in the trust estate established under Apple South Trust No. 97-1, and First Security Bank, National Association, a national banking association, as owner trustee of the Apple South Trust No. 97-1, together with any documents executed in connection therewith and all amendments, modifications or restatements thereto entered into on or prior to the date hereof. "SunTrust Master Lease Documents" means the SunTrust Lease Agreement, the SunTrust Participation Agreement, the SunTrust Trust Agreement, the SunTrust Loan Agreement, and any other documents or agreement of any kind executed in connection therewith and all amendments, modifications or restatements thereto entered into on or prior to the date hereof. "Taxes" has the meaning ascribed to such term in Section 3.03(a). "TECON Documents" means, collectively, all notes, indentures, trusts, guarantees or other documents or agreements of any kind, as the same may be amended, restated supplemented or otherwise modified from time to time, which have been executed in connection with the TECONS and the Convertible Debentures. 18 "TECONS" means those certain $3.50 Term Convertible Securities, Series A, originally issued by Apple South Financing I. "Title Insurance Policies" means the mortgagee's loan policies, together with all endorsements made from time to time thereto, issued by or on behalf of a title insurance company reasonably satisfactory in form and substance to Collateral Agent, insuring the Liens created by the New Mortgages (if any) and the Former Mortgages in an aggregate amount not in excess of $75,000,000, and on terms reasonably satisfactory to Collateral Agent, delivered to Collateral Agent pursuant to Article IV hereof or Section 6.01(b). "Total Debt to EBITDA Ratio" means, as of any date of determination, the ratio of (a) the sum of (i) the aggregate amount of the Obligations outstanding as of such date of determination, plus (ii) the aggregate principal amount outstanding under the Senior Notes, the Senior Subordinated Notes and TECONS as of such date of determination, plus (iii) the aggregate amount of all other outstanding Indebtedness as of such date of determination, if such Indebtedness is secured by real property or interests in real property; minus (iv) the principal amount outstanding under the New DuPree Note as of such date of determination, to (b) the Borrower's EBITDA for the trailing twelve-month period ending on such date of determination. "Total Facility" means $39,000,000. "Trademark Assignment" means that certain assignment executed and delivered by Former Collateral Agent to the Collateral Agent of the trademark security agreement made by the Borrower in favor of Former Administrative Agent, in form and substance satisfactory to the Agents. "Trademark Security Agreement" means a Trademark Security Agreement, executed and delivered by the Borrower and Collateral Agent for the benefit of the Lenders, in form and substance satisfactory to the Agents. "Transferee Side Letter" means that certain letter agreement, dated as of the date hereof, by and among the Lenders and the Borrower, concerning certain restrictions on the right of the Lenders to assign their rights and responsibilities hereunder. "UCC" means the Uniform Commercial Code enacted in the State of New York, as amended from time to time. "UCC Assignments" means those certain assignments to Collateral Agent of the financing statements previously filed by the Former Administrative Agent with respect to the Loan Parties. "Unused Commitment Fee" has the meaning ascribed to such term in Section 4.02(c). "Weighted Availability" means, on any date of determination, the average Availability for the immediately preceding ten (10) Business Day period. "Wholly Owned Subsidiary" means, with respect to any Person at any date, any corporation, limited or general partnership, limited liability company, trust, association or other entity of which 100% of (A) the outstanding Capital Stock having (in the absence of contingencies) ordinary voting power to elect a majority of the board of directors of such corporation, (B) the interest in the capital or profits of such partnership or limited liability company or (C) the beneficial interest in such trust or estate is, at the time of determination, owned or controlled directly or indirectly through one or more intermediaries, by such Person. SECTION 1.02. Terms Generally. The definitions of terms herein shall apply equally to the singular and plural forms of the terms defined. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. The words "include", "includes" and "including" shall be deemed to be followed by the phrase "without limitation". The word "will" shall be construed to have the same meaning and effect as the word "shall". Unless the context requires otherwise, (a) any definition of or reference to any agreement, instrument or other document herein shall be construed as referring to such agreement, instrument or other document as from time to time amended, supplemented or otherwise modified (subject to any restrictions on such amendments, supplements or modifications set forth herein), (b) any reference herein to any Person shall be construed to include such Person's successors and assigns, (c) the words "herein", "hereof" and "hereunder", and words of similar import, shall be construed to refer to this Agreement in its entirety and not to any particular provision hereof, (d) all references herein to Articles, Sections, Exhibits and Schedules shall be construed to refer to Articles and Sections of, and Exhibits and Schedules to, this Agreement. SECTION 1.03. Accounting and Other Terms. Unless otherwise expressly provided herein, each accounting term used herein shall have the meaning given it under GAAP. All terms used in this Agreement which are defined in Article 8 or Article 9 of the UCC and which are not otherwise defined herein shall have the same meanings herein as set forth therein. SECTION 1.04. Time References. Unless otherwise indicated herein, all references to time of day refer to Eastern standard time or Eastern daylight saving time, as in effect in New York, New York on such day. For purposes of the computation of a period of time from a specified date to a later specified date, the word "from" means "from and including" and the words "to" and "until" each means "to but excluding"; provided, however, that with respect to a computation of fees or interest payable to the Administrative Agent or the Lenders, such period shall in any event consist of at least one full day. 19 ARTICLE II THE LOANS SECTION 2.01. Loans. (a) Availability. Subject to the terms and conditions set forth in this Agreement, each Lender severally agrees to make revolving credit loans on a revolving basis (each individually, a "Loan" and collectively, the "Loans") to the Borrower from time to time on any Business Day during the period commencing on the Effective Date and ending on the Commitment Termination Date or until the earlier reduction of its Commitments to zero in accordance with the terms hereof in an aggregate amount not to exceed at any time such Lender's Pro Rata Share of the lower of the Loan Subfacility and the Availability at such time. Subject to the provisions of this Agreement, the Borrower may borrow, prepay and reborrow Loans pursuant to this Article II. The Commitment of each Lender to make Loans shall automatically and permanently be reduced to zero on the Maturity Date. Within the foregoing limits, the Borrowers may borrow, repay and reborrow, on or after the Effective Date and prior to the Maturity Date, subject to the terms, provisions and limitations set forth herein. (b) Notice of Borrowing. (i) When the Borrower desires to borrow under this Section 2.01, the Borrower shall deliver to the Administrative Agent a Notice of Borrowing, signed by the Borrower, not later than 12:00 p.m. (New York City time) (i) at least one (1) Business Day in advance of any proposed borrowing of $1,000,000 or more or (ii) on the same Business Day of such borrowing if such proposed borrowing is less than $1,000,000. Such Notice of Borrowing shall specify (i) the amount of the proposed Loan and (ii) the proposed borrowing date, which must be a Business Day, and have attached to it an updated Borrowing Base Certificate which is prepared after giving effect to the proposed Loan. Each Notice of Borrowing given pursuant to this Section 2.01 shall be irrevocable and binding on the Borrower. Each Loan shall be made in a minimum amount of $500,000 and shall be in an integral multiple of $25,000 in excess thereof. (c) Making the Loans. (i) The Administrative Agent shall promptly notify each Lender of the amount of such borrowing. Each such Lender shall deposit an amount equal to its Pro Rata Share of the amount of such borrowing with the Administrative Agent in the Administrative Agent Account in immediately available funds, not later than 1:00 p.m. (New York City time) on any Funding Date applicable thereto. Subject to the satisfaction of the conditions precedent set forth in Section 5.01 (in the case of Loans made on the Effective Date) and Section 5.02, the Administrative Agent shall make the proceeds of such amounts received by it available to the Borrower not later than 3:30 p.m. (New York City time) at the Administrative Agent's office in New York, New York on such Funding Date and shall disburse such proceeds to the Borrower's Disbursement Account. On each day that any Revolving Credit Obligations are outstanding, the Borrower shall be deemed to represent and warrant to the Agents and the Lenders that the Borrowing Base calculated as of such day equals or exceeds the aggregate principal amount of all Revolving Credit Obligations outstanding on such day. (ii) Except as otherwise provided in this subsection 2.01(c), all Loans under this Agreement shall be made by the Lenders simultaneously and proportionately to their Pro Rata Shares of the Commitments. The failure of any Lender to deposit the amount described in clause (i) above with the Administrative Agent on the applicable Funding Date shall not relieve any other Lender of its obligations hereunder to make its Loan on such Funding Date. No Lender shall be responsible for any failure by any other Lender to perform its obligation to make a Loan hereunder nor shall the Commitment of any Lender be increased or decreased as a result of any such failure, and each Lender shall be obligated to make the Loans required to be made by it by the terms of this Agreement regardless of the failure by any other Lender. (iii) Notwithstanding any other provision of this Agreement, and in order to reduce the number of fund transfers to the Borrowers, the Agents and the Lenders, the Borrowers, the Agents and the Lenders agree that the Administrative Agent may (but shall not be obligated to), and the Borrower and the Lenders hereby irrevocably authorize the Administrative Agent to, fund, on behalf of the Lenders, Loans pursuant to Section 2.01, subject to the procedures for settlement set forth in subsection 2.01(d); provided, however, that (a) the Administrative Agent shall in no event fund any such Loans if the Administrative Agent shall have received written notice from the Collateral Agent or the Required Lenders on the Business Day prior to the date of the proposed Loan that one or more of the conditions precedent contained in Section 5.02 will not be satisfied at the time of the proposed Loan, and (b) the Administrative Agent shall not otherwise be required to determine that, or take notice whether, the conditions precedent in Section 5.02 have been satisfied. If the Borrower gives a Notice of Borrowing requesting a Loan and the Administrative Agent elects not to fund such Loan on behalf of the Lenders, then promptly after receipt of the Notice of Borrowing requesting such Loan, the Administrative Agent shall notify each Lender of the specifics of the requested Loan and that it will not fund the requested Loan on behalf of the Lenders. If the Administrative Agent notifies the Lenders that it will not fund a requested Loan on behalf of the Lenders, each Lender shall make its Pro Rata Share of the Loan available to the Administrative Agent, in immediately available funds, in the Administrative Agent's Account no later than 1:00 p.m. (New York City time) on the date of the proposed Loan. The Administrative Agent will make the proceeds of such Loans available to the Borrowers on the day of the proposed Loan by causing an amount, in immediately available funds, equal to the proceeds of all such Loans received by the Administrative Agent in the Administrative Agent's Account or the amount funded by the Administrative Agent on behalf of the Lenders to be deposited in an account designated by the Borrower. 20 (iv) If the Administrative Agent has notified the Lenders that the Administrative Agent, on behalf of the Lenders, will not fund a particular Loan pursuant to subsection 2.01(c)(iii), the Administrative Agent may assume that such Lender has funded its Loan and is depositing the proceeds thereof in the Administrative Agent Account on the Funding Date, and the Administrative Agent in its sole discretion may, but shall not be obligated to, disburse a corresponding amount to the Borrower on the Funding Date. If the Loan proceeds corresponding to that amount are advanced to the Borrower by the Administrative Agent but are not in fact deposited with the Administrative Agent by such Lender on or prior to the applicable Funding Date, such Lender agrees to pay to the Administrative Agent forthwith on demand such corresponding amount, together with interest thereon, for each day from the date such amount is disbursed to or for the benefit of the Borrower until the date such amount is paid to the Administrative Agent at the Reference Rate for three Business Days and thereafter at the rate set forth in Section 4.01. During the period in which such Lender has not paid such corresponding amount to the Administrative Agent, notwithstanding anything to the contrary contained in this Agreement or any other Loan Document, the amount so advanced by the Administrative Agent to the Borrowers shall, for all purposes hereof, be a Loan made by the Administrative Agent for its own account. If such Lender does not pay such corresponding amount forthwith upon Administrative Agent's demand therefor, Administrative Agent shall promptly notify the Borrower and, if so notified, the Borrower shall immediately pay such corresponding amount to the Administrative Agent for its own account, together with interest therein, for each day from the date such amount is disbursed to or for the benefit of the Borrower until the date such amount is repaid to Administrative Agent. Any interest paid to Administrative Agent by the Borrower or any of its Subsidiaries in respect of such corresponding amount shall be credited against interest payable by the Borrower to such Lender under Section 4.01 in respect of such corresponding amount. If such Lender shall pay to the Administrative Agent the corresponding amount, the amount so paid shall constitute such Lender's Loan, and if both such Lender and the Borrower shall pay and repay such corresponding amount, the Administrative Agent shall promptly pay to the Borrower such corresponding amount (together with any interest included in such payment). This Section 2.01(c)(iv) does not relieve any Lender of its obligation to make its Loan on any Funding Date. (d) Settlement Period. (i) With respect to all periods for which the Administrative Agent has funded Loans pursuant to subsection 2.01(c), on Friday of each week, or if the applicable Friday is not a Business Day, then on the following Business Day, or such shorter period as the Administrative Agent may from time to time select (any such week or shorter period being herein called a "Settlement Period"), the Administrative Agent shall notify each Lender of the unpaid principal amount of the Loans outstanding as of the last day of each such Settlement Period. In the event that such amount is greater than the unpaid principal amount of the Loans outstanding on the last day of the Settlement Period immediately preceding such Settlement Period (or, if there has been no preceding Settlement Period, the amount of the Loans made on the Funding Date of such Lender's initial funding), each Lender shall promptly (and in any event not later than 2:00 p.m. (New York City time) if the Administrative Agent requests payment from such Lender not later than 12:00 noon (New York City time) on such day) make available to the Administrative Agent its Pro Rata Share of the difference in immediately available funds. In the event that such amount is less than such unpaid principal amount, the Administrative Agent shall promptly pay over to each Lender its Pro Rata Share of the difference in immediately available funds. In addition, if the Administrative Agent shall so request at any time when a Default or an Event of Default shall have occurred and be continuing, or any other event shall have occurred as a result of which the Administrative Agent shall determine that it is desirable to present claims against the Borrower for repayment, each Lender shall promptly remit to the Administrative Agent or, as the case may be, the Administrative Agent shall promptly remit to each Lender, sufficient funds to adjust the interests of the Lenders in the then outstanding Loans to such an extent that, after giving effect to such adjustment, each such Lender's interest in the then outstanding Loans will be equal to its Pro Rata Share thereof. The obligations of the Administrative Agent and each Lender under this subsection 2.01(d) shall be absolute and unconditional. Each Lender shall only be entitled to receive interest on its Pro Rata Share of the Loans which have been funded by such Lender. (ii) In the event that any Lender fails to make any payment required to be made by it pursuant to subsection 2.01(d)(i), the Administrative Agent shall be entitled to recover such corresponding amount on demand from such Lender together with interest thereon, for each day from the date such payment was due until the date such amount is paid to the Administrative Agent, at the Reference Rate for three Business Days and thereafter at the rate set forth in Section 4.01. During the period in which such Lender has not paid such corresponding amount to the Administrative Agent, notwithstanding anything to the contrary contained in this Agreement or any other Loan Document, the amount so advanced by the Administrative Agent to the Borrower shall, for all purposes hereof, be a Loan made by the Administrative Agent for its own account. Upon any such failure by a Lender to pay the Administrative Agent, the Administrative Agent shall promptly thereafter notify the Borrower of such failure and the Borrower shall immediately pay such corresponding amount to the Administrative Agent for its own account. Nothing in this subsection 2.01(d)(ii) shall be deemed to relieve any Lender from its obligation to fulfill its Commitment hereunder or to prejudice any rights that the Administrative Agent may have against any Lender as a result of any default by such Lender hereunder. 21 (e) Repayment of Loans; Termination of Commitments. The principal amount of all outstanding Loans shall be repaid in full on the Maturity Date; and the Commitments shall terminate on the Commitment Termination Date. (f) Use of Proceeds. Proceeds of the Loans shall be used (i) on the Effective Date to repay certain existing indebtedness of the Borrower and to pay transaction costs and (ii) thereafter to provide for ongoing working capital needs in the ordinary course of the business of the Borrower and for other lawful general corporate purposes not prohibited hereunder. SECTION 2.02. Letter of Credit Accommodations. Subject to the terms and conditions set forth in this Agreement, at the written request of the Borrower, the Collateral Agent, on behalf of the Lenders, agrees to provide or arrange for the issuance of one or more Letter of Credit Accommodations for the account of Borrower during the period commencing on the date hereof and ending on the date which is the fifth Business Day preceding the Commitment Termination Date, up to an aggregate face amount at any one time outstanding equal to $15,000,000, subject to the following provisions: (a) Types and Amounts. The Collateral Agent shall not be obligated to provide or arrange for the issuance of any Letter of Credit Accommodation at any time: (i) if, immediately after giving effect to the issuance of such Letter of Credit Accommodation, (A) the Letter of Credit Obligations at such time would exceed $15,000,000 or (B) the Revolving Credit Obligations at such time would exceed the Maximum Revolving Credit Amount at such time or (C) the Collateral Agent receives notice from the Required Lenders at or before 11:00 a.m. (New York time) on the date of the proposed issuance of such Letter of Credit Accommodation that one or more of the conditions precedent contained in Section 5.01 (in the case of Letter of Credit Accommodations made on the Effective Date) or Section 5.02 would not on such date be satisfied; or (ii) which has an expiration date later than the earlier of (A) the date which occurs one year following the date of issuance of such Letter of Credit Accommodation unless all Lenders have approved such expiry date; provided that any Letter of Credit Accommodation may be automatically extendable for periods of up to 365 days so long as such Letter of Credit Accommodation provides that the Collateral Agent retains an option to refuse to extend such Letter of Credit Accommodation within a specified period of time prior to each scheduled extension date or (B) the Maturity Date; provided that any Letter of Credit Accommodation may have an expiration date beyond the Maturity Date if the Borrower shall have delivered to the Collateral Agent cash collateral in an amount of 105% of the face amount of such Letter of Credit Accommodation on the Maturity Date. (b) Conditions. In addition to being subject to the satisfaction of the conditions precedent contained in Sections 5.01 (in the case of Letter of Credit Accommodations made on the Effective Date) and 5.02, the obligation of the Collateral Agent to provide or arrange for the issuance of any Letter of Credit Accommodation is subject to the satisfaction in full of the following conditions: (i) if the Collateral Agent so requests, the Borrower shall have executed and delivered to the Collateral Agent a Letter of Credit Reimbursement Agreement and such other documents and materials as may be required pursuant to the terms thereof; (ii) the terms of the proposed Letter of Credit Accommodation shall be satisfactory to the Collateral Agent and the Issuer, each in its sole discretion; and (iii) no order, final judgment or decree of any court of competent jurisdiction, arbitrator or Governmental Authority shall purport by its terms to enjoin or restrain the Collateral Agent from providing or arranging, or the Issuer from issuing, the Letter of Credit Accommodation and no law, rule or regulation applicable to the Collateral Agent or the Issuer and no request or directive (whether or not having the force of law) from any Governmental Authority with jurisdiction over the Collateral Agent or the Issuer shall prohibit or request that the Collateral Agent or the Issuer refrain from the issuance of guaranties or letters of credit generally or the issuance of such Letter of Credit Accommodation. (c) Issuance of Letter of Credit Accommodations. The Borrower shall deliver to the Collateral Agent and the Administrative Agent a signed Notice of Request for Issuance of Letter of Credit Accommodation Issuance not later than 11:00 a.m. (New York time) on the fifth Business Day preceding the requested date for issuance thereof under this Agreement, or such shorter notice as may be acceptable to the Collateral Agent together with such other certificates, agreements, documents and other papers and information as the Collateral Agent and the Issuer may reasonably request. In the event of any conflict between the terms of such notice and this Agreement, for purposes of this Agreement, the terms of this Agreement shall control. Such notice shall be irrevocable. The Collateral Agent shall not provide support, pursuant to the LC Guaranty, if the Collateral Agent shall have received written notice from the Required Lenders on the Business Day immediately preceding the proposed issuance date for such Letter of Credit that one or more of the conditions precedent in Section 5.02 will not have been satisfied on such date, and the Collateral Agent shall not otherwise be required to determine that, or take notice whether, the conditions precedent set forth in Section 5.02 have been satisfied. 22 (d) Payment of Reimbursement Obligations. (i) Notwithstanding any provisions to the contrary in any Letter of Credit Reimbursement Agreement: (A) the Borrower shall reimburse the Collateral Agent for amounts drawn under such Letter of Credit Accommodation no later than the date (the "Reimbursement Date") which is one (1) Business Day after the Borrower receives notice from the Collateral Agent that a draft or demand has been presented under such Letter of Credit Accommodation by the beneficiary thereof; and (B) all Reimbursement Obligations with respect to each Letter of Credit Accommodation shall bear interest from the date of the relevant drawing or demand under such Letter of Credit Accommodation until the Reimbursement Date. If Borrower fails to so reimburse Collateral Agent by the Reimbursement Date, Borrower shall be deemed to have requested a Loan to be disbursed on the Reimbursement Date in an amount equal to the unreimbursed amount, without regard to the minimum and multiples specified in Section 2.01(b) for the principal amount of Loans. (ii) No action taken or omitted in good faith by the Collateral Agent or an Issuer under or in connection with any Letter of Credit Accommodation shall put the Collateral Agent or such Issuer under any resulting liability to any Lender, or, so long as such Letter of Credit Accommodation was not issued in violation of Section 2.02(a)(ii), relieve any Lender of its obligations hereunder to the Collateral Agent or the Issuer with respect to the Letter of Credit Accommodations. In determining whether to pay under any Letter of Credit Accommodation, the Collateral Agent or the Issuer shall have no obligation to the Lenders or the Borrower other than to confirm that any documents required to be delivered under a respective Letter of Credit Accommodation appear to have been delivered and that they appear on their face to comply with the requirements of such Letter of Credit Accommodation. (iii) The Administrative Agent shall have the right, without notice to the Borrower, to charge the Loan Account with the amount of any and all Indebtedness, liabilities and obligations of any kind (including indemnification for breakage costs, capital adequacy and reserve requirement charges in accordance with the terms and conditions of this Agreement) incurred by the Agents, the Issuer or the Lenders under the LC Guaranty or with respect to a Letter of Credit upon (i) payment by the Collateral Agent or the Lenders under the LC Guaranty or (ii) during the occurrence and continuance of any Default or Event of Default. Any amount charged to the Loan Account shall be deemed a Loan hereunder made by the Lenders to the Borrower, funded by the Administrative Agent on behalf of the Lenders and subject to Section 2.01 of this Agreement. Any charges, fees, commissions, costs and expenses charged to the Collateral Agent for the Borrower's account by the Issuer in connection with or arising out of Letters of Credit or transactions relating thereto will be charged to the Loan Account in full when charged to or paid by the Administrative Agent and, when charged, shall be conclusive on the Borrower absent manifest error. Each of the Lenders and the Borrower agree that the Administrative Agent shall have the right to make such charges regardless of whether any Default or Event of Default shall have occurred and be continuing or whether any of the conditions precedent in Section 5.02 have been satisfied. (e) Participations. (i) Immediately upon issuance of any Letter of Credit Accommodation for the account of the Borrower in accordance with the procedures set forth in this Section 2.02, each Lender shall be deemed to have irrevocably and unconditionally purchased and received from the Issuer, and the Issuer shall be deemed irrevocably and unconditionally to have sold and transferred to each Lender, without recourse or warranty, an undivided interest and participation in such Letter of Credit Accommodation to the extent of such Lender's Pro Rata Share thereof, including, without limitation, all Reimbursement Obligations of the Borrower with respect thereto and any security therefor and guaranty pertaining thereto pursuant to the LC Guaranty or otherwise. (ii) If the Collateral Agent or any Issuer makes any payment under any Letter of Credit Accommodation for the account of the Borrower and the Borrower does not repay such amount to the Collateral Agent on the Reimbursement Date, the Collateral Agent shall promptly notify each Lender, and each Lender shall promptly and unconditionally pay to the Collateral Agent, in immediately available funds, the amount of such Lender's Pro Rata Share of such Reimbursement Obligations. In the event such payments are made by such Lenders, such payments shall constitute Loans made to the Borrower pursuant to Section 2.01 (irrespective of the satisfaction of the conditions in Section 5.02). If a Lender does not make its Pro Rata Share of the amount of any such payment available to the Collateral Agent, such Lender agrees to pay to the Collateral Agent, forthwith on demand, such amount together with interest thereon at the Reference Rate for three Business Days and thereafter at the rate as set forth in Section 4.01. The failure of any such Lender to make available to the Collateral Agent for the account of an Issuer its Pro Rata Share of any such payment shall neither relieve any other Lender of its obligation hereunder to make available to the Collateral Agent for the account of such Issuer such other Lender's Pro Rata Share of any payment on the date such payment is to be made nor increase the obligation of any other Lender to make such payment to the Collateral Agent. This Section does not relieve any Borrower of its obligation to pay or repay any Lender funding its Pro Rata Share of such payment pursuant to this Section interest on the amount of such payment from such date such payment is to be made until the date on which payment is repaid in full. 23 (iii) In the event any payment by the Borrower received by an Issuer with respect to a Letter of Credit Accommodation issued for the account of the Borrower and distributed by the Collateral Agent to the Lenders on account of their participation therein is thereafter set aside, avoided or recovered from such Issuer in connection with any receivership, liquidation or bankruptcy proceeding, each such Lender which received such distribution shall, upon demand by such Issuer, contribute such Lender's Pro Rata Share of the amount set aside, avoided or recovered together with interest at the rate required to be paid by such Issuer upon the amount required to be repaid by it. (iv) The obligations of any Lender to make payments to the Collateral Agent for the account of any Issuer with respect to a Letter of Credit Accommodation shall be irrevocable, shall not be subject to any qualification or exception whatsoever (except the issuance of the Letter of Credit Accommodation in contravention of this Section 2.02) and shall be made in accordance with this Agreement (irrespective of the satisfaction of the conditions described in Sections 5.01 and 5.02) under all circumstances, including, without limitation, any of the following circumstances: (A) any lack of validity or enforceability hereof or of any of the other Loan Documents; (B) the existence of any claim, setoff, defense or other right which the Borrower may have at any time against a beneficiary named in a Letter of Credit Accommodation or any transferee of a beneficiary named in a Letter of Credit Accommodation (or any Person for whom any such transferee may be acting), the Agents, any Issuer, any Lender, or any other Person, whether in connection herewith, with any Letter of Credit Accommodation, the transactions contemplated herein or any unrelated transactions (including any underlying transactions between the account party and beneficiary named in any Letter of Credit); (C) any draft, certificate or any other document presented under the Letter of Credit Accommodation having been determined to be forged, fraudulent, invalid or insufficient in any respect or any statement therein being untrue or inaccurate in any respect; (D) the surrender or impairment of any security for the performance or observance of any of the terms of any of the Loan Documents; (E) the occurrence of any Event of Default or Default. (F) any failure by any Agent to provide any notices required pursuant to this Agreement relating to such Letter of Credit; or (G) any payment by the L/C Issuer under such Letter of Credit against presentation of a draft or certificate which does not comply with the terms of such Letter of Credit. (f) Issuer Charges. The Borrower agrees to pay to each Issuer, solely for its own account, all charges assessed by such Issuer in connection with the issuance, administration, amendment and payment or cancellation of Letter of Credit Accommodations and such compensation as may be agreed upon by the Borrower and such Issuer from time to time. (g) Indemnification; Exoneration. (i) In addition to all other amounts payable to an Issuer, the Borrower hereby agrees to unconditionally defend, protect, indemnify, and hold harmless each Agent, each Issuer and each Lender and each of their respective officers, directors, employees, attorneys and agents from and against any and all claims, demands, liabilities, penalties, damages, losses (other than loss of profits), costs, charges and expenses (including reasonable attorneys' fees but excluding taxes) which any of them may incur or be subject to as a consequence, direct or indirect, of (A) the issuance of any Letter of Credit Accommodation or (B) the failure of the Issuer to honor a drawing or demand under a Letter of Credit Accommodation as a result of any act or omission, whether rightful or wrongful, of any present or future de jure or de facto government or Governmental Authority; provided, however, the Borrower shall not have an obligation to any indemnified party hereunder with respect to the matters indemnified hereunder caused by or resulting from the willful misconduct or gross negligence of such indemnified party, as determined by a final judgment of a court of competent jurisdiction. To the extent that the undertaking to indemnify, pay and hold harmless set forth in the preceding sentence may be unenforceable because it is violative of any law or public policy, the Borrower shall contribute the maximum portion which it is permitted to pay and satisfy under applicable law, to the payment and satisfaction of all such indemnified matters incurred by the indemnified parties. (ii) As between the Borrower on the one hand and the Collateral Agent, the Lenders and the Issuers on the other hand, the Borrower assumes all risks of the acts and omissions of, or misuse of the Letter of Credit Accommodations by, the respective beneficiaries of the Letter of Credit Accommodations, except in the case of willful misconduct or gross negligence of such Collateral Agent, any Lender or any Issuer as determined by a final judgment of a court of competent jurisdiction. In furtherance and not in limitation of the foregoing, the Agents, the Issuers and the Lenders shall not be responsible for: (A) any lack of validity or enforceability of any Letter of Credit Accommodation or any agreement or instrument relating thereto; (B) the existence of any claim, set-off, defense or other right which the Borrower may have at any time against the beneficiary, or the transferee, of any Letter of Credit Accommodation, or the Issuer, the Agents, any Lender or any other Person; (C) any draft, 24 certificate or other document presented under any Letter of Credit Accommodation proving to be forged, fraudulent, invalid or insufficient in any respect or any statement therein being untrue or inaccurate in any respect; (D) any lack of validity, legality or sufficiency of any instrument transferring or assigning or purporting to transfer or assign a Letter of Credit Accommodation or the rights or benefits thereunder or proceeds thereof, in whole or in part; (E) failure of the beneficiary of a Letter of Credit Accommodation to strictly comply with conditions required in order to draw upon or make demand under such Letter of Credit Accommodation; (F) errors, omissions, interruptions or delays in transmission or delivery of any messages, by mail, cable, telegraph, telex or otherwise, whether or not they be in cipher; (G) errors in interpretation of technical terms; (H) any loss or delay in the transmission or otherwise of any document required in order to make a drawing under any Letter of Credit Accommodation or of the proceeds thereof; (I) the misapplication by the beneficiary of a Letter of Credit Accommodation of the proceeds of any drawing under such Letter of Credit Accommodation; and (J) any consequences arising from causes beyond the control of the Agents, the Issuers or the Lenders; provided, however, the Agents, the Issuers and the Lenders shall be responsible for any of the above actions caused by or resulting from their willful misconduct or gross negligence, as determined by a final judgment from a court of competent jurisdiction. (iii) The Borrower's unconditional obligations to each Agent, each Lender and the Issuer with respect to Letters of Credit hereunder shall not be modified or diminished for any reason or in any manner whatsoever, other than as a result of such Agent, such Lender's or the Issuer's gross negligence or willful misconduct as determined by a final judgment of a court of competent jurisdiction. The Borrower agrees that any charges incurred by the Collateral Agent or the Issuer for the Borrowers' account hereunder may be charged to the Loan Account. (h) Payment of Reimbursement Obligations. (i) The Borrower unconditionally agrees to pay to each Issuer the amount of all Reimbursement Obligations, interest and other amounts payable to such Issuer under or in connection with any Letter of Credit Accommodation issued by such Issuer when such amounts are due and payable, irrespective of any claim, set-off, defense or other right which the Borrower may have at any time against such Issuer or any other Person. (ii) Upon any payments made to the Issuer under the LC Guaranty, the Agents or the Lenders, as the case may be, shall, without prejudice to their rights under this Agreement (including that such unreimbursed amounts shall constitute Loans hereunder), acquire by subrogation, any rights, remedies, duties or obligations granted or undertaken by the Borrower in favor of the Issuer in any application for Letters of Credit, any standing agreement relating to Letters of Credit or otherwise, all of which shall be deemed to have been granted to the Agents and the Lenders and apply in all respects to the Agents and the Lenders and shall be in addition to any rights, remedies, duties or obligations contained herein. SECTION 2.03. Promise to Pay; Evidence of Debt. (a) Promise to Pay. The Borrower agrees to pay on the Maturity Date the unpaid principal amount of each Loan which has been made to the Borrower, and further agrees to pay all unpaid interest accrued thereon, in accordance with the terms of this Agreement and the promissory notes evidencing the Loans owing to the Lenders, and the Borrower shall execute and deliver to each Lender requesting a promissory note such promissory notes as are necessary to evidence the Loans owing to such Lender after giving effect to any assignment thereof pursuant to Section 14.07, each substantially in the form of Exhibit F attached hereto and made a part hereof (all such promissory notes and all amendments thereto, replacements thereof and substitutions therefor being collectively referred to as the "Notes"; and "Note" means any one of the Notes). (b) Indebtedness Account. Each Lender shall maintain in accordance with its usual practice an account or accounts evidencing the Indebtedness of the Borrower to such Lender resulting from each Loan owing to such Lender from time to time, including the amount of principal and interest payable and paid to such Lender from time to time hereunder and under the Notes. (c) Master Account. The Register maintained by the Administrative Agent pursuant to Section 14.07(c) shall include a master account and a subsidiary account for each Lender, in which accounts (taken together) shall be recorded (i) the date and amount of each Loan made hereunder and such Lender's Pro Rata Share of the Letter of Credit Obligations and any Interest Accrual Period applicable thereto, (ii) the effective date and amount of each Assignment and Acceptance delivered to and accepted by it and the parties thereto, (iii) the amount of any principal or interest due and payable or to become due and payable from the Borrower to each Lender hereunder or under the Notes, and (iv) the amount of any sum received by the Administrative Agent from the Borrower hereunder and each Lender's share thereof. SECTION 2.04. Authorized Officers and Administrative Agent. On the Effective Date and from time to time thereafter, the Borrower shall deliver to the Administrative Agent a secretary's certificate setting forth the names of the officers of the Borrower authorized to request Loans and Letters of Credit Accommodations on behalf of the Borrower and containing a specimen signature of each such officer or agent. The officers and agents so authorized shall also be authorized to act for the Borrower in respect of all other matters relating to the Loan Documents. The Administrative Agent shall be entitled to rely conclusively on such officer's or agent's authority to request such Loan or Letter of Credit Accommodation until the Administrative Agent receives written notice to the contrary. In addition, the Administrative Agent shall be entitled 25 to rely conclusively on any written notice sent to it by telecopy. The Administrative Agent shall have no duty to verify the authenticity of the signature appearing on, or any telecopy or facsimile of, any written Notice of Borrowing, Request for Issuance of Letter of Credit Accommodation or any other document, and, with respect to an oral request for such a Loan or Letter of Credit Accommodation, the Administrative Agent shall have no duty to verify the identity of any person representing himself or herself as one of the officers or agents authorized to make such request or otherwise to act on behalf of the Borrower. The Administrative Agent, the Lenders and the Issuers shall not incur any liability to the Borrower or any other Person in acting upon any telecopy or facsimile or telephonic notice referred to above which the Administrative Agent in good faith believes to have been given by a duly authorized officer or other person authorized to borrow on behalf of the Borrower except in the case of gross negligence or willful misconduct by the Administrative Agent, any Lender or any Issuer as determined in a final judgment by a court of competent jurisdiction. SECTION 2.05. Extension of Commitment Termination Date. The Borrower shall have the option to extend the Commitment Termination Date for an additional 364 days, subject to the approval of each Lender, which may be withheld (prior to written notice by Lender to Borrower of Lender's decision to extend) in its sole and absolute discretion. The Borrower shall exercise such option by giving notice to the Administrative Agent at least ninety (90) days prior to the Maturity Date of its decision to extend. On or before sixty (60) days prior to the Maturity Date, the Administrative Agent shall notify the Borrower of the Lenders' decision to extend. In the event that the Lenders shall give their approval to the extension of the Commitment Termination Date and the Borrower pays the Extension Fee in accordance with the Fee Letter, the Commitment Termination Date shall be extended from the then existing Commitment Termination Date (the "Extension Date") to the date which is 364 days following the Extension Date. ARTICLE III PAYMENTS AND OTHER COMPENSATION SECTION 3.01. Prepayments; Reductions in Commitments. (a) Voluntary Prepayments/Reductions. (i) The Borrower may, upon at least two (2) Business Days' prior written notice to the Administrative Agent, at any time and from time to time, prepay the Loans in whole or in part without premium or penalty upon notice to the Administrative Agent; provided, however, no such prior notice is required for the automatic daily cash sweep and paydown of the Loans. Any notice of prepayment given to the Administrative Agent under this Section 3.01(a)(i) shall specify the Loans to be prepaid, the date (which shall be a Business Day) of prepayment, and the aggregate principal amount of the prepayment. When notice of prepayment is delivered as provided herein, the principal amount of the Loans specified in the notice shall become due and payable on the prepayment date specified in such notice and such notice shall be irrevocable. (ii) The Borrower may, upon at least three (3) Business Days' prior written notice to the Administrative Agent, at any time and from time to time, terminate in whole, or permanently reduce in part, the Commitments. Any partial reduction of the Commitments shall be in an aggregate minimum amount of $100,000 and integral multiples of $100,000 in excess of that amount and shall reduce the Commitment of each Lender proportionately in accordance with its Pro Rata Share. Any notice of termination or reduction given to the Administrative Agent under this Section 3.01(a)(ii) shall specify the date (which shall be a Business Day) of such termination or reduction and, with respect to a partial reduction, the aggregate principal amount thereof. When notice of termination or reduction of the Commitments is delivered as provided herein, the principal amount of the Loans so reduced shall become due and payable on the date specified in such notice to the extent the Revolving Credit Obligations exceed the Commitments after giving effect to such reduction. The payments in respect of reductions and terminations described in this Section 3.01(a)(ii) may be made without premium or penalty. Once reduced the Commitment may not be increased. (b) Mandatory Prepayments/Reductions. (i) Immediately upon (A) the Revolving Credit Obligations exceeding the Maximum Revolving Credit Amount or (B) the Loans exceeding the Loan Subfacility, the Borrower shall make or cause to be made a mandatory prepayment of the Revolving Credit Obligations in an amount equal to such excess. If at any time after the Borrower has complied with the first sentence of this Section 3.01(b), the aggregate Letter of Credit Obligations are greater than the then current Borrowing Base, the Borrower shall provide cash collateral to the Administrative Agent in an amount equal to 105% of such excess, which cash collateral shall be deposited in the Letter of Credit Collateral Account and, provided that no Event of Default shall have occurred and be continuing, returned to the Borrower, at such time as the Revolving Credit Obligations no longer exceed the then current Borrowing Base. (ii) Immediately upon the consummation of any Disposition (other than a Disposition of Assets Held For Sale) by the Borrower or any of its Subsidiaries, the Borrower shall prepay the outstanding principal amount of the Loans in an amount equal to one hundred percent (100%) of the Net Cash Proceeds received from such Disposition. The Commitments shall be permanently reduced by the amount of any such prepayment. 26 (iii) Following the consummation of any Disposition of Assets Held For Sale by the Borrower or any of its Subsidiaries, the Borrower shall use fifty percent (50%) of the Net Cash Proceeds received from such Disposition for working capital purposes, and shall use the remaining fifty percent (50%) of such Net Cash Proceeds, (i) to buy back Senior Notes and/or Senior Subordinated Notes pursuant to the Incremental Proposal, (ii) to pay the obligations outstanding under the SunTrust Master Lease Documents, and/or (iii) to prepay the outstanding principal amount of the Loans, provided that the amount of such prepayment made pursuant to this clause (iii) shall reduce the Borrowing Base on a dollar for dollar basis and be treated as a reserve, but if the Borrower subsequently (x) purchases Senior Notes and/or Senior Subordinated Notes pursuant to the Incremental Proposal or (y) pays the obligations outstanding under the SunTrust Master Lease Documents or (z) pays the outstanding principal amount of the Loans (and permanently reduces the Commitments), the amount of Loan proceeds used to purchase such Notes or to pay the obligations under the SunTrust Master Lease Documents or to pay the outstanding amount of the Loans (and permanently reduce the Commitments) shall reduce the amount of such reserve. (iv) Immediately upon the loss, destruction or taking by condemnation of any Collateral, the Borrower shall prepay the outstanding principal amount of the Loans in an amount equal to one hundred percent (100%) of the cash received from such loss, destruction or taking by condemnation, provided, however, the Borrower shall have the option not to make the prepayment under this subsection (iii) and instead may apply such cash proceeds to the costs of repairs, replacement or restoration of the Restaurant which is the subject of the loss, destruction, or taking by condemnation up to an aggregate amount during any twelve consecutive month period not in excess of $1,500,000, so long as (A) no Default or Event of Default shall have occurred and be continuing, (B) the Borrower shall have given the Administrative Agent and the Collateral Agent prior written notice of its intention or the intention of the applicable Subsidiary to apply such cash proceeds to the costs of repairs, replacement or restoration of the Restaurant which is the subject of the loss, destruction, or taking by condemnation, and (C) the Borrower or the applicable Subsidiary commences the permitting process or the construction with respect to such repairs, replacement or restoration within 90 days after receiving such cash proceeds and completes such repairs, replacements or restoration at the same location that the loss, destruction or taking occurred within 12 months after receiving such cash proceeds all in accordance with any applicable lease obligations. The Commitments shall be permanently reduced by the amount of any such prepayment. (v) Immediately upon the receipt by the Borrower or any of its Subsidiaries of any tax refund in excess of $500,000 (not including the amount of interest paid) during any twelve month period commencing on the Effective Date with respect to federal, state, local or other taxes of any kind (other than payroll taxes and the net of the amount of taxes owed by the Borrower or the applicable Subsidiary to the taxing authority which issued such refund) previously paid by the Borrower or any of its Subsidiaries, the Borrower shall prepay the outstanding principal amount of the Loans in an amount equal to one hundred percent (100%) of such refund. The Commitments shall be permanently reduced by the amount of any such prepayment. (vi) Immediately upon the issuance or incurrence by the Borrower or any of its Subsidiaries of any Indebtedness (except as permitted by Section 9.02) or the sale or issuance by the Borrower or any of its Subsidiaries of any shares of Capital Stock (other than in connection with the plans identified on Schedule 6.01(E) or Capital Stock issued pursuant to the shareholder rights plan), the Borrower shall prepay the outstanding principal amount of the Loans in an amount equal to one hundred percent (100%) of the Net Cash Proceeds received by the Borrower or any of its Subsidiaries or Affiliates in connection therewith. The Commitments shall be permanently reduced by the amount of any such prepayment. (vii) Forty-five days following the Effective Date, the Commitments will be permanently reduced by an amount equal to the Commitment Reduction Amount. (c) Nothing in this Section 3.01(c) shall be construed to constitute the Lenders' consent to any transaction which is not expressly permitted by Article IX. (d) Cumulative Prepayments. Except as otherwise expressly provided in this Section 3.01, payments with respect to any subsection of this Section 3.01 are in addition to payments made or required to be made under any other subsection of this Section 3.01. SECTION 3.02. Payments. (a) Manner and Time of Payment. All payments of principal and interest on the Loans, the Reimbursement Obligations and other Obligations (including, without limitation, fees and expenses) which are payable to the Administrative Agent or the Lenders shall be made without condition or reservation of right, in immediately available funds, deposited to the Administrative Agents Account not later than 1:00 p.m. (New York time) on the date due. Thereafter, payments received by the Administrative Agent shall be distributed to each Lender in accordance with its Pro Rata Share in accordance with the provisions of Section 3.02(c) on the date received, if received prior to 1:00 p.m., and on the next succeeding Business Day if received thereafter, by the Administrative Agent. All payments shall be made by the Borrower without set-off, counterclaim, deduction or other defense to the Agents and the Lenders. 27 (b) Except as provided in Section 2.01 hereof, if any Lender shall obtain any payment (whether voluntary, involuntary, through the exercise of any right of set-off, or otherwise) on account of any Obligation in excess of its ratable share of payments on account of similar obligations obtained by all the Lenders, such Lender shall forthwith purchase from the other Lenders such participations in such similar obligations held by them as shall be necessary to cause such purchasing Lender to share the excess payment ratably with each of them; provided, however, that if all or any portion of such excess payment is thereafter recovered from such purchasing Lender, such purchase from each Lender shall be rescinded and such Lender shall repay to the purchasing Lender the purchase price to the extent of such recovery together with an amount equal to such Lender's ratable share (according to the proportion of (i) the amount of such Lender's required repayment to (ii) the total amount so recovered from the purchasing Lender of any interest or other amount paid by the purchasing Lender in respect of the total amount so recovered). The Borrower agrees that any Lender so purchasing a participation from another Lender pursuant to this Section 3.02 may, to the fullest extent permitted by law, exercise all of its rights (including the Lender's right of set-off) with respect to such participation as fully as if such Lender were the direct creditor of the Borrower in the amount of such participation. (c) Apportionment of Payments. (i) Subject to the provisions of Section 3.02(c)(ii) and (iv), all payments of principal and interest in respect of outstanding Loans, all payments in respect of Reimbursement Obligations and all payments of fees (other than as set forth in Section 4.01) and all other payments in respect of any other Obligation shall be allocated among the Lenders, in proportion to their respective Pro Rata Shares or otherwise as provided herein or, in respect of payments not made on account of Loans or Letter of Credit Obligations, as designated by the Person making payment at the time when such payment is made. All such payments and any other proceeds of Collateral or other amounts received by the Administrative Agent from or on behalf the Borrower or any of its Subsidiaries shall be promptly applied first, to pay principal of and interest on any portion of the Loans made to the Borrower which the Administrative Agent may have advanced pursuant to the express provisions of this Agreement on behalf of any Lender, for which the Administrative Agent has not then been reimbursed by such Lender or the Borrower; second, to pay the outstanding Reimbursement Obligations owing to any Issuer for which such Issuer has not then been paid by the Borrower or reimbursed by the Lenders; and third, to pay all other Obligations of the Borrower then due and payable. (ii) After the occurrence and during the continuance of an Event of Default, the Administrative Agent may, and shall upon the acceleration of the Obligations pursuant to Section 11.01, apply all payments in respect of any Obligations and all proceeds of Collateral to the Obligations in the following order: (A) first, to pay interest on and the principal of any portion of the Loans which the Administrative Agent may have advanced on behalf of any Lender for which the Administrative Agent has not then been reimbursed by such Lender or the Borrower; (B) second, to pay Obligations in respect of any expense reimbursements, indemnities or other liabilities then due to the Administrative Agent or the Collateral Agent; (C) third, to pay Obligations in respect of any fees then due to the Agents, the Lenders and the Issuers; (D) fourth, to pay interest due in respect of the Loans and the Reimbursement Obligations; (E) fifth, to pay the principal outstanding on the Loans; (F) sixth, to the extent the Obligations are contingent, provide cash collateral pursuant to Section 11.01 in respect of Letter ----- of Credit Obligations; (G) seventh, to the ratable payment of all other Obligations; and (H) eighth, to the Borrower; provided, however, if sufficient funds are not available to fund all payments to be made in respect of any of the Obligations described in any of the foregoing clauses (A) through (G), the available funds being applied with respect to any such Obligations referred to in any one of such clauses shall be allocated to the payment of such Obligations ratably, based on the proportion of the Collateral Agent's and each Lender's or Issuer's interest in the aggregate outstanding Obligations described in such clauses. (iii) The Administrative Agent, in its sole discretion subject only to the terms of this Section 3.02(c)(iii), may pay from the proceeds of the Loans (which Loans may not have been requested by the Borrower pursuant to a Notice of Borrowing) made to the Borrower hereunder, whether made following a request by the Borrower pursuant to Section 2.01, all amounts then due and payable by the Borrower hereunder, including amounts payable with respect to payments of principal, interest, Reimbursement Obligations and fees and expenses. The Borrower hereby irrevocably authorizes each Lender to make Loans upon notice from the Administrative Agent as described in the following sentence for the purpose of paying principal, interest, Reimbursement Obligations and fees and expenses due from the Borrower and paying all other amounts due and payable by 28 the Borrower hereunder or under the Notes, and agrees that all such Loans so made shall be deemed to have been requested by it pursuant to Section 2.01 as of the date of the aforementioned notice. The Administrative Agent shall request Loans on behalf of the Borrower as described in the preceding sentence by notifying the Lenders by telecopy or other similar form of transmission (which notice the Administrative Agent shall thereafter promptly transmit to the Borrower), of the amount and Funding Date of the proposed borrowing and that such borrowing is being requested on the Borrower's behalf pursuant to this Section 3.02(c)(iii). On the proposed Funding Date, the Lenders shall make the requested Loans in accordance with the procedures and subject to the conditions specified in Section 2.01 (irrespective of whether or not any Default or Event of Default shall be continuing or the satisfaction of the conditions described in Section 5.02 or the requirement to deliver a Notice of Borrowing in Section 2.01(b), which conditions and requirements, the Lenders irrevocably waive). The Lenders and the Borrower confirm that any charges which the Administrative Agent may so make to the Loan Account of the Borrower as herein provided will be made as an accommodation to the Borrower and solely at the Administrative Agent's discretion, provided that the Administrative Agent shall from time to time upon the request of the Collateral Agent, charge the Loan Account of the Borrower with any amount due and payable under any Loan Document. Whenever any payment to be made under any such Loan Document shall be stated to be due on a day other than a Business Day, such payment shall be made on the next succeeding Business Day and such extension of time shall in such case be included in the computation of interest or fees, as the case may be. Each determination by the Administrative Agent of an interest rate or fees hereunder shall be conclusive and binding for all purposes in the absence of manifest error. (iv) If any Lender fails to fund its Pro Rata Share of any borrowing requested by the Borrower under which such Lender is obligated to fund under the terms hereof (the funded portion of such borrowing being hereinafter referred to as a "Non Pro Rata Loan"), excluding any such Lender who has delivered to the Administrative Agent written notice that one or more of the conditions precedent contained in Section 5.02 shall not on the date of such request be satisfied and until such conditions are satisfied, then until the earlier of such Lender's cure of such failure and the termination of the Commitments, the proceeds of all amounts thereafter repaid to the Administrative Agent by the Borrower and otherwise required to be applied to such Lender's share of all other Obligations pursuant to the terms hereof shall be advanced to the Borrower by the Administrative Agent on behalf of such Lender to cure, in full or in part, such failure by such Lender, but shall nevertheless be deemed to have been paid to such Lender in satisfaction of such other Obligations. Notwithstanding anything contained herein to the contrary: (A) the foregoing provisions of this Section 3.02(b)(iv) shall apply only with respect to the proceeds of payments of Obligations; (B) a Lender shall be deemed to have cured its failure to fund its Pro Rata Share of any Loan at such time as an amount equal to such Lender's original Pro Rata Share of the requested principal portion of such Loan is fully funded to the Borrower, whether made by such Lender itself or by operation of the terms of this Section 3.02(c)(iv), and whether or not the Non Pro Rata Loan with respect thereto has been repaid; (C) amounts advanced to the Borrower to cure, in full or in part, any such Lender's failure to fund its Pro Rata Share of any borrowing ("Cure Loans") shall bear interest from and after the date made available to the Borrower at the rate applicable to the other Loans comprising such borrowing and shall be treated as Loans comprising such borrowing for all purposes herein; (D) regardless of whether or not an Event of Default has occurred or is continuing, and notwithstanding the instructions of the Borrower as to its desired application, all repayments of principal which, in accordance with the other terms of this Section 3.02, would be applied to the outstanding Loans shall be applied first, ratably to all Loans constituting Non Pro Rata Loans; second, ratably to the Loans other than those constituting Non Pro Rata Loans or Cure Loans; and, third, ratably to the Loans constituting Cure Loans; and (E) no Lender shall be relieved of any obligation such Lender may have to the Borrower under the terms of this Agreement as a result of the provisions of this Section 3.02(c)(iv). (d) Payments on Non-Business Days. Whenever any payment to be made by the Borrower hereunder or under the Notes is stated to be due on a day which is not a Business Day, the payment shall instead be due on the next succeeding Business Day, and any such extension of time shall be included in the computation of the payment of interest and fees hereunder. SECTION 3.03. Taxes. (a) Payment of Taxes. Any and all payments by the Borrower hereunder, under the Notes or under any other Loan Document shall be made free and clear of and without deduction for any and all present or future taxes, levies, imposts, deductions, charges or withholdings, and all liabilities with respect thereto, excluding, in the case of each Agent, each Issuer and each Lender, respectively, taxes imposed on its income, capital, profits or gains and franchise taxes imposed on it, in each case by (i) the United States except withholding taxes contemplated pursuant to Section 3.03(e)(ii)(C), (ii) the Governmental Authority of the jurisdiction in which such Lender's office is located or (iii) the Governmental Authority in which such Person is organized, managed, controlled or doing business, in each case including all political subdivisions thereof (all such non-excluded taxes, levies, imposts, deductions, charges, withholdings and 29 liabilities being hereinafter referred to as "Taxes"). If the Borrower shall be required by law to withhold or deduct any Taxes from or in respect of any sum payable hereunder, under the Notes or under any other Loan Document to any Lender, (x) such sum payable shall be increased as may be necessary so that after making all required withholdings or deductions (including withholdings or deductions applicable to additional sums payable under this Section 3.03) such Lender receives an amount equal to the sum it would have received had no such withholdings or deductions been made, (y) the Borrower shall make such withholdings or deductions, and (z) the Borrower shall pay the full amount withheld or deducted to the relevant taxation authority or other authority in accordance with applicable law. The Borrower shall not be required to increase any such amounts payable to any Agent, any Issuer or any Lender with respect to any Taxes or Other Taxes (i) that are attributable to such Agent's, Issuer's or Lender's failure to comply with the requirements of Section 3.03(e) (ii) that are United States withholding taxes imposed on amounts payable to such Agent, Issuer or Lender at the time such Agent, Issuer or Lender becomes a party to this Agreement, except to the extent that such Agent's, Issuer's or Lender's assignor (if any) was entitled, at the time of assignment, to receive additional amounts from the Borrower with respect to such Tax pursuant to this paragraph. (b) Other Taxes. In addition, the Borrower agrees to pay any present or future stamp, value-added or documentary taxes or any other excise or property taxes, charges or similar levies which arise from and which relate directly to (i) any payment made under any Loan Document or (ii) the execution, delivery or registration of, or otherwise with respect to, this Agreement, the Notes or any other Loan Document other than the foregoing excluded Taxes (hereinafter referred to as "Other Taxes"). (c) Indemnification. The Borrower will indemnify each Lender, each Issuer and each Agent who has fully complied with the requirements of Section 3.03(e) against, and reimburse each, within twenty (20) days of a receipt of written demand for, the full amount of all Taxes and Other Taxes (including, without limitation, any Taxes or Other Taxes imposed by any Governmental Authority on amounts payable under this Section 3.03 and any additional income or franchise taxes resulting therefrom) incurred or paid by such Lender, such Issuer or such Agent (as the case may be) or any Affiliate of such Lender or Issuer and any liability (including penalties, interest, and out-of-pocket expenses paid to third parties) arising therefrom or with respect thereto, whether or not such Taxes or Other Taxes were correctly or lawfully payable. A certificate as to any amount payable to any Person under this Section 3.03 submitted by such Person to the Borrower shall, absent manifest error, be final, conclusive and binding upon all parties hereto. (d) Receipts. Within thirty (30) days after a request from the Administrative Agent, the Borrower will furnish to the Administrative Agent, the original or a certified copy of a receipt, if available, or other reasonably available documentation reasonably satisfactory to the Administrative Agent evidencing payment of such Taxes or Other Taxes. The Borrower will furnish to the Administrative Agent upon the Administrative Agent's request from time to time an Officer's Certificate stating that all Taxes and Other Taxes of which it is aware that are due have been paid and that no additional Taxes or Other Taxes of which it is aware are due. (e) Foreign Bank Certifications. (i) Each Lender that is not created or organized under the laws of the United States or a political subdivision thereof shall deliver to the Borrower and the Administrative Agent on the date on which such Lender becomes a Lender pursuant to Section 14.07 hereof a true and accurate certificate executed in duplicate by a duly authorized officer of such Lender to the effect that such Lender is eligible to receive payments hereunder and under the Notes without deduction or withholding of United States federal income tax (I) under the provisions of an applicable tax treaty concluded by the United States (in which case the certificate shall be accompanied by two duly completed copies of IRS Form W 8BEN (or any successor or substitute form or forms)) or (II) under Sections 1441 or 1442 of the Internal Revenue Code (in which case the certificate shall be accompanied by two duly completed copies of IRS Form W 8ECI (or any successor or substitute form or forms)). (ii) Each such Lender further agrees to deliver to the Borrower and the Administrative Agent from time to time, a true and accurate certificate executed in duplicate by a duly authorized officer of such Lender before or promptly upon the occurrence of any event requiring a change in the most recent certificate previously delivered by it to the Borrower and the Administrative Agent pursuant to this Section 3.03(e). Each certificate required to be delivered pursuant to this Section 3.03(e)(ii) shall certify as to one of the following: (A) that such Lender can receive payments hereunder and under the Notes without deduction or withholding of United States federal income tax; (B) that such Lender cannot continue to receive payments hereunder and under the Notes without deduction or withholding of United States federal income tax as specified therein but does not require additional payments pursuant to Section 3.03(a) because it is entitled to recover the full amount of any such deduction or withholding from a source other than the Borrower; (C) that such Lender is no longer capable of receiving payments hereunder and under the Notes without deduction or withholding of United States federal income tax as specified therein by reason of a change in law (including the Internal Revenue Code or applicable tax treaty) after the later of the date on which a Lender became a Lender pursuant to Section 14.07 and that it is not capable of recovering the full amount of the same from a source other than the Borrower; or 30 (D) that such Lender is no longer capable of receiving payments hereunder without deduction or withholding of United States federal income tax as specified therein other than by reason of a change in law (including the Internal Revenue Code or applicable tax treaty) after the date on which a Lender became a Lender pursuant to Section 14.07. (f) If any Agent, any Issuer or any Lender receives a refund in respect of any amounts paid by the Borrower pursuant to this Section 3.03, which refund in the sole discretion of such Person is allocable to such payment, it shall promptly notify the Borrower of such refund and shall promptly pay the amount of such refund to the Borrower, together with all interest received by such Person on such amount. SECTION 3.04. Increased Capital. If after the date hereof any Lender or Issuer determines that (i) the adoption or implementation of or any change in or in the interpretation or administration of any law or regulation or any guideline or request from any central bank or other Governmental Authority exercising jurisdiction, power or control over any Lender or any Issuer (whether or not having the force of law), compliance with which affects or would affect the amount of capital required or expected to be maintained by such Lender or Issuer or any corporation controlling such Lender or Issuer and (ii) the amount of such capital is increased by or based upon (A) the making or maintenance by any Lender of its Loans, any Lender's participation in or obligation to participate in the Loans, the Letter of Credit Accommodations or other advances made hereunder or the existence of any Lender's obligation to make Loans or (B) the issuance or maintenance by any Issuer of, or the existence of any Issuer's obligation to issue or create, Letter of Credit Accommodations, then, in any such case, upon written demand by such Lender or Issuer (with a copy of such demand to the Administrative Agent), the Borrower agrees to pay to the Administrative Agent for the account of such Lender or Issuer within 10 Business Days of written demand therefor, from time to time as specified by such Lender or Issuer, additional amounts sufficient to compensate such Lender or Issuer or such corporation therefor. Such demand shall be accompanied by a statement certifying in reasonable detail as to the amount of such compensation and include a brief summary of the basis for such demand. Such statement shall be conclusive and binding for all purposes, in the absence of manifest error. ARTICLE IV INTEREST AND FEES SECTION 4.01. Interest on the Loans and Other Obligations. (a) Rate of Interest. All Loans and the outstanding principal balance of all other Obligations shall bear interest on the unpaid principal amount thereof from the date such Loans are made and such other Obligations are due and payable until paid in full, except as otherwise provided in Section 4.01(c), at a rate per annum equal to the Applicable Interest Rate. (b) Interest Payments. (i) Interest accrued on each Loan shall be payable in arrears in Dollars (A) on the first Business Day of each calendar month for the preceding calendar month, commencing on the first such day following the making of such Loan and (B) if not theretofore paid in full, on the Maturity Date. Interest accrued at the Default Rate will be payable on demand. (ii) Interest accrued on the principal balance of all other Obligations shall be payable in arrears in Dollars on demand. (c) Default Interest. Notwithstanding the rate of interest specified in Section 4.01(a), and to the extent permitted by applicable law, effective immediately upon the occurrence of any Event of Default but only for as long thereafter as such Event of Default shall be continuing, the principal balance of all Loans and of all other Obligations shall bear interest at a rate which is three percent (3.0%) per annum in excess of the Applicable Interest Rate in effect from time to time. (d) Computation of Interest. Interest on all Obligations shall be computed on the basis of the actual number of days elapsed in the period during which interest accrues and a year of 360 days. In computing interest on any Loan, the date of the making of the Loan shall be included and the date of payment shall be excluded; provided, however, if a Loan is repaid on the same day on which it is made, one (1) day's interest shall be paid on such Loan. SECTION 4.02. Fees. (a) Agents' Fee. The Borrower agrees to pay to the Agents such fees as are set forth in the Fee Letter in accordance with the terms thereof. (b) Letter of Credit Fee. In addition to any charges paid pursuant to Section 2.02(f), the Borrower agrees to pay to the Administrative Agent, for the account of the Lenders, a fee (the "Letter of Credit Fee") equal to (i) the greater of (A) LIBOR or (B) two percent (2.0%) per annum plus (ii) three percent (3.0%) per annum on the average undrawn face amount of each outstanding Letter of Credit Accommodation for the period of time such Letter of Credit Accommodation is outstanding, payable quarterly in arrears on (1) the first Business Day of each calendar quarter for the preceding calendar quarter and (2) if not theretofore paid in full, on the Maturity Date; provided, however, immediately upon the occurrence of an Event of Default, and for as long thereafter as such Event of Default shall be continuing, the Letter of Credit Fee shall be equal to three percent (3.0%) per annum in excess of the fee otherwise applicable hereunder. 31 (c) Unused Commitment Fee. The Borrower agrees to pay to the Administrative Agent, for the account of the Lenders in accordance with their respective Pro Rata Shares, a fee (the "Unused Commitment Fee"), accruing at the rate equal to one and one-half of one percent (1.5%) per annum on the average amount by which the Total Facility exceeds the Revolving Credit Obligations for the period commencing on the Effective Date and ending on the Commitment Termination Date, such fee being payable quarterly in arrears on (1) the first Business Day of each calendar quarter for the preceding calendar quarter and (2) if not theretofore paid in full, on the Maturity Date. (d) Calculation and Payment of Fees. All of the above fees that are based on a per annum rate shall be calculated on the basis of the actual number of days elapsed in a 360-day year. All such fees shall be payable in addition to, and not in lieu of, interest, expense reimbursements, indemnification and other Obligations. All fees payable hereunder shall be fully earned and nonrefundable when paid. All fees specified or referred to herein due to the Administrative Agent, any Issuer or any Lender, including those referred to in this Section 4.02, shall bear interest, if not paid when due, at the interest rate for Loans in accordance with Section 4.01(c), shall constitute Obligations and shall be secured by the Collateral. The Borrower hereby authorizes the Administrative Agent to, and the Administrative Agent may, charge the Loan Account with the amount of the fees or charges due under this Section 4.02. (e) Audit and Collateral Monitoring Fees. The Borrower acknowledges that representatives of the Agents may visit any or all of the Loan Parties and/or conduct audits, inspections, appraisals, valuations and/or field examinations of any or all of the Loan Parties at any time and from time to time in a manner so as to not unduly disrupt the business of the Loan Parties. Notwithstanding anything to the contrary set forth in this Agreement or in any Loan Document, the aggregate amount of costs and expenses payable by the Loan Parties in connection with any such audits, inspections, appraisals, valuations and/or field examinations shall not exceed $250,000 for any Fiscal Year, provided, however, if an Event of Default has occurred and is continuing, the Borrower shall pay all such costs and expenses and no such limitation shall be applicable. ARTICLE V CONDITIONS TO LOANS AND LETTER OF CREDIT ACCOMMODATIONS SECTION 5.01. Conditions Precedent to the Initial Loans and Letter of Credit Accommodations. The effectiveness of this Agreement and the obligation of each Lender on the Effective Date to make its Loan requested to be made by it and the agreement of the Administrative Agent to provide or arrange for a Letter of Credit Accommodation on the Effective Date shall be subject to the satisfaction of all of the following conditions precedent: (a) Documents. The Administrative Agent (on behalf of itself and the Lenders) shall have received on or before the Effective Date all of the following: (i) this Agreement, the Notes and all other agreements, instruments, opinions, certificates and other documents described in the List of Closing Documents, each duly executed where appropriate and in form and substance satisfactory to the Lenders and in sufficient copies for each of the Lenders; (ii) a copy of the Financial Statements; and (iii) such additional documentation as the Administrative Agent and the Lenders may reasonably request. (b) Collateral Information; Perfection of Liens. The Administrative Agent shall have received complete and accurate information from the Borrower with respect to the name and the location of the principal place of business and chief executive office for each Borrower and each Subsidiary; all necessary UCC financing statements shall have been filed and all other filings and recordings shall have been made; all filing and recording fees and taxes shall have been paid or duly provided for. The Administrative Agent shall be satisfied that all Liens granted to the Collateral Agent with respect to all Collateral are valid and effective and will be perfected and of first priority, subject to Permitted Liens and the failure to perfect funds on deposit in deposit accounts of the Loan Parties (other than the Concentration Accounts and the Disbursement Accounts) in an aggregate amount not to exceed $150,000 at any time. All certificates representing Capital Stock included in the Collateral shall have been delivered to the Collateral Agent (with duly executed stock powers, as appropriate) and all instruments included in the Collateral shall have been delivered to the Collateral Agent (duly endorsed to the Administrative Agent). (c) No Legal Impediments. No law, regulation, order, judgment or decree of any Governmental Authority shall exist, and the Administrative Agent shall not have received any notice that any action, suit, investigation, litigation or proceeding is pending or threatened in any court or before any arbitrator or Governmental Authority which (i) purports to enjoin, prohibit, restrain or otherwise affect (A) the ability of the Borrower and its Subsidiaries to perform their respective obligations hereunder and under each Loan Document, (B) the making of the Loans or the issuance of any Letter of Credit Accommodation on the Effective Date or (C) the consummation of the transactions contemplated hereby or contemplated under the other Loan Documents or (ii) would be reasonably expected to result in a Material Adverse Effect. 32 (d) No Change in Condition. No change deemed material by the Lenders, in their good faith opinion, in the condition (financial or otherwise), business, performance, assets, operations or prospects of the Borrower or any of its Subsidiaries that would (i) have a material adverse effect on the ability of the Borrower or such Subsidiary to perform their obligations under each of the Loan Documents to which it is a party or (ii) have a material adverse effect on the ability of the Lenders, the Collateral Agent or the Administrative Agent to enforce their respective rights and remedies under or in connection with the Loan Documents. (e) No Default. No Event of Default or Default shall have occurred and be continuing or would result from the making of the Loans requested to be made or the issuance of the Letter of Credit Accommodations requested to be issued on the Effective Date. (f) Representations and Warranties. All of the representations and warranties contained in Section 6.01 and in the other Loan Documents shall be true and complete in all material respects on and as of the Effective Date, both before and immediately after giving effect to the making of the Loans. (g) Fees and Expenses Paid. There shall have been paid to the Administrative Agent, for its account, the account of the Collateral Agent and the respective accounts of the Lenders, all fees (including all fees described in the Fee Letter) and expenses (including the reasonable legal fees of counsel to the Collateral Agent and of counsel to the Administrative Agent and local counsel to the Administrative Agent) due and payable on or before the Effective Date. (h) Consents, Etc. The Borrower and each of its Subsidiaries shall have received all material consents and authorizations required pursuant to any material Contractual Obligation with any other Person and shall have obtained all material Permits of, and effected all notices to and filings with, any Governmental Authority as may be necessary to allow the Borrower and each of its Subsidiaries lawfully (A) to execute, deliver and perform, in all material respects, their respective obligations hereunder, under the other Loan Documents to which each of them is, or shall be, a party and each other agreement or instrument to be executed and delivered by each of them pursuant thereto or in connection therewith, (B) to consummate the transactions contemplated hereunder and under the other Loan Documents and (C) to create and perfect the Liens on the Collateral to be owned by each of them in the manner and for the purpose contemplated by the Loan Documents. (i) Effective Date. The Effective Date shall have occurred on or before March 24, 2003. (j) Required Availability. After giving effect to the Loans to be made on the Effective Date and the issuance of all Letters of Credit Accommodations to be issued on the Effective Date, the Borrower shall have Required Availability on the Effective Date of at least $5,000,000. (k) Skyline Sale and Leaseback Transaction. The Skyline Sale and Leaseback Transaction shall have been consummated simultaneously. SECTION 5.02. Conditions Precedent to All Loans and Letter of Credit Accommodations. The effectiveness of this Agreement, and the obligation of each Lender to make any Loan requested to be made by it on any Funding Date on or after the Effective Date and the agreement of the Collateral Agent to provide or arrange for any Letter of Credit Accommodation on any date on or after the Effective Date is subject to the satisfaction of each of the following conditions precedent as of each such date: (a) Representations and Warranties. As of such date, both before and after giving effect to the Loans to be made or the Letter of Credit Accommodation to be issued on such date, all of the representations and warranties contained in Section 6.01 and in the other Loan Documents shall be true and complete in all material respects. (b) No Defaults. As of such date, no Event of Default or Default shall have occurred and be continuing or would result from the making of the requested Loan, the application of the proceeds therefrom, the issuance of the requested Letter of Credit Accommodation, or the application of the proceeds therefrom. (c) No Change in Condition. As of such date, no material adverse change shall have occurred and be continuing in the condition (financial or otherwise), business, properties, operations or prospects of the Borrower or the Borrower and its Subsidiaries, taken as a whole since December 29, 2002. Each request by the Borrower for a Loan, each submission by the Borrower of Notice of Borrowing, each acceptance by the Borrower of the proceeds of each Loan made hereunder and each submission by the Borrower to the Administrative Agent of a Request for Issuance of Letter of Credit Accommodation and each issuance of a Letter of Credit Accommodation shall constitute a representation and warranty by the Borrower as of the Funding Date in respect of such Loan or the date of issuance in respect of such Letter of Credit Accommodation that all conditions set forth in this Section 5.02 have been satisfied. 33 SECTION 5.03. Conditions Subsequent to the Effective Date. (a) Aggregate Loans Beyond $35,000,000. As additional conditions to Borrower's right to receive Loans aggregating at any time in excess of $35,000,000, the conditions set forth below in this Section 5.03(a) shall have been satisfied. (i) Borrower shall have executed, delivered to Lender, and caused to be recorded in the appropriate counties, and Chicago Title Insurance Company ("Title Company") shall have issued or committed to issue lender's policies of title insurance in form comparable to the coverage issued or committed to by Title Company in connection with the various mortgages and/or deeds of trust given to Lender as of the Effective Date, with respect to, first deeds of trust or deeds to secure debt covering the three (3) additional properties commonly known as DP 5052 - 7600 Old Trails Rd., Indianapolis, Indiana 46219; H 68 - 11715 Medlock Bride Road, Duluth, Georgia 30097; and Headquarters Building, located at Hancock at Washington, Madison, Georgia 30650 (collectively, the "Additional Fee Properties"). (ii) Lender shall have received ALTA "As Built" land title surveys reasonably satisfactory to Lender for each of the Additional Fee Properties. (iii) Lender shall have received environmental database reports reasonably satisfactory to Lender, as well as any additional environmental reports as Lender may reasonably deem appropriate regarding the Additional Fee Properties. (iv) Borrower shall provide verification that all obligations regarding development improvements are paid and current. (v) Borrower shall provide Lender and Title Company with zoning compliance letter and shall use commercially reasonable efforts to cause Title Company to issue zoning endorsement. (vi) Lender shall have received legal opinions in form and substance acceptable to Lender from local counsel in each of the states where the Additional Fee Properties are located regarding the enforceability of the deeds of trust, mortgages or deeds to secure debt to be issued to Lender and such other issues as Lender may reasonably determine. (vii) Lender shall have received evidence reasonably satisfactory to Lender that each of the Additional Fee Properties is in compliance with applicable zoning laws. (viii) Lender shall have received copies of such licenses, permits and approvals pertaining to the Additional Fee Properties as Lender may reasonably require. (ix) Borrower shall have used commercially reasonable efforts to cause Lender to have received such other documents and information as Lender may reasonably request regarding the Additional Fee Properties. (b) Aggregate Loans Beyond $37,000,000. As additional conditions to Borrower's right to receive Loans aggregating at any time in excess of $37,000,000, the conditions set forth below in this Section 5.03(b) shall have been satisfied. (i) All conditions set forth in Section 5.03(a) above shall have been satisfied . (ii) Borrower shall have performed the acts set forth in Section 8.19(a), clauses (iii), (iv), (v), (vi) and (vii) with respect to a least seventy (70) of Borrower's leased properties, inclusive of the thirty (30) properties as to which Borrower has covenanted to take such actions pursuant to Section 8.19(a). ARTICLE VI REPRESENTATIONS AND WARRANTIES SECTION 6.01. Representations and Warranties. In order to induce the Lenders to enter into this Agreement and to make the Loans and provide the Letter of Credit Accommodation, the Borrower hereby represents and warrants as follows: (a) Organization, Good Standing, Etc. Borrower and each of its Subsidiaries (i) is a corporation, limited liability company or limited partnership duly organized, validly existing and in good standing under the laws of the state of its organization, (ii) has all requisite power and authority to conduct its business as now conducted and as presently contemplated and, in the case of Borrower, to make the borrowings hereunder, and to execute and deliver each Loan Document to which it is a party, and to consummate the transactions contemplated thereby, and (iii) is duly qualified to do business and is in good standing in each jurisdiction in which the character of the properties owned or leased by it or in which the transaction of its business makes such qualification necessary, except where the failure to so qualify or to be in good standing would not reasonably be expected to have a Material Adverse Effect. 34 (b) Authorization, Etc. The execution, delivery and performance by each Loan Party of each Loan Document to which it is or will be a party and the transactions contemplated thereunder, (i) have been or, with respect to Subsidiaries of Borrower formed or acquired hereafter, will be, duly authorized by all necessary action, (ii) do not and will not contravene its Governing Documents (iii) do not and will not violate any Requirements of Law or any material Contractual Obligation of such Loan Party binding on or otherwise affecting it or any of its properties, (iv) do not and will not result in or require the creation of any Lien (other than pursuant to any Loan Document) upon or with respect to any of its properties, and (v) do not and will not result in any suspension, revocation, impairment, forfeiture or nonrenewal of any material permit, license, authorization or approval applicable to its operations or any of its properties. Each Loan Party has the requisite power and authority to execute, deliver and perform each of the Loan Documents to which it is a party. (c) Governmental Approvals. No authorization or approval or other action by, and no notice to or filing with, any Governmental Authority that has not been obtained is required in connection with the due execution, delivery and performance by each Loan Party of each Loan Document to which it is a party. (d) Enforceability of Loan Documents. Each of the Loan Documents to which any Loan Party is a party has been duly executed and delivered by such Loan Party and constitutes the legal, valid and binding obligation of such Loan Party, enforceable against such Loan Party in accordance with its terms, except as may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws, or by general principles of equity (regardless of whether enforcement is sought in a proceeding at law or in equity). (e) Capitalization. On the Effective Date, the authorized Capital Stock of Borrower and the issued and outstanding Capital Stock of Borrower are as set forth on Schedule 6.01(E). All of the issued and outstanding shares of Capital Stock of Borrower have been validly issued and are fully paid and nonassessable, and the holders thereof are not entitled to any preemptive, first refusal or other similar rights. Schedule 6.01(E) sets forth each plan pursuant to which shares of the Capital Stock of Borrower are issueable as of the Effective Date, copies of which plans have been delivered to the Administrative Agent under this Agreement, in the form and on the terms in effect on the Effective Date, and the number of shares of Capital Stock of Borrower issuable under each such plan. Except as set forth on Schedule 6.01(E), there are no other plans or arrangements in existence relating to the issuance of shares of Capital Stock of a Loan Party, and there are no outstanding debt or equity securities of Borrower and no outstanding obligations of Borrower convertible into or exchangeable for, or warrants, options or other rights for the purchase or acquisition from Borrower, or other obligations of Borrower to issue, directly or indirectly, any shares of Capital Stock of any such Person, except for the Convertible Debentures. (f) Subsidiaries. Schedule 6.01(F) is a complete and correct description of the name, jurisdiction of incorporation and ownership of the outstanding Capital Stock of each Subsidiary of the Borrower in existence on the date hereof. All of the issued and outstanding shares of Capital Stock of such Subsidiaries have been validly issued and are fully paid and nonassessable, and the holders thereof are not entitled to any preemptive, first refusal or other similar rights. Except as indicated on such Schedule, all such Capital Stock is owned by the Borrower or one or more of its Subsidiaries, free and clear of all Liens, except for Permitted Liens. Except as described on Schedule 6.01(F), there are no outstanding debt or equity securities of any of Borrower's Subsidiaries and no outstanding obligations of any of the Borrower's Subsidiaries convertible into or exchangeable for, or warrants, options or other rights for the purchase or acquisition from any of the Borrower's Subsidiaries, or other obligations of any such Subsidiary to issue, directly or indirectly, any shares of Capital Stock of any Subsidiary of the Borrower. (g) Litigation. Except as set forth in Schedule 6.01(G), there is no pending or, to the knowledge of the Borrower, threatened action, suit or proceeding affecting the Borrower or any of its Subsidiaries or any of their respective properties or assets before any court or other Governmental Authority or any arbitrator that (A) would reasonably be expected to have a Material Adverse Effect or (B) relates to this Agreement or any other Loan Document or any transaction contemplated hereby or thereby. (h) Financial Condition. (i) The Financial Statements, copies of which have been delivered to the Agents, fairly present, in all material respects, the consolidated financial condition of the Borrower and its Subsidiaries as at the respective dates thereof and the consolidated results of operations of the Borrower and its Subsidiaries for the fiscal periods ended on such respective dates, all in accordance with GAAP (subject to normal year-end adjustments in the case of any quarterly statement). (ii) The Borrower has heretofore furnished to the Administrative Agent under this Agreement (i) projected monthly balance sheets, income statements and statements of cash flows of Borrower and its Subsidiaries for the period from January 1, 2003 through December 31, 2003, and (ii) projected annual balance sheets, income statements and statements of cash flows of Borrower and its Subsidiaries for the Fiscal Years ending in 2004 through 2005, in each case as updated from time to time pursuant to Section 7.01(e). Such projections, as so updated, have been prepared on a reasonable basis and in good faith by the Borrower, and have been based on assumptions believed by the Borrower to be reasonable at the time made and upon the best information then reasonably available to the Borrower, and the Borrower is not aware of any facts or information that would lead it to believe that such projections, as so updated, are incorrect or misleading in any material respect. 35 (iii) Since December 29, 2002, there has occurred and is continuing no event or development which has had or would reasonably be expected to have a Material Adverse Effect. (i) Compliance with Law, Etc. Neither the Borrower nor any of its Subsidiaries is in violation of its Governing Documents, any material Requirements of Law, any judgment or order of any Governmental Authority applicable to it or any of its property or assets, or any material term of any Contractual Obligation (including any Material Contract) binding on it or any of its properties (except for the defaults (other than a payment default) under the Sun Trust Master Lease Documents). (j) ERISA. None of the Borrower, any of its Subsidiaries, or any of their ERISA Affiliates is now maintaining or contributing to, or has ever maintained or contributed to, or has ever been obligated to contribute to, any Benefit Plan or Multiemployer Plan. (k) Taxes, Etc. All Federal, state and material local tax returns and other material reports required by applicable law to be filed by the Borrower and each of its Subsidiaries have been filed, or extensions have been obtained, except (x) to the extent subject to a Permitted Protest, and (y) the Permitted Deferred Taxes. (l) Margin Stock. Neither the Borrower nor any of its Subsidiaries is or will be engaged in the business of extending credit for the purpose of purchasing or carrying margin stock (within the meaning of Regulations T, U or X), and no proceeds of any Loan will be used to purchase or carry any margin stock or to extend credit to others for the purpose of purchasing or carrying any margin stock. (m) Nature of Business. Neither the Borrower nor any of its Subsidiaries is engaged in any business other than the ownership and operation of restaurant chains and reasonable extensions thereof. (n) Adverse Agreements, Etc. Neither the Borrower nor any of its Subsidiaries is a party to any agreement or instrument, or subject to any charter, limited liability company agreement, partnership agreement or other corporate, partnership or limited liability company restriction or any judgment, order, regulation, ruling or other requirement of a court or other Governmental Authority, which, with respect to all of the foregoing items in this clause (n), has had, or is reasonably expected to have, a Material Adverse Effect. (o) Permits, Etc. Each of the Borrower and its Subsidiaries has, and is in compliance with, all material permits, licenses, authorizations, approvals, entitlements and accreditations required for such Person lawfully to own, lease, manage or operate each business currently owned, leased, managed or operated by such Person, except where the failure to have or to so comply would not reasonably be expected to have a Material Adverse Effect. No condition exists or event has occurred which, in itself or with the giving of notice or lapse of time or both, would result in the suspension, revocation, impairment, forfeiture or non-renewal of any such permit, license, authorization, approval, entitlement or accreditation, and there is no claim that any thereof is not in full force and effect. (p) Properties. (i) Each of the Borrower and its Subsidiaries has good and marketable title to, or valid leasehold interests in, all property and assets material to its business, free and clear of all Liens except Permitted Liens. The properties are in good working order and condition, ordinary wear and tear excepted. (ii) Schedule 6.01(P) sets forth a complete and accurate list as of the Effective Date of the location, by state and street address, of all real property owned or leased by any of the Borrower and its Subsidiaries. As of the Effective Date, each of the Borrower and its Subsidiaries has valid leasehold interests in the Leases described on Schedule 6.01(P) to which it is a party as lessee. Schedule 6.01(P) sets forth with respect to each such Lease, the commencement date, termination date, renewal options (if any) and annual base rents. Each such Lease is valid and enforceable in accordance with its terms in all material respects and is in full force and effect. No consent or approval of any landlord or other third party in connection with any such Lease is necessary for the Borrower or any of its Subsidiaries to enter into and execute the Loan Documents to which it is a party, except as set forth on Schedule 6.01(P). To the Borrower's knowledge, (a) no other party to any such Lease is in default of its obligations thereunder, (b) none of the Borrower and its Subsidiaries (or any other party to any such Lease) have at any time delivered or received any notice of default which remains uncured under any such Lease and, and (c) as of the Effective Date, no event has occurred which, with the giving of notice or the passage of time or both, would constitute a default by the Borrower or any of its Subsidiaries under any such Lease, that, with respect to (a), (b) or (c) above would be reasonably expected to result in an Material Adverse Effect on the Borrower and its Subsidiaries, taken as a whole. (q) Full Disclosure. The Borrower has disclosed to the Administrative Agent under this Agreement all material agreements, instruments and corporate or other restrictions to which it or any of its Subsidiaries is subject, and all other matters known to it, that, individually or in the aggregate, would reasonably be expected to result in a Material Adverse Effect. None of the reports, financial statements, certificates or other written information furnished by or on behalf of the Borrower to the Administrative Agent under this Agreement in connection with the negotiation of this Agreement or delivered hereunder (as modified or 36 supplemented by other information so furnished) contains any material misstatement of fact or omits to state any material fact necessary to make the statements therein, taken as a whole, in the light of the circumstances under which it was made, not materially misleading; provided that, with respect to projected financial information, the Borrower represents only that such information was prepared in good faith based upon assumptions believed to be reasonable at the time. As of the Effective Date, there is no contingent liability or fact that would reasonably be expected to have a Material Adverse Effect which has not been set forth in a footnote included in the Financial Statements or a schedule hereto. (r) Operating Lease Obligations. On the Effective Date, neither the Borrower nor any of its Subsidiaries has any obligations as lessee for the payment of rent for any real or personal property other than the Operating Lease Obligations set forth on Schedule 6.01(R) and other than leases in the ordinary course of business where annual rental payments are less than $50,000. (s) Environmental Matters. Except as set forth on Schedule 6.01(S), (i) the operations of each of the Borrower and its Subsidiaries are in compliance with applicable Environmental Laws, except where the failure to so comply would not reasonably be expected to have a Material Adverse Effect; (ii) there has been no Release at any of the properties owned or operated by the Borrower or its Subsidiaries or a predecessor in interest, or at any disposal or treatment facility which received Hazardous Materials generated by the Borrower or its Subsidiaries or any predecessor in interest which would reasonably be expected to have a Material Adverse Effect; (iii) to the best of the Borrower's and its Subsidiaries' knowledge, no Environmental Action has been asserted against the Borrower or its Subsidiaries or any predecessor in interest nor does the Borrower or any of its Subsidiaries have knowledge or notice of any threatened or pending Environmental Action against the Borrower or its Subsidiaries or any predecessor in interest which would reasonably be expected to have a Material Adverse Effect; and (iv) to the best of the Borrower's and its Subsidiaries' knowledge, no Environmental Actions have been asserted against any facilities that may have received Hazardous Materials generated by the Borrower or its Subsidiaries or any predecessor in interest which would reasonably be expected to have a Material Adverse Effect. (t) Insurance. Each of the Borrower and its Subsidiaries keeps its property adequately insured and maintains (i) insurance to such extent and against such risks, including fire, as is customary with companies in the same or similar businesses, (ii) workmen's compensation insurance in the amount required by applicable law, (iii) public liability insurance, which shall include product liability insurance, in the amount customary with companies in the same or similar business against claims for personal injury or death on properties owned, occupied or controlled by it, and (iv) such other insurance as may be required by law (including, without limitation, against larceny, embezzlement or other criminal misappropriation). Schedule 6.01(T) sets forth a list of all insurance maintained by the Borrower and its Subsidiaries on the Effective Date. (u) Solvency. After giving effect to the transactions contemplated by this Agreement and before and after giving effect to each Loan and each Letter of Credit Accommodation, each of the Borrower and its Subsidiaries is, and Borrower and its Subsidiaries on a consolidated basis are, Solvent. (v) Location of Bank Accounts. Schedule 6.01(V) sets forth a complete and accurate list as of the Effective Date of all deposit, checking and other bank accounts, all securities and other accounts maintained with any broker dealer and all other similar accounts maintained by the Borrower, or any of its Subsidiaries, together with a description thereof (i.e., the bank or broker dealer at which such deposit or other account is maintained and the account number and the purpose thereof). (w) Intellectual Property. Except as set forth on Schedule 6.01(W), each of the Borrower and its Subsidiaries owns or licenses or otherwise has the right to use all licenses, patents, patent applications, trademarks, trademark applications, service marks, tradenames, copyrights, copyright applications, franchises, and other intellectual property rights that are necessary for the operations of its businesses as currently conducted, without, to the knowledge of the Borrower, infringement upon or conflict with the rights of any other Person with respect thereto, except for such infringements and conflicts which, individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect. Set forth on Schedule 6.01(W) is a complete and accurate list as of the Effective Date of all such material licenses, patents, patent applications, registered trademarks, trademark applications, registered service marks, tradenames, registered copyrights, copyright applications and franchises of Borrower and its Subsidiaries. Except as set forth in Schedule 6.01(W), to the knowledge of the Borrower, no slogan or other advertising device, product, process, method, substance, part or other material now employed by the Borrower or its Subsidiaries in the conduct of their business, infringes upon or conflicts with any rights owned by any other Person, except for such infringements and conflicts which would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect, and no claim or litigation regarding any of the foregoing is pending or threatened against the Borrower or its Subsidiaries, except for such claims or litigation which would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect. 37 (x) Material Contracts. Set forth on Schedule 1.01(F) is a complete and accurate list as of the Effective Date of all Material Contracts to which the Borrower or any of its Subsidiaries is a party, showing the parties and subject matter thereof and amendments and modifications thereto. Each such Material Contract (i) unless terminated in accordance with the terms of this Agreement, is in full force and effect and is binding upon and enforceable against each of the Borrower and its Subsidiaries that is a party thereto and, to the best of the Borrower's knowledge, all other parties thereto in accordance with its terms, (ii) has not been otherwise amended or modified (except to the extent permitted by this Agreement), and (iii) is not in default due to the action of the Borrower or its Subsidiaries or, to the best of the Borrower's knowledge, any other party thereto, except for the defaults (other than a payment default) under the SunTrust Master Lease Documents and except to the extent disclosed in writing to the Lenders and the Agents prior to the Effective Date. (y) Holding Company and Investment Company Acts. Neither the Borrower nor any of its Subsidiaries is (i) a "holding company" or a "subsidiary company" of a "holding company" or an "affiliate" of a "holding company", as such terms are defined in the Public Utility Holding Company Act of 1935, as amended, or (ii) an "investment company" or an "affiliated person" or "promoter" of, or "principal underwriter" of or for, an "investment company", as such terms are defined in the Investment Company Act of 1940, as amended. (z) Employee and Labor Matters. (i) There is (A) no unfair labor practice complaint pending or, to the best of the Borrower's knowledge, threatened against the Borrower or any of its Subsidiaries before any Governmental Authority and no grievance or arbitration proceeding pending or, to the best of the Borrower's knowledge, threatened against the Borrower or any of its Subsidiaries which arises out of or under any collective bargaining agreement, (B) no strike, labor dispute, slowdown, stoppage or similar action or grievance pending or, to the best of the Borrower's knowledge, threatened against the Borrower or any of its Subsidiaries and (C) to the best of the Borrower's knowledge, no union representation question existing with respect to the employees of the Borrower or any of its Subsidiaries and no union organizing activity taking place with respect to any of the employees of any of them, that, in the case of (A), (B) and (C) would reasonably be expected to have a Material Adverse Effect. (aa) Customers and Suppliers. There exists no actual or, to the best of the Borrower's knowledge, threatened termination, cancellation or limitation of, or modification to or change in, the business relationship between (A) the Borrower or any of its Subsidiaries, on the one hand, and any customer or any group thereof, on the other hand, whose agreements with the Borrower or any such Subsidiary are individually or in the aggregate material to the business or operations of the Borrower and its Subsidiaries, taken as a whole, or (B) the Borrower or any of its Subsidiaries, on the one hand, and any material supplier of the Borrower and its Subsidiaries, taken as a whole, on the other hand; and there exists no present state of facts or circumstances that would reasonably be expected to give rise to or result in any such termination, cancellation, limitation, modification or change. (bb) No Bankruptcy Filing. Neither the Borrower nor any of its Subsidiaries is contemplating either the filing of a petition by it under any state or federal bankruptcy or insolvency laws or the liquidation of all or a major portion of the Borrower's or such Subsidiary's assets or property, except the liquidation of any Dormant Subsidiary, and neither the Borrower nor any of its Subsidiaries has any knowledge of any Person contemplating the filing of any such petition against it. (cc) Liquor License Subsidiaries. None of the Liquor License Subsidiaries (i) have any assets other than those assets necessary to sell liquor, including liquor licenses, alcohol, and such bank accounts as are necessary to maintain cash sufficient to purchase alcohol (which assets have an aggregate fair market value which does not exceed $250,000 at any one time), (ii) have any liabilities of any nature whatsoever (except short term liabilities in connection with purchases of alcohol and in respect of the maintenance of and compliance with liquor licenses (in an aggregate outstanding amount which does not exceed $250,000 at any one time)), or (iii) engage in any activity or business of any kind other than with respect to liquor licenses and the purchase of alcohol and its sale within Restaurants. (dd) Non-Wholly Owned Subsidiaries. The Non-Wholly Owned Subsidiaries do not have contractual liabilities of any kind or nature which have not been paid when due, in an aggregate outstanding amount at any one time in excess of $600,000, other than Indebtedness in respect of Permitted Intercompany Advances. (ee) Dormant Subsidiaries. None of the Dormant Subsidiaries (i) have any assets, (ii) have any liabilities of any nature whatsoever other than tax liabilities due and payable after the end of the 2003 Fiscal Year or liabilities resulting from the resolution of outstanding lawsuits, or (iii) engage in any activity or business of any kind. (ff) Location of Collateral; Chief Place of Business; Chief Executive Office FEIN; Name. There is no location at which the Borrower or any of its Subsidiaries has any Inventory (except for Inventory in transit) other than (i) those locations listed on Schedule 6.01(FF) and (ii) any other locations approved in writing by the Administrative Agent and the Collateral Agent. Schedule 6.01(FF) contains a true, correct and complete list, as of the Effective Date, of the legal names and addresses of each warehouse at which Inventory of the Borrower and its Subsidiaries is stored. None of the receipts received by the Borrower or any of its Subsidiaries from any warehouse states that the goods covered thereby are to be delivered to bearer or to the order of 38 a named Person or to a named Person and such named Person's assigns. Schedule 6.01(FF) sets forth a complete and accurate list as of the date hereof of (A) each place of business of the Borrower and its Subsidiaries, (B) the chief executive office of each of the Borrower and its Subsidiaries, (C) the exact legal name of each Loan Party, (D) the jurisdiction of organization of each Loan Party, (E) the organizational identification number of each Loan Party (or indicates that such Loan Party has no organizational identification number) and (F) the federal employer identification number of each Loan Party. (gg) Security Interests. Each Security Agreement creates in favor of the Collateral Agent, for the benefit of the Lenders, a legal, valid and enforceable security interest in the Collateral secured thereby. Upon the filing of the UCC-1 financing statements described in Section 5.01(b) and the recording of the Collateral Assignments for Security referred to in each Security Agreement in the United States Patent and Trademark Office and the United States Copyright Office, as applicable, such security interests in and Liens on the Collateral granted thereby shall be perfected, first priority security interests, subject to Permitted Liens and the failure to perfect funds on deposit in deposit accounts of the Loan Parties (other than the Concentration Accounts and the Disbursement Accounts) in an aggregate amount not to exceed $150,000 at any time, and no further recordings or filings are or will be required in connection with the creation, perfection or enforcement of such security interests and Liens, other than (i) the filing of continuation statements in accordance with applicable law and (ii) the recording of the Collateral Assignments for Security pursuant to each Security Agreement in the United States Patent and Trademark Office and the United States Copyright Office, as applicable, with respect to after-acquired U.S. patent and trademark applications and registrations and U.S. copyrights. (hh) Schedules. All of the information which is required to be scheduled to this Agreement is set forth on the Schedules attached hereto, and is correct and accurate, except (i) if this Agreement refers to the correctness and accuracy of Schedules as of an earlier date and (ii) for differences resulting from circumstances, conditions, actions or inactions otherwise permitted by the terms of any Loan Document. ARTICLE VII REPORTING COVENANTS Each Borrower covenants and agrees that so long as any Commitments are outstanding and thereafter until payment in full of all of the Obligations: SECTION 7.01. Financial Statements. The Borrower and each of its Subsidiaries shall maintain a system of accounting established and administered in accordance with sound business practices to permit preparation of consolidated financial statements in conformity with GAAP, and each of the financial statements described below shall be prepared from such system and records. The Borrower shall deliver or cause to be delivered to the Lenders: (a) Monthly Reports. Within twenty-five (25) days after the end of each fiscal month in each Fiscal Year, the consolidated balance sheets of the Borrower and its Subsidiaries as at the end of such fiscal month (and showing the same period from the previous fiscal year) and the related unaudited consolidated statements of income of the Borrower and its Subsidiaries for such fiscal month and the related unaudited consolidating statements of income for such fiscal month and for the period commencing on the first day of such Fiscal Year and ending the last day of such fiscal month (and showing the same periods from the previous fiscal year), certified by the Authorized Officer of the Borrower as fairly presenting, in all material respects, the consolidated financial position of the Borrower and its Subsidiaries as at the dates indicated and the results of their operations for the fiscal months indicated, such consolidated balance sheets and consolidated statements of income in accordance with GAAP, subject to normal year end adjustments. (b) Quarterly Reports. Within forty-five (45) days after the end of each fiscal quarter in each Fiscal Year, the unaudited consolidated balance sheets of the Borrower and its Subsidiaries as at the end of such period, the related unaudited consolidated statements of income and cash flow of the Borrower and its Subsidiaries and the related unaudited consolidating statements of income for such fiscal quarter, certified by the Authorized Officer of the Borrower as fairly presenting, in all material respects, the consolidated financial position of the Borrower as at the dates indicated and the results of its operations and cash flow for the fiscal quarters indicated, such consolidated balance sheets and consolidated statements of income and cash flow in accordance with GAAP, subject to normal year end adjustments. (c) Annual Reports. Within ninety (90) days after the end of each Fiscal Year, (i) the audited consolidated balance sheets of the Borrower and its Subsidiaries as of the end of such Fiscal Year, the related audited consolidated statements of income, stockholders' equity and cash flow of the Borrower and its Subsidiaries and the related unaudited consolidating statements of income of the Borrower for such Fiscal Year, and (ii) a report thereon of KPMG or other independent certified public accountants reasonably acceptable to the Administrative Agent, which report shall be unqualified in all material respects (except that such opinion for Fiscal Years 2002 and 2003 may contain a "going concern" or like qualification or exception) and shall state that such financial statements fairly present the consolidated financial position of the Borrower and its Subsidiaries as at the dates indicated and the results of their operations and cash flow for the periods indicated and, with respect to such consolidated balance sheets and consolidated statements of income, stockholders' equity and cash flow in conformity with GAAP applied on a basis consistent with prior years and that the examination by such accountants in connection with such consolidated and consolidating financial statements has been made in accordance with generally accepted auditing standards. 39 (d) Officer's Certificate. Together with each delivery of any financial statement pursuant to paragraphs (a), (b) and (c) of this Section 7.01, (i) an Officer's Certificate substantially in the form of Exhibit G attached hereto and made a part hereof, stating that the Authorized Officer signatory thereto has reviewed the terms of the Loan Documents, and has made, or caused to be made under his supervision, a review in reasonable detail of the transactions and consolidated and consolidating (where applicable) financial condition of the Borrower and its Subsidiaries during the accounting period covered by such financial statements, that such review has not disclosed the existence during or at the end of such accounting period, and that such officer does not have knowledge of the existence as at the date of such Officer's Certificate, of any condition or event which constitutes an Event of Default or Default, or, if any such condition or event existed or exists, specifying the nature and period of existence thereof and what action the Borrower has taken, is taking and proposes to take with respect thereto and (ii) a certificate substantially in the form of Exhibit H attached hereto (the "Compliance Certificate"), signed by the Borrower's chief financial officer or controller, setting forth calculations (with such specificity as the Lenders may reasonably request) for the period then ended which demonstrate compliance, when applicable, with the provisions of Article IX and Article X. (e) Budgets; Business Plans; Financial Projections. As soon as practicable and in any event not later than the beginning of each Fiscal Year of the Borrower (i) a monthly budget for such Fiscal Year, (ii) an annual business plan for such Fiscal Year, substantially in the form of the business plan heretofore delivered to the Administrative Agent and the Lenders, accompanied by a report reconciling all changes and departures from the business plan delivered to the Administrative Agent and the Lenders for the preceding Fiscal Year and (iii) a consolidated and consolidating plan and financial forecast, prepared in accordance with the Borrower's normal accounting procedures applied on a consistent basis, for each succeeding Fiscal Year prior to the Maturity Date, including (A) a forecasted consolidated balance sheet, and the related consolidated statements of income, stockholders' equity and cash flows of the Borrower and its Subsidiaries for and as of the end of such Fiscal Year, and the forecasted consolidating statements of income of the Borrower for such Fiscal Year, (B) forecasted consolidated balance sheets, and the related consolidated statements of income, stockholders' equity and cash flows of the Borrower and its Subsidiaries for and as of the end of each fiscal month of such Fiscal Year, and the forecasted consolidating statements of income of the Borrower for and as of the end of each fiscal month of such Fiscal Year, (C) the amount of forecasted Capital Expenditures for such Fiscal Year and (D) forecasted compliance with the provisions of Article X. SECTION 7.02. Borrowing Base Certificate. The Borrower shall provide the Administrative Agent and each Lender with a Borrowing Base Certificate, certified as being true and correct by the Authorized Officer of the Borrower, on the twenty-fifth day following the last day of each fiscal month, or more frequently if requested by the Administrative Agent. Each subsequent Borrowing Base Certificate shall be based upon information as of the last day of the immediately preceding fiscal month. Each such Borrowing Base Certificate shall set forth Borrowing Base calculations since the date of the last prior Borrowing Base Certificate. SECTION 7.03. Other Financial Information. (a) Such other information, reports, contracts, schedules, lists, documents, agreements and instruments with respect to (i) the Collateral and (ii) the Borrower's business, condition (financial or otherwise), operations, performance, properties or prospects as the Administrative Agent, the Collateral Agent or any Lender may, from time to time, reasonably request. The Borrower hereby authorizes the Administrative Agent, the Collateral Agent, each Lender and their respective representatives to communicate directly with the accountants so long as an Authorized Officer of the Borrower participates in such communication and authorizes the accountants to disclose to the Administrative Agent, the Collateral Agent, each Lender and their respective representatives any and all financial statements and other information of any kind, including copies of any management letter or the substance of any oral information, that such accountants may have with respect to the Collateral or the Borrower's condition (financial or otherwise), operations, properties, performance and prospects. The Administrative Agent, the Collateral Agent, the Lenders and such representatives shall treat any non-public information so obtained as confidential. (b) Copies of all documents and financial statements, reports and notices, if any, sent or made available generally by the Borrower to the holders of its publicly-held Securities or to a trustee under any indenture or filed with the Commission, and of all press releases made available generally by the Borrower to the public concerning material developments in the Borrower's business. (c) Copies of any management reports delivered to any Borrower or to any officer or employee thereof by the accountants in connection with the financial statements delivered pursuant to Section 7.01. (d) as soon as possible and in any event within 5 days after execution, receipt or delivery thereof, copies of any material notices that any Loan Party executes or receives in connection with any Material Contract; (e) as soon as possible and in any event within 5 days after execution, receipt or delivery thereof, copies of any material notices that any Loan Party executes or receives in connection with the sale or other Disposition of the Capital Stock of, or all or substantially all of the assets of, any Loan Party; 40 SECTION 7.04. Events of Default. Promptly upon the Borrower obtaining knowledge (i) of any condition or event which constitutes an Event of Default or Default, or becoming aware that any Lender or the Administrative Agent has given any notice with respect to a claimed Event of Default or Default under this Agreement, (ii) that any Person has given any notice to the Borrower or taken any other action with respect to a claimed default or event or condition of the type referred to in Section 11.01(g) or (iii) of any condition or event which has or is reasonably likely to have a Material Adverse Effect or affect the value of, or the Collateral Agent's interest in, the Collateral in any material respect, the Borrower shall deliver to the Administrative Agent and the Lenders an Officer's Certificate specifying (A)the nature and period of existence of any such claimed default, Event of Default, Default, condition or event, (B) the notice given or action taken by such Person in connection therewith and (C) what action the Borrower has taken, is and proposes to take with respect thereto. SECTION 7.05. Lawsuits. (i) Promptly upon the Borrower obtaining knowledge of the institution of, or written threat of, (A) any action, suit, proceeding or arbitration against or affecting any Borrower or any asset of such Borrower not previously disclosed pursuant to Schedule 6.01(g) which action, suit, proceeding or arbitration would be reasonably likely to result in a Material Adverse Effect, (B) any investigation or proceeding before or by any Governmental Authority, the effect of which is reasonably likely to limit, prohibit or restrict materially the manner in which any Borrower currently conducts its business or to declare any substance contained in such products manufactured or distributed by it to be dangerous, such Borrower shall give written notice thereof to the Administrative Agent and the Lenders and provide such other information as may be reasonably available to enable the each Lender and the Administrative Agent and its counsel to evaluate such matters except, in each case, where the same is fully covered by insurance (other than applicable deductible) or (C) any Forfeiture Proceeding; (ii) as soon as practicable and in any event within forty-five (45) days after the end of each fiscal quarter of the Borrowers, the Borrowers shall provide the Administrative Agent and the Lenders with a litigation status report covering the institution of, or written threat of, any action, suit, proceeding, governmental investigation or arbitration reported pursuant to clause (i)(A) and (B) above and shall provide such other information at such time as may be requested by the Administrative Agent or the Collateral Agent and reasonably available to Borrower to enable the Administrative Agent and the Collateral Agent and their counsel to evaluate such matters; and (iii) in addition to the requirements set forth in clauses (i) and (ii) of this Section 7.05, the Borrowers upon request of the Administrative Agent or the Required Lenders shall promptly give written notice of the status of any action, suit, proceeding, governmental investigation or arbitration covered by a report delivered pursuant to clause (i) or (ii) above and provide such other information as may be requested by the Administrative Agent or the Collateral Agent and reasonably available to Borrower to enable the Administrative Agent and the Collateral Agent and reasonably available to Borrower to enable the Administrative Agent and the Collateral Agent and their counsel to evaluate such matters. SECTION 7.06. Insurance. As soon as practicable and in any event by the last day of January in each Fiscal Year, the Borrower shall deliver to the Administrative Agent and the Lenders (i) an updated Schedule 6.01(T), in form and substance reasonably satisfactory to the Administrative Agent and the Lenders, outlining all insurance policies and programs currently in effect with respect to the respective property and assets and business of the Borrower and its Subsidiaries, insurance coverage maintained as of the date of such report by the Borrower and the loss payment provisions of such coverage and (ii) evidence that all premiums with respect to such coverage have been paid when due. SECTION 7.07. [INTENTIONALLY LEFT BLANK]. SECTION 7.08. Environmental Notices. The Borrower shall notify the Administrative Agent and each Lender, in writing, promptly, and in any event within twenty (20) days after the Borrower's learning thereof, of any: (i) written notice or claim to the effect that the Borrower is or may be liable to any Person as a result of the Release or threatened Release of any Contaminant into the environment; (ii) written notice that the Borrower or any Subsidiary is subject to investigation by any Governmental Authority evaluating whether any Remedial Action is needed to respond to the Release or threatened Release of any Contaminant into the environment; (iii) written notice that any Property of the Borrower is subject to an Environmental Lien; (iv) written notice of violation to the Borrower or awareness by the Borrower of a condition which might reasonably result in a notice of violation of any environmental, health or safety Requirement of Law, which could have a Material Adverse Effect on the Borrower; (v) commencement or written threat of any judicial or administrative proceeding alleging a violation of any environmental, health or safety Requirement of Law; (vi) written notice from a Governmental Authority of any changes to any existing environmental, health or safety Requirement of Law that could have a Material Adverse Effect on the operations of the Borrower; or (vii) any proposed acquisition of stock, assets, real estate or leasing of property, or any other action by the Borrower that could subject the Borrower to environmental, health or safety Liabilities and Costs that could have a Material Adverse Effect. For purposes of clauses (i), (ii) and (iii), written notice shall include other non-written communications given to an agent or employee of a Borrower with direct or indirect supervisory responsibility with respect to the activity, if any, which is the subject of such communication, if such activity could have a Material Adverse Effect. With respect to clauses (i) through (vii) above, such notice shall be required only if (A) the liability or potential liability, or with respect to clause (vi), the cost or potential cost of compliance, which is the subject matter of the notice is reasonably likely to exceed One Million Dollars ($1,000,000), or if (B) such liability or potential liability or cost of compliance when added to other liabilities of the Borrower of the kind referred to in clauses (i) through (vii) above is reasonably likely to exceed One Million Dollars ($1,000,000). 41 SECTION 7.09. Labor Matters. The Borrower shall notify the Administrative Agent and the Lenders in writing, promptly, but in any event with ten (10) days after learning thereof, of (i) any material labor dispute to which the Borrower may become a party, any strikes, lockouts or other disputes relating to the Borrower's plants and other facilities and (ii) any material liability incurred with respect to the closing of any plant or other facility of the Borrower which in connection with clause (i) or (ii) above, would be reasonably likely to result in a Material Adverse Effect. SECTION 7.10. Senior Notes/Senior Subordinated Notes Payment Notice. On or prior to the tenth Business Day preceding the due date of any amount payable by the Borrower under the Senior Notes or under the Senior Subordinated Notes, the Borrower shall notify each Agent in writing as to whether or not the Borrower intends to make any such payment and shall, on the date of such payment, deliver a certificate, in reasonable detail and certified by an Authorized Officer of the Borrower, that immediately prior and subsequent to such payment, no Event of Default has or will have occurred and be continuing after giving effect to such payment on such payment date. SECTION 7.11. Other Information. Promptly upon receiving a request therefor from the Administrative Agent or the Required Lenders, the Borrower shall prepare and deliver to the Administrative Agent and the Lenders such other information with respect to the Borrower or the Collateral, including, without limitation, schedules identifying and describing the Collateral and any dispositions thereof, as from time to time may be reasonably requested by the Administrative Agent or the Required Lenders. ARTICLE VIII AFFIRMATIVE COVENANTS The Borrower covenants and agrees that so long as any Commitments are outstanding and thereafter until payment in full of all of the Obligations: SECTION 8.01. Existence, etc. The Borrower shall, and shall cause each of its Subsidiaries to, at all times maintain its existence and preserve and keep, or cause to be preserved and kept, in full force and effect its rights and franchises material to its businesses except where the loss or termination of such rights and franchises does not have or is not likely to have a Material Adverse Effect. SECTION 8.02. Powers; Conduct of Business. The Borrower shall, and shall cause each of its Subsidiaries to, qualify and remain qualified to do business in each jurisdiction in which the nature of its business requires it to be so qualified except for those jurisdictions where failure to so qualify does not have or would not reasonably be expected to have a Material Adverse Effect. SECTION 8.03. Compliance with Laws, etc. The Borrower shall, and shall cause each of its Subsidiaries to, (a) comply with all Requirements of Law applicable to such Person or the business, property, assets or operations of such person, and (b) obtain as needed all Permits necessary for its operations and maintain such Permits in good standing except in the case where noncompliance with either clause (a) or (b) above does not have or is not reasonably likely to have a Material Adverse Effect. SECTION 8.04. Payment of Taxes and Claims. The Borrower shall, and shall cause each of its Subsidiaries to, pay (a) all taxes, assessments and other governmental charges imposed upon it or on any of its properties or assets or in respect of any of its franchises, business, income or property before any penalty or interest accrues thereon, the failure to make payment of which will have or is reasonably likely to have a Material Adverse Effect, and (b) all claims (including, without limitation, claims for labor, services, materials and supplies) for sums, material in the aggregate to such Borrower which have become due and payable and which by law have or may become a Lien upon any of such Borrower's properties or assets, prior to the time when any penalty or fine shall be incurred with respect thereto; provided, however, that no such taxes, assessments, and governmental charges referred to in clause (a) above or claims referred to in clause (b) above need be paid if being contested in good faith by appropriate proceedings promptly instituted and diligently conducted and if adequate reserves shall have been set aside therefor in accordance with GAAP and provided further that Permitted Deferred Taxes shall be payable as described in the definition of "Permitted Deferred Taxes". SECTION 8.05. Inspection of Property; Books and Records; Discussions. The Borrower shall, and shall cause each of its Subsidiaries to, permit any authorized representative(s) designated by either the Administrative Agent or any Lender to visit and inspect any of the assets of such Person, to examine, audit, check and make copies of their respective financial and accounting records, books, journals, orders, receipts and any correspondence and other data relating to their respective businesses or the transactions contemplated by the Loan Documents (including in connection with environmental compliance, hazard or liability), and to discuss their affairs, finances and accounts with their officers and independent certified public accountants, all upon reasonable notice and at such reasonable times during normal business hours, as often as may be reasonably requested. Each such visitation and inspection by or on behalf of the Administrative Agent shall be at the Borrower's expense. The Borrower shall keep and maintain in all material respects proper books of record and account in which entries in conformity with GAAP shall be made of all dealings and transactions in relation to their respective businesses and activities, including transactions and other dealings with respect to the Collateral. If an Event of Default has occurred and is continuing, the Borrowers upon the Administrative Agent's request, shall turn over any such records to the Administrative Agent or its representatives. 42 SECTION 8.06. Tax Identification Numbers. Borrower shall, and shall cause each of its Subsidiaries to, provide the Administrative Agent in writing the tax identification numbers of such Person promptly upon the availability thereof. SECTION 8.07. [INTENTIONALLY OMITTED] SECTION 8.08. Condemnation. Immediately upon learning of the institution of any proceeding for the condemnation or other taking of any of the owned or leased Real Property of the Borrower, or any of its Subsidiaries, which would reasonably be expected to have a Material Adverse Effect, the Borrower shall notify the Administrative Agent of the pendency of such proceeding, and permit the Administrative Agent to participate in any such proceeding, and from time to time will deliver to the Administrative Agent all instruments reasonably requested by the Administrative Agent to permit such participation. SECTION 8.09. Maintenance of Properties Except with respect to Restaurant closures that do not constitute Dispositions, the Borrower shall, and shall cause each of its Subsidiaries to, maintain and preserve all of their properties which are necessary or useful in the proper conduct of their business in good working order and condition, ordinary wear and tear excepted, and comply, and cause each of its Subsidiaries to comply, in all material respects with the provisions of all material leases to which each of them is a party as lessee or under which each of them occupies property, so as to prevent any material loss or forfeiture thereof or thereunder. SECTION 8.10. Maintenance of Insurance. The Borrower shall maintain, and cause each of its Subsidiaries to maintain (either in the name of the Borrower or in such Subsidiary's own name), insurance with financially sound and reputable insurance companies or associations (including, without limitation, commercial general liability, property and business interruption insurance) with respect to their properties (including all real properties leased or owned by them) and business, in such amounts and covering such risks as is required by any Governmental Authority having jurisdiction with respect thereto or as is carried generally in accordance with sound business practice by companies in similar businesses similarly situated. All property policies covering the Collateral shall name Collateral Agent for the benefit of the Lenders as an additional insured or loss payee, in case of loss. All certificates of insurance are to be delivered to Collateral Agent and the policies shall contain a loss payable and additional insured endorsements in favor of Collateral Agent for the benefit of the Lenders (substantially in the form in existence on the Effective Date), and shall provide for not less than 30 days' prior written notice to Collateral Agent and other named insureds of the exercise of any right of cancellation. SECTION 8.11. Obtaining of Permits, Etc. The Borrower shall obtain, maintain and preserve, and cause each of its Subsidiaries to obtain, maintain and preserve, all permits, licenses, authorizations, approvals, entitlements and accreditations which are necessary or useful in the proper conduct of its business and where the failure to so obtain, maintain and preserve would reasonably be expected to have a Material Adverse Effect. SECTION 8.12. Environmental. The Borrower shall (i) keep all property either owned or operated by it or any of its Subsidiaries free of any Environmental Liens; (ii) comply, and cause it Subsidiaries to comply, in all material respects with Environmental Laws and provide to the Collateral Agent documentation of such compliance which Collateral Agent reasonably requests; (iii) immediately notify Collateral Agent of any Release of a Hazardous Material in excess of any reportable quantity from or onto property owned or operated by the Borrower or any of its Subsidiaries and take any Remedial Actions required to abate said Release; and (iv) promptly provide the Collateral Agent with written notice within eight (8) Business Days of the receipt of any of the following: (A) notice that an Environmental Lien has been filed against any property of the Borrower or any of its Subsidiaries; (B) commencement of any Environmental Action or notice that an Environmental Action will be filed against the Borrower or any of its Subsidiaries; and (C) notice of a violation, citation or other administrative order which would reasonably be expected to have a Material Adverse Effect. SECTION 8.13. Further Assurances. The Borrower shall take such action and execute, acknowledge and deliver, and cause each of its Subsidiaries to take such action and execute, acknowledge and deliver, at its sole cost and expense, such agreements, instruments or other documents as the Lenders may reasonably require from time to time in order (i) to carry out more effectively the purposes of this Agreement and the other Loan Documents, (ii) to subject to valid and perfected first priority Liens (except for Permitted Liens and the failure to perfect funds on deposit in deposit accounts of the Loan Parties (other than the Concentration Accounts and the Disbursement Account) in an aggregate amount not to exceed $150,000 at any one time) any of the Collateral or any other property of the Borrower and its Subsidiaries acquired after the Effective Date (other than property owned by a Non-Wholly Owned Subsidiary), (iii) to establish and maintain the validity and effectiveness of any of the Loan Documents and the validity, perfection and priority of the Liens intended to be created thereby (except for Permitted Liens and the failure to perfect funds on deposit in deposit accounts of the Loan Parties (other than the Concentration Accounts and the Disbursement Account) in an aggregate amount not to exceed $150,000 at any one time), and (iv) to better assure, convey, grant, assign, transfer and confirm unto the Collateral Agent for the ratable benefit of the Lenders the rights now or hereafter intended to be granted to the Collateral Agent for the ratable benefit of the Lenders under this Agreement or any other Loan Document. 43 SECTION 8.14. Change in Collateral; Collateral Records. The Borrower shall (i) give the Administrative Agent and the Collateral Agent not less than thirty (30) days' prior written notice of any change in the location of any Collateral, other than locations set forth on Schedule 8.14 and other than any change in location resulting from a Disposition which is permitted under this Agreement, provided such change exists for no more than ten (10) days, (ii) advise the Collateral Agent promptly, in sufficient detail, of any change which would reasonably be expected to have a Material Adverse Effect relating to the value of the Collateral or the Lien granted thereon and (iii) execute and deliver, and cause each of its Subsidiaries to execute and deliver, to the Collateral Agent for the benefit of the Lenders from time to time, solely for the Collateral Agent's convenience in maintaining a record of Collateral, such written statements and schedules, maintained by the Borrower and its Subsidiaries in the ordinary course of business, as the Collateral Agent may reasonably require, designating, identifying or describing the Collateral. SECTION 8.15. Landlord Waivers. The Borrower shall obtain at the time a Loan Party enters into a lease for real property not occupied on the Effective Date a landlord's waiver from the landlord of such real property (which waiver may be contained in such lease), in form and substance satisfactory to the Collateral Agent. SECTION 8.16. After Acquired Real Property. Upon the acquisition by the Borrower or any of its Subsidiaries after the date hereof of any interest (whether fee or leasehold) in any real property (wherever located) (each such interest being an "After Acquired Property") (x) with a Current Value (as defined below) in excess of $500,000 in the case of a fee interest, or (y) requiring the payment of annual rent exceeding in the aggregate $125,000 in the case of leasehold interest, the Borrower shall promptly so notify the Collateral Agent, setting forth with specificity a description of the interest acquired, the location of the real property, any structures or improvements thereon and either an appraisal or Borrower's good-faith estimate of the current value of such real property (for purposes of this Section, the "Current Value"). The Collateral Agent shall notify the Borrower, in writing within 60 days after receiving notice from the Borrower pursuant to the preceding sentence, whether the Collateral Agent for the benefit of the Lenders intends to require a New Mortgage and the other documents referred to below or in the case of leasehold, a leasehold New Mortgage or landlord's waiver pursuant to Section 8.15. Upon receipt of such notice requesting a New Mortgage, the Person which has acquired such After Acquired Property shall promptly furnish to the Collateral Agent the following, each in form and substance reasonably satisfactory to the Collateral Agent: (i) a New Mortgage with respect to such real property and related assets located at the After Acquired Property, each duly executed by such Person and in recordable form; (ii) evidence of the recording of the New Mortgage referred to in clause (i) above in such office or offices as may be necessary to create and perfect a valid and enforceable first priority lien (subject only to Permitted Liens) on the property purported to be covered thereby or to otherwise protect the rights of the Collateral Agent and the Lenders thereunder, (iii) a Title Insurance Policy, (iv) a survey of such real property, certified to the Collateral Agent and to the issuer of the Title Insurance Policy by a licensed professional survey or reasonably satisfactory to the Collateral Agent, (v) phase I environmental assessment reports with respect to such real property, certified to the Collateral Agent by a company reasonably satisfactory to the Collateral Agent, (vi) in the case of a leasehold interest, a certified copy of the lease between the landlord and such Person with respect to such real property in which such Person has a leasehold interest, and the certificate of occupancy with respect thereto, (vii) in the case of a leasehold interest, an attornment and nondisturbance agreement from the landlord (and the Borrower shall use its commercially reasonable efforts to obtain such an agreement from any fee mortgagee) with respect to such real property and the Collateral Agent for the benefit of the Lenders and (viii) such other documents or instruments (including guarantees and opinions of counsel) as the Collateral Agent may reasonably require. The Borrower shall pay all fees and expenses, including reasonable attorneys' fees and expenses, and all title insurance charges and premiums, in connection with their obligations under this Section. SECTION 8.17. Fiscal Year. The Borrower shall cause its Fiscal Year to end on the Sunday closest to December 31 of each calendar year unless the Required Lenders consent to a change in such Fiscal Year (and appropriate related changes to this Agreement). SECTION 8.18. Additional Guaranties. The Borrower shall cause each of its Subsidiaries, other than Non-Wholly Owned Subsidiaries, not in existence on the Effective Date to execute and deliver to the Collateral Agent for the benefit of the Lenders within three (3) Business Days of the formation, acquisition or change thereof (i) a Security Agreement, (ii) a Guaranty guaranteeing the Obligations, and (iii) such other agreements, instruments, approvals, legal opinions or other documents reasonably requested by Collateral Agent in order to create, perfect, establish the first priority nature of or otherwise protect any Lien created by any such Security Agreement. SECTION 8.19. Post Closing Matters. Borrower shall, and shall cause each of its Subsidiaries to complete the following on or before the date specified with respect thereto. (a) Within thirty (30) days following the Effective Date: (i) Title Company shall have committed to delete exceptions to coverage, and/or Borrower shall have furnished documents to Lender, as with respect to the thirteen (13) properties encumbered as of the Effective Date, in each case as Lender may reasonably request, including but not limited to those set forth below: 44 (1) With regard to all subject properties for which Title Company has included as an exception "matters that may be disclosed" in a title search of any other properties affected by access easements for the subject properties, Title Company will diligently complete all such title searches and disclose any matters affecting the subject properties to Lender prior to amending the title policies. (2) With regard to all subject properties for which the surveyor has not yet provided a separate certification to Lender, surveyor shall promptly provide such separate certification of the survey in a form acceptable to Lender. (3) With respect to each of the following properties, Borrower shall take the following actions: (A) DP# 10 - 4625 50th St., Lubbock, TX. Borrower shall provide verification of zoning compliance. (B) DP# 48 -- 39895 Ford Rd., Canton, MI. Borrower shall provide verification of zoning compliance. (C) DP# 93 -- 3055 Tittabawassee, Saginaw, MI. (i) Borrower shall use commercially reasonable efforts to provide Lender and Title Company with valid parking easement to replace lapsed easement. (ii) Borrower shall provide Lender and Title Company evidence reasonably satisfactory to Lender or Title Company of existing access easement, and use commercially reasonable efforts to cause Title Company to issue access endorsement. (D) DP# 154 -- 2763 E. Lincoln Highway, Langhorne, PA. Borrower shall use commercially reasonable efforts to provide Lender and Title Company evidence to Lender or Title Company of a valid easement across adjoining land (shared driveway). (E) DP# 155 -- 14758 US Hwy 31 N., Carmel, IN. Borrower shall provide verification of zoning compliance. (F) DP# 157 -- 10310 Cascade Crossing, Brooklyn, OH. Borrower shall provide verification of zoning compliance. (G) H# 43 -- 521 University Center Blvd., Charlotte, NC. (i) Borrower shall provide verification that all obligations regarding development improvements are paid and current, including by providing to Title Company the affidavit requested concerning satisfaction of Paragraph 8 of the Development Agreement recorded in Book 5855, Page 844. (ii) Borrower shall have executed, delivered to Lender, and caused to be recorded in the appropriate counties, first deeds of trust, mortgages or deeds to secure debt covering the seven (7) additional properties held for sale by Borrower and commonly known as H 60 -3910 Ambassador Caffrey Pkwy, Lafayette, Louisiana 70508; DP 5088 - 3730 Clemson Blvd., Anderson, South Carolina 29621; DP 5132 - 7618 Rivers, Ave., North Charleston, South Carolina 29406; DP 5139 - 1192 Dogwood, Dr., Conyers, Georgia 30012; DP 5092 - 4501 Woodhaven Rd., Philadelphia, Pennsylvania 19154; DP 5140 - 8088 Kingston Pike, Knoxville, Tennessee 37919-5531; and Harrigans - 3801 50th Street, Lubbock, Texas 79413 (collectively, the "Sale Properties"); Title Company shall have delivered title commitments or title reports with respect to the Sale Properties. (iii) Borrower shall use commercially reasonable efforts to deliver to Lender such other documents and information as Lender may reasonably request regarding the Sale Properties. (iv) Borrower shall cause Title Company to deliver lien search reports, or, if clean chain of title cannot be confirmed thereby to Lender's reasonable satisfaction, full title reports or commitments with respect to, and Borrower shall have executed, delivered to Lender, and caused to be recorded in the appropriate counties, assignments and amendments and restatements of existing leasehold mortgages, or at Lender's election, new mortgages, and evidence reasonably satisfactory to Lender as to the matters set forth below with respect to at least thirty (30) of Borrower's leased properties. (1) For all properties with permitted mortgages/deeds of trust, notify landlord and where applicable use commercial best efforts to notify fee mortgagee of existence of and contact information for Lender as leasehold mortgagee. (2) For all properties verify by representation that Lender has been furnished all previously executed estoppel statements and SNDAs; for all properties, verify that mortgages are not inconsistent with any such estoppels or SNDAs. (3) For all properties where an estoppel has been given or a lease amendment has been executed, use commercial best efforts to verify fee mortgagee assent or lack of need therefore. 45 (4) For the specific properties numbered below (all DP numbers), accomplish the tasks set forth in the table below, or provide evidence reasonably satisfactory to Lender as to Borrower's ability to grant first leasehold mortgages with respect to alternate leased properties reasonably satisfactory to Lender. 5013 Obtain evidence of lender's (Amresco's) consent to Amendment to Lease dated May 8, 2002 5014 Verify use of proceeds of original mortgage loan for Permitted Indebtedness 5020 5021 5022 Prove timely exercise of lease extension by submitting landlord acknowledgement or executed receipt for letter of exercise sent certified mail, return receipt requested. 5023 5026 5027 5028 verify timely exercise and landlord acceptance of exercise of extension option to extend lease beyond September of 2003. 5036 5041 5044 5045 5046 5050 Verify that prior notice of original mortgage was given to landlord. 5051 5055 Verify that prior notice of original mortgage was given to landlord. 5057 Verify that prior notice of original mortgage was given to landlord. 5058 Verify chain of title by providing recorded mortgages, etc. 5059 Verify that prior notice of original mortgage was given to landlord. 5060 Verify that prior notice of original mortgage was given to landlord. Verify status of fee mortgage and consent to First Bank National Association to mortgage as required by estoppel statement to FBNA. 5067 Verify that prior notice of original mortgage was given to landlord. 5069 Verify that prior notice of original mortgage was given to landlord. 5072 5074 Verify that prior notice of original mortgage was given to landlord. 5075 Verify that prior notice of original mortgage was given to landlord. 5076 Verify that prior notice of original mortgage was given to landlord. 5079 Verify that prior notice of original mortgage was given to landlord. 5082 Verify that prior notice of original mortgage was given to landlord. 5087 Verify that prior notice of original mortgage was given to landlord. (v) Borrower shall cause Lender to have received environmental database reports reasonably satisfactory to Lender concerning the thirty (30) leased properties listed above, or alternate leased properties reasonably satisfactory to Lender and with respect to which Lender is accepting a new or assignment, amendment and restatement of an existing leasehold mortgage. (vi) Borrower shall deliver to Lender such licenses, permits and approvals as Lender may reasonably require with respect to such thirty (30) leased properties. (vii) Borrower shall use its commercially reasonable efforts to deliver to Lender such other documents and information as Lender may reasonably request regarding such thirty (30) leased properties. (b) The Borrower shall, and shall cause each of its Subsidiaries to complete the items set forth on Schedule 8.19 on or before the time specified for such item on such Schedule. 46 ARTICLE IX NEGATIVE COVENANTS The Borrower covenants and agrees that it shall comply with the following covenants so long as any Commitments are outstanding and thereafter until payment in full of all of the Obligations: SECTION 9.01. Liens, Sales of Accounts Receivable. The Borrower shall not, and shall not permit any of its Subsidiaries to, create, incur, assume or suffer to exist any Lien upon or with respect to any of its property, whether now owned or hereafter acquired, or assign or otherwise transfer any Account Receivable or other right to receive income, other than Permitted Liens. SECTION 9.02. Indebtedness. The Borrower shall not, and shall not permit any of its Subsidiaries to, create, incur, assume, guarantee or suffer to exist, or otherwise become or remain liable with respect to any Indebtedness, other than Permitted Indebtedness. SECTION 9.03. Fundamental Changes, Asset Sales, and Acquisitions. The Borrower shall not, and shall not permit any of its Subsidiaries to, wind-up, liquidate or dissolve itself (or permit or suffer any thereof) or merge, consolidate or amalgamate with any Person, convey, sell, lease or sublease, transfer or otherwise dispose of, whether in one transaction or a series of related transactions, all or any part of its business, property or assets, whether now owned or hereafter acquired, or (agree to do any of the foregoing) or purchase or otherwise acquire, whether in one transaction or a series of related transactions, all or substantially all of the assets of any Person (or any division thereof) (or agree to do any of the foregoing); provided, however, that: (a) any Dormant Subsidiary or any Non-Wholly Owned Subsidiary may be wound-up, liquidated or dissolved, so long as the proceeds of any such liquidation or dissolution and any remaining assets of such Dormant Subsidiary or Non-Wholly Owned Subsidiary are promptly transferred to the Borrower or any of its Wholly Owned Subsidiaries in connection therewith; (b) any Wholly Owned Subsidiary of the Borrower may be merged into Borrower or another such Wholly Owned Subsidiary of the Borrower, other than a Liquor License Subsidiary or a Dormant Subsidiary, consolidate with another such Wholly Owned Subsidiary of the Borrower, other than a Liquor License Subsidiary or a Dormant Subsidiary, or sell assets to the Borrower or another Wholly Owned Subsidiary of the Borrower, other than a Liquor License Subsidiary or a Dormant Subsidiary, so long as (A) the Borrower gives the Administrative Agent (i) at least 15 days' prior written notice of any such merger or consolidation, or (ii) at least 10 days' prior written notice of any such sale of assets, (B) no Default or Event of Default shall have occurred and be continuing either before or after giving effect to such transaction, (C) the Collateral Agent's and the Lenders' rights in any Collateral, including the existence, perfection and priority of any Lien thereon, are not adversely affected by such merger, consolidation or sale of assets, and (D) in the case of a merger or consolidation of Wholly Owned Subsidiaries, the surviving Wholly Owned Subsidiary, if any, is a party to a Guaranty and a Security Agreement and the Capital Stock of such Wholly Owned Subsidiary is the subject of a Pledge Agreement, in each case which is in full force and effect on the date of and immediately after giving effect to such merger or consolidation; (c) the Borrower and its Subsidiaries (other than the Liquor License Subsidiaries and the Dormant Subsidiaries) may (A) sell Inventory in the ordinary course of business, (B) dispose of obsolete or worn-out equipment in the ordinary course of business, (C) close up to twenty (20) Restaurants owned or operated by the Borrower or any of its Subsidiaries during the term of this Agreement, to the extent that such closings do not involve a Disposition of the Restaurant or the assets owned and/or operated by the Borrower or the applicable Subsidiary in connection with such Restaurant, (D) sell or otherwise dispose of other property or assets for at least 80% cash (including any sales or other dispositions of property or assets in connection with the closure of a Restaurant location) in an aggregate amount not less than the fair market value of such property or assets and the Net Cash Proceeds are paid to the Administrative Agent in accordance with Section 3.01(b), provided that in no event shall more than twenty (20) Restaurants be sold; (E) sell or dispose of the Assets Held For Sale for at least 80% cash in an aggregate amount not less than the fair market value of such property or assets, so long as all of the Net Cash Proceeds thereof are used as permitted under Section 3.01(b)(ii) and (F) renegotiate or refinance any of the items listed on Schedule 9.05 (other than the New DuPree Note) provided that the aggregate proceeds thereof in excess of $1,000,000 shall be used to prepay the Obligations in accordance with Section 3.01(b)(ii). SECTION 9.04. Change in Nature of Business. The Borrower shall not, and shall not permit any of its Subsidiaries to, make any material change in the nature of its business as such business is carried on at the date hereof except as permitted under Section 9.03. SECTION 9.05. Investments. The Borrower shall not, and shall not permit any of its Subsidiaries to, hold, own or invest in or commit or agree to hold or invest in, or purchase or otherwise acquire or commit or agree to purchase or otherwise acquire any Investment, except for: (i) Investments existing on the date hereof, as set forth on Schedule 9.05, but not any increase in the amount thereof as set forth in such Schedule or any other modification of the terms thereof, and (ii) Permitted Investments; provided, however, that Borrower and its Subsidiaries shall not have Permitted Investments in Securities Accounts or Deposit Accounts in excess of $200,000 in the aggregate for all such accounts outstanding at any one time unless a Control Account has been executed and delivered with respect to such Securities Accounts or Deposit Accounts. 47 SECTION 9.06. Lease Obligations. The Borrower shall not, and shall not permit any of its Subsidiaries to, create, incur or suffer to exist any obligations as lessee for the payment of rent for any real or personal property under leases or agreements to lease other than (i) Capitalized Lease Obligations in an amount not to exceed the amount permitted for Capitalized Lease Obligations under the definition of "Permitted Indebtedness", and (ii) Operating Lease Obligations which would not cause the aggregate amount of all Operating Lease Obligations owing by the Borrower and its Subsidiaries to exceed $29,000,000 during any Fiscal Year. SECTION 9.07. Capital Expenditures. The Borrower shall not, and shall not permit any of its Subsidiaries to, make or agree to make any Capital Expenditure that would cause the aggregate amount of all such Capital Expenditures made by Borrower and its Subsidiaries to exceed the amount set forth below opposite the applicable Fiscal Year: Fiscal Year Maximum Capital Expenditures 2003 $5,600,000 2004 and each $7,500,000 Fiscal Year thereafter SECTION 9.08. Restricted Payments. The Borrower shall not, and shall not permit any Subsidiary to, make any Restricted Payment, other than: (a) cash dividends or other cash distributions made to any limited partner of any of the Borrower's Subsidiaries (other than any limited partner which is a Subsidiary of Borrower) pursuant to the terms of (i) the applicable limited partnership agreement or (ii) the plans described on Schedule 1.01(I); (b) Investments described in paragraph (x) of the definition of "Permitted Investments"; (c) Permitted Intercompany Advances; (d) payments with respect to Indebtedness described in paragraph (i) of the definition of "Permitted Indebtedness"; (e) cash payments and equity distributions made pursuant to the terms of the plans described in Schedule 1.01(I); and (f) cash and stock dividends, return capital and other distributions of assets to the Borrower or any Guarantor. SECTION 9.09. Federal Reserve Regulations. The Borrower shall not, and shall not permit any Subsidiary to, use any Loan or the proceeds of any Loan under this Agreement for any purpose that would cause such Loans to be margin loans under the provisions of Regulation T, U or X of the Board. SECTION 9.10. Transactions with Affiliates. The Borrower shall not, and shall not permit any Subsidiary to, enter into, renew, extend or be a party to any transaction or series of related transactions (including, without limitation, the purchase, sale, lease, transfer or exchange of property or assets of any kind or the rendering of services of any kind) with any of its Affiliates, except (i) in the ordinary course of business in a manner and to an extent consistent with past practice and necessary or desirable for the prudent operation of its business, for fair consideration and on terms no less favorable to Borrower or such Subsidiary than would be obtainable in a comparable arm's length transaction with a Person that is not an Affiliate thereof, (ii) the New DuPree Note, (iii) in connection with the Permitted Affiliate Transaction, Permitted Intercompany Advances and payments in respect of Indebtedness permitted pursuant to clause (i) of the definition of "Permitted Indebtedness", and (iv) royalty and management fees paid to a Loan Party, solely to the extent permitted above and to the extent consistent with past practices. SECTION 9.11. Limitations on Dividends and Other Payment Restrictions Affecting Subsidiaries. The Borrower shall not, and shall not permit its Subsidiaries to, create or otherwise cause, incur, assume, suffer or permit to exist or become effective any consensual encumbrance or restriction of any kind on the ability of any Subsidiaries of the Borrower (i) to pay dividends or to make any other distribution on any shares of Capital Stock of such Subsidiary owned by the Borrower or any of its Subsidiaries, (ii) to subordinate (other than in connection with the Senior Subordinated Note Documents or the Convertible Debentures) or to pay or prepay any Indebtedness owed to the Borrower or any of its Subsidiaries, (iii) to make loans or advances to the Borrower or any of its Subsidiaries or (iv) to transfer any of its property or assets to the Borrower or any of its Subsidiaries, or permit any of its Subsidiaries to do any of the foregoing; provided, however, that nothing in any of clauses (i) through (iv) of this Section 9.11 shall prohibit or restrict: (A) this Agreement and the other Loan Documents; (B) any applicable law, rule or regulation (including applicable currency control laws and applicable state corporate statutes restricting the payment of dividends in certain circumstances); (C) in the case of clause (iv) any agreement setting forth customary restrictions on the subletting, assignment or transfer of any property or asset that is a lease, license, conveyance or contract of similar property or assets; or (D) in the case of clause (iv) any holder of a Permitted Lien from restricting on customary terms the transfer of any property or assets subject thereto. SECTION 9.12. Limitation on Issuance of Capital Stock. The Borrower shall not, and shall not permit any of its Subsidiaries to, issue or sell or enter into any agreement or arrangement for the issuance and sale of any shares of its Capital Stock, any securities convertible into or exchangeable for its Capital Stock or any warrants, options or other rights for the purchase or acquisition of any of its Capital Stock, other than (i) the granting to all holders of common stock of Borrower of rights to subscribe for or purchase any shares of Capital Stock of the Borrower of any class or of any other rights and the issuance of Capital Stock of the Borrower in connection with the exercise of such rights or the conversion of Capital Stock of the Borrower acquired pursuant to such rights; or (ii) or in connection with the plans set forth on Schedule 1.1(I). 48 SECTION 9.13. Modifications of Indebtedness, Organizational Documents and Certain Other Agreements. The Borrower shall not, and shall not permit any of its Subsidiaries to: (i) amend, modify or otherwise change any of the provisions of any Indebtedness for borrowed money of the Borrower or any of its Subsidiaries or of any instrument (including, without limitation, the Senior Note Documents, the Senior Subordinated Note Documents, the TECON Documents) relating to any such Indebtedness, except in connection with the New DuPree Note, (ii) except for the Obligations, make any voluntary or optional payment, prepayment, redemption or other acquisition for value of any Indebtedness of the Borrower or any of its Subsidiaries other than (A) the purchase of the Senior Notes and the Senior Subordinated Notes pursuant to the Buyback Proposal or the Incremental Proposal provided that at the time of and after giving effect to each such purchase, the Weighted Availability is at least $3,000,000, (B) the exercise by the Borrower of the SunTrust Option and the acquisition of the equipment in accordance with the SunTrust Option, (C) in connection with clauses (h), (i), (l) and (n) of the definition of Permitted Indebtedness, and (D) in connection with the plans set forth on Schedule 1.1(I), (iii) refund, refinance, replace or exchange any other Indebtedness for any such Indebtedness, make any prepayment, redemption or repurchase of any outstanding Indebtedness as a result of any asset sale, change of control, issuance and sale of debt or equity securities or similar event, or give any notice with respect to any of the foregoing, or make any payment of any kind with respect to or in connection with the TECONS or the Convertible Debentures, or (iv) amend, modify or otherwise change its certificate of incorporation or bylaws (or other similar organizational documents), including, without limitation, by the filing or modification of any certificate of designation, or any agreement or arrangement entered into by it, with respect to any of its Capital Stock (including any shareholders' agreement) except (Y) any such amendments, modifications or changes pursuant to this clause (iii) that either individually or in the aggregate would not be materially adverse to the interests of the Lenders, or (Z) any such amendments, modifications or changes in connection with the plans set forth on Schedule 1.1(I). SECTION 9.14. Investment Company Act of 1940. The Borrower shall not, and shall not permit its Subsidiaries to, engage in any business, enter into any transaction, use any securities or take any other action that would cause it or any of its Subsidiaries to become subject to the registration requirements of the Investment Company Act of 1940, as amended, by virtue of being an "investment company" or a company "controlled" by an "investment company" not entitled to an exemption within the meaning of such Act. SECTION 9.15. Securities Accounts. The Borrower shall not, and shall not permit any of its Subsidiaries to, establish or maintain any Securities Account unless Collateral Agent shall have received a Control Agreement in respect of such Securities Account. The Borrower and/or such Subsidiary shall comply in all material respects with the provisions of each Control Agreement to which it is a party. SECTION 9.16. Environmental. The Borrower shall not, and shall not permit any of its Subsidiaries to, permit the use, handling, generation, storage, treatment, release or disposal of Hazardous Materials at any property owned or leased by Borrower or any of its Subsidiaries except in compliance with Environmental Laws and so long as such use, handling, generation, storage, treatment, release or disposal of Hazardous Materials does not result in a Material Adverse Effect. SECTION 9.17. Certain Agreements. The Borrower shall not, and shall not permit any of its Subsidiaries to, agree to any material amendment or other material change to or material waiver of any of its rights under the Material Contracts (other than the SunTrust Option) without the prior written consent of Collateral Agent, if and only if such material amendment, material change or material waiver is not adverse to the Lenders, the Obligations or the rights of the Lenders. SECTION 9.18. Liquor License Subsidiaries. The Borrower shall not, and shall not permit its Subsidiaries to, permit any Liquor License Subsidiary to (i) have or acquire any assets other than liquor licenses or such assets as are necessary for the sale of alcohol in certain Restaurants (which assets have an aggregate fair market value which does not exceed $250,000 at any one time), (ii) incur liabilities of any nature whatsoever (except in connection with the maintenance of and compliance with liquor licenses, and liabilities, as are necessary for the sale of alcohol in certain Restaurants (in an aggregate outstanding amount which does not exceed $250,000 at any one time)), or (iii) engage in any other activity or business of any kind other than with respect to the sale of alcohol in certain Restaurants. SECTION 9.19. Non-Wholly Owned Subsidiaries. The Borrower shall not, and shall not permit its Subsidiaries to, permit any Non-Wholly Owned Subsidiary to own any Capital Stock. SECTION 9.20. Dormant Subsidiaries. The Borrower shall not, and shall not permit its Subsidiaries to, permit any Dormant Subsidiary to (i) have or acquire any assets, (ii) incur any Indebtedness or any additional liabilities of any nature whatsoever, or (iii) engage in any other activity or business of any kind other than the payment of outstanding taxes, the resolution of outstanding lawsuits and the dissolution thereof. 49 SECTION 9.21. Subsidiary Activities. Notwithstanding any other provision hereof, in the event that, and to the extent that, as of the date hereof, any of the terms or conditions set forth in Sections 9.02, 9.05, 9.08, 9.11 or 9.12, shall operate to restrict the ability of any Subsidiary to (i) pay dividends or make distributions to Borrower or any Guarantor, to the extent permitted under applicable law, on any capital stock of such Subsidiary owned by Borrower or any Guarantor, (ii) make any payment to Borrower or any Guarantor with respect to any Indebtedness or other obligation owed to Borrower or any Guarantor, (iii) make loans or advances to Borrower or any Guarantor, or (iv) transfer any of its property or assets to Borrower or any Guarantor (collectively, the "Subsidiary Activities"), and the imposition of such restriction on any such Subsidiary Activity pursuant hereto is expressly prohibited under or constitutes an event of default under, the terms of the Senior Note Documents, then, notwithstanding the foregoing, such Subsidiary Activity shall be permitted. ARTICLE X FINANCIAL COVENANTS The Borrower covenants and agrees that so long as any Commitments are outstanding and thereafter until payment in full of all of the Obligations: SECTION 10.01. Maximum Senior Debt to EBITDA Ratio. The Borrower shall not permit the Senior Debt to EBITDA Ratio for the trailing twelve-month period ending on the date set forth below to be greater than the ratio set forth opposite such date: Applicable Date Ratio --------------- ----- March 30, 2003 1.95:1.00 May 25, 2003 1.90:1.00 September 28, 2003 1.86:1.00 November 23, 2003 1.77:1.00 March 28, 2004 1.70:1.00 SECTION 10.02. Maximum Total Debt to EBITDA Ratio. The Borrower shall not permit the Maximum Total Debt to EBITDA Ratio for the trailing twelve-month period ending on the date set forth below to be greater than the ratio set forth opposite such date: Applicable Date Maximum Total Debt to EBITDA Ratio --------------- ---------------------------------- March 30, 2003 7.50:1.00 May 25, 2003 7.00:1.00 September 28, 2003 6.75:1.00 November 23, 2003 6.25:1.00 March 28, 2004 5.75:1.00 SECTION 10.03. Fixed Charge Coverage Ratio. The Borrower shall not permit the Fixed Charge Coverage Ratio for the trailing twelve-month period ending on the date set forth below to be less than the ratio set forth opposite such date: Applicable Date Fixed Charge Coverage Ratio --------------- --------------------------- March 30, 2003 1.40:1.00 May 25, 2003 1.40:1.00 September 28, 2003 1.40:1.00 November 23, 2003 1.40:1.00 March 28, 2004 1.40:1.00 SECTION 10.04. EBITDA. The Borrower shall not permit its EBITDA for the trailing twelve-month period ending on the date set forth below to be less than the amount set forth opposite such date: Applicable Date EBITDA --------------- ------ March 30, 2003 $20,000,000 May 25, 2003 $20,500,000 September 28, 2003 $21,000,000 November 23, 2003 $22,000,000 March 28, 2004 $23,000,000 ARTICLE XI EVENTS OF DEFAULT, RIGHTS AND REMEDIES SECTION 11.01. Events of Default. Each of the following occurrences shall constitute an Event of Default under this Agreement. (a) Failure to Make Payments When Due. The Borrower shall fail to pay any Obligation (whether principal, reimbursement obligations, interest, fees, expenses, indemnities or other obligations) when due (whether by scheduled maturity, required prepayment, acceleration, demand or otherwise). (b) Breach of Representation or Warranty. Any representation or warranty made or deemed made by or on behalf of any Loan Party or by any officer of the foregoing under or in connection with any Loan Document or under or in connection with any report, certificate, or other document delivered to the Administrative Agent or any Lender pursuant to any Loan Document shall have been incorrect or misleading in any material respect when made or deemed made. (c) Any Loan Party shall fail to perform or comply with any covenant or agreement contained in Sections 7.01(a) through (e), 7.02, 8.03, 8.06, 8.10, 8.11, or 8.14, and such failure continues for a period of 3 Business Days. 50 (d) Any Loan Party shall fail to perform or comply with any covenant or agreement contained in Sections 7.03, 7.05, 7.06, 7.08, 7.09, 7.11, or 8.08, and such failure continues for a period of 5 Business Days. (e) Breach of Certain Covenants. Any Loan Party shall fail to perform or comply with any covenant or agreement contained in Sections 7.04, 7.10 or 8.05, Article IX or Article X under this Agreement or contained in any other Loan Document. (f) Other Defaults. Any Loan Party shall fail to perform or comply with any other covenant or agreement (other than those set forth in Sections 11.01(a) and (e)) and such failure continues for 10 Business Days; (g) Default as to Other Indebtedness. Any Loan Party shall fail to make any payment when due (whether by scheduled maturity, required prepayment, acceleration, demand or otherwise) with respect to any Indebtedness if the aggregate amount of such Indebtedness is in excess of $300,000 in the aggregate and such failure shall continue after the applicable grace period, if any, specified in the agreement or instrument relating to such Indebtedness; or any other breach, default or event of default shall occur, or any other condition shall exist under any instrument, agreement or indenture pertaining to any such Indebtedness, if the effect thereof (with or without the giving of notice or lapse of time or both) is to cause an acceleration, mandatory redemption or other required repurchase of such Indebtedness or, as to such Indebtedness, permit the holder or holders of such Indebtedness to accelerate the maturity of any such Indebtedness or require a redemption or other repurchase of such Indebtedness; or any Indebtedness if the aggregate amount of such Indebtedness is $300,000 shall be declared be due and payable (by acceleration or otherwise) or required to be prepaid, redeemed or otherwise repurchased by any Loan Party (other than by a regularly scheduled required prepayment) prior to the stated maturity thereof; or the holder or holders of any Lien, securing obligations of $300,000 or more, shall commence foreclosure of such Lien upon property of any Loan Party. (h) Voluntary Bankruptcy Proceeding. The Borrower or any of its Subsidiaries (i) shall institute any proceeding or voluntary case seeking to adjudicate it a bankrupt or insolvent, or seeking dissolution, liquidation, winding up, reorganization, arrangement, adjustment, protection, relief or composition of it or its debts under any law relating to bankruptcy, insolvency, reorganization or relief of debtors, or seeking the entry of an order for relief or the appointment of a receiver, trustee, custodian or other similar official for any such Person or for any substantial part of its property, (ii) shall consent to the entry of an order for relief in an involuntary bankruptcy case or to the conversion of an involuntary case to a voluntary case under bankruptcy, insolvency or reorganization law, (iii) shall be generally not paying its debts as such debts become due or shall admit in writing its inability to pay its debts generally, (iv) shall make a general assignment for the benefit of creditors, or (v) shall take any action to authorize or effect any of the actions set forth above in this subsection (f). (i) Involuntary Bankruptcy Proceeding. (i) An involuntary case shall be commenced against the Borrower or any of its Subsidiaries and the petition shall not be dismissed, stayed, bonded or discharged within sixty (60) days; or a court having jurisdiction in the premises shall enter a decree or order for relief in respect of the Borrower or any of its Subsidiaries in an involuntary case, under any applicable bankruptcy, insolvency or other similar law now or hereinafter in effect; or any other similar relief shall be granted under any applicable federal, state, local or foreign law; or the board of directors of the Borrower or any of its Subsidiaries (or any committee thereof) adopts any resolution or otherwise authorizes any action to approve any of the foregoing. (ii) A decree or order of a court having jurisdiction in the premises for the appointment of a receiver, liquidator, sequestrator, trustee, custodian or other officer having similar powers over the Borrower or any of its Subsidiaries or over all or a substantial part of their respective assets shall be entered; or an interim receiver, trustee or other custodian of the Borrower or any of its Subsidiaries or of all or a substantial part of their respective assets shall be appointed or a warrant of attachment, execution or similar process against any substantial part of their respective assets shall be issued and any such event shall not be stayed, dismissed, bonded or discharged; or the board of directors of the Borrower or any of its Subsidiaries (or any committee thereof) adopts any resolution or otherwise authorizes any action to approve any of the foregoing. (j) Invalidity of Documents. Any provision of any Loan Document shall at any time for any reason (other than pursuant to the express terms thereof) cease to be valid and binding on or enforceable against a Loan Party intended to be a party thereto; or the validity or enforceability thereof shall be contested by any party thereto; or a proceeding shall be commenced by a Loan Party or any Governmental Authority having jurisdiction over any of them, seeking to establish the invalidity or unenforceability thereof; or a Loan Party shall deny in writing that it has any liability or obligation purported to be created under any Loan Document. (k) Loan Documents. At any time, for any reason, (i) any Loan Document shall for any reason (other than pursuant to the express terms hereof or thereof) fail or cease to create a valid and perfected Lien or the Liens intended to be created thereby are, or any Loan Party seeks to render such Liens, invalid or unperfected except for the failure to perfect funds on deposit in deposit accounts of the Loan Parties (other than the Concentration Accounts and the Disbursement Account) in an aggregate amount not to exceed $150,000 at any one time, or (ii) Liens in favor of the Collateral Agent contemplated by the Loan Documents shall be invalidated or otherwise cease to be in full force and effect, or such Liens shall be subordinated or shall not have the priority contemplated hereby or by the other Loan Documents (subject to Permitted Liens). 51 (l) Judgments. One or more judgments or judicial or administrative orders for the payment of money exceeding $300,000 in the aggregate shall be rendered against a Loan Party and remain unsatisfied and either (i) enforcement proceedings shall have been commenced by any creditor upon any such judgment or judicial or administrative order, or (ii) there shall be a period of 20 consecutive Business Days after entry thereof during which a stay of enforcement of any such judgment or order, by reason of a pending appeal or otherwise, shall not be in effect; provided, however, that any such judgment or order shall not give rise to an Event of Default under this Section 11.01(l) if and to the extent that (A) the amount of such judgment or order is covered by a valid and binding policy of insurance between the defendant and the insurer covering full payment thereof and (B) such insurer has been notified, and has not disputed the claim made for payment, of the amount of such judgment or order. (m) Change of Control. A Change of Control shall have occurred. (n) Material Adverse Effect. A Material Adverse Effect shall have occurred and be continuing. (o) Lease Guaranties. The Borrower or any of its Subsidiaries shall have made any payment or payments of any kind or nature on account of one or more Lease Guaranties which, in the aggregate, exceed $250,000. (p) Payments in Respect of Convertible Debentures or TECONS. The Borrower or any of its Subsidiaries shall have made any payments in respect of the Convertible Debentures or the TECONS. then, and in any such event, the Administrative Agent may, and at the written direction of the Required Lenders shall, by notice to the Borrower, (i) terminate or reduce the Commitments, whereupon the Commitments shall immediately be terminated or reduced, (ii) declare all or a portion of Loans and Reimbursement Obligations then outstanding to be due and payable, whereupon all or such portion of the aggregate principal of such Loans and Reimbursement Obligations all accrued and unpaid interest thereon, all fees and all other amounts payable under this Agreement and all other Obligations shall become immediately due and payable, without presentment, demand, protest or further notice of any kind, all of which are hereby expressly waived by the Borrower and (iii) exercise any and all of its other rights and remedies hereunder, under the other Loan Documents, under applicable law and otherwise; provided, however, that upon the occurrence of any Event of Default described in subsection (h) or (i) of this Section 11.01, the Commitments shall automatically terminate and the Loans and Reimbursement Obligations then outstanding, together with all accrued and unpaid interest thereon, all fees and all other amounts due under this Agreement shall become immediately due and payable automatically, without presentment, demand, protest or notice of any kind, all of which are expressly waived by the Borrower. Without limiting the generality of the foregoing, if an Event of Default has occurred and is continuing, the Administrative Agent may, at its option, require the Borrower to deposit with the Administrative Agent funds equal to 105% of the LC Exposure. Any such deposit shall be held by the Administrative Agent in the Letter of Credit Collateral Account (which shall be an interest bearing account) as security for and cash collateral to fund future payments on such LC Guaranties and future drawings against the Letter of Credit Accommodations. ARTICLE XII MANAGEMENT, COLLECTION AND STATUS OF ACCOUNTS RECEIVABLE AND OTHER COLLATERAL SECTION 12.01. Collection of Accounts Receivable; Management of Collateral. (a) The Borrower has established and at all times shall maintain concentration accounts (the "Concentration Accounts") at the Concentration Account Bank and identified as the "Collateral Agent Accounts" in the Concentration Account Agreement, and shall promptly deposit, and shall cause each of its Subsidiaries promptly to deposit, all Collections in excess of $200,000 in the aggregate received by the Borrower or any of its Subsidiaries from any source, and in any event no later than the first Business Day after the date of receipt thereof, and all other Collections received by the Borrower or any of its Subsidiaries from any source promptly, and in any event no later than the second Business Day after the date of the receipt thereof, into the Concentration Accounts. The Borrower, the Administrative Agent and the Concentration Account Bank have entered into a concentration account agreement, in form and substance reasonably satisfactory to the Administrative Agent (the "Concentration Account Agreement"). Neither the Concentration Account Agreement nor the arrangements contemplated thereby shall be modified by the Borrower or any of its Subsidiaries without the prior written consent of the Administrative Agent. Upon the terms and subject to the conditions set forth in the Concentration Account Agreement, all amounts received in the Concentration Accounts shall be deposited each Business Day into the Administrative Agent Account. Until the Administrative Agent has advised the Borrower to the contrary upon the occurrence and during the continuance of an Event of Default, the Borrower and its Subsidiaries may and will enforce, collect and receive all amounts owing on the Account Receivables for the benefit of, and on behalf of, the Collateral Agent and the Lenders. All Collections (including checks, drafts, notes, money orders, acceptances, cash and other evidences of Indebtedness) received directly by the Borrower or any of its Subsidiaries from any Account Debtor or any other source (exclusive of the Lenders), whether as proceeds from Accounts Receivable, or as proceeds of any other Collateral, or otherwise, shall be received and held by the applicable Loan Party in trust for the Lenders and deposited by such Loan Party in original form and no later than the next Business Day after receipt thereof into the Concentration Accounts. The Borrower 52 shall not, nor shall it permit any of its Subsidiaries to, commingle such Collections with the proceeds of any Loan. All Collections of each Subsidiary of the Borrower deposited into the Concentration Accounts by such Subsidiary shall be deemed first to be a repayment of all outstanding Intercompany Advances made by any Loan Party to such Subsidiary, until paid in full, with all such remaining Collections being deemed to be a distribution by such Subsidiary to Borrower through each Person who (directly or indirectly through one or more intermediaries) owns the Capital Stock of such Subsidiary, other than any limited partner of a Non-Wholly Owned Subsidiary. (b) The Administrative Agent shall charge the Loan Account on the last day of each month for one (1) Business Day of "clearance" or "float" at the rate applicable to Loans set forth in Section 4.01(a) on all Collections that are received by the Administrative Agent (regardless of whether forwarded by a Concentration Account Bank to the Administrative Agent, whether provisionally applied to reduce the Obligations under the Loan Documents, or otherwise). This across-the-board one (1) Business Day clearance or float charge on all Collections is acknowledged by the parties to constitute an integral aspect of the pricing of the Lenders' financing of the Borrower, and shall apply irrespective of the characterization of whether receipts are owned by the Borrower or the Lenders, and whether or not there are any outstanding Loans, the effect of such clearance or float charge being the equivalent of charging one (1) Business Day of interest on such Collections. All funds received in the Concentration Account shall be transferred to the Disbursement Account until such time as the Collateral Agent sends a notice terminating such arrangement and three Business Days following the receipt by the Concentration Account Bank of such notice all funds received in the Concentration Account shall be sent by wire transfer or Automated Clearing House Inc. payment to the Administrative Agent to be credited to the Loan Account for application at the end of each Business Day to reduce the then principal balance of the Loans, conditional upon final payment to the Administrative Agent. No checks, drafts or other instrument received by the Administrative Agent shall constitute final payment to the Administrative Agent unless and until such instruments have actually been collected. (c) During the continuance of an Event of Default, the Collateral Agent may send a notice of assignment and/or notice of the Collateral Agent's security interest, held for the benefit of it and the Lenders, to any and all Account Debtors, and during such time period, the Collateral Agent shall have the sole right to collect the Accounts Receivable and/or take possession of the Accounts Receivable and the books and records relating thereto. Except, in the absence of a continuing Event of Default, if the aggregate amount of Accounts Receivable other than credit card receivables is more than $200,000, the Borrower shall not, and shall not permit its Subsidiaries to, without prior written consent of the Administrative Agent, grant any extension of time of payment of any Account Receivable, compromise or settle any Account Receivable for less than the full amount thereof, release, in whole or in part, any Person or property liable for the payment thereof, or allow any credit or discount whatsoever thereon. (d) The Borrower hereby appoints the Administrative Agent for the benefit of the Collateral Agent and the Lenders or their designee as Borrower's attorney-in-fact with power exercisable during the continuance of any Event of Default: (i) to demand payment of the Accounts Receivable from Account Debtors, to enforce payment of the Accounts Receivable by legal proceedings or otherwise, and generally exercise all of the Borrower's rights and remedies with respect to the collection of the Accounts Receivable, (ii) to endorse the Borrower's name upon any checks or other evidences of payment relating to the Accounts Receivable, (iii) to sign the Borrower's name on any invoice or bill of lading relating to any of the Accounts Receivable, (iv) to sign the Borrower's name on any drafts against Account Debtors with respect to Accounts Receivable, (v) to prepare, file, and sign the Borrower's name to a proof of claim or similar document against any Account Debtor in connection with a bankruptcy proceeding commenced by or with respect to such Account Debtor, (vi) to use the Borrower's stationery and to sign the Borrower's name on any assignments of Accounts Receivable, verifications of Accounts Receivable and notices to Account Debtors with respect to Accounts Receivables, and (vii) to send verifications of Accounts Receivable. All acts of said attorney or designee are hereby ratified and approved, and said attorney or designate shall not be liable for any acts of omission or commission, or for any error of judgment or mistake of fact or law (other than acts, errors, or mistakes, constituting gross negligence or willful misconduct as determined by a final order of a court of competent jurisdiction); this power being coupled with an interest is irrevocable until all of the Loans and other Obligations under the Loan Documents are paid in full and all of the Loan Documents are terminated. (e) Nothing contained herein shall be construed to constitute the Collateral Agent, the Administrative Agent or any Lender as agent of the Borrower or any of its Subsidiaries in connection with its actions under this Article XII for any purpose whatsoever, and the Collateral Agent, the Administrative Agent and the Lenders shall not be responsible or liable for any shortage, discrepancy, damage, loss or destruction of any part of the Accounts Receivable wherever the same may be located and regardless of the cause thereof (other than from acts or omissions of the Collateral Agent, the Administrative Agent or the Lenders constituting gross negligence or willful misconduct as determined in a final order by a court of competent jurisdiction). The Collateral Agent, the Administrative Agent and the Lenders shall not, under any circumstance or in any event whatsoever, have any liability for any error or omission or delay of any kind occurring in the settlement, collection or payment of any of the Accounts Receivable or any instrument received in payment thereof or for any damage resulting therefrom (other than acts or omissions of the Collateral Agent, the Administrative Agent or the Lenders constituting gross negligence or willful misconduct). The Collateral Agent, the Administrative Agent and the Lenders, by anything in this Article XII or in any assignment or otherwise, do not assume any of the obligations under any contract or agreement assigned to the Collateral Agent and shall not be responsible in any way for the performance by the Borrower or any of its Subsidiaries of any of the terms and conditions thereof. 53 (f) If any Account Receivable includes a charge for any tax payable to any Governmental Authority, the Administrative Agent is hereby authorized (but in no event obligated) in its discretion to pay the amount thereof to the proper taxing authority for the Borrower's account and to charge the Borrower therefor. The Borrower shall notify the Administrative Agent if any Account Receivable includes any taxes due to any such Governmental Authority and, in the absence of such notice or actual knowledge of such tax, the Administrative Agent for the benefit of the Collateral Agent and the Lenders shall not, to the fullest extent permitted by law, be liable for any taxes that may be due by reason of the sale and delivery creating such Account Receivable. SECTION 12.02. Accounts Receivable Documentation. The Borrower will, and will cause its Subsidiaries to, at such intervals as the Administrative Agent may require during the continuance of an Event of Default, execute and deliver confirmatory written assignments of the Accounts Receivable to the Lenders and furnish such further schedules and/or information as the Administrative Agent may reasonably require relating to the Accounts Receivable. The items to be provided under this Section 12.02 are to be in form similar to the Borrower's existing practices and are to be executed and delivered to Administrative Agent from time to time (upon request) solely for its convenience in maintaining records of the Collateral. The failure of the Borrower or its Subsidiaries to give any of such items to the Collateral Agent or Lenders shall not affect, terminate, modify or otherwise limit the Collateral Agent's or any Lender's Lien on the Collateral. SECTION 12.03. Status of Accounts Receivable and Other Collateral. With respect to Accounts Receivable of the Borrower or any other Loan Party, other than (solely to the extent that the Credit Card Agreements are in full force and effect and are being complied with by all parties thereto in all material respects other than the Administrative Agent) credit card receivables, and so long as the aggregate amount of such Accounts Receivable (other than credit card receivables) exceeds $200,000 in the aggregate, the Borrower covenants, represents and warrants as follows: (a) the Loan Parties shall be the sole owner, free and clear of all Liens except in favor of the Collateral Agent for the benefit of the Lenders or as otherwise permitted hereunder, and fully authorized to sell, transfer, pledge and/or grant a security interest in each such Account Receivable; (b) substantially all of such Accounts Receivable shall be good and valid Accounts Receivable representing undisputed bona fide indebtedness incurred or an amount indisputably owed by the Account Debtor therein named, for a fixed sum as set forth in the invoice relating thereto with respect to any absolute sale and delivery upon the specified terms of goods sold or services rendered by the Borrower or any other Loan Party; (c) substantially all of such Accounts Receivable shall not be subject to any defense, offset, counterclaim, discount or allowance except as may be stated in the invoice relating thereto, discounts and allowances as may be customary in the Borrower's business and as otherwise disclosed to the Administrative Agent; (d) none of the transactions underlying or giving rise to substantially all of such Accounts Receivable shall violate any applicable state or federal laws or regulations, and all documents relating thereto shall be legally sufficient under such laws or regulations and shall be legally enforceable in accordance with their terms; (e) no agreement under which any deduction or offset of any kind, other than normal trade discounts, may be granted or shall have been made by the Borrower or any other Loan Party at or before the time such Accounts Receivable are created; (f) all agreements, instruments and other documents relating to such Account Receivable shall be true and correct and in all material respects what they purport to be; (g) all signatures and endorsements that appear on all material agreements, instruments and other documents of the Borrower and its Subsidiaries relating to such Accounts Receivable shall be genuine and all signatories and endorsers shall have full capacity to contract; (h) the Borrower shall, and shall cause its Subsidiaries to, maintain books and records pertaining to such Accounts Receivable in such detail, form and scope as is in accordance with its past practices; (i) the Borrower shall immediately notify the Administrative Agent if the material portion of any Accounts Receivable arise out of contracts with the United States or any department, agency, or instrumentality thereof and will execute any instruments and take any steps required by the Administrative Agent or the Collateral Agent in order that all monies due or to become due under any such contract shall be assigned to the Collateral Agent for the benefit of the Lenders and notice thereof given to the United States Government under the Federal Assignment of Claims Act; (j) the Borrower will, immediately upon learning thereof, report to the Administrative Agent any material loss or destruction of, or substantial damage to, any material portion of such Accounts Receivable, and any other matters affecting the value, enforceability or collectibility of any material portion of such Accounts Receivable; (k) if any amount payable under or in connection with any material portion of such Accounts Receivable is evidenced by a promissory note or other instrument, such promissory note or instrument shall be immediately pledged, endorsed, assigned and delivered to the Collateral Agent for the benefit of the Lenders as additional Collateral. SECTION 12.04. Collateral Custodian. During the continuance of (i) a Payment Event of Default or (ii) an Event of Default created by a violation of Section 9.07 or Article X, the Collateral Agent or the Administrative Agent may at any time and from time to time employ and maintain on the Borrower's and any of its Subsidiaries' premises one or more custodians selected by the Collateral Agent or the Administrative Agent who shall have reasonable access to the books and records of the Borrower and its Subsidiaries and shall have full authority to perform all acts reasonably required to (a) ensure that all Collections are sent to the Concentration Account Bank in conformance with the Concentration Account Agreement and the Credit Card Agreements, or (b) take such actions as are authorized pursuant to Section 14.04(c). The Borrower hereby agrees to, and to cause its Subsidiaries to, cooperate with any such custodian and to do 54 whatever Collateral Agent may reasonably request in connection with the foregoing. All reasonable costs and expenses incurred by the Collateral Agent, the Administrative Agent and the Lenders by reason of the employment of the custodian shall be the responsibility of the Borrower and charged to the Loan Account. The Administrative Agent, the Collateral Agent, the Lenders and such custodians shall be responsible for any loss, liability, claim or expense to the extent resulting from the gross negligence or willful misconduct of any such custodian. ARTICLE XIII THE AGENTS SECTION 13.01. Appointment Powers and Immunities; Delegation of Duties, Liability of Agents. (a) The Lender hereby designates and appoints Administrative Agent as its administrative agent under this Agreement and the other Loan Documents and Collateral Agent as its collateral agent under this Agreement and the other Loan Documents. The Lender hereby irrevocably authorizes each such Agent to take such action on the Lender's behalf under the provisions of this Agreement and each other Loan Document and to exercise such powers and perform such duties as are expressly delegated to it by the terms of this Agreement or any other Loan Document, together with such powers as are reasonably incidental thereto. Each such Agent agrees to act as such on the express conditions contained in this Article XIII. The provisions of this Article XIII are solely for the benefit of the Administrative Agent, Collateral Agent, and the Lenders. Borrower shall not have any rights as a third party beneficiary of any of the provisions contained herein; provided, however, that certain of the provisions of Section 13.13 hereof also shall be for the benefit of Borrower. Any provision to the contrary contained elsewhere in this Agreement or in any other Loan Document notwithstanding, each such Agent shall not have any duties or responsibilities, except those expressly set forth herein, nor shall each such Agent have or be deemed to have any fiduciary relationship with any of the Lenders and no implied covenants, functions, responsibilities, duties, obligations or liabilities shall be read into this Agreement or any other Loan Document or otherwise exist against each such Agent; it being expressly understood and agreed that the use of the word "Agent" is for convenience only and that each such Agent is merely the representative of the Lenders, and has only the contractual duties set forth in this Agreement and the other Loan Documents. Except as expressly otherwise provided in this Agreement, each such Agent shall have and may use its sole discretion with respect to exercising or refraining from exercising any discretionary rights or taking or refraining from taking any actions which such Agent is expressly entitled to take or assert under or pursuant to this Agreement and the other Loan Documents. No Lender shall have any right of action whatsoever against each such Agent as a result of such Agent acting or refraining from acting hereunder pursuant to such discretion and any action taken or failure to act pursuant to such discretion shall be binding on the Lenders. Without limiting the generality of the foregoing, or of any other provision of the Loan Documents that provides rights or powers to Administrative Agent or Collateral Agent, each of the Lenders agree that, as long as this Agreement remains in effect: (i) (A) Administrative Agent shall have the right to maintain, in accordance with its customary business practices, ledgers and records reflecting the status of the Obligations, the Loans, the Letter of Credit Accommodations, the Collections, and related matters, and (B) Collateral Agent shall have the right to maintain, in accordance with its customary business practices, ledgers and records reflecting the status of the Collateral and related matters; (ii) Collateral Agent shall have the right to execute or file any and all financing or similar statements or notices, amendments, renewals, supplements, documents, instruments, proofs of claim, notices and other written agreements with respect to the Loan Documents; (iii) Administrative Agent shall have the right to make the Loans and the Letter of Credit Accommodations, for itself or on behalf of the applicable Lenders as provided in the Loan Documents; (iv) Administrative Agent shall have the right to exclusively receive, apply, and distribute the Collections as provided in the Loan Documents; (v) Administrative Agent shall have the right to open and maintain such bank accounts and lock boxes as Administrative Agent deems necessary and appropriate in accordance with the Loan Documents for the foregoing purposes with respect to the Collections and, on behalf of Collateral Agent, the Collateral; (vi) (A) Administrative Agent shall have the right to perform, exercise, and enforce any and all other rights and remedies of the Lenders with respect to Borrower, the Obligations, the Collections, or otherwise related to any of same as provided in the Loan Documents, and (B) Collateral Agent shall have the right to perform, exercise, and enforce any and all other rights and remedies of the Lenders with respect to Borrower, the Obligations, the Collateral, or otherwise related to any of same as provided in the Loan Documents; and (vii) Administrative Agent and Collateral Agent each shall have the right to incur and pay such fees, charges, and expenses under the Loan Documents as such Agent reasonably may deem necessary or appropriate for the performance and fulfillment of its functions and powers pursuant to the Loan Documents. Administrative Agent may deem and treat the payee of any Obligation as the holder thereof for all purposes of the Loan Documents unless and until a notice of the assignment or transfer of such Obligation shall have been filed with Administrative Agent. Each Lender further consents to (y) the execution, delivery, and performance by Administrative Agent or Collateral Agent of each Loan Document entered into by such Agent on behalf of the Lenders as contemplated by this Agreement, and (z) the terms of such Loan Documents. 55 (b) Except as otherwise provided in this section, each of Administrative Agent and Collateral Agent may execute any of its duties under this Agreement or any other Loan Document by or through agents, employees or attorneys-in-fact and shall be entitled to advice of counsel concerning all matters pertaining to such duties. Each of Administrative Agent and Collateral Agent shall not be responsible for the negligence or misconduct of any agent or attorney-in-fact that it selects as long as such selection was made in compliance with this section and without gross negligence or willful misconduct. (c) None of the Agent-Related Persons shall (i) be liable for any action taken or omitted to be taken by any of them under or in connection with this Agreement or any other Loan Document or the transactions contemplated hereby (except for its own gross negligence or willful misconduct), or (ii) be responsible in any manner to any Lender for any recital, statement, representation or warranty made by Borrower or any Subsidiary or Affiliate of Borrower, or any officer or director thereof, contained in this Agreement or in any other Loan Document, or in any certificate, report, statement or other document referred to or provided for in, or received by Administrative Agent or Collateral Agent under or in connection with, this Agreement or any other Loan Document, or the validity, effectiveness, genuineness, enforceability or sufficiency of this Agreement or any other Loan Document, or for any failure of Borrower or any other party to any Loan Document to perform its obligations hereunder or thereunder. No Agent-Related Person shall 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 Agreement or any other Loan Document, or to inspect the properties, books or records of Borrower or any of its Subsidiaries. (d) Borrower (i) acknowledges that, contemporaneously herewith, the Former Administrative Agent and the Former Collateral Agent have resigned in their respective capacities as administrative agent and syndication agent under the Second Amended and Restated Credit Agreement, and (ii) consents (A) to the appointment of Administrative Agent in its capacity as administrative agent for the Lenders hereunder, and (B) to the appointment of Collateral Agent in its capacity as collateral agent for the Lenders hereunder. SECTION 13.02. Reliance by Agents. Each Agent shall be entitled to rely, and shall be fully protected in relying, upon any writing, resolution, notice, consent, certificate, affidavit, letter, telegram, facsimile, telex or telephone message, statement 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, and upon advice and statements of legal counsel (including counsel to Borrower or counsel to any Lender), independent accountants and other experts selected by such Agent. Each Agent shall be fully justified in failing or refusing to take any action under this Agreement or any other Loan Document unless it first shall receive such advice or concurrence of the Lenders as it deems appropriate and until such instructions are received, such Agent shall act, or refrain from acting, as it deems advisable. If any Agent so requests, it first shall be indemnified to its reasonable satisfaction by the Lenders against any and all liability and expense that may be incurred by it by reason of taking or continuing to take any such action. Each Agent in all cases shall be fully protected in acting, or in refraining from acting, under this Agreement or any other Loan Document in accordance with a request or consent of the Lenders and such request and any action taken or failure to act pursuant thereto shall be binding upon all Lenders. SECTION 13.03. Defaults. Administrative Agent shall not be deemed to have knowledge or notice of the occurrence of any Default or Event of Default, except with respect to defaults in the payment of principal, interest, fees, and expenses required to be paid to Administrative Agent for the account of the Lenders, except with respect to Events of Default of which Administrative Agent has actual knowledge, and unless Administrative Agent shall have received written notice from a Lender or Borrower referring to this Agreement, describing such Default or Event of Default, and stating that such notice is a "Notice of Default". Administrative Agent promptly will notify the Lenders of its receipt of any such notice or of any Event of Default of which Administrative Agent has actual knowledge. If any Lender obtains actual knowledge of any Event of Default, such Lender promptly shall notify the other Lenders and each Agent of such Event of Default. Each Lender shall be solely responsible for giving any notices to its Participants, if any. Subject to Sections 13.02 and 13.07, each Agent shall take such action with respect to such Default or Event of Default as may be requested by the Required Lenders in accordance with Article XI; provided, however, that unless and until such Agent has received any such request, such Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Default or Event of Default as it shall deem advisable. SECTION 13.04. Rights as a Lender. (a) With respect to its Commitments and the Loans made by it, HILCO (and any successor acting as Administrative Agent, if any, as permitted by Section 13.08(a) hereof) in its capacity as a Lender under the Loan Documents shall have the same rights, privileges and powers under the Loan Documents as any other Lender and may exercise the same as though it were not acting as Administrative Agent, and the term "Lender" or "Lenders" shall, unless the context otherwise indicates, include Administrative Agent in its individual capacity. HILCO (and any successor acting as Administrative Agent) and its affiliates may (without having to account for the same to any Lender) accept deposits from, lend money to, make investments in and generally engage in any kind of banking, trust or other business with Borrower (and any of its Subsidiaries or Affiliates) as if it were not acting as Administrative Agent, and HILCO (and its successors) and its affiliates may accept fees and other consideration from Borrower for services in connection with this Agreement or otherwise without having to account for the same to the Lenders. 56 (b) With respect to its Commitments and the Loans made by it, Drawbridge Special Opportunities Fund LP (and any successor acting as Collateral Agent, if any, as permitted by Section 13.08(b) hereof) in its capacity as a Lender under the Loan Documents shall have the same rights, privileges and powers under the Loan Documents as any other Lender and may exercise the same as though it were not acting as Collateral Agent, and the term "Lender" or "Lenders" shall, unless the context otherwise indicates, include Collateral Agent in its individual capacity. Drawbridge Special Opportunities Fund LP (and any successor acting as Collateral Agent) and its affiliates may (without having to account for the same to any Lender) accept deposits from, lend money to, make investments in and generally engage in any kind of banking, trust or other business with Borrower (and any of its Subsidiaries or Affiliates) as if it were not acting as Collateral Agent, and Drawbridge Special Opportunities Fund LP and its affiliates may accept fees and other consideration from Borrower for services in connection with this Agreement or otherwise without having to account for the same to the Lenders. SECTION 13.05. Costs and Expenses; Indemnification. Each Agent may incur and pay fees, costs, and expenses under the Loan Documents to the extent such Agent deems reasonably necessary or appropriate for the performance and fulfillment of its functions, powers, and obligations pursuant to the Loan Documents, including without limiting the generality of the foregoing, court costs, reasonable attorneys fees and expenses, costs of collection by outside collection agencies and auctioneer fees and costs of security guards or insurance premiums paid to maintain the Collateral, whether or not Borrower is obligated to reimburse the Lenders for such expenses pursuant to the Loan Agreement or otherwise. Each Lender hereby agrees that it is and shall be obligated to pay to or reimburse Agent for the amount of such Lender's Pro Rata Share thereof (in accordance with its Commitment). Whether or not the transactions contemplated hereby are consummated, the Lenders shall indemnify upon demand the Agent-Related Persons (without limiting the obligation of Borrower to do so), according to their Pro Rata Shares (in accordance with their respective Total Commitments), from and against any and all Indemnified Matters (including without limitation Indemnified Matters arising under any Environmental Law as provided in Section 14.15); provided, however, that no Lender shall be liable for the payment to the Agent-Related Persons of any portion of such Indemnified Matters resulting solely from such Person's gross negligence or willful misconduct as determined in a final order by a court of competent jurisdiction. Without limitation of the foregoing, each Lender shall reimburse Administrative Agent or Collateral Agent, as the case may be, upon demand for such Lender's ratable share of any costs or out-of-pocket expenses (including attorneys fees and expenses) incurred by such Agent in connection with the preparation, execution, delivery, administration, modification, amendment or enforcement (whether through negotiations, legal proceedings or otherwise) of, or legal advice in respect of rights or responsibilities under, this Agreement, any other Loan Document, or any document contemplated by or referred to herein . The undertaking in this section shall survive the payment of all Obligations hereunder and the resignation or replacement of any Agent. SECTION 13.06. Non-Reliance on Agents and Other Lenders. Each Lender acknowledges that none of the Agent-Related Persons has made any representation or warranty to it, and that no act by any Agent hereinafter taken, including any review of the affairs or Property of Borrower and its Subsidiaries, shall be deemed to constitute any representation or warranty by any Agent-Related Person to any Lender. Each Lender represents to each Agent that it has, independently and without reliance upon any Agent-Related Person and based on such documents and information as it has deemed appropriate, made its own appraisal of and investigation into the business, prospects, operations, property, financial and other condition and creditworthiness of Borrower and any other Person (other than the Lenders) party to a Loan Document, and all applicable bank regulatory laws relating to the transactions contemplated hereby, and made its own decision to enter into this Agreement and to extend credit to Borrower. Each Lender also represents that it will, independently and without reliance upon any Agent-Related Person 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 Agreement and the other Loan Documents, and to make such investigations as it deems necessary to inform itself as to the business, prospects, operations, property, financial and other condition and creditworthiness of Borrower and any other Person (other than the Lenders) party to a Loan Document. Except for notices, reports and other documents expressly herein required to be furnished to the Lenders by Agent, no Agent shall have any duty or responsibility to provide any Lender with any credit or other information concerning the business, prospects, operations, Property, financial and other condition or creditworthiness of Borrower and any other Person party to a Loan Document that may come into the possession of any of the Agent-Related Persons. SECTION 13.07. Failure to Act. Except for action expressly required of any Agent under the Loan Documents, such Agent shall in all cases be fully justified in failing or refusing to act under any Loan Document unless it shall receive further assurances to its satisfaction from the Lenders of their indemnification obligations under Section 13.05 against any and all liability and expense that may be incurred by it by reason of taking or continuing to take any such action. 57 SECTION 13.08. Resignation of Agent. (a) Subject to the appointment and acceptance of a successor Administrative Agent as provided below, the Administrative Agent may resign at any time by notice to the Lenders and Borrower. Upon any such resignation, the Required Lenders shall have the right to appoint a successor Administrative Agent. If no successor Administrative Agent shall have been appointed by the Required Lenders and have accepted such appointment within 30 days after the retiring Administrative Agent's giving of notice of resignation, then the retiring Administrative Agent may, on behalf of the Lenders, appoint a successor Administrative Agent. Upon the acceptance of any appointment as the Administrative Agent by a successor Administrative Agent, such successor Administrative Agent shall thereupon succeed to and become vested with all the rights, remedies, powers, privileges, duties and obligations of the retiring Administrative Agent, and the retiring Administrative Agent shall be discharged from its duties and obligations, under the Loan Documents. After any retiring Administrative Agent's resignation as Administrative Agent, the provisions of this Article XIII shall continue in effect for its benefit in respect of any actions taken or omitted to be taken by it while it was acting as Administrative Agent. (b) Subject to the appointment and acceptance of a successor Collateral Agent as provided below, Collateral Agent may resign at any time by notice to the Lenders and Borrower. Upon any such resignation, Required Lenders shall have the right to appoint a successor Collateral Agent. If no successor Collateral Agent shall have been appointed by Required Lenders and have accepted such appointment within 30 days after the retiring Collateral Agent's giving of notice of resignation, then the retiring Collateral Agent may, on behalf of Lenders, appoint a successor Collateral Agent. Upon the acceptance of any appointment as Collateral Agent by a successor Collateral Agent, such successor Collateral Agent shall thereupon succeed to and become vested with all the rights, remedies, powers, privileges, duties and obligations of the retiring Collateral Agent, and the retiring Collateral Agent shall be discharged from its duties and obligations, under the Loan Documents. After any retiring Collateral Agent's resignation as Collateral Agent, the provisions of this Article XIII shall continue in effect for its benefit in respect of any actions taken or omitted to be taken by it while it was acting as Collateral Agent. SECTION 13.09. Collateral Sub-Agents. The Lenders by its execution and delivery of this Agreement (or any joinder hereto or any Assignment and Acceptance hereunder), agrees that, in the event it shall hold any monies or other investments on account of Borrower, such monies or other investments shall be held in the name and under the control of the Administrative Agent or such Lender, and the Administrative Agent or such Lender shall hold such monies or other investments as a collateral sub-agent for Collateral Agent under this Agreement and the other Loan Documents. Borrower by its execution and delivery of this Agreement hereby consents to the foregoing. SECTION 13.10. Communications by Borrower. Except as otherwise provided in this Agreement, Borrower's communications with respect to the Loan Documents shall be with Administrative Agent or Collateral Agent, as the case may be, and Borrower shall be under no obligation to communicate directly with the Lenders. SECTION 13.11. Collateral Matters. (a) The Lenders hereby irrevocably authorize Collateral Agent, at its option and in its sole discretion, to release any Lien on any Collateral (i) upon the termination of the Commitments and payment and satisfaction in full by Borrower of all Obligations; (ii) constituting property being sold or disposed of if a release is required or desirable in connection therewith and if Borrower certifies in writing to Collateral Agent that the sale or disposition is permitted under this Agreement or the other Loan Documents (and Collateral Agent may rely conclusively on any such certificate, without further inquiry); (iii) constituting property in which Borrower owned no interest at the time the security interest was granted or at any time thereafter; (iv) constituting property leased to Borrower under a lease that has expired or is terminated in a transaction permitted under this Agreement, or (v) which, in the aggregate with all other dispositions of Equipment, has a fair market value or book value, whichever is less, of $1,000,000 or less. Except as provided above or expressly provided in any other Loan Document, Collateral Agent will not execute and deliver a release of any Lien on any Collateral without the prior written authorization of all of the Lenders. Upon request by Collateral Agent or Borrower at any time, Administrative Agent and the Lenders will confirm in writing Collateral Agent's authority to release any such Liens on particular types or items of Collateral pursuant to this Section 13.11; provided, however, that (1) Collateral Agent shall not be required to execute any document necessary to evidence such release on terms that, in Collateral Agent's opinion, would expose Collateral Agent to liability or create any obligation or entail any consequence other than the release of such Lien without recourse, representation, or warranty, and (2) such release shall not in any manner discharge, affect, or impair the Obligations or any Liens (other than those expressly being released) upon (or obligations of Borrower in respect of) all interests retained by Borrower, including, the proceeds of any sale, all of which shall continue to constitute part of the Collateral. 58 (b) Collateral Agent shall have no obligation whatsoever to any other Lenders to assure that the Collateral exists or is owned by Borrower or is cared for, protected, or insured or has been encumbered, or that the Lenders' Liens have been properly or sufficiently or lawfully created, perfected, protected, or enforced or are entitled to any particular priority, or to exercise at all or in any particular manner or under any duty of care, disclosure or fidelity, or to continue exercising, any of the rights, authorities and powers granted or available to Collateral Agent pursuant to any of the Loan Documents, it being understood and agreed that in respect of the Collateral, or any act, omission or event related thereto, subject to the terms and conditions contained herein, Collateral Agent may act in any manner it may deem appropriate, in its sole discretion given Collateral Agent's own interest in the Collateral in its capacity as one of the Lenders and that Collateral Agent shall have no other duty or liability whatsoever to any other Lender as to any of the foregoing, except as otherwise provided herein. SECTION 13.12. Restrictions on Actions by Administrative Agent and the Lenders; Sharing Payments. (a) Administrative Agent and each of the Lenders agrees that it shall not, without the express consent of Collateral Agent, and that it shall, to the extent it is lawfully entitled to do so, upon the request of Administrative Agent and Collateral Agent, set off against the Obligations, any amounts owing by such Lenders to Borrower or any accounts of Borrower now or hereafter maintained with such Lenders. Administrative Agent and each of the Lenders further agrees that it shall not, unless specifically requested to do so by Collateral Agent, take or cause to be taken any action, including, the commencement of any legal or equitable proceedings, to foreclose any Lien on, or otherwise enforce any security interest in, any of the Collateral the purpose of which is, or could be, to give such Lenders any preference or priority against the other Lenders with respect to the Collateral. (b) Subject to Section 13.04, if, at any time or times any Lender shall receive (i) by payment, foreclosure, setoff or otherwise, any proceeds of Collateral or any payments with respect to the Obligations arising under, or relating to, this Agreement or the other Loan Documents, except for any such proceeds or payments received by such Lender from Administrative Agent pursuant to the terms of this Agreement, or (ii) payments from Administrative Agent in excess of such Lender's ratable portion of all such distributions by Administrative Agent, such Lender promptly shall turn the same over to Administrative Agent, in kind, and with such endorsements as may be required to negotiate the same to Administrative Agent, or in same day funds, as applicable, for the account of the Lenders and for apportionment and application to the Obligations in accordance with Section 3.02 hereof. SECTION 13.13. Several Obligations; No Liability. Notwithstanding that certain of the Loan Documents now or hereafter may have been or will be executed only by or in favor of an Agent in its capacity as such, and not by or in favor of the Lenders, any and all obligations on the part of Administrative Agent (if any) to make any credit available hereunder shall constitute the several (and not joint) obligations of the respective Lenders on a ratable basis, according to their respective Commitments, to make an amount of such credit not to exceed, in principal amount, at any one time outstanding, the amount of their respective Commitments. Nothing contained herein shall confer upon any Lender any interest in, or subject any Lender to any liability for, or in respect of, the business, assets, profits, losses, or liabilities of any other Lenders. Each Lender shall be solely responsible for notifying its Participants of any matters relating to the Loan Documents to the extent any such notice may be required, and no Lender shall have any obligation, duty, or liability to any Participant of any other Lender. Except as provided in Section 13.05, no Agent or any Lender shall have any liability for the acts of the other Agent or any other Lender. No Lender shall be responsible to Borrower or any other Person for any failure by any other Lender to fulfill its obligations to make credit available hereunder, nor to advance for it or on its behalf in connection with its Commitment, nor to take any other action on its behalf hereunder or in connection with the financing contemplated herein. 59 ARTICLE XIV MISCELLANEOUS SECTION 14.01. Notices, Etc. All notices and other communications provided for hereunder shall be in writing and shall be mailed, telecopied or delivered: if to Borrower, at the following address: AVADO BRANDS, INC. Hancock at Washington Madison, Georgia 30650-1304 Attention: Louis J. Profumo and Mitchell Blocher Telecopier: (706) 343-9283 with a copy to: KILPATRICK STOCKTON LLP Suite 2800 1100 Peachtree Street Atlanta, Georgia 30309-4530 Attention: Larry Ledbetter, Esq. Telecopier: (404) 815-6175 with a copy to: SKADDEN, ARPS, SLATE, MEAGHER & FLOM (ILLINOIS) 333 West Wacker Drive Chicago, Illinois 60606 Attention: Randall J. Rademaker, Esq. Telecopier: (312) 407-0411 if to Administrative Agent or to Administrative Agent on behalf of the Lenders, at the following address: HILCO CAPITAL LP One Northbrook Place 5 Revere Drive, Suite 202 Northbrook, Illinois 60062 Attention: Portfolio Manager Telecopier: (847) 559-9330 with a copy to: SCHULTE ROTH & ZABEL LLP 919 Third Avenue New York, New York 10022 Attention: Frederic Ragucci, Esq. Telecopier: (212) 593-5955 if to Collateral Agent or to the Collateral Agent on behalf of the Lenders, at the following address: DRAWBRIDGE SPECIAL OPPORTUNITIES FUND LP 1251 Avenue of the Americas, 16th Floor New York, New York 10019 Attention: Kevin Treacy, CFO Telecopier: (212) 798-6131 with a copy to: SIDLEY AUSTIN BROWN & WOOD LLP 787 Seventh Avenue New York, New York 10019 Attention: Barbara A. Vrancik, Esq. Telecopier: (212) 839-5599 or, as to each party, at such other address as shall be designated by such party in a written notice to the other party complying as to delivery with the terms of this Section 14.01. All such notices and other communications shall be effective, (i) if mailed, when received or five (5) days after deposited in the mails with postage pre-paid and properly addressed, whichever occurs first, (ii) if telecopied, when transmitted and confirmation received, or (iii) if delivered, upon delivery, except that notices to Administrative Agent pursuant to Article II shall not be effective until received by Administrative Agent. SECTION 14.02. Amendments, Etc. No amendment or waiver of any provision of this Agreement or any other Loan Document, and no consent to any departure by Borrower or any Lenders therefrom, shall in any event be effective unless the same shall be in writing and signed by the Required Lenders (or by Administrative Agent and Collateral Agent, in each case, at the written request of the Required Lenders), and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given; provided, however, that no such waiver, amendment, or consent shall, unless in writing and signed by Borrower, all the Lenders, Administrative Agent and Collateral Agent do any of the following: (a) increase or extend the Commitment of any Lender; (b) postpone or delay any date fixed by this Agreement or any other Loan Document for any payment of principal, interest, fees or other amounts due to the Lenders (or any of them) hereunder or under any other Loan Document; 60 (c) reduce the principal of, or the rate of interest specified herein, on any Loan, or any fees or other amounts payable hereunder or under any other Loan Document, or forgive, compromise, or cancel any of the Obligations; provided, however, that no consent of the Term Loan Lenders shall be required for the compromise of any Obligation relating solely to Loans and no consent of the Lenders shall be required for the compromise of any Obligation relating solely to Term Loans; (d) change the percentage of the Commitments that is required for the Lenders or any of them to take any action hereunder; (e) amend this Section or any provision of the Agreement providing for consent or other action by all Lenders; (f) release Collateral other than as permitted by Section 13.11, or subordinate any security interest or liens of Collateral Agent for the benefit of the Lenders; (g) change the definition of "Required Lenders"; (h) release Borrower from any Obligation for the payment of money, or agree to subordinate any of the Obligations in right of payment to any other Indebtedness; (i) amend the provisions of Section 3.03; (j) permit the sale of all or substantially all of the Capital Stock of Borrower or any of its Subsidiaries (except to the extent necessary to effect a Disposition otherwise permitted hereunder); (k) change the definition of the Borrowing Base; or (l) amend any of the provisions of Article XIV; and, provided further, however, that (1) no amendment, waiver or consent shall, unless in writing and signed by the Administrative Agent, affect the rights or duties of the Administrative Agent under this Agreement or any other Loan Document, (2) no amendment, waiver or consent shall, unless in writing and signed by Collateral Agent, affect the rights or duties of Collateral Agent under this Agreement or any other Loan Document, and (3) each of the Lenders is hereby deemed to have instructed the Collateral Agent (A) to release its Liens as to the property which is the subject of any asset sale, assignment or other disposition of property or assets which is permitted hereunder without any further consent of any Lender, and (B) to take such other actions as are necessary or desirable to facilitate any such disposition. The foregoing notwithstanding, any amendment, modification, waiver, consent, termination, or release of or with respect to Article XIII shall not require the consent by or the agreement of any Loan Party. SECTION 14.03. No Waiver; Remedies, Etc. No failure on the part of the Lenders or Administrative Agent to exercise, and no delay in exercising, any right hereunder or under any other Loan Document shall operate as a waiver thereof, nor shall any single or partial exercise of any right under any Loan Document preclude any other or further exercise thereof or the exercise of any other right. The rights and remedies of the Lenders and Administrative Agent provided herein and in the other Loan Documents are cumulative and are in addition to, and not exclusive of, any rights or remedies provided by law. The rights of the Lenders and Administrative Agent under any Loan Document against any party thereto are not conditional or contingent on any attempt by the Lenders and Administrative Agent to exercise any of their rights under any other Loan Document against such party or against any other Person. SECTION 14.04. Expenses; Taxes, Attorneys' Fees. Borrower will pay, two (2) Business Days following demand therefor, all reasonable fees, costs and expenses incurred by or on behalf of the Lenders and Administrative Agent, regardless of whether the transactions contemplated hereby are consummated, including, without limitation, reasonable fees, costs, client charges and expenses of the several counsel (including in-house counsel) for the Lenders, accounting, due diligence, periodic field audits, physical counts, valuations, fees of Rating Agencies associated with the rating of the Loans, investigations, monitoring of assets, appraisals of Collateral, environmental assessments, miscellaneous disbursements, examination, travel, lodging and meals arising from or relating to: (a) the negotiation, preparation, execution, delivery, performance and administration of this Agreement and the other Loan Documents, (b) any requested amendments (other than amendments requested solely by the Lenders), waivers or consents to this Agreement or the other Loan Documents whether or not such documents become effective or are given, (c) the preservation and protection of any of the Lenders' rights under this Agreement or the other Loan Documents, (d) the filing of any petition, complaint, answer, motion or other pleading by the Lenders, or the taking of any action in respect of the Collateral or other security, in connection with this Agreement or any other Loan Document, (e) the protection, collection, lease, sale, taking possession of or liquidation of, any Collateral or other security in connection with this Agreement or any other Loan Document, (f) any attempt to enforce any Lien or security interest in any Collateral or other security in connection with this Agreement or any other Loan Document, (g) any attempt to collect from Borrower or any other Loan Party, (h) during the continuance of an Event of Default, the receipt by any Lender of any advice from its professionals (including without limitation, the reasonable fees of its attorneys and consultants) with respect to any of the foregoing (to the extent that such fees, costs and expenses are not otherwise recoverable pursuant 61 to any other provision of this Agreement or any other Loan Document); provided, that the Lenders shall use their commercially reasonable efforts to use a single group of financial advisors and accountants, to the extent reasonably advisable under the circumstances, (i) all liabilities and costs arising from or in connection with the past, present or future operations of Borrower and other Guarantors involving any damage to real or personal property or natural resources or harm or injury alleged to have resulted from any Release of Hazardous Materials on, upon or into such property, (j) any Environmental Liabilities and Costs incurred in connection with the investigation, removal, cleanup and/or remediation of any Hazardous Materials present or arising out of the operations of any facility of Borrower and other Guarantors, or (k) any Environmental Liabilities and Costs incurred in connection with any Environmental Lien. Without limitation of the foregoing or any other provision of any Loan Document: (x) Borrower agrees to pay all stamp, document, transfer, recording or filing taxes or fees and similar impositions now or hereafter determined by the Lenders to be payable in connection with this Agreement or any other Loan Document, and Borrower agrees to hold the Lenders harmless from and against any and all present or future claims, liabilities or losses with respect to or resulting from any omission to pay or delay in paying any such taxes, fees or impositions, (y) Borrower agrees to pay all broker fees with respect to any broker retained by Borrower or its Subsidiaries that may become due in connection with the transactions contemplated by this Agreement, and (z) during the continuance of (i) a Payment Event of Default or (ii) an Event of Default created by a violation of Section 9.07 or Article X, if a Borrower or Guarantors (A) fail to make any payments or deposits with respect to any taxes of any kind or nature to the extent that such payments or deposits are due and payable prior to delinquency, except in respect of Permitted Deferred Taxes, (B) fail to make any payments or deposits with respect to any other governmental assessment prior to the time that any Lien may inure against any property of Borrower or any of its Subsidiaries, or (C) fail to make any payments or deposits with respect to any insurance premiums then due and payable or otherwise comply with Section 7.06 hereof, except with respect to A, B, or C above, to the extent permitted pursuant to the terms of this Agreement, then, the Administrative Agent, in its sole discretion and without prior notice to Borrower, may do any or all of the following, without duplication: (X) make payment of the same or any part thereof, (Y) set up such reserves in Borrower's Loan Account as the Administrative Agent deems necessary to protect the Lenders from the exposure created by such failure, or (Z) in the case of any failure described in Section 14.04(z)(C) hereof, obtain and maintain insurance policies of the type described in Section 7.06 and take the actions with respect to such policies which are authorized pursuant to Section 13.21(c). Any payment described above in clause (z) shall not constitute an agreement by the Lenders to make similar payments in the future or a waiver by the Lenders of any Event of Default under this Agreement. The Administrative Agent need not inquire as to, or contest the validity of, any such obligation. The foregoing to the contrary notwithstanding, the agreements set forth above in this Section 14.04 are subject to the limitations set forth in Section 9.06, solely to the extent applicable. The Administrative Agent agrees to provide to Borrower an invoice with respect to each cost or expense incurred in connection with the Loan Documents by any Lender promptly upon the Administrative Agent's receipt thereof, and agrees, upon the reasonable request of Borrower, to provide reasonable backup information with respect to such costs or expenses (subject to the right of the Administrative Agent to take whatever steps are reasonably necessary to protect any confidential or privileged information which may be contained therein). Obligations arising under Sections 2.02(g), 2.02(d)(iii), 3.03(c), 4.02(e), 8.16, 12.04, 14.04 or 14.15 shall be deemed due and payable for purposes of this Agreement when the Borrower receives a request or demand for payment of such Obligations. SECTION 14.05. Right of Set-off, Sharing of Payments, Etc. (a) During the continuance of any Event of Default and in addition to (and without limitation of) any right of set-off, banker's lien, or counterclaim any Lender may otherwise have, each Lender (at its option but only with the prior written consent of all Lenders) may, and is hereby authorized by Borrower to, at any time and from time to time, without notice to Borrower (any such notice being expressly waived by Borrower), to the fullest extent permitted by law, set-off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other indebtedness at any time owing by such Lender to or for the credit or the account of the Borrower against any and all Obligations now or hereafter existing under any Loan Document, irrespective of whether or not the Lenders shall have made any demand hereunder or thereunder and although such obligations may be contingent or unmatured. During the continuance of any Event of Default, the Lenders may, and is hereby authorized to, at any time and from time to time, without notice to Borrower (any such notice being expressly waived by Borrower), to the fullest extent permitted by law, set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other indebtedness at any time owing by the Lenders to or for the credit or the account of Borrower against any and all Obligations now or hereafter existing under any Loan Document, irrespective of whether or not the Lenders shall have made any demand hereunder or thereunder. The Lenders agree to notify Borrower, Collateral Agent and Administrative Agent promptly after any such set-off and application made by the Lenders provided that the failure to give such notice to Borrower shall not affect the validity of such set-off and application. 62 (b) If any Lender shall obtain from Borrower payment of any Obligation through the exercise of any right of set-off, banker's lien, or counterclaim or similar right or otherwise (other than from Administrative Agent as provided in this Agreement), and, as a result of such payment, such Lender shall have received a greater amount of the Obligations than the amount allocable to such Lender hereunder, Administrative Agent and the other Lenders (including such Lender) shall promptly make such adjustments from time to time as shall be equitable, to the end that the Lenders shall share the benefit of such excess payment (net of any expenses that may be incurred by such Lender in obtaining or preserving such excess payment) in accordance with Section 3.02(b). To such end the Lenders shall make appropriate adjustments among themselves if such payment is rescinded or must otherwise be restored. (c) Nothing contained in this Section 14.05 shall require any Lender to exercise any such right or shall affect the right of any Lender to exercise, and retain the benefits of exercising, any such right with respect to any other indebtedness or obligation of Borrower. If, under any applicable bankruptcy, insolvency or other similar law, any Lender receives a secured claim in lieu of a set-off to which this Section 14.05 applies, such Lender shall, to the extent practicable, exercise its rights in respect of such secured claim in a manner consistent with the rights of Lenders entitled under this Section 14.05 to share in the benefits of any recovery on such secured claim. SECTION 14.06. Severability. Any provision of this Agreement, which 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 portions hereof or affecting the validity or enforceability of such provision in any other jurisdiction. SECTION 14.07. Assignments and Participations. (a) This Agreement shall be binding upon and inure to the benefit of Borrower and the Lenders and their respective successors and assigns; provided, however, that Borrower may not assign or transfer any of their rights hereunder without the prior written consent of the Lenders and any such assignment without the Lenders' prior written consent shall be null and void. Each Lender may at any time sell, assign or participate its rights and obligations under this Agreement (including, without limitation, all or a portion of its Commitments and the Loans made by it) without notice to or the consent of the Borrower or any other Lenders; provided, however, that no Lender may assign or transfer any of its rights hereunder in violation of the Transferee Side Letter and any assignment in violation thereof shall be null and void. (b) Any foreign Person who purchases or is assigned any portion of such Loan shall provide the Borrower and the Administrative Agent (in the case of a purchase or assignment) or the applicable Lender (in the case of a participation) with a completed Internal Revenue Service Form W-8 (Certificate of Foreign Status) or a substantially similar form for such purchaser, participant or any other affiliate who is a holder of beneficial interests in the Loan. (c) From and after the date that the Administration Agent notifies the assignor Lender that it has received an executed Assignment and Acceptance (i) the Assignee thereunder shall be a party hereto and, to the extent that rights and obligations hereunder have been assigned to it pursuant to such Assignment and Acceptance, shall have the rights and obligations of a Lender under the Loan Documents, and (ii) the assignor Lender shall, to the extent that rights and obligations hereunder and under the other Loan Documents have been assigned by it pursuant to such Assignment and Acceptance, relinquish its rights (except rights granted pursuant to Section 14.15 with respect claims, losses, demands, settlements, damages, liabilities, obligations, penalties, fines, fees reasonable costs and expenses incurred with respect to the period of time that the assignor Lender was a party to this Agreement) and be released from its obligations under this Agreement (except with respect to Section 14.05) (and in the case of an Assignment and Acceptance covering all or the remaining portion of an assigning Lender's rights and obligations under this Agreement and the other Loan Documents, such Lender shall cease to be a party hereto and thereto), and such assignment shall effect a novation among Borrower, the assignor Lender, and the Assignee. (d) Immediately upon the effectiveness of such Assignment and Acceptance, this Agreement shall be deemed to be amended to the extent, but only to the extent, necessary to reflect the addition of the Assignee and the resulting adjustment of the Commitments arising therefrom. The Commitments allocated to each Assignee shall reduce such Commitments of the assigning Lender pro tanto. (e) In connection with any such assignment or participation or proposed assignment or participation, a Lender may disclose all documents and information which it now or hereafter may have relating to Borrower or Borrower's business; provided in each case that such assignee or participant (or prospective assignee or participant) shall agree to maintain the confidentiality of such information pursuant to Section 14.19. SECTION 14.08. Counterparts. This Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which shall be deemed to be an original, but all of which taken together shall constitute one and the same agreement. SECTION 14.09. GOVERNING LAW. THIS AGREEMENT, THE NOTES AND THE OTHER LOAN DOCUMENTS SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK. 63 SECTION 14.10. CONSENT TO JURISDICTION, SERVICE OF PROCESS AND VENUE. ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT MAY BE BROUGHT IN THE COURTS OF THE STATE OF NEW YORK IN THE COUNTY OF NEW YORK OR OF THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK, AND, BY EXECUTION AND DELIVERY OF THIS AGREEMENT, BORROWER HEREBY IRREVOCABLY ACCEPTS IN RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, THE JURISDICTION OF THE AFORESAID COURTS. BORROWER FURTHER IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OUT OF ANY OF THE AFOREMENTIONED COURTS AND IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO BORROWER AT ITS ADDRESS FOR NOTICES AS SET FORTH IN SECTION 14.01, SUCH SERVICE TO BECOME EFFECTIVE FIVE (5) DAYS AFTER SUCH MAILING. BORROWER HEREBY IRREVOCABLY APPOINTS THE SECRETARY OF STATE OF THE STATE OF NEW YORK AS ITS AGENT FOR SERVICE OF PROCESS IN RESPECT OF ANY SUCH ACTION OR PROCEEDING. NOTHING HEREIN SHALL AFFECT THE RIGHT OF THE LENDERS OR AGENTS TO SERVICE OF PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST BORROWER IN ANY OTHER JURISDICTION. BORROWER HEREBY EXPRESSLY AND IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE JURISDICTION OR LAYING OF VENUE OF ANY SUCH LITIGATION BROUGHT IN ANY SUCH COURT REFERRED TO ABOVE AND ANY CLAIM THAT ANY SUCH LITIGATION HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. TO THE EXTENT THAT BORROWER HAS OR HEREAFTER MAY ACQUIRE ANY IMMUNITY FROM JURISDICTION OF ANY COURT OR FROM ANY LEGAL PROCESS (WHETHER THROUGH SERVICE OR NOTICE, ATTACHMENT PRIOR TO JUDGMENT, ATTACHMENT IN AID OF EXECUTION OR OTHERWISE) WITH RESPECT TO ITSELF OR ITS PROPERTY, BORROWER HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, SUCH IMMUNITY IN RESPECT OF ITS OBLIGATIONS UNDER THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS. SECTION 14.11. WAIVER OF JURY TRIAL, ETC. BORROWER, LENDERS AND AGENTS HEREBY WAIVE ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM CONCERNING ANY RIGHTS UNDER THIS AGREEMENT, THE NOTES OR OTHER LOAN DOCUMENTS, OR UNDER ANY AMENDMENT, WAIVER, CONSENT, INSTRUMENT, DOCUMENT OR OTHER AGREEMENT DELIVERED OR WHICH IN THE FUTURE MAY BE DELIVERED IN CONNECTION THEREWITH, OR ARISING FROM ANY FINANCING RELATIONSHIP EXISTING IN CONNECTION WITH THIS AGREEMENT, AND AGREE THAT ANY SUCH ACTION, PROCEEDINGS OR COUNTERCLAIM SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY. BORROWER CERTIFIES THAT NO OFFICER, REPRESENTATIVE, AGENT OR ATTORNEY OF THE LENDERS OR AGENTS HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT THE LENDERS OR AGENTS WOULD NOT, IN THE EVENT OF ANY ACTION, PROCEEDING OR COUNTERCLAIM, SEEK TO ENFORCE THE FOREGOING WAIVERS. BORROWER HEREBY ACKNOWLEDGES THAT THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE LENDER AND AGENTS ENTERING INTO THIS AGREEMENT. SECTION 14.12. Consent. Except as otherwise expressly set forth herein to the contrary, if the consent, approval, satisfaction, determination, judgment, acceptance or similar action (an "Action") of the Lenders or Agents, shall be permitted or required pursuant to any provision hereof or any provision of any other agreement to which Borrower or any other Guarantors are parties and to which the Lenders or Agents have succeeded thereto, such Action shall be required to be in writing and may be withheld or denied by the Lenders or Agents with or without any reason in its sole and absolute discretion. SECTION 14.13. Interpretation. Neither this Agreement nor any uncertainty or ambiguity herein shall be construed or resolved against the Lender, Agents or Borrower, whether under any rule of construction or otherwise. On the contrary, this Agreement has been reviewed by all parties and shall be construed and interpreted according to the ordinary meaning of the words used so as to accomplish fairly the purposes and intentions of all parties hereto. SECTION 14.14. Reinstatement; Certain Payments. If any claim is ever made upon the Lenders, Issuer, Issuer or Agents for repayment or recovery of any amount or amounts received by the Lenders, Issuer or Agents in payment or received on account of any of the Obligations, the Lenders, Issuer or Agents shall give prompt notice of such claim to Borrower, and if the Lenders, Issuer or Agents repay all or part of such amount by reason of (i) any judgment, decree or order of any court of competent jurisdiction or administrative body having jurisdiction over the Lenders, Issuer, Agents or any of their respective property, or (ii) any good faith settlement or compromise of any such claim effected by the Lenders, Issuer or Agents with any such claimant, then and in such event Borrower agrees that (A) any such judgment, decree, order, settlement or compromise shall be binding upon it notwithstanding the cancellation of any instrument evidencing the Obligations or the other Loan Documents or the termination of this Agreement or the other Loan Documents, and (B) it shall be and remain liable to the Lenders, Issuer or Agents hereunder for the amount so repaid or recovered to the same extent as if such amount had never originally been received by the Lenders, Issuer or Agents. SECTION 14.15. Indemnification. In addition to Borrower's other Obligations under this Agreement, Borrower agrees to defend, protect, indemnify and hold harmless the Lenders and each of their respective Affiliates, Administrative Agent, Collateral Agent, the Agent-Related Persons, the Lender-Related Persons, Issuer and all of their respective officers, directors, employees, attorneys, consultants and agents (collectively called the "Indemnitees") from and against any and all claims, losses, demands, settlements, damages, liabilities, obligations, penalties, fines, fees, reasonable costs and expenses (including, without limitation, reasonable attorneys' fees, costs and expenses, but excluding income, franchise and similar taxes of an Indemnitee) incurred by such Indemnitees, whether prior to or from and after the Effective Date, as a result of or arising from or relating to or in connection with any of the following: (i) the negotiation, preparation, execution or performance or enforcement of this Agreement, any other Loan Document or of any other document executed in connection with the transactions contemplated by this Agreement (including without limitation any taxes or other payments required to be made in connection 64 with the Former Mortgages, the Mortgage Assignments, the New Mortgages or the Mortgage Amendments), (ii) the Administrative Agent, Collateral Agent and Lenders furnishing of funds to, Borrower, and the Issuer issuing Letter of Credit Accommodations under this Agreement, including, without limitation, the management of any such Loans and Letter of Credit Accommodation, (iii) any matter relating to the financing transactions contemplated by this Agreement or the other Loan Documents or by any document executed in connection with the transactions contemplated by this Agreement or the other Loan Documents, (iv) any claim, litigation, investigation or administrative or judicial proceeding in connection with any transaction contemplated in, or consummated under, the Loan Documents, or (v) any claim, litigation, investigation or proceeding relating to any of the foregoing, whether or not any Indemnitee is a party thereto, including without limitation, claims, litigations, investigations or other proceedings arising out of (A) the presence, disposal, Release or threatened Release of any Hazardous Materials on any property at any time owned or occupied by Borrower or any of its Subsidiaries (or its respective predecessors in interest or title) or at any disposal facility which received hazardous materials generated by Borrower or any predecessor in Interest, (B) any personal injury (including wrongful death) or property damage (real or personal) arising out of or related to such Hazardous Materials, (C) any investigation, lawsuit brought or threatened, settlement reached or government order relating to such Hazardous Materials, (D) any violation of any Environmental Law, and/or (E) any Environmental Action (collectively, the "Indemnified Matters"); provided, however, that Borrower shall not have any obligation to any Indemnitee under this Section 14.15 for any Indemnified Matter to the extent resulting from the gross negligence or willful misconduct of such Indemnitee, as determined by a final judgment of a court of competent jurisdiction. Such indemnification for all of the foregoing losses, damages, fees, costs and expenses of the Indemnitees shall be due and payable two (2) Business Days after demand therefor and are chargeable against the Loan Account. To the extent that the undertaking to indemnify, pay and hold harmless set forth in this Section 14.15 may be unenforceable because it is violative of any law or public policy, Borrower shall contribute the maximum portion which it is permitted to pay and satisfy under applicable law, to the payment and satisfaction of all Indemnified Matters incurred by the Indemnitees. This Indemnity shall survive the repayment of the Obligations and the discharge of the Liens granted under the Loan Documents. SECTION 14.16. Interest. It is the intention of the parties hereto that each Agent and each Lender shall conform strictly to usury laws applicable to it. Accordingly, if the transactions contemplated hereby or by any other Loan Document would be usurious as to any Agent or any Lender under laws applicable to it (including the laws of the United States of America and the State of New York or any other jurisdiction whose laws may be mandatorily applicable to such Agent or such Lender notwithstanding the other provisions of this Agreement), then, in that event, notwithstanding anything to the contrary in this Agreement or any other Loan Document or any agreement entered into in connection with or as security for the Obligations, it is agreed as follows: (i) the aggregate of all consideration which constitutes interest under law applicable to any Agent or any Lender that is contracted for, taken, reserved, charged or received by such Agent or such Lender under this Agreement or any other Loan Document or agreements or otherwise in connection with the Obligations shall under no circumstances exceed the maximum amount allowed by such applicable law, any excess shall be canceled automatically and if theretofore paid shall be credited by such Agent or such Lender on the principal amount of the Obligations (or, to the extent that the principal amount of the Obligations shall have been or would thereby be paid in full, refunded by such Agent or such Lender, as applicable, to the Borrower); and (ii) in the event that the maturity of the Obligations is accelerated by reason of any Event of Default under this Agreement or otherwise, or in the event of any required or permitted prepayment, then such consideration that constitutes interest under law applicable to any Agent or any Lender may never include more than the maximum amount allowed by such applicable law, and excess interest, if any, provided for in this Agreement or otherwise shall be canceled automatically by such Agent or such Lender, as applicable, as of the date of such acceleration or prepayment and, if theretofore paid, shall be credited by such Agent or such Lender, as applicable, on the principal amount of the Obligations (or, to the extent that the principal amount of the Obligations shall have been or would thereby be paid in full, refunded by such Agent or such Lender to the Borrower). All sums paid or agreed to be paid to any Agent or any Lender for the use, forbearance or detention of sums due hereunder shall, to the extent permitted by law applicable to such Agent or such Lender, be amortized, prorated, allocated and spread throughout the full term of the Loans until payment in full so that the rate or amount of interest on account of any Loans hereunder does not exceed the maximum amount allowed by such applicable law. If at an time and from time to time (x) the amount of interest payable to any Agent or any Lender on any date shall be computed at the Highest Lawful Rate applicable to such Agent or such Lender pursuant to this Section 14.16 and (y) in respect of any subsequent interest computation period the amount of interest otherwise payable to such Agent or such Lender would be less than the amount of interest payable to such Agent or such Lender computed at the Highest Lawful Rate applicable to such Agent or such Lender, then the amount of interest payable to such Agent or such Lender in respect of such subsequent interest computation period shall continue to be computed at the Highest Lawful Rate applicable to such Agent or such Lender until the total amount of interest payable to such Agent or such Lender shall equal the total amount of interest which would have been payable to such Agent or such Lender if the total amount of interest had been computed without giving effect to this Section 14.16. 65 For purposes of this Section 14.16, the term "applicable law" shall mean that law in effect from time to time and applicable to the loan transaction between the Borrowers, on the one hand, and the Agents and the Lenders, on the other, that lawfully permits the charging and collection of the highest permissible, lawful non-usurious rate of interest on such loan transaction and this Agreement, including laws of the State of New York and, to the extent controlling, laws of the United States of America. The right to accelerate the maturity of the Obligations does not include the right to accelerate any interest that has not accrued as of the date of acceleration. SECTION 14.17. Records. The unpaid principal of, and interest on, the Obligations, the interest rate or rates applicable to such unpaid principal and interest, the duration of such applicability, the Commitment, and the accrued and unpaid fees payable pursuant to Section 4.02 hereof, including without limitation fees set forth in the Fee Letter, shall at all times be ascertained from the records of the Lender and Agents, which shall be conclusive and binding absent manifest or demonstrable error. SECTION 14.18. Binding Effect. This Agreement shall be binding upon and inure to the benefit of Borrower, Lender and Agents, and their respective successors and assigns, except that Borrower shall not have the right to assign its rights hereunder or any interest herein without the prior written consent of the Lender and Agents, and any assignment by the Lenders shall be governed by Section 14.07 hereof. SECTION 14.19. Confidentiality. The Lenders, Administrative Agent and Collateral Agent agree (on behalf of itself and each of its affiliates, directors, officers, employees and representatives) to use reasonable precautions to keep confidential, in accordance with its customary procedures for handling confidential information of this nature and in accordance with safe and sound practices of comparable commercial finance companies, any non-public information supplied to it by Borrower pursuant to this Agreement or the other Loan Documents which is identified in writing by the Loan Parties as being confidential at the time the same is delivered to such Person (and which at the time is not, and does not thereafter become, publicly available or available to such Person from another source not known to be subject to a confidentiality obligation to such Person not to disclose such information), or available to such Person from another source not known to be subject to a confidentiality obligation to such Person not to disclose such information, provided that nothing herein shall limit the disclosure of any such information (a) to the extent required by statute, rule, regulation or judicial process, (b) to Lender, Administrative Agent, Collateral Agent, to counsel, accountants, auditors and other advisors for such member of the Lenders, or to counsel for any other member of the Lenders, (c) to examiners, auditors, accountants, or the Issuer to the extent required by any court, governmental or administrative agency, pursuant to any subpoena or other legal process, or by any law, statute, regulation or court order, or in connection with any litigation to which any of the Agents or the Lenders are Party or (d) to any assignee or participant (or prospective assignee or participant) so long as such assignee or participant (or prospective assignee or participant) first executes a Confidentiality Agreement. The Lender agree that, upon receipt of a request or identification of the requirement for disclosure pursuant to clause (e) hereof (unless prohibited by applicable law, statute, regulation or court order, it will make reasonable efforts to keep Borrower informed of such request or identification; provided that Borrower acknowledges that the Lender may make disclosure as required by any Governmental Authority or representative thereof. SECTION 14.20. Power of Attorney. Borrower hereby irrevocably designates, makes, constitutes, and appoints Collateral Agent (and all Persons designated by Collateral Agent) as Borrower's true and lawful attorney (and agent-in-fact), and Collateral Agent, or Collateral Agent's agent, may, without notice to Borrower and in either Borrower's or Collateral Agent's name, but at the cost and expense of Borrower: (a) During the continuance of an Event of Default as Collateral Agent or said agent (including Administrative Agent), in its sole discretion, may determine, endorse Borrower's name on any checks or any other evidence of payment or proceeds of the Collateral which come into the possession of the Lenders or Agents or under the Lenders' or Agents' control and shall deposit such item of payment into the Administrative Agent's Account and credit the amount thereof (in accordance with the provisions of this Agreement, including without limitation, Section 3.02) to the Obligations. (b) During the continuance of (i) a Payment Event of Default or (ii) an Event of Default created by a violation of Section 9.07 or Article X, do any of the following, at its election in its Permitted Discretion: (A) sell or assign any Collateral, and settle any legal proceedings brought to collect any Collateral (except legal proceedings involving, on the one hand, Borrower or any of its Subsidiaries, and on the other hand, any member of the Lender Group), in each case, upon such terms, for such amounts, and at such time or times as Collateral Agent deems advisable, subject to the provisions of any Loan Document applicable thereto and to standards of commercial reasonableness, (B) upon the reasonable request of Collateral Agent, upon the premises of Borrower and its Subsidiaries (but, without disruption to the business activities of Borrower and its Subsidiaries), review and obtain copies of all mail related to the Collateral which is addressed to Borrower or any of its Subsidiaries, (C) prepare, file, and sign Borrower's name to any notice of lien, assignment, or satisfaction of lien or similar document, which in each case are sent to account debtors (as such term is defined in the UCC) of Borrower or any of its 66 Subsidiaries in connection with any portion of the Collateral, (D) endorse the name of Borrower upon any chattel paper, instrument, freight bill, bill of lading or similar document relating to the Collateral (including without limitation any items of payment or proceeds relating to any Collateral) and, shall in all such instances involving an instrument or other items, deposit the same to the account of Collateral Agent on account of the Obligations, and (E) to the extent permitted by Borrower's license agreements, use the information recorded on or contained in any data processing equipment, computer hardware, and software relating to the Accounts Receivable, Inventory, Equipment, and any other Collateral. (c) During the continuance of an Event of Default make and adjust claims under policies of casualty, property, boiler and machinery, business interruption insurance and other similar policies of insurance with respect to the Collateral (but excluding policies of liability or worker's compensation insurance) involving amounts greater than $50,000. SECTION 14.21. Integration. This Agreement, together with the other Loan Documents, reflects the entire understanding of the parties with respect to the transactions contemplated hereby and shall not be contradicted or qualified by any other agreement, oral or written, before the date hereof. SECTION 14.22. Lender Advertising. The Agents and the Lenders shall be entitled to advertise the closing of the transactions contemplated by this Agreement in such trade publications, business journals, newspapers of general circulation and otherwise, as the Agents and the Lenders shall deem appropriate, including, without limitation, the publication of a tombstone announcing the closing of this transaction; provided, that the Agents and the Lenders shall obtain the prior written consent of the Borrower prior to disseminating any advertisement described in this Section 14.22 which consent shall not be reasonably withheld. SECTION 14.23. Refund of Waiver Fee. Upon the Effective Date, the conditions precedent to a refund of the Waiver Fee (as defined in the Fourth Amendment) in the amount of $6,500,000 (the "Refund Amount"), which conditions are contained in Section 4 of that certain Amendment Number Four to Second Amended and Restated Credit Agreement, dated as of December 27, 2002, by and among Borrower, the lenders party thereto, Foothill Capital Corporation, as administrative agent, and Ableco Finance Company, LLC, as collateral agent (the "Fourth Amendment"), shall be deemed to be satisfied, and each of the Agents and each Lender hereby confirm that (i) the Borrower has no obligation to repay the Term Loans (as defined in the Fourth Amendment) to the extent such Term Loans were increased by the Refund Amount and (ii) the Obligations shall not include the Refund Amount. 67 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective officers thereunto duly authorized, as of the date first above written. BORROWER: --------- AVADO BRANDS, INC., a Georgia corporation By: Name: Title: ADMINISTRATIVE AGENT: -------------------- HILCO CAPITAL LP, a Delaware limited partnership By: Name: Title: COLLATERAL AGENT: ---------------- DRAWBRIDGE SPECIAL OPPORTUNITIES FUND LP, a Delaware limited partnership By: Name: Title: LENDER: ------- DRAWBRIDGE SPECIAL OPPORTUNITIES FUND LP, a Delaware limited partnership By: Name: Title: Exhibits and schedules to this agreement are not filed pursuant to Item 601(b)(2) of SEC Regulation S-K. By the filing of this Form 10-Q, the Registrant hereby agrees to furnish supplementally a copy of any omitted exhibit or schedule to the Commission upon request. S-1 EX-10 7 firstamend.txt FIRST AMENDMENT TO CREDIT AGREEMENT EXHIBIT 10.2 FIRST AMENDMENT Dated as of May 8, 2003 This FIRST AMENDMENT (the "First Amendment") among AVADO BRANDS, INC., a Georgia corporation ("Borrower"), each of the lenders that from time to time is a party to the Credit Agreement (referred to below) as lenders (such lenders, each individually a "Lender" and collectively, the "Lenders"), HILCO CAPITAL LP, as administrative agent for the Lenders (in such capacity, together with its successors and assigns, if any, in such capacity, the "Administrative Agent"), and DRAWBRIDGE SPECIAL OPPORTUNITIES FUND LP, as collateral agent for the Lenders (in such capacity, together with its successors and assigns, if any, in such capacity, the "Collateral Agent"). PRELIMINARY STATEMENTS: (1) The Borrower, the Lenders, the Administrative Agent and the Collateral Agent have entered into the Third Amended and Restated Credit Agreement dated as of March 21, 2003, as amended from time to time (as so amended, the "Credit Agreement"). Unless otherwise defined herein, the terms defined in the Credit Agreement shall be used herein as therein defined. (2) The Borrower has requested that certain revisions be made to the Credit Agreement and the Lenders have agreed to make such revisions on the terms and subject to the conditions set forth in this First Amendment. SECTION 1. Amendments to Credit Agreement. The Credit Agreement is, effective as of the date hereof and subject to the satisfaction of the conditions precedent set forth in Section 2 hereof, hereby amended as follows: (a) Subsection (i) of Section 2.02(d) of the Credit Agreement is amended by deleting such Subsection in its entirety and substituting a new Subsection (i) to read as follows: "(i) Notwithstanding any provisions to the contrary in any Letter of Credit Reimbursement Agreement: (A) the Borrower shall reimburse the Issuer for amounts drawn under such Letter of Credit Accommodation no later than the date (the "Reimbursement Date") which is one (1) Business Day after each date on which the Issuer shall pay any amount under any Letter of Credit Accommodation pursuant to any draft or demand under such Letter of Credit Accommodation, and (B) all Reimbursement Obligations with respect to each Letter of Credit Accommodation shall bear interest from the date of the relevant drawing or demand under such Letter of Credit Accommodation until the Reimbursement Date. If Borrower fails to so reimburse the Issuer by the Reimbursement Date, Borrower shall be deemed to have requested a Loan to be disbursed on the Reimbursement Date in an amount equal to the unreimbursed amount, without regard to the minimum and multiples specified in Section 2.01(b) for the principal amount of Loans." SECTION 2. Conditions of Effectiveness. This First Amendment shall become effective (the "Effective Date") as of the May 8, 2003 when the Collateral Agent shall have received counterparts of this First Amendment executed by the Borrower and the Requisite Lenders. SECTION 3. Representations and Warranties of the Borrowers. The Borrower represents and warrants as follows: (a) After giving effect to this First Amendment, all of the representations and warranties contained in the Credit Agreement and in the other Loan Documents shall be true in all material respects. (b) After giving effect to this First Amendment, no Default or Event of Default shall have occurred and be continuing. SECTION 4. Reference to and Effect on the Loan Documents. Upon the effectiveness of Section 1 of this First Amendment, on and after the date hereof each reference in the Credit Agreement to "this Agreement", "hereunder", "hereof" or words of like import referring to the Credit Agreement, and each reference in the other Loan Documents to "the Credit Agreement", "thereunder", "thereof" or words of like import referring to the Credit Agreement, shall mean and be a reference to the Credit Agreement as amended hereby. 1 (a) Except as specifically amended above, the Credit Agreement and all other Loan Documents, are and shall continue to be in full force and effect and are hereby in all respects ratified and confirmed. Without limiting the generality of the foregoing, the Loan Documents and all of the Collateral described therein do and shall continue to secure the payment of all obligations of the Borrowers under the Credit Agreement, the Notes and the other Loan Documents, in each case as amended hereby. (b) The execution, delivery and effectiveness of this First Amendment shall not, except as expressly provided herein, operate as a waiver of any right, power or remedy of any Lender or the Agent under any of the Loan Documents, nor constitute a waiver of any provision of any of the Loan Documents. SECTION 5. Execution in Counterparts. This First Amendment may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed to be an original and all of which taken together shall constitute but one and the same agreement. SECTION 6. Governing Law. This First Amendment shall be governed by, and construed in accordance with, the laws of the State of New York. [Signature page to follow] 2 IN WITNESS WHEREOF, the parties hereto have caused this First Amendment to be executed as of the date first above written. AVADO BRANDS, INC. By:_________________________________________ Title: HILCO CAPITAL LP, as Administrative Agent and Lender By: ________________________________________ Title: DRAWBRIDGE SPECIAL OPPORTUNITIES FUND LP, as Collateral Agent and Lender By:_________________________________________ Title: DB SPECIAL OPPORTUNITIES LP By:_________________________________________ Title: HIGHBRIDGE/ZWIRN SPECIAL OPPORTUNITIES FUND, L.P. By:_________________________________________ Title: TRS METIS LLC By: ________________________________________ Title: Exhibits and schedules to this agreement are not filed pursuant to Item 601(b)(2) of SEC Regulation S-K. By the filing of this Form 10-Q, the Registrant hereby agrees to furnish supplementaly a copy of any omitted exhibit or schedule to the Commission upon request. S-1 EX-10 8 drawslb.txt MASTER LAND AND BUILDING LEASE EXHIBIT 10.3 MASTER LAND AND BUILDING LEASE between SKYLINE-FRI 8, L.P. a Delaware limited partnership, as LANDLORD and DON PABLO'S OPERATING CORP. an Ohio corporation as TENANT March 24, 2003 INDEX TO MASTER LAND AND BUILDING LEASE Article RECITALS I. Demise of Premises 1 II. Term 2 III. Rent 2 IV. Use 6 V. Acceptance of Demised Premises 7 VI. Alterations 7 VII. Repairs and Maintenance 8 VIII. Compliance with Law 9 IX. Utilities 10 X. Indemnity 10 XI. Insurance 12 XII. Damage or Destruction 15 XIII. Eminent Domain 16 XIV. Covenants of Landlord 18 XV. Insolvency 19 XVI. Default 20 XVII. Unavoidable Delays, Force Majeure 25 XVIII. No Waiver 26 XIX. Notices 26 XX. Access 27 XXI. Signs 28 XXII. Improvements and Fixtures 28 XXIII. End of Term 30 XXIV. Holding Over 30 ii XXV. Assignment and Subletting 30 XXVI. Landlord's Loan 32 XXVII. Maintenance of Outside Areas 34 XXVIII. Certificates 34 XXIX. Relationship of Parties 35 XXX. Recording 35 XXXI. Captions and Section Numbers 35 XXXII. Applicable Law 35 XXXIII. Entire Agreement 36 XXXIV. Landlord's Liability 36 XXXV. Attorney's Fees 36 XXXVI. Individual Lease Agreements 37 XXXVII. Environmental 38 XXXVIII. Addenda 42 XXXIX. Counterparts 43 Exhibit A Location/Legal Description/Address of the Real Property Exhibit B Tenant's Personal Property List Exhibit C Tenant's Estoppel Certificate Exhibit D Memorandum of Lease Exhibit E Fixed Rent Allocation Exhibit F Subordination, Nondisturbance and Attornment Agreement Exhibit G Avado Brands, Inc. Guaranty Exhibit H Base EBITDAR iii MASTER LAND AND BUILDING LEASE THIS MASTER LAND AND BUILDING LEASE (the "Lease") is made and entered into as of March 24, 2003 (the "Effective Date"), between SKYLINE-FRI 8, L.P., a Delaware limited partnership ("Landlord") and Don Pablo's Operating Corp., an Ohio corporation ("Tenant"). R E C I T A L S A. Landlord is the owner of the fifteen (15) tracts of real property (individually, the "Real Property" and collectively the "Properties". The Properties are more particularly described in Exhibit A attached hereto and for purposes hereof shall include all of Landlord's right, title and interest in and to all easements, appurtenances and rights relating to the Real Property. B. Tenant desires to lease from Landlord the Properties so that Tenant may, in accordance with and subject to the terms, conditions, and restrictions of the Lease, operate a Don Pablo's restaurant at each Real Property location. The buildings and all improvements to or on each tract of Real Property, including but not limited to all site work, landscaping, fixtures, machinery, equipment and systems, utilities, and other improvements, is individually referred to as the "Building", and collectively referred to as the "Buildings". The personal property and moveable trade fixtures (other than Landlord's Equipment, as defined in Section 22.03) located at the Demised Premises are owned by Tenant and/or leased from third parties including, without limitation, those items generally described on Exhibit B attached hereto, and are not included in the definition of Building or Real Property leased to Tenant pursuant to this Lease. C. The Properties and the Buildings shall be referred to either individually or collectively as the "Demised Premises." D. Tenant desires to lease the Demised Premises from Landlord, and Landlord desires to lease the Demised Premises to Tenant, on the terms and conditions hereinafter set forth. NOW, THEREFORE, in consideration of the lease of the Demised Premises and the rents, covenants and conditions herein set forth, Landlord and Tenant do hereby covenant, promise and agree as follows: ARTICLE I DEMISE OF PREMISES Landlord does hereby lease unto Tenant, and Tenant does hereby hire from Landlord, for the term hereinafter provided in Section 2.01, the Demised Premises for the use thereof by Tenant, Tenant's employees, concessionaires, licensees, agents, customers and invitees, which use shall be exclusive except as otherwise provided in Section 3.06 or elsewhere herein. 1 ARTICLE II TERM Section 2.01 (a) The "Commencement Date" of this Lease shall be upon the Effective Date. The Lease shall continue for a period of twenty (20) years following the Effective Date (the "Original Lease Term") unless sooner terminated as hereinafter provided for. The "Lease Term", as such term is used herein, shall mean the Original Lease Term as extended (or as may be extended) pursuant to Section 2.02 below unless sooner terminated as hereinafter provided for. (b) This Lease shall be deemed to be in full force and effect upon the Effective Date. Tenant shall be deemed in possession of the Demised Premises upon the Effective Date. Section 2.02 Tenant shall have the option to extend the term of this Lease for up to two (2) separate option periods upon and subject to the terms set forth below in this Section 2.02. The first option period (the "First Option Period") shall commence at the expiration of the Original Lease Term. The second option period (the "Second Option Period") shall commence at the expiration of the First Option Period. The First Option Period and the Second Option Period, are sometimes referred to herein collectively as the "Option Periods" and individually as an "Option Period." Each Option Period shall continue for a period of ten (10) years from the commencement date of such Option Period. Except as otherwise expressly provided herein, all of the terms and conditions of this Lease applicable to the Original Lease Term shall continue to apply during each Option Period. To validly extend the Lease Term beyond the expiration of the Original Lease Term with the First Option Period (a), Tenant must and shall deliver to Landlord written notice of Tenant's election to so extend not later than one (1) year prior to the expiration of the Original Lease Term and (b)no event shall have occurred and be continuing which, with the passage of time or the giving of any required notice, would constitute an Event of Default (such event, a "Default). To validly extend the Lease Term for the Second Option Period , Tenant (x) must and shall deliver to Landlord written notice of Tenant's election to so extend not later than six (6) months prior to the expiration of the First Option Period, and (y) shall not be in default under any material term or condition of this Lease as of the date of such notice or the commencement of the Second Option Period. Without limiting anything contained in Article XXXIII hereof, time is of the essence in the performance of each provision of this Section 2.02. Either party, upon request of the other, shall execute and acknowledge, in form suitable for recording, an instrument confirming any such extension, with Tenant paying all applicable recording costs. ARTICLE III RENT 2 Section 3.01 Tenant shall pay to Landlord, from and after the Commencement Date and thereafter throughout the Lease Term, the sums set forth in this Lease as "Rent" without prior demand therefore and without offset, deduction, or abatement except as may be otherwise expressly provided herein. Notwithstanding the foregoing, any amounts due by Tenant to Landlord hereunder for which no due date is expressly specified herein (e.g., the first day of each month) shall be due within ten (10) days following the giving to Tenant by Landlord of written notice of such amounts due, except if some other period of time following written notice or demand is otherwise expressly provided below, then such other period shall apply. As used herein, "Rent" shall be deemed to include not only Fixed Rent but also all additional sums payable or owed by Tenant under this Lease, including without limitation as set forth in Sections 3.05 and 3.07 ("Additional Rent"). Except as otherwise expressly provided herein, in the event of nonpayment by Tenant of any Rent, Landlord shall have the same rights and remedies in respect thereof regardless of whether such Rent constitutes Fixed Rent or Additional Rent. All payments of Rent to be paid to Landlord shall be paid to Landlord at its election, in one of the following manners (which shall be disclosed in writing to Tenant and may be changed only by a writing delivered to Tenant): (1) via electronic deposit into an account designated by Landlord (provided that electronic payment shall only be an option so long as the initial landlord named in the first paragraph, or its lender, or any entity under the Control (as defined below) of the initial Landlord is Landlord unless otherwise consented to by Tenant), (2) by mail at the Landlord's office indicated on the first page hereof or (3) by mail to any other place designated by Landlord upon at least thirty (30) days' prior written notice to Tenant. If the Commencement Date shall not be the first day of a calendar month, then the rent for such month shall be prorated based upon a Three Hundred Sixty-Five (365) day year. Section 3.02 Intentionally left blank. Section 3.03 Fixed Rent: (a) The "Fixed Rent" for the Demised Premises for each month of the Lease Term prior to the fifth anniversary of the Commencement Date shall be $195,833.33. On the fifth anniversary of the Commencement Date, and thereafter, on each fifth anniversary of such date throughout the Lease Term, (i.e., the fifth, tenth and fifteenth anniversary of the Commencement Date, and subject to Section 2.02, the twentieth, twenty-fifth, thirtieth and thirty-fifth anniversary of the Commencement Date) the monthly Fixed Rent shall increase by ten percent (10%) over the Fixed Rent charged in the immediately preceding month of the Lease Term, and such increase shall apply for the ensuing five (5) year period. Tenant shall pay to Landlord Fixed Rent in advance, without demand therefore, beginning on the Commencement Date and thereafter on the first day of each calendar month commencing with the Commencement Date. (b) In the event that this Lease is terminated with respect to any Demised Premises (i) pursuant to a casualty pursuant to Section 12.04 hereof, or (ii) pursuant to an eminent domain taking of any of the Demised Premises pursuant to Article XIII, the Fixed Rent shall be reduced as of the date of such termination by an amount equal to the Fixed Rent allocated to such Demised Premises pursuant to Exhibit E hereof. In addition, if Landlord exercises its option to segregate this Lease into one or more Individual Lease Agreements pursuant to Section 36.01, the Fixed Rent shall be reduced as provided in Section 36.01. In either 3 event, Landlord shall prepare and Tenant and Landlord shall execute, within five (5) days after delivery to Tenant, an amendment to this Lease, in form and substance reasonably acceptable to Landlord and Tenant, which removes the terminated or segregated Demised Premises from the Real Property described in Exhibit A hereto, and establishes the new Fixed Rent. All other provisions of this Lease will not be affected by any such termination or segregation. Section 3.04 Intentionally left blank. Section 3.05 Additional Rent. (a) All "Real Estate Taxes" (as hereinafter defined) assessed against, or allocable or attributable to each of the Demised Premises (whether accruing prior to, or after the Effective Date and during the Lease Term) shall be deemed to be Additional Rent and shall be payable by Tenant as contemplated by Section 3.05(b) below. Real Estate Taxes for the last year of the Lease Term shall be prorated based upon the most recent tax bill and shall be paid by Tenant to Landlord upon termination of the Lease. As used herein, the term "Real Estate Taxes" means all taxes and general and special assessments and other impositions in lieu thereof, as a supplement thereto and any other tax which is measured by the value of real property and assessed on a uniform basis against the owners of real property, including excise taxes described in Section 3.05 (d) and any substitution in whole or in part of any of the foregoing due to a future change in the method of taxation. Nothing contained in this Lease, however, shall require the Tenant to pay any estate, inheritance, corporate, profits, transfer, franchise or income tax of Landlord, nor shall any of same be deemed Real Estate Taxes, unless same shall be specifically imposed in substitution for, or in lieu of, Real Estate Taxes, and then only to the extent same are limited to the Demised Premises as if it were the only property owned by Landlord. If by law, any general or special assessment or like charge may be paid in installments without any penalty or interest , then such assessment may be paid by Tenant in such installments and Tenant shall only be liable for the portion thereof that is allocable or attributable to the Lease Term or any portion thereof. (b) Tenant shall pay the Real Estate Taxes directly to the applicable taxing authority within fifteen (15) days prior to the earlier of (i) the delinquency thereof, or (ii) the date that any penalty or interest would accrue on any unpaid installment. Landlord shall have the tax bill for the Demised Premises sent directly by the applicable taxing authority to Tenant, and Tenant shall pay the tax bill directly to the collecting authority, and in such event Tenant shall provide Landlord a copy of the paid receipt for each installment of Real Estate Taxes so paid. If Tenant fails to pay the Real Estate Taxes when due hereunder, then Tenant shall, in addition to all other remedies available to Landlord, reimburse Landlord for any and all penalties or interest, or portion thereof, incurred by Landlord as a result of such nonpayment or late payment by Tenant. (c) Tenant shall have the right at its own cost and expense, to seek an abatement of Real Estate Taxes or a reduction in the valuation of the Demised Premises and/or contest the applicability of any Real Estate Taxes to the Demised Premises or the improvements thereon Without limiting the foregoing, Tenant shall have the right to contest or cause to be contested, by appropriate 4 legal proceedings conducted in good faith and with due diligence, at Tenant's sole cost and expense, the amount and validity or application, in whole or in part, of any Real Estate Taxes or lien therefore, provided that Tenant shall have deposited with Landlord adequate reserves for the payment of the taxes as required by Landlord (but in no event less than the amount of Real Estate Taxes in dispute), unless paid in full under protest or Tenant shall have furnished such security as may be required in the proceeding. In any instance where any such action or such proceeding is being undertaken by Tenant, Landlord shall reasonably cooperate with Tenant, at no cost or expense to Landlord, including participating (at Tenant's sole cost and expense) in any proceeding in which Landlord is a necessary party and execute any and all documents approved by Landlord required in connection therewith. Tenant shall be entitled to any refund (after the deduction therefrom of all reasonable expenses incurred by Landlord in connection therewith) of any Real Estate Taxes and penalties or interest thereon received by Tenant or Landlord, whether or not such refund was a result of proceedings instituted by Tenant, which have been paid by Tenant or paid by Landlord for the benefit of Tenant and repaid to Landlord by Tenant. (d) Tenant shall pay to Landlord, with each payment of Rent due hereunder, all taxes imposed upon Landlord with respect to rental or other payments in the nature of a gross receipts tax, sales tax, privilege tax or the like, , whether imposed by a federal, state or local taxing authority, which when added to such rental or other payment shall yield to Landlord after deduction of all such tax payable by Landlord with respect to all such payments a net amount which Landlord would have realized from such payment had no such tax been imposed. Tenant shall have the right to contest any such taxes provided for in this Section 3.05(d) in accordance with provisions relating to contest set forth in Section 3.05(c) above. Notwithstanding the foregoing, but without limiting the preceding obligation of Tenant to pay all taxes which are imposed on the rental or other payments due under this Lease, in no event will Tenant be required to pay any net income taxes (i.e. taxes which are determined taking into account deductions for depreciation, interest, taxes and ordinary and necessary business expenses), franchise taxes of Landlord, any transfer taxes of Landlord or other tax imposed with respect to the sale, exchange or other disposition by Landlord, in whole or in part, of any of the Properties or Landlord's interest in the Lease (not including, in any event, any increase in ad valorem taxes or Real Estate Taxes resulting from such transfer). Section 3.06 Matters of Record: Tenant hereby accepts each Demised Premises in the condition as of the date of possession hereunder, subject to all applicable zoning, municipal, county, and state laws, ordinances, and regulations, including private easements and restrictions, (whether or not evidence thereof is recorded in the public records), governing and regulating the use of the Demised Premises, and accepts this Lease subject thereto and to all matters disclosed thereby, and by any exhibits attached hereto. Tenant acknowledges that neither Landlord nor Landlord's agent has made any representation or warranty as to the suitability of any Leased Property for the conduct of the Tenant's business. Section 3.07 Additional Charges: Tenant and Landlord agree that the rent accruing under this Lease shall be net to Landlord and that all Real Estate Taxes (subject to contest rights), costs, promotional fees, common area maintenance fees, expenses and charges of every kind and nature, including reasonable attorneys' fees incurred by Landlord in enforcing the provisions of this Lease, whether or not any legal proceedings are commenced ("Additional Charges") arising in connection with or relating to the Demised Premises 5 (excluding, however, (1) taxes other than Real Estate Taxes for which Landlord is responsible under Section 3.05(a), and (2) any charges resulting solely and directly from Landlord's gross negligence or willful misconduct and (3) any payments for interest or principal under any fee mortgage relating to the Demised Premises) which may arise or become due at any time during the Lease Term) and that all Additional Charges shall be paid by Tenant. With respect to any Additional Charges other than Real Estate Taxes, Landlord shall bill Tenant for such charges from time to time by delivery to Tenant of a true and accurate statement (including reasonable backup documentation) showing in reasonable detail the Additional Charges. Tenant shall pay such Additional Charges within ten (10) days after receipt of such bill. Landlord will provide reasonable cooperation to Tenant at Tenant's sole cost and expense in disputing any Additional Charges that are assessed against Landlord or the Properties by third parties. Tenant hereby indemnifies, defends, protects, and saves Landlord wholly harmless from and against any and all Additional Charges. As used herein, the term "Additional Rent" shall include, without limitation, all of the following: (1) any and all Additional Charges for which Tenant is responsible hereunder, or which Tenant otherwise assumes or agrees to pay; (2) all interest and penalties owed to third parties that may accrue on such Additional Charges if Tenant fails to pay them timely; (3) all other damages, costs and expenses (including, without limitation, reasonable attorneys' fees and other legal and court costs) which Landlord may suffer or incur in enforcing this Lease; and (4) any and all other sums which may become due by reason of Tenant's default or failure to comply with its obligations under this Lease. Section 3.08 Late Charge: In addition to all other remedies set forth in this Lease, any payment of Fixed Rent due to Landlord not received by Landlord within ten (10) days after such payment is due hereunder, and any payment of Additional Rent due to Landlord not received by Landlord when due hereunder, shall be deemed delinquent and cause Tenant to incur a late charge of five percent (5%) on each delinquent payment (or the applicable portion of such payment that is delinquent), due and payable immediately with the delinquent Fixed Rent or delinquent Additional Rent, as the case may be. Section 3.09 Character of Demised Premises: From the Commencement Date and thereafter throughout the Lease Term, Tenant shall conduct its business in a first class and reputable manner consistent with Tenant's prior operating practices with respect to each of the Demised Premises. Tenant shall open and operate a Don Pablo's restaurant at each of the Demised Premises continuously during all hours which is customary for similarly situated Don Pablo's restaurants, subject to temporary closing due to casualty, condemnation, remodeling, Lease assignment or subletting permitted pursuant to Article XXV, or other force majeure condition. The character of the occupancy of the Demised Premises is an additional consideration and inducement for the granting of this Lease. Section 3.10 Guaranty. Avado Brands, Inc, a Georgia corporation ("Guarantor") shall guaranty Tenant's obligations under this Lease pursuant to the Guaranty Agreement substantially in the form of Exhibit G, executed as of the Effective Date. ARTICLE IV USE 6 Tenant may use the Demised Premises to operate a Don Pablo's restaurant, including beer, wine and liquor sales, and such other incidental uses related thereto in Tenant's discretion or another nationally branded restaurant concept. Tenant may use the Demised Premises only for the uses expressly permitted under this Section, and for no other use without the prior written consent of Landlord, which approval shall not be unreasonably withheld, delayed or conditioned. Notwithstanding any other provision of this Article, Tenant shall not use, or suffer or permit any person or entity to use, the Demised Premises or any portion thereof for any purpose in violation of any applicable law, ordinance or regulation applicable to the Demised Premises. ARTICLE V ACCEPTANCE OF DEMISED PREMISES Tenant acknowledges that it has owned the Demised Premises prior to execution of this Lease and has had the opportunity to perform all tests, studies and inspections that it desires, and that Tenant is accepting each Demised Premises in its AS IS condition existing on the date Tenant executes this Lease. ARTICLE VI ALTERATIONS Subject to the provisions of this Article VI, Tenant shall have no right to make changes, alterations or additions (collectively, "Alterations") to any Building in excess of One Hundred Thousand Dollars ($100,000.00) without prior written consent of Landlord, which Landlord agrees it will not withhold unreasonably; provided, however, in no event shall any Alterations be made which, after completion, would: (i) reduce the value of the Building as it existed prior to the time that said Alterations are made; or (ii) adversely affect the structural integrity of the Building. Such amount shall increase by five percent (5%) on each anniversary of the Effective Date of this Lease. Any and all Alterations made by Tenant shall be at Tenant's sole cost and expense. Prior to the commencement of construction, Tenant shall deliver promptly to Landlord detailed cost estimates for any proposed Alterations, as well as all drawings, plans and other information regarding such Alterations (such estimates, drawings, plans and other information are collectively referred to herein as the "Alteration Information"), Landlord's review and/or approval of any Alteration Information shall in no event constitute any representation or warranty of Landlord regarding (x) the compliance of any Alteration Information with any governmental or legal requirements, (y) the presence of absence of any defects in any Alteration Information, or (z) the safety or quality of any of the Alterations constructed in accordance with any plans or other Alteration Information. Landlord's review and/or approval of any of the Alteration Information shall not preclude recovery by Landlord against Tenant based upon the Alterations, the Alteration Information, or any defects therein. In making any and all Alterations, Tenant also shall comply with all of the following conditions: 7 (a) No Alterations shall be undertaken until Tenant shall have (i) procured and paid for, so far as the same may be required, all necessary permits and authorizations of all governmental authorities having jurisdiction over such Alterations, and (ii) delivered to Landlord at least fifteen (15) days prior to commencing any such Alterations written evidence acceptable to Landlord of all such permits and authorizations. Landlord shall, to the extent necessary (but at no cost, expense, or risk of loss to Landlord), join in the application for such permits or authorizations whenever necessary, promptly upon written request of Tenant. (b) Any and all structural Alterations of the Building shall be performed under the supervision of an architect and/or structural engineer. (c) Tenant shall notify Landlord at least fifteen (15) days prior to commencing any Alterations so as to permit, and Tenant shall permit, Landlord access to the Demised Premises in order to post and keep posted thereon such notice(s) as may be provided or required by applicable law to disclaim responsibility for any construction on the Demised Premises. (d) Any and all Alterations shall be conducted and completed in a commercially reasonable time period (subject to the terms of Article XVII), in a good and workmanlike manner, and in compliance with all applicable laws, municipal ordinances, building codes and permits, and requirements of all governmental authorities having jurisdiction over the Demised Premises, and of the local Board of Fire Underwriters, if any; and, within thirty (30) days after completion of any and all Alterations, Tenant shall obtain and deliver to Landlord a copy of the amended certificate of occupancy for the Demised Premises, if required under applicable law or by governmental authority. To the extent reasonably practicable, any and all Alterations shall be made and conducted so as not to disrupt Tenant's business; provided however that major alterations which require closing of the business on a temporary basis may be made so long as otherwise in compliance with the provisions of this Lease. (e) The cost of any and all Alterations shall be promptly paid by Tenant so that the Demised Premises at all times shall be free of any and all liens for labor and/or materials supplied for any Alterations subject to the next succeeding sentence. In the event any such lien shall be filed, Tenant shall, within five (5) days after receipt of notice of such lien, deliver written notice to Landlord thereof, and Tenant shall, within thirty (30) days after receipt of notice of such lien, discharge the same by bond or payment of the amount due the lien claimant. However, Tenant may in good faith contest such lien provided that within such thirty (30) day period Tenant provides Landlord with a surety bond reasonably acceptable to Landlord, protecting against said lien. ARTICLE VII REPAIRS AND MAINTENANCE Tenant, at its sole cost and expense, shall maintain each of the Demised Premises and each part thereof, structural and non-structural, in good order and condition, ordinary wear and tear and damage by casualty excepted, and, subject 8 to the terms and conditions of Article VI, if and as applicable, shall make any necessary Repairs thereto, interior and exterior, whether extraordinary, foreseen or unforeseen but subject to the casualty and condemnation provisions of this Lease. When used in this Article VII, the term "Repairs" shall include all such replacements, renewals, alterations, additions and betterments necessary for Tenant to properly maintain each Demised Premises in good order and condition and in compliance with all applicable laws. The adequacy of, any and all Repairs to the Demised Premises required or conducted pursuant to this Article VII shall be measured by and meet, at a minimum, all of the following standards: (1) at least equal in quality of material and workmanship to the condition of the Demised Premises prior to the need for such Repairs; (2) at least equal in quality of material and workmanship to the condition of buildings and related facilities of similar construction and class in the general geographic area of the Demised Premises are generally maintained; (3) , avoidance of any and all structural damage or injury to the Building or persons therein; (4) any and all maintenance, service, operation and repair standards and requirements set forth by Guarantor for its (or its subsidiaries' or affiliates') restaurants; (5) any and all repairs, replacements or upgrades necessary to ensure compliance with the rules and regulations of all governmental agencies having jurisdiction over the Demised Premises, including all Environmental Laws (as defined below); and (6) no mold which inhibits or impairs the intended use of any Demised Premises shall be permitted to remain unabated at any Demised Premises. Landlord shall have no duty whatsoever to maintain, replace, upgrade, or repair any portion of the Demised Premises except in the event the damage necessitating such repair is solely and directly caused by the gross negligence or willful misconduct of Landlord. If Tenant fails or neglects to commence and diligently proceed with all necessary Repairs or fulfill its other obligations as set forth above within twenty (20) days after receipt of notice of the need therefor or otherwise obtaining knowledge of the need therefor (except in emergency situations involving risk of further damage to the Demised Premises or injury to persons in which case no such time period shall be applicable) and/or fails to diligently make such repairs within a reasonable time period, then Landlord or its agents may enter the Demised Premises for the purpose of making such Repairs or fulfilling those obligations. All costs and expenses incurred as a consequence of Landlord's action shall be paid by Tenant to Landlord as Additional Rent within fifteen (15) days after Landlord delivers to Tenant copies of invoices for such Repairs or other obligations. These invoices shall be prima facie evidence of the payment of the charges to be paid by Landlord. Except in the case of emergency, Landlord shall give Tenant ten (10) days' written notice before taking any such action. ARTICLE VIII COMPLIANCE WITH LAW Tenant shall, throughout the Lease Term, at its sole cost and expense, comply with all laws and regulations of federal, state, municipal and local governments, departments, commissions and boards pursuant to law, or directives or orders issued pursuant thereto, including without limitation all Environmental Laws and the Americans With Disabilities Act, with respect to, regarding, or pertaining to the Demised Premises. Notwithstanding the foregoing, Tenant may, subject to the terms and conditions of this Section, contest or appeal such requirements or orders. To the extent any such contest or appeal by Tenant suspends any and all obligations on the part of Tenant, Landlord, or the Demised Premises to comply with such requirements or orders, and suspends any 9 and all applicability of such requirements or orders to the Demised Premises, Tenant shall not be required to comply with any such laws, regulations, orders, requirements or rules. In no event shall any such appeals, contests or proceedings pursued by Tenant subject Landlord to criminal liability or any civil liability. Upon final resolution of any such appeal, proceeding or contest pursued by Tenant, Tenant shall comply with the judgment, finding or order of the governmental authority so resolving such appeal, proceeding or contest, and shall be liable in full for any and all fines, penalties, charges or costs of any type whatsoever which accrue during the pendency of any contest or appeal. 10 ARTICLE IX UTILITIES Without limiting any of Tenant's obligations set forth in Article III, Tenant shall be solely responsible for, and shall pay the cost of all utility services provided to the Demised Premises throughout the Lease Term. ARTICLE X DISCLAIMER AND INDEMNITY Section 10.01 As used in this Lease, "Landlord Parties" means, collectively, Landlord, Landlord's lenders, and Landlord's members, partners, trustees, ancillary trustees, officers, directors, shareholders, beneficiaries, agents, employees and independent contractors, succesors, assigns and lenders, to any of the foregoing. To the extent not prohibited by law, none of the Landlord Parties shall be (and Tenant hereby agrees that they shall not be) liable, under any circumstances (except only Landlord (and not any other Landlord Parties) in the event of, and then only to the extent directly attributable to, Landlord's gross negligence or willful misconduct) for any loss, injury, death or damage to person or property (including but not limited to the business or any loss of income or profit therefrom) of Tenant, Tenant's members, officers, directors, shareholders, agents, employees, contractors, customers, invitees or any other person in or about the Demised Premises, whether the same are caused by (1) fire, explosion, falling plaster, steam, dampness, electricity, gas, water, or rain or (2) breakage, leakage or other defects of sprinklers, wires, appliances, plumbing fixtures, water or gas pipes, roof, air conditioning, lighting fixtures, street improvements, or subsurface improvements or (3) theft, acts of God, acts of the public enemy, riot, strike, insurrection, war, court order, requisition or order of governmental body or authority, or (4) any act or omission of any other occupant of the Demised Premises or any other party, or (5) operations in construction of any private, public or quasi-public work, or (6) any other cause, including damage or injury which arises from the condition of the Demised Premises, from occupants of adjacent property, from the public, or from any other sources or places, and regardless of whether the cause of such damage or injury or the means of repairing the same are inaccessible to Tenant, or which may arise through repair, alteration or maintenance of any part of the Demised Premises or failure to make any such repair, from any condition or defect in, on or about the Demised Premises including any "Environmental Conditions" (as defined in Article XXXVII) or the presence of any mold or any Hazardous Materials (as defined in Article XXXVII), or from any other condition or cause whatsoever. Section 10.02 Tenant hereby fully and forever releases, discharges, acquits, and agrees to indemnify, protect, defend (with counsel selected by Tenant and approved by Landlord, such approval not to be unreasonably withheld) and hold the Demised Premises, and each of the Landlord Parties wholly free and harmless of, from and against any and all claims, demands, actions, causes of action, settlements, obligations, duties, indebtedness, debts, controversies, losses, remedies, chooses in action, liabilities, costs, penalties, fines, damages, injury, judgments, forfeiture, losses (including without limitation diminution in the value of the Demised Premises) or expenses (including without limitation attorneys' fees, consultant fees, testing and investigation fees, 11 expert fees and court costs), whether known or unknown, whether liquidated or unliquidated: (a) arising out of or in any way related to or resulting directly or indirectly from: (i) the use, occupancy or activities of Tenant, its agents, employees, contractors or invitees in or about the Demised Premises, (ii) any failure on the part of Tenant to comply with any applicable law, including without limitation all Environmental Laws; (iii) any default or breach by Tenant in the performance of any obligation of Tenant under this Lease; and (iv) any other loss, injury or damage described in Section 10.01 above caused (whether by action or omission) by Tenant, its agents, employees, contractors or invitees; and (v) in connection with mold at any Demised Premises; and (b) whether heretofore now existing or hereafter arising out of or in any way related to or resulting directly or indirectly from the presence or "Release" (as defined in Article XXXVII) at, on, under to or from the Demised Premises of any Hazardous Material; provided, however, that the foregoing indemnity shall not be applicable to the extent any such claims are directly attributable to the gross negligence or willful misconduct of such Landlord Party. All of the personal or any other property of Tenant kept or stored at, on or about the Demised Premises shall be kept or stored at the risk of Tenant. Section 10.03 Tenant hereby fully and forever releases, discharges, acquits, and agrees to indemnify, protect, defend (with counsel selected by Tenant and approved by Landlord, such approval not to be unreasonably withheld) and hold the Demised Premises, and all Landlord Parties wholly free and harmless of, from and against any and all claims, demands, actions, causes of action, settlements, obligations, duties, indebtedness, debts, controversies, losses, remedies, chooses in action, liabilities, costs, penalties, fines, damages, injury, judgments, forfeiture, losses (including without limitation diminution in the value of the Demised Premises) or expenses (including without limitation attorneys' fees, consultant fees, testing and investigation fees, expert fees and court costs), whether known or unknown, hereafter arising, whether liquidated or unliquidated, arising out of or in any way related to or resulting directly or indirectly from work or labor performed, materials or supplies furnished to or at the request of Tenant or in connection with obligations incurred by or performance of any work done for the account of Tenant in, on or about the Demised Premises. Section 10.04 Landlord and Tenant each (a) represent to the other party that such representing party has dealt with no broker or brokers in connection with the negotiation, execution and delivery of this Lease and (b) hereby agrees to indemnify, defend, protect (with counsel selected by the other party) and hold such other party wholly free and harmless of, from and against any and all claims or demands for any and all brokerage commissions and/or finder's fees due or alleged to be due as a result of any agreement or purported agreement made by such indemnifying party. Section 10.05 The provisions of this Article X shall survive the expiration or sooner termination of this Lease. Tenant hereby waives the provisions of any applicable laws restricting the release of claims which the releasing parties do not know or suspect to exist at the time of release, which, if known, would have materially affected Tenant's decision to agree to this release. In this regard, Tenant hereby agrees, represents, and warrants to Landlord that Tenant realizes and acknowledges that factual matters now unknown to Tenant may hereafter give rise to causes of action, claims, demands, debts, controversies, damages, costs, losses and expenses which are presently unknown, unanticipated and unsuspected, 12 and Tenant further agrees, represents and warrants that the release provided hereunder has been negotiated and agreed upon in light of that realization and that Tenant nevertheless hereby intends to release, discharge and acquit the parties set forth herein above from any such unknown causes of action, claims, demands, debts, controversies, damages, costs, losses and expenses which are in any manner set forth in or related to this Lease, the Demised Premises and all dealings in connection therewith. ARTICLE XI INSURANCE Section 11.01 Tenant will maintain, with financially sound and reputable insurers, public liability, fire and extended coverage and property damage, rent loss or business interruption and other types of insurance with respect to its business and each Property (including all Buildings now existing or hereafter erected thereon) against all losses, hazards, casualties, liabilities and contingencies as customarily carried or maintained by persons of established reputation engaged in similar businesses and as Landlord shall require and in such amounts and for such periods as Landlord shall require. Without limitation of the foregoing, Tenant shall maintain or cause to be maintained policies of insurance with respect to each Real Property in the following amounts and covering the following risks: (a) Comprehensive "all risk" insurance covering loss or damage to each Real Property caused by fire, lightning, hail, windstorm, explosion, vandalism, malicious mischief, and such other losses, hazards, casualties, liabilities and contingencies as are normally and usually covered by "All Risk" or special property policies in effect where such Real Property is located endorsed to include all of the extended coverage perils and other broad form perils, including the standard "all risks" or Special clauses, with such endorsements as Landlord may from time to time reasonably require including, without limitation, building ordinance or law coverage sufficient to provide coverage for costs to comply with building and zoning codes and ordinances including demolition costs and increased cost of construction. (b) The policy(ies) referred to in Subsection (a) above shall be in an amount equal to one hundred percent (100%) of the full replacement cost of the Building and the furniture, fixtures and equipment at each Real Property (without any deduction for depreciation), and shall contain a replacement cost endorsement and an agreed amount or waiver of co-insurance provisions endorsement. The deductible under such policy shall not exceed an amount customarily required by institutional lenders for similar properties in the general vicinity of the applicable Real Property, but in no event in excess of $250,000, or such other amount as is approved by Landlord from time to time. (c) Broad form boiler and machinery or breakdown insurance in an amount equal to the full replacement cost of the Building at the Real Property (without any deduction for depreciation) in which the boiler or similar vessel is located, and including coverage against loss or damage from (1) leakage of sprinkler systems and (2) damage, breakdown or explosion of steam boilers, electrical machinery and equipment, air conditioning, refrigeration, pressure vessels or similar apparatus and mechanical objects now or hereafter installed at the applicable Real Property. 13 (d) If any Real Property is located in area prone to geological phenomena, including, but not limited to, sinkholes, mine subsidence or earthquakes, insurance covering such risks in amounts, and in form and substance, satisfactory to Landlord in its sole discretion. (e) Business interruption or rent loss insurance in an amount equal to the gross income or rentals from each Real Property for an indemnity period of twelve (12) months, such amount being adjusted annually. (f) During any period of construction, reconstruction, renovation or alteration at any Real Property, a complete value, "All Risks" Builders Risk form or "Course of Construction" insurance policy in non-reporting form and in an amount reasonably satisfactory to Landlord. (g) Commercial General Liability insurance covering claims for personal injury, bodily injury, death or property damage occurring upon, in or about each Real Property on an occurence form and in an amount not less than $1,000,000 per occurrence and $2,000,000 in the aggregate and shall provide coverage for premises and operations, liquor liability, products and completed operations and contractual liability with a deductible in an amount customarily required by institutional lenders for similar properties in the general vicinity of the applicable Real Property, but in no event in excess of $500,000, and an umbrella liability policy in the amount of $25,000,000. (h) If required by applicable state laws, worker's compensation, employer's liability insurance in an amount of $1,000,000 per accident, per employee and in the aggregate, and in accordance with such laws, subject to the statutory limits of the states in which the Properties are located. (i) Such other insurance and endorsements, if any, with respect to the Real Property and the operation thereof as Landlord may reasonably require from time to time, provided same are customarily required by institutional lenders for similar properties in the general vicinity of the applicable Real Property. Section 11.02 Each carrier providing any insurance, or portion thereof, required by this Section shall be licensed to do business in the jurisdiction in which the applicable Real Property is located, and shall have a claims paying ability rating by S&P of not less than "A" and an A.M. Best Company, Inc. rating of not less than A and financial size category of not less than XIII. Except as otherwise expressly set forth in this Lease, Tenant shall cause all insurance (except general public liability and workers' compensation insurance) to contain a mortgagee clause and loss payee clause in favor of Landlord's lender in accordance with this Section to be payable to Landlord's lender as a mortgagee and not as a co-insured, as its interest may appear. Section 11.03 All insurance policies and renewals thereof (i) shall be in a form reasonably acceptable to Landlord, (ii) shall provide for a term of not less than one year, (iii) if the same are insurance policies covering any property (a) shall include a standard non-contributory mortgagee endorsement or 14 its equivalent in favor of and in form acceptable to Landlord's lender, (b) shall contain an agreed value clause updated annually (if the amount of coverage under such policy is based upon the replacement cost of the applicable Property) and (c) shall designate Landlord's lender as "mortgagee and loss payee." In addition, all property insurance policies (except for flood and earthquake limits) must automatically reinstate after each loss, and the commercial general liability and umbrella policies shall contain an additional insured endorsement in favor of Landlord's lender. Section 11.04 Any insurance provided for in this Article may be effected by a blanket policy or policies of insurance, or under so-called "all-risk" or "multi-peril" insurance policies, provided that the amount of the total insurance available with respect to the Demised Premises shall provide coverage and indemnity at least equivalent to separate policies in the amounts herein required, and provided further that in other respects, any such policy or policies shall comply with the provisions of this Article. Any increased coverage provided by individual or blanket policies shall be satisfactory, provided the aggregate liability limits covering the Demised Premises under such policies shall otherwise comply with the provisions of this Article. Section 11.05 Every insurance policy carried by either party with respect to the Demised Premises shall (if it can be so written) include provisions waiving the insurer's subrogation rights against the other party to the extent such rights can be waived by the insured prior to the occurrence of damage or loss. Subject to the above, each party hereby waives any rights of recovery against the other party for any direct damage or consequential loss covered by said policies against which such party is protected by insurance whether or not such damage or loss shall have been caused by any acts or omissions of the other party, but such waiver shall operate only to the extent such waiving party is so protected by such insurance coverage. Section 11.06 Each insurance policy required to be carried by Tenant hereunder shall include a provision requiring the insurance carrier insuring such policy to provide Landlord with not less than thirty (30) days' prior written notice of any cancellation in such policy. If any insurance policy required to be and in fact carried by Tenant and covering the Demised Premises or any part thereof is cancelled or is threatened by the insurer to be cancelled, or if the coverage thereunder is reduced in any way by the insurer for any reason, and if Tenant fails to remedy the condition giving rise to cancellation, threatened cancellation, or reduction of coverage within 48 hours after notice thereof by Landlord, Landlord may, in addition to all other rights and remedies available to Landlord, enter the Demised Premises and remedy the condition giving rise to such cancellation, threatened cancellation or reduction, and Tenant shall forthwith pay the cost thereof to Landlord (which cost may be collected by Landlord as Additional Rent) and Landlord shall not be liable for any damage or injury caused to any property of Tenant or of others located on the Demised Premises as a result of any such entry. In the event Tenant fails to procure or maintain any policy of insurance required under Article XI, Landlord may, at its option, purchase such insurance and charge Tenant all costs and expenses incurred in procuring and maintaining such insurance as Additional Rent. Section 11.07 In addition to the insurance required to be maintained hereunder, Tenant shall deliver a letter of credit to Landlord in the amount of $250,000.00, in accordance with the terms of the Letter Agreement between Landlord and Tenant, dated contemporaneously with the date of this Lease. 15 ARTICLE XII DAMAGE OR DESTRUCTION Section 12.01 Subject to the provisions of Section 12.04 and Section 12.05 below, if at any time during the Lease Term, any Demised Premises or any part thereof shall be damaged or destroyed by fire or other casualty of any kind or nature, Tenant shall commence within Forty-Five (45) days after the first date of such damage or destruction and thereafter diligently proceed to repair, replace or rebuild such Demised Premises as nearly as possible to its condition and character immediately prior to such damage with such variations and Alterations requested by Tenant as may be permitted under (and subject to the provisions of) Article VI (the "Restoration Work"). Section 12.02 All property and casualty insurance proceeds payable to Landlord or Tenant (except (i) insurance proceeds payable to Tenant on account of Tenant's trade fixtures or inventory and business interruption insurance carried by Tenant and (ii) insurance proceeds payable from comprehensive general public liability, or any other liability insurance) at any time as a result of casualty to the Demised Premises shall be paid jointly to Landlord and Tenant for purposes of payment for the cost of the Restoration Work, except as may be otherwise expressly set forth herein, and advanced from time to time for such purposes as the work progresses upon certified request of Tenant's architect. Landlord and Tenant shall cooperate in order to obtain the largest possible insurance award lawfully obtainable and shall execute any and all consents and other instruments and take all other actions necessary or desirable in order to effectuate same and to cause such proceeds to be paid as hereinbefore provided. The proceeds of any such insurance in the case of loss shall, to the extent necessary, be used first for the Restoration Work with the balance, if any, payable to Tenant. If insurance proceeds as a result of a casualty to the Demised Premises are insufficient to complete the Restoration Work necessary by reason of such casualty, then Tenant shall promptly pay to Landlord the amount which, in Landlord's sole discretion will be required to complete such work, and Landlord will deposit such amount in an escrow account (or as otherwise required by Landlord's lender) to be used for required Restoration Work. The escrowed funds deposited by Tenant shall first be used in their entirety for the Restoration Work, and only after all such funds have been fully expended shall the insurance proceeds collected by reason of such casualty be used and expended. Section 12.03 Except as provided for in Section 12.04, this Lease shall not be affected in any manner by reason of the total or partial destruction to any Demised Premises or any part thereof, or any reason whatsoever, and Tenant, notwithstanding any law or statute, present or future, waives all rights to quit or surrender any Demised Premises or any part thereof. Fixed Rent and Additional Rent required to be paid by Tenant hereunder shall not abate as a result of any casualty. Section 12.04 16 (a) Notwithstanding Section 12.01 above, if any Building is destroyed or damaged in excess of Twenty-Five percent (25%) of the replacement cost thereof (the Demised Premises at which the Building is located is hereafter referred to as the "Casualty Property"), exclusive of foundation and footings, by fire or other insured casualty at any time during the last twelve (12) months of the Lease Term, then Landlord shall have the right, at its election, to terminate this Lease as to the Casualty Property by giving Tenant written notice of termination within sixty (60) days after the date on which such damage or destruction occurs. Such termination shall be effective on the last day of the month following the month in which Landlord gives Tenant notice of its election to so terminate. In such event, Landlord shall be entitled to all insurance proceeds payable pursuant to the policy carried by Tenant pursuant to Section 11.01(b) above, except amounts payable with respect to Tenant's inventory, equipment and/or trade fixtures or moveable trade fixtures. (b) In the event of the termination of the Lease as to a Casualty Property pursuant to Section 12.04(a) above, Tenant shall pay to Landlord, prior to such termination date, an amount equal to the Fixed Rent and any then accrued Additional Rent in each case payable under this Lease to the date of such termination. With respect to any amounts of Additional Rent which are payable by Tenant in the event of such termination, but which are not then ascertainable, Tenant shall pay to Landlord an amount equal to such Additional Rent as and when the same is determined. The Fixed Rent payable after the termination of this Lease with respect to a Casualty Property shall be determined in accordance with Section 13.05. This Section 12.04 shall survive expiration or termination of the Lease. ARTICLE XIII EMINENT DOMAIN Section 13.01 If more than fifty percent (50%) of any Demised Premises, or more than fifty percent (50%) of the existing access to or from any Demised Premises, shall be taken for any public or quasi-public use under any statute or by right of eminent domain, or by purchase in lieu thereof and such taking makes the Demised Premises unusable for the purposes set forth in Article IV, then this Lease shall terminate as to such Demised Premises as of the date that possession has been so taken (the "Vesting Date"). Section 13.02 (a) In the event of a taking of less than fifty percent (50%) of any Demised Premises or fifty percent (50%) of the access thereto, Tenant may elect to terminate this Lease as to such entire Demised Premises(and not just the portion thereof so taken) and not restore such Demised Premises if, by reason of the taking, the taking shall result in a diminution in value of more than 20% of the Demised Premises and as a result of such taking Tenant's business at the Demised Premises has been materially and adversely affected. Tenant's business at the Demised Premises will be deemed materially adversely affected only if there is (i) a taking of a portion of the building located at the Premises making reconfiguration uneconomical, (ii) a taking of access to the Demised Premises in which an alternative access provides significantly reduced traffic counts (iii) a taking of a significant number of parking spaces where 17 alternative parking spaces are not available, or (iv) a taking that would preclude use of the Property for its current use under applicable zoning or other use regulations. (b) In the event Tenant elects by reason of any of the foregoing events described in this Article XIII to terminate the Lease as to a Demised Premises ("Condemned Property"), Tenant shall give written notice to Landlord of its intention to so terminate within ninety (90) days after formal notice of the proposed taking is given to Tenant, and this Lease shall terminate with respect to the Condemned Property as of the last day of the calendar month following the month in which such notice is given. In the event the condemning authority revokes or terminates its condemnation proceeding, (i) Landlord, prior to the date set for termination of this Lease with respect to the Condemned Property, may, by notice to Tenant, elect to rescind such termination; and (ii) if Landlord has not re-leased or otherwise entered into an agreement with a third party regarding Tenant's leasehold interest on or before such date, Tenant may, by written notice to Landlord prior to the date set for termination, elect to rescind such termination. In the event of such termination, however, Tenant shall pay to Landlord, prior to such termination date, an amount equal to the Fixed Rent and any then accrued Additional Rent in each case payable under this Lease to the date of such termination, and neither party shall have any further rights or liabilities under this Lease with respect to the Condemned Property (except for rights and liabilities that explicitly survive termination or expiration of the Lease as set forth herein). With respect to any items of Additional Rent which are payable by Tenant in the event of such termination, but which are not then ascertainable, Tenant shall pay to Landlord an amount equal to such Additional Rent as and when the same is determined. The covenants and agreements with respect to the adjustment and payment of items of Additional Rent shall survive the termination of this Lease. Section 13.03 In the event of a taking resulting in the termination of this Lease with respect to a Condemned Property pursuant to the provisions of Sections 13.01 or 13.02, the parties hereto agree to cooperate in applying for and in prosecuting any claim for such taking and further agree that the aggregate net award shall be distributed as follows: (a) Landlord shall be entitled to the entire award for the Condemned Property. (b) Tenant shall be entitled to any award that may be made for the taking of, or injury to or on account of, any cost or loss Tenant may sustain in the removal of its merchandise, fixtures, moveable trade fixtures and equipment and furnishings, and so long as it does not diminish the amount of the award otherwise available to Landlord for the Condemned Property, the award for loss of business and goodwill. Section 13.04 (a) In case of a taking of less than fifty percent (50%) of any Demised Premises or fifty percent (50%) of the access thereto, and if this Lease is not terminated as provided in Section 13.02 above, Tenant shall proceed with diligence (subject to reasonable time periods for purposes of adjustment of any award and unavoidable delays) to repair or reconstruct the affected Building to a complete architectural unit (all such repair, reconstruction and work being referred to in this Article as "Reconstruction Work"). Landlord shall reimburse 18 Tenant for the cost of the Reconstruction Work up to and not exceeding the net compensation amount realized by Landlord as a result of such taking (i.e., the gross amount of the compensation received by Landlord from the taking authority less all costs and expenses reasonably incurred by Landlord in pursuing, prosecuting, and/or recovering its claim to such award). All Reconstruction Work shall be performed pursuant to (and subject to) the requirements for Alterations set forth in Article VI. (b) In case of a taking of less than fifty percent (50%) Demised Premises, or less than fifty percent (50%) of the access thereto, and if this Lease is not terminated as provided in Section 13.02 above, the Fixed Rent payable hereunder shall, from and after the date of such taking, be reduced by an amount equal to the product of (i) 1/12 multiplied by (ii) 9% multiplied by (iii) the net condemnation proceeds retained by Landlord after the application of any such proceeds to the repair, restoration or replacement necessitated by the condemnation taking. (c) As more particularly set forth in Section 13.03(b) above, Tenant shall be entitled to claim, prove and receive in any condemnation proceeding such awards as may be allowed for loss of business and goodwill, provided such award shall not diminish the amount of the award otherwise available to Landlord for the Demised Premises hereunder. (d) Any compensation for a temporary taking shall be payable to Tenant without participation by Landlord, except to the proportionate extent such temporary taking extends beyond the end of the Lease Term, and there shall be no abatement of Rent as a result thereof. Section 13.05 If this Lease is terminated with respect to a Casualty Property or a Condemned Property, the Fixed Rent due after the termination of the Lease shall be reduced by the amount of the Fixed Rent allocable to such Casualty Property or Condemnation Property pursuant to Exhibit E. ARTICLE XIV COVENANTS OF LANDLORD AND TENANT Section 14.01 Landlord and Tenant represent, warrant and covenant to the other that each such party currently has, and as of the Effective Date will continue to have, the right and lawful authority to enter into this Lease and perform their respective obligations hereunder.Landlord further represents, warrants and covenants to Tenant that, from and after the Effective Date until the termination of the Lease Term, and provided Tenant is not in default under this Lease, Tenant shall have quiet enjoyment of the Demised Premises as against any adverse claim of Landlord or any party claiming under Landlord subject, however, to the terms of the Lease and any agreement between Tenant and any such party claiming under Landlord. Section 14.02 Tenant may from time to time in writing request Landlord to join with Tenant (at Tenant's cost and expense), (i) to grant, modify or amend easements, licenses, rights of way and other rights and privileges in the nature 19 of easements for the purposes of providing utilities and the like to the Demised Premises, (ii) release existing easements and appurtenances relating to the provision of utilities and the like to the Demised Premises, (iii) grant, modify, amend or release reciprocal easement agreements, restrictive covenants, subdivisions, annexations and the like, (iv) grant immaterial portions of the Demised Premises in connection with, or in lieu of, takings or dedications for public use, and (v) execute and deliver any instrument, in form and substance reasonably acceptable to Landlord, necessary or appropriate to make or confirm such actions to any person. Landlord shall not unreasonably refuse to join in any such action and shall not unreasonably withhold its consent thereto in writing, provided that no Default or Event of Default shall have occurred and be continuing hereunder and provided that an officer of Tenant shall have certified to Landlord that such action is being taken in the ordinary course of Tenant's business, does not interfere with and is not detrimental to the conduct of business on the Demised Premises, does not impair the usefulness or fair market value of the Demised Premises or any contemplated future use by Landlord of the Demised Premises, and was made for no or only nominal consideration. Notwithstanding the foregoing, Landlord shall have no obligation to join in, or consent to, any such action if such action presents a material risk of liability, expense or adverse tax consequences to Landlord. ARTICLE XV INSOLVENCY Section 15.01 If at any time during the Lease Term, (1) proceedings in bankruptcy shall be instituted (voluntarily or involuntarily) by or against Tenant or Guarantor which result in an adjudication of bankruptcy, and with respect to any involuntary proceeding, Tenant or Guarantor shall consent to the commencement thereof or any such proceeding not so consented to by Tenant or Guarantor is not stayed or withdrawn within sixty (60) days after commencement thereof or (2) if Tenant or Guarantor shall file, or any creditor or other person shall file against Tenant or Guarantor, any petition in bankruptcy (i.e., seeking any reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief) under the Bankruptcy Act of the United States of America (or under any other present or future statute, law or regulation), and such filing is not vacated or withdrawn within sixty (60) days thereafter, or (3) if a trustee or receiver shall be appointed to take possession of the Demised Premises, or of all or substantially all of the business or assets of Tenant, or Guarantor and such appointment is not vacated or withdrawn and possession restored to Tenant or Guarantor, as the case may be, within thirty (30) days thereafter, or (4) if a general assignment or arrangement is made by Tenant or Guarantor for the benefit of creditors, or (5) if any sheriff, marshal, constable or other duly-constituted public official takes possession of the Demised Premises, or of all or substantially all of the business or assets of Tenant or Guarantor by authority of any attachment, execution, or other judicial seizure proceedings, and if such attachment or other seizure remains undismissed or undischarged for a period of thirty (30) days after the levy thereof, or (6) if Tenant or Guarantor shall admit in writing Tenant's inability to pay its debts as they become due; the filing by Tenant or Guarantor of an answer admitting or failing timely to contest a material allegation of a petition filed against Tenant or Guarantor in any such proceeding; or, if within sixty (60) days after the commencement of any proceeding against Tenant or Guarantor seeking any reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief under any present or future statute, 20 law or regulation, such proceeding shall not have been dismissed, then an Event of Default under this Lease shall have occurred on the part of Tenant and Landlord may, at its option in any of such events, on thirty (30) days notice to Tenant, if such action is not vacated or withdrawn during such thirty (30) day period, immediately recapture and take possession of the Demised Premises and terminate this Lease pursuant to process of law. ARTICLE XVI DEFAULT Section 16.01 Events Of Default. The occurrence of any of the following shall constitute an event of default ("Event of Default") on the part of Tenant: (a) Nonpayment Of Rent. Failure to pay any installment of Fixed Rent or Additional Rent due and payable hereunder on the date when payment is due pursuant to the terms of this Lease, and such failure shall continue until the earlier of (i) three (3) days after written notice from Landlord, or (ii) ten (10) days following the date when such Fixed Rent or Additional Rent is due. (b) Insolvency. The occurrence of any event described in Article XV above. In the event that under applicable law the trustee in bankruptcy or Tenant has the right to affirm this Lease and continue to perform the obligations of Tenant hereunder, such trustee or Tenant shall, within such time period as may be permitted by the bankruptcy court having jurisdiction, cure all defaults of Tenant hereunder outstanding as of the date of the affirmance of this Lease and provide to Landlord such adequate assurances as may be necessary to ensure Landlord of the continued performance of Tenant's obligations under this Lease. (c) Misrepresentation. The discovery by Landlord that any representation, warranty or financial statement given to Landlord by Tenant or any guarantor of Tenant's obligations under this Lease (including, without limitation, Guarantor) was materially false or misleading when given. (d) Certificate. The failure by Tenant to give timely any certificate in accordance with terms, provisions, and requirements of this Lease (provided, however that the foregoing shall only be an Event of Default at the option of Landlord), and such failure continues for ten (10) days after written notice from Landlord, unless any shorter notice period is specifically provided under this Lease, in which case such shorter notice period shall apply, in lieu of such ten (10) day period. (e) Environmental. Tenant's violations of any Environmental Laws or the Release of any Hazardous Materials, or the failure to abate the presence of mold which would inhibit or impair the intended use of any Demised Premises, such failure continuing for a period of thirty (30) days after written notice of such failure, or such longer period as is reasonably necessary to remedy such default, provided that Tenant commences an appropriate response action for such violation or Release within such thirty (30) day period and continuously and diligently pursues such remedy at all times until complete. 21 (f) Delivery of Documents. The failure by Tenant to deliver any of the documents required pursuant to Section 26.01, 28.01 or 36.01 within the time periods required pursuant to such sections. (g) Other Obligations. The failure by Tenant to timely perform any obligation, agreement or covenant under this Lease, other than those matters specified in Sections 16.01(a)-(f) above, and such failure continuing for a period of thirty (30) days after written notice of such failure is delivered to Tenant (or such longer period, up to but not exceeding an additional ninety (90) days, as is reasonably necessary to remedy such default, provided that Tenant commences the remedy within such thirty (30) day period and continuously and diligently pursues such remedy at all times during the additional ninety (90) day period.) (h) Financial Covenant Default. Until Landlord has sold or otherwise assigned its interest in twelve (12) or more of the Real Properties the aggregate EBITDAR (as hereafter defined) of the Properties subject to the Lease for the trailing twelve (12) month period shall be less than 55 % of the EBITDAR for such Properties set forth on Exhibit H. EBITDAR shall mean the aggregate earnings, determined in accordance with generally accepted accounting principles, consistently applied, of the restaurant operations at all Properties, prior to any deductions for Fixed Rent, Additional Rent, amortization, depreciation, federal and state income taxes, interest expense and general and administrative expense (i.e., allocation of any corporate overhead expense), but after deducting an annual overhead charge of $50,000 per Property. The EBITDAR shall be determined on the basis of the Properties actually owned by Landlord on the last day of each calendar quarter, and accordingly any Properties sold by Landlord during the trailing twelve (12) month period shall be excluded from such calculation and from the EBITDAR set forth on Exhibit H. Tenant shall deliver to Landlord and Drawbridge Special Opportunities Fund LP (collectively with its successors and assigns, "Drawbridge") a compliance certificate, in form and substance reasonably acceptable to Landlord and Drawbridge, within twenty-five (25) days after the last day of each calendar quarter, demonstrating compliance with the EBITDAR covenant set forth herein, and shall additionally deliver to Landlord and Drawbridge, promptly upon request of Landlord or Drawbridge, financial information of Tenant reasonably acceptable to Landlord and Drawbridge supporting the statements contained in any such compliance certificate. . Section 16.02 Remedies Upon Default. If an Event of Default by Tenant occurs, then, in addition to any other remedies available to Landlord at law or in equity or elsewhere hereunder, Landlord shall have the following remedies: (a) Termination. Landlord shall have the right, with or without notice or demand, immediately upon expiration of any applicable grace period specified herein, to terminate this Lease, and at any time thereafter recover possession of all or any portion of the Demised Premises or any part thereof and expel and remove therefrom Tenant and any other person occupying the same by any lawful means, and repossess and enjoy all or any portion of the Demised Premises without prejudice to any of the remedies that Landlord may have under this Lease. If Landlord elects to terminate the Lease, Landlord shall also have the 22 right to (i) reenter the Demised Premises and take possession of and remove all equipment and fixtures of Tenant, if any, in such Demised Premises and (ii) exercise its rights, with five (5) days written notice to Tenant, to use Don Pablo's service mark in connection with Landlord's continued operation of a restaurant at any Demised Premises. In connection with any such repossession, Tenant (and any affiliate of Tenant holding a liquor license with respect to the Demised Premises) shall provide reasonable cooperation in transferring its liquor license to Landlord, or in assisting Landlord in obtaining a liquor license. Tenant (and Tenant's affiliate) agree upon Landlord's written request, to grant a security interest to Landlord in the liquor license at the Demised Premises to secure Tenant's obligations hereunder, provided that the grant of such security interest does not violate any state or local law or ordinance. Upon any assumption or successful foreclosure of Tenant's liquor license, Tenant's liability to Landlord on account of any default under this Lease shall be reduced by the fair market value of the liquor license so transferred to Landlord. If Landlord elects to terminate this Lease and Tenant's right to possession, or if Tenant's right to possession is otherwise terminated by operation of law, Landlord may recover as damages from Tenant the following: (i) all Rent then due under the Lease through the date of termination; (ii) the Fixed Rent due for the remainder of the Lease Term in excess of the fair market rental value of the Demised Premises for the remainder of the Lease Term (each discounted by the discount rate of the Federal Reserve Bank of San Francisco plus one percent (1%); (iii) the cost of reletting the Demised Premises; and (iv) any other costs and expenses that Landlord may reasonably incur in connection with the Event of Default. Landlord shall use commercially[,] reasonable efforts to mitigate Tenant's damages for any such default; provided, however, that Landlord's efforts to mitigate shall not waive Landlord's right to recover damages which are calculated consistent with Landlord's duty to mitigate. (b) Continuation After Default. If Landlord does not elect to terminate this Lease, then this Lease shall continue in effect, and Landlord may enforce all of its rights and remedies under this Lease, including, without limitation, the right to recover Rent as it becomes due, and Landlord, without terminating this Lease, may exercise all of the rights and remedies of a landlord under Texas law, subject to Article 32 hereof. Landlord shall not be deemed to have terminated this Lease except by an express statement in writing. Acts of maintenance or preservation, efforts to relet the Demised Premises, or the appointment of a receiver upon application of Landlord to protect Landlord's interest under this Lease shall not constitute an election to terminate Tenant's right to possession unless such election is expressly stated in writing by Landlord. Notwithstanding any such reletting without such termination, Landlord may at any time thereafter elect to terminate Tenant's right to possession and this Lease. If Landlord elects to relet the Demised Premises for the account of 13 Tenant, the rent received by Landlord from such reletting shall be applied as follows: first, to the payment of any and all costs of such reletting (including, without limitation, attorneys' fees, brokers' fees, alterations and repairs to any of the Demised Premises, and tenant improvement costs); second, to the payment of any and all indebtedness other than Rent due hereunder from Tenant to Landlord; third, to the payment of any and all Rent due and unpaid hereunder; and the balance, if any, shall be held by Landlord and applied in payment of future Rent as it becomes due. If the rent received from the reletting is less than the sum of the costs of reletting, other indebtedness due by Tenant, and the Rent due by Tenant, then Tenant shall pay the deficiency to Landlord promptly upon demand by Landlord. Such deficiency shall be calculated and paid monthly. (c) CONFESSION OF JUDGMENT FOR POSSESSION OF DEMISED PREMISES. TENANT HEREBY EXPRESSLY AUTHORIZES THE PROTHONOTARY, CLERK OR ANY ATTORNEY OR ANY COURT OF RECORD TO ACCEPT SERVICE OF PROCESS FOR, TO APPEAR FOR, AND TO CONFESS JUDGMENT AGAINST TENANT AND ALL PERSONS CLAIMING UNDER TENANT IN ANY AND ALL 23 ACTIONS BROUGHT HEREUNDER BY LANDLORD AGAINST TENANT TO RECOVER POSSESSION OF THE DEMISED PREMISES (IN EJECTMENT OR OTHERWISE), WITHOUT ANY LIABILITY ON THE PART OF SAID ATTORNEY, FOR WHICH THIS LEASE SHALL BE SUFFICIENT WARRANT, AND TENANT AGREES THAT UPON THE ENTRY OF SUCH JUDGMENT, A WRIT OF POSSESSION OR OTHER APPROPRIATE PROCESS MAY ISSUE FORTHWITH (WITHOUT ANY PRIOR WRIT OR PROCEEDING WHATSOEVER). IN ANY SUCH ACTION, LANDLORD SHALL FIRST CAUSE TO BE FILED IN SUCH ACTION AN AFFIDAVIT MADE BY LANDLORD OR SOMEONE ACTING FOR IT SETTING FORTH FACTS NECESSARY TO AUTHORIZE THE ENTRY OF JUDGMENT, OF WHICH FACTS SUCH AFFIDAVIT SHALL BE CONCLUSIVE EVIDENCE, AND IF A TRUE COPY OF THIS LEASE BE FILED IN SUCH ACTION (AND OF THE TRUTH OF THE COPY SUCH AFFIDAVIT SHALL BE SUFFICIENT EVIDENCE), IT SHALL NOT BE NECESSARY TO FILE THE ORIGINAL, AS A WARRANT OF ATTORNEY, ANY RULE OF COURT, CUSTOM OR PRACTICE TO THE CONTRARY NOTWITHSTANDING. TENANT AND ALL PERSONS CLAIMING UNDER TENANT HEREBY RELEASE LANDLORD FROM ANY CLAIMS ARISING FROM ANY ERRORS OR DEFECTS WHATSOEVER IN ENTERING SUCH ACTION OR JUDGMENT, IN CAUSING SUCH WRIT OF POSSESSION OR OTHER PROCESS TO BE ISSUED OR IN ANY PROCEEDING THEREON OR CONCERNING THE SAME, AND HEREBY AGREE THAT NO WRIT OF ERROR OR OBJECTION SHALL BE MADE OR TAKEN THERETO. THIS WARRANT OF ATTORNEY SHALL NOT BE EXHAUSTED BY ONE EXERCISE, BUT JUDGMENT MAY BE CONFESSED FROM TIME TO TIME, AS OFTEN AS OCCASION THEREFOR SHALL EXIST. SUCH POWERS MAY BE EXERCISED DURING AS WELL AS AFTER THE EXPIRATION OR TERMINATION OF THE LEASE TERM AND DURING AND AT ANY TIME AFTER ANY EXTENSION OR RENEWAL OF THE LEASE TERM. THIS SECTION 16.02(C) SETS FORTH A WARRANT OF ATTORNEY FOR AN ATTORNEY TO CONFESS JUDGMENT AGAINST TENANT. IN GRANTING THIS WARRANT OF ATTORNEY TO CONFESS JUDGMENT AGAINST TENANT, TENANT, FOLLOWING CONSULTATION WITH (OR DECISION NOT TO CONSULT WITH) SEPARATE COUNSEL FOR TENANT AND WITH KNOWLEDGE OF THE LEGAL EFFECT HEREOF, HEREBY KNOWINGLY, INTELLIGENTLY AND VOLUNTARILY WAIVES UNCONDITIONALLY ANY AND ALL RIGHTS TENANT HAS OR MAY HAVE TO PRE-JUDGMENT AND PRE-EXECUTION NOTICE AND AN OPPORTUNITY FOR HEARING UNDER THE RESPECTIVE CONSTITUTIONS AND LAWS OF THE UNITED STATES OF AMERICA, THE COMMONWEALTH OF PENNSYLVANIA, OR ELSEWHERE. TENANT SPECIFICALLY ACKNOWLEDGES THAT LANDLORD HAS RELIED ON THE WARRANT OF ATTORNEY SET FORTH IN THIS SECTION 16.02(C) IN ENTERING INTO THIS LEASE WITH TENANT AND THAT THE LANDLORD-TENANT RELATIONSHIP CREATED HEREBY IS COMMERCIAL IN NATURE. Section 16.03 Indemnification. Nothing in this Section shall be deemed to affect Tenant's obligation to indemnify, defend, protect and hold harmless Landlord and the other Landlord Parties under Article X of this Lease, and such obligation shall survive the termination or expiration of this Lease. Section 16.04 Waiver of Notice/ Performance by Landlord. Notwithstanding any provision herein, (a) if Tenant is required to comply with any governmental requirement, Tenant shall not be entitled to notice of default from Landlord and right to cure beyond the period within which such compliance may be required by applicable law or government agency; or (b) if in Landlord's reasonable determination the continuance of any default by Tenant for the full period of notice provided for herein will constitute a threat of injury or harm to persons 24 or property, Landlord may, with or without notice, elect to perform those acts with respect to which Tenant is in default for the account and at the expense of Tenant. If by reason of such governmental requirement or default by Tenant, Landlord is compelled or elects to pay any sum of money, (including without limitation attorneys' fees, consultant fees, testing and investigation fees, expert fees and court costs), such sums so paid by Landlord, plus an administrative charge of fifteen percent (15%) of such sums, shall be due as Additional Rent from Tenant within ten (10) days of written demand therefore from Landlord. Section 16.05 Interest. Tenant hereby acknowledges that late payment by Tenant to Landlord of Fixed Rent and any Additional Rent will cause Landlord to incur costs not contemplated by this Lease, the exact amount of which will be extremely difficult to ascertain. Such costs include, but are not limited to, processing and accounting charges and late charges which may be imposed on Landlord by the terms of any mortgage or trust deed covering the Demised Premises. Accordingly, any sum due by Tenant to Landlord under this Lease which is not paid when due shall bear interest at the lesser of the prime rate announced from time to time by Wells Fargo Bank, N.A., plus five percent (5%) per annum or the maximum rate allowed under Texas law, from the date such sum becomes due and payable by Tenant hereunder until paid, unless otherwise expressly provided in this Lease. The foregoing shall be in addition to, and not in lieu of, any other rights, remedies and charges as a result of any such late payment by Tenant set forth in this Lease, including without limitation any late charge imposed on any such amount as set forth in Section 3.08. Section 16.06 Tenant's Subleases. If Landlord elects to terminate this Lease on account of any Event of Default, then Landlord may: (i) terminate any sublease by a subtenant and any license, concession, or other consensual arrangement for possession entered into by Tenant and affecting any of the Demised Premises which are not the subject of a nondisturbance agreement executed by Landlord; or (ii) choose to succeed to Tenant's interest in such arrangement. Absent a nondisturbance agreement between Landlord and subtenant, no payment by a subtenant with respect to a sublease shall entitle such subtenant to possession of any Property after termination of this Lease and Landlord's election to terminate the sublease by the subtenant. If Landlord elects to succeed to Tenant's interest in such arrangement, then Tenant shall, as of the Effective Date of notice given by Landlord to Tenant of such election, have no further right to, or interest in, any rent or other consideration receivable under that arrangement. Section 16.07 Form of Payment After Default. Without limiting any other obligation of Tenant under this Lease, if Tenant fails to pay any amount due to Landlord under this Lease within five (5) days after written notice of such failure is given to Tenant by Landlord, or if Tenant attempts to pay any such amount by drawing a check on an account with insufficient funds, then Landlord shall have the right to require that any and all subsequent amounts paid by Tenant to Landlord under this Lease (to cure a default or otherwise) be paid in the form of cashier's or certified check drawn on an institution acceptable to Landlord, or any other form approved by Landlord in its sole and absolute discretion, notwithstanding that Landlord may have previously accepted payments from Tenant in a different form. Section 16.08 Acceptance of Rent Without Waiving Rights. No payment by 25 Tenant shall be deemed to be other than on account of the earliest sum due from Tenant hereunder, nor shall any endorsement or statement by Tenant on any check or any letter accompanying such payment be deemed an accord and satisfaction of any amount in dispute between Tenant and Landlord or otherwise. Landlord may accept any and all of Tenant's payments without waiving any right or remedy under this Lease, including but not limited to the right to commence and pursue an action to enforce rights and remedies under a previously served notice of default, without giving Tenant any further notice or demand. Section 16.09 Waiver by Tenant. Tenant hereby waives all claims for damages that may be caused by Landlord's lawful reentering and taking possession of the Demised Premises following the occurrence at an Event of Default in accordance with the provisions of this Lease or removing and storing the property of Tenant as herein provided. Section 16.10 Remedies Cumulative. All rights, privileges, elections, and remedies of Landlord are cumulative and not alternative with all other rights and remedies hereunder, at law or in equity to the fullest extent permitted by law. The exercise of one or more rights or remedies by Landlord shall not impair Landlord's rights to exercise any other right or remedy to the fullest extent permitted by law. ARTICLE XVII UNAVOIDABLE DELAYS, FORCE MAJEURE If either party shall be prevented or delayed from punctually performing any obligation or satisfying any condition under this Lease by any strike, lockout, labor dispute, inability to obtain labor, materials or reasonable substitutes thereof, Acts of God, present or future governmental restrictions, regulations or control, insurrection, sabotage, fire or other casualty, final determination of insurance and condemnation claims, or any other condition beyond the control of the party, exclusive of financial inability of a party, then the time to perform such obligation or satisfy such condition shall be extended by the delay caused by such event, but only for a reasonable period of time not to exceed, in any event, 180 days. The provisions of this Article shall in no event, however, operate to delay the Commencement Date or to excuse Tenant from the prompt payment of Fixed Rent, or Additional Rent. 26 ARTICLE XVIII NO WAIVER The failure of Landlord or Tenant to insist upon strict performance of any of the terms and conditions hereof shall not be deemed a waiver of any rights or remedies that party or any other such party may have, and shall not be deemed a waiver of any subsequent breach or default in any of such terms, covenants or conditions. ARTICLE XIX NOTICES Whenever it is provided herein that notice, demand, request or other communication shall or may be given to either of the parties by the other, it shall be in writing and, any law or statute to the contrary notwithstanding, shall not be effective for any purpose unless same shall be given or served as follows: (a) If given or served by Landlord, (1) by hand delivery to Tenant, (2) by mailing same to Tenant by registered or certified mail, postage prepaid, return receipt requested, or (3) by delivery by overnight courier such as Federal Express, all delivered and addressed to Tenant at the following address: Don Pablo's Operating Corp. Hancock at Washington Madison, GA 30650 Attn: Margaret E. Waldrep Telephone No. (706) 342-9283 Facsimile No. (706) 343-2234 With copies (which shall not constitute notice hereunder) to: Skadden, Arps, Slate, Meagher & Flom (Illinois) 333 West Wacker Drive Chicago, Illinois 60606 Attn: Randall J. Rademaker Telephone No. (312) 407-0930 Facsimile No. (312) 407-8521 Graves Sieffert, P.A. 862-B South Pleasantburg Drive (29607) P.O. Box 8600 Greenville, South Carolina 29604 Attn: Jennings L. Graves, Jr. Telephone (864) 527-2727 Facsimile No. (864) 527-2721 27 (b) If given or served by Tenant, (1) by hand delivery to Landlord, (2) by mailing same to Landlord by U.S. registered or certified mail, postage prepaid, return receipt requested, or (3) by delivery by overnight courier such as Federal Express, all delivered and addressed to Landlord at the following address: SKYLINE-FRI 8, L.P. 558 Sacramento Street, 4th Floor San Francisco, CA 94111 Attn: Richard C. Ronald Telephone Number 415.615.5140 Facsimile No. 415.616.5144 With copies (which shall not constitute notice hereunder) to: Richard Wilensky 12240 Inwood Rd., Suite 500 Dallas, TX 75244 Telephone No. (972) 739-0510 Facsimile No. (972) 739-0513 (c) All notices, demands, requests or other communications hereunder shall be deemed to have been given or served: (1) if hand delivered, on the date received (or the date delivery is refused) by the recipient party; (2) if delivered by registered or certified mail, three (3) days after the date of posting as marked on the U.S. postage receipt; and (3) if by Federal Express or similar overnight courier service, on the date of receipt (or the date delivery is refused) by the recipient party. (d) Either Landlord or Tenant may at any time during the Lease Term designate one additional party to whom copies of notices must be sent. (e) Either Landlord or Tenant may from time to time change its address for receiving notices under this Lease by providing written notice to the other party in accordance with this Article XIX. ARTICLE XX ACCESS Section 20.01 Landlord and its designees shall have the right on not less than Twenty-Four (24) hours' prior written notice (except in the event of an emergency, where no prior notice shall be required) to Tenant to enter upon any of the Demised Premises at reasonable hours accompanied by an employee of Tenant to inspect such Demised Premises or, during the period commencing one hundred 28 eighty (180) days prior to the end of the Lease Term, for the purpose of exhibiting same to prospective tenants. Landlord's right to enter and inspect any of the Demised Premises shall include the right to take samples of Environmental Media (as defined in Article XXXVII) as necessary to confirm the presence or absence of Hazardous Materials. Such entry and/or inspection shall not unreasonably interfere with Tenant's ability to conduct its business operations from the Demised Premises and Landlord shall indemnify Tenant from and against any and all claims, losses or liability incurred by Tenant as a result of injuries to persons or property caused by the gross negligence or willful misconduct of Landlord in connection with such entry and inspection, unless an Event of Default has occurred, or Landlord's entry is a result of an emergency at the applicable Property. ARTICLE XXI SIGNS No sign shall be installed on any of the Demised Premises until all governmental approvals and permits required therefore are first obtained and all fees pertaining thereto have been paid by Tenant. Except as set forth in the preceding sentence, Tenant may install or erect signs of any height or dimensions and bearing such inscription as Tenant shall reasonably determine. ARTICLE XXII IMPROVEMENTS AND FIXTURES Section 22.01 Any and all portions of the Building, all other improvements on the Real Property at the Commencement Date and all fixtures on the Demised Premises at the Commencement Date shall be the property of Landlord. In the event that Tenant installs or erects fixtures or improvements to the Demised Premises after the Commencement Date, such fixtures or improvements shall at the expiration or earlier termination of the Lease, become the property of Landlord and remain upon and be surrendered with the Demised Premises. Notwithstanding the foregoing provisions, Tenant shall be liable for all property taxes, assessments, and similar charges assessed against or allocable to any fixtures or equipment at the Demised Premises (irrespective of whether such fixtures are owned by Landlord or Tenant) and which are attributable to any period of time during the Lease Term. This Section 22.01 is subject to Section 22.02 below such that the foregoing shall not be deemed to apply to Tenant's moveable trade fixtures. Section 22.02 Moveable trade fixtures , furnished or installed by Tenant and/or located on the Demised Premises (including those items generally described on Exhibit B hereto), shall be and remain the property of Tenant and may be removed by Tenant or others entitled to remove same at any time during the Lease Term provided that Tenant is not in default of this Lease, and that such removal shall in no way affect Tenant's covenants with respect to the operation of the Demised Premises pursuant to Section 3.09. Such moveable trade fixtures shall include all personal property located on the Demised Premises in which Tenant has any interest, excluding only Landlord's Equipment (as defined in Section 22.03 below). Tenant shall repair all damage to the Demised Premises caused by removal of any such trade fixtures by Tenant or its subtenants, licensees or mortgagees. Upon default of this Lease by Tenant, Landlord shall 29 have the option to purchase any or all of such trade fixtures, and equipment for $1.00, which option is assignable by Landlord. Landlord hereby acknowledges that certain of the moveable trade fixtures are subject to liens in favor of SunTrust Bank, Atlanta, as collateral agent under a Participation Agreement dated as of September 24, 1997 ("Equipment Lease"). Landlord hereby agrees that any statutory or contractual lien it may hold in the moveable trade fixtures and equipment subject to the Equipment Lease liens are hereby subordinated to such liens and such liens are hereby consented to by Landlord. If any of Tenant's trade fixtures or equipment after the date hereof become subject to the lien of an institutional lender, Landlord will subordinate any statutory or contractual lien it may hold to such trade fixtures or equipment to the lien of such lender, if such lender agrees, in form reasonably acceptable to Landlord, to sell to Landlord, at Landlord's election, the trade fixtures and equipment at one or more of the Real Properties at Liquidation Value upon foreclosure or other acquisition by such lender of the trade fixtures or equipment. For purposes hereof, Liquidation Value shall be the value of the assets if sold at public auction, as established by the average of the two closest appraisals in dollar amount made by three qualified appraisers, one selected by Landlord, one selected by such lender and the third selected by the two (2) appraisers so selected. A qualified appraiser is an appraiser with at least five (5) years experience in evaluating restaurant equipment and assets, who has no relationship to either Landlord or the lender. The cost of the appraisal process shall be shared equally by Landlord and lender. Section 22.03 During the Lease Term, Tenant shall be entitled to use Landlord's equipment ("Landlord's Equipment") in Tenant's operations at the Demised Premises. Landlord's Equipment shall include the following items located at each Demised Premises on the Commencement Date: coolers, walk-in freezers, HVAC systems and ventilation units (except any of such items that are leased by Tenant pursuant to the Equipment Lease). Tenant shall keep the Landlord's Equipment in good working order and repair (normal wear and tear excepted), shall not remove Landlord's Equipment from the Demised Premises and shall not permit any lien or other encumbrance to attach to Landlord's Equipment except any such liens that are being contested by Tenant in good faith by appropriate proceedings and that have been bonded over by Tenant to the satisfaction of Landlord. Tenant shall keep the equipment insured and shall be responsible for any casualty or other loss to Landlord's Equipment or occasioned by Landlord's Equipment. Tenant shall at all times have a system in place to identify the Landlord's Equipment from any trade fixtures or equipment of Tenant, and any items of equipment not so identified shall conclusively be presumed to be the property of Landlord. At the expiration or termination of the Lease, if Tenant is in default hereunder, Tenant shall, upon Landlord's written request, assign its interest as lessee in the equipment leases for the Equipment Lease and other items of leased equipment, to the extent assignable. Tenant may, from time to time, retire or replace Landlord's Equipment with new items of equipment purchased by Tenant, in which event such replaced equipment shall constitute Landlord's Equipment. All Landlord's Equipment shall be the property of Landlord, and Tenant shall execute such instruments and documents as Landlord may require to evidence such ownership by Landlord. Section 22.04 Tenant shall purchase all equipment subject to the Equipment Lease with respect to the equipment located at: 11400 University Drive, Orlando, Florida and 6191 Columbia Crossing Cir., Columbia, Md. 21045, on or before April 1, 2003; 5911 Fruitville Rd., Sarasota, Florida, on or before October 1, 2003; 4555 Southside Blvd., Jacksonville, Florida, on or before January 1, 2004; 2025 30 W. Brandon Blvd., Brandon, Florida and 7887 Elm Creek Blvd., Maple Grove, Minnesota, on or before April 1, 2004. Upon acquisition of such equipment, Tenant shall immediately deliver to Landlord a bill of sale for any such equipment which would be described as Landlord's Equipment in Section 22.03. Section 22.05 Tenant hereby authorizes Landlord to take all steps necessary in Landlord's reasonable judgment to perfect any security interest granted by Tenant to Landlord under this Lease, including without limitation by filing or recording financing statements regarding the subject property. ARTICLE XXIII END OF TERM Upon the expiration or earlier termination of the Lease Term, Tenant shall peaceably and quietly quit and surrender the Demised Premises, and all Alterations which are then part of the Demised Premises, broom clean and in good order and condition, subject to reasonable wear and tear and except as provided in Articles XII and XIII. Tenant shall, within thirty (30) days prior to the end of the Lease Term, transfer to Landlord all plans, drawings, other Alteration Information, and technical descriptions of the Properties, and shall assign to Landlord all assignable permits, licenses, authorizations and warranties with respect to the Properties (in each case to the extent not previously transferred or assigned to Landlord). This Article XXIII shall survive the expiration or termination of the Lease. ARTICLE XXIV HOLDING OVER If Tenant holds over in possession after the expiration of the Lease Term, then such holding over shall not be deemed to extend the Lease Term or renew this Lease, but rather the tenancy thereafter shall continue as a tenancy at sufferance pursuant to the terms and conditions herein contained, at One Hundred Twenty-Five percent (125%) of the Fixed Rent; and Tenant shall be responsible for the consequences of any unauthorized holdover and shall indemnify, defend, protect (with counsel selected by Landlord) and hold Landlord Parties wholly free and harmless of, from and against any and all damages, losses, costs, expenses and claims arising therefrom, including reasonable attorneys fees and costs. ARTICLE XXV ASSIGNMENT AND SUBLETTING Section 25.01 This Lease shall be fully assignable by the Landlord or its assigns, subject to the terms of Article XXXIV. Section 25.02 31 (a) Neither Tenant, nor Tenant's successors or assigns, shall assign in whole or in part, by operation of law or otherwise, this Lease, or sublet the Demised Premises, in whole or in part, or permit the Demised Premises or any portion of it to be used or occupied by others, or enter into a management contract or other arrangement whereby the Demised Premises shall be managed or operated by anyone other than the owner of the Tenant's leasehold estate, without the prior written consent of Landlord in each instance. Any disposition of an ownership interest in Tenant, either directly or indirectly, in such a manner that the ultimate beneficial owners of Tenant, through one or more tiers of ownership, transfer "control" of Tenant, shall be deemed to be an assignment of this Lease. "Control" shall mean ownership of voting securities sufficient to elect a majority of the board of directors of a corporation, or analogous ownership interests of non-corporate entities. Provided Tenant remains liable for all its obligations under this Lease and any guarantor remains liable under any guaranty of this Lease, Landlord shall not unreasonably withhold consent to an assignment of this Lease to an individual, partnership or corporation if such individual, partnership or corporation has, in the reasonable opinion of Landlord, a record of timely payment of obligations and compliance with applicable laws and is a commercially and financially sound individual, partnership, or corporation. Tenant may assign or sublease the Demised Premises without the consent of Landlord if such assignment or sublease is to a partnership of which Tenant is a general partner or a corporation of which Tenant is the majority shareholder or to the parent corporation of Tenant (not including, in any event, Guarantor) or an affiliate under common control of the parent corporation of Tenant; provided further that no such assignment or sublease shall relieve Tenant of any liability hereunder, and Tenant shall not transfer its interest as a general partner (or as a majority shareholder as the case may be) without the prior written consent of Landlord in each instance, which consent shall not be unreasonably withheld. (b) Tenant shall submit current financial statements of any proposed assignee or sublessee together with Tenant's request for Landlord's approval of any proposed assignment or sublease, except if (i) the proposed assignee or sublessee is a partnership of which Tenant or Guarantor is a general partner, or is a corporation or limited liability company of which Tenant or Guarantor is a major shareholder, parent company or an affiliate under common control, and (ii) the financial statements of such proposed assignee or sublessee are consolidated with Guarantor. Tenant shall reimburse Landlord for all costs and expenses actually paid by Landlord in connection with any requested assignment or sublease in an amount not to exceed Two Thousand Five Hundred Dollars ($2,500.00). Such amount shall increase by three percent (3%) on each anniversary of the Effective Date of this Lease. (c) If this Lease is assigned or transferred, or if all or any part of the Demised Premises is sublet or occupied by any party other than Tenant, Landlord may collect rent from the assignee, transferee, subtenant or occupant, and apply the net amount collected to the Rent reserved in this Lease, but no such assignment, subletting, occupancy or collection shall be deemed a waiver of any covenant or condition of this Lease, or the acceptance of the assignee, transferee, subtenant or occupant as tenant, or a release of Tenant from the performance or further performance by Tenant of its obligations under this Lease. Without limiting the generality of the forgoing, Tenant expressly acknowledges and agrees that in the event of an assignment of this Lease, Tenant shall remain joint and severally liable with the assignee for all of the obligations under this Lease, and in all other cases of any transfer of Tenant's interest under this Lease, Tenant shall remain primarily liable for such obligations, unless released by Landlord in writing pursuant to Section 25.03. 32 Subject to the foregoing, the consent by Landlord to an assignment, transfer, management contract or subletting shall not in any way be construed to relieve Tenant from obtaining the express written consent of Landlord in each instance to any subsequent similar action that Tenant may intend to take. Section 25.03 Notwithstanding anything contained in Section 25.02 to the contrary (but without limiting anything contained in Article IV hereof): (i) Tenant shall have the right to sublease one or more of the Demised Premises in the ordinary course of Tenant's business without Landlord's consent, and (ii) Tenant may assign all, but not less than all, of its interest in this Lease, and Tenant and Guarantor shall be relieved of any liability accruing under this Lease after the date of such assignment, provided that the proposed assignee has a Credit Rating of BB+ or greater; provided that, in each case, Tenant delivers to Landlord copies of such sublease agreement or assignment contemporaneous with its effectiveness, and Tenant remains primarily liable for all obligations under this Lease. For purposes hereof, Credit Rating means the credit rating assigned by Standard Poors Rating Group to the highest rated publicly issued debt securities of the assignee. Section 25.04 An assignment made with Landlord's consent or as otherwise permitted hereunder shall not be effective until Tenant delivers to Landlord an executed counterpart of such assignment containing an agreement, in recordable form, executed by the assignor and the proposed assignee, in which the assignee assumes the performance of the obligations of the assignor under this Lease throughout the Lease Term. Section 25.05 This Lease shall be binding upon, enforceable by, and inure to the benefit of the parties hereto and their respective heirs, successors, representatives and assigns. ARTICLE XXVI LANDLORD'S LOAN; TENANT'S LOAN Section 26.01 This Lease shall be subject and subordinate to all ground leases and the lien of all mortgages and deeds of trust which now or hereafter affect Landlord's interest in the Demised Premises, and all amendments thereto, all without the necessity of Tenant's executing further instruments to effect subordination. The interest in the Demised Premises of any such future ground lessee or lien holder shall have priority over the interest of Tenant in this Lease and in the Demised Premises provided that such ground lessee or lien holder executes a non-disturbance and attornment agreement in the form of the Subordination, Nondisturbance and Attornment Agreement attached as Exhibit F hereto. Tenant shall execute and deliver to Landlord on the Commencement Date a Subordination, Nondisturbance and Attornment Agreement in the form of Exhibit F, and shall upon five business days' written notice from Landlord, execute additional subordination, nondisturbance and attornment agreements substantially in the form of Exhibit F. Section 26.02 In the event of a foreclosure proceeding, the exercise of the power of sale under any mortgage or deed of trust or the termination of a ground lease, Tenant shall, if requested, attorn to the purchaser thereupon and recognize such purchaser as Landlord under this Lease; provided, however, 33 Tenant's obligation to attorn to such purchaser shall be conditioned upon such purchaser's written agreement not to disturb Tenant's interest in this Lease, except that such purchaser shall be entitled to enforce all rights and remedies of Landlord hereunder. Section 26.03 Tenant shall provide to Landlord, within ten (10) days after written request from Landlord, the most recent quarterly unaudited financial statement for Tenant and Guarantor (consolidated, if applicable) prepared according to generally accepted accounting practices consistently applied, and such other financial information or tax returns as may be reasonably required by Landlord. In addition, Tenant shall provide Landlord with monthly gross sales and profit/loss statements for each restaurant operated at the Properties within twenty-five (25) days after the last day of each month during the Lease Term. Landlord, as part of the request for such information, shall designate the person or persons to whom the information will be revealed (provided, however, that Landlord may always reveal such information to any of the Landlord Parties). Unless Tenant notifies Landlord to the contrary for any persons other than Landlord Parties, Tenant grants Landlord permission to reveal said information to the person or persons so designated and to no others. Section 26.04 Provided that Tenant and Landlord shall secure any required consent from Landlord's lenders, Tenant shall have the right to encumber or hypothecate Tenant's interest in the leasehold estate created by this Lease but only with a leasehold deed of trust securing a loan from a lender (a "Lender"), leasehold mortgage, assignment of leases, assignment, security agreement, and/or other security document (collectively, a "Leasehold Mortgage"). All proceeds from such Leasehold Mortgage shall remain the property of Tenant. Section 26.05 A Leasehold Mortgage shall encumber only Tenant's leasehold interest in the Demised Premises, and shall not encumber Landlord's right title or interest in the Demised Premises. Landlord shall have no liability whatsoever for the payment of the note or any obligation secured by any Leasehold Mortgage or any other provisions of such note or the Leasehold Mortgage or related obligations. Should there be any conflict between the provisions of this Lease and of any Leasehold Mortgage, the provisions of this Lease shall control. No Leasehold Mortgage will be for a term longer than the Term of this Lease, as and if extended as provided herein. Either prior to or concurrently with the recordation of the Leasehold Mortgage, Tenant shall cause a fully conformed copy thereof and of the note secured thereby to be delivered to Landlord, together with a written notice containing the name and post office address of the Lender (as defined herein). Section 26.06 If Landlord declares a default under this Lease, Landlord shall notify any Lender who has given Landlord a prior written request for such notice of such default by sending a copy of the default notice required under this Lease to the Lender. Section 26.07 Immediately upon the recording of the Leasehold Mortgage, Tenant, at Tenant's expense, shall cause to be recorded in the office of the County Recorder of each county in which each of the Demised Premises are located, a written request duly executed and acknowledged by Landlord for a copy 34 of any notice of default and of any notice of sale under the Leasehold Mortgage, as provided by the law in which the Demised Premises are located. Section 26.8 If title to Landlord's estate and to Tenant's estate are acquired by the same person or entity, other than as a result of termination of this Lease, no merger shall occur if the effect of such merger would impair the lien of any Leasehold Mortgage. 35 ARTICLE XXVII MAINTENANCE OF OUTSIDE AREAS Section 27.01 The term "Outside Areas" shall refer to all areas outside of the Buildings including all sidewalks, driveways, landscaping, trash enclosures, and trash compacting and loading areas on the Demised Premises. Section 27.02 Tenant shall be responsible for maintaining the Outside Areas in a neat and clean condition, and shall ensure that debris from the operation of each restaurant on the Demised Premises are cleaned on a regular basis. ARTICLE XXVIII CERTIFICATES Section 28.01 (a) Each party shall, at its sole cost and expense, at any time and from time to time, within ten (10) days after request by the other party, deliver a written instrument to Landlord or any other person, firm or corporation specified by the other party, duly executed and acknowledged, certifying that: (i) This Lease is unmodified and in full force and effect, or if there has been any modification, that the Lease is in full force and effect as modified and stating any such modification; (ii) Whether or not there are then existing, to the knowledge of the executing officer, any defenses against the enforcement of any of the agreements, terms, covenants or conditions of this Lease upon the part of such party to be performed or complied with, and, if so, specifying same (including, without limitation, whether such party knows or does not know of any default by the other party in such other party's performance of all agreements, terms, covenants and conditions to be performed by such other party, and if such default does exist, specifying same); and (iii) The amounts and dates to which the Fixed Rent, and Additional Rent have been paid, the amounts of any and all outstanding balances of such items, if any, known to such party. (iv) Such other information reasonably requested by Landlord. 36 (b) Either party's failure to timely so deliver said certificate shall constitute an a default by such party at the sole option of the other party and shall be conclusive as to the truthfulness of the items stated in the other party's request. Delivery of a completed Estoppel Certificate in substantially the form as set forth on Exhibit C attached hereto ( "Estoppel Certificate") shall satisfy this requirement. ARTICLE XXIX RELATIONSHIP OF PARTIES Nothing contained in this Lease shall be construed to create the relationship of principal and agent, partnership, joint venture or any other relationship between the parties hereto other than the relationship of Landlord and Tenant. Except as otherwise expressly provided herein, this Lease shall not in any way impose any liability upon the members, stockholders, officers, directors or trustees of Landlord or Tenant if Landlord or Tenant should be a limited liability company, corporate entity, or trust, or upon the stockholders, officers, directors or trustees of Landlord or Tenant if Landlord or Tenant should be a corporate entity or trust. If more than one person or entity is named as the Tenant hereunder, the obligations under this Lease of all such persons and entities as Tenant shall be joint and several. ARTICLE XXX RECORDING Neither Landlord nor Tenant shall record this Lease; however, upon the request of either party hereto, the other party shall join in the execution of a memorandum of lease for the purposes of recordation in the form attached hereto as Exhibit D and by this reference incorporated herein (the "Memorandum"). The Memorandum shall describe the parties, the Demised Premises, the term of this Lease, any special provisions other than those pertaining to Rent and shall incorporate this Lease by reference. Tenant shall pay all costs charged or collected by the County Recorders to record the Memoranda. ARTICLE XXXI CAPTIONS AND SECTION NUMBERS The captions, section numbers, and index appearing in this Lease are inserted only as a matter of convenience and in no way define, limit, construe or describe the scope or intent of such sections or articles nor in any way affect this Lease. ARTICLE XXXII APPLICABLE LAW 37 This Lease shall be governed by, and construed in accordance with the laws of the State of Texas; provided, however, that any forcible entry and detainer action or similar proceeding shall be governed by the laws of the state in which the applicable Real Property is located. If any provision of this Lease or the application thereof to any person or circumstances shall, to any extent, be invalid or unenforceable, the remainder of this Lease shall not be affected thereby, and each provision of the Lease shall be valid and enforceable to the fullest extent permitted by the law. ARTICLE XXXIII ENTIRE AGREEMENT This Lease and the Exhibits attached hereto, all of which form a part hereof, set forth all the covenants, promises, agreements, conditions and understandings between Landlord and Tenant concerning the Demised Premises, and there are no covenants, promises, agreements, conditions or understandings heretofore made, either oral or written, between them other than as herein set forth. No modification, amendment, change or addition to this Lease shall be binding upon Landlord or Tenant unless reduced to writing and signed by each party. Time is of the essence of this Lease. ARTICLE XXXIV LIABILITY OF THE PARTIES Without limiting any guaranty of Tenant's obligations hereunder, the obligations of Landlord and Tenant under this Lease are not personal obligations of the individual members, partners, directors, officers, shareholders, agents or employees of Landlord or Tenant. Tenant shall look solely to the Demised Premises for satisfaction of any liability of Landlord and shall not look to other assets of Landlord nor seek recourse against the assets of the individual members, partners, directors, officers, shareholders, agents or employees of Landlord. Whenever Landlord transfers its interest, Landlord shall be automatically released from further performance under this Lease and from all further liabilities and expenses hereunder, provided the transferee of Landlord's interest assumes all liabilities and obligations of Landlord hereunder from the date of such transfer. ARTICLE XXXV ATTORNEYS' FEES 38 If any legal action should be commenced in any court regarding any dispute arising between the parties hereto, or their successors and assigns, concerning any provision of this Lease or the rights and duties of any person in relation thereto, then the prevailing party therein shall be entitled to collect its reasonable expenses, attorneys' fee and court costs, including the same on appeal. As used herein, the term "prevailing party" means the party who, in light of the claims, causes of action, and defenses asserted, is afforded greater relief. 39 ARTICLE XXXVI INDIVIDUAL LEASE AGREEMENTS Section 36.01 In the event that from time to time Landlord sells or assigns its interest with respect to one or more of the Demised Premises, this Lease shall be divided into separate lease agreements (individually, an "Individual Lease Agreement" and, collectively, the "Individual Lease Agreements") reflecting such sale or assignment. In such event, Landlord will, at its cost and expense, prepare separate Individual Lease Agreement(s), and each party (including Landlord's assignee), will execute such new Individual Lease Agreement(s) within five (5) business days after delivery thereto. In addition, Guarantor will execute a new guaranty (substantially in the form of Exhibit G) of the Individual Lease Agreement assigned and the existing Guaranty shall be amended to remove the Demised Premises subject to the assigned Individual Lease Agreement. Each Individual Lease Agreement shall be in the form identical to the lease agreement attached as Exhibit A to the letter agreement between Landlord and Tenant, dated contemporaneously with the date of this Lease except (i) the Fixed Rent payable under each Individual Lease Agreement will reflect the Fixed Rent allocated to each Demised Premises leased under each Individual Lease Agreement pursuant to Exhibit E (prior to such assignment) and (ii) at Landlord's election, this Lease, and Individual Lease Agreements may each be cross defaulted with each other, provided, however, that the respective Landlords under each cross-defaulted lease shall be under common Control, as defined in Section 25.02(a). From and after the effective date of such Individual Lease Agreement, Landlord will be released from any liability with respect to the Demised Premises or Individual Lease Agreement so entered into. Section 36.02 (a) Landlord and Tenant each waive any claim or defense based upon the characterization of this Lease as anything other than a true lease and irrevocably waive any claim or defense which asserts that the Lease is anything other than a true Lease. Landlord and Tenant covenant and agree that they will not assert that this Lease is anything but a true Lease. Landlord and Tenant each stipulate and agree not to challenge the validity, enforceability or characterization of the Lease of the Properties as a true lease and further stipulate and agree that nothing contained in this Lease creates or is intended to create a joint venture, partnership (either de jure or de facto), equitable mortgage, trust, financing device or arrangement, security interest or the like. Landlord and Tenant each shall support the intent of the parties that the Lease of the Properties pursuant to this Lease is a true lease and does not create a joint venture, partnership (either de jure or de facto), equitable mortgage, trust, financing device or arrangement, security interest or the like, if, and to the extent that, any challenge occurs. Tenant has discussed the characterization of the Lease with its independent auditors and Tenant believes that this Lease will be treated as an operating lease rather than a capital lease. (b) Except and to the extent that Individual Agreements have been executed pursuant to the terms of this Lease, Landlord and Tenant each (i) waive any claim or defense based upon the characterization of this Lease as anything other than a master lease of all the Properties and irrevocably waive any claim or defense which asserts that the Lease is anything other than a master lease, (ii) 40 covenant and agree that it will not assert that this Lease is anything but a unitary, unseverable instrument pertaining to the lease of all, but not less than all, of the Properties, (iii) stipulate and agree not to challenge the validity, enforceability or characterization of the lease of the Properties as a unitary, unseverable instrument pertaining to the lease of all, but not less than all, of the Properties, and (iv) shall support the intent of the parties that this Lease is a unitary, unseverable instrument pertaining to the lease of all, but not less than all, of the Properties, if, and to the extent that, any challenge occurs. Section 36.03 Tenant may at any time propose to Landlord that it substitute a tract of real property on which it operates a Don Pablo's restaurant ("Replacement Property") for any of the Demised Premises (the "Replaced Property"). Tenant shall submit for Landlord's review each of the following regarding the proposed Replacement Property: an MAI appraisal reasonably satisfactory to Landlord Landlord's lenders, and any lenders to Landlord's partners (each of the foregoing, a "Lender", and collectively the "Lenders") and compliant with Lender's regulatory requirements, current survey, current environmental report, records of any administrative proceedings or environmental claims, current title report and profit/loss statements for the previous two (2) years. Provided that (i) Landlord and Lenders approve the substitution (which approval shall not be unreasonably withheld, delayed or conditioned) and (ii) the Replacement Property has equivalent or greater appraised value and financial operating history than the Replaced Property, (iii) the Replacement Property is located within the same Designated Marketing Area, as such term is defined by the Census Bureau, as the Replaced Property , and (iv) the Replacement Property has no material title or environmental defects, and has no other material liability substantially greater than the Replaced Property, all in Landlord's reasonable discretion, then Landlord shall, within 60 days after the submission of all reports required hereunder, agree to (a) the substitution of the Replacement Property for the Replaced Property or (b) the termination of this Lease with respect to the Replaced Property, with a reduction in the Fixed Rent in accordance with the amount of Fixed Rent allocated to such Replaced Property pursuant to Exhibit E. Tenant shall pay all expenses incurred by this Section, including Landlord's and Lenders' reasonable legal fees and expenses, a new title policy on the Replacement Property, and shall pay pro rated real property taxes on the Replaced Property to the date of transfer. In the event of a substitution of a Replaced Property as contemplated hereby, within thirty (30) days after Landlord's election to permit the substitution, Landlord shall convey by special warranty deed the Replaced Property to Tenant or to Tenant's designee, subject only to restrictions, easements, and other matters affecting title (x) to which the transfer to Landlord was subject, (y) which were caused or consented to by Tenant, or (z) that do not substantially impair the value or use of the Replaced Property. Furthermore, upon approval of a Replacement Property by Landlord, Landlord and Tenant shall take all such further actions as may be reasonably required to effect the substitution of the Replacement Property for the Replaced Property, including, without limitation, the execution and delivery of an amendment to or replacement of this Lease in form and substance reasonably satisfactory to the parties evidencing such substitution. The Replacement Property may be two (2) or more properties (with the consent of Landlord) provided that each property satisfies all of the conditions required by this Section 36.03, except that the requirements as to appraised value and financial condition are satisfied by the properties in the aggregate and provided further that the leases as to such Replacement Properties shall include such additional provisions (for example, and without limitation, provisions which tie those leases together for purposes of defaults) as Landlord may reasonably require. Upon either the substitution of the Replaced Property or the termination of this Lease with respect to the Replaced Property pursuant to this 41 Section, Tenant (and all affiliates of Tenant) shall immediately discontinue all business operations at the Replaced Property. ARTICLE XXXVII ENVIRONMENTAL Section 37.01 (a) For the purpose of this Lease, the following definitions pertaining to environmental matters shall apply: "De Minimis Amounts" means, with respect to any given level of Hazardous Materials, that level or quantity of Hazardous Materials in any form or combination of forms, the use, storage or release of which does not constitute a violation of, or require regulation or remediation under, any Environmental Laws and is customarily employed in the ordinary course of, or associated with, similar business located in the states in which the Demised Premises is located. "Environmental Conditions" means the conditions of "Environmental Media" (as defined below), and the conditions of any part of the Demised Premises, including but not limited to building materials, which affect or may affect Environmental Media. "Environmental Laws" shall mean any federal, state or local law, statute, ordinance, permit condition or regulation pertaining to public health, occupational health and safety, natural resources or environmental protection, including, without limitation: (1) the Comprehensive Environmental Response, Compensation and Liability Act of 1980, 42 U.S. C. ? 9601 et seq. as amended ("CERCLA"), the Solid Waste Disposal Act, 42 U.S.C. ? 6901 et seq. as amended ("RCRA"), the Federal Water Pollution Control Act of 1972, as amended by the Clean Water Act of 1977, as amended, 33 U.S.C. 1251 et seq.; the Toxic Substances Control Act of 1976, as amended, 15 U.S.C. 2601 et seq.; the Emergency Planning and Community Right-to-Know Act of 1986, 42 U.S.C. 11001 et seq.; the Clean Air Act of 1966, as amended by the Clean Air Act Amendments of 1990, 42 USC 7401 et seq.; the National Environmental Policy Act of 1970, as amended, 42 USC 4321 et seq.; the Rivers and Harbors Act of 1899, as amended, 33 USC 401 et seq.; the Mine Safety and Health Act of 1977, as amended, 30 U.S.C. Section 801 et seq. the Endangered Species Act of 1973, as amended, 16 U.S.C. 1531, et seq.; the Occupational Safety and Health Act of 1970, as amended 29 U.S.C. 651, et seq.; the Safe Drinking Water Act of 1974, as amended, 42 U.S.C. 300(f) et seq., the Hazardous Materials Transportation Act, 49 U.S.C. Sections 1801 et seq. as amended, and all regulations, published governmental policies, and administrative or judicial orders promulgated under said laws; (2) all state or local laws which implement the foregoing federal laws or which pertain to public health and safety, occupational health and safety, natural resources or environmental protection: all as amended from time to time, and all regulations, published governmental policies, and administrative or judicial orders promulgated under the foregoing laws; (3) all federal and state common law, including but not limited to the common law of public or private nuisance, trespass, negligence or strict liability, where such common law pertains to 42 public health and safety, occupational health and safety, natural resources, environmental protection, or the use and enjoyment of property, and all judicial orders promulgated under said laws; and (4) all comparable local laws and comparable laws of other jurisdictions. "Environmental Media" means soil, fill material, or other geologic materials at all depths, groundwater at all depths, surface water including storm water and sewerage, indoor and outdoor air, and all living organisms, including without limitation all animals and plants, whether such Environmental Media are located on or off the Demised Premises. "Hazardous Materials" means any ignitable, reactive, explosive, corrosive, carcinogenic, mutagenic, toxic or radioactive material, whether virgin material, secondary material, by-product, waste or recycled material, defined, regulated or designated as a contaminant, pollutant, hazardous or toxic substance, material, waste, contaminant or pollutant under any Environmental Laws or any other federal, state or local law, statute, regulation, ordinance, or governmental policy presently in effect or as amended or promulgated in the future, and shall specifically include, without limitation: (a) those materials included within the definitions of "hazardous substances," "extremely hazardous substances," "hazardous materials," "toxic substances" "toxic pollutants," "hazardous air pollutants" "toxic air contaminants," "solid waste," "hazardous waste," "pollutants," contaminants" or similar categories under any Environmental Laws; (b) those materials which create liability under common law theories of public or private nuisance, negligence, trespass or strict liability; and (c) specifically including, without limitation, any material, waste or substance which contains: (i) petroleum or petroleum derivatives byproducts, including crude oil and any fraction thereof and waste oil; (ii) asbestos; (iii) polychlorinated biphenyls; (iv) formaldehyde; and (v) radon. "Release" means any active or passive spilling, leaking, pumping, pouring, emitting, emptying, discharging, injecting, escaping, leaching, dumping or disposing into any Environmental Media. For the purposes of this Lease, "Release" also includes any threatened Release. "Remedial Activities" means any investigation, work plan preparation removal, repair, cleanup, abatement, remediation, monitored natural attenuation, natural resource damage assessment and restoration, closure, post-closure, detoxification or remedial activity of any kind whatsoever necessary to address Environmental Conditions. "Use" means the receipt, handling, generation, storage, treatment, recycling, transfer, transportation, introduction, or incorporation into, on, about, under or from the Demised Premises. (b) Tenant acknowledges that it owned and operated the Demised Premises prior to selling the Demised Premises to Landlord and that Landlord makes no warranties or representations of any kind, or in any manner or in any form whatsoever, as to the status of Environmental Conditions or Hazardous Materials at the Demised Premises. Landlord has granted Tenant the absolute right to inquire with regard to the Environmental Conditions of the Demised Premises, including the right to inquire and obtain from Landlord or Landlord's predecessor copies of any and all existing environmental assessments. Landlord agrees to furnish Tenant with all copies of non-legally privileged environmental 43 reports covering the Demised Premises, if any, which are in the possession of Landlord. Tenant will conduct at its own expense any and all investigations regarding Environmental Conditions of the Demised Premises and will satisfy itself as to the absence or existence of Hazardous Materials contamination of the Demised Premises. Tenant's entry into this Lease shall be made at its sole risk. Section 37.02 From and after the Effective Date, Tenant shall not be entitled to the Use of any Hazardous Materials at the Demised Premises other than De Minimis Amounts, unless performed in full compliance with all Environmental Laws and any other applicable local, state and federal statutes, orders, ordinances, rules and regulations. Tenant shall be prohibited from conducting or allowing the Release of Hazardous Materials onto, on, about, under or from the Demised Premises, the exception being sewer or other permitted discharges or Releases or other De Minimis Amounts, in full compliance with all Environmental Laws and any other applicable laws. Subject to any right to contest the applicability or effect of any Environmental Law as contemplated by Article VIII above, from and after the date of this Lease, Tenant covenants to, and shall, undertake all Remedial Activities necessary to address any Use or Release of Hazardous Materials after the date of this Lease, by Tenant or its agents, employees, representatives, invitees, licensees, subtenants, customers or contractors ("Other Parties"), or otherwise adversely affecting any Demised Premises at Tenant's sole cost and expense, and shall give immediate written notice of same to Landlord. If any Remedial Activities are required to be performed at any location other than the Demised Premises, Tenant shall use its best efforts to obtain any required access agreements from third parties Section 37.03 In addition to any other obligation herein, Tenant shall defend, indemnify and hold Landlord Parties free and harmless from any and all claims, losses, liabilities and other obligations of any kind whatsoever that may be made against or incurred by Landlord Parties in connection with (i) the violation of any Environmental Law, or (ii) Hazardous Materials or Environmental Conditions at or from the Demised Premises whether heretofore now existing or hereafter arising, and whether in connection with or as a result of Tenant's operations at the Demised Premises, including without limitation any and all costs and fees of attorneys or experts incurred by Landlord in defending against same; provided, however, that the foregoing indemnity shall not be applicable to any claim directly attributed to the gross negligence or willful misconduct of Landlord or any Landlord Party. This and any other right of Landlord may be assigned to its successors in interest under the terms of this Lease. Section 37.04 Within fifteen (15) days after notification to Tenant, Tenant shall inform Landlord in writing of (i) any and all enforcement actions, initiation of Remedial Activities where no Remedial Activities are currently being conducted upon receipt of such notification, or other governmental or regulatory actions (excluding routine actions such as permit renewals) instituted, completed or threatened pursuant to any Environmental Laws affecting the Demised Premises; (ii) all claims made or threatened by any third person against Tenant or the Demised Premises relating in any way whatsoever to Hazardous Materials or Environmental Conditions (the matters set forth in clauses (i) and (ii) are hereinafter referred to as "Environmental Claims"); (iii) Tenant's knowledge of any material Release of Hazardous Materials at, on, in, under to or from the Demised Premises or on, in or under any adjoining property. Tenant shall also supply to Landlord within three (3) business days after Tenant first receives or sends the same, copies of all claims, reports, 44 complaints, notices, warnings, asserted violations or other communications relating in any way to the matters described in this Section. Section 37.05 In addition to any other obligations herein, Tenant shall be solely responsible for and shall indemnify and hold harmless all Landlord Parties from and against any and all private or governmental claims, lawsuits, administrative proceedings, judgments, penalties, fines, proceedings, loss, damage, cost, expense or liability directly or indirectly arising out of or associated in any manner whatsoever with Tenant's Use or the presence of Hazardous Materials (which may have occurred at any time including prior to the term hereof) or Release of Hazardous Materials at, on, under, about or from the Demised Premises during the term hereof, including any extensions. Tenant's indemnity and release includes, without limitation: (i) the costs associated with Remedial Activities, including all necessary plans and reports, incurred by the U.S. Environmental Protection Agency, or any other federal, state or local governmental agency or entity or by any other person, incurred pursuant to the CERCLA, RCRA, or any other applicable Environmental Laws; (ii) any oversight charges, fines, damages or penalties arising from the presence or Release of Hazardous Materials, and any related Remedial Activities, incurred pursuant to the provisions of CERCLA, RCRA, or any other applicable Environmental Laws; (iii) any liability to third parties arising out of the presence or Release of Hazardous Materials for personal injury, bodily injury, or property damage arising under any statutory or common law theory, including damages assessed for the maintenance of a public or private nuisance, the costs of Remedial Activities, or for the carrying on of an abnormally dangerous activity; (iv) all direct or indirect compensatory, consequential, or punitive damages arising out of any claim based on the presence or Release of Hazardous Materials or damage or threatened damage to Environmental Conditions; (v) any and all reasonable costs, fees and expenses of attorneys, consultants and experts incurred or sustained in making any investigation on account of any claim, in prosecuting or defending any action brought in connection therewith, in obtaining or seeking to obtain a release therefrom, or in enforcing any of the agreements herein contained; and (vi) Rent during any period of Remedial Activities equal to the Base Rent then in effect, or if the Lease has terminated, the Base Monthly Rent which was in effect on the Termination Date; provided, however, that the foregoing indemnity shall not be applicable to any claim directly attributable to the gross negligence or willful misconduct of Landlord or any Landlord Party. The foregoing indemnity shall apply to Tenant's Use of Hazardous Materials irrespective of whether any of Tenant's activities were or will be undertaken in accordance with Environmental Laws or other applicable laws, regulations, codes and ordinances. This indemnity is intended to be operable under 42 U.S. C.? 9607(e)(1). Tenant specifically agrees that it shall not sue or seek contribution from any indemnity or any successors or assigns thereof in any matter relating to any Hazardous Material liability except as a result of the gross negligence of Landlord or other Landlord Parties on the Demised Premises. All costs and expenses related to this paragraph incurred by Landlord shall be repaid by Tenant to Landlord as Additional Rent. This indemnity shall survive termination of the Lease. ARTICLE XXXVIII ADDENDA 45 Section 38.01 The following exhibits have been agreed to by the parties and attached hereto or initialed by the parties prior to the execution hereof, it being the intention of the parties that they shall become a binding part of this Lease as if fully set forth herein. Exhibit A Location/Legal Description/Address of the Real Property Exhibit B Tenant's Personal Property List Exhibit C Tenant's Estoppel Certificate Exhibit D Memorandum of Lease Exhibit E Fixed Rent Allocation Exhibit F Subordination, Nondisturbance and Attornment Agreement Exhibit G Guaranty Agreement Exhibit H Base EBITDAR ARTICLE XXXIX COUNTERPARTS Section 39.01 This Lease may be executed in counterparts and shall be binding on all the parties hereto as if one document had been signed. The delivery of an executed copy of this Lease by facsimile transmission shall have the same force and effect as the delivery of the original, signed copy of this Lease. IN WITNESS WHEREOF, the parties have executed this Lease to be effective as of the date first above written. [SIGNATURES ON FOLLOWING PAGE] 46 LANDLORD: SKYLINE-FRI 8, L.P. a Delaware limited partnership By: Tex-Mex G P, LLC a Delaware limited liability company By: SKYLINE PACIFIC PROPERTIES, LLC a Colorado limited liability company By: ------------------------------------- Name: ----------------------------------- Title: ----------------------------------- TENANT: DON PABLO'S OPERATING CORP. an Ohio corporation By: ------------------------------------- Name: ----------------------------------- Title: ----------------------------------- Exhibits and schedules to this agreement are not filed pursuant to Item 601(b)(2) of SEC Regulation S-K. By the filing of this Form 10-Q, the Registrant hereby agrees to furnish supplementally a copy of any omitted exhibit or schedule to the Commission upon request. S-1 EX-10 9 slbpsa.txt PURCHASE AND SALE AGREEMENT EXHIBIT 10.4 PURCHASE AND SALE AGREEMENT This PURCHASE AND SALE AGREEMENT ("Agreement") is entered into as of March 19, 2003, by and between DON PABLO'S OPERATING CORP., an Ohio corporation, ("Seller"), and SKYLINE-FRI 8 L.P., a Delaware limited partnership ("Buyer"). W I T N E S S E T H: In consideration of the mutual covenants set forth herein, Seller and Buyer agree as follows: 1. Conveyance of Properties. On the terms and subject to the conditions set forth in this Agreement, at Closing, as hereinafter defined, Seller shall sell, convey and assign to Buyer, and Buyer shall buy and accept from Seller, subject to the Permitted Encumbrances, as hereinafter defined, each of the fifteen (15) restaurant properties (each individually a "Property" or "Real Property" and collectively the "Properties") more particularly described as follows: (a) good and indefeasible title in fee simple to the land described on Schedule 1, attached hereto (collectively, "Land"), together with all rights and interests appurtenant thereto, including, without limitation, Seller's right, title, and interest in and to all (i) adjacent streets, alleys, rights-of-way and any adjacent strips or gores of real estate; (ii) buildings, structures and other improvements located on the Land ("Improvements"); and (iii) the fixtures located at or in the Land or Improvements other than walk-in coolers affixed to any Real Property described on Schedule 2 hereto ("Excluded Coolers"). (b) all of the following relating to all Real Properties (collectively, the "Personal Property"): the coolers, walk-in freezers, HVAC equipment and ventilation units owned by Seller and located at any of the Real Properties on the Closing Date, excluding, however, any Excluded Coolers located at the Properties listed on Schedule 2. 2. Earnest Money. Within three (3) business days after the date both Buyer and Seller execute and deliver this Agreement, Buyer shall deliver to Chicago Title Insurance Company, 830 E. Main Street, Richmond, Virginia 23219 ("Title Company") $50.00 ("Earnest Money") in consideration for this Agreement. The Title Company shall immediately deliver the Earnest Money to Seller and the Earnest Money shall be retained by Seller in all events. 3. Purchase Price and Prorations. (a) Subject to the terms of this Agreement, the purchase price (the "Purchase Price") for the Properties shall be $20,000,000.00 payable $19,750,000 in cash at Closing, and $250,000 pursuant to the letter agreement between Seller and Buyer, dated contemporaneously with the date hereof. The Purchase Price shall be paid to the Title Company on behalf of the parties and distributed by the Title Company as designated by the closing statement. (b) No proration shall be made of real estate and personal property taxes, utility charges and maintenance expenses with respect to the Properties, since these expenses are obligations of the Lessee pursuant to the Lease Agreement as defined below) to be executed and delivered by Buyer (as landlord) and Seller (as tenant) on the Closing Date. Rental payments under the Lease Agreement shall be pro-rated as of the Closing Date such that Seller shall prepay a prorated portion of the rent applicable to the month in which the Closing occurs, as contemplated by the Lease Agreement. 4. Delivery of Documents by Seller. Seller has either already delivered to Buyer, or on or before five (5) business days following the date hereof (but in no event later than the Closing Date), Seller shall deliver to Buyer, the documents set forth in clauses (a) through (i) hereof (collectively, "Documents"), except the Site Assessments, which shall be delivered to Buyer not later than ten (10) business days after the Closing. All information set forth in the Documents shall be held in strict confidence by Buyer, its employees and agent until Closing (or indefinitely, if Closing does not occur). In the event that Closing does not occur, Buyer shall promptly return to Seller all Documents. (a) Commitments for title insurance covering the fee estate in each Real Property (collectively "Title Commitments" and each individually a "Title Commitment") from the Title Company, setting forth the status of the title to all Real Properties, showing all matters of record affecting the Real Properties, together with a true, complete and legible copy of all documents referred to in the Title Commitments; (b) Current ALTA Land Title "As Built" Surveys (collectively, "Surveys" and each individually a Survey) regarding each Real Property, and containing the certification set forth on Exhibit C as the same may be required to be modified to conform with requirements of particular jurisdictions and surveys (provided that such certification shall at all times be reasonably acceptable to Buyer); (c) Phase 1 site assessment for each Real Property (collectively, the "Site Assessments"); 1 (d) Insurance binder or certificate of insurance (including blanket policies) covering all Properties (including without limitation all Improvements); (e) Use permit regarding each Property; (f) Certificate of occupancy regarding each Property; (g) Profit and loss statements for the prior fiscal quarter and the preceding two (2) fiscal years for each Property; (h) Any and all studies, data, reports, agreements, licenses, leases, environmental assessments, surveys, reports, documents, plans, maps, and permits in Seller's possession or control concerning each Property (to the extent not already delivered to Buyer pursuant to Section 4(a) - (g), above); and (i) Such other information regarding Seller or any of the Properties that may reasonably be requested by Buyer with a reasonably detailed description thereof. 5. Right of Entry, Inspection. From and including the date hereof through and including the Closing Date, Seller shall afford Buyer and its representatives a continuing right to inspect, at reasonable hours, the Properties and the Documents and Seller hereby grants to Buyer and Buyer's agents, employees and consultants a nonexclusive license to enter upon each Real Property for the purpose of allowing Buyer to conduct whatever soil and engineering tests, feasibility studies, surveys and other physical examinations of each Real Property Buyer deems appropriate. Buyer will not perform any invasive testing at any of the Properties without Seller's prior written consent, which shall not be unreasonably withheld. All tests, investigations and studies to be performed by Buyer shall be performed at its sole cost and expense, and Buyer shall at all times use reasonable efforts not to unduly interfere with the conduct of Seller's business at the Properties. In the event of any damage to the Properties caused by Buyer, its agents, engineers, employees or contractors, Buyer shall pay the cost incurred by Seller to restore the Properties to the condition existing prior to the performance of such tests, investigations or studies. Buyer shall defend, indemnify and hold Seller harmless from any and all liability, claims, losses, costs and expenses (including, without limitation, reasonable attorneys' fees and court costs) suffered or incurred by Seller for injury to persons or property caused by Buyer's investigations, studies, tests and inspections of the Properties. However, Buyer shall have no liability for any loss, claim or liability attributable to the acts or omissions of Seller or Seller's agents, employees, invitees or licensees or resulting from latent defects or Hazardous Materials within, on or adjacent to any of the Real Properties (except in the event that such latent defects are negligently exacerbated by Buyer or its employees or contractors). As used in this Agreement, the terms "De Minimis Amounts," "Hazardous Materials" and "Environmental Laws" shall have the meanings set forth in the form Lease Agreement attached hereto as Exhibit F. 6. Title, Environmental and Other Defects. (a) Buyer shall have the right, at any time during the period ending at 5:00 p.m. CST on the date two (2) days prior to the Closing Date (as defined in Section 8 hereof) ("Title Objection Cut-Off Date"), to object in writing to any matters reflected in any Survey or a Title Commitment. All matters set forth in Surveys or Title Commitments to which Buyer delivers written objection ("Title Notice Letter"), and all matters which are listed on the Title Commitments as requirements by the Title Company to issue the title insurance policy (other than those requirements which relate to documents or other items to be provided by Buyer), are "Non-Permitted Encumbrances". All matters set forth in the Title Commitments or Surveys which are not Non-Permitted Encumbrances are "Permitted Encumbrances". Seller, at its sole cost and expense, shall have the right, but not the obligation, to cure or remove all Non-Permitted Encumbrances on or before the Closing Date. If Seller does not cause all Non-Permitted Encumbrances which materially adversely affect title to any Property to be removed or cured on or before the Closing Date, Buyer may elect, in its sole discretion, to either (i) purchase the Property subject to the Non-Permitted Encumbrance(s) with no reduction in the Purchase Price, or (ii) exclude the Property from the assets to be purchased hereunder with a reduction in the Purchase Price based on the amount set forth on Exhibit A with respect to such Property. In the event that Buyer elects to proceed under option (i) above, notwithstanding anything in this Agreement to the contrary, the applicable Non-Permitted Encumbrances accepted by Buyer shall thereafter be deemed to be Permitted Encumbrances. (b) If the Site Assessment or any other information received by Buyer with respect to any Property reveals an environmental condition at any Property that materially adversely affects the marketability of such Property, Buyer may in its sole discretion, not later than the Title Objection Cut-Off Date elect by written notice to Seller to either (i) exclude such Property from the assets to be purchased hereunder, with a reduction in the Purchase Price based on the amount set forth on Exhibit A with respect to such Property, or (ii) purchase such Property subject to the environmental condition with no reduction in the Purchase Price. 2 (c) If on or before the Title Objection Cut-Off Date, Buyer has an objection to the physical condition, legal or zoning condition, location or sales volume of a Property, Buyer shall deliver written notice to Seller on or before the Title Objection Cut-Off Date. Seller may, upon receipt of such notice propose a replacement Property for the Property to which Seller has objected and deliver to Buyer all required Documents with respect to such replacement Property (in which event Buyer shall have the right to accept or reject such replacement Property in its sole discretion), or exclude the Property from the assets to be purchased hereunder with a reduction in the Purchase Price based on the amount set forth on Exhibit A with respect to such Property. 7. (a) Seller Representations and Warranties. Seller hereby represents and warrants to, and covenants with Buyer that as of the date hereof and as of the Closing: (i) Seller is an Ohio corporation duly organized, validly existing and in good standing under the laws of all of the states of where the Real Properties are located. Seller has the right, power, and authority to execute, deliver, and perform this Agreement, and this Agreement, when executed and delivered by Seller and Buyer, shall constitute the valid and binding agreement of Seller, and shall be enforceable against Seller in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors' rights generally and by general equitable principles (whether enforcement is sought by proceedings in equity or at law). (ii) All requisite corporate action on the part of Seller has been taken by Seller in connection with making and entering into this Agreement and the consummation of the purchase and sale provided for herein, and no consents or approvals are required from any party which is not a party to this Agreement in order to consummate such purchase and sale, except for consents or approvals that, if not obtained, would not be reasonably likely to have a material adverse effect. Neither this Agreement nor the consummation of any of the transactions contemplated hereby violates or shall violate any provision of any material agreement or document to which Seller is a party or to which Seller is bound except for any violations that would not be reasonably likely to have a material adverse effect. (iii) Neither Seller nor any entity or person that directly or indirectly owns or controls Seller (including, without limitation, Avado Brands, Inc., a Georgia corporation ("Avado Brands")) is bankrupt under the Federal Bankruptcy Code, or has filed for protection or relief under any applicable bankruptcy or creditor protection statute or has been threatened by creditors with an involuntary application of any applicable bankruptcy or creditor protection statute. Seller is not entering into the transactions described in this Agreement with an intent to defraud any creditor or to prefer the rights of one creditor over any other. After giving effect to the transactions contemplated by this Agreement, Avado Brands, Inc. ("Avado") and its subsidiaries are, and Avado and its subsidiaries on a consolidated basis are, Solvent. `Solvent' means, with respect to any person on a particular date, that on such date such person (i) has sufficient working capital and other property remaining as a result of the transaction to carry on its business as currently being conducted and as contemplated to be conducted in the future, and (ii) has the ability to pay existing indebtedness as it matures and does not intend to or believes that it will incur debts beyond its ability to pay as such debts mature in the future. (iv) To the best of Seller's knowledge, after diligent inquiry, except as expressly disclosed in the Documents delivered to Buyer prior to the Closing Date, Seller has not received any written notice from appropriate governmental authorities that any Property is in violation of any applicable laws. (v) To the best of Seller's knowledge, after diligent inquiry, Seller has not received any written notices from any insurance company, board of fire underwriters or similar organization regarding any defects in any Property. (vi) Except as disclosed in the Documents delivered to Buyer prior to the Closing Date, the Improvements and their current use with respect to each Property are in material compliance with all applicable zoning, building, environmental, subdivision and other laws, rules, and regulations applicable thereto, as well as any private restrictive covenants affecting each Property, and are ready for use and occupancy in the same manner as such use and occupancy has heretofore been made. (vii) Except for the Permitted Encumbrances including any matters that are deemed to be Permitted Encumbrances pursuant to section 6(a), upon proper recording of the Deeds, Seller will own each Property free and clear of all liens, restrictions, charges and encumbrances. From the date hereof, and until the Closing or earlier termination of this Agreement, Seller shall not sell, assign or create any right, title or interest whatsoever in or to any Property or create any liens, encumbrances or charges thereon without discharging the same at or prior to the Closing Date. 3 (iix) To the best of Seller's knowledge, after diligent inquiry, there is no suit, action or arbitration, or legal, administrative, or other proceeding or governmental investigation, formal or informal, including but not limited to eminent domain or condemnation proceeding, proceeding to establish a new assessment district or increase the assessments imposed by an existing assessment district, or zoning change proceeding, pending or threatened in writing, or any judgment, moratorium or other government policy or practice which affects any Property. (ix) Except as disclosed in the Site Assessments delivered to Buyer prior to the Title Objection Cut-Off Date, there are no lawsuits, claims, suits, proceedings or investigations pending or, to the best of Seller's knowledge, threatened against or affecting Seller or any Property nor, to the best of Seller's knowledge, is there any basis for any of the same, and there are no lawsuits, suits or proceedings pending in which Seller is the plaintiff or claimant and which relate to any Property, or any facts or circumstances which may in any way adversely affect any Property. There is no action, suit or proceeding pending or, to the best of Seller's knowledge, threatened which questions the legality or propriety of the transactions contemplated by this Agreement. (x) Except as disclosed in the Documents delivered to Buyer prior to the Closing Date, to the best of Seller's knowledge, after diligent inquiry, (A) no Property is in violation, nor has been or is currently under investigation for violation of any Environmental Laws, and (B) no Property has been subject to a deposit of any Hazardous Materials (except in De Minimis Amounts); (C) neither Seller nor any third party has used, generated, manufactured, stored or disposed in, at, on, under or about any Property or transported to or from any Property any Hazardous Materials (except in De Minimis Amounts); (D) there has been no discharge, migration or release of any Hazardous Materials from, into, on, under or about any Property (except in De Minimis Amounts); and (E) there is not now, nor has there ever been on or in any Property underground storage tanks or surface impoundments, any asbestos-containing materials or any polychlorinated biphenyls used in hydraulic oils, electrical transformers or other equipment except with respect to any such materials disclosed on Schedule 3, and which materials have been sealed, capped, encapsulated or otherwise remediated in accordance with applicable Environmental Laws. Seller assigns to Buyer, effective upon Closing, all claims, counterclaims, defenses or actions, whether at common law, or pursuant to any other applicable federal or state or other laws which Seller may have against any third parties relating to the existence of any Hazardous Materials in, at, on, under or about any Property. (xi) To the best of Seller's knowledge, after diligent inquiry, all Improvements comply in all material respects with all applicable requirements of governmental authorities, and all laws, rules and regulations and building codes in effect as of the Closing Date. (xii) Seller has disclosed to Buyer all material information in Seller's possession or known to Seller concerning each Property that would be reasonably likely to be material to Seller's decision to enter into this Agreement and/or consummate the transaction contemplated thereby. It shall be a condition of Buyer's obligation to close with respect to any Property that the warranties and representations made with respect to such Property are true as of the Closing. If Buyer discovers prior to Closing that any representation or warranty made in this Agreement with respect to any Property is not true in all material respects, then Buyer shall have the right, as its sole and exclusive remedy, to either (i) exclude such Property from the assets to be purchased, with a reduction in Purchase Price equal to the amount set forth on Exhibit A with respect to such Property, by delivering notice to Seller prior to the Closing Date, or (ii) elect to purchase the Properties subject to such untrue warranty or representation without any reduction in the Purchase Price. If Buyer discovers after the Closing Date that any representation or warranty made in this Agreement is not correct in all material respects, and the breach of such representation or warranty is also a breach of the Lease Agreement, then the remedy provisions of the Lease Agreement shall control; if no such provision exists for a breach of a representation or warranty under the Lease Agreement, then Buyer shall be entitled to exercise all remedies at law or equity, provided as a condition to Buyer's right to do so, Buyer must exercise such remedies including the filing of any suit or other action within two (2) years after the Closing Date. (b) Buyer Representations and Warranties. Buyer hereby represents and warrants to, and covenants with Seller that as of the date hereof and as of the Closing: (i) Buyer has been duly formed, is validly existing and has taken all necessary action to authorize the execution, delivery and performance by Buyer of this Agreement. (ii) The person who has executed this Agreement on behalf of Buyer is duly authorized to do so. 4 (iii) Upon execution by Buyer, this Agreement shall constitute the legal, valid and binding obligation of Buyer, enforceable against Buyer in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditor's rights generally and by general equitable principles (whether enforcement is sought by proceedings in equity or at law). It shall be a condition of Seller's obligation to close that (x) Guarantor shall have entered into the Third Amended and Restated Credit Agreement with Hilco Capital, LP, as Administrative Agent, and the lenders signatory thereto and shall have otherwise closed its Revolving Credit Facility with Drawbridge Special Opportunities Fund L.P. and (y) the representations and warranties made by Buyer in this subsection are true as of the Closing. 8. Closing. The closing ("Closing") of the sale of the Properties by Seller to Buyer shall occur on March 19, 2003 ("Closing Date"), with a pre-closing in which all recordable documents will be delivered to the Title Company on March 17, 2003. Notwithstanding the foregoing to the contrary, Buyer may, by written notice delivered to Seller on or before March 17, 2003, extend the Closing Date to a date not later than March 24, 2003, if the Documents required to be delivered to Buyer prior to the Closing Date pursuant to Section 4 hereof are not delivered within the period time set forth in Section 4. Closing shall occur in the offices of the Title Company, in escrow (the "Escrow"), or at another place and or time as mutually agreed upon by Seller and Buyer, commencing at 10:00 o'clock a. m. on the Closing Date. Closing shall be deemed to occur when Seller has received the Purchase Price, a Deed (as defined below) regarding each Real Property has been tendered to the Title Company for recording in the Official Records of the county where such Real Property is located such that title to each Property has been conveyed to Buyer, and the deliveries at Closing contemplated by this Section 8 shall have occurred. At Closing: (a) Buyer shall deliver to Seller through the Escrow (i) payment of the Purchase Price in accordance with Section 3; (ii) an executed Lease Agreement in the form attached hereto as Exhibit F ("Lease Agreement") together with execution copies of the Exhibits to the Lease Agreement; and (iii) evidence satisfactory to Seller and the Title Company that the person executing documents on behalf of Buyer has full right, power and authority to do so and (iv) any counterparts of real estate transfer declarations required to be executed by Buyer. (b) Seller shall deliver or cause to be delivered to Buyer through the Escrow the following ("Closing Documents"): (i) Special Warranty Deed in the form of Exhibit B, or substantially equivalent form complying with state specific recording requirements (each, a "Deed"), conveying to Buyer each Real Property subject to the Permitted Encumbrances; Bill of Sale conveying the Personal Property in the form of Exhibit D; IRC Section 1445 Certification in the form of Exhibit E, together with execution copies of the Exhibits to the Lease Agreement; all fully executed, sworn to, and acknowledged, as appropriate, by Seller; (ii) an executed Lease Agreement in the form attached hereto as Exhibit F; and (iii) Title policies or irrevocable commitments to issue title policies regarding each Real Property in the form required pursuant to Section 8(c) below. (c) Seller shall pay for the costs of obtaining the Title Commitments, an Owner's Policy of Title Insurance and Mortgagee Policy of Title Insurance (insuring Buyer's lender's mortgages) for each Property in an amount equal to the amount set forth opposite such Property on Exhibit A attached hereto (with endorsements including Owner's comprehensive, survey, access and zoning, and without exception for creditors' rights), the Surveys and all required updates thereof, the Site Assessments, all escrow fees, all recording costs, (including, without limitation mortgage recording costs) and applicable deed stamp or transfer taxes for each of the Properties (including, without limitation, all Personal Property relating thereto). Buyer shall coordinate with the Title Company to obtain all title insurance policy endorsements desired by Seller or Seller's lender, and Seller shall reasonably cooperate with Buyer in connection therewith. (d) Seller shall deliver to Buyer possession of the Properties subject to the Lease Agreement. 5 9. Notices. Any notice provided or permitted to be given under this Agreement must be in writing and may be served by depositing same in the United States mail, addressed to the party to be notified, postage prepaid and certified, with return receipt requested, by delivering the same in person to such party (including express or courier service), or by delivering the same by confirmed facsimile. Notice given in accordance herewith shall be effective upon the earlier of (i) receipt at the address of the addressee, (ii) the second (2nd) day following deposit of same in the United States mail as provided for herein, regardless of whether same is actually received, or (iii) the second attempt at delivery, as evidenced by the regular records of the person or entity attempting delivery, regardless of whether the same is actually received. For purposes of notice, the addresses of the parties shall be as follows: If to Seller: Avado Brands, Inc. Hancock at Washington Madison, GA 30650 Attn: Margaret E. Waldrep Telephone No. (706) 343-2234 Facsimile No. (706) 342-9283 With copies (which shall not constitute notice hereunder) to: Skadden, Arps, Slate, Meagher & Flom (Illinois) 333 West Wacker Drive Chicago, Illinois 60606 Attn: Randall J. Rademaker Telephone No. (312) 407-0930 Facsimile No. (312) 407-8521 Graves Sieffert, P.A. 862-B South Pleasantburg Drive (29607) P.O. Box 8600 Greenville, South Carolina 29604 Attn: Jennings L. Graves, Jr. Telephone No. (864) 527-2727 Facsimile No. (864) 527-2721 If to Buyer: Skyline-FRI 8, L.P. 558 Sacramento St., 4th Floor San Francisco, California 94111 Attn: Richard C. Ronald Telephone No. (415) 616-5140 Facsimile No. (415) 616-5144 Either party may change its address for notice by giving written notice thereof to the other party in accordance with the provisions of this Section 9. 10. Commissions. Buyer shall defend, protect, indemnify and hold harmless Seller from any claim by any party claiming under Buyer for any brokerage, commission, finder's, or other fees relative to this Agreement or the sale of the Properties, and any court costs, attorneys' fees, or other costs or expenses arising therefrom and alleged to be due by authorization of Buyer. Seller shall defend, protect, indemnify and hold harmless Buyer from any claim by any party claiming under Seller for any brokerage, commission, finder's, or other fees relative to this Agreement or the sale of the Properties, and any court costs, attorneys' fees, or other costs or expenses arising therefrom and alleged to be due by authorization of Seller. 11. Assigns. This Agreement shall inure to the benefit of and be binding on the parties hereto and their respective heirs, legal representatives, successors and assigns. This Agreement may be assigned by Buyer without the consent of Seller by delivery of written notice of assignment to Seller. Notwithstanding the foregoing, upon any assignment, Buyer shall not be relieved of liability for the performance of any obligation of Buyer contained in this Agreement unless and until Buyer's assignee shall have assumed in writing all of the duties and obligations of Buyer hereunder. 12. Destruction, Damage or Taking Before Closing. (a) In the event of damage to or destruction of all or any portion of any Property by fire or other casualty, Seller shall promptly deliver to Buyer written notice thereof (the "Damage Notice"), which notice shall contain reasonable detail regarding such damage or destruction, including without limitation Seller's reasonable estimate of the amount required to be expended to repair or restore the damaged or destroyed Property or portion thereof ("Repair Cost"). If Seller reasonably estimates that the Repair Cost is $500,000.00 or less, Seller shall, at its option, either (i) repair such damage or destruction, or, if such damage or destruction has not been repaired prior to Closing, (ii) require Buyer to take title to the Property, and the Lease Agreement shall govern the disposition of insurance proceeds and repair of the Property. If Seller reasonably estimates that the Repair Cost exceeds $500,000.00, Buyer shall have, as its sole and exclusive remedy, either of the following options, to be exercised by delivering written notice thereof to Seller within ten (10) business days after its receipt of the Damage Notice from Seller: (x) the option 6 to exclude such Property from the assets to be purchased, with a reduction in the Purchase Price in the amount of the Purchase Price allocated to such Property as set forth on Exhibit A; or (y) the option not to exclude such Property from the assets to be purchased, in which case Buyer shall take title to the Property subject to such damage or destruction, and the Lease Agreement shall govern disposition of insurance proceeds and repair of the Property. If Buyer fails to deliver any such notice to Seller within such ten (10) business day period, Buyer shall be deemed to have exercised its option described in (y), above. (b) In the event of an eminent domain taking or the issuance of a notice of an eminent domain taking with respect to all or any portion of any Property, Seller shall promptly deliver to Buyer written notice thereof, which notice shall contain reasonable detail regarding such taking (the "Taking Notice"). Buyer shall have, as its sole and exclusive remedy, either of the following options, to be exercised by delivering written notice thereof to Seller within ten (10) business days after its receipt of the Taking Notice from Seller: (i) the option to exclude such Property from the assets to be purchased, with a reduction in the Purchase Price in the amount of the Purchase Price allocated to such Property as set forth on Exhibit A, or (ii) the option not to exclude such Property from the assets to be purchased, with the disposition of the eminent domain award to be governed by the Lease Agreement. If Buyer fails to deliver any such notice to Seller within such ten (10) business day period, Buyer shall be deemed to have exercised its option described in (ii), above. 13. Termination and Remedies. (a) If Buyer fails to consummate the purchase of the Properties pursuant to this Agreement for any reason other than Seller's failure to perform its obligations hereunder, then Seller shall have the right as its sole and exclusive remedy to either (i) terminate this Agreement by notifying Buyer thereof, in which case Buyer shall pay Seller $150,000 as liquidated damages or (ii) enforce specific performance of Buyer's obligations hereunder. (b) If Seller fails to consummate the sale of the Properties pursuant to this Agreement for any reason other than Buyer's failure to perform its obligations hereunder, Buyer shall have the right, as its sole and exclusive remedy, to either (x) terminate this Agreement by notifying Seller thereof, whereupon neither party hereto shall have any further rights or obligations hereunder, or (y) enforce specific performance of Seller's obligations hereunder. None of Buyer's or Seller's partners, members, officers, agents or employees shall have any personal liability of any kind or nature or by reason of any matter or thing whatsoever, under, in connection with, arising out of or in any way related to this Agreement and the transactions contemplated herein, and each of Buyer and Seller waive for themselves and anyone who may claim by, through or under such party any and all rights to recover on account of any such alleged personal liability. 14. Miscellaneous. Buyer and Seller shall cooperate in connection with the public announcement of the terms of this Agreement; provided, however neither party will make such an announcement without the prior consent of the other party, which consent will not be unreasonably withheld. Both Seller and Buyer shall cooperate with one another and in a timely manner execute all documents reasonably required to give effect to the purchase and sale provided for herein. If any provision of this Agreement is adjudicated by a court having jurisdiction over a dispute arising herefrom to be invalid or otherwise unenforceable for any reason, such invalidity or unenforceability shall not affect the other provisions hereof. This Agreement shall be governed and construed in accordance with the laws of the State of Texas except in any action to specifically enforce performance of this Agreement, in which event the law of the state of the Real Property with respect to which such specific performance is requested shall govern. This Agreement is the entire agreement between Seller and Buyer concerning the sale of the Properties and no modification hereof or subsequent agreement relative to the subject matter hereof shall be binding on either party unless reduced to writing and signed by the party to be bound. The provisions of Sections 3, 4, 7, 8, 9, 10, 11, 14 and 17 shall survive Closing (provided, however, that the foregoing shall not affect any period of survival specified in any such sections). Exhibits A-F attached hereto are incorporated herein by this reference for all purposes. Time is of the essence in the performance of each and every provision of this Agreement. In the event that the last day for taking any action or serving notice under this Agreement falls on a Saturday, Sunday or legal holiday, the time period shall be extended until the following business day. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original, but all of which, taken together, shall constitute one and the same instrument. A facsimile or photocopy signature on this Agreement or any notice delivered hereunder shall have the same legal effect as an original signature. 15. Commitment Letter. This Agreement supersedes the portions of the Commitment Letter dated February 25, 2003 relating to the Sale-Lease Back Transaction, by and between Drawbridge Special Opportunities Fund LP and Avado Brands, Inc. 7 16. Date of Agreement. All references in this Agreement to "the date hereof" or similar references shall be deemed to refer to the first date set forth above. 17. Transaction Characterization. It is the intent of the parties that the conveyance of the Properties to Buyer be an absolute conveyance in effect as well as form, and the instruments to be delivered at Closing are not intended to serve or operate as a mortgage, equitable mortgage, deed of trust, security agreement or financing or trust arrangement of any kind. After the execution and delivery of the Deeds, Seller will have no legal or equitable interest or any other claim or interest in the Properties other than as set forth in the Lease Agreement. Furthermore, the parties intend for the Lease Agreement to be a true lease and not a transaction creating a financing lease, capital lease, equitable mortgage, mortgage, deed of trust, security interest or other financing arrangement, and the economics realities of the Lease Agreement are those of a true lease. Notwithstanding the existence of the Lease Agreement, neither party shall contest the validity, enforceability or characterization of the sale and purchase of the Properties by Buyer pursuant to this Agreement as an absolute conveyance, and both parties shall support the intent expressed herein that the purchase of the Properties by Buyer provides for an absolute conveyance and does not create a joint venture, partnership, equitable mortgage, trust, financing device or arrangement, security interest or the like, if and to the extent that any challenge occurs. 8 IN WITNESS WHEREOF, Buyer and Seller have executed this Agreement as of the date first set forth above. BUYER: SKYLINE-FRI 8, L.P., a Delaware limited partnership By: Tex-Mex GP, LLC a Delaware limited liability company By: SKYLINE PACIFIC PROPERTIES, LLC, a Colorado limited liability company By: ---------------------------------------- Name: ---------------------------------------- Title: ---------------------------------------- SELLER: DON PABLO'S OPERATING CORP. an Ohio corporation By: ---------------------------------------- Name: ---------------------------------------- Title: ---------------------------------------- Exhibits and schedules to this agreement are not filed pursuant to Item 601(b)(2) of SEC Regulation S-K. By the filing of this Form 10-Q, the Registrant hereby agrees to furnish supplementally a copy of any omitted exhibit or schedule to the Commission upon request. S-1 EX-99 10 q103-ex992.txt 906 CERTIFICATION - CEO Exhibit 99.2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Avado Brands, Inc. (the "Company") on Form 10-Q for the quarter ended March, 30, 2003, as filed with the Securities and Exchange Commission on the date hereof ("Report"), the undersigned officer of the Company, certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: 1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Date: May 14, 2003 /s/ Tom E. DuPree, Jr. --------------------------- Tom E. DuPree, Jr. Chairman of the Board and Chief Executive Officer "A SIGNED ORIGINAL OF THIS WRITTEN STATEMENT REQUIRED BY SECTION 906 HAS BEEN PROVIDED TO AVADO BRANDS, INC. AND WILL BE RETAINED BY AVADO BRANDS, INC. AND FURNISHED TO THE SECURITIES AND EXCHANGE COMMISSION OR ITS STAFF UPON REQUEST." EX-99 11 q103-ex993.txt 906 CERTIFICATION - CFO Exhibit 99.3 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Avado Brands, Inc. (the "Company") on Form 10-Q for the quarter ended March, 30, 2003, as filed with the Securities and Exchange Commission on the date hereof ("Report"), the undersigned officer of the Company, certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: 1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Date: May 14, 2003 /s/ Louis J. Profumo --------------------------- Louis J. Profumo Chief Financial Officer "A SIGNED ORIGINAL OF THIS WRITTEN STATEMENT REQUIRED BY SECTION 906 HAS BEEN PROVIDED TO AVADO BRANDS, INC. AND WILL BE RETAINED BY AVADO BRANDS, INC. AND FURNISHED TO THE SECURITIES AND EXCHANGE COMMISSION OR ITS STAFF UPON REQUEST." -----END PRIVACY-ENHANCED MESSAGE-----