-----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, JemXevqT8ehJGUsY2wbLivAYJHLsXjTYoDkRMQalJTitdlsn2SL4LUx0/DTHK5UX 3PADQDP3j6MFV941gKTiPQ== 0000872548-02-000003.txt : 20020415 0000872548-02-000003.hdr.sgml : 20020415 ACCESSION NUMBER: 0000872548-02-000003 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20020101 FILED AS OF DATE: 20020401 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FURRS RESTAURANT GROUP INC CENTRAL INDEX KEY: 0000872548 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-EATING PLACES [5812] IRS NUMBER: 752350724 STATE OF INCORPORATION: DE FISCAL YEAR END: 1229 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-10725 FILM NUMBER: 02597914 BUSINESS ADDRESS: STREET 1: 3001 E PRESIDENT GEORGE BUSH HWY STREET 2: SUITE 200 CITY: RICHARDSON STATE: TX ZIP: 75085-5943 BUSINESS PHONE: 972-808-2923 MAIL ADDRESS: STREET 1: P.O. BOX 852800 CITY: RICHARDSON STATE: TX ZIP: 75085-2800 FORMER COMPANY: FORMER CONFORMED NAME: FURRS BISHOPS INC DATE OF NAME CHANGE: 19930328 10-K 1 frg-10k.htm FURR'S FORM 10-K

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549
             FORM 10-K             

[X]       ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
             ACT OF 1934

             For the fiscal year ended January 1, 2002

OR

[   ]       TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
             EXCHANGE ACT OF 1934

Commission file number 1-10725
           FURR'S RESTAURANT GROUP, INC.           
(Exact name of Registrant as specified in its charter)

            DELAWARE             75-2350724    
    (State or other jurisdiction of    (I.R.S. Employer    
     incorporation or organization)    Identification No.)    

3001 E. PRESIDENT GEORGE BUSH HIGHWAY, RICHARDSON,TX   75082   
             (Address of principal executive office) (Zip Code)    

             Registrant's telephone number, including area code (972) 808-2923

             Securities registered pursuant to Section 12(b) of the Act:

    Name of each exchange
    Title of each class     on which registered
    Common Stock, par value American Stock Exchange
      $.01 per share    

Securities registered pursuant to Section 12(g) of the Act:  None

         Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

YES  X    NO     

         Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X]

         The aggregate market value of the Voting Stock held by non-affiliates of the Registrant, based upon the closing price of the registrant's Common Stock on March 18, 2002, was $23,247,664.

         The number of shares outstanding of each of the registrant's classes of stock as of the latest practicable date are as follows:

    Shares Outstanding
             Class as of March 18, 2002.
Common Stock, par value $.01 per share 9,767,926

         Portions of the definitive proxy statement relating to the 2002 annual meeting of stockholders are incorporated by reference in Part III.

FURR'S RESTAURANT GROUP, INC.
FORM 10-K
ANNUAL REPORT


TABLE OF CONTENTS

Page

PART I

Item 1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Item 2. Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Item 3. Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Item 4. Submission of Matters to a Vote of Security Holders. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

PART II

Item 5. Market for Registrant's Common Equity and
            Related Stockholder Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Item 6. Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Item 7. Management's Discussion and Analysis of Financial
            Conditions and Results of Operations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Item 8. Financial Statements and Supplementary Data. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Item 9. Changes In and Disagreements with Accountants on
            Accounting and Financial Disclosure. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

PART III

Item 10. Directors and Executive Officers of the Registrant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Item 11. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Item 12. Security Ownership of Certain Beneficial
            Owners and Management and Related Stockholder Matters . . . . . . . . . . . . . . . . . . . 16
Item 13. Certain Relationships and Related Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

PART IV

Item 14. Exhibits, Financial Statement Schedule and Reports
            on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19



2


PART I

Item 1.    Business

General

           Furr's Restaurant Group, Inc. (the "Company" or "Furr's"), formerly known as Furr's/Bishop's, Incorporated was incorporated in Delaware in 1991 and, through its subsidiaries, is one of the largest operators of family-style cafeteria restaurants in the United States. We believe that our cafeterias and buffets, which are operated under the "Furr's" and "Bishop's" names, are well recognized in their regional markets for their value, convenience, food quality and friendly service. Our 89 cafeterias and two buffets are located in 11 states in the Southwest, West and Midwest. In addition, we operate Dynamic Foods, our food preparation, processing and distribution division, in Lubbock, Texas. Dynamic Foods provides in excess of 85% of the food and supply requirements of our cafeteria and buffet restaurants. Dynamic Foods also sells bakery items and various prepared foods to the restaurant, food service and retail markets.

Family Dining Division

           The Family Dining Division consists of 89 cafeterias and two pay-at-the-door buffet-style restaurants operated by Cafeteria Operators, L.P., an indirect wholly owned partnership subsidiary of Furr's ("Cafeteria Operators").

           Cafeterias. Cafeterias occupy a long-standing niche in the food service industry, providing the customer with a pleasant, moderately priced alternative to fast-food chains and conventional full-service restaurants. Our cafeterias offer a wide variety of meals appealing to a broad range of personal tastes, including chicken, beef, fish and pasta entrees; soup, salad and vegetable choices; non-alcoholic beverages; and freshly baked pies and cakes. The food is prepared for serving by the individual cafeteria. The Company's cafeterias are generally characterized by quick service and modest average prices per guest. Guest tickets for the fiscal years ended January 1, 2002, January 2, 2001 and December 28, 1999 averaged approximately $6.27, $6.00 and $5.97, respectively. Our cafeterias average approximately 10,000 square feet in size and have average seating capacity for approximately 300 guests. Since 1989, virtually all of our cafeterias have featured "All-You-Can-Eat" at a fixed price all day, every day, as well as the traditional "a la carte" pricing alternative. Beginning in February of 2002, we have added two meal options to our "All-You-Can-Eat" and "a la carte" format. These meal options offer an entree, either two or four sides and a roll for a fixed price, lower than the "All-You-Can-Eat" price. An entree can be a salad, soup, vegetable or dessert. This enhances our flexibility to allow customers to choose the pricing and dining format which they find the most attractive and fits their budget.

          Management believes that the "Furr's" and "Bishop's" names are widely recognized in their regional markets. Management's emphasis on consistent food quality, variety, cleanliness and service has led to a loyal guest base. Our customer base consists principally of people over 45 years of age, shoppers, working people and young families.

           Buffet. Our buffet-style restaurants feature traditional American and ethnic foods at a fixed price that entitles each guest to unlimited servings of all menu items and beverages. Food items are served in a "scatter bar" format at buffet islands centrally located in the restaurant's food service area. The "scatter-bar" buffet format emphasizes customer choice by allowing customers to select at their own pace in self selected portions, thereby improving the restaurant experience for the guest.

           We opened a new prototype in El Paso, Texas, built from the ground up, under the name "Furr's Family Buffet" in June 2000. This buffet unit is approximately 11,000 square feet and can seat approximately 420 guests. The restaurant is open to guests every day of the year, 12 hours per day for lunch and dinner with breakfast available on Saturdays and Sundays. Guest tickets for the fiscal years ended January 1, 2002 and January 2, 2001 averaged $6.32 and $6.29, respectively. Our other buffet unit is a converted cafeteria that is approximately 10,000 square feet in size and has seating capacity for approximately 300 guests. Guest tickets for the fiscal years ended January 1, 2002 and January 2, 2001 averaged $6.10 and $6.08, respectively.

Marketing and Advertising

           Our marketing program utilizes a variety of media to attract customers to our restaurants and to create a targeted image for our restaurants. We utilize point of sale advertising within our restaurants to focus customers on the various food items and promotions being offered at the restaurant. Television advertisements are used to enhance our image with respect to food quality and value pricing. Also, billboard advertising, newspaper and direct mail programs within the communities in which we have a large presence are used to direct customers to our restaurants and to promote specific programs, including the one-price "All-You-Can-Eat" concept, and more recently, the two new meal options that are available. We frequently use all of our marketing tools together to promote the concept. In addition, store managers and other personnel are encouraged to participate in local public relations and promotional efforts.


3


Dynamic Foods

           We operate Dynamic Foods, a food purchasing, processing and distribution facility in Lubbock, Texas that supplies in excess of 85% of the food and supply requirements of our family dining restaurants, providing us with uniform quality control and the ability to make volume purchases. In addition, management believes that there is significant potential for utilizing the available excess capacity at Dynamic Foods by increasing sales to third parties. In fiscal 2001, third party sales by Dynamic Foods aggregated $2.2 million, the highest volume of outside sales in recent years. We have partnered with a restaurant product development/sales company for whom we manufacture products this company develops and sells to third party restaurants.

           Dynamic Foods has approximately 140 separate food items available under the "Dynamic Foods" label for distribution to our restaurants and for sale to third parties. Currently, approximately 97% of Dynamic Food's manufacturing output is used at our restaurants and the remainder is sold to third parties.

Restaurant Management

           The success of each restaurant's operation is largely dependent upon the quality of in-store management and mid-level supervisory management. Experienced and well trained in-store management is important to assure good service, quality food and the cleanliness of each restaurant, to control costs and to monitor local eating habits and traffic.

           Each cafeteria and buffet is operated under the supervision of a general manager, an assistant general manager and one or two assistant managers. Each cafeteria generally employs between 40 and 70 workers, of whom approximately 20% are part-time workers.

           The general managers of our family dining restaurants report to 10 regional managers who, in turn, report to the Vice President of Field Operations. The general managers have responsibility for day-to-day operations, including food ordering, labor scheduling, menu planning, customer relations and personnel hiring and supervision. The regional managers visit each restaurant regularly and work with the in-store managers to evaluate and maintain overall operating standards. They also make financial and quality control checks, train personnel in operating procedures and evaluate procedures developed by cafeteria and buffet personnel for possible use in all our family dining units.

Service Marks and Trademarks

           We utilize and are dependent upon certain registered service marks, including "Furr's," "Furr's Family Dining," "Furr's Cafeterias," "Bishop's Buffet" and "Dynamic Foods," and a stylized "F" trademarked by Furr's. These and other trademarks are current and are renewable on various dates through February 2008. We are not aware of any party who could prevail in a contest of the validity of such service marks and trademarks.

Seasonality

           Customer volume on a company-wide basis at most established restaurants is generally somewhat lower in the winter months, due primarily to weather conditions in certain of the markets for our restaurants. As a consequence, the first and fourth quarters of the year historically produce lower sales. A harsh winter season has a negative effect on our revenues and results of operations.

Working Capital Requirements

           Our restaurants' sales are collected immediately in cash or within several days from credit card companies. Funds available from cash sales are not needed to finance receivables and are generally not needed immediately to pay for food, supplies and certain other expenses of the restaurants. Therefore, our business and operations have not historically required proportionately large amounts of working capital, which is generally common among similar restaurant companies. As Dynamic Foods expands its sales to third parties, the accounts receivable and inventory related to such sales could require it to maintain additional working capital. See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources."

Competition

           The food service business is highly competitive in each of the markets in which our restaurants operate and is often affected by changes in consumer tastes, economic conditions and demographic and local traffic patterns. In each area in which our restaurants operate, there are a large number of other food service outlets


4


including other cafeterias, buffets and fast-food and limited-menu restaurants which compete directly and vigorously with our restaurants in all aspects, including quality and variety of food, price, customer service, location and the quality of the overall dining experience.

           Neither Furr's nor any of its competitors has a significant share of the total food service market in any area in which we compete. We believe that our principal competitors are other cafeterias and buffets, moderately priced, conventional restaurants, fast-food outlets and eat-at-home alternatives. Many of our competitors, including our primary cafeteria and buffet competitors, have greater financial resources and lower total debt-to-equity ratios than Furr's. We compete with other food service outlets for management personnel based on salary, opportunity for advancement and stability of employment. We believe we offer existing and prospective management personnel an attractive compensation and benefits package with opportunity for advancement in a stable segment of the food service industry.

           The food manufacturing and distribution business is highly competitive and many of Dynamic Foods' competitors are large regional or national food processors and distributors with significantly greater financial resources than Furr's. Accordingly, there can be no assurance that Dynamic Foods will be able to generate significantly higher revenue or increase our profitability.

Capital Expenditure Program

           During the fiscal years ended January 1, 2002, January 2, 2001 and December 28, 1999, Furr's expended $4.1 million, $12.8 million and $19.9 million, respectively, for capital expenditures principally to maintain and remodel existing cafeterias, upgrade computer and information systems, construct three new units, relocate one unit and improve the facility operated by Dynamic Foods. The capital expenditures in 1999 were primarily due to a significant cafeteria reimaging program. In 2000, we spent $3.9 million to complete the reimage program (total of 43 restaurants reimaged) and $4.8 million to construct three new units and relocate one unit. The remaining units that were not selected for reimaging will be evaluated over the next few years and updated as necessary. Our 2001 expenditures were of a more routine nature related to ongoing enhancements at our units, corporate facilities, and Dynamic Foods. Our capital expenditure program enables us to maintain, update and improve our restaurants, expand our presence in the market place and increase our revenue and profitability.

           Subject to our ability to generate necessary funds from operations or obtain funds from other sources, we intend to pursue opening new restaurants each year. We anticipate expending approximately $5.6 million in fiscal year 2002 to open new restaurants and adequately maintain our existing facilities. No assurance can be given that we will generate sufficient funds from operations or obtain funds from other sources to enable us to fully implement the desired capital expenditures. Our ability to open new restaurants will depend, among other things, upon our ability to secure appropriate store locations on favorable terms and to identify, hire and train personnel for expansion. See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources."

Employees

           As of February 19, 2002, we employed approximately 4,700 persons, of whom approximately 3,600 were employed on a full-time basis. We employed approximately 320 persons as managers or assistant managers in restaurants, 10 persons as regional managers and approximately 47 persons in executive, administrative or clerical positions in the corporate office. None of our employees are covered by collective bargaining agreements. We believe we maintain good relations with our employees.

           The majority of our restaurants pay average wages in excess of the current minimum wage standards. However, any future increase in the federal minimum wage could have the effect of increasing our labor costs. In recent years, the market for those employees who have traditionally been employed in the restaurant industry has become increasingly competitive due to fewer persons entering this category of wage earner and the increased government regulation of immigrants entering and working in the United States. In response to this decrease in the available labor pool, we have increased our average hourly wage and expanded our hiring and training efforts.

Regulation

           Our restaurants are subject to numerous federal, state and local laws affecting health, sanitation, waste water, fire and safety standards. We believe that we are in substantial compliance with applicable laws and regulations governing our operations.

           The Federal Americans With Disabilities Act, which became effective as to public accommodations and employment in 1992, prohibits discrimination on the basis of disability. Our recently completed remodeling of existing restaurants, required expenditures to comply with these regulations in order to provide service to, or make reasonable accommodations for the employment of, disabled persons.


5


Item 2.    Properties

           Restaurant Locations. The following table sets forth the number of our restaurants operated in certain states as of February 19, 2002.

State Number of Restaurants
Arizona 7
Arkansas 2
Colorado 6
Illinois 1
Iowa 5
Kansas 6
Missouri 2
Nevada 2
New Mexico 13
Oklahoma 10
Texas 37
91

           Site Selection. We generally intend to reposition existing restaurants or open new restaurants in markets in which our restaurants are presently located and in adjacent markets, in order to improve our competitive position and increase operating margins by obtaining economies of scale in merchandising, advertising, distribution, purchasing and supervision. The primary criteria considered in selecting new locations are a high level of customer traffic, convenience to both lunch and dinner customers in demographic groups that tend to favor our restaurants and the occupancy cost of the proposed restaurant. Our ability to open new restaurants depends on a number of factors, including our ability to find suitable locations and negotiate acceptable leases, our ability to attract and retain a sufficient number of qualified restaurant managers and the availability of sufficient capital resources.

           Properties. Forty-one of our restaurants are leased from third parties, another 32 are subleased under a master sublease agreement, nine are owned and are situated on land leased from third parties and nine are owned in fee simple. Most of the leases have initial terms of from 10 to 20 years and contain provisions permitting renewal for one or more specified terms at specified rental rates. Some leases provide for fixed annual rent plus rent based on a percentage of sales. The average restaurant contains approximately 10,000 square feet and seats approximately 300 guests.

           Dynamic Foods' food manufacturing and distribution facility contains approximately 175,000 square feet and is situated on approximately 24 acres owned by Furr's in fee simple in Lubbock, Texas. In addition, a grocery warehouse of approximately 36,000 square feet and a truck terminal of approximately 7,200 square feet are located adjacent to the distribution facility.

           Our executive offices are located in approximately 28,000 square feet of leased office space in Richardson, Texas, of which, approximately 10,000 square feet is unoccupied and available for sublease. We believe that the remaining space will be adequate to conduct our current operations for the foreseeable future.

           Additionally, we lease eight properties under a master sublease, lease one property from third parties and own two buildings situated on land leased from third parties, which are not used in our restaurant business and are leased to third parties or placed on the market for sale.

           We operate 38 restaurants which are leased from Kmart Corporation ("Kmart") under full premises or ground leases (the "Furr's/Kmart Leases"). Substantially all of these properties are themselves leased by Kmart from one of several parties who either own title to the properties or lease the properties from the titleholder (the "Owner/Kmart Leases"). Kmart filed a Chapter 11 bankruptcy proceeding in January 2002 and has announced its intention to "reject" the Owner/Kmart Leases and Furr's/Kmart Leases relating to one ground lease and 30 full premise leases. In response to this announcement, two of the property owners, accounting for 22 properties, have themselves filed Chapter 11 bankruptcy proceedings and it is unclear what action may be taken by various holders of mortgage loans secured by these properties.

           We believe that the United States Bankruptcy Code, applicable state law and the doubtful existence of more valuable uses of the leased premises all will support our continued occupancy of the former Kmart leased premises without a material adverse effect. However, the loss of possession of some of these restaurants could have a material adverse effect upon our results of operations and financial position, and could result in the occurrence of one or more events of default under our credit agreement.


6


           We have begun discussions with the relevant parties which are intended to result in the establishment of direct lease relationships with these parties on fair market terms and that do not include Kmart, but we are not able at this time to predict the results of these discussions. Management believes that the landowners are likely to accept market rents and that the properties generally do not have alternative uses that would offer an owner a higher economic return. Accordingly, we believe that the property owners/mortgage holders will not have an economic incentive to challenge our continued occupancy of the properties.

Item 3.    Legal Proceedings

           None.

Item 4.    Submission of matters to a Vote of Security Holders

           None.




7


PART II

Item 5.    Market for Registrant's Common Equity and Related Stockholder Matters

Common Stock

           The Common Stock, par value $.01 per share ("Common Stock"), is traded on the American Stock Exchange ("AMEX") under the symbol "FRG." As of March 18, 2002, there were 9,767,926 shares of Common Stock outstanding and approximately 4,200 record holders. The closing price of the Common Stock on March 18, 2002 was $2.38.

           No cash dividends have been declared or paid on the Common Stock during the past two fiscal years and to date. The terms of our indebtedness restricts our ability to pay dividends on the common stock. We do not anticipate paying dividends in the foreseeable future.

           The following table provides the high and low closing prices for each quarter of the last two fiscal years: 

                            2000                          2001
                  --------------------------  ----------------------------
                    High             Low         High              Low
                    ----             ---         ----              ---
  First Quarter    $4.13            $2.81       $2.25            $1.75
  Second Quarter    3.19             2.63        3.00             1.78
  Third Quarter     3.38             2.75        3.25             2.20
  Fourth Quarter    2.94             1.00        2.90             2.25

Item 6.    Selected Financial Data (in thousands, except per share data) 


Fiscal Years Ended
- -------------------------------------------------------------------------------------------------

                            January 1,    January 2,   December 28,   December 29,   December 30,
                                 2002          2001           1999           1998           1997
                                 ----          ----           ----           ----           ----

Sales (1)                    $184,901      $196,047       $188,060       $188,208        $193,530

Net Income (loss) (4)           6,509         8,521         31,262         (1,229)         (5,396)

Income (loss) per common
   share, diluted (2) (4)        0.67          0.87           3.19          (0.13)          (0.55)

Total assets                   76,649        89,431         89,463         68,509          65,801

Long term obligations (3)      48,899        65,416         70,929         81,902          78,974
(1) We closed five restaurants in 2001, five restaurants in 2000, two restaurants in 1999, four restaurants
in 1998 and restaurants in 1997. We opened three restaurants in 2000 and one restaurant in 1999.
(2) All years based on Common Stock outstanding after giving effect to the reverse stock split effected
in 1999.
(3) Consists of total long-term debt, including current maturities, and other payables, and includes $6,896,
$12,389, $17,882 and $23,374 of interest accrued to maturity on long-term debt in fiscal years ended
January 2, 2001, December 28, 1999, December 29, 1998 and December 30, 1997, respectively.
(4) Includes extraordinary items as detailed in "Item 7" on page 9.



8


Item 7.    Management's Discussion and Analysis of Financial Condition and Results of Operations

           The Company's fiscal year is a 52-53 week year. Fiscal year 2000 included 53 weeks. Fiscal years 2001 and 1999 included 52 weeks.

The following table sets forth certain statement of operations data and restaurant data for the fiscal years indicated (dollars in thousands, except sales per unit): 

                                                 2001           2000           1999
                                                 ----           ----           ----
Statement of operations data:

Sales                                          $184,901       $196,047       $188,060

Costs and expenses:
   Cost of sales (excluding depreciation)        53,746         57,376         56,036
     as a percent of sales                        29.07%         29.27%         29.80%

   Labor and related costs                       65,993         69,230         66,607
     as a percent of sales                        35.69%         35.31%         35.42%

   Occupancy and other expenses                  38,928         39,522         38,314
     as a percent of sales                        21.05%         20.16%         20.37%

   General and administrative expenses            9,980          8,901          8,281
     as a percent of sales                          5.4%          4.54%          4.40%

   Depreciation and amortization                 10,466         10,944         10,335
   Special charges                                    -              -            566
                                              ---------      ---------     ----------

   Total costs and expenses                     179,113        185,973        180,139
                                              ---------      ---------     ----------

Operating income                                  5,788         10,074          7,921
Gain (loss) on disposal of assets                   831            494           (125)
Interest expense                                  3,245            344            349
                                              ---------      ---------     ----------

Income before income taxes and
   extraordinary item                             3,374         10,224          7,447
Income tax expense (benefit)                        505          1,703        (23,815)
                                              ---------      ---------     ----------
Net income before extraordinary item              2,869          8,521         31,262
Extraordinary gain on retirement of debt          3,640              -              -
                                              ---------      ---------     ----------
Net income                                       $6,509         $8,521        $31,262
                                              =========      =========     ==========

Restaurant units in operation:
   Beginning of year                                 96             98             99
   Opened                                             -              3              1
   Closed                                            (5)            (5)            (2)
                                              ---------      ---------     ----------
   End of year                                       91             96             98
                                              =========      =========     ==========

Year over year comparable store sales change
   (for units open at year end and in
   operation a minimum of 16 months)              (1.60)%         (1.06)%        1.98%
                                              =========       =========    ==========

Average weekly sales per restaurant unit
   (for units open at year end and in
   operation a minimum of 16 months)            $37,569         $38,235        $36,701
                                              =========       =========    ===========


9


Fifty-two Weeks Ended January 1, 2002 Compared To Fifty-three Weeks Ended January 2, 2001

           Results of Operations.Sales for the fiscal year ended January 1, 2002 were $184.9 million or $3.6 million per week, a decrease of $11.1 million from the 53-week fiscal year ended January 2, 2001 or $.1 million per week. Comparable store sales decreased by $2.8 million, or 1.6%, in 2001 compared to 2000.

           Our net income was $6.5 million for fiscal 2001 comparing to a net income of $8.5 million for the prior year or $0.67 per share compared to $.87 per share, respectively. The operating results for 2001 included an extraordinary gain of $3.6 million. Before the extraordinary gain, net income for fiscal 2001 was $3.0 million, or $.30 per share

           Sales. Restaurant sales in comparable units were 1.6% lower in fiscal 2001 than 2000 adjusted to 52 weeks. Sales in 2001 were lower than the prior year by $11.1 million or $.1 million on a comparable weekly comparison. Revenues in fiscal year 2001 included $2.2 million of Dynamic Foods sales to third parties compared to $1.7 million in fiscal 2000, an increase of $9 thousand per week, or 27%.

           Costs of Sales. Cost of sales was 29.1% of sales for fiscal year 2001 compared to 29.3% for fiscal year 2000, due to aggressive buying strategies, menu mix and price increases to our customers.

           Labor and Related Costs. Labor and related costs were $3.2 million lower in fiscal year 2001 than 2000. Of the decrease, $1.3 million was due to the 53rd week in fiscal 2000. The remaining decrease was due to aggressive management of labor in response to decreased guest counts and fewer operating units during 2001.

           Occupancy and Other Expenses. Occupancy and other expenses decreased $.6 million in fiscal 2001 from 2000. These expenses were minimally impacted by the 53rd week in 2000 and includes increases of $.5 million in utilities due to natural gas price increases, $.8 million in marketing to generate increased sales and decreases of $.5 million in repairs and maintenance, $.6 million in supplies and $.3 million in other store expense.

           General and Administrative Expenses. General and administrative expenses were higher by $1.1 million in fiscal year 2001 compared to 2000. Of the increase, $.6 million was due to expenses incurred as a result of the prior CEO resignation and hiring of a new CEO. Another $.5 million is attributed to increased pension expense in 2001 principally as the result of lower investment return on plan assets.

           Depreciation and Amortization. Depreciation and amortization expense was $478 thousand lower than the prior year due to assets becoming fully depreciated during 2001 and a reduced level of capital expenditures in 2001 that impacted the amount of depreciation on new assets. We recognized asset impairments of $.7 million and $.4 million in fiscal years 2001 and 2000, respectively.

           Interest Expense. Interest expense was $3.2 million, which was higher than the prior year by $2.9 million. As discussed in note 3 to the consolidated financial statements, in accordance with Statement of Financial Accounting Standards No. 15 "Troubled Debt Restructurings" (SFAS 15), certain debt was recorded at the sum of all future principal and interest payments and there was no recognition of interest expense thereon. This debt was refinanced in April of 2001 resulting in interest expense on borrowings under our new Revolving Credit and Term Loan Agreement for nine months of the year. Cash interest payments not recorded as expense in 2001 and 2000 amounted to $3.3 million and $5.5 million, respectively. $2.0 million of these cash payments made in 2001 related to the period in fiscal 2001 prior to the refinancing.

           Income Tax Benefit. We have provided income tax expense of $.5 million and $1.7 million for fiscal years 2001 and 2000, respectively. Income tax expense has been provided at an effective income tax rate lower than the Statutory Federal rate of 35% due to interest expense on the restructured debt, which is reported as additional debt rather than interest expense pursuant to SFAS No. 15, "Accounting by Debtors and Creditors for Troubled Debt Restructurings" in the accompanying consolidated statement of operations, but which is a deductible expense for Federal income tax purposes.

           Extraordinary Gain on Retirement of Debt. In April 2001, we entered into a new Revolving Credit and Term Loan Agreement as described further under the section entitled Liquidity and Capital Resources. The proceeds were used to retire the previously outstanding 12% senior notes pursuant to which we recognized an extraordinary gain of $3.6 million.




10


Fifty-three Weeks Ended January 2, 2001 Compared To Fifty-two Weeks Ended December 28, 1999

           Results of Operation. Sales for the 53-week fiscal year ended January 2, 2001 were $196.0 million, or $3.7 million per week, an increase of $8.0 million from the fiscal year ended December 28, 1999, or $.1 million per week. Comparable store sales increased by $2.4 million or 1.3% in 2000 compared to 1999. Comparable store sales compares the 53 weeks of fiscal 2000 to the 52 weeks of fiscal 1999 plus the first week of fiscal 2000.

           Our net income was $8.5 million for fiscal 2000 compared to a net income of $31.3 million for the prior year, or $0.87 per share compared to $3.19 per share, respectively. The operating results for 1999 included special charges aggregating $.6 million. Before special charges, net income for fiscal 1999 was $31.8 million, including a $2.9 million income tax benefit from the settlement of Internal Revenue Service litigation resulting from the purchase of the Company from Kmart in 1986. In addition, we recorded an income tax benefit in the fourth quarter of 1999 of $20.8 million. This income tax benefit reflects recognition of a portion of the deferred tax asset associated with our net operating loss (NOL) carryforwards which aggregated $118.6 million at December 28, 1999. These NOLs are available to Furr's to offset future taxable income for the purpose of reducing our income tax payments. The benefit of this NOL could not be recognized until we determined that it is "more likely than not" we would realize the benefits through profitable operations. As a result of eight consecutive quarters of comparable store sales growth, positive results from our reimaging program and the settlement of the "Aull" pension litigation, we believed at December 28, 1999 it to be "more likely than not" we would recognize a portion of the benefit from the NOL carryforward.

           Our pretax income excluding these items in 1999 increased by 27.6% to $10.2 million in 2000 compared to $8.0 million for 1999.

           Sales. Restaurant sales in comparable units were 1.3% higher in fiscal 2000 than 1999 adjusted to 53 weeks. Sales in 2000 were higher than the prior year by $7.9 million or $.1 million on a weekly comparison. Revenues in fiscal year 2000 included $1.7 million of Dynamic Foods sales to third parties compared to $1.2 million in fiscal 1999, an increase of $10 thousand per week or 43%.

           Costs of Sales. Cost of sales was 29.3% of sales for fiscal year 2000 compared to 29.8% for fiscal year 1999, due to aggressive buying strategies and menu mix.

           Labor and Related Costs. Labor and related costs were $2.6 million higher in fiscal year 2000 than 1999. Of the increase, $1.3 million was due to the 53rd week in fiscal 2000. The remaining increase was due to cost of living increases in pay averaging 3%.

           Occupancy and Other Expenses. Occupancy and other expenses increased $1.2 million in fiscal 2000 over 1999. These expenses were minimally impacted by the 53rd week in 2000 and include increases of $.6 million in utilities due to natural gas price increases, $.4 million in repairs and maintenance, $.4 million in supplies and a $.4 million decrease in marketing as a cost cutting initiative.

           General and Administrative Expenses. General and administrative expenses were higher by $.6 million in fiscal year 2000. Of the increase, $.1 million was due to the 53rd week in fiscal 2000.

           Special Charges. The operating results for fiscal 1999 include a special charge of $566 thousand for expenses related to the relocation of the corporate offices from Lubbock, Texas to Richardson, Texas.

           Depreciation and Amortization. Depreciation and amortization expense was $609 thousand higher than the prior year, due to the depreciation on capital expenditures in the prior and current year principally related to our remodeling program and three new units opened in fiscal 2000.

           Interest Expense. Interest expense was $344 thousand, which was lower than the prior year by $5 thousand. As discussed in note 3 to the consolidated financial statements, in accordance with SFAS 15, certain debt was recorded at the sum of all future principal and interest payments and there was no recognition of interest expense thereon. Cash interest payments not recorded as interest expense in 2000 and 1999 amounted to $5.5 million each year.

           Income Tax Benefit. As discussed above and in note 6 to the consolidated financial statements, in fiscal 1999 we recorded a deferred tax asset of $20.8 million, and a reduction of a prior year income tax liability related to an Internal Revenue Service examination, which was settled in 1999, of $2.9 million. We have provided income tax expense of $1.7 million for fiscal year 2000. The effective income tax rate is lower than the Statutory Federal rate of 35% due to interest expense on the restructured debt, which is reported as additional debt rather than interest expense pursuant to SFAS No. 15 in the accompanying consolidated statement of operations, but which is a deductible expense for Federal income tax purposes.



11


Critical Accounting Policies

           The Company follows certain significant accounting policies when preparing its consolidated financial statements. A complete summary of these policies is included in note 1 of notes to consolidated financial statements.

           Certain of the policies require management to make significant and subjective estimates and assumptions which are sensitive to deviations of actual results from management's assumptions. In particular, management makes estimates regarding future undiscounted cash flows from the use of long-lived assets in assessing potential impairment whenever events or changes in circumstances indicate that the carrying value of a long-lived asset may not be recoverable and estimates of future taxable income when evaluating whether deferred tax assets are more likely than not recoverable.

           Management has estimated future undiscounted net cash flows from the use of long-lived assets based on actual historical results and expectations of about future economic circumstances including future business volume, operating costs and conditions of local real estate markets. The estimate of future cash flows from the use and eventual disposition of the assets could change if actual business volume or operating costs differ due to industry conditions or other factors affecting our business environment, and if real estate markets in which the assets are located experience declines.

           Management has estimated future taxable income in evaluating whether deferred tax assets are more likely than not recoverable. The estimate of future taxable income could change due to general economic conditions different than assumed by management, based on our ability to attract customers and compete in the marketplace and if operating costs are different than projected by management.

Recently Issued Accounting Standards

           In July 2001 the Financial Accounting Standards Board ("FASB") issued Statements of Financial Accounting Standards No. 141 "Business Combinations" and No. 142 "Goodwill and Other Intangible Assets." Statement 141 requires that all business combinations initiated after June 30, 2001 be accounted for under the purchase method. Statement 141 also specifies the criteria that intangible assets acquired in a business combination must meet to be recognized and reported apart from goodwill. Statement 142 requires that goodwill and intangible assets with indefinite lives no longer be amortized to earnings, but instead be tested for impairment at least annually. Statement 142 also requires that intangible assets with estimated useful lives be amortized over their respective useful lives to their estimated residual values, and reviewed for impairment. Statement 142 is effective for fiscal years beginning after December 15, 2001. We do not believe Statements 141 and 142 will have a significant impact on our consolidated financial statements.

           Also, the FASB has recently issued Statement No. 143 "Accounting for Asset Retirement Obligations," and Statement No. 144 "Accounting for the Impairment or Disposal of Long-Lived Assets." Statement 143 establishes requirements for the accounting of removal-type costs associated with asset retirements and is effective for fiscal years beginning after June 15, 2002, with earlier application encouraged. Statement 144 supercedes Statement 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 Accounting Principles Board Opinion No. 30, Extraordinary, Unusual and Infrequently Occurring Events and Transactions. Statement 144 retains the fundamental provisions of Statement 121 but eliminates the requirements to allocate goodwill to long-lived assets to be tested for impairment. Statement 144 also requires discontinued operations to be carried at the lower of cost or fair value less costs to sell and broadens the presentation of discontinued operations to include a component of an entity rather than a segment of a business. Statement 144 is effective for fiscal years beginning after December 15, 2001 and interim periods within those fiscal years. We do not believe Statements 143 and 144 will have a material impact on our consolidated financial statements.

Liquidity and Capital Resources

           During fiscal 2001, cash provided from our operating activities was $9.9 million compared to $17.3 million in 2000. Cash used for the payment of interest was approximately $5.0 million and $5.8 million in 2001 and 2000, respectively. We made capital expenditures of $4.1 million during 2001 compared to $12.8 million during 2000. During fiscal 2000, we received $2.6 million from the disposition of five units to Kmart and $.7 million of insurance proceeds to replace an oven destroyed by fire. In the course of our debt refinancing and subsequent principle payments on the Term Loan Agreement, $13.1 million of cash was used to reduce debt during 2001. Due to the cash management arrangements available with our new revolving credit facility, cash and temporary investments were $0 and cash overdraft (included in accounts payable) was $.4 million at January 1, 2002 compared to $5.7 million at January 2, 2001. The current ratio of the Company was .32:1 at January 1, 2002 compared to .57:1 at January 2, 2001. Our total assets at January 1, 2002 aggregated $76.6 million compared to $89.4 million at January 2, 2001.



12


           Our restaurants' sales are collected immediately in cash or within several days from credit card companies. Funds available from cash sales are not needed to finance receivables and are not generally needed immediately to pay for food, supplies and certain other expenses of the restaurants. Therefore, our business and operations have not historically required proportionately large amounts of working capital, which is generally common among similar restaurant companies. As Dynamic Foods expands its sales to third parties, the accounts receivable and inventory related to such sales could require us to maintain additional working capital.

           On April 10, 2001, we entered into a new $55 million Revolving Credit and Term Loan Agreement (Credit Agreement) with various banks and lenders. Concurrent with the execution of this new agreement we defeased and gave notice of redemption of our 12% Senior Secured Notes due December 31, 2001 and repaid in full the $2.6 million of 10.5% Notes due December 31, 2001. This refinancing transaction was completed prior to the issuance of our fiscal 2000 consolidated financial statements. Accordingly, the balance of these notes, less the current portion of the new term loan, was classified as long term at January 2, 2001. After the redemption of the 12% Notes and the 10.5% Notes, we had $44 million outstanding under the new Credit Agreement. The Credit Agreement contains covenants with regard to maintaining certain leverage ratios, achieving certain levels of EBITDA, operating cash flow and limits on capital expenditures. In addition there are certain restrictions on the payment of dividends and additional indebtedness. The Credit Agreement allows us to borrow at either a Federal Funds Rate plus an applicable margin or at a Eurocurrency Reserve Rate plus an applicable margin. As a result of the refinancing, our effective interest rate decreased from 11.9% to 8.5% for 2001.

           The Credit Agreement provides that we can borrow up to $20 million on a revolving basis until April, 2006, of which $9 million was drawn at closing, with the remaining $11 million of available borrowings to be used for working capital and capital expenditures. The Credit Agreement contains a $30 million Term loan A and a $5 million Term loan B. The Term loan A and Term loan B provide for quarterly amortization through April, 2006 and April, 2007, respectively, with the remaining amounts outstanding then due. Our obligations under the Credit Agreement are secured by a security interest in and liens upon substantially all of our assets.

           As a result of retiring the 12% Senior Secured Notes, we reported an extraordinary pre-tax gain of approximately $3.6 million in the second quarter of fiscal 2001.

           During the fiscal years ended January 1, 2002, January 2, 2001 and December 28, 1999, we expended $4.1 million, $12.8 million and $19.9 million, respectively on capital expenditures, principally to maintain and remodel existing cafeterias, upgrade our computer and information systems, construct three new units, relocate one unit and improve the facility operated by Dynamic Foods. The capital expenditures in 1999 were primarily due to a significant reimaging program. In 2000, we spent $3.9 million to complete the reimage program (total of 43 restaurants reimaged) and $4.8 million to construct three new units and relocate one unit. The remaining units that were not selected for reimaging will be evaluated over the next few years and updated as necessary. Our 2001 expenditures were of a more routine nature related to enhancements of our units, corporate facilities, and Dynamic Foods. Our capital expenditure program is necessary to enable us and our subsidiaries to increase our revenue and profitability.

           From time to time, we consider whether disposition of certain of our assets, including our food processing and distribution operations, real estate owned in fee simple and leasehold interests or potential acquisitions of assets would be beneficial or appropriate for our long-term goals and in order to increase stockholder value.

           In 1999 we settled litigation and an IRS audit involving our pension plan. The cash impact of the settlement includes payment in 2000 of $1.5 million of expenses for legal and professional fees, with the remainder of the settlement to be paid to the Plan in future years to fund increased benefit payments to former and current employees. The settlement required payments to the Plan of $2.2 million in 2001 and is expected to require payments of approximately $2.9 million in 2002 with additional funding payments required in subsequent years in amounts that are expected to decline over time, subject to the overall funding status of the Plan. At January 1, 2002, the benefit obligation of the plan exceeded the fair value of the Plan assets by $7.3 million.

           We operate 38 restaurants which are leased from Kmart. Kmart filed a Chapter 11 bankruptcy proceeding in January, 2002 and has subsequently announced its intent to "reject" 30 of our full premise and one of our ground leases. While we believe that the United States Bankruptcy Code, applicable state laws and the doubtful existence of more valuable uses of the leased premises all will support our continued occupancy of the Kmart leased premises without material effect, the loss of possession of some of these restaurants could have a material adverse effect upon our results of operations, financial position and liquidity. See "Item 2 - Properties."



13


Quantitative and Qualitative Disclosure About Market Risk

           We are exposed to market risk from changes in commodity prices. We purchase certain commodities used in food preparation. These commodities are generally purchased based upon market prices established with vendors. These purchase arrangements may contain contractual features that limit the price paid by establishing certain price floors or caps. We do not use financial instruments to hedge commodity prices because these purchase arrangements help control the ultimate cost paid and any commodity price aberrations are generally short term in nature.

           We are exposed to market risk from changes in interest rates affecting our variable rate debt. We use an interest rate swap to manage the cash flow risk on $20 million of our variable rate debt. The annual impact on our results of operations of a one-point interest rate change on the outstanding balance of our variable rate debt is approximately $400 thousand. We do not use derivatives for trading purposes.

Forward Looking Statements

           Certain statements made in this report are forward looking, including statements regarding operations, changes in results, operating margins, capital requirements and other matters. In addition, significant elements of the Company's revenues and future results will depend on many factors not within the Company's control, such as customer traffic. These forward-looking statements involve risks and uncertainties and, consequently, could be affected by general business conditions, the impact of competition, the success of management initiatives, changes in cost and supply if food and labor, the seasonality of the Company's business, taxes, inflation, and governmental regulations, which could cause actual results to differ materially and adversely from current plans.




14


Item 8.    Financial Statements and Supplementary Data

           The Company's fiscal year is a 52-53 week year. Fiscal year 2000 included 53 weeks. Fiscal years 2001 and 1999 included 52 weeks.

Index to Consolidated Financial Statements and Financial Statement Schedule

Page
 No. 

Independent Auditors' Report  F-1 

Consolidated Balance Sheets--   
January 1, 2002 and January 2, 2001  F-2 

Consolidated Statements of Income--   
Years ended January 1, 2002, January 2, 2001 and December 28, 1999  F-4 

Consolidated Statements of Changes in Stockholders' Equity (Deficit)--   
Years ended January 1, 2002, January 2, 2001 and December 28, 1999  F-5 

Consolidated Statements of Cash Flows--   
Years ended January 1, 2002, January 2, 2001 and December 28, 1999  F-6 

Notes to Consolidated Financial Statements--   
Years ended January 1, 2002, January 2, 2001 and December 28, 1999  F-8 

Financial Statement Schedule--   
  II Consolidated Valuation and Qualifying Accounts  20 
  Years ended January 1, 2002, January 2, 2001 and December 28, 1999   



15


INDEPENDENT AUDITORS’ REPORT

Board of Directors and Stockholders
Furr's Restaurant Group, Inc.:

We have audited the consolidated financial statements of Furr’s Restaurant Group, Inc. and subsidiaries as listed in the accompanying index. In connection with our audits of the consolidated financial statements, we have also audited the financial statement schedule as listed in the accompanying index. These consolidated financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Furr’s Restaurant Group, Inc. and subsidiaries as of January 1, 2002 and January 2, 2001 and the results of their operations and their cash flows for each of the years in the three-year period ended January 1, 2002, in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

KPMG LLP

Dallas, Texas
February 22, 2002




F1


FURR'S RESTAURANT GROUP, INC. AND SUBSIDIARIES
- ----------------------------------------------

CONSOLIDATED BALANCE SHEETS
JANUARY 1, 2002 AND JANUARY 2, 2001
(Dollars in Thousands, Except Par Value Amounts)
- ------------------------------------------------


                                                 January 1, 2002    January 2, 2001
                                                 ---------------    ---------------

ASSETS

CURRENT ASSETS:
      Cash and cash equivalents                  $             -    $         5,694
      Accounts and notes receivable
         (net of allowance for doubtful accounts
          of $108 and $89, respectively)                   1,634              1,260
      Inventories                                          6,771              6,908
      Prepaid expenses and other                             850                887
                                                 ---------------    ---------------


      Total current assets                                 9,255             14,749
                                                 ---------------    ---------------

PROPERTY, PLANT AND EQUIPMENT:
      Land                                                 6,994              6,994
      Buildings                                           33,347             36,963
      Leasehold improvements                              33,530             32,918
      Equipment                                           39,053             39,565
      Construction in progress                                 -                288
                                                 ---------------    ---------------
                                                         112,924            116,728
      Less accumulated depreciation
                and amortization                         (67,535)           (61,852)
                                                 ---------------    ---------------

         Property, plant and equipment, net               45,389             54,876

DEFERRED TAX ASSET                                        18,926             19,178
DEFERRED LOAN COSTS                                        2,489                  -
OTHER ASSETS                                                 590                628
                                                 ---------------    ---------------

         TOTAL ASSETS                            $        76,649    $        89,431
                                                 ===============    ===============

















                                                              (Continued)



F2


FURR'S RESTAURANT GROUP, INC. AND SUBSIDIARIES
- ----------------------------------------------

CONSOLIDATED BALANCE SHEETS
JANUARY 1, 2002 AND JANUARY 2, 2001
(Dollars in Thousands, Except Par Value Amounts)
- ------------------------------------------------


                                                        January 1, 2002   January 2, 2001
                                                        ---------------   ---------------

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

CURRENT LIABILITIES:
      Current maturities of long-term debt               $         5,100   $         3,000
      Trade accounts payable                                       6,367             6,051
      Other payables and accrued expenses                         15,733            15,859
      Derivative liability, current                                  502                 -
      Reserve for store closings, current                            918               795
                                                         ---------------   ---------------

         Total current liabilities                                28,620            25,705
                                                         ---------------   ---------------

RESERVE FOR STORE CLOSINGS, NET OF CURRENT PORTION                 1,732             2,270

LONG-TERM DEBT, NET OF CURRENT MATURITIES                         33,900            52,219

OTHER PAYABLES                                                     9,899            10,197

DERIVATIVE LIABILITY, NET OF CURRENT PORTION                          85                 -

EXCESS OF FUTURE LEASE PAYMENTS OVER FAIR VALUE
      NET OF AMORTIZATION                                          1,082             1,474

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' EQUITY (DEFICIT):
      Preferred Stock, $.01 par value;
         5,000,000 shares authorized, none issued
      Common Stock, $.01 par value;
         15,000,000 shares authorized,
         9,767,926 and 9,757,918 issued and outstanding
         in 2001 and 2000, respectively                               98                98
      Additional paid-in capital                                  56,407            56,386
      Accumulated other comprehensive loss                        (6,286)           (3,521)
      Accumulated deficit                                        (48,888)          (55,397)
                                                         ---------------   ---------------

         Total stockholders' equity (deficit)                      1,331            (2,434)
                                                         ---------------   ---------------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)     $        76,649   $        89,431
                                                         ===============   ===============









See accompanying notes to consolidated financial statements.



F3



FURR'S RESTAURANT GROUP, INC. AND SUBSIDIARIES
- ----------------------------------------------

CONSOLIDATED STATEMENTS OF INCOME
FISCAL YEARS ENDED JANUARY 1, 2002, JANUARY 2, 2001 AND DECEMBER 28, 1999
(Dollars in Thousands, Except Share and Per Share Amounts)
- ----------------------------------------------------------

                                                                     Year Ended
                                              -------------------------------------------------------
                                              January 1, 2002    January 2, 2001    December 28, 1999
                                              ---------------    ---------------    -----------------

Sales                                                 184,901    $       196,047    $         188,060

Costs and expenses:
      Cost of sales (excluding depreciation)           53,746             57,376               56,036
      Labor and related costs                          65,993             69,230               66,607
      Occupancy and other expenses                     38,928             39,522               38,314
      General and administrative expenses               9,980              8,901                8,281
      Depreciation and amortization                    10,466             10,944               10,335
      Special charges                                       -                  -                  566
                                              ---------------    ---------------    -----------------

                                                      179,113            185,973              180,139
                                              ---------------    ---------------    -----------------
Operating income                                        5,788             10,074                7,921

      Gain (loss) on disposal of assets                   831                494                 (125)

      Interest expense                                  3,245                344                  349
                                              ---------------    ---------------    -----------------

Earnings before income taxes and
      extraordinary items                               3,374             10,224                7,447

      Income tax expense (benefit)                        505              1,703              (23,815)
                                              ---------------    ---------------    -----------------

Earnings before extraordinary item                      2,869              8,521               31,262

Extraordinary gain on retirement of debt                3,640                  -                    -
                                              ---------------    ---------------    -----------------

Net income                                    $         6,509    $         8,521    $          31,262
                                              ===============    ===============    =================

Weighted average shares:
      Basic                                         9,760,406          9,757,918            9,757,123
                                              ===============    ===============    =================
      Diluted                                       9,760,406          9,758,137            9,800,549
                                              ===============    ===============    =================

Earnings before extraordinary item
   per share:
      Basic                                   $           .30    $           .87    $            3.20
                                              ===============    ===============    =================
      Diluted                                 $           .30    $           .87    $            3.19
                                              ===============    ===============    =================

Extraordinary item per share:
      Basic                                   $           .37    $             -                    -
                                              ===============    ===============    =================
      Diluted                                 $           .37    $             -                    -
                                              ===============    ===============    =================

Net income per share:
      Basic                                   $           .67    $           .87    $            3.20
                                              ===============    ===============    =================
      Diluted                                 $           .67    $           .87    $            3.19
                                              ===============    ===============    =================



See accompanying notes to consolidated financial statements.



F4



FURR'S RESTAURANT GROUP, INC. AND SUBSIDIARIES
- ----------------------------------------------

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
FISCAL YEARS ENDED JANUARY 1, 2002, JANUARY 2, 2001 AND DECEMBER 28, 1999
(Dollars in Thousands)
- ----------------------

                                                                                 Accumulated
                                                                 Additional         Other
                                         Preferred     Common      Paid-In      Comprehensive      Accumulated
                                           Stock       Stock       Capital          Loss             Deficit         Total
                                           -----       -----       -------          ----             -------         -----

BALANCE, DECEMBER 29, 1998               $      -    $     97    $  56,328     $    (2,857)    $    (95,180)   $  (41,612)


Warrants exercised                                          1           58                                             59

Net income                                                                                           31,262        31,262
Pension liability adjustment                                                         1,129                          1,129
                                                                                                                  -------
Total comprehensive income                                                                                         32,391

                                           -----        -----      -------          ------          -------       -------
BALANCE, DECEMBER 28, 1999                                 98       56,386          (1,728)         (63,918)       (9,162)


Net income                                                                                            8,521         8,521
Pension liability adjustment                                                        (1,793)                        (1,793)
                                                                                                                  --------
Total comprehensive income                                                                                          6,728

                                           -----        -----      -------          ------          -------       -------
BALANCE, JANUARY 2, 2001                                   98       56,386          (3,521)         (55,397)       (2,434)

Stock issued                                                            21                                             21

Change in fair value of estimated
   cash flows related to interest rate
   swap, net of tax                                                                   (462)                          (462)

Reclassification of interest rate swap
   to earnings, net of tax                                                              86                             86

Net income                                                                                            6,509         6,509
Pension liability adjustment                                                        (2,389)                        (2,389)
                                                                                                                  --------
Total comprehensive income                                                                                          4,120

                                           -----        -----      -------          ------          -------       -------
BALANCE, JANUARY 1, 2002                 $       -   $    98     $  56,407     $    (6,286)    $    (48,888)   $    1,331
                                         =========   ========    =========     ============     ============    ==========









See accompanying notes to consolidated financial statements.



F5



FURR'S RESTAURANT GROUP, INC. AND SUBSIDIARIES
- ----------------------------------------------

CONSOLIDATED STATEMENTS OF CASH FLOWS
FISCAL YEARS ENDED JANUARY 1, 2002, JANUARY 2, 2001 AND DECEMBER 28, 1999
(Dollars in Thousands)
- ----------------------

                                                   January 1, 2002    January 2, 2001         December 28, 1999
                                                   ---------------    ---------------         -----------------

CASH FLOWS FROM OPERATING ACTIVITIES:
    Net income                                        $      6,509       $      8,521            $       31,262
    Adjustments to reconcile net income to net
       cash provided by operating activities:
          Amortization of loan costs                           435                  -                         -
          Depreciation and amortization                     10,466             10,944                    10,335
          Deferred income tax expense (benefit)                463              1,668                   (20,846)
          Loss (gain) on sale of property,
              plant and equipment and other assets            (831)              (494)                      125
          Extraordinary gain on debt refinancing            (3,640)

    Changes in operating assets and liabilities:
       Accounts and notes receivable                          (374)              (302)                     (243)
       Inventories                                             137               (364)                      470
       Prepaid expenses and other                             (136)               (26)                     (420)
       Trade accounts payable                                 (582)               745                     1,316
       Other payables and accrued expenses                    (126)            (1,250)                     (194)
       Reserve for store closings                             (415)              (297)                   (1,234)
       Other liabilities                                    (2,476)            (1,813)                   (4,351)
                                                      ------------       ------------            --------------

       Net cash provided by operating activities             9,430             17,332                    16,220
                                                      ------------       ------------            --------------

CASH FLOWS FROM INVESTING ACTIVITIES:
    Purchases of property, plant and equipment              (4,060)           (12,793)                  (19,850)
    Proceeds from the sale of property, plant and
       equipment and other assets                            3,620              1,476                     2,776
    Other, net                                                   -                  -                      (111)
                                                      ------------       ------------            --------------
       Net cash used in investing activities                  (440)           (11,317)                  (17,185)
                                                      ------------       ------------            --------------



















                                                              (Continued)



F6



FURR'S RESTAURANT GROUP, INC. AND SUBSIDIARIES
- ----------------------------------------------


CONSOLIDATED STATEMENTS OF CASH FLOWS
FISCAL YEARS ENDED JANUARY 1, 2002, JANUARY 2, 2001 AND DECEMBER 28, 1999
(Dollars in Thousands)
- ----------------------

                                                  January 1, 2002  January 2, 2001         December 28, 1999
                                                  ---------------  ---------------         -----------------

CASH FLOWS FROM FINANCING ACTIVITIES:
    Payment of indebtedness                          $     (2,746)    $     (5,493)           $       (5,493)
    Repayment of 12% and 10.5% notes                      (48,933)               -                         -
    Proceeds from new credit agreement                     44,000                -                         -
    Payment on term loans                                  (2,500)               -                         -
    Net payment on revolver                                (2,500)               -                         -
    Payment of loan costs                                  (2,924)               -                         -
    Increase in cash overdraft                                898                -                         -
    Issuance of stock                                          21                -                         -
    Other, net                                                  -                -                        59
                                                     ------------     ------------            --------------

      Net cash used in financing activities               (14,684)          (5,493)                   (5,434)
                                                     ------------     ------------            --------------

INCREASE (DECREASE) IN CASH AND
    CASH EQUIVALENTS                                       (5,694)             522                    (6,399)

CASH AND CASH EQUIVALENTS AT
    BEGINNING OF YEAR                                       5,694            5,172                    11,571
                                                     ------------     ------------            --------------

CASH AND CASH EQUIVALENTS AT
    END OF YEAR                                      $          -     $      5,694            $        5,172
                                                     ============     ============            ==============

SUPPLEMENTAL DISCLOSURE OF CASH
    FLOW INFORMATION:
    Interest paid, including $3,356, $5,493 and
     $5,493 of interest classified as payment of
     indebtedness during the fiscal years ended
     January 1, 2002, January 2, 2001 and December
     28, 1999, respectively                          $      5,651     $      5,837            $        5,842
                                                     ============     ============            ==============


    Pension liability adjustment                     $     (2,389)    $     (1,793)           $        1,129
                                                     ============     ============            ==============

    Non-cash investing activity:
     Note receivable for sale of asset               $          -     $          -            $          125
                                                     ============     ============            ==============











See accompanying notes to consolidated financial statements.



F7


FURR'S RESTAURANT GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FISCAL YEARS ENDED JANUARY 1, 2002, JANUARY 2, 2001 AND DECEMBER 28, 1999
(Dollars in Thousands, Except Per Share Amounts)

1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation - Furr’s Restaurant Group, Inc. (the “Company”), a Delaware corporation, operates cafeterias and buffets through its subsidiary Cafeteria Operators, L.P., a Delaware limited partnership (together with its subsidiaries, the “Partnership”). The financial statements presented herein are the consolidated financial statements of Furr’s Restaurant Group, Inc. and its majority owned subsidiaries. All material intercompany transactions and account balances have been eliminated in consolidation.

Fiscal Year - The Company operates on a 52-53 week fiscal year ending on the Tuesday nearest December 31. Fiscal year 2000 represents a 53-week year; fiscal years 2001 and 1999 represent 52-week years.

Business Segments - The Company operates in two vertically integrated operating segments, namely the operation of food purchasing, processing, warehousing and distribution of products and the operation of cafeterias, including food preparation and retail sales, in 11 states in the Southwest, West and Midwest areas of the United States.

Cash and Cash Equivalents - The Company has a cash management program which provides for the investment of excess cash balances in short-term investments. These investments have original or remaining maturities of three months or less at date of acquisition, are highly liquid and are considered to be cash equivalents for purposes of the consolidated balance sheets and consolidated statements of cash flows. Since April 2001, available cash is used to reduce the balance of the Company’s revolving credit line, resulting in a book cash overdraft at January 1, 2002, which is included in accounts payable.

Inventories - Inventories are stated at the lower of cost (first-in, first-out method) or market.

Property, Plant and Equipment - Property, plant and equipment is generally recorded at cost, while certain assets considered to be impaired are recorded at estimated fair value. All property, plant and equipment is depreciated at annual rates based upon the estimated useful lives of the assets using the straight-line method. Restaurant equipment is generally depreciated over a period of 5 years, while the estimated useful life of manufacturing equipment is considered to be 5 to 10 years. Buildings are depreciated over a 30-year useful life, while improvements to owned buildings have estimated useful lives of 3 to 5 years. Provisions for amortization of leasehold improvements are made at annual rates based upon the estimated useful lives of the assets or terms of the leases, whichever is shorter.

Valuation of Long-Lived Assets - Long-lived assets and certain identifiable intangibles are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Company groups and evaluates its assets for impairment at the individual restaurant level. The Company considers a restaurant’s assets to be impaired if a forecast of undiscounted future cash flows directly related to the assets, including disposal value, if any, is less than the carrying amount. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. Charges of $678 for year end January 1, 2002, $440 for the year ended January 2, 2001 and $392 for the year ended December 28, 1999 were recorded to recognize the write-down of certain property, plant and equipment to estimated fair value, based on expected future cash flows.

Start-Up and Closing Cost of Restaurants - Start-up and preopening costs incurred in connection with a new restaurant becoming operational are expensed as incurred.

When the decision to close a restaurant is made, the present value of all fixed and determinable costs to be incurred after operations cease is accrued. These fixed and determinable costs consist primarily of obligations defined in lease agreements such as rent and common area maintenance, reduced by sublease income, if any.

Advertising Costs - Advertising costs are expensed as incurred. Total advertising expense was $4,628, $3,860 and $4,257 for the years ended January 1, 2002, January 2, 2001 and December 28, 1999, respectively.

Stock-Based Compensation - The Company has adopted the provisions of Statement of Financial Accounting Standards No. 123, “Accounting for Stock-Based Compensation” (“SFAS 123”) which permits the recognition



F8


as expense over the vesting period of the fair value of all stock based awards on the date of grant. Alternatively, under the provisions of SFAS 123, the Company is allowed to continue accounting for such compensation as provided by Accounting Principles Board (“APB”) Opinion No. 25. The Company has elected to continue to apply the provisions of APB Opinion No. 25 and provide proforma disclosure in accordance with the provisions of SFAS 123.

Unfavorable Leases - For leases acquired through purchase, the net excess of future lease payments over the fair value of these payments is being amortized over the terms of the leases to which the differences relate.

Income Taxes - The Company accounts for income taxes under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

Income Per Share - Basic earnings per share is computed by dividing earnings available to common stockholders by the weighted average number of shares outstanding during the year. Diluted earnings per share is computed by dividing earnings available to common stockholders by the weighted average number of shares outstanding plus the number of additional shares that would have been outstanding if potentially dilutive securities had been issued. The following table reconciles the denominators of basic and diluted earnings per share for the fiscal years ended January 1, 2002, January 2, 2001 and December 28, 1999. 

                             January 1, 2002    January 2, 2001   December 28, 1999
                             ---------------    ---------------   -----------------

Weighted average common
     shares outstanding          9,760,406         9,757,918          9,757,123
Options                                  -               219             43,426
                                ----------         ---------           --------

Total shares                     9,760,406         9,758,137          9,800,549
                                 =========         =========          =========

For fiscal years 2001, 2000 and 1999, outstanding options totaling 859,584, 696,000 and 382,415, respectively, and outstanding warrants totaling 512,246 for fiscal year 1999, were not included in the computation of diluted earnings per share because their exercise price was greater than the average market price of the common shares and therefore, the effect would be anti-dilutive.

Use of Estimates - The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect reported amounts of certain assets, liabilities, revenues and expenses as of and for the reporting periods and actual results may differ from such estimates.

Reclassification - Certain amounts in the prior year financial statements have been reclassified to conform with current year classification.

2.   OTHER PAYABLES AND ACCRUED EXPENSES

Included in other payables and accrued expenses are the following: 

                                            January 1, 2002     January 2, 2001
                                            ---------------     ---------------
    Taxes other than income taxes               $ 2,914           $ 3,545
    Salaries, wages and commissions               4,602             4,951
    Insurance                                     1,844             1,863
    Accrued pension plan costs                    2,893             2,159
    Interest                                        508                 -
    Legal and accounting expenses                   175               192
    Rent                                            598               693
    Gift certificates outstanding                 1,154             1,025
    Utilities                                       543               536
    Other payables and accrued expenses             502               895
                                                -------           -------

                                               $ 15,733          $ 15,859
                                               ========          ========


F9


3.   LONG-TERM DEBT

Effective January 2, 1996, as part of a series of financial restructuring transactions, the Partnership issued $41,700 of 12% Senior Secured Notes, due December 31, 2001 (the "12% Notes"), to replace $40,000 of 11% Senior Secured Notes, due June 30, 1998 (the "11% Notes") and the interest accrued thereon and to satisfy a $5,408 judgment and the interest accrued thereon. In January 1996, the Partnership also issued $4,073 of 12% Notes as payment in kind for all interest accrued as of January 23, 1996. All of the assets of the Partnership were pledged as collateral security on behalf of the holders of the 12% Notes. The Partnership also issued limited partner interests equal to 95% of the outstanding partnership interests in exchange for and in full satisfaction of the remaining $152,854 of 11% Notes then outstanding, together with all interest accrued thereon.

Payments of interest on the 12% Notes were due each March 31 and September 30. However, for financial accounting reporting purposes, the financial restructuring transactions were considered a troubled debt restructuring and the terms of this restructuring were such that no interest expense has been recorded in the accompanying consolidated financial statements related to the 12% Notes under the provisions of Statement of Financial Accounting Standards No. 15 "Accounting by Debtors and Creditors for Troubled Debt Restructurings" ("SFAS 15"). All of the interest on the 12% Notes through maturity has been included in the carrying amount of the debt.

In 1997, the Partnership issued $2,551 of 10.5% Notes, due December 31, 2001. Payments of interest on these notes were due each June 30 and December 31.

On April 10, 2001, the Company entered into a new $55 million Revolving Credit and Term Loan Agreement (Credit Agreement) with various banks and lenders. Concurrent with the execution of this new agreement the Company defeased and gave notice of redemption of it's 12% Notes and repaid in full the $2.6 million of 10.5% Notes. This refinancing transaction was completed prior to the issuance of the fiscal 2000 consolidated financial statements. Accordingly, the balance of these notes, less the current portion of the new term loan, was classified as long term at January 2, 2001. After the redemption of the 12% Notes and the 10.5% Notes, the Company had $44 million outstanding under the new Credit Agreement. The Credit Agreement contains covenants with regard to maintaining certain leverage ratios, achieving certain levels of EBITDA, operating cash flow and limits on capital expenditures. In addition there are certain restrictions on the payment of dividends and additional indebtedness. The Credit Agreement allows the Company to borrow at either a Federal Funds Rate plus an applicable margin or at a Eurocurrency Reserve Rate plus an applicable margin.

The Credit Agreement provides that the Company can borrow up to $20 million on a revolving basis until April, 2006, of which $9 million was drawn at closing, with the remaining $11 million of available borrowings to be used for working capital and capital expenditures. The Credit Agreement contains a $30 million Term loan A and a $5 million Term loan B. The Term loan A and Term loan B provide for quarterly amortization through April, 2006 and April, 2007, respectively, with the remaining amounts outstanding then due. The Company's obligations under the Credit Agreement are secured by a security interest in and liens upon substantially all of the Company's assets.

As a result of retiring the 12% Notes, the Company reported an extraordinary gain of $3.6 million in the second quarter of fiscal 2001, which represented future interest payments recorded as debt that will not be paid.

Long-term debt consists of the following: 

                                                       Stated
                                                      Maturity       January 1,   January 2,
                                                        Date             2002         2001
                                                                     ----------   --------

        Term A Notes                                  April, 2006       27,000            -
        Term B Notes                                  April, 2007        5,000            -
        Revolving Credit Notes                        April, 2006        6,500            -
        12% Notes, including interest accrued
             through maturity of $6,896            December, 2001            -       52,668
        10.5% Notes                                December, 2001            -        2,551
                                                                     ---------    ---------
                                                                        38,500       55,219

        Current maturities of long-term debt                            (5,100)     ( 3,000)
                                                                     ---------    ---------
        Long-term debt, net of current maturities                    $  33,400    $  52,219
                                                                     =========    =========



F10


Following are the maturities of the $30,000 Term loan A and $5,000 Term loan B for each of the next five years: 


                                         2002              $5,100
                                         2003               5,100
                                         2004               5,600
                                         2005               6,600
                                         2006               5,100

4.   STOCKHOLDERS' EQUITY

The 1995 Stock Option Plan - The Board of Directors adopted, and on January 2, 1996, the stockholders approved the 1995 Stock Option Plan (the “1995 Option Plan”). 980,544 shares are reserved under the 1995 Option Plan, after equitable adjustment for the reverse stock splits approved by stockholders on May 20, 1999 and March 14, 1996. A Committee of the Board of Directors administers the 1995 Option Plan, including determining the employees to whom awards will be made, the size of such awards and the specific terms and conditions applicable to awards, such as vesting periods, circumstances of forfeiture and the form and timing of payment. Grants including stock options, stock appreciation rights and restricted stock may be made to selected employees of the Company and its subsidiaries and non-employee directors of the Company.

All options are granted at an exercise price not less than the fair market value of the common stock at the date of grant. Generally, these options vest over a three-year period and expire in 10 years if not exercised.

Following is a summary of activity in the 1995 Option Plan for the three years ended January 1, 2002: 

                                  Weighted Average
                                 Exercise Price Per        Options        Options
                              Share-option Outstanding   Outstanding    Exercisable
                              ------------------------   -----------    -----------

Balance at December 29, 1998          $   5.02              515,665         2,666
   Granted                                3.87              160,000             -
   Became exercisable                        -                    -       162,555
   Canceled or expired                    8.86              (29,000)            -
                                      --------            ---------     ---------

Balance at December 28, 1999              4.70              646,665       165,221
   Granted                                3.67              269,000             -
   Became exercisable                        -                    -       215,333
   Canceled or expired                    4.60             (192,665)      (81,948)
                                      --------             --------     ---------

Balance at January 2, 2001                4.30              723,000       298,606
   Granted                                3.24              534,750             -
   Became exercisable                        -                    -       307,000
   Canceled or expired                    4.00             (398,166)     (282,514)
                                      --------             --------     ---------

Balance at January 1, 2002            $   3.82              859,584       323,092
                                      ========            =========     =========

Exercise prices for options outstanding as of January 1, 2002, ranged from $2.00 to $5.94 per share and the weighted average remaining life of the stock options was eight and one-half years. The options exercisable as of January 1, 2002 have a weighted average exercise price of $4.64 per share.




F11


The Company has elected to follow APB 25, “Accounting for Stock Issued to Employees.” Since options are granted to employees at no less than the market price on the date of grant, no compensation expense is recognized. However, SFAS No. 123 requires presentation of pro forma net income and earnings per share as if the Company had accounted for stock options granted to employees under the fair value method of that statement. Had the Company determined compensation cost based on the fair value at the grant date for its stock options issued in 2001, 2000 and 1999 under SFAS No. 123, the Company’s net income would have been changed to the pro forma amounts indicated below: 

                                        January 1, 2002         January 2, 2001         December 28, 1999
                                     --------------------     --------------------      -----------------
                                         As         Pro          As         Pro          As           Pro
                                      reported     forma      reported     forma      reported       forma
                                      --------     -----      --------     -----      --------       -----

Net income                              $6,509      $6,300      $8,521      $8,010    $ 31,262      $ 30,403
Net income per basic common share       $  .67      $  .65      $  .87      $  .82      $ 3.20        $ 3.12
Net income per diluted common share     $  .67      $  .65      $  .87      $  .82      $ 3.19        $ 3.10

The weighted average fair value of the individual options granted during 2001, 2000 and 1999 is estimated at approximately $2.46, $2.74 and $4.03, respectively, per share on the date of grant.

The fair values of options issued during 2001, 2000 and 1999 were determined using a Black-Scholes option pricing model with the following assumptions applicable for the date of grant: 

                                2001               2000              1999
                                ----               ----              ----

Dividend yield                         -                  -                   -
Volatility                    69% to 72%         70% to 73%         97% to 139%
Risk-free interest rate            4.75%              4.75%      4.75% to 6.08%
Expected life                    3 years            3 years             3 years

The table below provides weighted average exercise prices and weighted average remaining contractual life of options outstanding at January 1, 2002, segregated based upon ranges of exercise prices. 

                                                                                     Weighted
                                                      Weighted        Weighted        average
                                                       average         average       remaining
                          Number        Number        exercise        exercise      contractual
                        of options    of options        price           price           life
                       outstanding   exercisable    (outstanding)   (exercisable)  (outstanding)
                       -----------   -----------     -----------     -----------    -----------

       $2.00 - $3.00     401,000       111,003           $2.92          $2.98           8.68
       $3.75 - $3.81     253,250        20,420            3.75           3.75           9.47
       $5.00 - $5.94     205,334       191,669            5.65           5.70           6.93

5.   INCOME TAXES

Following is a summary of income tax expense (benefit) for the fiscal years ended January 1, 2002, January 2, 2001 and December 28, 1999: 

                              January 1,          January 2,     December 28,
                                 2002                2001              1999
                              -----------        -----------      -----------

Current                        $       42        $        35      $    (2,969)
Deferred                              463              1,668           20,846
                               ----------        -----------      -----------
                               $      505        $     1,703          $23,815
                               ==========        ===========      ===========



F12


Following is a reconciliation of the expected income tax expense (benefit) at the statutory tax rate of 35% to the actual income tax expense (benefit) for the fiscal years ended January 1, 2002, January 2, 2001 and December 28, 1999: 

                                                  January 1,      January 2,   December 28,
                                                     2002            2001            1999
                                                  -----------    -----------    -----------

Expected income tax expense (benefit) at the      $     1,181    $     3,578    $     2,606
   statutory tax rate

Reduction in prior year's income tax liability (A)          -              -         (2,969)

Interest expense recorded as debt reduction per
   SFAS 15                                               (695)        (1,922)        (1,922)

Increase (decrease) in valuation allowance                  -              -        (21,546)

Other                                                      19             47             16
                                                  -----------    -----------    -----------

Actual income tax expense (benefit)               $       505          1,703    $   (23,815)
                                                  ===========    ===========    ============

(A) During fiscal 1999, the company settled a prior year Internal Revenue Service examination and reversed an income tax liability of $2.9 million which had been previously recorded for issues related to the examination.

Following is a summary of the types and amounts of existing temporary differences and net operating loss carry forwards at the statutory tax rate of 35%, and tax credits: 

                                               January 1, 2002                January 2, 2001
                                                Deferred Tax                    Deferred Tax
                                                ------------                    ------------

                                            Assets    Liabilities     Assets     Liabilities
                                            ------     ----------     ------     -----------

Net operating loss carryforward             $39,953                   $40,827
Tax credit carryforwards                      1,292                     1,316
Reserve for store closing for
      financial statement purposes
      and not for tax purposes                  928                     1,073
Other reserves                                1,479                     1,259
Excess of future lease payments over fair
      values, net of amortization                69                       193
Property, plant and equipment, net            8,400                     6,986
Other temporary differences                   1,912              -      2,631             -
                                           --------     ----------    --------    ----------

Deferred tax assets and liabilities          54,033              -     54,285             -
                                                        ==========                ==========

Valuation allowance                         (35,107)                  (35,107)
                                           --------                    -------

Deferred tax asset, net                     $18,926                   $19,178
                                            =======                   =======

As of January 1, 2002, the Company had consolidated net operating loss carryforwards (NOLs) of approximately $113,777 for income tax reporting purposes that expire from 2002 through 2019. Prior to fiscal 1999, the income tax benefit associated with the NOLs had not been recognized since, in the opinion of management, there was not sufficient positive evidence of future taxable income to justify recognition of a benefit. During 1999, management again evaluated all evidence, both positive and negative, in determining whether a valuation allowance to reduce the carrying value of deferred tax assets was still needed and concluded the Company more likely than not will realize a partial benefit from the loss carryforwards. Accordingly, the Company recorded a deferred tax asset of $20,846 in fiscal 1999, which recognized the benefit of $59,560 of the NOLs. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences and NOLs become deductible or are utilized. Management believes it is currently more likely than not the Company will realize the benefits of


F13


these deductible differences and NOL carryforwards. The amount of the deferred tax assets considered realizable, however, could be reduced in the near term if estimates of future taxable income during the carryforward period are reduced. Approximately $3,700 and $11,400 of the operating loss carryforwards for income tax reporting purposes, which are subject to limited use, relate to the subsidiary operations of Cavalcade Holdings, Inc. (“Holdings”) and its subsidiary, Cavalcade Foods, Inc. (“Foods”), respectively, for periods prior to their inclusion in this Company-affiliated group.

Current tax laws and regulations relating to specified changes in ownership limit the availability of the Company’s utilization of Holdings’ and Foods’ net operating loss and tax credit carryforwards (collectively, tax attributes). A change in ownership of greater than 50% of a corporation within a three-year period causes such annual limitations to be placed into effect. Such a change in ownership is deemed to have occurred in connection with an ownership change in 1993. This ownership change limits the utilization of the Company-affiliated group tax attributes incurred during the period March 28, 1991 through June 24, 1993 to approximately $1,200 annually. Additionally, a second change of ownership is deemed to have occurred on March 28, 1996, when the holders of 95% of the limited partner interest of the Partnership exchanged such interest for 95% of the outstanding Common Stock of the Company in connection with the financial restructuring of the Company. As a result, net operating losses of $53,000 incurred during the period June 25, 1993 through March 28, 1996 will be limited to approximately $4,900 annually. As of January 1, 2002, the Company-affiliated group tax attributes not subject to limitation are approximately $49,622.

As of January 1, 2002, the Company has general business credit carryforwards of approximately $1,292, which have expiration dates through 2010. Approximately $74 of the general business credit carryforwards relate to Foods for periods prior to its inclusion in the Company-affiliated group. These credits are subject to limited use.

While the restructuring transactions completed in 1996 were intended to result in no income tax expense to the Company, the transactions result in a substantial restriction on the ability of the Company to utilize certain net operating loss carryforwards. In addition, no assurance can be given that the Internal Revenue Service will not successfully assert that the restructuring transactions result in a substantial reduction of certain tax attributes (such as the net operating losses and tax basis of property) of the Company and the Partnership.

6.   EMPLOYEE BENEFIT PLANS

The Company has a noncontributory defined benefit pension plan for which benefit accruals were frozen effective June 30, 1989. The funding policy is to make the minimum annual contribution required by applicable regulations.

The Company is subject to the additional minimum liability requirements of Statement of Financial Accounting Standards No. 87, “Employers’ Accounting for Pensions” (“SFAS 87”). SFAS 87 requires the recognition of an additional pension liability in the amount of the Partnership’s unfunded accumulated benefit obligation in excess of accrued pension cost with an equal amount to be recognized as either an intangible asset or a reduction of equity through other comprehensive loss. Based upon plan actuarial and asset information as of January 1, 2002, January 2, 2001 and December 28, 1999, the Company recorded an increase of $2,389 in 2001, an increase of $1,793 in 2000 and a decrease of $1,129 in 1999 to the noncurrent pension liability with corresponding charges or credits to the other comprehensive income (loss) component of stockholders’ equity (deficit).




F14


The funded status of the plan amounts recognized in the balance sheets and major assumptions used to determine these amounts are as follows: 

                                                                            Years Ended
                                                           ------------------------------------------

                                                           January 1,     January 2,    December 28,
                                                               2002          2001            1999
                                                           ----------     ----------    ------------

Accumulated benefit obligation at end of year              $   14,317     $   13,692    $      16,218
                                                           ==========     ==========    =============

Change in benefit obligation
      Benefit obligation at beginning of year              $   13,692     $   16,218    $      18,207
      Service cost                                                  -              -                -
      Interest cost                                               924          1,030            1,066
      Actuarial (gain) loss                                     1,190              5           (2,099)
      Benefits paid                                            (1,489)        (3,561)          (1,031)
      Cost of IRS and litigation settlements                        -              -               75
                                                           ----------     ----------    -------------

      Benefit obligation at end of year                        14,317         13,692           16,218
                                                           ----------     ----------    -------------

Change in plan assets
      Fair value of plan assets at beginning of year            7,264         11,800           12,795
      Actual return on plan assets                               (953)          (975)             (39)
      Employer contribution                                     2,159              -                -
      Kmart contribution to IRS and litigation settlement           -              -               75
      Benefits paid                                            (1,489)        (3,561)          (1,031)
                                                           ----------     ----------    -------------

      Fair value of plan assets at end of year                  6,981          7,264           11,800
                                                           ----------     ----------    -------------

Funded status                                                  (7,336)        (6,428)          (4,418)

Unrecognized net loss from past experience different
   from that assumed and effects of changes in
   assumptions                                                  5,910          3,521            1,728
                                                           ----------     ----------    -------------

Net amount recognized                                      $   (1,426)    $   (2,907)   $      (2,690)
                                                           ==========     ==========    =============

Amounts recognized in the consolidated balance sheet
   consist of:
   Accrued benefit cost                                    $   (7,336)    $   (6,428)         $(4,418)
   Accumulated other comprehensive loss                         5,910          3,521            1,728
                                                           ----------     ----------    -------------

   Net amount recognized                                   $   (1,426)        (2,907)   $      (2,690)
                                                           ==========     ==========    =============

Major assumptions:

Discount rate                                                  6.75%           7.00%           7.25%
Expected long-term rate of return on plan assets               9.00%           9.00%           9.00%



F15


The components of net periodic pension cost for the years ended January 1, 2002, January 2, 2001and December 28, 1999 are as follows: 

                                                        2001        2000      1999
                                                        ----        ----      ----

    Service cost - benefits earned during the period   $    -     $    -     $    -
    Interest cost on projected benefit obligation         924      1,030      1,066
    Expected return on plan assets                       (525)      (826)    (1,035)
    Amortization of prior service cost                      -          -          -
    Amortization of transition asset                        -          -          -
    Recognized actuarial loss                             279         13        125
                                                       ------     ------     ------

    Net periodic pension cost                          $  678     $  217     $  156
                                                       ======     ======     ======

The Company also has a voluntary savings plan (the “401(k) plan”) covering all eligible employees of the Company and its subsidiaries through which it may contribute discretionary amounts as approved by the Board of Directors. Administrative expenses paid by the Company for the years ended January 1, 2002, January 2, 2001 and December 28, 1999 amounted to $8, $10 and $19, respectively.

7.   COMMITMENTS AND CONTINGENCIES

The Partnership leases restaurant properties under various noncancelable operating lease agreements which expire on various dates through 2020 and require various minimum annual rentals. Certain leases contain escalation clauses. Further, many leases have renewal options ranging from one five-year period to ten five-year periods. Certain of the leases also require the payment of property taxes, maintenance charges, advertising charges, insurance and parking lot charges, and additional rentals based on percentages of sales in excess of specified amounts.

The total minimum annual rental commitment and future minimum sublease rental income under noncancelable operating leases are as follows as of January 1, 2002: 

                                                   Minimum         Sublease
                                                     Rent            Income
                                                  -----------      --------

        2002                                      $    10,839    $    1,012
        2003                                            9,977           890
        2004                                            9,669           936
        2005                                            9,241           936
        2006                                            8,681           857
        For the remaining terms of the leases          15,332         1,218

Total rental expense included in the statements of operations is $10,329, $10,455 and $10,881, which includes $747, $628 and $980 of additional rent based on net sales, for the years ended January 1, 2002, January 2, 2001 and December 28, 1999, respectively.

The Company operate 38 restaurants which are leased from Kmart Corporation (“Kmart”) under full premises or ground leases (the “Furr’s/Kmart Leases”). Substantially all of these properties are themselves leased by Kmart from one of several parties who either own title to the properties or lease the properties from the titleholder (the “Owner/Kmart Leases”). Kmart filed a Chapter 11 bankruptcy proceeding in January 2002 and has announced its intention to “reject” the Owner/Kmart Leases and Furr’s/Kmart Leases relating to one ground lease and 30 full premise leases. In response to this announcement, two of the property owners, accounting for 22 properties, have themselves filed Chapter 11 bankruptcy proceedings and it is unclear what action may be taken by various holders of mortgage loans secured by these properties.

The Company believes that the United States Bankruptcy Code, applicable state law and the doubtful existence of more valuable uses of the leased premises all will support its continued occupancy of the former Kmart leased premises without a material adverse effect. However, the loss of possession of some of these restaurants could have a material adverse effect upon the Company’s results of operations and financial position, and could result in the occurrence of one or more events of default under its credit agreement.



F16


The Company has begun discussions with the relevant parties which are intended to result in the establishment of direct lease relationships with these parties on fair market terms and that do not include Kmart, but the Company is not able at this time to predict the results of these discussions. The Company’s management believes that the landowners are likely to accept market rents and that the properties generally do not have alternative uses that would offer an owner a higher economic return. Accordingly, the Company believes that the property owners/mortgage holders will not have an economic incentive to challenge its continued occupancy of the properties.

In 1998 the Company, the Cavalcade Pension Plan, the members of the Cavalcade Pension Plan Committee, Kmart Corporation and its pension plan agreed to settle litigation relating to claimed benefits under the Cavalcade Pension Plan (the “Settlement”). In December 1999 the Settlement was approved by the court as “fair” to all members of the plaintiff class after notice to all purported class members, and the litigation was dismissed with prejudice.

The cash impact of the settlement on the Company included payment in 2000 of approximately $1,500 of expenses for legal and professional fees, with the remainder of the settlement to be paid to the Plan in future years to fund increased benefit payments to former and current employees. The settlement required payments by the Company to the Plan of $2,159 in 2001 and is expected to require payments of approximately $2,893 in 2002, with additional funding payments required in subsequent years in amounts that are expected to decline over time, subject to the overall funding status of the Plan. Management does not believe that payment of these amounts in 2001 and subsequent years will have a material adverse effect on the Company’s planned operations.

8.   QUARTERLY FINANCIAL DATA (UNAUDITED) 

                                                                Thirteen Weeks Ended
                                                 ------------------------------------------------
                                                 April 3       July 3     October 2     January 1
                                                 -------       ------     ---------     ---------
Year ended January 1, 2002:
   Sales                                         $47,487      $47,555       $45,351      $44,508
   Gross profit (1)                               34,165       33,585        32,311       31,094
   Net income (loss) before extraordinary items    2,331          284         1,235         (981)
   Net income (loss) before extraordinary item
     per common share                               0.24         0.03          0.13        (0.10)
   Net income (loss)                               2,331        3,924         1,235         (981)
   Net income (loss) per common share               0.24         0.40          0.13        (0.10)



                                                                             Fourteen
                                              Thirteen Weeks Ended         Weeks Ended
                                 ----------------------------------------  -----------
                                  March 28       June 27    September 26    January 2
                                  --------       -------    ------------    ---------
Year ended January 2, 2001:
    Sales                         $47,764       $48,188        $49,597       $50,498
    Gross profit (1)               33,728        33,999         34,953        35,991
    Net income                      2,096         2,428          1,722         2,275
    Net income per common share      0.21          0.25           0.18          0.23

           (1)       Gross profit is computed using cost of sales excluding depreciation expense.

9.   RELATED PARTY TRANSACTIONS

In settlement of the Company's indemnification obligations to the persons listed below (the "Affiliated Indemnitees") with respect to the Affiliated Indemnitees' litigation expenses arising from the Company's restructuring transaction completed in 1995, the Company entered into release agreements with, and made the additional payments noted below to, each of the Affiliated Indemnitees. The Company (i) delivered to Teachers Insurance and Annuity Association of America as payee a promissory note dated January 14, 1998 in the principal sum of $756, (ii) delivered to The Northwestern Mutual Life Insurance Company as payee a promissory note dated February 24, 1998 in the principal sum of $488 and made a cash payment to The Northwestern Mutual Life Insurance Company of $6, (iii) delivered to John Hancock Mutual Life Insurance Company as payee a promissory note dated March 4, 1998 in the principal sum of $476, (iv) made a cash payment to the Mutual Life Insurance Company of New York of $218, (v) made a cash payment to Principal Mutual Life Insurance Company of $175 and (vi) delivered to the Equitable Life Assurance Society of the


F17


United States ("Equitable") as payee a promissory note dated March 23, 1998 in the principal sum of $830. Each of the promissory notes was retired in April 2001 with proceeds from the Company's new Credit Agreement described in Note 3, "Long-Term Debt." Except for Equitable, each of the Affiliated Indemnitees owned more than five percent of the Common Stock at the time the agreements were signed. Equitable is an affiliate of EQ Asset Trust 1993, a business trust that owns more than five percent of the outstanding Common Stock.

10.   FAIR VALUE OF FINANCIAL INSTRUMENTS

The following disclosure of the estimated fair value of financial instruments is made in accordance with the requirements of Statement of Financial Accounting Standards No. 107, "Disclosures About Fair Value of Financial Instruments" ("SFAS 107"). The estimated fair value amounts have been determined by the Company using available market information and appropriate valuation methodologies. However, considerable judgment is necessarily required in interpreting market data to develop the estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts that the Company could realize in a current market exchange. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts.

At January 1, 2002 and January 2, 2001, the carrying amount and the estimated fair value of the Company's financial instruments, as determined under SFAS 107, was as follows: 

                                              January 1, 2002   January 2, 2001
                                              ---------------   ---------------

Long-term debt, including current portion
    and interest accrued through maturity:
      Carrying amount                              $38,500          $55,219
      Estimated fair value                          38,500           48,324

The Company’s outstanding debt at January 1, 2002 bears interest at a variable rate. Accordingly, management believes carrying value approximates fair value. The Company’s 12% Notes were held by a limited number of holders and were not actively traded, and as a result, market quotes were not readily available. The fair value of the long-term debt at January 2, 2001, was based upon the face amount of the debt, as management believed that this was most indicative of the fair value. The carrying values of accounts receivable and accounts payable approximate fair value due to the short maturity of these financial instruments. As discussed further in note 11, management has estimated the fair value of its interest rate swap agreement to be a liability of $587 at January 1, 2002.

11.  INTEREST RATE MANAGEMENT

The Company uses variable-rate debt to finance its operations. In particular, it has borrowed money under a Credit Agreement providing for variable-rate interest. The variable interest rate on the debt obligations exposes the Company to variability in interest payments due to changes in interest rates. If interest rates increase, interest expense increases and conversely, if interest rates decrease, interest expense also decreases.

Management believes it is prudent to limit the variability of a portion of its interest payments. It is the Company’s objective to hedge between 50 and 70 percent of its variable-rate long-term debt interest payments. The Company’s Credit Agreement also requires that the Company hedge at least $20,000 for a period of two years.

To meet this requirement, the Company has entered into a derivative instrument, in the form of an interest rate swap, to manage fluctuations in cash flows resulting from interest rate risk. The interest rate swap changes the variable-rate cash flow exposure to fixed-rate cash flows by entering into a receive-variable, pay-fixed interest rate swap. Under the interest rate swap, which has a notional amount of $20,000 and a two-year term, the Company receives variable interest rate payments based on LIBOR and makes fixed interest rate payments at 4.99%. The Company accounts for the interest rate swap in accordance with the provisions of Statement of Financial Accounting Standards (SFAS) No. 133, “Accounting for Derivative Instruments and Hedging Activities,” as amended. SFAS No. 133 requires that all derivative instruments be recorded in the balance sheet at fair value. The interest rate swap is a cash flow hedge under SFAS No. 133 and, accordingly, changes in fair value are reported in other comprehensive income and such amounts are reclassified into interest expense as a yield adjustment in the same period in which the related expense on the variable rate debt affects operations.

The Company does not enter into derivative instruments for any purpose other than cash flow hedging purposes. That is, the Company does not speculate using derivative instruments.



F18


The Company assesses interest rate cash flow risk by identifying and monitoring changes in interest rate exposures that may adversely impact expected future cash flows and by evaluating hedging opportunities.

12.  BUSINESS SEGMENTS

The Company has two reportable segments: the operation of cafeterias, including food preparation and retail sales, and the operation of Dynamic Foods, which purchases, processes, warehouses and distributes food products and supplies to the cafeterias and external customers. These reportable segments are vertically integrated business units that offer different products and services.

The accounting policies of the segments are the same as those in the summary of significant accounting policies. The Company evaluates performance based on profit or loss from operations before non-recurring special charges or credits and before income tax provisions.




F19


Following is a summary of segment information of the Company for the fiscal years ended January 1, 2002, January 2, 2001, and December 28, 1999: 

                                        Cafeterias     Dynamic Foods      Total
                                        ----------     -------------      -----
2001:
      External revenues                   $182,746          $2,155      $184,901
      Intersegment revenues                      -          56,551        56,551
      Depreciation and amortization          9,442           1,024        10,466
      Segment profit                         4,578           1,210         5,788
      Segment assets                        63,915          12,734        76,649
      Expenditures for segment assets        2,613           1,447         4,060

2000:
      External revenues                   $194,314          $1,733      $196,047
      Intersegment revenues                      -          62,459        62,459
      Depreciation and amortization          9,892           1,052        10,944
      Segment profit                         9,022           1,052        10,074
      Segment assets                        76,908          12,523        89,431
      Expenditures for segment assets       12,156             531        12,687

1999:
      External revenues                   $186,866          $1,194      $188,060
      Intersegment revenues                      -          59,731        59,731
      Depreciation and amortization          9,360             975        10,335
      Segment profit                         7,077             844         7,921
      Segment assets                        75,793          13,670        89,463
      Expenditures for segment assets       19,164             686        19,850

Following is a reconciliation of reportable segments to the Company’s consolidated totals for the fiscal years ended January 1, 2002, January 2, 2001 and December 28, 1999. 

                                               January 1,    January 2,   December 28,
                                                  2002          2001          1999
                                                  ----          ----          ----
Revenues
   Total revenues of reportable segments        $241,452      $258,506     $247,791
   Elimination of inter-segment revenue          (56,551)      (62,459)     (59,731)
                                                --------       -------      -------

                Total consolidated revenues     $184,901      $196,047     $188,060
                                                ========      ========     ========

Profits
   Total profit of reportable segments           $ 5,788       $10,074      $ 7,921
   Elimination of inter-segment profit                -              -            -
                                               ---------     ---------   ----------

                Total consolidated profit        $ 5,788       $10,074      $ 7,921
                                                 =======       =======      =======

Assets
   Total assets of reportable segments          $ 76,649       $89,431      $89,463
   Elimination of inter-segment assets                -              -            -
                                               ---------     ---------      -------

                Total consolidated assets       $ 76,649       $89,431      $89,463
                                                ========       =======      =======

13.  SPECIAL CHARGES

The operating results for fiscal 1999 include a special charge of $566 thousand for expenses related to the relocation of the corporate offices from Lubbock, Texas to Richardson, Texas.

* * * * * *


F20


Item 9.    Changes in and Disagreements with Accounts on Accounting and Financial Disclosure

           Not applicable.

PART III

Item 10.    Directors and Executive Officers of the Registrant

           Pursuant to General Instruction G(3) of Form 10-K, information required by this item is furnished by incorporation by reference of information in the definitive Proxy Statement for the 2002 Annual Meeting of Stockholders of Furr's under the captions "Proposal 1 - Election of Directors," "Section 16(a) Beneficial Ownership Reporting Compliance" and "Executive Officers."

Item 11.    Executive Compensation

           Pursuant to General Instruction G(3) of Form 10-K, information required by this item is furnished by incorporation by reference of information found in the Definitive Proxy Statement for the 2002 Annual Meeting of Stockholders of Furr's under the caption "Executive Compensation," subcaptions "Summary Compensation Table," "Option Plan," "Option Grants," "Director Options," "Director Fees," "Employment Contracts and Termination of Employment and Change of Common Agreements," "Compensation Committee Interlocks," "Board Compensation Committee Report on Executive Compensation", "Board Audit Committee Report" and "Comparison of Cumulative Total Return of Company Stock, Industry Index and Broad Market."

Item 12.    Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

           Pursuant to General Instruction G(3) of Form 10-K, information required by this item is furnished by incorporation by reference of all information under the caption "Executive Compensation," subcaption "Transactions with Management and Others" in the Definitive Proxy Statement for the 2002 Annual Meeting of Stockholders of Furr's.

Item 13.    Certain Relationships and Related Transactions

           Pursuant to General Instruction G(3) of Form 10-K, information required by this item is furnished by incorporation by reference of all information under the caption "Executive Compensation," subcaption "Transactions with Management and Others" in the Definitive Proxy Statement for the 2002 Annual Meeting of Stockholders of Furr's.

PART IV

Item 14.    Exhibits, Financial Statement Schedules and Reports on Form 8-K

(a) The following documents are filed as a part of this Annual Report on Form 10-K:

(1) Financial Statements

The financial statements filed as part of this report are listed in the
"Index to Consolidated Financial Statements" at Item 8.

(2) Financial Statement Schedule Furr's Restaurant Group, Inc.




16


Page
Schedule Description  No.

II- Consolidated Valuation and Qualifying Accounts  20

           Schedules not listed above have been omitted because they are either not applicable, not material or the required information has been given in the financial statements or in notes to the financial statements.

(b) Reports on Form 8-K

A report on Form 8-K was filed on October 17, 2001 with respect to the appointment of
Craig S. Miller as President and Chief Executive Officer of the Company and his election
as a member of the Company's Board of Directors.

(c) Exhibits

Exhibit No. Description

3.1 Amended and Restated Certificate of Incorporation of Furr's/Bishop's, Incorporated, incorporated by
reference from the Registrant's Registration Statement on Form S-4 (File No. 33-38978).

3.2 By-laws of Furr's/Bishop's, Incorporated, as amended December 3, 1997, incorporated by reference from
the Registrant's Registration Statement on Form S-1 (amended on Form S-3) (File No. 333-4576).

3.3 Certificate of Amendment to the Amended and Restated Certificate of Incorporation of Furr's/Bishop's,
Incorporated, incorporated by reference from the Registrant's Registration Statement on Form S-4
(File No. 33-92236).

3.4 Second Certificate of Amendment to the Amended and Restated Certificate of Incorporation of
Furr's/Bishop's, Incorporated, incorporated by reference from the Registrant's Form 10-K for
the year ended January 2, 1996.

3.5 Third Certificate of Amendment to the Amended and Restated Certificate of Incorporation of
Furr's/Bishop's Incorporated as filed with the Secretary of State of Delaware on December 10, 1999.

3.6 Fourth Certificate of Amendment to the Amended and Restated Certificate of Incorporation of
Furr's/Bishop's Incorporated as filed with the Secretary of State of Delaware on December 10, 1999.

3.7 Certificate of Ownership and Merger of Subsidiary into parent, as filed with the Secretary of State of
Delaware on February 10, 2000.

10.1 Master Sublease Agreement, dated as of December 1, 1986, between Kmart Corporation and Cafeteria
Operators, L.P. (as successor in interest to Furr's Cafeterias, Inc.), incorporated by reference
from the Registration Statement on Form S-1 of Cavalcade Foods, Inc., Furr's Cafeterias, Inc.
and Bishop Buffets, Inc. (File No. 33-11842).

10.2 Amendment, with respect to the Master Sublease Agreement, dated as of December 1, 1993, between
Kmart Corporation and Cafeteria Operators, L.P., incorporated by reference from the registrant's
Form 8-K dated November 15, 1993.

10.3 1995 Stock Option Plan of Furr's Restaurant Group, Inc., incorporated by reference from Annex B of the
Prospectus included in the Registrant's Registration Statement on Form S-4 (File No. 33-92236).

10.4 First Amendment to 1995 Stock Option Plan, dated as of June 18, 1998, incorporated by reference from
Furr's Restaurant Group, Inc.'s Form 10-Q for the fiscal quarter ended June 30, 1998.


17


10.5 Employment Agreement, dated as of October 9, 2001, between Craig S. Miller and Furr's Restaurant
Group, Inc., incorporated by reference from Furr's Restaurant Group, Inc.'s Form 10-Q for the fiscal
quarter ended October 2, 2001.

10.6 Nonqualified Stock Option Agreement, effective as of October 9, 2001, between Craig S. Miller and
Furr's Restaurant Group, Inc., incorporated by reference from Furr's Restaurant Group, Inc.'s
Form 10-Q for the fiscal quarter ended October 2, 2001.

10.7 Stock Grant Agreement, effective as of November 5, 2001, between Craig S. Miller and Furr's Restaurant
Group, Inc., incorporated by reference from Furr's Restaurant Group, Inc.'s Form 10-Q for the fiscal
quarter ended October 2, 2001.

10.8 Revolving Credit and Term Loan Agreement, dated as of April 10, 2001, between Furr's Restaurant
Group, Inc. and subsidiaries and Fleet National Bank as agent and other banks referenced therein (filed herewith.)

10.9 Form of Retention Bonus Agreement (filed herewith.)

21.0 Subsidiaries of the Registrant.

23.1 Consent of KPMG LLP.

27.0 Financial Data Schedule.




18


SIGNATURES

           Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

FURR'S RESTAURANT GROUP, INC.

DATE: March 26, 2002 /s/ Craig S. Miller                                                          
        Craig S. Miller
        President and
        Chief Executive Officer

           Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of Furr's Restaurant Group, Inc. and on the dates indicated.

DATE: March 26, 2002 /s/ Damien Kovary                                                        
        Damien Kovary
        Director, Chairman of the Board

DATE: March 26, 2002 /s/ Robert N. Dangremond                                            
        Robert N. Dangremond
        Director

DATE: March 26, 2002 /s/ Margaret Bertelsen Hampton                                  
        Margaret Bertelsen Hampton
        Director

DATE: March 26, 2002 /s/ Craig S. Miller                                                           
        Craig S. Miller
        Director (Chief Executive Officer and
        Chief Financial Officer)

DATE: March 26, 2002 /s/ Max Pine                                                                    
        Max Pine
        Director

DATE: March 26, 2002 /s/ Robert W. Sullivan                                                    
        Robert W. Sullivan
        Director

DATE: March 26, 2002 /s/ Nancy A. Ellefson                                                     
        Nancy A. Ellefson
        Vice President of Finance (Chief Accounting Officer)



19


SCHEDULE II 

FURR'S RESTAURANT GROUP, INC. AND SUBSIDIARIES
- ----------------------------------------------

CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS
(Dollars in Thousands)
- -------------------------------------------------------------------------------------------------------------------------------

                                                          Additions
                                                          ---------
                                                           (credited)
                                               ------------------------------

                               Balance at      Charged to      Charged to                         Balance at
                               Beginning       Costs and       Other                              End of
Description                    of Period       Expenses        Accounts        Deductions         Period
- -----------                    ---------       --------        --------        ----------         ------

YEAR ENDED JANUARY 1, 2002:
Reserve for store closing      $     3,065     $       295     $         -     $        710(1)    $    2,650
                               ===========     ===========     ===========     ============       ==========

Allowance for doubtful
   accounts receivable         $        89     $        19     $         -     $          -       $      108
                               ===========     ===========     ===========     ============       ==========

Valuation allowance for
   deferred tax asset          $    35,107     $         -     $         -     $          -       $   35,107
                               ===========     ===========     ===========     ============       ==========

YEAR ENDED JANUARY 2, 2001:
Reserve for store closing      $     3,362     $       702     $         -     $        999(1)    $    3,065
                               ===========     ===========     ===========     ============       ==========

Allowance for doubtful
   accounts receivable         $        14     $        75     $         -     $          -       $       89
                               ===========     ===========     ===========     ============       ==========

Valuation allowance for
   deferred tax asset          $    35,107     $         -     $         -     $          -       $   35,107
                               ===========     ===========     ===========     ============       ==========

YEAR ENDED DECEMBER 31, 1999:
Reserve for store closing      $     4,596     $        41     $         -     $      1,275(1)    $    3,362
                               ===========     ===========     ===========     ============       ==========

Allowance for doubtful
   accounts receivable         $        14     $         -     $         -     $          -       $       14
                               ===========     ===========     ===========     ============       ==========

Valuation allowance for
   deferred tax asset          $    56,653       $ (21,546)    $         -     $          -       $   35,107
                               ===========       =========     ===========     ============       ==========

(1) Includes costs and expenses incurred during the year on closed units and severance payments.




20


EXHIBIT 21

SUBSIDIARIES OF
FURR'S RESTAURANT GROUP, INC.

Furr's/Bishop's Cafeterias, L.P. and Subsidiaries
Cafeteria Operators, L.P.
A Delaware limited partnership
Doing business as Furr's Cafeterias and Bishop's Buffets

Cavalcade Holdings, Inc. and Subsidiaries
Cavalcade Foods, Inc.
A Delaware corporation




21


 EX-10.8 3 cr-agree.txt CREDIT AGREEMENT REVOLVING CREDIT AND TERM LOAN AGREEMENT Dated as of April 10, 2001 among FURR'S RESTAURANT GROUP, INC. CAFETERIA OPERATORS, L.P. CAVALCADE HOLDINGS, INC. CAVALCADE FOODS, INC. FURR'S/BISHOP'S CAFETERIAS, L.P. CAVALCADE DEVELOPMENT, L.P. THE LENDERS LISTED ON SCHEDULE 1 HERETO and FLEET NATIONAL BANK, as Administrative Agent with FLEET SECURITIES, INC. as Arranger -v- TABLE OF CONTENTS 1. DEFINITIONS AND RULES OF INTERPRETATION.....................................1 1.1. Definitions............................................................1 1.2. Rules of Interpretation...............................................23 2. THE REVOLVING CREDIT FACILITY..............................................24 2.1. Commitment to Lend....................................................24 2.2. Commitment Fee........................................................25 2.3. Reduction of Total Revolving Commitment...............................25 2.4. The Revolving Credit Notes............................................25 2.5. Interest on Revolving Credit Loans....................................26 2.6. Requests for Revolving Credit Loans...................................26 2.7. Conversion Options....................................................27 2.7.1 . Conversion to Different Type of Revolving Credit Loan........27 2.7.2 . Continuation of Type of Revolving Credit Loan................27 2.7.3 . Eurodollar Rate Loans........................................27 2.8. Funds for Revolving Credit Loan.......................................28 2.8.1 . Funding Procedures...........................................28 2.8.2 . Advances by Administrative Agent.............................28 3. REPAYMENT OF THE REVOLVING CREDIT LOANS....................................29 3.1. Maturity..............................................................29 3.2. Mandatory Repayments of Revolving Credit Loans........................29 3.3. Optional Repayments of Revolving Credit Loans.........................29 4. THE TERM LOANS.............................................................30 4.1. Commitment to Lend....................................................30 4.1.1 . Term Loan A..................................................30 4.1.2 . Term Loan B..................................................30 4.2. The Term Notes........................................................30 4.2.1 . Term Loan A..................................................30 4.2.2 . Term Loan B..................................................30 4.3. Scheduled Repayment of Term Loans.....................................31 4.3.1 . Term Loan A..................................................31 4.3.2 . Term Loan B..................................................32 4.4. Prepayment of Term Loans..............................................33 4.4.1 . Optional Prepayments.........................................33 4.4.2 . Mandatory Prepayments........................................33 4.4.2.1. Excess Operating Cash Flow Recapture..............33 4.4.2.2. Net Cash Equity Issuance Proceeds.................34 4.4.2.3. Proceeds of Certain Events........................34 4.4.2.4. Application of Payments...........................35 4.5. Interest on the Term Loans............................................35 4.5.1 . Term Loan A Interest Rates...................................35 4.5.2 . Term Loan B Interest Rates...................................36 4.5.3 Notification by Borrowers.......................................36 4.5.4 . Amounts, etc.................................................36 5. LETTERS OF CREDIT..........................................................37 5.1. Letter of Credit Commitments..........................................37 5.1.1 . Commitment to Issue Letters of Credit........................37 5.1.2 . Letter of Credit Applications................................37 5.1.3 . Terms of Letters of Credit...................................38 5.1.4 . Reimbursement Obligations of Lenders.........................38 5.1.5 . Participations of Lenders....................................38 5.2. Reimbursement Obligation of the Borrowers.............................38 5.3. Letter of Credit Payments.............................................39 5.4. Obligations Absolute..................................................40 5.5. Reliance by Issuer....................................................41 5.6. Letter of Credit Fee..................................................41 6. CERTAIN GENERAL PROVISIONS.................................................41 6.1. Fees..................................................................41 6.2. Funds for Payments....................................................41 6.2.1 . Payments to Administrative Agent.............................42 6.2.2 . No Offset, etc...............................................42 6.3. Computations..........................................................42 6.4. Inability to Determine Eurodollar Rate................................42 6.5. Illegality............................................................43 6.6. Additional Costs, etc.................................................43 6.7. Capital Adequacy......................................................45 6.8. Certificate...........................................................45 6.9. Indemnity.............................................................45 6.10. Interest After Default...............................................45 6.10.1 . Overdue Amounts.............................................46 6.10.2 . Amounts Not Overdue.........................................46 6.11. Concerning Joint and Several Liability of the Borrowers..............46 6.12. Furr's as Agent for other Borrowers..................................49 7. COLLATERAL SECURITY........................................................50 7.1. Security of Borrowers.................................................50 7.2. Collateral Notes......................................................50 8. REPRESENTATIONS AND WARRANTIES.............................................50 8.1. Corporate Authority...................................................50 8.1.1 . Incorporation; Good Standing.................................50 8.1.2 . Authorization................................................50 8.1.3 . Enforceability...............................................51 8.2. Governmental Approvals................................................51 8.3. Title to Properties; Leases...........................................51 8.4. Financial Statements and Projections..................................51 8.4.1 . Fiscal Year..................................................51 8.4.2 . Financial Statements.........................................51 8.4.3 . Pro Forma Balance Sheet and Projections......................52 8.5. No Material Adverse Changes, etc......................................52 8.6. Laws, Licenses; Franchises, Patents, Copyrights, etc..................52 8.6.1 . Laws, Licenses...............................................52 8.6.2 . Franchises, Patents, Copyrights, etc.........................53 8.7. Litigation............................................................53 8.8. No Materially Adverse Contracts, etc..................................53 8.9. Compliance with Other Instruments, Laws, etc..........................53 8.10. Tax Status...........................................................53 8.11. No Event of Default..................................................54 8.12. Holding Company and Investment Company Acts..........................54 8.13. Absence of Financing Statements, etc.................................54 8.14. Perfection of Security Interest......................................54 8.15. Certain Transactions.................................................54 8.16. Employee Benefit Plans...............................................55 8.16.1 . In General..................................................55 8.16.2 . Terminability of Welfare Plans..............................55 8.16.3 . Guaranteed Pension Plans....................................55 8.16.4 . Multiemployer Plans.........................................56 8.17. Use of Proceeds......................................................56 8.17.1 . General.....................................................56 8.17.2 . Regulations U and X.........................................56 8.17.3 . Ineligible Securities.......................................56 8.18. Environmental Compliance.............................................56 8.19. Subsidiaries, etc....................................................58 8.20. Bank Accounts........................................................58 8.21. Disclosure...........................................................58 8.22. Leases...............................................................58 8.23. Solvency.............................................................59 8.24. Units................................................................59 8.25. Franchise Agreements.................................................59 9. AFFIRMATIVE COVENANTS......................................................59 9.1. Punctual Payment......................................................59 9.2. Maintenance of Office.................................................60 9.3. Records and Accounts..................................................60 9.4. Financial Statements, Certificates and Information....................60 9.5. Notices...............................................................62 9.5.1 . Defaults..................................................62 9.5.2 . Environmental Events......................................62 9.5.3 . Notification of Claim against Collateral..................62 9.5.4 . Notice of Litigation and Judgments........................62 9.5.5 . Notice and Delivery of Franchise Agreements and New Units.63 9.6. Legal Existence; Maintenance of Properties............................63 9.7. Insurance.............................................................64 9.7.1 . Required Insurance...........................................64 9.7.2 . Insurance Proceeds...........................................64 9.7.3 . Notice of Cancellation.......................................65 9.8. Taxes.................................................................65 9.9. Inspection of Properties and Books, Environmental Audits, etc.........65 9.9.1 . General......................................................65 9.9.2 . Environmental Assessments....................................66 9.9.3 . Communications with Accountants..............................66 9.9.4 . Environmental Monitoring.....................................67 9.10. Compliance with Laws, Contracts, Licenses, and Permits...............67 9.11. Employee Benefit Plans...............................................67 9.12. Use of Proceeds......................................................67 9.13. Additional Mortgaged Property; Notice of Leases; Surveys and Title Insurance.......................................................67 9.14. Bank Accounts........................................................68 9.15. Interest Rate Protection.............................................69 9.16. Conduct of Business; Stores..........................................69 9.17. New Subsidiaries.....................................................69 9.18. Further Assurances...................................................69 10. CERTAIN NEGATIVE COVENANTS................................................70 10.1. Restrictions on Indebtedness.........................................70 10.2. Restrictions on Liens................................................70 10.2.1 . Permitted Liens.............................................70 10.2.2 . Restrictions on Negative Pledges and Upstream Limitations...72 10.3. Restrictions on Investments..........................................73 10.4. Restricted Payments..................................................73 10.5. Merger, Consolidation, Disposition of Assets and Acquisitions........74 10.5.1 . Mergers and Consolidations..................................74 10.5.2 . Disposition of Assets.......................................74 10.5.3 . Acquisitions................................................74 10.6. Sale and Leaseback...................................................75 10.7. Compliance with Environmental Laws...................................76 10.8. Employee Benefit Plans...............................................76 10.9. Fiscal Year..........................................................77 10.10. Transactions with Affiliates........................................77 10.11. Bank Accounts.......................................................77 10.12. Maximum Number of Unprofitable Units................................77 11. FINANCIAL COVENANTS.......................................................77 11.1. Leverage Ratio.......................................................77 11.2. Cash Flow............................................................78 11.3. EBITDAR to Interest and Rental.......................................78 11.4. Minimum EBITDA.......................................................78 11.5. Capital Expenditures.................................................79 12. CLOSING CONDITIONS........................................................79 12.1. Loan Documents.......................................................79 12.2. Certified Copies of Governing Documents and Indenture................79 12.3. Corporate or Other Action............................................80 12.4. Incumbency Certificate...............................................80 12.5. Validity of Liens....................................................80 12.6. Perfection Certificates and UCC Search Results.......................80 12.7. Survey and Taxes.....................................................80 12.8. Title Insurance......................................................80 12.9. Landlord Consents....................................................81 12.10. Environmental Assessments...........................................81 12.11. Certificates of Insurance...........................................81 12.12. Agency Account Agreements...........................................81 12.13. Solvency Certificate................................................81 12.14. Opinion of Counsel..................................................81 12.15. Payment of Fees.....................................................81 12.16. Payoff Letters......................................................82 12.17. Disbursement Instructions...........................................82 12.18. No Material Adverse Change..........................................82 12.19. Financial Statements and Projections; Sources and Uses of Funds.....83 12.20. No Litigation.......................................................83 12.21. Real Estate Appraisals..............................................83 12.22. Leverage Ratio......................................................83 12.23. Pro Forma EBITDA....................................................83 12.24. Absence of Default under other Agreements...........................83 12.25. Maximum Revolving Credit Loans......................................83 12.26. Other Documentation.................................................83 13. CONDITIONS TO ALL BORROWINGS..............................................84 13.1. Representations True; No Event of Default............................84 13.2. No Legal Impediment..................................................84 13.3. Proceedings and Documents............................................84 13.4. Governmental Regulation..............................................84 14. EVENTS OF DEFAULT; ACCELERATION; ETC......................................84 14.1. Events of Default and Acceleration...................................84 14.2. Termination of Commitments...........................................88 14.3. Remedies.............................................................88 14.4. Distribution of Collateral Proceeds..................................89 15. THE ADMINISTRATIVE AGENT..................................................89 15.1. Authorization........................................................89 15.2. Employees and Administrative Agents..................................90 15.3. No Liability.........................................................90 15.4. No Representations...................................................91 15.4.1 General........................................................91 15.4.2 . Closing Documentation, etc..................................91 15.5. Payments.............................................................91 15.5.1 . Payments to Administrative Agent............................91 15.5.2 . Distribution by Administrative Agent........................92 15.5.3 . Delinquent Lenders..........................................92 15.6. Holders of Notes.....................................................92 15.7. Indemnity............................................................93 15.8. Administrative Agent as Lender.......................................93 15.9. Resignation..........................................................93 15.10. Notification of Defaults and Events of Default......................93 15.11. Duties in the Case of Enforcement...................................94 16. ASSIGNMENT AND PARTICIPATION..............................................94 16.1. Conditions to Assignment by Lenders..................................94 16.2. Certain Representations and Warranties; Limitations; Covenants.......95 16.3. Register.............................................................96 16.4. New Notes............................................................96 16.5. Participations.......................................................97 16.6. Assignee or Participant Affiliated with the Borrowers................97 16.7. Miscellaneous Assignment Provisions..................................98 16.8. Assignment by Borrower...............................................98 16.9. Syndication..........................................................98 17. PROVISIONS OF GENERAL APPLICATIONS........................................98 17.1. Setoff...............................................................98 17.2. Expenses.............................................................99 17.3. Indemnification.....................................................100 17.4. Treatment of Certain Confidential Information.......................101 17.4.1 . Confidentiality............................................101 17.4.2 . Prior Notification.........................................102 17.4.3 . Other......................................................102 17.5. Survival of Covenants, Etc..........................................102 17.6. Notices.............................................................102 17.7. Governing Law.......................................................103 17.8. Headings............................................................104 17.9. Counterparts........................................................104 17.10. Entire Agreement, Etc..............................................104 17.11. Waiver of Jury Trial...............................................104 17.12. Consents, Amendments, Waivers, Etc.................................104 17.13. Severability.......................................................106 17.14. Usury..............................................................106 EXHIBITS EXHIBIT A......... Form of Revolving Credit Note EXHIBIT B......... Form of Loan Request EXHIBIT C......... Form of Term A Note EXHIBIT D......... Form of Term B Note EXHIBIT E......... Form of Compliance Certificate EXHIBIT F......... Form of Assignment and Acceptance EXHIBIT G......... Form of Agency Account Agreement EXHIBIT H......... MFG Consulting Scientists and Engineers Letter SCHEDULES SCHEDULE 1........ Lenders and Commitments SCHEDULE 1.1...... Mortgaged Properties SCHEDULE 8.3...... Title to Properties; Leases SCHEDULE 8.4.1.... Quarter-End Dates SCHEDULE 8.7...... Litigation SCHEDULE 8.18..... Environmental Compliance SCHEDULE 8.19..... Subsidiaries Etc. SCHEDULE 8.20..... Bank Accounts SCHEDULE 8.25..... Names and Locations of Units SCHEDULE 10.1..... Existing Indebtedness SCHEDULE 10.2..... Existing Liens SCHEDULE 10.3..... Existing Investments SCHEDULE 12.9..... Landlord Consents REVOLVING CREDIT AND TERM LOAN AGREEMENT This REVOLVING CREDIT AND TERM LOAN AGREEMENT is made as of April 10, 2001, by and among FURR'S RESTAURANT GROUP, INC., a Delaware corporation, CAFETERIA OPERATORS, L.P., a Delaware limited partnership, CAVALCADE HOLDINGS, INC., a Texas corporation, CAVALCADE FOODS, INC., a Delaware corporation, FURR'S/BISHOP'S CAFETERIAS, L.P., a Delaware limited partnership, CAVALCADE DEVELOPMENT, L.P., a Delaware limited partnership, and each of the other Subsidiaries of Furr's (other than PBN Beverage, Inc.) which shall from time to time hereafter become a party hereto pursuant to ss.9.17 hereof (collectively, the "BORROWERS"), FLEET NATIONAL BANK, a national banking association and the other lending institutions listed on SCHEDULE 1 and FLEET NATIONAL BANK as administrative agent for itself and such other lending institutions. 1. DEFINITIONS AND RULES OF INTERPRETATION. 1.1. DEFINITIONS. The following terms shall have the meanings set forth in this ss.1 or elsewhere in the provisions of this Credit Agreement referred to below: ADJUSTMENT DATE. The first day of the month immediately following the month in which a Compliance Certificate is to be delivered by the Borrowers pursuant to ss.9.4(e). ADMINISTRATIVE AGENT'S OFFICE. The Administrative Agent's office located at 100 Federal Street, Boston, Massachusetts 02110, or at such other location as the Administrative Agent may designate from time to time. ADMINISTRATIVE AGENT. Fleet National Bank, acting as administrative agent for the Lenders and each other Person appointed as the successor Administrative Agent in accordance with ss.15.9. ADMINISTRATIVE AGENT'S SPECIAL COUNSEL. Bingham Dana LLP or such other counsel as may be approved by the Administrative Agent. AFFILIATE. Any Person that would be considered to be an affiliate of any of the Borrowers under Rule 144(a) of the Rules and Regulations of the Securities and Exchange Commission, as in effect on the date hereof, if such Borrower were issuing securities. AGENCY ACCOUNT(S). See ss.9.14. AGENCY ACCOUNT AGREEMENT(S). See ss.9.14. -2- APPLICABLE EXCESS CASH FLOW PERCENTAGE. With respect to any mandatory prepayment from Consolidated Excess Operating Cash Flow required under ss.4.4.2.1, if the Leverage Ratio of the Borrowers and their Subsidiaries (a) as of the last day of the fiscal year with respect to which such prepayment is to be calculated and (b) as of the last day of the fiscal quarter immediately following the fiscal year with respect to which such prepayment is to be calculated is (i) less than or equal to 1.50 to 1.00, the applicable Excess Cash Flow Percentage shall be 0%, (ii) greater than 1.50 to 1.00 but less than or equal to 2.00 to 1.00, the applicable Excess Cash Flow Percentage shall be 50%, and (iii) greater than 2.00 to 1.00, the Applicable Excess Cash Flow Percentage shall be 75%, PROVIDED, that if the applicable Excess Cash Flow Percentage which would be applicable if reference were made only to the Leverage Ratio as of the last day of such fiscal year is different from the Applicable Excess Cash Flow Percentage which would be applicable if reference were made only to the Leverage Ratio determined as of the last day of the fiscal quarter immediately following such fiscal year, the higher percentage shall apply. APPLICABLE MARGIN. For each period commencing on an Adjustment Date through the date immediately preceding the next Adjustment Date (each a "RATE ADJUSTMENT PERIOD"), the Applicable Margin for the Revolving Credit Loans and Term Loan A (in each case, for Base Rate Loans and Eurodollar Rate Loans) and for the Letters of Credit shall be the percentage set forth below across from the Leverage Ratio calculated for the Reference Period of the Borrowers and their Subsidiaries ending on the last day of the fiscal quarter ended immediately prior to the applicable Rate Adjustment Period.
- ---------------- ------------------------ ------------------ ----------------- ---------------------------- Leverage Base Rate Loans Eurodollar Rate Letter of Level Ratio Loans Credit Fees - ---------------- ------------------------ ------------------ ----------------- ---------------------------- - ---------------- ------------------------ ------------------ ----------------- ---------------------------- I Less than 1.00:1.00 1.25% 2.75% 2.75% - ---------------- ------------------------ ------------------ ----------------- ---------------------------- - ---------------- ------------------------ ------------------ ----------------- ---------------------------- II Less than 1.50:1.00 but greater than or 1.50% 3.00% 3.00% equal to 1.00:1.00 - ---------------- ------------------------ ------------------ ----------------- ---------------------------- - ---------------- ------------------------ ------------------ ----------------- ---------------------------- III Less than 2.00:1.00 but greater than or 1.75% 3.25% 3.25% equal to 1.50:1.00 - ---------------- ------------------------ ------------------ ----------------- ---------------------------- - ---------------- ------------------------ ------------------ ----------------- ---------------------------- IV Greater than or equal to 2.00:1.00 2.00% 3.50% 3.50% - ---------------- ------------------------ ------------------ ----------------- ----------------------------
Notwithstanding the foregoing, (a) during the period commencing on the Closing Date through the date immediately preceding the first Adjustment Date to -3- occur after the fiscal quarter ending September 30, 2001, the Applicable Margin shall be the Applicable Margin set forth in Level IV above, and (b) if the Borrowers fail to deliver any Compliance Certificate pursuant to ss.9.4(e) hereof then, for the period commencing on the next Adjustment Date to occur subsequent to such failure through the date immediately following the date on which such Compliance Certificate is delivered, the Applicable Margin shall be the highest Applicable Margin set forth above. ARRANGER. Fleet Securities, Inc. in its capacity as exclusive syndication agent and arranger for the credit facilities provided hereunder. ASSET SALE. Any one or series of related transactions in which any Borrower or any of their Subsidiaries conveys, sells, leases, licenses or otherwise disposes of, directly or indirectly, any of its properties, businesses or assets (including the sale or issuance of capital stock of any Subsidiary other than to a Borrower or any Subsidiary of a Borrower or the sale, closure or other disposition of any Unprofitable Unit) whether owned on the Closing Date or thereafter acquired. ASSIGNMENT AND ACCEPTANCE. See ss.16.1. BALANCE SHEET DATE. January 2, 2001. BASE RATE. The higher of (a) the variable annual rate of interest so designated from time to time by Fleet as its "prime rate", such rate being a reference rate and not necessarily representing the lowest or best rate being charged to any customer, and (b) one-half of one percent (0.5%) above the Federal Funds Effective Rate. For the purposes of this definition, "FEDERAL FUNDS EFFECTIVE RATE" shall mean for any day, the rate per annum equal to the weighted average of the rates on overnight federal funds transactions with members of the Federal Reserve System arranged by federal funds brokers, as published for such day (or, if such day is not a Business Day, for the next preceding Business Day) by the Federal Reserve Bank of New York, or, if such rate is not so published for any day that is a Business Day, the average of the quotations for such day on such transactions received by the Administrative Agent from three funds brokers of recognized standing selected by the Administrative Agent. Changes in the Base Rate resulting from any changes in Fleet's "PRIME RATE" shall take place immediately without notice or demand of any kind. BASE RATE LOANS. Revolving Credit Loans and all or any portion of a Term Loan bearing interest calculated by reference to the Base Rate. BISHOP'S. Furr's/Bishop's Cafeterias, L.P., a Delaware limited partnership. BORROWER(S). As defined in the preamble hereto. -4- BUSINESS DAY. Any day on which banking institutions in Boston, Massachusetts, are open for the transaction of banking business and, in the case of Eurodollar Rate Loans, also a day which is a Eurodollar Business Day. CAFETERIA OPERATORS. Cafeteria Operators, L.P., a Delaware limited partnership. CAPITAL ASSETS. Fixed assets, both tangible (such as land, buildings, fixtures, machinery and equipment) and intangible (such as patents, copyrights, trademarks, franchises and good will); PROVIDED that Capital Assets shall not include any item customarily charged directly to expense or depreciated over a useful life of twelve (12) months or less in accordance with GAAP. CAPITAL EXPENDITURES. Amounts paid or Indebtedness incurred by the Borrowers or any of their Subsidiaries in connection with (a) the purchase or lease by any Borrower or any of their Subsidiaries of Capital Assets that would be required to be capitalized and shown on the balance sheet of such Person in accordance with GAAP, (b) Growth Capital Expenditures or (c) the lease of any assets by any Borrower or any of its Subsidiaries as lessee under any Synthetic Lease to the extent that such assets would have been Capital Assets had the Synthetic Lease been treated for accounting purposes as a Capitalized Lease. CAPITALIZED LEASES. Leases under which any Borrower or any of their Subsidiaries is the lessee or obligor, the discounted future rental payment obligations under which are required to be capitalized on the balance sheet of the lessee or obligor in accordance with GAAP. CAPITAL STOCK. Any and all shares, interests, participations or other equivalents (however designated) of capital stock of a corporation, any and all equivalent ownership interests in a Person (other than a corporation) and any and all warrants, rights or options to purchase any of the foregoing. CASH FLOW RATIO. For any Reference Period, the ratio of (a) Consolidated Cash Flow for such period to (b) Consolidated Financial Obligations for such period. CASUALTY EVENT. With respect to any property (including any interest in property) of any Borrower or any of their Subsidiaries, any loss of, damage to, or condemnation or other taking of, such property for which such Borrower or such Subsidiary receives insurance proceeds, proceeds of a condemnation award or other compensation. CAVALCADE PENSION PLAN. Cavalcade Employees' Pension Plan and Trust established effective January 1, 1987 and as amended and in effect from time to time thereafter. CERCLA. See ss.8.18(a). -5- CHANGE OF CONTROL. An event or series of events by which at any time: (a) Furr's shall legally or beneficially own less than (i) 100% of the shares of the Capital Stock of Cavalcade Holdings, Inc., (ii) 97.6% of the shares of Capital Stock of Cavalcade Foods, Inc., and (iii) 99.76% of the shares of the Capital Stock of each Borrower, as adjusted pursuant to any stock split, stock dividend or recapitalization or reclassification of the capital of such Borrower; (b) any person or group of persons (within the meaning of Section 13 or 14 of the Securities Exchange Act of 1934) other than a shareholder owning 5% or more of the outstanding shares of Capital Stock of Furr's on the date of this Credit Agreement shall have acquired beneficial ownership (within the meaning of Rule 13d-3 promulgated by the Securities and Exchange Commission under said Act), directly OR indirectly, of fifty percent (50%) or more of the outstanding shares of Capital Stock of Furr's; or, (c) during any period of twelve consecutive calendar months, individuals who were directors of Furr's on the first day of such period shall cease to constitute a majority of the board of directors of Furr's, and in each such case, such change is not acceptable to the Administrative Agent in its reasonable judgment. CLOSING DATE. The first date on which the conditions set forth in ss.12 have been satisfied and any Revolving Credit Loans and the Term Loans are to be made or any Letter of Credit is to be issued hereunder. CODE. The Internal Revenue Code of 1986. COLLATERAL. All of the property, rights and interests of the Borrowers and their Subsidiaries that are or are intended to be subject to the Liens created by the Security Documents. COLLATERAL NOTES. See ss.7.2. COMMITMENT FEE. See ss.2.2. COMPLIANCE CERTIFICATE. See ss.9.4(e). CONSOLIDATED OR CONSOLIDATED. With reference to any term defined herein, shall mean that term as applied to the accounts of the Borrowers and their Subsidiaries, consolidated in accordance with GAAP. CONSOLIDATED CASH FLOW. For any period, an amount equal to Consolidated EBITDA for such period, MINUS the sum of (a) cash income taxes paid during such period by the Borrowers and their Subsidiaries on a consolidated basis, (b) the aggregate amount of Capital Expenditures made by the Borrowers and their Subsidiaries during such period and (c) to the extent not already deducted in the calculation of Consolidated Pre-Tax Income and without duplication, any cash payments in respect of the Cavalcade Pension Plan that are made by any of the Borrowers during such period. CONSOLIDATED EBITDA. With respect to any fiscal period, an amount equal to the sum of (a) Consolidated Pre-Tax Income of the Borrowers and their -6- Subsidiaries for such fiscal period, PLUS (b) in each case to the extent deducted in the calculation of such Person's Consolidated Pre-Tax Income for such period and without duplication, (i) depreciation and amortization for such period, PLUS (ii) Consolidated Restaurant Pre-Opening Costs for such period, PLUS (iii) Consolidated Total Interest Expense paid or accrued during such period, PLUS (iv) other noncash charges for such period, LESS (c) the extent included in the calculation of such Person's Consolidated Pre-Tax Income for such period and without duplication, noncash or unrealized gains for such period, all as determined in accordance with GAAP. CONSOLIDATED EBITDAR. For any period, the sum of (a) Consolidated EBITDA of the Borrowers and their Subsidiaries for such period, PLUS (b) Consolidated Rental Expense for such period. CONSOLIDATED EXCESS OPERATING CASH FLOW. With respect to the Borrowers and their Subsidiaries and any particular period, an amount equal to the difference between (a) the sum of (i) Consolidated Pre-Tax Income for such period, PLUS (ii) to the extent deducted in calculating Consolidated Pre-Tax Income for such period, depreciation and amortization for such period, MINUS (b) the sum of (i) the aggregate amount of Capital Expenditures of the Borrowers and their Subsidiaries permitted pursuant to ss.11.5 made during such period to the extent that such Capital Expenditures were not financed by the incurrence of Indebtedness (including Revolving Credit Loans borrowed hereunder), (ii) without duplication, cash income taxes paid during such period, (iii) required principal repayments during such period on Indebtedness of the Borrowers and their Subsidiaries (including mandatory prepayments required pursuant to ss.3.2 and ss.4.4.2), (iv) any voluntary prepayment of the Term Loans during such period, (v) the amount of any Permitted Acquisitions in excess of the amount contemporaneously financed by Permitted Indebtedness and (vi) to the extent not already deducted in the calculation of Consolidated Pre-Tax Income and without duplication, cash payments required to be made to the Cavalcade Pension Plan, and actually made, during such period; PROVIDED that such amount does not exceed the amount which the Cavalcade Pension Plan actuary recommends that the Borrower pay to the Cavalcade Pension Plan in respect of such period. CONSOLIDATED FINANCIAL OBLIGATIONS. With respect to the Borrowers and their Subsidiaries and for any period, the sum, without duplication, of (a) Consolidated Total Interest Expense for such period PLUS (b) any and all scheduled repayments of principal during such period in respect of Indebtedness that becomes due and payable or that are to become due and payable during such period pursuant to any agreement or instrument to which any Borrower or any of their Subsidiaries is a party (including in respect of any Synthetic Leases or any Capitalized Leases). Demand obligations shall be deemed to be due and payable during any fiscal period during which such obligations are outstanding. CONSOLIDATED FUNDED INDEBTEDNESS. With respect to the Borrowers and their Subsidiaries, the sum, without duplication, of (a) the aggregate amount of -7- Indebtedness of the Borrowers and their Subsidiaries, on a consolidated basis, relating to (i) the borrowing of money (but not including Indebtedness of the type described in clause (i) of the definition of "Indebtedness") or the obtaining of credit, including the issuance of notes or bonds, or in respect of any Synthetic Leases or any Capitalized Leases, (ii) the deferred purchase price of assets (other than trade payables incurred in the ordinary course of business), and (iii) the maximum drawing amount of all letters of credit outstanding PLUS (b) Indebtedness of the type referred to in clause (a) of another Person guaranteed by any Borrower or any of their Subsidiaries. CONSOLIDATED NET INCOME (OR DEFICIT). For any period, the consolidated net income (or deficit) of the Borrowers and their Subsidiaries for such period, after deduction of all expenses, taxes, and other proper charges attributable to such period, determined in accordance with GAAP, after eliminating therefrom all extraordinary and nonrecurring items of income. CONSOLIDATED PRE-TAX INCOME. For any period, Consolidated Net Income for such period, PLUS to the extent deducted in the calculation of Consolidated Net Income, income tax paid or payable during such period, determined in accordance with GAAP. CONSOLIDATED RENTAL EXPENSE. For any period, all rental expense of the Borrowers and their Subsidiaries during such period, determined on a consolidated basis in accordance with GAAP, incurred under any rental agreements or leases of real or personal property, including space leases and ground leases, other than obligations in respect of any Capitalized Leases or any Synthetic Lease. CONSOLIDATED RESTAURANT PRE-OPENING COSTS. "Start-up costs" (such term used herein as defined in SOP 98-5 published by the American Institute of Certified Public Accountants) related to the acquisition, opening and organizing of new Units, such costs including, without limitation, the cost of feasibility studies, staff-training, and recruiting and travel costs for employees engaged in such start-up activities. CONSOLIDATED TOTAL INTEREST EXPENSE. For any period, the aggregate amount of interest required to be paid or accrued by the Borrowers and their Subsidiaries on a consolidated basis during such period on all Indebtedness of the Borrowers and their Subsidiaries outstanding during all or any part of such period, whether such interest was or is required to be reflected as an item of expense or capitalized, including (a) payments consisting of interest in respect of any Capitalized Lease or any Synthetic Lease, (b) net payments made during such period by the Borrowers or their Subsidiaries under any Interest Rate Agreement or other similar arrangement designed to protect the Borrowers and/or their Subsidiaries against fluctuations in interest rates, and (c) commitment fees, agency fees, facility fees, balance deficiency fees and similar fees or expenses in connection with the borrowing of money (but not including one-time non-recurring fees payable to the Administrative Agent and/or the Lenders on the Closing Date in connection with the closing of the transactions contemplated -8- hereby); PROVIDED that Consolidated Total Interest Expense shall be reduced by net payments receivable by the Borrowers or their Subsidiaries during such period under any Interest Rate Agreement or other similar arrangement designed to protect the Borrowers and/or their Subsidiaries against fluctuations in interest rates. CONVERSION REQUEST. A notice given by the Borrowers to the Administrative Agent of the Borrowers' election to convert or continue a Loan in accordance with ss.2.7. CREDIT AGREEMENT. This Revolving Credit and Term Loan Agreement, including the Schedules and Exhibits hereto. DEFAULT. See ss.14.1. DELINQUENT LENDER. See ss.15.5.3. DISTRIBUTION. The declaration or payment of any dividend on or in respect of any shares of any class of Capital Stock of any Person, other than dividends payable solely in shares of common stock or similar equity interests of such Person; the purchase, redemption, defeasance, retirement or other acquisition of any shares of any class of Capital Stock of a Person, directly or indirectly through a Subsidiary of such Person or otherwise (including the setting apart of assets for a sinking or other analogous fund to be used for such purpose); the return of capital by a Person to its shareholders as such; or any other distribution on or in respect of any shares of any class of Capital Stock of any Person. DOLLARS or $. Dollars in lawful currency of the United States of America. DOMESTIC LENDING OFFICE. Initially, the office of each Lender designated as such in SCHEDULE 1 hereto; thereafter, such other office of such Lender, if any, located within the United States that will be making or maintaining Base Rate Loans. DRAWDOWN DATE. The date on which any Revolving Credit Loan or any Term Loan is made or is to be made, and the date on which any Revolving Credit Loan is converted or continued in accordance with ss.2.7 or all or any portion of a Term Loan is converted or continued in accordance with ss.4.5.3. EMPLOYEE BENEFIT PLAN. Any employee benefit plan within the meaning of ss.3(3) of ERISA maintained or contributed to by the Borrower or any ERISA Affiliate, other than a Guaranteed Pension Plan or a Multiemployer Plan. ENVIRONMENTAL LAWS. See ss.8.18(a). EPA. See ss.8.18(b). EQUITY ISSUANCE. The sale or issuance by any Borrower or any of their Subsidiaries of any of its Capital Stock. -9- ERISA. The Employee Retirement Income Security Act of 1974. ERISA AFFILIATE. Any Person which is treated as a single employer with the Borrowers under ss.414 of the Code. ERISA REPORTABLE EVENT. A reportable event with respect to a Guaranteed Pension Plan within the meaning of ss.4043 of ERISA and the regulations promulgated thereunder. EUROCURRENCY RESERVE RATE. For any day with respect to a Eurodollar Rate Loan, the maximum rate (expressed as a decimal) at which any bank subject thereto would be required to maintain reserves under Regulation D of the Board of Governors of the Federal Reserve System (or any successor or similar regulations relating to such reserve requirements) against "EUROCURRENCY LIABILITIES" (as that term is used in Regulation D), if such liabilities were outstanding. The Eurocurrency Reserve Rate shall be adjusted automatically on and as of the effective date of any change in the Eurocurrency Reserve Rate. EURODOLLAR BUSINESS DAY. Any day on which commercial banks are open for international business (including dealings in Dollar deposits) in London or such other eurodollar interbank market as may be selected by the Administrative Agent in its sole discretion acting in good faith. EURODOLLAR LENDING OFFICE. Initially, the office of each Lender designated as such in SCHEDULE 1 hereto; thereafter, such other office of such Lender, if any, that shall be making or maintaining Eurodollar Rate Loans. EURODOLLAR RATE. For any Interest Period with respect to a Eurodollar Rate Loan, the rate of interest equal to (a) the rate determined by the Administrative Agent at which Dollar deposits for such Interest Period are offered based on information presented on Telerate Page 3750 as of 10:00 a.m. (Boston time), two Eurodollar Business Days prior to the beginning of such Interest Period, divided by a number equal to 1.00 MINUS the Eurocurrency Reserve Rate, if applicable, or (b) if such information on such Telerate Page is not available, the rate at which the Administrative Agent's Eurodollar Lending Office is offered Dollar deposits at 10:00 a.m. (Boston time) two Eurodollar Business Days prior to the beginning of such Interest Period in the interbank eurodollar market where the eurodollar and foreign currency and exchange operations of such Eurodollar Lending Office are customarily conducted, for delivery on the first day of such Interest Period for the number of days comprised therein and in an amount comparable to the amount of the Eurodollar Rate Loan of Fleet to which such Interest Period applies, divided by a number equal to 1.00 minus the Eurocurrency Reserve Rate, if applicable. EURODOLLAR RATE LOANS. Revolving Credit Loans and all or any portion of a Term Loan bearing interest calculated by reference to the Eurodollar Rate. EVENT OF DEFAULT. See ss.14.1. -10- EXISTING DEBT. Collectively, the Senior Secured Notes and the Unsecured Notes. FEE LETTER. The fee letter dated as of March 1, 2001 among the Borrowers, the Administrative Agent and the Arranger. FEES. Collectively, the Commitment Fee, the Letter of Credit Fee, the Fronting Fee, the Administrative Agent's fee and all fees referred to in the Fee Letter. FINANCIAL AFFILIATE. A Subsidiary of the bank holding company controlling any Lender, which Subsidiary is engaging in any of the activities permitted by ss.4(e) of the Bank Holding Company Act of 1956 (12 U.S.C. ss.1843) or a Subsidiary of the savings and loan company controlling any Lender, which Subsidiary is engaging in any of the activities permitted by ss.10(c) of the Home Owner's Loan Act (12 U.S.C. ss.1467a). FISCAL YEAR. See ss.8.4.1. FLEET. Fleet National Bank, a national banking association, in its individual capacity. FRONTING FEE. See ss.5.6. FURR'S. Furr's Restaurant Group, Inc., a Delaware corporation. GAAP OR GENERALLY ACCEPTED ACCOUNTING PRINCIPLES. (a) When used in ss.11, whether directly or indirectly through reference to a capitalized term used therein, means (i) principles that are consistent with the principles promulgated or adopted by the Financial Accounting Standards Board and its predecessors, in effect for the fiscal year ended on the Balance Sheet Date, and (ii) to the extent consistent with such principles, the accounting practice of the Borrowers reflected in its financial statements for the year ended on the Balance Sheet Date, and (b) when used in general, other than as provided above, means principles that are (i) consistent with the principles promulgated or adopted by the Financial Accounting Standards Board and its predecessors, as in effect from time to time, and (ii) consistently applied with past financial statements of the Borrowers adopting the same principles, provided that in each case referred to in this definition of "GAAP" a certified public accountant would, insofar as the use of such accounting principles is pertinent, be in a position to deliver an unqualified opinion (other than a qualification regarding changes in GAAP) as to financial statements in which such principles have been properly applied. GOVERNING DOCUMENTS. With respect to any Person, its certificate or articles of incorporation, its by-laws and all shareholder agreements, voting trusts and similar arrangements applicable to any of its Capital Stock. GOVERNMENTAL AUTHORITY. Any foreign, federal, state, regional, local, municipal or other government, or any department, commission, board, bureau, -11- agency, public authority or instrumentality thereof, or any court or arbitrator. GROWTH CAPITAL EXPENDITURES. Capital Expenditures related to the construction, acquisition or opening of new Units PLUS to the extent not included in the calculation of such Capital Expenditures, Consolidated Restaurant Pre-Opening Costs. GUARANTEED PENSION PLAN. Any employee pension benefit plan within the meaning of ss.3(2) of ERISA maintained or contributed to by any Borrower or any ERISA Affiliate the benefits of which are guaranteed on termination in full or in part by the PBGC pursuant to Title IV of ERISA, other than a Multiemployer Plan. HAZARDOUS SUBSTANCES. See ss.8.18(b). INCURRENCE RATIO. As at any date of determination, the maximum Leverage Ratio permitted under ss.11.1 as at the end of the most recently ended Reference Period for which the Borrowers have delivered a Compliance Certificate, LESS 0.25. INDEBTEDNESS. As to any Person and whether recourse is secured by or is otherwise available against all or only a portion of the assets of such Person and whether or not contingent, but without duplication: (a) every obligation of such Person for money borrowed, (b) every obligation of such Person evidenced by bonds, debentures, notes or other similar instruments, including obligations evidenced by bonds, debentures, notes or other similar instruments which were incurred in connection with the acquisition of property, assets or businesses, (c) every reimbursement obligation of such Person with respect to letters of credit, bankers' acceptances or similar facilities issued for the account of such Person, (d) every obligation of such Person issued or assumed as the deferred purchase price of property or services (including securities repurchase agreements but excluding trade accounts payable or accrued liabilities arising in the ordinary course of business which are not overdue by more than 30 days or which are being contested in good faith), (e) every obligation of such Person under any Capitalized Lease, (f) every obligation of such Person under any Synthetic Lease, -12- (g) all sales by such Person of (i) accounts or general intangibles for money due or to become due, (ii) chattel paper, instruments or documents creating or evidencing a right to payment of money or (iii) other receivables (collectively "RECEIVABLES"), whether pursuant to a purchase facility or otherwise, other than in connection with the disposition of the business operations of such Person relating thereto or a disposition of defaulted receivables for collection and not as a financing arrangement, and together with any obligation of such Person to pay any discount, interest, fees, indemnities, penalties, recourse, expenses or other amounts in connection therewith, (h) every obligation of such Person (an "EQUITY RELATED PURCHASE OBLIGATION") to purchase, redeem, retire or otherwise acquire for value any shares of Capital Stock issued by such Person or any rights measured by the value of such Capital Stock, (i) every obligation of such Person under any forward contract, futures contract, swap, option or other financing agreement or arrangement (including, without limitation, caps, floors, collars and similar agreements), the value of which is dependent upon interest rates, currency exchange rates, commodities or other indices (a "DERIVATIVE CONTRACT"), (j) every obligation in respect of Indebtedness of any other entity (including any partnership in which such Person is a general partner) to the extent that such Person is liable therefor as a result of such Person's ownership interest in or other relationship with such entity, except to the extent that the terms of such Indebtedness provide that such Person is not liable therefor and such terms are enforceable under applicable law, (k) every obligation, contingent or otherwise, of such Person guaranteeing, or having the economic effect of a guarantee or otherwise acting as surety for, any obligation of a type described in any of clauses (a) through (j) (the "PRIMARY OBLIGATION") of another Person (the "PRIMARY OBLIGOR"), in any manner, whether directly or indirectly, and including, without limitation, any obligation of such Person (i) to purchase or pay (or advance or supply funds for the purchase of) any security for the payment of such primary obligation, (ii) to purchase property, securities or services for the purpose of assuring the payment of such primary obligation, or (iii) to maintain working capital, equity capital or other financial statement condition or liquidity of the primary obligor so as to enable the primary obligor to pay such primary obligation. The "AMOUNT" or "PRINCIPAL AMOUNT" of any Indebtedness at any time of determination represented by (t) any Indebtedness, issued at a price that is less than the principal amount at maturity thereof, shall be the amount of the liability in respect thereof determined in accordance with GAAP, (u) any Capitalized Lease shall be the principal component of the aggregate of the -13- rentals obligation under such Capitalized Lease payable over the term thereof that is not subject to termination by the lessee, (v) any sale of receivables shall be the amount of unrecovered capital or principal investment of the purchaser (other than a Borrower or any of their wholly owned Subsidiaries) thereof, excluding amounts representative of yield or interest earned on such investment, (w) any Synthetic Lease shall be the stipulated loss value, termination value or other equivalent amount, (x) any derivative contract shall be the maximum amount of any termination or loss payment required to be paid by such Person if such derivative contract were, at the time of determination, to be terminated by reason of any event of default or early termination event thereunder, whether or not such event of default or early termination event has in fact occurred, (y) any equity related purchase obligation shall be the maximum fixed redemption or purchase price thereof inclusive of any accrued and unpaid dividends to be comprised in such redemption or purchase price and (z) any guaranty or other contingent liability referred to in clause (k) shall be an amount equal to the stated or determinable amount of the primary obligation in respect of which such guaranty or other contingent obligation is made or, if not stated or determinable, the maximum reasonably anticipated liability in respect thereof (assuming such Person is required to perform thereunder) as determined by such Person in good faith. INDENTURE. The Amended and Restated Indenture among Cafeteria Operators, L.P. and the Trustee named therein entered into in connection with the issuance of $45,772,699.00 in 12% Senior Secured Notes due December 31, 2001, dated as of November 15, 1995, as amended and in effect on the Closing Date, together with all amendments and supplemental indentures issued in connection therewith, including the First Supplemental Indenture dated as of January 24, 1996. INELIGIBLE SECURITIES. Securities which may not be underwritten or dealt in by member banks of the Federal Reserve System under Section 16 of the Banking Act of 1933 (12 U.S.C.ss.24, Seventh), as amended. INTEREST PAYMENT DATE. (a) As to any Base Rate Loan, the last day of the fiscal quarter with respect to interest accrued during such fiscal quarter, including, without limitation, the fiscal quarter which includes the Drawdown Date of such Base Rate Loan; and (b) as to any Eurodollar Rate Loan in respect of which the Interest Period is (i) 3 months or less, the last day of such Interest Period and (ii) more than 3 months, the date that is 3 months from the first day of such Interest Period and, in addition, the last day of such Interest Period. INTEREST PERIOD. With respect to each Revolving Credit Loan or all or any relevant portion of a Term Loan, (a) initially, the period commencing on the Drawdown Date of such Loan and ending on the last day of one of the periods set forth below, as selected by the Borrowers in a Loan Request or as otherwise required by the terms of this Credit Agreement (i) for any Base Rate Loan, the last day of the calendar quarter; and (ii) for any Eurodollar Rate Loan, 1, 2, 3 or 6 months; and (b) thereafter, each period commencing on the last day of the next preceding Interest Period applicable to such Revolving Credit Loan or all -14- or such portion of a Term Loan and ending on the last day of one of the periods set forth above, as selected by the Borrowers in a Conversion Request; PROVIDED that all of the foregoing provisions relating to Interest Periods are subject to the following: (A) if any Interest Period with respect to a Eurodollar Rate Loan would otherwise end on a day that is not a Eurodollar Business Day, that Interest Period shall be extended to the next succeeding Eurodollar Business Day unless the result of such extension would be to carry such Interest Period into another calendar month, in which event such Interest Period shall end on the immediately preceding Eurodollar Business Day; (B) if any Interest Period with respect to a Base Rate Loan would end on a day that is not a Business Day, that Interest Period shall end on the next succeeding Business Day; (C) if the Borrowers shall fail to give notice as provided in ss.2.7, the Borrowers shall be deemed to have requested a conversion of the affected Eurodollar Rate Loan to a Base Rate Loan and the continuance of all Base Rate Loans as Base Rate Loans on the last day of the then current Interest Period with respect thereto; (D) any Interest Period relating to any Eurodollar Rate Loan that begins on the last Eurodollar Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall end on the last Eurodollar Business Day of a calendar month; and (E) any Interest Period that would otherwise extend beyond the Revolving Credit Maturity Date, Term A Maturity Date or Term B Maturity Date, as applicable to such Loan shall end on such Maturity Date. INTEREST RATE AGREEMENT. Any interest rate swap agreement, interest rate cap agreement, interest rate collar agreement, interest rate futures contract, interest rate option agreement or other similar agreement or arrangement to which any Borrower and any Lender is a party, designed to protect such Borrower against fluctuations in interest rates applicable to Permitted Indebtedness. INVESTMENTS. All expenditures made and all liabilities incurred (contingently or otherwise) for the acquisition of stock or Indebtedness of, or for loans, advances, capital contributions or transfers of property to, or in respect of any guaranties (or other commitments as described under Indebtedness), or obligations of, any Person. In determining the aggregate amount of Investments outstanding at any particular time: (a) the amount of any Investment represented by a guaranty shall be taken at not less than the principal amount of the obligations guaranteed and still outstanding; (b) there -15- shall be included as an Investment all interest accrued with respect to Indebtedness constituting an Investment unless and until such interest is paid; (c) there shall be deducted in respect of each such Investment any amount received as a return of capital (but only by repurchase, redemption, retirement, repayment, liquidating dividend or liquidating distribution); (d) there shall not be deducted in respect of any Investment any amounts received as earnings on such Investment, whether as dividends, interest or otherwise, except that accrued interest included as provided in the foregoing clause (b) may be deducted when paid; and (e) there shall not be deducted from the aggregate amount of Investments any decrease in the value thereof. LENDER AFFILIATE. (a) With respect to any Lender, (i) an affiliate of such Lender or (ii) any entity (whether a corporation, partnership, limited liability company, trust or legal entity) that is engaged in making, purchasing, holding or otherwise investing in bank loans and similar extensions of credit in the ordinary course of its business and is administered or managed by such Lender or an affiliate of such Lender and (b) with respect to any Lender that is a fund which invests in bank loans and similar extensions of credit, any other entity (whether a corporation, partnership, limited liability company, trust or other legal entity) that is a fund that invests in bank loans and similar extensions of credit and is managed by the same investment advisor as such Lender or by an affiliate of such investment advisor. LENDERS. Fleet and the other lending institutions listed on SCHEDULE 1 hereto and any other Person who becomes an assignee of any rights and obligations of a Lender pursuant to ss.16. LETTER OF CREDIT. See ss.5.1.1. LETTER OF CREDIT APPLICATION. See ss.5.1.1. LETTER OF CREDIT FEE. See ss.5.6. LETTER OF CREDIT PARTICIPATION. See ss.5.1.4. LEVERAGE RATIO. As at any date of determination, the ratio of (a) Consolidated Funded Indebtedness outstanding on such date to (b) Consolidated EBITDA for the Reference Period ending on such date. LIEN. Any mortgage, deed of trust, security interest, pledge, hypothecation, assignment, attachment, deposit arrangement, encumbrance, lien (statutory, judgment or otherwise), or other security agreement or preferential arrangement of any kind or nature whatsoever (including any conditional sale or other title retention agreement, any Capitalized Lease, any Synthetic Lease, any financing lease involving substantially the same economic effect as any of the foregoing and the filing of any financing statement under the UCC or comparable law of any jurisdiction). -16- LOAN DOCUMENTS. This Credit Agreement, the Notes, the Letter of Credit Applications, the Letters of Credit and the Security Documents. LOAN REQUEST. See ss.2.6. LOANS. Collectively, the Revolving Credit Loans and the Term Loans. MATERIAL ADVERSE EFFECT. With respect to any event or occurrence of whatever nature (including any adverse determination in any litigation, arbitration or governmental investigation or proceeding): (a) a material adverse effect on the business, properties, prospects, condition (financial or otherwise), assets, operations or income of Furr's or Cafeteria Operators, individually or the Borrowers and their Subsidiaries, taken as a whole; (b) an adverse effect on the ability of Furr's or Cafeteria Operators, individually, or the Borrowers and their Subsidiaries, taken as a whole, to perform in any material respect any of their respective Obligations under any of the Loan Documents to which it is a party; or (c) any impairment of the validity, binding effect or enforceability of this Credit Agreement or any of the other Loan Documents, any impairment of the rights, remedies or benefits available to the Administrative Agent or any Lender under any Loan Document or any impairment of the attachment, perfection or priority of any Lien of the Administrative Agent under the Security Documents. MAXIMUM DRAWING AMOUNT. The maximum aggregate amount that the beneficiaries may at any time draw under outstanding Letters of Credit, as such aggregate amount may be reduced from time to time pursuant to the terms of the Letters of Credit. MOODY'S. Moody's Investors Services, Inc. MORTGAGED PROPERTY. Any Real Estate which is subject to any Mortgage. MORTGAGES. The several mortgages and deeds of trust listed on SCHEDULE 1.1 hereto and each of the mortgages and deeds of trusts which may be delivered after the Closing Date in accordance with ss.9.13, from any Borrower or its Subsidiary to the Administrative Agent with respect to the interests of the Borrowers and their Subsidiaries in certain parcels of the Real Estate consisting of fee properties and ground leases and in form and substance satisfactory to the Lenders and the Administrative Agent. MULTIEMPLOYER PLAN. Any multiemployer plan within the meaning of ss.3(37) of ERISA maintained or contributed to by any Borrower or any ERISA Affiliate. NET CASH EQUITY ISSUANCE PROCEEDS. With respect to any Equity Issuance, the excess of the gross cash proceeds received by such Person for such Equity -17- Issuance after deduction of all reasonable and customary transaction expenses (including, without limitation, underwriting discounts and commissions) actually incurred in connection with such a sale or other issuance. NET CASH SALE PROCEEDS. The net cash proceeds received by a Person in respect of any Asset Sale, less the sum of (a) all reasonable out-of-pocket fees, commissions and other reasonable and customary direct expenses actually incurred in connection with such Asset Sale, including the amount of any transfer or documentary taxes required to be paid by such Person in connection with such Asset Sale, and (b) the aggregate amount of cash so received by such Person which is required to be used to retire (in whole or in part) any Indebtedness (other than under the Loan Documents) of such Person permitted by this Credit Agreement that was secured by a lien or security interest permitted by this Credit Agreement having priority over the liens and security interests (if any) of the Administrative Agent (for the benefit of the Administrative Agent and the Lenders) with respect to such assets transferred and which is required to be repaid in whole or in part (which repayment, in the case of any other revolving credit arrangement or multiple advance arrangement, reduces the commitment thereunder) in connection with such Asset Sale. NOTES. Collectively, the Term Notes, the Revolving Credit Notes and the Collateral Notes. OBLIGATIONS. All indebtedness, obligations and liabilities of any of the Borrowers and their Subsidiaries to any of the Lenders and the Administrative Agent, individually or collectively, existing on the date of this Credit Agreement or arising thereafter, direct or indirect, joint or several, absolute or contingent, matured or unmatured, liquidated or unliquidated, secured or unsecured, arising by contract, operation of law or otherwise, arising or incurred under this Credit Agreement or any of the other Loan Documents or any Interest Rate Agreement or in respect of any of the Loans made or Reimbursement Obligations incurred or any of the Notes, Letter of Credit Application, Letter of Credit or other instruments at any time evidencing any thereof. OUTSTANDING. With respect to the Loans, the aggregate unpaid principal thereof as of any date of determination. PBGC. The Pension Benefit Guaranty Corporation created by ss.4002 of ERISA and any successor entity or entities having similar responsibilities. PERFECTION CERTIFICATES. The Perfection Certificates as defined in the Security Agreements. PERMITTED ACQUISITIONS. See ss.10.5.3. PERMITTED INDEBTEDNESS. Indebtedness permitted under ss.10.1. -18- PERMITTED LIENS. Liens permitted by ss.10.2. PERMITTED SALE-LEASEBACK. See ss.10.6. PERSON. Any individual, corporation, limited liability company partnership, limited liability partnership, trust, other unincorporated association, business, or other legal entity, and any Governmental Authority. PRO FORMA BASIS. In connection with any proposed Permitted Acquisition or acquisition financed by Indebtedness permitted under ss.10.1(c) (which for purposes of the definition shall also be considered a Permitted Acquisition), the calculation of compliance with the financial covenants described in ss.10.5.3(v) hereof by the Borrowers and their Subsidiaries (including the business, business division or Person to be acquired as though such business, business division or Person were a Subsidiary of a Borrower) with reference to the audited historical financial results, if available, or if not available, such other management reports or estimates as approved by the Administrative Agent, of such business, business division or Person and the Borrowers and its Subsidiaries for the applicable Test Period after giving effect on a PRO FORMA basis to such Permitted Acquisition with the adjustments described in (a), (b) and (c) below; and, following a Permitted Acquisition, the calculation of compliance with the covenants set forth in ss.11 for the fiscal quarter in which such Permitted Acquisition occurred and each of the three fiscal quarters immediately following such Permitted Acquisition with reference to the audited historical financial results, if available, or such other management reports as approved by the Administrative Agent of the business, business division or Person so acquired and the Borrowers and their Subsidiaries for the applicable Test Period after giving effect on a PRO FORMA basis to such Permitted Acquisition with the adjustments described in (a), (b) and (c) below: (a) all Indebtedness (whether under this Credit Agreement or otherwise) and any other balance sheet adjustments incurred, made or assumed in connection with the Permitted Acquisition shall be deemed to have been incurred, made or assumed on the first day of the Test Period, and all Indebtedness of the Person acquired or to be acquired in such Permitted Acquisition or which is attributable to the business or business division acquired or to be acquired which was or will have been repaid in connection with the consummation of the Permitted Acquisition shall be deemed to have been repaid on the first day of the Test Period; (b) all Indebtedness deemed to have been incurred pursuant to the preceding clause (a) shall be deemed to have borne interest at (i) if the Indebtedness incurred in connection with such Permitted Acquisition is under this Credit Agreement or bears interest at a floating rate, the arithmetic mean of (A) the Eurodollar Rate for Eurodollar Rate Loans having an Interest Period of one month in effect on the first day of the Test Period and (B) the Eurodollar Rate for Eurodollar Rate Loans having an Interest Period of one month in effect on the last day of the Test Period PLUS (y) the Applicable Margin with respect to Eurodollar Rate Loans then -19- in effect (after giving effect to the Permitted Acquisition on a PRO FORMA basis) or (ii) if the Indebtedness incurred, made or assumed in connection with such Permitted Acquisition bears interest at a fixed rate, such fixed rate; and (c) for purposes of calculating Consolidated EBITDA and Consolidated Cash Flow for the Test Period, other reasonable cost savings, expenses and other income statement or operating statement adjustments which are attributable to the change in ownership and/or management resulting from such Permitted Acquisition as may be approved by the Administrative Agent in writing shall be deemed to have been realized on the first day of the Test Period. RCRA. See ss.8.18(a). REAL ESTATE. All real property at any time owned or leased (as lessee or sublessee) by any Borrowers or any of their Subsidiaries. REAL ESTATE LEASES. Leases, including ground leases and space leases, pursuant to which any Borrower or any of their Subsidiaries leases Real Estate. RECORD. The grid attached to a Note, or the continuation of such grid, or any other similar record, including computer records, maintained by any Lender with respect to any Loan referred to in such Note. REFERENCE PERIOD. As of any date of determination, the period of four (4) consecutive fiscal quarters of the Borrowers and their Subsidiaries ending on such date, or if such date is not a fiscal quarter end date, the period of four (4) consecutive fiscal quarters most recently ended (in each case treated as a single accounting period); PROVIDED, that solely for purposes of determining the Cash Flow Ratio and the ratio of Consolidated EBITDAR to Consolidated Total Interest Expense plus Consolidated Rental Expense under ss.ss.11.2 and 11.3 hereof, (a) for the fiscal quarter ending July 3, 2001, Reference Period shall mean the fiscal quarter ending as of such date, (b) for the fiscal quarter ending October 2, 2001, Reference Period shall mean the period of two consecutive fiscal quarters ending as of such date and (c) for the fiscal quarter ending January 1, 2002, Reference Period shall mean the period of three consecutive fiscal quarters ending as of such date. REGISTER. See ss.16.3. REIMBURSEMENT OBLIGATION. The Borrowers' obligation to reimburse the Administrative Agent and the Lenders on account of any drawing under any Letter of Credit as provided in ss.5.2. REQUIRED LENDERS. As of any date, any combination of Lenders the sum of whose aggregate Revolving Credit Commitments and outstanding principal amounts under the Term Loans constitute at least sixty-six and two-thirds percent (66 2/3%) of the sum of the Total Revolving Commitment and the total outstanding -20- principal amounts under the Term Loans, or, if the Total Revolving Credit Commitment has been terminated or if the Revolving Credit Maturity Date has occurred, any combination of Lenders holding at least sixty-six and two-thirds percent (66 2/3%) of the total outstanding principal amount of the Loans on such date. RESTRICTED PAYMENTS. Collectively, Distributions, payments in respect of any subordinated debt, payments of management, consulting or similar fees to affiliates of any Borrower and derivatives or other transactions with any financial institution, commodities or stock exchange or clearinghouse (a "DERIVATIVES COUNTERPARTY") obligating any Borrower or any Subsidiary to make payments to such Derivatives Counterparty as a result of any change in market value of any Capital Stock of such Borrower or such Subsidiary. REVOLVING CREDIT COMMITMENT. With respect to each Lender, the amount set forth on SCHEDULE 1 hereto as the amount of such Lender's commitment to make Revolving Credit Loans to, and to participate in the issuance, extension and renewal of Letters of Credit for the account of, the Borrowers, as the same may be reduced from time to time; or if such commitment is terminated pursuant to the provisions hereof, zero. REVOLVING CREDIT COMMITMENT PERCENTAGE. With respect to each Lender, the percentage set forth on SCHEDULE 1 hereto as such Lender's percentage of the aggregate Revolving Credit Commitments of all of the Lenders. REVOLVING CREDIT LOANS. Revolving credit loans made or to be made by the Lenders to the Borrowers pursuant to ss.2. REVOLVING CREDIT MATURITY DATE. April 10, 2006. REVOLVING CREDIT NOTE RECORD. A Record with respect to a Revolving Credit Note. REVOLVING CREDIT NOTES. See ss.2.4. SARA. See ss.8.18(a). SECURITIES PLEDGE AGREEMENTS. The several Securities Pledge Agreements, dated or to be dated on or prior to the Closing Date, between certain of the Borrowers and the Administrative Agent and in form and substance satisfactory to the Lenders and the Administrative Agent. "Securities Pledge Agreements" shall also include any securities pledge agreements entered into as security for the Obligations after the Closing Date in accordance with ss.9.17. SECURITY AGREEMENTS. The several Security Agreements, dated or to be dated on or prior to the Closing Date, among the Borrowers and their Subsidiaries and the Administrative Agent and in form and substance satisfactory to the Lenders and the Administrative Agent. -21- SECURITY DOCUMENTS. The Security Agreements, the Mortgages, the Trademark Assignments, the Agency Account Agreements, the Securities Pledge Agreements and all other instruments and documents, including without limitation Uniform Commercial Code financing statements, required to be executed or delivered pursuant to any Security Document. SENIOR SECURED NOTES. Collectively, the 12% Senior Secured Notes, due December 31, 2001 in the outstanding principal amount of $45,700,000 as of January 2, 2001. S&P. Standard & Poor's Ratings Group. SUBSIDIARY. Any corporation, association, trust, or other business entity of which the designated parent shall at any time own directly or indirectly through a Subsidiary or Subsidiaries at least a majority (by number of votes) of the outstanding Voting Stock; PROVIDED that the term "Subsidiary" shall not include PBN Beverage, Inc., a Texas corporation. SURVEY. In relation to each Mortgaged Property owned by a Borrower, an instrument survey of such Mortgaged Property prepared for the Borrower and dated as of a date subsequent to January 1, 2001, which shall show the location of all buildings, structures, easements and utility lines on such Mortgaged Property, shall be sufficient to remove the survey exception from the Title Policy, shall show that all buildings and structures are within the lot lines of such Mortgaged Property, shall not show any encroachments by others, shall show the zoning district or districts in which such Mortgaged Property is located in a flood hazard district as established by the Federal Emergency Management Agency or any successor agency or is located in any flood plain, flood hazard or wetland protection district established under federal, state or local law. SURVEYOR CERTIFICATE. In relation to each Mortgaged Property for which a Survey has been conducted, a certificate executed by the surveyor who prepared such Survey dated as of a recent date and containing such information relating to such Mortgaged Property as the Administrative Agent or the Title Insurance Company may require, such certificate to be satisfactory to the Administrative Agent in form and substance. SYNTHETIC LEASE. Any lease of goods or other property, whether real or personal, which is treated as an operating lease under GAAP and as a loan or financing for U.S. income tax purposes. TERM A COMMITMENT. With respect to each Lender, the amount set forth on SCHEDULE 1 hereto as the amount of such Lender's commitment to make a portion of Term Loan A to the Borrowers. TERM A COMMITMENT PERCENTAGE. With respect to each Lender, the percentage set forth on SCHEDULE 1 hereto as such Lender's percentage of the aggregate Term A Commitments of all the Lenders. -22- TERM A MATURITY DATE. April 10, 2006. TERM A NOTE(S). See ss.4.2.1. TERM A NOTE RECORD. A Record with respect to a Term A Note. TERM B COMMITMENT. With respect to each Lender, the amount set forth on SCHEDULE 1 hereto as the amount of such Lender's commitment to make a portion of Term Loan B to the Borrowers. TERM B COMMITMENT PERCENTAGE. With respect to each Lender, the percentage set forth on SCHEDULE 1 hereto as such Lender's percentage of the aggregate Term B Commitments of all the Lenders. TERM B MATURITY DATE. April 10, 2007. TERM B NOTE(S). See ss.4.2.2. TERM B NOTE RECORD. A Record with respect to a Term B Note. TERM LOAN A. The term loan made or to be made by the Lenders to the Borrowers on the Closing Date in the aggregate principal amount of $30,000,000 pursuant to ss.4.1.1. TERM LOAN B. The term loan made or to be made by the Lenders to the Borrowers on the Closing Date in the aggregate principal amount of $5,000,000 pursuant to ss.4.1.2. TERM LOAN(S). Term Loan A and/or Term Loan B, as the context may require. TERM NOTE(S). The Term A Notes and/or the Term B Notes, as the context may require. TEST PERIOD. (a) In connection with the calculation of financial covenant compliance on a Pro Forma Basis as required by ss.10.5.3(v) with respect to any proposed Permitted Acquisition, the period of four fiscal quarters most recently ended prior to such Permitted Acquisition for which financial information is available, and (b) in connection with the calculation of the covenants set forth in ss.11 hereof following any Permitted Acquisition, the period of four consecutive fiscal quarters ending immediately prior to the date of such Permitted Acquisition included in the calculation of such financial covenant. TITLE INSURANCE COMPANY. Any of Chicago Title Insurance Company, Commonwealth Land Title Insurance Company, Lawyers Title Insurance Corporation or other nationally recognized title insurance company acceptable to the Administrative Agent. TITLE POLICY. In relation to each Mortgaged Property, an ALTA standard form title insurance policy issued by the Title Insurance Company (with such -23- reinsurance or co-insurance as the Administrative Agent may require, any such reinsurance to be with direct access endorsements) in such amount as may be determined by the Administrative Agent insuring the priority of the Mortgage of such Mortgaged Property and that a Borrower or one of its Subsidiaries holds marketable fee simple or leasehold title to such Mortgaged Property, subject only to the encumbrances permitted by such Mortgage and which shall not contain exceptions for mechanics liens, persons in occupancy or matters which would be shown by a survey (except as may be permitted by such Mortgage), shall not insure over any matter except to the extent that any such affirmative insurance is acceptable to the Administrative Agent in its sole discretion, and shall contain such endorsements and affirmative insurance as the Administrative Agent in its discretion may require, including but not limited to (a) comprehensive endorsement, (b) variable rate of interest endorsement, (c) usury endorsement, (d) revolving credit endorsement, (e) tie-in endorsement, and (f) doing business endorsement. TOTAL REVOLVING COMMITMENT. The sum of the Revolving Credit Commitments of the Lenders, as in effect from time to time. As of the Closing Date, the Total Revolving Commitment is $20,000,000. TRADEMARK ASSIGNMENTS. The several Trademark Collateral Security and Pledge Agreements, dated or to be dated on or prior to the Closing Date, made by the Borrowers and their Subsidiaries in favor of the Administrative Agent and the Assignments of Trademarks and Trademarks executed in connection therewith, all in form and substance satisfactory to the Lenders and the Administrative Agent. TYPE. As to any Revolving Credit Loan or all or any portion of a Term Loan, its nature as a Base Rate Loan or a Eurodollar Rate Loan. UNITS. A particular restaurant at a particular location that is owned or operated by a Borrower or a Subsidiary of a Borrower. UNPAID REIMBURSEMENT OBLIGATION. Any Reimbursement Obligation for which the Borrowers do not reimburse the Administrative Agent and the Lenders on the date specified in, and in accordance with,ss.5.2. UNPROFITABLE UNIT. At any time, a Unit whose gross revenues attributable to the operations at such Unit less the cash operating expenses of such Unit (exclusive of rental expenses, taxes, interest and corporate and regional overhead but inclusive of all employees (including in-store managers) whose duties relate primarily to the operations of such unit) on an individual Unit basis for the period consisting of the twelve most recently ended fiscal months is less than $1, PROVIDED that, solely for the purposes of determining whether any Unit is an Unprofitable Unit, it shall be assumed that the net income of each Unit shall be greater than $1 for each of its first six months of operation. UNSECURED NOTES. Collectively, the 10.5% Notes, due December 31, 2001 in the original principal amount of $2,551,000. -24- VOTING STOCK. Stock or similar interests, of any class or classes (however designated), the holders of which are at the time entitled, as such holders, to vote for the election of a majority of the directors (or persons performing similar functions) of the corporation, association, trust or other business entity involved, whether or not the right so to vote exists by reason of the happening of a contingency. 1.2. RULES OF INTERPRETATION. (a) A reference to any document or agreement shall include such document or agreement as amended, modified or supplemented from time to time in accordance with its terms and the terms of this Credit Agreement. (b) The singular includes the plural and the plural includes the singular. (c) A reference to any law includes any amendment or modification to such law. (d) A reference to any Person includes its permitted successors and permitted assigns. (e) Accounting terms not otherwise defined herein have the meanings assigned to them by GAAP applied on a consistent basis by the accounting entity to which they refer. (f) The words "include", "includes" and "including" are not limiting. (g) All terms not specifically defined herein or by GAAP, which terms are defined in the Uniform Commercial Code as in effect in the Commonwealth of Massachusetts, have the meanings assigned to them therein, with the term "INSTRUMENT" being that defined under Article 9 of the Uniform Commercial Code. (h) Reference to a particular "ss." refers to that section of this Credit Agreement unless otherwise indicated. (i) The words "herein", "hereof", "hereunder" and words of like import shall refer to this Credit Agreement as a whole and not to any particular section or subdivision of this Credit Agreement. (j) Unless otherwise expressly indicated, in the computation of periods of time from a specified date to a later specified date, the word "from" means "from and including," the words "to" and "until" each mean "to but excluding," and the word "through" means "to and including." (k) This Credit Agreement and the other Loan Documents may use several different limitations, tests or measurements to regulate the same or -25- similar matters. All such limitations, tests and measurements are, however, cumulative and are to be performed in accordance with the terms thereof. (l) This Credit Agreement and the other Loan Documents are the result of negotiation among, and have been reviewed by counsel to, among others, the Administrative Agent and the Borrowers and are the product of discussions and negotiations among all parties. Accordingly, this Credit Agreement and the other Loan Documents are not intended to be construed against the Administrative Agent or any of the Lenders merely on account of the Administrative Agent's or any Lender's involvement in the preparation of such documents. 2. THE REVOLVING CREDIT FACILITY. 2.1. COMMITMENT TO LEND. Subject to the terms and conditions set forth in this Credit Agreement, each of the Lenders severally agrees to lend to the Borrowers and the Borrowers may borrow, repay, and reborrow on a joint and several basis from time to time from the Closing Date up to but not including the Revolving Credit Maturity Date upon notice by the Borrowers to the Administrative Agent given in accordance with ss.2.6, such sums as are requested by the Borrowers up to a maximum aggregate amount outstanding (after giving effect to all amounts requested) at any one time equal to such Lender's Revolving Credit Commitment MINUS such Lender's Revolving Credit Commitment Percentage of the sum of the Maximum Drawing Amount and all Unpaid Reimbursement Obligations which have not been repaid with the proceeds of Revolving Credit Loans, PROVIDED that the sum of the outstanding amount of the Revolving Credit Loans (after giving effect to all amounts requested) PLUS the Maximum Drawing Amount and all Unpaid Reimbursement Obligations which have not been repaid with the proceeds of Revolving Credit Loans, shall not at any time exceed the Total Revolving Commitment at such time. The Revolving Credit Loans shall be made PRO RATA in accordance with each Lender's Revolving Credit Commitment Percentage. Each request for a Revolving Credit Loan hereunder shall constitute a representation and warranty by the Borrowers that the conditions set forth in ss.12 and ss.13, in the case of the initial Revolving Credit Loans to be made on the Closing Date, and ss.13, in the case of all other Revolving Credit Loans, have been satisfied on the date of such request. Notwithstanding anything contained herein to the contrary, (a) for the period commencing on the Closing Date through the date that is seven (7) days from the Closing Date, the aggregate amount of Revolving Credit Loans outstanding plus the Maximum Drawing Amount and all Unpaid Reimbursement Obligations as of the Closing Date shall not exceed $9,000,000 and (b) for the period commencing on the date that is seven (7) days from the Closing Date through the date that is ten (10) days from the Closing Date, the aggregate amount of Revolving Credit Loans outstanding shall not exceed $6,000,000. 2.2. COMMITMENT FEE. The Borrowers jointly and severally agree to pay to the Administrative Agent for the accounts of the Lenders in accordance with -26- their respective Revolving Credit Commitment Percentages a commitment fee (the "COMMITMENT FEE") calculated at the rate of one-half of one percent (1/2%) per annum on the average daily amount during each calendar quarter or portion thereof from the Closing Date to the Revolving Credit Maturity Date by which the Total Revolving Commitment MINUS the sum of the Maximum Drawing Amount and all Unpaid Reimbursement Obligations exceeds the outstanding amount of Revolving Credit Loans during such calendar quarter. The Commitment Fee shall be payable quarterly in arrears on the first day of each calendar quarter for the immediately preceding calendar quarter commencing on the first such date following the date hereof, with a final payment on the Revolving Credit Maturity Date or any earlier date on which the Revolving Credit Commitments shall terminate. 2.3. REDUCTION OF TOTAL REVOLVING COMMITMENT. The Borrowers shall have the right at any time and from time to time upon five (5) Business Days prior written notice to the Administrative Agent to reduce by an integral multiple of $1,000,000 or to terminate entirely the Total Revolving Commitment, whereupon the Revolving Credit Commitments of the Lenders shall be reduced PRO RATA in accordance with their respective Revolving Credit Commitment Percentages of the amount specified in such notice or, as the case may be, terminated. Promptly after receiving any notice of the Borrowers delivered pursuant to this ss.2.3, the Administrative Agent will notify the Lenders of the substance thereof. Upon the effective date of any such reduction or termination, the Borrowers shall pay to the Administrative Agent for the respective accounts of the Lenders the full amount of any Commitment Fee then accrued on the amount of the reduction. No reduction or termination of the Revolving Credit Commitments may be reinstated. In addition, the Total Revolving Commitment shall be reduced in accordance with ss.4.4.2.4. 2.4. THE REVOLVING CREDIT NOTES. The Revolving Credit Loans shall be evidenced by separate promissory notes of the Borrowers in substantially the form of EXHIBIT A hereto (each a "REVOLVING CREDIT NOTE"), dated as of the Closing Date (or such other date on which a Lender may become a party hereto in accordance with ss.16 hereof) and completed with appropriate insertions. One Revolving Credit Note shall be payable to the order of each Lender in a principal amount equal to such Lender's Revolving Credit Commitment or, if less, the outstanding amount of all Revolving Credit Loans made by such Lender, plus interest accrued thereon, as set forth below. Each of the Borrowers irrevocably authorizes each Lender to make or cause to be made, at or about the time of the Drawdown Date of any Revolving Credit Loan or at the time of receipt of any payment of principal on such Lender's Revolving Credit Note, an appropriate notation on such Lender's Revolving Credit Note Record reflecting the making of such Revolving Credit Loan or (as the case may be) the receipt of such payment. The outstanding amount of the Revolving Credit Loans set forth on such Lender's Revolving Credit Note Record shall be PRIMA FACIE evidence of the principal amount thereof owing and unpaid to such Lender, but the failure to record, or any error in so recording, any such amount on such Lender's Revolving Credit Note Record shall not limit or otherwise affect the obligations of the Borrowers -27- hereunder or under any Revolving Credit Note to make payments of principal of or interest on any Revolving Credit Note when due. 2.5. INTEREST ON REVOLVING CREDIT LOANS. Except as otherwise provided in ss.6.10, (a) Each Revolving Credit Loan which is a Base Rate Loan shall bear interest for the period commencing with the Drawdown Date thereof and ending on the last day of the Interest Period with respect thereto at the rate per annum equal to the Base Rate PLUS the Applicable Margin with respect to Base Rate Loans as in effect from time to time. (b) Each Revolving Credit Loan which is a Eurodollar Rate Loan shall bear interest for the period commencing with the Drawdown Date thereof and ending on the last day of the Interest Period with respect thereto at the rate per annum equal to the Eurodollar Rate determined for such Interest Period PLUS the Applicable Margin with respect to Eurodollar Rate Loans as in effect from time to time. The Borrowers jointly and severally promise to pay interest on each Revolving Credit Loan in arrears on each Interest Payment Date with respect thereto. 2.6. REQUESTS FOR REVOLVING CREDIT LOANS. The Borrowers shall give to the Administrative Agent written notice in the form of EXHIBIT B hereto (or telephonic notice confirmed in a writing in the form of EXHIBIT B hereto) of each Revolving Credit Loan requested hereunder (a "LOAN REQUEST") no less than (a) one (1) Business Day prior to the proposed Drawdown Date of any Base Rate Loan and (b) three (3) Eurodollar Business Days prior to the proposed Drawdown Date of any Eurodollar Rate Loan. Each such notice shall specify (i) the principal amount of the Revolving Credit Loan requested, (ii) the proposed Drawdown Date of such Revolving Credit Loan, (iii) the Interest Period for such Revolving Credit Loan and (iv) the Type of such Revolving Credit Loan. Promptly upon receipt of any such notice, the Administrative Agent shall notify each of the Lenders thereof. Each Loan Request shall be irrevocable and binding on the Borrowers and shall obligate the Borrowers to accept the Revolving Credit Loan requested from the Lenders on the proposed Drawdown Date. Each Loan Request shall be in a minimum aggregate amount of $500,000 or an integral of $100,000 in excess thereof. 2.7. CONVERSION OPTIONS. 2.7.1. CONVERSION TO DIFFERENT TYPE OF REVOLVING CREDIT LOAN. The Borrowers may elect from time to time to convert any outstanding Revolving Credit Loan to a Revolving Credit Loan of another Type, PROVIDED that (a) with respect to any such conversion of a Eurodollar Rate Loan to a Base Rate Loan, the Borrowers shall give the Administrative Agent at least one (1) Business Day prior written notice of such election; (b) with respect to any such conversion of a Base Rate Loan to a Eurodollar Rate Loan, the Borrowers shall give the Administrative Agent at least three (3) Eurodollar -28- Business Days prior written notice of such election; (c) with respect to any such conversion of a Eurodollar Rate Loan into a Base Rate Loan, such conversion shall only be made on the last day of the Interest Period with respect thereto; and (d) no Revolving Credit Loan may be converted into a Eurodollar Rate Loan when any Default or Event of Default has occurred and is continuing. On the date on which such conversion is being made each Lender shall take such action as is necessary to transfer its Revolving Credit Commitment Percentage of such Revolving Credit Loans to its Domestic Lending Office or its Eurodollar Lending Office, as the case may be. All or any part of outstanding Revolving Credit Loans of any Type may be converted into a Revolving Credit Loan of another Type as provided herein, PROVIDED that any partial conversion shall be in an aggregate principal amount of $500,000 or an integral of $100,000 in excess thereof. Each Conversion Request relating to the conversion of a Revolving Credit Loan to a Eurodollar Rate Loan shall be irrevocable by the Borrowers. 2.7.2. CONTINUATION OF TYPE OF REVOLVING CREDIT LOAN. Any Revolving Credit Loan of any Type may be continued as a Revolving Credit Loan of the same Type upon the expiration of an Interest Period with respect thereto by compliance by the Borrowers with the notice provisions contained in ss.2.7.1; PROVIDED that no Eurodollar Rate Loan may be continued as such when any Default or Event of Default has occurred and is continuing, but shall be automatically converted to a Base Rate Loan on the last day of the first Interest Period relating thereto ending during the continuance of any Default or Event of Default of which officers of the Administrative Agent active upon the Borrowers' account have actual knowledge. In the event that the Borrowers fail to provide any such notice with respect to the continuation of any Eurodollar Rate Loan as such, then such Eurodollar Rate Loan shall be automatically converted to a Base Rate Loan on the last day of the first Interest Period relating thereto. The Administrative Agent shall notify the Lenders promptly when any such automatic conversion contemplated by this ss.2.7 is scheduled to occur. 2.7.3 . EURODOLLAR RATE LOANS. Any conversion to or from Eurodollar Rate Loans shall be in such amounts and be made pursuant to such elections so that, after giving effect thereto, the aggregate principal amount of all Eurodollar Rate Loans having the same Interest Period shall not be less than $500,000 or a whole multiple of $100,000 in excess thereof. No more than six (6) Eurodollar Rate Loans having different Interest Periods may be outstanding at any time. 2.8. FUNDS FOR REVOLVING CREDIT LOAN. 2.8.1. FUNDING PROCEDURES. Not later than 11:00 a.m. (Boston time) on the proposed Drawdown Date of any Revolving Credit Loans, each of the Lenders will make available to the Administrative Agent, at the -29- Administrative Agent's Office, in immediately available funds, the amount of such Lender's Revolving Credit Commitment Percentage of the amount of the requested Revolving Credit Loans. Upon receipt from each Lender of such amount, and upon receipt of the documents required by ss.ss.12 and 13 and the satisfaction of the other conditions set forth therein, to the extent applicable, the Administrative Agent will make available to the Borrowers the aggregate amount of such Revolving Credit Loans made available to the Administrative Agent by the Lenders. The failure or refusal of any Lender to make available to the Administrative Agent at the aforesaid time and place on any Drawdown Date the amount of its Revolving Credit Commitment Percentage of the requested Revolving Credit Loans shall not relieve any other Lender from its several obligation hereunder to make available to the Administrative Agent the amount of such other Lender's Revolving Credit Commitment Percentage of any requested Revolving Credit Loans. 2.8.2. ADVANCES BY ADMINISTRATIVE AGENT. The Administrative Agent may, unless notified to the contrary by any Lender prior to a Drawdown Date, assume that such Lender has made available to the Administrative Agent on such Drawdown Date the amount of such Lender's Revolving Credit Commitment Percentage of the Revolving Credit Loans to be made on such Drawdown Date, and the Administrative Agent may (but it shall not be required to), in reliance upon such assumption, make available to the Borrowers a corresponding amount. If any Lender makes available to the Administrative Agent such amount on a date after such Drawdown Date, such Lender shall pay to the Administrative Agent on demand an amount equal to the product of (a) the average computed for the period referred to in clause (c) below, of the weighted average interest rate paid by the Administrative Agent for federal funds acquired by the Administrative Agent during each day included in such period, TIMES (b) the amount of such Lender's Revolving Credit Commitment Percentage of such Revolving Credit Loans, TIMES (c) a fraction, the numerator of which is the number of days that elapse from and including such Drawdown Date to the date on which the amount of such Lender's Revolving Credit Commitment Percentage of such Revolving Credit Loans shall become immediately available to the Administrative Agent, and the denominator of which is 360. A statement of the Administrative Agent submitted to such Lender with respect to any amounts owing under this paragraph shall be PRIMA FACIE evidence of the amount due and owing to the Administrative Agent by such Lender. If the amount of such Lender's Revolving Credit Commitment Percentage of such Revolving Credit Loans is not made available to the Administrative Agent by such Lender within three (3) Business Days following such Drawdown Date, the Administrative Agent shall be entitled to recover such amount from the Borrowers on demand, with interest thereon at the rate per annum applicable to the Revolving Credit Loans made on such Drawdown Date. -30- 3. REPAYMENT OF THE REVOLVING CREDIT LOANS. 3.1. MATURITY. The Borrowers jointly and severally promise to pay on the Revolving Credit Maturity Date, and there shall become absolutely due and payable on the Revolving Credit Maturity Date, all of the Revolving Credit Loans outstanding on such date, together with any and all accrued and unpaid interest thereon. 3.2. MANDATORY REPAYMENTS OF REVOLVING CREDIT LOANS. If at any time the sum of the outstanding amount of the Revolving Credit Loans, the Maximum Drawing Amount and all Unpaid Reimbursement Obligations which have not been repaid with the proceeds of Revolving Credit Loans, exceeds the Total Revolving Commitment at such time, then the Borrowers shall immediately pay the amount of such excess to the Administrative Agent for the respective accounts of the Lenders for application: first, to any Unpaid Reimbursement Obligations which have not been repaid with the proceeds of Revolving Credit Loans; second, to the Revolving Credit Loans; and third, to provide to the Administrative Agent cash collateral for Reimbursement Obligations as contemplated by ss.5.2(b) and (c). Each payment of any Unpaid Reimbursement Obligations or prepayment of Revolving Credit Loans shall be allocated among the Lenders, in proportion, as nearly as practicable, to each Reimbursement Obligation or (as the case may be) the respective unpaid principal amount of each Lender's Revolving Credit Note, with adjustments to the extent practicable to equalize any prior payments or repayments not exactly in proportion. In addition, the Borrowers shall repay the Revolving Credit Loans in accordance with ss.4.4.2.4. 3.3. OPTIONAL REPAYMENTS OF REVOLVING CREDIT LOANS. The Borrowers shall have the right, at their election, to repay the outstanding amount of the Revolving Credit Loans, as a whole or in part, at any time without penalty or premium, PROVIDED that any full or partial prepayment of the outstanding amount of any Eurodollar Rate Loans pursuant to this ss.3.3 may be made only on the last day of the Interest Period relating thereto. The Borrowers shall give the Administrative Agent, no later than 10:00 a.m., Boston time, at least one (1) Business Day prior written notice of any proposed prepayment pursuant to this ss.3.3 of Base Rate Loans, and three (3) Eurodollar Business Days notice of any proposed prepayment pursuant to this ss.3.3 of Eurodollar Rate Loans, in each case specifying the proposed date of prepayment of Revolving Credit Loans and the principal amount to be prepaid. Each such partial prepayment of the Revolving Credit Loans shall be in an integral multiple of $100,000, shall be accompanied by the payment of accrued interest on the principal prepaid to the date of prepayment and shall be applied, in the absence of instruction by the Borrowers, first to the principal of Base Rate Loans and then to the principal of Eurodollar Rate Loans. Each partial prepayment shall be allocated among the Lenders, in proportion, as nearly as practicable, to the respective unpaid principal amount of each Lender's Revolving Credit Note, with adjustments to the extent practicable to equalize any prior repayments not exactly in proportion. -31- 4. THE TERM LOANS. 4.1. COMMITMENT TO LEND. 4.1.1 . TERM LOAN A. Subject to the terms and conditions set forth in this Credit Agreement, each Lender agrees to lend to the Borrowers on the Closing Date the amount of its Term A Commitment Percentage of the principal amount of $30,000,000. 4.1.2 . TERM LOAN B. Subject to the terms and conditions set forth in this Credit Agreement, each Lender agrees to lend to the Borrowers on the Closing Date the amount of its Term B Commitment Percentage of the principal amount of $5,000,000. 4.2. THE TERM NOTES. 4.2.1. TERM LOAN A. Term Loan A shall be evidenced by separate promissory notes of the Borrowers in substantially the form of EXHIBIT C hereto (each a "TERM A NOTE"), dated the Closing Date (or such other date on which a Lender may become a party hereto in accordance with ss.16 hereof) and completed with appropriate insertions. One Term A Note shall be payable to the order of each Lender with a Term A Commitment Percentage in a principal amount equal to such Lender's Term A Commitment Percentage of the Term Loan A and representing the obligation of the Borrowers to pay to such Lender such principal amount or, if less, the outstanding amount of such Lender's Term A Commitment Percentage of the Term Loan A, plus interest accrued thereon, as set forth below. Each of the Borrowers irrevocably authorizes each Lender to make or cause to be made a notation on such Lender's Term A Note Record reflecting the original principal amount of such Lender's Term A Commitment Percentage of the Term Loan A and, at or about the time of such Lender's receipt of any principal payment on such Lender's Term A Note, an appropriate notation on such Lender's Term A Note Record reflecting such payment. The aggregate unpaid amount set forth on such Lender's Term A Note Record shall be PRIMA FACIE evidence of the principal amount thereof owing and unpaid to such Lender, but the failure to record, or any error in so recording, any such amount on such Lender's Term A Note Record shall not affect the obligations of the Borrowers hereunder or under any Term A Note to make payments of principal of and interest on any Term A Note when due. 4.2.2. TERM LOAN B. Term Loan B shall be evidenced by separate promissory notes of the Borrowers in substantially the form of EXHIBIT C hereto (each a "TERM B NOTE"), dated the Closing Date (or such other date on which a Lender may become a party hereto in accordance with ss.16 hereof) and completed with appropriate insertions. One Term B Note shall be payable to the order of each Lender with a Term B Commitment Percentage in a principal amount equal to such Lender's Term B Commitment Percentage of the Term Loan B and representing the obligation of the Borrowers to pay to -32- such Lender such principal amount or, if less, the outstanding amount of such Lender's Term B Commitment Percentage of the Term Loan B, plus interest accrued thereon, as set forth below. Each of the Borrowers irrevocably authorizes each Lender to make or cause to be made a notation on such Lender's Term B Note Record reflecting the original principal amount of such Lender's Term B Commitment Percentage of the Term Loan B and, at or about the time of such Lender's receipt of any principal payment on such Lender's Term B Note, an appropriate notation on such Lender's Term B Note Record reflecting such payment. The aggregate unpaid amount set forth on such Lender's Term B Note Record shall be PRIMA FACIE evidence of the principal amount thereof owing and unpaid to such Lender, but the failure to record, or any error in so recording, any such amount on such Lender's Term B Note Record shall not affect the obligations of the Borrowers hereunder or under any Term B Note to make payments of principal of and interest on any Term B Note when due. 4.3. SCHEDULED REPAYMENT OF TERM LOANS. 4.3.1 . TERM LOAN A. The Borrowers jointly and severally promise to pay to the Administrative Agent for the account of the Lenders the principal amount of the Term Loan A in twenty (20) consecutive quarterly payments in such amounts equal to the amount set forth in the table below opposite the date of such payment, such payments to be due and payable on the last day of each fiscal quarter of each Fiscal Year commencing on July 3, 2001, with a final payment on the Term A Maturity Date in an amount equal to the unpaid balance of the Term Loan A. -------------------------------------- ----------------------------------- Payment Date Amount of Payment -------------------------------------- ----------------------------------- -------------------------------------- ----------------------------------- July 3, 2001 $1,000,000 -------------------------------------- ----------------------------------- -------------------------------------- ----------------------------------- October 2, 2001 $1,000,000 -------------------------------------- ----------------------------------- -------------------------------------- ----------------------------------- January 1, 2002 $1,000,000 -------------------------------------- ----------------------------------- -------------------------------------- ----------------------------------- April 2, 2002 $1,250,000 -------------------------------------- ----------------------------------- -------------------------------------- ----------------------------------- July 2, 2002 $1,250,000 -------------------------------------- ----------------------------------- -------------------------------------- ----------------------------------- October 1, 2002 $1,250,000 -------------------------------------- ----------------------------------- -------------------------------------- ----------------------------------- December 31, 2002 $1,250,000 -------------------------------------- ----------------------------------- -------------------------------------- ----------------------------------- April 1, 2003 $1,250,000 -------------------------------------- ----------------------------------- -------------------------------------- ----------------------------------- July 1, 2003 $1,250,000 -------------------------------------- ----------------------------------- -------------------------------------- ----------------------------------- September 30, 2003 $1,250,000 -------------------------------------- ----------------------------------- -------------------------------------- ----------------------------------- December 30, 2003 $1,250,000 -------------------------------------- ----------------------------------- -------------------------------------- ----------------------------------- -33- March 31, 2004 $1,375,000 -------------------------------------- ----------------------------------- -------------------------------------- ----------------------------------- June 29, 2004 $1,375,000 -------------------------------------- ----------------------------------- -------------------------------------- ----------------------------------- September 28, 2004 $1,375,000 -------------------------------------- ----------------------------------- -------------------------------------- ----------------------------------- December 28, 2004 $1,375,000 -------------------------------------- ----------------------------------- -------------------------------------- ----------------------------------- March 29, 2005 $1,625,000 -------------------------------------- ----------------------------------- -------------------------------------- ----------------------------------- June 28, 2005 $1,625,000 -------------------------------------- ----------------------------------- -------------------------------------- ----------------------------------- September 27, 2005 $1,625,000 -------------------------------------- ----------------------------------- -------------------------------------- ----------------------------------- January 3, 2006 $1,625,000 -------------------------------------- ----------------------------------- -------------------------------------- ----------------------------------- Term A Maturity Date $5,000,000 or balance of Term Loan A outstanding -------------------------------------- ----------------------------------- 4.3.2 . TERM LOAN B. The Borrowers jointly and severally promise to pay to the Administrative Agent for the account of the Lenders the principal amount of the Term Loan B in twenty-one (21) consecutive quarterly payments in such amounts equal to the amount set forth in the table below opposite the date of such payment, such payments to be due and payable on the last day of each fiscal quarter of each Fiscal Year commencing on April 2, 2002, with a final payment on the Term B Maturity Date in an amount equal to the unpaid balance of the Term Loan B. --------------------------------------- ----------------------------------- Payment Date Amount of Payment --------------------------------------- ----------------------------------- --------------------------------------- ----------------------------------- April 2, 2002 $25,000 --------------------------------------- ----------------------------------- --------------------------------------- ----------------------------------- July 2, 2002 $25,000 --------------------------------------- ----------------------------------- --------------------------------------- ----------------------------------- October 1, 2002 $25,000 --------------------------------------- ----------------------------------- --------------------------------------- ----------------------------------- December 31, 2002 $25,000 --------------------------------------- ----------------------------------- --------------------------------------- ----------------------------------- April 1, 2003 $25,000 --------------------------------------- ----------------------------------- --------------------------------------- ----------------------------------- July 1, 2003 $25,000 --------------------------------------- ----------------------------------- --------------------------------------- ----------------------------------- September 30, 2003 $25,000 --------------------------------------- ----------------------------------- --------------------------------------- ----------------------------------- December 30, 2003 $25,000 --------------------------------------- ----------------------------------- --------------------------------------- ----------------------------------- March 31, 2004 $25,000 --------------------------------------- ----------------------------------- --------------------------------------- ----------------------------------- June 29, 2004 $25,000 --------------------------------------- ----------------------------------- --------------------------------------- ----------------------------------- September 28, 2004 $25,000 --------------------------------------- ----------------------------------- --------------------------------------- ----------------------------------- December 28, 2004 $25,000 --------------------------------------- ----------------------------------- --------------------------------------- ----------------------------------- March 29, 2005 $25,000 --------------------------------------- ----------------------------------- --------------------------------------- ----------------------------------- June 28, 2005 $25,000 --------------------------------------- ----------------------------------- --------------------------------------- ----------------------------------- -34- September 27, 2005 $25,000 --------------------------------------- ----------------------------------- --------------------------------------- ----------------------------------- January 3, 2006 $25,000 --------------------------------------- ----------------------------------- --------------------------------------- ----------------------------------- April 4, 2006 $25,000 --------------------------------------- ----------------------------------- --------------------------------------- ----------------------------------- July 4, 2006 $25,000 --------------------------------------- ----------------------------------- --------------------------------------- ----------------------------------- October 3, 2006 $25,000 --------------------------------------- ----------------------------------- --------------------------------------- ----------------------------------- January 2, 2007 $25,000 --------------------------------------- ----------------------------------- --------------------------------------- ----------------------------------- Term B Maturity Date $4,500,000 or balance of Term Loan B outstanding --------------------------------------- ----------------------------------- 4.4. PREPAYMENT OF TERM LOANS. 4.4.1 . OPTIONAL PREPAYMENTS. The Borrowers shall have the right at any time to prepay the Term Notes on or before the Term A Maturity Date or Term B Maturity Date, as applicable, as a whole, or in part, upon not less than five (5) Business Days prior written notice to the Administrative Agent, without premium or penalty, PROVIDED that (a) each partial prepayment shall be in the principal amount of $100,000 or an integral multiple thereof, (b) any portion of a Term Loan bearing interest at the Eurodollar Rate that is prepaid pursuant to this ss.4.4 on a day other than on the last day of the Interest Period relating thereto shall be accompanied by any amounts due under ss.6.9, (c) each prepayment of the Term Loans shall be applied ratably to Term Loan A and Term Loan B in accordance with the outstanding principal amount thereof, (d) each partial prepayment of Term Loan A shall be allocated among the Lenders, in proportion, as nearly as practicable, to the respective outstanding amount of each Lender's Term A Note, with adjustments to the extent practicable to equalize any prior prepayments not exactly in proportion and (e) each partial prepayment of Term Loan B shall be allocated among the Lenders, in proportion, as nearly as practicable, to the respective outstanding amount of each Lender's Term B Note, with adjustments to the extent practicable to equalize any prior prepayments not exactly in proportion. Any prepayment of principal of a Term Loan shall include all interest accrued to the date of prepayment and shall be applied against the scheduled installments of principal due on such Term Loan in the inverse order of maturity. No amount repaid with respect to a Term Loan may be reborrowed. 4.4.2 . MANDATORY PREPAYMENTS. 4.4.2.1. ........EXCESS OPERATING CASH FLOW RECAPTURE. For each Fiscal Year of the Borrowers, commencing with Fiscal Year 2001, the Borrowers shall make a prepayment of the Loans in an amount equal to the Applicable Excess Cash Flow Percentage of the amount of Consolidated Excess Operating Cash Flow for such Fiscal Year, such mandatory prepayment to be due one hundred and thirty-five (135) days after the end of each applicable Fiscal Year and to be applied in the manner set forth in ss.4.4.2.4. -35- 4.4.2.2. ........NET CASH EQUITY ISSUANCE PROCEEDS. Concurrently with the receipt by any Borrower or any Subsidiary of Net Cash Equity Issuance Proceeds, the Borrowers shall pay to the Administrative Agent, to be applied to the respective accounts of the Lenders in the manner set forth in ss.4.4.2.4, an amount equal to that percentage of such proceeds set forth below opposite the Leverage Ratio of the Borrowers and their Subsidiaries determined as of the last day of the most recent fiscal quarter ending prior to the date of receipt of such Net Cash Equity Issuance Proceeds for which financial statements have been delivered pursuant to ss.9.4: -------------------------------------------- ----------------------------- Leverage Ratio Percentage -------------------------------------------- ----------------------------- -------------------------------------------- ----------------------------- < 1.50 to 1.00 0% - -------------------------------------------- ----------------------------- -------------------------------------------- ----------------------------- > 1.50 to 1.00 but < 2.00 to 1.00 50% - - -------------------------------------------- ----------------------------- -------------------------------------------- ----------------------------- > 2.00 to 1.00 75% -------------------------------------------- ----------------------------- 4.4.2.3. ........ PROCEEDS OF CERTAIN EVENTS. Concurrently with the receipt by any Borrower or any Subsidiary of: (a) Net Cash Sale Proceeds in excess of $500,000 per annum from Asset Sales (other than in connection with Permitted Sale-Leasebacks) where such Asset Sale is either permitted pursuant to ss.10.5.2 or consented to in writing by the Required Lenders; (b) Net Cash Sale Proceeds in connection with a Permitted Sale-Leaseback which are not reinvested in the Borrowers' business within two hundred seventy (270) days of receipt of such proceeds by such Person (provided, however, if an Event of Default has occurred and is continuing, such proceeds shall be immediately paid to the Administrative Agent and Net Cash Sale Proceeds from the sale of a Unit acquired by a Borrower within one hundred and eighty (180) days prior to the date of such Permitted Sale-Leaseback shall be applied as provided in ss.10.6 if the Borrower did not deduct Capital Expenditures associated with such Unit from the calculation of Consolidated Excess Operating Cash Flow in the current fiscal period or in any prior period); (c) proceeds received from Casualty Events or any tax refund with respect to any taxable year, by the Borrowers or any of their Subsidiaries, in each case which have not been reinvested in the Borrowers' business within two hundred seventy (270) days of receipt of such proceeds by such Person (PROVIDED, HOWEVER, if an Event of Default has occurred and is continuing, such proceeds shall be immediately paid to the Administrative Agent); or (d) cash proceeds received by a Borrower from the incurrence of additional Consolidated Funded Indebtedness, other than purchase money -36- Indebtedness, intercompany Indebtedness and Indebtedness consisting of Obligations; the Borrowers shall pay to the Administrative Agent for the respective accounts of the Lenders an amount equal to one hundred percent (100%) of such proceeds, to be applied in the manner set forth in ss.4.4.2.4. 4.4.2.4. ........ APPLICATION OF PAYMENTS. Except as otherwise provided in ss.10.6, all payments made pursuant to ss.4.4.2.1, ss.4.4.2.2 or ss.4.4.2.3 shall be applied first against the remaining scheduled installments of principal on each of Term Loan A and Term Loan B on a ratable basis based upon the respective outstanding amounts thereof and against the remaining scheduled installments of each of such Term Loans in the inverse order of maturity and, if there are no outstanding amounts owed on the Term Loans, then to reduce the outstanding amount of the Revolving Credit Loans and to permanently reduce the Total Revolving Commitment by such amount. Each mandatory prepayment of Term Loan A, Term Loan B or the Revolving Credit Loans, respectively, shall be allocated among the Lenders in proportion, as nearly as practicable, to the respective outstanding amounts of each Lender's Term A Note, Term B Note or Revolving Credit Commitment, as applicable, with adjustments to the extent practicable to equalize any prior prepayments not exactly in proportion. No amounts repaid pursuant to this ss.4.4.2 may be reborrowed. The provisions of ss.6.9 shall apply to each prepayment pursuant to this ss.4.4.2.4. 4.5. INTEREST ON THE TERM LOANS. 4.5.1 . TERM LOAN A INTEREST RATES. Except as otherwise provided in ss.6.10, Term Loan A shall bear interest during each Interest Period relating to all or any portion of Term Loan A at the following rates: (a) To the extent that all or any portion of Term Loan A bears interest during such Interest Period at the Base Rate, Term Loan A or such portion shall bear interest during such Interest Period at the rate per annum equal to the Base Rate PLUS the Applicable Margin with respect to Base Rate Loans as in effect from time to time. (b) To the extent that all or any portion of Term Loan A bears interest during such Interest Period at the Eurodollar Rate, Term Loan A or such portion shall bear interest during such Interest Period at the rate per annum equal to the Eurodollar Rate determined for such Interest Period PLUS the Applicable Margin with respect to Eurodollar Rate Loans as in effect from time to time. -37- The Borrowers jointly and severally promise to pay interest on Term Loan A or any portion thereof outstanding during each Interest Period in arrears on each Interest Payment Date applicable to such Interest Period. 4.5.2 . TERM LOAN B INTEREST RATES. Except as otherwise provided in ss.6.10, Term Loan B shall bear interest during each Interest Period relating to all or any portion of Term Loan B at the following rates: (a) To the extent that all or any portion of Term Loan B bears interest during such Interest Period at the Base Rate, Term Loan B or such portion shall bear interest during such Interest Period at the rate per annum equal to the Base Rate as in effect from time to time PLUS two and one-half percent (2.5%). (b) To the extent that all or any portion of Term Loan B bears interest during such Interest Period at the Eurodollar Rate, Term Loan B or such portion shall bear interest during such Interest Period at the rate per annum equal to the Eurodollar Rate determined for such Interest Period PLUS four percent (4%). The Borrowers jointly and severally promise to pay interest on Term Loan B or any portion thereof outstanding during each Interest Period in arrears on each Interest Payment Date applicable to such Interest Period. 4.5.3 NOTIFICATION BY BORROWERS. The Borrowers shall notify the Administrative Agent, such notice to be irrevocable, at least three (3) Eurodollar Business Days prior to the Drawdown Date of a Term Loan if all or any portion of such Term Loan is to bear interest at the Eurodollar Rate. After a Term Loan has been made, the provisions of ss.2.7 shall apply MUTATIS MUTANDIS with respect to all or any portion of such Term Loan so that the Borrowers may have the same interest rate options with respect to all or any portion of such Term Loan as it would be entitled to with respect to the Revolving Credit Loans. 4.5.4. AMOUNTS, ETC. Any portion of a Term Loan bearing interest at the Eurodollar Rate relating to any Interest Period shall be in the amount of $500,000 or an integral of $100,000 in excess thereof. No Interest Period relating to a Term Loan or any portion thereof bearing interest at the Eurodollar Rate shall extend beyond the date on which a regularly scheduled installment payment of the principal of such Term Loan is to be made unless a portion of such Term Loan at least equal to such installment payment has an Interest Period ending on such date or is then bearing interest at the Base Rate. At no time shall there be more than four (4) portions of Term Loan A or more than four (4) portions of Term Loan B bearing interest at the Eurodollar Rate having different Interest Periods. -38- 5. LETTERS OF CREDIT. 5.1. LETTER OF CREDIT COMMITMENTS. 5.1.1. COMMITMENT TO ISSUE LETTERS OF CREDIT. Subject to the terms and conditions hereof and the execution and delivery by the Borrowers of a letter of credit application on the Administrative Agent's customary form (a "LETTER OF CREDIT APPLICATION"), the Administrative Agent on behalf of the Lenders that have a Revolving Credit Commitment and in reliance upon the agreement of the Lenders set forth in ss.5.1.4 and upon the representations and warranties of the Borrowers contained herein, agrees, in its individual capacity, to issue, extend and renew for the account of the Borrowers one or more standby letters of credit (individually, a "LETTER OF CREDIT"), in such form as may be requested from time to time by the Borrowers and agreed to by the Administrative Agent; PROVIDED, HOWEVER, that, after giving effect to such request, (a) the sum of the aggregate Maximum Drawing Amount and all Unpaid Reimbursement Obligations which have not been repaid with the proceeds of Revolving Credit Loans, shall not exceed $5,000,000 (or such greater amount as the Administrative Agent may approve in writing from time to time so long as such amount does not exceed the Total Revolving Commitment) at any one time and (b) the sum of (i) the Maximum Drawing Amount on all Letters of Credit, (ii) all Unpaid Reimbursement Obligations which have not been repaid with the proceeds of Revolving Credit Loans, and (iii) the amount of all Revolving Credit Loans outstanding shall not exceed the Total Revolving Commitment at such time. Notwithstanding the foregoing, the Administrative Agent shall have no obligation to issue any Letter of Credit to support or secure any Indebtedness of any Borrower or any of its Subsidiaries to the extent that such Indebtedness was incurred prior to the proposed issuance date of such Letter of Credit, unless in any such case the Borrowers demonstrate to the satisfaction of the Administrative Agent that (x) such prior incurred Indebtedness were then fully secured by a prior perfected and unavoidable security interest in collateral provided by such Borrower or such Subsidiary to the proposed beneficiary of such Letter of Credit or (y) such prior incurred Indebtedness were then secured or supported by a letter of credit issued for the account of such Borrower or such Subsidiary and the reimbursement obligation with respect to such letter of credit was fully secured by a prior perfected and unavoidable security interest in collateral provided to the issuer of such letter of credit by such Borrower or such Subsidiary or (z) such prior incurred Indebtedness was secured by cash collateral in an amount equal to the face amount of the Letter of Credit to be issued hereunder to support or secure such prior incurred Indebtedness. 5.1.2 . LETTER OF CREDIT APPLICATIONS. Each Letter of Credit Application shall be completed to the satisfaction of the Administrative Agent. In the event that any provision of any Letter of Credit Application shall be inconsistent with any provision of this Credit Agreement, then the -39- provisions of this Credit Agreement shall, to the extent of any such inconsistency, govern. 5.1.3. TERMS OF LETTERS OF CREDIT. Each Letter of Credit issued, extended or renewed hereunder shall, among other things, (a) provide for the payment of sight drafts for honor thereunder when presented in accordance with the terms thereof and when accompanied by the documents described therein, and (b) have an expiry date no later than the date which is fourteen (14) days (or, if the Letter of Credit is confirmed by a confirmer or otherwise provides for one or more nominated persons, forty-five (45) days) prior to the Revolving Credit Maturity Date. Each Letter of Credit so issued, extended or renewed shall be subject to the Uniform Customs and Practice for Documentary Credits (1993 Revision), International Chamber of Commerce Publication No. 500 or any successor version thereto adopted by the Administrative Agent in the ordinary course of its business as a letter of credit issuer and in effect at the time of issuance of such Letter of Credit (the "UNIFORM CUSTOMS") or, in the case of a standby Letter of Credit, either the Uniform Customs or the International Standby Practices (ISP98), International Chamber of Commerce Publication No. 590, or any successor code of standby letter of credit practices among banks adopted by the Administrative Agent in the ordinary course of its business as a standby letter of credit issuer and in effect at the time of issuance of such Letter of Credit. 5.1.4 . REIMBURSEMENT OBLIGATIONS OF LENDERS. Each Lender severally agrees that it shall be absolutely liable, without regard to the occurrence of any Default or Event of Default or any other condition precedent whatsoever, to the extent of such Lender's Revolving Credit Commitment Percentage, to reimburse the Administrative Agent on demand for the amount of each draft paid by the Administrative Agent under each Letter of Credit to the extent that such amount is not reimbursed by the Borrowers pursuant to ss.5.2 or with the proceeds of Revolving Credit Loans advanced pursuant to ss.5.3 (such agreement for a Lender being called herein the "LETTER OF CREDIT PARTICIPATION" of such Lender). 5.1.5 . PARTICIPATIONS OF LENDERS. Each such payment made by a Lender shall be treated as the purchase by such Lender of a participating interest in the Borrowers' Reimbursement Obligation under ss.5.2 in an amount equal to sucH payment. Each Lender shall share in accordance with its participating interest in any interest which accrues pursuant to ss.5.2. 5.2. REIMBURSEMENT OBLIGATION OF THE BORROWERS. In order to induce the Administrative Agent to issue, extend and renew each Letter of Credit and the Lenders to participate therein, the Borrowers hereby jointly and severally agree to reimburse or pay to the Administrative Agent, for the account of the Administrative Agent or (as the case may be) the Lenders, with respect to each -40- Letter of Credit issued, extended or renewed by the Administrative Agent hereunder, (a) except as otherwise expressly provided in ss.5.2(b) and (c) or ss.5.3, on each date that any drAft presented under such Letter of Credit is honored by the Administrative Agent, or the Administrative Agent otherwise makes a payment with respect thereto, (i) the amount paid by the Administrative Agent under or with respect to such Letter of Credit, and (ii) the amount of any taxes, fees, charges or other costs and expenses whatsoever incurred by the Administrative Agent or any Lender in connection with any payment made by the Administrative Agent or any Lender under, or with respect to, such Letter of Credit, (b) upon the reduction (but not termination) of the Total Revolving Commitment to an amount less than the Maximum Drawing Amount, an amount equal to such difference, which amount shall be held by the Administrative Agent for the benefit of the Lenders and the Administrative Agent as cash collateral for all Reimbursement Obligations, and (c) upon the termination of the Total Revolving Commitment, or the acceleration of the Reimbursement Obligations with respect to all Letters of Credit in accordance with ss.14, an amount equal to thE then Maximum Drawing Amount on all Letters of Credit, which amount shall be held by the Administrative Agent for the benefit of the Lenders and the Administrative Agent as cash collateral for all Reimbursement Obligations. Each such payment shall be made to the Administrative Agent at the Administrative Agent's Office in immediately available funds. Except as otherwise provided in ss.5.3 with respect to Unpaid Reimbursement Obligations which are converted tO Revolving Credit Loans, interest on any and all amounts remaining unpaid by the Borrowers under this ss.5.2 at any time froM the date such amounts become due and payable (whether as stated in this ss.5.2, by acceleration or otherwise) until paymenT in full (whether before or after judgment) shall be payable to the Administrative Agent on demand at the rate specified in ss.6.10 for overdue principal on the Revolving Credit Loans. 5.3. LETTER OF CREDIT PAYMENTS. If any draft shall be presented or other demand for payment shall be made under any Letter of Credit, the Administrative Agent shall notify the Borrowers of the date and amount of the draft presented or demand for payment and of the date and time when it expects to pay such draft or honor such demand for payment. If the Borrowers fail to reimburse the Administrative Agent as provided in ss.5.2 on or before the date that such draft is paid oR other payment is made by the Administrative Agent, the Administrative Agent shall at any time thereafter notify the Lenders of the amount of any such Unpaid Reimbursement Obligation. If no Event of Default is then continuing, the Borrower shall be deemed to have requested a Revolving Credit Loan which shall be a Base Rate Loan in an amount equal to the amount of such draft or other -41- payment and the notice from the Administrative Agent to the Lenders shall be deemed to be a notice of Loan Request made by the Administrative Agent. No later than 3:00 p.m. (Boston time) on the Business Day next following the receipt of such notice, each Lender shall make available to the Administrative Agent, at the Administrative Agent's Office, in immediately available funds, such Lender's Revolving Credit Commitment Percentage of such Unpaid Reimbursement Obligation, together with an amount equal to the product of (a) the average, computed for the period referred to in clause (c) below, of the weighted average interest rate paid by the Administrative Agent for federal funds acquired by the Administrative Agent during each day included in such period, TIMES (b) the amount equal to such Lender's Revolving Credit Commitment Percentage of such Unpaid Reimbursement Obligation, TIMES (c) a fraction, the numerator of which is the number of days that elapse from and including the date the Administrative Agent paid the draft presented for honor or otherwise made payment to the date on which such Lender's Revolving Credit Commitment Percentage of such Unpaid Reimbursement Obligation shall become immediately available to the Administrative Agent, and the denominator of which is 360. If no Event of Default is continuing at the time the Administrative Agent notified the Lenders of the amount of such Unpaid Reimbursement Obligation, the amounts made available to the Administrative Agent by the Lenders hereunder shall be treated as Revolving Credit Loans in all respects which bear interest at the Base Rate with a Drawdown Date as of the date on which the Administrative Agent paid the draft presented for honor or otherwise made such payment. If an Event of Default is continuing at the time of such notice, the amount of such draft or other payment made by the Administrative Agent in respect of the applicable Letter of Credit shall be treated in all respects as an Unpaid Reimbursement Obligation. The responsibility of the Administrative Agent to the Borrowers and the Lenders shall be only to determine that the documents (including each draft) delivered under each Letter of Credit in connection with such presentment shall be in conformity in all material respects with such Letter of Credit. 5.4. OBLIGATIONS ABSOLUTE. The Borrowers' obligations under this ss.5 shall be absolute and unconditional under anY and all circumstances and irrespective of the occurrence of any Default or Event of Default or any condition precedent whatsoever or any setoff, counterclaim or defense to payment which any Borrower may have or have had against the Administrative Agent, any Lender or any beneficiary of a Letter of Credit. Each Borrower further agrees with the Administrative Agent and the Lenders that the Administrative Agent and the Lenders shall not be responsible for, and the Borrowers' Reimbursement Obligations under ss.5.2 shall not be affected by, among other things, the validity or genuinenesS of documents or of any endorsements thereon, even if such documents should in fact prove to be in any or all respects invalid, fraudulent or forged, or any dispute between or among any Borrower, the beneficiary of any Letter of Credit or any financing institution or other party to which any Letter of Credit may be transferred or any claims or defenses whatsoever of any Borrower against the beneficiary of any Letter of Credit or -42- any such transferee. The Administrative Agent and the Lenders shall not be liable for any error, omission, interruption or delay in transmission, dispatch or delivery of any message or advice, however transmitted, in connection with any Letter of Credit. Each Borrower agrees that any action taken or omitted by the Administrative Agent or any Lender under or in connection with each Letter of Credit and the related drafts and documents, if done in good faith, shall be binding upon the Borrowers and shall not result in any liability on the part of the Administrative Agent or any Lender to the Borrowers. 5.5. RELIANCE BY ISSUER. To the extent not inconsistent with ss.5.4, the Administrative Agent shall be entitled tO rely, and shall be fully protected in relying upon, any Letter of Credit, draft, writing, resolution, notice, consent, certificate, affidavit, letter, cablegram, telegram, telecopy, telex or teletype message, statement, order or other document believed by it to be genuine and correct and to have been signed, sent or made by the proper Person or Persons and upon advice and statements of legal counsel, independent accountants and other experts selected by the Administrative Agent. The Administrative Agent shall be fully justified in failing or refusing to take any action under this Credit Agreement unless it shall first have received such advice or concurrence of the Required Lenders as it reasonably deems appropriate or it shall first be indemnified to its reasonable satisfaction by the Lenders against any and all liability and expense which may be incurred by it by reason of taking or continuing to take any such action. The Administrative Agent shall in all cases be fully protected in acting, or in refraining from acting, under this Credit Agreement in accordance with a request of the Required Lenders, and such request and any action taken or failure to act pursuant thereto shall be binding upon the Lenders and all future holders of the Revolving Credit Notes or of a Letter of Credit Participation. 5.6. LETTER OF CREDIT FEE. With respect to each Letter of Credit issued hereunder, the Borrowers shall pay to the Administrative Agent a fee (the "LETTER OF CREDIT FEE") for each Letter of Credit issued or renewed by the Administrative Agent at a rate per annum equal to the Applicable Margin with respect to Letters of Credit in effect from time to time, on the Maximum Drawing Amount of such Letter of Credit for the period such Letter of Credit is outstanding. The Administrative Agent shall, in turn, remit to each Lender (including Fleet) such Lender's Revolving Credit Commitment Percentage of the Letter of Credit Fee. In addition, the Borrowers will pay the Administrative Agent, for its own account, a Fronting Fee (the "FRONTING FEE") equal to one-quarter of one percent (0.25%) per annum on the Maximum Drawing Amount of such Letter of Credit for the period such Letter of Credit is outstanding. The Letter of Credit Fee and the Fronting Fee shall be payable quarterly in arrears on the last day of each calendar quarter for the calendar quarter then ending. In respect of each Letter of Credit, the Borrowers shall also pay to the Administrative Agent, for its own account, at such time or times as such charges are customarily made by the Administrative Agent, the Administrative Agent's customary issuance, amendment, negotiation or document examination and other administrative fees as in effect from time to time. -43- 6. CERTAIN GENERAL PROVISIONS. 6.1. FEES. The Borrowers jointly and severally agree to pay to the Administrative Agent all fees described in the Fee Letter in accordance with the terms thereof. 6.2. FUNDS FOR PAYMENTS. 6.2.1 . PAYMENTS TO ADMINISTRATIVE AGENT. All payments of principal, interest, Reimbursement Obligations, Fees and any other amounts due hereunder or under any of the other Loan Documents shall be made on the due date thereof to the Administrative Agent in Dollars, for the respective accounts of the Lenders and the Administrative Agent, at the Administrative Agent's Office or at such other place that the Administrative Agent may from time to time designate, in each case at or about 11:00 a.m. (Boston, Massachusetts, time or other local time at the place of payment) and in immediately available funds. 6.2.2. NO OFFSET, ETC. All payments by the Borrowers hereunder and under any of the other Loan Documents shall be made without recoupment, setoff or counterclaim and free and clear of and without deduction for any taxes, levies, imposts, duties, charges, fees, deductions, withholdings, compulsory loans, restrictions or conditions of any nature now or hereafter imposed or levied by any jurisdiction or any political subdivision thereof or taxing or other authority therein unless the Borrowers are compelled by law to make such deduction or withholding. If any such obligation is imposed upon the Borrowers with respect to any amount payable by it hereunder or under any of the other Loan Documents, the Borrowers will pay to the Administrative Agent, for the account of the Lenders or (as the case may be) the Administrative Agent, on the date on which such amount is due and payable hereunder or under such other Loan Document, such additional amount in Dollars as shall be necessary to enable the Lenders or the Administrative Agent to receive the same net amount which the Lenders or the Administrative Agent would have received on such due date had no such obligation been imposed upon the Borrowers. The Borrowers will deliver promptly to the Administrative Agent certificates or other valid vouchers for all taxes or other charges deducted from or paid with respect to payments made by the Borrowers hereunder or under such other Loan Document. 6.3. COMPUTATIONS. All computations of interest on the Loans and of Fees shall be based on a 360-day year and paid for the actual number of days elapsed. Except as otherwise provided in the definition of the term "INTEREST PERIOD" with respect to Eurodollar Rate Loans, whenever a payment hereunder or under any of the other Loan Documents becomes due on a day that is not a Business Day, the due date for such payment shall be extended to the next succeeding Business Day, and interest shall accrue during such extension. The outstanding amount of the Loans as reflected on the Revolving Credit Note Records and the Term Note -44- Records from time to time shall be considered correct and binding on the Borrowers unless within five (5) Business Days after receipt of any notice by the Administrative Agent or any of the Lenders of such outstanding amount, the Administrative Agent or such Lender shall notify the Borrowers to the contrary. 6.4. INABILITY TO DETERMINE EURODOLLAR RATE. In the event, prior to the commencement of any Interest Period relating to any Eurodollar Rate Loan, the Administrative Agent shall determine or be notified by the Required Lenders that (a) adequate and reasonable methods do not exist for ascertaining the Eurodollar Rate that would otherwise determine the rate of interest to be applicable to any Eurodollar Rate Loan during any Interest Period or (b) the Eurodollar Rate determined or to be determined for such Interest Period will not adequately and fairly reflect the cost to the Lenders of making or maintaining their Eurodollar Rate Loans during such period, the Administrative Agent shall forthwith give notice of such determination (which shall be conclusive and binding on the Borrowers and the Lenders) to the Borrowers and the Lenders. In such event (i) any Loan Request or Conversion Request with respect to Eurodollar Rate Loans shall be automatically withdrawn and shall be deemed a request for Base Rate Loans, (ii) each Eurodollar Rate Loan will automatically, on the last day of the then current Interest Period relating thereto, become a Base Rate Loan, and (iii) the obligations of the Lenders to make Eurodollar Rate Loans shall be suspended until the Administrative Agent or the Required Lenders determine that the circumstances giving rise to such suspension no longer exist, whereupon the Administrative Agent or, as the case may be, the Administrative Agent upon the instruction of the Required Lenders, shall so notify the Borrowers and the Lenders. 6.5. ILLEGALITY. Notwithstanding any other provisions herein, if any present or future law, regulation, treaty or directive or in the interpretation or application thereof shall make it unlawful for any Lender to make or maintain Eurodollar Rate Loans, such Lender shall forthwith give notice of such circumstances to the Borrowers and the other Lenders and thereupon (a) the commitment of such Lender to make Eurodollar Rate Loans or convert Base Rate Loans to Eurodollar Rate Loans shall forthwith be suspended and (b) such Lender's Loans then outstanding as Eurodollar Rate Loans, if any, shall be converted automatically to Base Rate Loans on the last day of each Interest Period applicable to such Eurodollar Rate Loans or within such earlier period as may be required by law. Each Borrower hereby agrees promptly to pay the Administrative Agent for the account of such Lender, upon demand by such Lender, any additional amounts necessary to compensate such Lender for any costs incurred by such Lender in making any conversion in accordance with this ss.6.5, including any interest or fees payable by such Lender to lenders of funds obtained by it in order to make or maintain its Eurodollar Rate Loans hereunder. 6.6. ADDITIONAL COSTS, ETC. If any present or future applicable law, which expression, as used herein, includes statutes, rules and regulations thereunder and interpretations thereof by any competent court or by any governmental or other regulatory body or official charged with the administration or the -45- interpretation thereof and requests, directives, instructions and notices at any time or from time to time hereafter made upon or otherwise issued to any Lender or the Administrative Agent by any central bank or other fiscal, monetary or other authority (whether or not having the force of law), shall: (a) subject any Lender or the Administrative Agent to any tax, levy, impost, duty, charge, fee, deduction or withholding of any nature with respect to this Credit Agreement, the other Loan Documents, any Letters of Credit, such Lender's Revolving Credit Commitment or the Loans (other than taxes based upon or measured by the income or profits of such Lender or the Administrative Agent), or (b) materially change the basis of taxation (except for changes in taxes on income or profits) of payments to any Lender of the principal of or the interest on any Loans or any other amounts payable to any Lender or the Administrative Agent under this Credit Agreement or any of the other Loan Documents, or (c) impose or increase or render applicable (other than to the extent specifically provided for elsewhere in this Credit Agreement) any special deposit, reserve, assessment, liquidity, capital adequacy or other similar requirements (whether or not having the force of law) against assets held by, or deposits in or for the account of, or loans by, or letters of credit issued by, or commitments of an office of any Lender, or (d) impose on any Lender or the Administrative Agent any other conditions or requirements with respect to this Credit Agreement, the other Loan Documents, any Letters of Credit, the Loans, such Lender's Revolving Credit Commitment, or any class of loans, letters of credit or commitments of which any of the Loans or such Lender's Revolving Credit Commitment forms a part, and the result of any of the foregoing is (i) to increase the cost to any Lender of making, funding, issuing, renewing, extending or maintaining any of the Loans or such Lender's Revolving Credit Commitment or any Letter of Credit, or (ii) to reduce the amount of principal, interest, Reimbursement Obligation or other amount payable to such Lender or the Administrative Agent hereunder on account of such Lender's Revolving Credit Commitment, any Letter of Credit or any of the Loans, or (iii) to require such Lender or the Administrative Agent to make any payment or to forego any interest or Reimbursement Obligation or other sum payable hereunder, the amount of which payment or foregone -46- interest or Reimbursement Obligation or other sum is calculated by reference to the gross amount of any sum receivable or deemed received by such Lender or the Administrative Agent from the Borrowers hereunder, then, and in each such case, the Borrowers will, upon demand made by such Lender or (as the case may be) the Administrative Agent at any time and from time to time and as often as the occasion therefor may arise, pay to such Lender or the Administrative Agent such additional amounts as will be sufficient to compensate such Lender or the Administrative Agent for such additional cost, reduction, payment or foregone interest or Reimbursement Obligation or other sum. 6.7.CAPITAL ADEQUACY. If after the date hereof any Lender or the Administrative Agent determines that (a) the adoption of or change in any law, governmental rule, regulation, policy, guideline or directive (whether or not having the force of law) regarding capital requirements for Lenders or Lender holding companies or any change in the interpretation or application thereof by a Governmental Authority with appropriate jurisdiction, or (b) compliance by such Lender or the Administrative Agent or any corporation controlling such Lender or the Administrative Agent with any law, governmental rule, regulation, policy, guideline or directive (whether or not having the force of law) of any such entity regarding capital adequacy, has the effect of reducing the return on such Lender's or the Administrative Agent's commitment with respect to any Loans to a level below that which such Lender or the Administrative Agent could have achieved but for such adoption, change or compliance (taking into consideration such Lender's or the Administrative Agent's then existing policies with respect to capital adequacy and assuming full utilization of such entity's capital) by any amount deemed by such Lender or (as the case may be) the Administrative Agent to be material, then such Lender or the Administrative Agent may notify the Borrowers of such fact. To the extent that the amount of such reduction in the return on capital is not reflected in the Base Rate, the Borrowers agree to pay such Lender or (as the case may be) the Administrative Agent for the amount of such reduction in the return on capital as and when such reduction is determined upon presentation by such Lender or (as the case may be) the Administrative Agent of a certificate in accordance with ss.6.8 hereof. Each LendeR shall allocate such cost increases among its customers in good faith and on an equitable basis. 6.8. CERTIFICATE. A certificate setting forth any additional amounts payable pursuant to ss.ss.6.6 or 6.7 and a brIef explanation of such amounts which are due, submitted by any Lender or the Administrative Agent to the Borrowers, shall be conclusive, absent manifest error, that such amounts are due and owing. 6.9. INDEMNITY. The Borrowers jointly and severally agree to indemnify each Lender and to hold each Lender harmless from and against any loss, cost or expense (including loss of anticipated profits) that such Lender may sustain or incur as a consequence of (a) default by the Borrowers in payment of the principal amount of or any interest on any Eurodollar Rate Loans as and when due -47- and payable, including any such loss or expense arising from interest or fees payable by such Lender to banks of funds obtained by it in order to maintain its Eurodollar Rate Loans, (b) default by the Borrowers in making a borrowing or conversion after the Borrowers have given (or are deemed to have given) a Loan Request, notice (in the case of all or any portion of the Term Loans pursuant to ss.4.5.3) or a Conversion Request relating thereto iN accordance with ss.2.6 or ss.2.7 or ss.4.5 or (c) the making of any payment of a Eurodollar Rate Loan or the making oF any conversion of any such Loan to a Base Rate Loan on a day that is not the last day of the applicable Interest Period with respect thereto, including interest or fees payable by such Lender to lenders of funds obtained by it in order to maintain any such Loans. 6.10. INTEREST AFTER DEFAULT. 6.10.1 . OVERDUE AMOUNTS. Overdue principal and (to the extent permitted by applicable law) interest on the Loans and all other overdue amounts payable hereunder or under any of the other Loan Documents shall bear interest compounded monthly and payable on demand at a rate per annum equal to (a) in the case of any Revolving Credit Loans or Term Loan A the Base Rate PLUS the Applicable Margin for Base Rate Loans then in effect PLUS three percent (3%) per annum and (b) in the case of Term Loan B, the Base Rate PLUS two and one-half percent (2.5%) plus three percent (3%) per annum, in each case until such amount shall be paid in full (after as well as before judgment). 6.10.2 . AMOUNTS NOT OVERDUE. During the continuance of an Event of Default the principal of the Loans not overdue shall, until such Event of Default has been cured, remedied or waived by the Required Lenders pursuant to ss.17.12, bear interest at a rate per annum equal to the rate of interest applicable to overdue principal pursuant to ss.6.10.1. 6.11. CONCERNING JOINT AND SEVERAL LIABILITY OF THE BORROWERS. (a) Each of the Borrowers is accepting joint and several liability hereunder and under the other Loan Documents in consideration of the financial accommodations to be provided by the Lenders and the Administrative Agent under this Credit Agreement, for the mutual benefit, directly and indirectly, of each of the Borrowers and in consideration of the undertakings of each other Borrower to accept joint and several liability for the Obligations. (b) Each of the Borrowers, jointly and severally, hereby irrevocably and unconditionally accepts, not merely as a surety but also as a co-debtor, joint and several liability with the other Borrowers, with respect to the payment and performance of all of the Obligations (including, without limitation, any Obligations arising under this ss.6.11), it being the intention of the parties hereto that all the Obligations shall be thE joint and several obligations of each of the Borrowers without preferences or distinction among them. -48- (c) If and to the extent that any of the Borrowers shall fail to make any payment with respect to any of the Obligations as and when due or to perform any of the Obligations in accordance with the terms thereof, then in each such event the other Borrowers will make such payment with respect to, or perform, such Obligation. (d) The Obligations of each of the Borrowers under the provisions of this ss.6.11 constitute the fulL recourse Obligations of each of the Borrowers enforceable against each such Person to the full extent of its properties and assets, irrespective of the validity, regularity or enforceability of this Credit Agreement or the other Loan Documents or any other circumstance whatsoever as to any other Borrower. (e) Except as otherwise expressly provided herein, each Borrower hereby waives promptness, diligence, presentment, demand, protest, notice of acceptance of its joint and several liability, notice of any and all advances of the Loans made under this Credit Agreement and the Notes, notice of occurrence of any Default or Event of Default (except to the extent notice is expressly required to be given pursuant to the terms of this Credit Agreement or any of the other Loan Documents), or of any demand for any payment under this Credit Agreement, notice of any action at any time taken or omitted by the Administrative Agent or the Lenders under or in respect of any of the Obligations hereunder, any requirement of diligence and, generally, all demands, notices and other formalities of every kind in connection with this Credit Agreement and the other Loan Documents. Each Borrower hereby waives all defenses which may be available by virtue of any valuation, stay, moratorium law or other similar law now or hereafter in effect, any right to require the marshaling of assets of the Borrowers and any other entity or Person primarily or secondarily liable with respect to any of the Obligations, and all suretyship defenses generally. Each Borrower hereby assents to, and waives notice of, any extension or postponement of the time for the payment, or place or manner for payment, compromise, refinancing, consolidation or renewals of any of the Obligations hereunder, the acceptance of any partial payment thereon, any waiver, consent or other action or acquiescence by the Administrative Agent and the Lenders at any time or times in respect of any default by any Borrower in the performance or satisfaction of any term, covenant, condition or provision of this Credit Agreement and the other Loan Documents, any and all other indulgences whatsoever by the Administrative Agent and the Lenders in respect of any of the Obligations hereunder, and the taking, addition, substitution or release, in whole or in part, at any time or times, of any security for any of such Obligations or the addition, substitution or release, in whole or in part, of any Borrower or any other entity or Person primarily or secondarily liable for any Obligation. Such Borrower further agrees that its Obligations shall not be released or discharged, in whole or in part, or otherwise affected by the adequacy of any rights which the Administrative Agent or any Lender may have against any collateral security or other means of obtaining repayment -49- of any of the Obligations, the impairment of any collateral security securing the Obligations, including, without limitation, the failure to protect or preserve any rights which the Administrative Agent or any Lender may have in such collateral security or the substitution, exchange, surrender, release, loss or destruction of any such collateral security, any other act or omission which might in any manner or to any extent vary the risk of such Borrower, or otherwise operate as a release or discharge of such Borrower, all of which may be done without notice to such Borrower; PROVIDED, HOWEVER, that the foregoing shall in no way be deemed to create commercially unreasonable standards as to the Administrative Agent's duties as secured party under the Loan Documents (as such rights and duties are set forth therein). If for any reason any of the other Borrowers has no legal existence or is under no legal obligation to discharge any of the Obligations, or if any of the Obligations have become irrecoverable from any of the other Borrowers by reason of such other Borrower's insolvency, bankruptcy or reorganization or by other operation of law or for any reason, this Credit Agreement and the other Loan Documents to which it is a party shall nevertheless be binding on such Borrower to the same extent as if such Borrower at all times had been the sole obligor on such Obligations. Without limiting the generality of the foregoing, each Borrower assents to any other action or delay in acting or failure to act on the part of the Administrative Agent and the Lenders, including, without limitation, any failure strictly or diligently to assert any right or to pursue any remedy or to comply fully with applicable laws or regulations thereunder which might, but for the provisions of this ss.6.11, afford grounds for terminating, discharging or relieving such Borrower, in whole or iN part, from any of its obligations under this ss.6.11, it being the intention of each Borrower that, so long as anY of the Obligations hereunder remain unsatisfied, the obligations of such Borrower under this ss.6.11 shall not bE discharged except by performance and then only to the extent of such performance. The Obligations of each Borrower under this ss.6.11 shall not be diminished or rendered unenforceable by any winding up, reorganization, arrangement, liquidation, reconstruction or similar proceeding with respect to any reconstruction or similar proceeding with respect to any other Borrower, or any of the Lenders. The joint and several liability of the Borrowers hereunder shall continue in full force and effect notwithstanding any absorption, merger, amalgamation or any other change whatsoever in the name, ownership, membership, constitution or place of formation of any Borrower or the Lenders. Each of the Borrowers acknowledges and confirms that it has itself established its own adequate means of obtaining from each of the other Borrowers on a continuing basis all information desired by such Borrower concerning the financial condition of each of the other Borrowers and that each such Borrower will look to each of the other Borrowers and not to the Administrative Agent or any Lender in order for such Borrower to keep adequately informed of changes in each of the other Borrowers' respective financial conditions. -50- (f) The provisions of this ss.6.11 are made for the benefit of the Lenders and the AdministrativE Agent and their respective permitted successors and assigns, and may be enforced by it or them from time to time against any or all of the Borrowers as often as occasion therefor may arise and without requirement on the part of the Lenders or the Administrative Agent or such successor or assign first to marshall any of its or their claims or to exercise any of its or their rights against any of the other Borrowers or to exhaust any remedies available to it or them against any of the other Borrowers or to resort to any other source or means of obtaining payment of any of the Obligations hereunder or to elect any other remedy. The provisions of this ss.6.11 shalL remain in effect until all of the Obligations shall have been paid in full or otherwise fully satisfied. If at any time, any payment, or any part thereof, made in respect of any of the Obligations, is rescinded or must otherwise be restored or returned by any Lender or the Administrative Agent upon the insolvency, bankruptcy or reorganization of any of the Borrowers, or otherwise, the provisions of this ss.6.11 will forthwith be reinstateD in effect, as though such payment had not been made. (g) Each of the Borrowers hereby agrees that it will not enforce any of its rights of reimbursement, contribution, subrogation or the like against the other Borrowers with respect to any liability incurred by it hereunder or under any of the other Loan Documents, any payments made by it to any of the Lenders or the Administrative Agent with respect to any of the Obligations or any collateral security therefor until such time as all of the Obligations have been irrevocably paid in full in cash. Any claim which any Borrower may have against any other Borrower with respect to any payments to the Lenders or the Administrative Agent hereunder or under any other Loan Documents are hereby expressly made subordinate and junior in right of payment, without limitation as to any increases in the Obligations arising hereunder or thereunder, to the prior payment in full of the Obligations and, in the event of any insolvency, bankruptcy, receivership, liquidation, reorganization or other similar proceeding under the laws of any jurisdiction relating to any Borrower, its debts or its assets, whether voluntary or involuntary, all such Obligations shall be paid in full before any payment or distribution of any character, whether in cash, securities or other property, shall be made to any other Borrower therefor. (h) Each of the Borrowers hereby agrees that the payment of any amounts due with respect to the indebtedness owing by any Borrower to any other Borrower is hereby subordinated to the prior payment in full in cash of the Obligations. Each Borrower hereby agrees that after the occurrence and during the continuance of any Event of Default, such Borrower will not demand, sue for or otherwise attempt to collect any indebtedness of any other Borrower owing to such Borrower until the Obligations shall have been paid in full in cash. If, notwithstanding the foregoing sentence, such Borrower shall collect, enforce or receive any amounts in respect of such indebtedness, such amounts -51- shall be collected, enforced and received by such Borrower as trustee for the Administrative Agent and be paid over to the Administrative Agent for the PRO RATA accounts of the Lenders to be applied to repay the Obligations. 6.12. FURR'S AS AGENT FOR OTHER BORROWERS. Each of the Borrowers, by its execution of this Credit Agreement, irrevocably authorizes Furr's to give and receive all notices and instructions, to take all actions and make such agreements expressed to be capable of being given, received or taken by Furr's or any other Borrower under this Credit Agreement and the other Loan Documents, including, without limitation, the making of any Loan Requests on behalf of such other Borrower, and notwithstanding that such notice, instruction, action or agreement may affect such other Borrower, and each Borrower shall, as regards the Administrative Agent and the Lenders, be bound thereby as though the Borrowers, as applicable, itself had given or received such notice or instruction, taken such action or made such agreement. 7. COLLATERAL SECURITY. 7.1. SECURITY OF BORROWERS. The Obligations shall be secured by a perfected first priority security interest (subject only to Permitted Liens entitled to priority under applicable law) in all of the assets of each of the Borrowers, including accounts and notes receivable, inventory, equipment, real property, licenses, stock of each of the Borrowers (other than Furr's), intangible property and intellectual property, whether now owned or hereafter acquired, pursuant to the terms of the Security Documents to which each such Borrower is a party. 7.2. COLLATERAL NOTES. In addition to the Term Notes and the Revolving Credit Notes, each of the Borrowers agrees that with respect to any of the Real Estate to be mortgaged by it or any of its Subsidiaries hereunder, it will execute and deliver or cause such Subsidiary to execute and deliver to the Administrative Agent such collateral notes (the "COLLATERAL NOTES") in such form as the Administrative Agent and the Borrowers may from time to time agree. The parties hereto hereby agree that (a) the aggregate amount of the outstanding Obligations shall not be increased by the issuance of the Collateral Notes and (b) any payment or recovery on the Collateral Notes shall be applied to the Obligations pursuant to ss.14.4. All Collateral Notes shall be payable to the order of the Administrative Agent, on demand; PROVIDED that thE Administrative Agent hereby agrees that it shall not demand payment on any Collateral Note or negotiate such Collateral Note unless the Obligations shall have become immediately due and payable pursuant to ss.14.1. 8. REPRESENTATIONS AND WARRANTIES. Each of the Borrowers represents and warrants to the Lenders and the Administrative Agent as follows: 8.1. CORPORATE AUTHORITY. -52- 8.1.1 . INCORPORATION; GOOD STANDING. Each of the Borrowers and each of their Subsidiaries (a) is a corporation (or similar business entity) duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation or formation, (b) has all requisite corporate or partnership (or the equivalent company) power to own its property and conduct its business as now conducted and as presently contemplated, and (c) is in good standing as a foreign corporation (or similar business entity) and is duly authorized to do business in each jurisdiction where such qualification is necessary except where a failure to be so qualified would not have a Material Adverse Effect. 8.1.2. AUTHORIZATION. The execution, delivery and performance of this Credit Agreement and the other Loan Documents to which any of the Borrowers or any of their Subsidiaries is or is to become a party and the transactions contemplated hereby and thereby (a) are within the corporate or partnership (or the equivalent company) authority of such Person, (b) have been duly authorized by all necessary corporate (or the equivalent company) proceedings, (c) do not and will not conflict with or result in any breach or contravention of any provision of law, statute, rule or regulation to which any of the Borrowers or any of their Subsidiaries is subject or any judgment, order, writ, injunction, license or permit applicable to any of the Borrowers or any of their Subsidiaries and (d) do not conflict with any provision of the Governing Documents of, or any agreement or other instrument binding upon, any of the Borrowers or any of their Subsidiaries. 8.1.3 . ENFORCEABILITY. The execution and delivery of this Credit Agreement and the other Loan Documents to which any of the Borrowers or any of their Subsidiaries is or is to become a party will result in valid and legally binding obligations of such Person enforceable against it in accordance with the respective terms and provisions hereof and thereof, except as enforceability is limited by bankruptcy, insolvency, reorganization, moratorium or other laws relating to or affecting generally the enforcement of creditors' rights and except to the extent that availability of the remedy of specific performance or injunctive relief is subject to the discretion of the court before which any proceeding therefor may be brought. 8.2. GOVERNMENTAL APPROVALS. The execution, delivery and performance by each Borrower and their Subsidiaries of this Credit Agreement and the other Loan Documents to which any of the Borrowers or any of their Subsidiaries is or is to become a party and the transactions contemplated hereby and thereby do not require the approval or consent of, or filing with, any governmental agency or authority other than those already obtained. 8.3. TITLE TO PROPERTIES; LEASES. Attached hereto as SCHEDULE 8.3 is a complete list of Real Estate owned or leased by the Borrowers. The Borrowers and their Subsidiaries own all of the assets reflected in the consolidated balance sheet of the Borrowers and their Subsidiaries as at the Balance Sheet Date or -53- acquired since that date (except property and assets sold or otherwise disposed of in the ordinary course of business since that date), subject to no Liens or other rights of others, except Permitted Liens. 8.4. FINANCIAL STATEMENTS AND PROJECTIONS. 8.4.1 . FISCAL YEAR. The Borrowers and each of their Subsidiaries have a fiscal year consisting of twelve accounting periods each consisting of four or five weeks and ending on the dates set forth on SCHEDULE 8.4.1 hereto (with quarter-end dates in bold-face type). The term "Fiscal Year XXXX", where "XXXX" is a calendar year, shall refer to the fiscal year of the Borrowers and their Subsidiaries ending during or within seven (7) days following the last day of such calendar year. 8.4.2. FINANCIAL STATEMENTS. There has been furnished to each of the Lenders (a) a consolidated balance sheet of the Borrowers and their Subsidiaries as at December 28, 1999, and a consolidated statement of income of the Borrowers and their Subsidiaries for the fiscal year then ended, certified by KPMG LLP, (b) a draft of the consolidated balance sheet of the Borrowers and their Subsidiaries as at the Balance Sheet Date, and a draft consolidated statement of income of the Borrowers and their Subsidiaries for the fiscal year then ended, to be certified by KPMG LLP and (c) an unaudited monthly consolidated financial statements of the Borrowers and their Subsidiaries as at February 6, 2001. Such balance sheets and statements of income have been prepared in accordance with GAAP (other than the omission of footnotes as to the financial statements referred to in clause (c) above and fairly present the financial condition of the Borrowers as at the close of business on the date thereof and the results of operations for the fiscal year then ended. There are no contingent liabilities of any of the Borrowers or any of their Subsidiaries as of such date involving material amounts, known to the officers of the Borrowers, which were not disclosed in such balance sheet and the notes related thereto. 8.4.3. PRO FORMA BALANCE SHEET AND PROJECTIONS. The Borrowers have delivered to the Administrative Agent a consolidated PRO FORMA balance sheet as of the Closing Date reflecting the borrowing hereunder on such date, which PRO FORMA balance sheet has been prepared in good faith on the basis of the assumptions stated therein. The projections of the annual operating budgets of the Borrowers and their Subsidiaries on a consolidated basis, balance sheets and cash flow statements for the 2001 to 2005 fiscal years, copies of which have been delivered to each Lender, disclose all material assumptions made with respect to general economic, financial and market conditions used in formulating such projections. To the knowledge of any of the Borrowers or any of their Subsidiaries, no facts exist that (individually or in the aggregate) would result in any material adverse change in any of such projections. The projections are based upon reasonable estimates and assumptions, have been prepared on the basis of -54- the assumptions stated therein and reflect the reasonable estimates of the Borrowers and their Subsidiaries of the results of operations and other information projected therein. 8.5. NO MATERIAL ADVERSE CHANGES, ETC. Since the Balance Sheet Date there has been no event or occurrence which has had a Material Adverse Effect. Since the Balance Sheet Date, the Borrowers have not made any Distribution. 8.6. LAWS, LICENSES; FRANCHISES, PATENTS, COPYRIGHTS, ETC. 8.6.1 . LAWS, LICENSES. None of the Borrowers or their Subsidiaries is in violation of or delinquent with respect to, any decree, order, or arbitration award of any court or governmental authority, or any agreement with, or any license or permit from, any governmental authority, or any statute, law, license, rule or regulation including, without limitation, laws and regulations relating to food or liquor, occupational health and safety, equal employment opportunities, fair employment practices, and sex, race, religious or age discrimination, in any of the foregoing cases in a manner that could reasonably be expected to result in the imposition of substantial penalties or materially and adversely affect the financial condition, properties or business of the Borrowers and their Subsidiaries taken as a whole. Any and all approvals by any federal, state or local liquor authority necessary for the continued operation of any restaurant operated by any of the Borrowers or their Subsidiaries with full liquor service have been received and remain in full force and effect. As of the Closing Date, none of the Borrowers nor any of their Subsidiaries have any liquor licenses. 8.6.2 . FRANCHISES, PATENTS, COPYRIGHTS, ETC. Each of the Borrowers and their Subsidiaries possesses all franchises, patents, copyrights, trademarks, trade names, licenses and permits, and rights in respect of the foregoing, adequate for the conduct of the business of the Borrowers and their Subsidiaries, substantially as such business is now conducted without known conflict with any rights of others. 8.7. LITIGATION. Except as set forth in SCHEDULE 8.7 hereto, there are no actions, suits, proceedings or investigations of any kind pending or, to the best knowledge of the Borrowers, threatened against any of the Borrowers or any of their Subsidiaries before any Governmental Authority, that, (a) if adversely determined, might, either in any case or in the aggregate, (i) have a Material Adverse Effect or (ii) materially impair the right of the Borrowers and their Subsidiaries, considered as a whole, to carry on business substantially as now conducted by them, or result in any substantial liability not adequately covered by insurance, or for which adequate reserves are not maintained on the consolidated balance sheet of the Borrowers and their Subsidiaries, or (b) which question the validity of this Credit Agreement or any of the other Loan Documents, or any action taken or to be taken pursuant hereto or thereto. -55- 8.8. NO MATERIALLY ADVERSE CONTRACTS, ETC. None of the Borrowers nor any of their Subsidiaries is subject to any Governing Document or other legal restriction, or any judgment, decree, order, law, statute, rule or regulation that has or is expected in the future to have a Material Adverse Effect. None of the Borrowers nor any of their Subsidiaries is a party to any contract or agreement that has or is expected, in the judgment of the Borrowers' officers, to have any Material Adverse Effect. 8.9. COMPLIANCE WITH OTHER INSTRUMENTS, LAWS, ETC. None of the Borrowers nor any of their Subsidiaries is in violation of any provision of its Governing Documents, or any agreement or instrument to which it may be subject or by which it or any of its properties may be bound or any decree, order, judgment, statute, license, rule or regulation, in any of the foregoing cases in a manner that could result in the imposition of substantial penalties or have a Material Adverse Effect. 8.10. TAX STATUS. Each of the Borrowers and their Subsidiaries (a) have made or filed all federal, state and foreign income and all other tax returns, reports and declarations required by any jurisdiction to which any of them is subject, (b) have paid all taxes and other governmental assessments and charges shown or determined to be due on such returns, reports and declarations, except those being contested in good faith and by appropriate proceedings and (c) have set aside on their books provisions reasonably adequate for the payment of all taxes for periods subsequent to the periods to which such returns, reports or declarations apply. There are no unpaid taxes in any material amount claimed to be due by the taxing authority of any jurisdiction, and none of the officers of the Borrowers know of any basis for any such claim. 8.11. NO EVENT OF DEFAULT. No Default or Event of Default has occurred and is continuing. 8.12. HOLDING COMPANY AND INVESTMENT COMPANY ACTS. None of the Borrowers nor any of their Subsidiaries is 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; nor is it an "INVESTMENT COMPANY", or an "AFFILIATED COMPANY" or a "PRINCIPAL UNDERWRITER" of an "INVESTMENT COMPANY", as such terms are defined in the Investment Company Act of 1940. 8.13. ABSENCE OF FINANCING STATEMENTS, ETC. Except with respect to Permitted Liens and Liens which will be released simultaneously with the funding of the Term Loans contemplated by this Credit Agreement, there is no financing statement, security agreement, chattel mortgage, real estate mortgage or other document filed or recorded with any filing records, registry or other public office, that purports to cover, affect or give notice of any present or possible future Lien on any assets or property of any of the Borrowers or any of their Subsidiaries or any rights relating thereto. -56- 8.14. PERFECTION OF SECURITY INTEREST. All filings, assignments, pledges and deposits of documents or instruments have been made and all other actions have been taken that are necessary or advisable, under applicable law, to establish and perfect the Administrative Agent's security interest in the Collateral. The Collateral and the Administrative Agent's rights with respect to the Collateral are not subject to any setoff, claims, withholdings or other defenses. A Borrower or a Subsidiary of a Borrower party to one of the Security Agreements is the owner of the Collateral free from any Lien, except for Permitted Liens. 8.15. CERTAIN TRANSACTIONS. Except for arm's length transactions pursuant to which any of the Borrowers or any of their Subsidiaries makes payments in the ordinary course of business upon terms no less favorable than such Borrower or such Subsidiary could obtain from third parties, none of the officers, directors, or employees of any of the Borrowers or any of their Subsidiaries is presently a party to any transaction with any of the Borrowers or any of their Subsidiaries (other than for services as employees, officers and directors), including any contract, agreement or other arrangement providing for the furnishing of services to or by, providing for rental of real or personal property to or from, or otherwise requiring payments to or from any officer, director or such employee or, to the knowledge of the Borrowers, any corporation, partnership, trust or other entity in which any officer, director, or any such employee has a substantial interest or is an officer, director, trustee or partner. 8.16. EMPLOYEE BENEFIT PLANS. 8.16.1 . IN GENERAL. Each Employee Benefit Plan and each Guaranteed Pension Plan has been maintained and operated in compliance in all material respects with the provisions of ERISA and all Applicable Pension Legislation and, to the extent applicable, the Code, including but not limited to the provisions thereunder respecting prohibited transactions and the bonding of fiduciaries and other persons handling plan funds as required by ss.412 of ERISA. The Borrowers have heretofore delivered to the Administrative Agent (a) the most recently completed annual report, Form 5500, with all required attachments, and actuarial statement required to be submitted under ss.103(d) of ERISA, with respect to each Guaranteed Pension Plan and (b) a copy of the Cavalcade Pension Plan. 8.16.2 . TERMINABILITY OF WELFARE PLANS. No Employee Benefit Plan, which is an employee welfare benefit plan within the meaning of ss.3(1) or ss.3(2)(B) of ERISA, provides benefit coverage subsequent to termination of employmeNt, except as required by Title I, Part 6 of ERISA or the applicable state insurance laws. The Borrowers may terminate each such Plan at any time (or at any time subsequent to the expiration of any applicable bargaining agreement) in the discretion of the Borrowers without liability to any Person other than for claims arising prior to termination. -57- 8.16.3 . GUARANTEED PENSION PLANS. Each contribution required to be made to a Guaranteed Pension Plan, whether required to be made to avoid the incurrence of an accumulated funding deficiency, the notice or lien provisions of ss.302(f) of ERISA, or otherwise, has been timely made. No waiver of an accumulated funding deficiency or extension of amortization periods has been received with respect to any Guaranteed Pension Plan, and none of the Borrowers nor any ERISA Affiliate is obligated to or has posted security in connection with an amendment to a Guaranteed Pension Plan pursuant to ss.307 of ERISA or ss.401(a)(29)of the Code.No liability to the PBGC (other than required insurance premiums, all of which have been paid) has been incurred by any Borrower or any ERISA Affiliate with respect to any Guaranteed Pension Plan and there has not been any ERISA Reportable Event (other than an ERISA Reportable Event as to which the requirement of 30 days notice has been waived), or any other event or condition which presents a material risk of termination of any Guaranteed Pension Plan by the PBGC. Based on the most recent valuation of each Guaranteed Pension Plan occurring prior to the Closing Date (as reported in the footnotes to the draft financial statements of the Borrowers for the Fiscal Year ended January 2, 2001) and on the actuarial methods and assumptions employed for that valuation, on January 2, 2001 the aggregate benefit liabilities of all such Guaranteed Pension Plans within the meaning of ss.4001 of ERISA did not exceed the aggregate value of the assets of all such Guaranteed Pension Plans by an amount in excess of $6,428,000, disregarding for this purpose the benefit liabilities and assets of any Guaranteed Pension Plan with assets in excess of benefit liabilities. 8.16.4 . MULTIEMPLOYER PLANS. None of the Borrowers nor any ERISA Affiliate has incurred any material liability (including secondary liability) to any Multiemployer Plan as a result of a complete or partial withdrawal from such Multiemployer Plan under ss.4201 of ERISA or as a result of a sale of assets described in ss.4204 of ERISA. None of the Borrowers nor any ERISA Affiliate has been notified that any Multiemployer Plan is in reorganization or insolvent under and within the meaning of ss.4241 or ss.4245 of ERISA or is at risk of entering reorganization or becoming insolvent, or that any Multiemployer Plan intends to terminate or has been terminated under ss.4041A oF ERISA. 8.17. USE OF PROCEEDS. 8.17.1 . GENERAL. The proceeds of the Loans shall be used to refinance the Existing Debt, to pay fees and expenses associated with such refinancing, the acquisition, construction and upgrade of Units and for working capital and general corporate purposes. The Borrowers will obtain Letters of Credit solely for working capital and general corporate purposes. 8.17.2 . REGULATIONS U AND X. No portion of any Loan is to be used, and no portion of any Letter of Credit is to be obtained, for the purpose -58- of purchasing or carrying any "MARGIN SECURITY" or "MARGIN STOCK" as such terms are used in Regulations U and X of the Board of Governors of the Federal Reserve System, 12 C.F.R. Parts 221 and 224. 8.17.3 . INELIGIBLE SECURITIES. No portion of the proceeds of any Loans is to be used, and no portion of any Letter of Credit is to be obtained, for the purpose of knowingly purchasing, or providing credit support for the purchase of, during the underwriting or placement period or within thirty (30) days thereafter, any Ineligible Securities underwritten or privately placed by a Financial Affiliate. 8.18. ENVIRONMENTAL COMPLIANCE. The Borrowers have taken all necessary and reasonable steps to investigate the condition and usage of the Real Estate and the operations conducted thereon and, based upon such investigation, has determined that: (a) except as set forth on SCHEDULE 8.18, none of the Borrowers, their Subsidiaries or to the knowledge of the Borrowers any operator of the Real Estate or any operations thereon is in violation, or alleged violation, of any judgment, decree, order, law, license, rule or regulation pertaining to environmental matters, including without limitation, those arising under the Resource Conservation and Recovery Act ("RCRA"), the Comprehensive Environmental Response, Compensation and Liability Act of 1980 as amended ("CERCLA"), the Superfund Amendments and Reauthorization Act of 1986 ("SARA"), the Federal Clean Water Act, the Federal Clean Air Act, the Toxic Substances Control Act, or any state, local or foreign law, statute, regulation, ordinance, order or decree relating to health, safety or the environment (hereinafter "ENVIRONMENTAL LAWS"), which violation would have a Material Adverse Effect; (b) except as set forth on SCHEDULE 8.18, none of the Borrowers nor any of their Subsidiaries has received notice from any third party including, without limitation, any Governmental Authority, (i) that any one of them has been identified by the United States Environmental Protection Agency ("EPA") as a potentially responsible party under CERCLA with respect to a site listed on the National Priorities List, 40 C.F.R. Part 300 Appendix B; (ii) that any hazardous waste, as defined by 42 U.S.C. ss.6903(5), any hazardous substances as defineD by 42 U.S.C. ss.9601(14), any pollutant or contaminant as defined by 42 U.S.C. ss.9601(33) and any toxic substancEs, oil or hazardous materials or other chemicals or substances regulated by any Environmental Laws ("HAZARDOUS SUBSTANCES") which any one of them has generated, transported or disposed of has been found at any site at which a Governmental Authority has conducted or has ordered that any Borrower or any of their Subsidiaries conduct a remedial investigation, removal or other response action pursuant to any Environmental Law; or (iii) that it is or shall be a named party to any claim, action, cause of action, complaint, or legal or administrative -59- proceeding (in each case, contingent or otherwise) arising out of any third party's incurrence of costs, expenses, losses or damages of any kind whatsoever in connection with the release of Hazardous Substances; (c) except as set forth on SCHEDULE 8.18 attached hereto: (i) none of the Borrowers, their Subsidiaries, their Operators or, to the best of the Borrowers' knowledge, any past owner or operator has used any portion of the Real Estate for the handling, processing, storage or disposal of Hazardous Substances except in accordance with applicable Environmental Laws; and no underground tank or other underground storage receptacle for Hazardous Substances is located on any portion of the Real Estate; (ii) in the course of any activities conducted by the Borrowers, their Subsidiaries or operators of its properties, no Hazardous Substances have been generated or are being used on the Real Estate except in accordance with applicable Environmental Laws; (iii) during the ownership or lease of any Real Estate by any of the Borrowers or their Subsidiaries, or to the best of the Borrowers' knowledge, prior to such time, there have been no releases (i.e. any past or present releasing, spilling, leaking, pumping, pouring, emitting, emptying, discharging, injecting, escaping, disposing or dumping) or, to the best knowledge of the Borrowers, threatened releases of Hazardous Substances on, upon, into or from the properties of the Borrowers or their Subsidiaries, which releases would have a material adverse effect on the value of any of the Mortgaged Property or adjacent properties or the environment; (iv) to the best of each Borrower's knowledge, there have been no releases on, upon, from or into any real property in the vicinity of any of the Real Estate which, through soil or groundwater contamination, may have come to be located on, and which would have a material adverse effect on the value of, the Real Estate; and (v) in addition, during the ownership or lease of any Real Estate by any of the Borrowers or their Subsidiaries, or to the best of the Borrowers' knowledge, prior to such time, any Hazardous Substances that have been generated on any such Real Estate have been transported offsite only by carriers having an identification number issued by the EPA (or the equivalent thereof in any foreign jurisdiction), treated or disposed of only by treatment or disposal facilities maintaining valid permits as required under applicable Environmental Laws, which transporters and facilities have been and are, to the best of each Borrower's knowledge, operating in compliance with such permits and applicable Environmental Laws; and (d) none of the Borrowers, their Subsidiaries, any Mortgaged Property or any of the other Real Estate is subject to any applicable Environmental Law requiring the performance of Hazardous Substances site assessments, or the removal or remediation of Hazardous Substances, or the giving of notice to any Governmental Authority or the recording or delivery to other Persons of an environmental disclosure document or statement by virtue of the transactions set forth herein and contemplated hereby, or as a condition to the recording of any Mortgage or to the effectiveness of any other transactions contemplated hereby. -60- 8.19. SUBSIDIARIES, ETC. SCHEDULE 8.19, as such SCHEDULE 8.19 may be updated from time to time in accordance with the provisions of ss.9.17, lists all Subsidiaries of each Borrower. Except as set forth on SCHEDULE 8.19 hereto, none oF the Borrowers or their Subsidiaries is engaged in any joint venture or partnership with any other Person. 8.20. BANK ACCOUNTS. SCHEDULE 8.20 sets forth the account numbers and location of all bank accounts of each Borrower and their Subsidiaries. 8.21. DISCLOSURE. Neither this Credit Agreement nor any of the other Loan Documents nor any other written information provided to the Lenders by any Borrower or any of their Subsidiaries contains any untrue statement of a material fact or omits to state a material fact (known to any of the Borrowers or any of their Subsidiaries in the case of any document or information not furnished by it or any of its Subsidiaries) necessary in order to make the statements herein or therein not misleading. There is no fact known to any of the Borrowers or any of their Subsidiaries which has a Material Adverse Effect, or which is reasonably likely in the future to have a Material Adverse Effect, exclusive of effects resulting from changes in general economic conditions, legal standards or regulatory conditions. 8.22. LEASES. The execution, delivery and performance of this Credit Agreement and the other Loan Documents to which the Borrowers or any of their Subsidiaries is a party (including a pledge by the Borrowers to the Administrative Agent of all the Capital Stock of the Borrowers (other than Furr's) and the realization by the Administrative Agent on such pledge), will not create a default under any Real Estate Lease under which the Borrowers or any of their Subsidiaries is presently a lessee or sublessee which default is likely to have a Material Adverse Effect. 8.23. SOLVENCY. Both before and after giving effect to this Credit Agreement and the other Loan Documents, all of the Borrowers and their Subsidiaries on a consolidated basis are Solvent. As used herein, "SOLVENT" shall mean that the Borrowers and their Subsidiaries on a consolidated basis (a) will be able to pay their Debts (as defined below) as they become due, (b) will have property which will have a present "fair saleable value" (as described below) greater on a going-concern basis than their probable liability on their Debts as they become absolute and matured, (c) will have property on a going-concern basis that will have a "fair saleable value" greater than the sum of all their Debts, and (d) both before and after giving effect to the execution, delivery and effectiveness of this Credit Agreement and the transactions contemplated hereby, shall not, have not nor will have unreasonably small capital, or be engaged in any businesses or transactions or intend to be engaged in any businesses or transactions for which they have on a consolidated basis unreasonably small capital. For purposes hereof, the "fair saleable value" of the Borrowers' and their Subsidiaries' property has been determined on the basis of the amount which may be realized within a reasonable time, either through collection or sale of such property at the regular market value (determined as the amount which could be obtained for the property in question -61- within such period by a capable and diligent business Person from an interested buyer who is willing to purchase under ordinary selling conditions); and "Debts" means all liabilities, obligations, commitments and indebtedness of any and every kind and nature (including all obligations to trade creditors), whether heretofore, now, or hereafter owing, arising, due or payable by any of the Borrowers or their Subsidiaries to any Person and howsoever evidenced, created, incurred, acquired or owing, whether primary, secondary, direct, contingent, fixed or otherwise. 8.24. UNITS. SCHEDULE 8.25 sets forth, as of the Closing Date, the names and addresses of each Unit and identifies, as of the Closing Date, and which of those Units are in operation. 8.25. FRANCHISE AGREEMENTS. None of the Borrowers or any of their Subsidiaries are party to any franchise agreements. 9. AFFIRMATIVE COVENANTS. Each of the Borrowers covenants and agrees that, so long as any Loan, Unpaid Reimbursement Obligation, Letter of Credit or Note is outstanding or any Lender has any obligation to make any Loans or the Administrative Agent has any obligation to issue, extend or renew any Letters of Credit: 9.1. PUNCTUAL PAYMENT. The Borrowers will duly and punctually pay or cause to be paid the principal and interest on the Loans, all Fees and all other amounts provided for in this Credit Agreement and the other Loan Documents to which any of the Borrowers or any of their Subsidiaries is a party, all in accordance with the terms of this Credit Agreement and such other Loan Documents. 9.2. MAINTENANCE OF OFFICE. Each of the Borrowers will maintain its chief executive office in Richardson, Texas, or at such other place in the United States of America as such Borrower shall designate upon written notice to the Administrative Agent, where notices, presentations and demands to or upon such Borrower in respect of the Loan Documents to which such Borrower is a party may be given or made. 9.3. RECORDS AND ACCOUNTS. Each of the Borrowers will (a) keep, and cause each of their Subsidiaries to keep, true and accurate records and books of account in which full, true and correct entries will be made in accordance with GAAP, (b) maintain adequate accounts and reserves for all taxes (including income taxes), depreciation, depletion, obsolescence and amortization of its properties and the properties of its Subsidiaries, contingencies, and other reserves, and (c) at all times engage KPMG LLP or other independent certified public accountants reasonably satisfactory to the Administrative Agent as the independent certified public accountants of the Borrowers and their Subsidiaries and will not permit more than thirty (30) days to elapse between the cessation of such firm's (or any successor firm's) engagement as the independent certified public accountants of the Borrowers and their Subsidiaries and the appointment -62- in such capacity of a successor firm as shall be reasonably satisfactory to the Administrative Agent. 9.4. FINANCIAL STATEMENTS, CERTIFICATES AND INFORMATION. The Borrowers will deliver to each of the Lenders: (a) as soon as practicable, but in any event not later than April 17, 2001 in the case of Fiscal Year 2000 and not later than ninety (90) days after the end of each subsequent Fiscal Year of the Borrowers, the consolidated balance sheet of the Borrowers and their Subsidiaries as at the end of such year, and the related consolidated statement of income and consolidated statement of cash flow for such year, each setting forth in comparative form the figures for the previous Fiscal Year and all such consolidated statements to be in reasonable detail, prepared in accordance with GAAP, and certified, without qualification and without an expression of uncertainty as to the ability of any of the Borrowers or any of their Subsidiaries to continue as going concerns, by KPMG LLP or by other independent certified public accountants reasonably satisfactory to the Administrative Agent, together with a written statement from such accountants to the effect that they have read a copy of this Credit Agreement, and that, in making the examination necessary to said certification, they have obtained no knowledge of any Default or Event of Default, or, if such accountants shall have obtained knowledge of any then existing Default or Event of Default they shall disclose in such statement any such Default or Event of Default; PROVIDED that such accountants shall not be liable to the Lenders for failure to obtain knowledge of any Default or Event of Default; (b) as soon as practicable, but in any event not later than forty-five (45) days after the end of each of the fiscal quarters of the Borrowers, copies of the unaudited consolidated balance sheet of the Borrowers and their Subsidiaries as at the end of such quarter, and the related consolidated statement of income and consolidated statement of cash flow for the portion of the Borrowers' Fiscal Year then elapsed, all in reasonable detail and prepared in accordance with GAAP, together with a certification by the principal financial or accounting officer of the Borrowers that the information contained in such financial statements fairly presents the financial position of the Borrowers and their Subsidiaries on the date thereof (subject to year-end adjustments and footnotes); (c) as soon as practicable, but in any event within thirty (30) days after the end of each month in each fiscal year of the Borrowers, unaudited monthly consolidated financial statements of the Borrowers and their Subsidiaries for such month prepared in accordance with GAAP, together with a certification by the principal financial or accounting officer of the Borrowers that the information contained in such financial statements fairly presents the financial condition of the Borrowers and their -63- Subsidiaries on the date thereof (subject to year-end adjustments and footnotes); (d) as soon as practicable, but in any event not later than (i) thirty (30) days after the end of each of the fiscal months of the Borrowers and their Subsidiaries, (ii) forty five (45) days after the end of each of the fiscal quarters of the Borrowers and their Subsidiaries and (iii) ninety (90) days after the end of each Fiscal Year of the Borrowers and their Subsidiaries, detailed income statements with respect to such month, quarter or year, as applicable, on an individual Unit-by-Unit basis for each Unit operated by any Borrower or a Subsidiary of a Borrower, such income statements to include the corresponding figures for each Unit from the corresponding period during the previous fiscal year, Unit-by-Unit income to be determined without any deduction or adjustment for expenses related to interest, income taxes, depreciation or amortization or other non-cash charges, gains or losses on the sale of Capital Assets or corporate overhead that may be attributable to such Unit, and to be in a form reasonably satisfactory to the Administrative Agent; (e) simultaneously with the delivery of the financial statements referred to in subsections (a) and (b) above, a statement certified by the principal financial or accounting officer of the Borrowers in substantially the form of EXHIBIT E hereto (a "COMPLIANCE CERTIFICATE") and setting forth in reasonable detail computations evidencing compliance with the covenants contained in ss.11 and (if applicable) reconciliations tO reflect changes in GAAP since the Balance Sheet Date; (f) contemporaneously with the filing or mailing thereof, copies of all material of a financial nature filed with the Securities and Exchange Commission or sent to the stockholders of the Borrowers; (g) as soon as practicable , but in any event not later than thirty (30) days following the end of each Fiscal Year of the Borrowers and otherwise from time to time upon request of the Administrative Agent, one-year budgets of the Borrowers and their Subsidiaries, and, upon the request of the Administrative Agent, projections of the Borrowers and their Subsidiaries updating those projections delivered to the Lenders and referred to in ss.8.4.2 or, if applicable, updating any later such projections delivered in response to a requesT pursuant to this ss.9.4(g); and (h) from time to time such other financial data and information (including accountants, management letters) as the Administrative Agent or any Lender may reasonably request. 9.5. NOTICES. 9.5.1. DEFAULTS. Each of the Borrowers will promptly notify the Administrative Agent and each of the Lenders in writing of the occurrence -64- of any Default or Event of Default, together with a reasonably detailed description thereof, and the actions the Borrowers propose to take with respect thereto. If any Person shall give any notice or take any other action in respect of a claimed default (whether or not constituting an Event of Default) under this Credit Agreement or any other note, evidence of indebtedness, indenture or other obligation to which or with respect to which any of the Borrowers or any of their Subsidiaries is a party or obligor, whether as principal, guarantor, surety or otherwise, the Borrowers shall forthwith give written notice thereof to the Administrative Agent and each of the Lenders, describing the notice or action and the nature of the claimed default. 9.5.2 . ENVIRONMENTAL EVENTS. Each of the Borrowers will promptly give notice to the Administrative Agent and each of the Lenders (a) of any violation of any Environmental Law that any of the Borrowers or any of their Subsidiaries reports in writing or is reportable by such Person in writing (or for which any written report supplemental to any oral report is made) to any Governmental Authority and (b) upon becoming aware thereof, of any inquiry, proceeding, investigation, or other action, including a notice from any agency of potential environmental liability, of any Governmental Authority that could have a Material Adverse Effect. 9.5.3 . NOTIFICATION OF CLAIM AGAINST COLLATERAL. Each of the Borrowers will, immediately upon becoming aware thereof, notify the Administrative Agent and each of the Lenders in writing of any setoff, claims (including, with respect to the Real Estate, environmental claims), withholdings or other defenses to which any of the Collateral, or the Administrative Agent's rights with respect to the Collateral, are subject. 9.5.4. NOTICE OF LITIGATION AND JUDGMENTS. Each of the Borrowers will, and will cause each of its Subsidiaries to, give notice to the Administrative Agent and each of the Lenders in writing within fifteen (15) days of becoming aware of any litigation or proceedings threatened in writing or any pending litigation and proceedings affecting any of the Borrowers or any of their Subsidiaries or to which any of the Borrowers or any of their Subsidiaries is or becomes a party involving an uninsured claim against any of the Borrowers or any of their Subsidiaries that could reasonably be expected to have a Material Adverse Effect on any of the Borrowers or any of their Subsidiaries and stating the nature and status of such litigation or proceedings. Each of Borrowers will, and will cause each of their Subsidiaries to, give notice to the Administrative Agent and each of the Lenders, in writing, in form and detail satisfactory to the Administrative Agent, within ten (10) days of any judgment not covered by insurance, final or otherwise, against any of the Borrowers or any of their Subsidiaries in an amount in excess of $250,000. 9.5.5 . NOTICE AND DELIVERY OF FRANCHISE AGREEMENTS AND NEW UNITS. Each of the Borrowers will give notice to the Administrative Agent in -65- writing within thirty (30) days of it or any of their Subsidiaries entering into or modifying any material provisions relating to compensation, term or advertising requirements under any franchise agreement with any franchisee and will deliver to the Administrative Agent any franchise agreement to which it or any of its Subsidiaries is party within thirty (30) days of such Person entering into such agreement. Each of the Borrowers shall inform the Administrative Agent of any new Unit locations within thirty (30) Business Days of it or any of their Subsidiaries entering into a lease for, or otherwise acquiring, the premises of such Unit. 9.6. LEGAL EXISTENCE; MAINTENANCE OF PROPERTIES. Each of the Borrowers will do or cause to be done all things necessary to preserve and keep in full force and effect its legal existence, rights and franchises and those of their Subsidiaries and will not, and will not cause or permit any of their Subsidiaries to, convert to a limited liability company or a limited liability partnership. Each of the Borrowers (a) will cause all of its properties and those of its Subsidiaries used or useful in the conduct of its business or the business of its Subsidiaries to be maintained and kept in good condition, repair and working order and supplied with all necessary equipment, (b) will cause to be made all necessary repairs, renewals, replacements, betterments and improvements thereof, all as in the judgment of such Borrower may be necessary so that the business carried on in connection therewith may be properly and advantageously conducted at all times, and (c) will, and will cause each of its Subsidiaries to, continue to engage primarily in the businesses now conducted by them and in related businesses; PROVIDED that nothing in this ss.9.6 shall prevent any of the Borrowers froM (i) discontinuing the operation and maintenance of any of their properties or any of those of their Subsidiaries if such discontinuance is, in the judgment of the Borrowers, desirable in the conduct of its or their business and that do not in the aggregate have a Material Adverse Effect and (ii) allowing the federal trademark registration referred to in the Trademark Assignments as the "Lapsing Trademarks" to lapse. 9.7. INSURANCE. 9.7.1. REQUIRED INSURANCE. Each of the Borrowers will, and will cause each of its Subsidiaries to, maintain with financially sound and reputable insurers insurance with respect to its properties and business against such casualties and contingencies as shall be in accordance with the general practices of businesses engaged in similar activities in similar geographic areas and in amounts, containing such terms, in such forms and for such periods as may be reasonable and prudent. Without limiting the foregoing, (a) such insurance shall be in such minimum amounts that such Person will not be deemed a co-insurer under applicable insurance laws, regulations and policies and otherwise shall be in such amounts, contain such terms, be in such forms and be for such periods as may be reasonably satisfactory to the Administrative Agent, (b) all such insurance shall be payable to the Administrative Agent as loss payee under a "standard" or "New York" loss payee clause for the benefit of the Lenders and the Administrative Agent, (c) each such Person will (i) keep all of its physical property insured with casualty or physical hazard insurance on an "all risks" basis, with -66- broad form flood coverage if such property is in a "Flood Zone" under FEMA, earthquake coverage in accordance with the general practices of businesses engaged in similar activities in similar geographic areas, electronic data processing coverage, with a full replacement cost endorsement and an "agreed amount" clause in an amount equal to 100% of the full replacement cost of such property, subject to aggregate sublimits for flood and earthquake equal to those generally maintained by businesses engaged in similar activities in similar geographic areas, (ii) maintain all such workers' compensation or similar insurance as may be required by law and (iii) maintain, in amounts and with deductibles equal to those generally maintained by businesses engaged in similar activities in similar geographic areas, general public liability insurance against claims of bodily injury, death or property damage occurring, on, in or about the properties of such Person; business interruption insurance; and product liability insurance. Each of the Borrowers will, and will cause each of its Subsidiaries to, maintain insurance on the Mortgaged Properties in accordance with the terms of the Mortgages. 9.7.2. INSURANCE PROCEEDS. The proceeds of any casualty insurance in respect of any Casualty Event shall, subject to the rights, if any, of other parties with a prior interest in the property covered thereby, (i) so long as no Event of Default has occurred and is continuing and to the extent that the amount of such proceeds is less than $500,000, be disbursed to the applicable Borrower for reinvestment in such Borrower's business or, if not so reinvested within two hundred and seventy (270) days after receipt thereof, for application to the Obligations in accordance with ss.4.4.2.4 and (ii) in all other circumstances, be held by the Administrative Agent as cash collateral for the Obligations until the earlier of (A) so long as no Event of Default has occurred and is continuing, the Administrative Agent releases such proceeds to the Borrowers for the reinvestment in the Borrowers' business in a manner reasonably satisfactory to the Administrative Agent or (B) the date that is two hundred and seventy (270) days from disbursement of such insurance proceeds by the applicable insurer, at which time such proceeds shall be applied to the Obligations in accordance with ss.4.4.2.4. The Administrative Agent may, so long as no Default or Event of Default has occurred and is continuing and the Borrowers are not required to apply such proceeds to prepay the Obligations pursuant to ss.4.4.2.3, disburse from time to time all or any part of such proceeds so held as cash collateral, upon such terms and conditions as the Administrative Agent may reasonably prescribe, for direct application by such Borrower solely to the repair or replacement of such Borrower's property so damaged or destroyed or other reinvestment in the Borrowers' business. In the event that such proceeds have not been reinvested in the Borrowers' business within two hundred and seventy (270) days after the earlier to occur of receipt thereof by the Borrowers or receipt thereof by the Administrative Agent, the -67- Administrative Agent shall apply all or any part of such proceeds to the Obligations as provided in ss.4.4.2.3. 9.7.3 . NOTICE OF CANCELLATION. All policies of insurance shall provide for at least thirty (30) days prior written notice of cancellation, modification or nonrenewal to the Administrative Agent. In the event of failure by any Borrower to provide and maintain insurance as herein provided, the Administrative Agent may, at its option, provide such insurance and charge the amount thereof to the Borrowers. The Borrowers shall furnish the Administrative Agent with certificates of insurance and policies evidencing compliance with the foregoing insurance provision. 9.8. TAXES. Each of the Borrowers will, and will cause each of their Subsidiaries to, duly pay and discharge, or cause to be paid and discharged, before the same shall become overdue, all taxes, assessments and other governmental charges imposed upon it and its Real Estate, sales and activities, or any part thereof, or upon the income or profits therefrom, as well as all claims for labor, materials, or supplies that if unpaid might by law become a Lien or charge upon any of its property; PROVIDED that any such tax, assessment, charge, levy or claim need not be paid if the validity or amount thereof shall currently be contested in good faith by appropriate proceedings and if such Borrower or such Subsidiary shall have set aside on its books adequate reserves with respect thereto; PROVIDED FURTHER that each Borrower and each Subsidiary of the Borrowers will pay all such taxes, assessments, charges, levies or claims forthwith upon the commencement of proceedings to foreclose any Lien that may have attached as security therefor; and PROVIDED FURTHER that, with respect to any contested tax, assessment, charge, levy or claim, the Borrowers and their Subsidiaries shall furnish a good and sufficient bond or surety to the extent requested by and as reasonably satisfactory to the Administrative Agent. 9.9. INSPECTION OF PROPERTIES AND BOOKS, ENVIRONMENTAL AUDITS, ETC. 9.9.1 . GENERAL. Each of the Borrowers shall permit the Lenders, through the Administrative Agent or any of the Lenders' other designated representatives, to visit and inspect any of the properties of any of the Borrowers or any of their Subsidiaries, to examine the books of account of the Borrowers and their Subsidiaries (and to make copies thereof and extracts therefrom), and to discuss the affairs, finances and accounts of the Borrowers and their Subsidiaries with, and to be advised as to the same by, its and their officers, all at such reasonable times and intervals as the Administrative Agent or any Lender may reasonably request and, so long as no Event of Default is then continuing, upon reasonable advance notice. 9.9.2. ENVIRONMENTAL ASSESSMENTS. During the continuance of an Event of Default, or if the Administrative Agent reasonably determines that any -68- material adverse developments have occurred on any Mortgaged Property which might violate or result in a condition which violates any Environmental Laws, the Administrative Agent may, in its discretion for the purpose of assessing and ensuring the value of any Mortgaged Property, obtain one or more environmental assessments or audits of such Mortgaged Property prepared by a hydrogeologist, an independent engineer or other qualified consultant or expert approved by the Administrative Agent to evaluate or confirm (a) whether any Hazardous Materials are present in the soil or water at such Mortgaged Property and (b) whether the use and operation of such Mortgaged Property complies with all Environmental Laws. Environmental assessments may include without limitation detailed visual inspections of such Mortgaged Property including any and all storage areas, storage tanks, drains, dry wells and leaching areas, and the taking of soil samples, surface water samples and ground water samples, as well as such other investigations or analyses as the Administrative Agent deems appropriate. All such environmental assessments shall be conducted and made at the expense of the Borrowers. No more than one such assessment with respect to each Mortgaged Property shall be made in any twelve month period unless the Administrative Agent reasonably determines that significant material changes have occurred on such Mortgaged Property since the previous assessment thereof and will be conducted in such a manner as will not unnecessarily interfere with a Borrower's operations. The Administrative Agent shall deliver a copy of all such environmental reports and assessments to Borrowers. 9.9.3 . COMMUNICATIONS WITH ACCOUNTANTS. Each of the Borrowers authorizes the Administrative Agent and, if accompanied by the Administrative Agent, the Lenders to communicate directly with the Borrowers' independent certified public accountants and authorizes such accountants to disclose to the Administrative Agent and the Lenders any and all financial statements and other supporting financial documents and schedules including copies of any management letter with respect to the business, financial condition and other affairs of any of the Borrowers or any of their Subsidiaries. At the request of the Administrative Agent, the Borrowers shall deliver a letter addressed to such accountants instructing them to comply with the provisions of this ss.9.9.3. 9.9.4 . ENVIRONMENTAL MONITORING. The Borrowers will comply with the requirements outlined in that certain letter from MFG Consulting Scientists and Engineers dated April 3, 2001 and attached hereto as EXHIBIT H for the site referenced in such letter and shall promptly deliver all reports and test results in connection therewith to the Administrative Agent. 9.10. COMPLIANCE WITH LAWS, CONTRACTS, LICENSES, AND PERMITS. Each of the Borrowers will, and will cause each of their Subsidiaries to, comply with (a) -69- the applicable laws and regulations wherever its business is conducted, including all Environmental Laws, except to the extent that the failure to do so would not have a Material Adverse Effect, (b) the provisions of its Governing Documents, (c) all agreements and instruments by which it or any of its properties may be bound, except to the extent that the failure to do so would not have a Material Adverse Effect, and (d) all applicable decrees, orders, and judgments, except to the extent that the failure to do so would not have a Material Adverse Effect. If any authorization, consent, approval, permit or license from any officer, agency or instrumentality of any government shall become necessary or required in order that any of the Borrowers or any of their Subsidiaries may fulfill any of its obligations hereunder or any of the other Loan Documents to which such Borrower or such Subsidiary is a party, such Borrower will, or (as the case may be) will cause such Subsidiary to, immediately take or cause to be taken all reasonable steps within the power of such Borrower or such Subsidiary to obtain such authorization, consent, approval, permit or license and furnish the Administrative Agent and the Lenders with evidence thereof. Without limiting the foregoing, each of the Borrowers will, and will cause each of its Subsidiaries to, obtain any and all approvals by any federal, state or local liquor authority necessary for the continued operation at all times of any Unit operated by any of the Borrowers or their Subsidiaries with full liquor service. 9.11. EMPLOYEE BENEFIT PLANS. Each of the Borrowers will (a) promptly upon filing the same with the Department of Labor or Internal Revenue Service upon request of the Administrative Agent, furnish to the Administrative Agent a copy of the most recent actuarial statement required to be submitted under ss.103(d) of ERISA and Annual Report, Form 5500, with alL required attachments, in respect of each Guaranteed Pension Plan, and (b) promptly upon receipt or dispatch, furnish to the Administrative Agent any notice, report or demand sent or received in respect of a Guaranteed Pension Plan under ss.ss.302, 4041, 4042, 4043, 4063, 4065, 4066 and 4068 of ERISA, or in respect of a Multiemployer Plan, under ss.ss.4041A, 4202, 4219, 4242, or 4245 of ERISA. 9.12. USE OF PROCEEDS. The Borrowers will use the proceeds of the Loans and obtain Letters of Credit solely for the purposes set forth in ss.8.17.1. 9.13.ADDITIONAL MORTGAGED PROPERTY; NOTICE OF LEASES; SURVEYS AND TITLE INSURANCE. If, after the Closing Date, any of the Borrowers or their Subsidiaries acquires or leases for a term in excess of ten (10) years real estate, and if such acquired property is not subject to a binding commitment pursuant to which such property will be subject to a Permitted Sale-Leaseback (or a Permitted Lien under ss.10.2(viii) to secure purchase money indebtedness which by its terms prohibitS additional Liens on such property of the type contemplated hereby), upon the request of the Administrative Agent such Borrower shall, or shall cause such Subsidiary to (a) forthwith deliver to the Administrative Agent for the benefit of the Lenders and the Administrative Agent a fully executed valid and enforceable first priority (except for purchase money Liens permitted under ss.10.2(viii)) mortgage or deed of trust over such acquired real estate free and clear of all defectS and encumbrances except for -70- Permitted Liens or (b) use its commercially reasonable best efforts forthwith to deliver to the Administrative Agent for the benefit of the Lenders and the Administrative Agent a fully executed valid and enforceable first priority (except for purchase money Liens permitted under ss.10.2(viii)) leasehold mortgage over sucH leased real estate free and clear of all defects and encumbrances except for Permitted Liens, as applicable, each such mortgage, leasehold mortgage or deed of trust to be in form and substance satisfactory to the Administrative Agent, together with title insurance policies, surveys, evidences of insurances with the Administrative Agent named as loss payee and additional insured, legal opinions, required landlord waivers and consents and other documents and certificates with respect to such real estate (such policies, surveys, evidence of insurance, opinions and other documents and certificates referred to in this ss.9.13 as "REAL ESTATE DOCUMENTATION") as is comparable to what was received in respect of thE Mortgaged Property as of the Closing Date or as otherwise required by the Administrative Agent. If, after the Closing Date, any of the Borrowers or their Subsidiaries leases real estate or any lease of Real Estate is extended or otherwise modified in any respect, the applicable Borrower shall, or shall cause the applicable Subsidiary to, use its commercially reasonable best efforts to cause the relevant lessor to execute and deliver (a) a notice of lease (to the extent that a notice of lease is not already recorded in respect of such lease) in form meeting all statutory and recording requirements of the jurisdiction in which the relevant real property is located and (b) a landlord waiver and consent with respect to such leasehold in form and substance reasonably satisfactory to the Administrative Agent. 9.14. BANK ACCOUNTS. On or prior to the Closing Date, each of the Borrowers will, and will cause each of their Subsidiaries to cause all cash receipts, checks and cash proceeds of accounts receivable and other Collateral of the Borrowers and their Subsidiaries to be deposited only into depository accounts with financial institutions that have entered into agency account agreements in substantially the form of EXHIBIT G hereto or in such other form as the Administrative Agent may approve (such agency account agreements referred to herein as "AGENCY ACCOUNT AGREEMENTS" and such depository accounts with financial institutions that have entered into such Agency Account Agreements referred to herein as "AGENCY ACCOUNTS"). The Agency Account Agreements shall provide that at any time before the occurrence of an Event of Default, such Borrower or such Subsidiary, as applicable, shall be entitled, subject to the terms and conditions of such Agency Account Agreements, to direct the financial institutions party thereto to cause all funds of the Borrowers and their Subsidiaries held in the Agency Accounts at such financial institutions to be transferred in accordance with the instructions of such Borrower or such Subsidiary, as applicable. The Agency Account Agreements shall provide that at any time following the occurrence of an Event of Default, the Administrative Agent shall be entitled to direct the financial institutions party thereto to cause all funds of the Borrowers and their Subsidiaries held in the Agency Accounts at such financial institutions to be transferred immediately and at any time thereafter to the Administrative Agent to be applied to the Obligations or held as Collateral, as the Administrative Agent deems appropriate. The Borrowers shall cause all cash receipts and checks in excess of $5,000 at each Unit to be deposited into an Agency Account on at least two separate Business Days during -71- each week (a "week," for the purposes of this ss.9.14, being deemed to begin at the beginning of eacH Monday and end at the end of the following Friday). Notwithstanding the foregoing, the Borrowers may maintain deposits in non-Agency Accounts provided that the aggregate amount of funds in any one such non-Agency Account shall not exceed $10,000 and the aggregate amount of funds in all non-Agency Accounts shall not exceed $50,000. 9.15. INTEREST RATE PROTECTION. The Borrowers will, not later than July 31, 2001, purchase an interest cap or swap or effect other interest rate protection arrangements in a minimum aggregate amount of not less than $20,000,000 for a period of not less than two (2) years and on other terms and conditions satisfactory to the Administrative Agent. 9.16. CONDUCT OF BUSINESS; STORES. The Borrowers will, and will cause their Subsidiaries to, continue to engage only in the business of owning and operating cafeteria and buffet style restaurants and in businesses and activities closely related thereto. 9.17. NEW SUBSIDIARIES. Any new Subsidiary of any Borrower acquired in connection with any Permitted Acquisition to the extent permitted under ss.10.5.3 or otherwise created shall become a Borrower hereunder and become a party to thE Security Documents by (a) signing a joinder agreement, (b) signing allonges to the Revolving Credit Notes and the Term Notes in form and substance satisfactory to the Administrative Agent, and (c) providing such other documentation as the Administrative Agent may reasonably request, including, without limitation, amendments to the Securities Pledge Agreement or new pledge agreements in substantially the same form, mortgages or deeds of trust required by ss.9.13 above, UCC searcheS and filings, legal opinions and corporate or other authorization documentation with respect to such new Subsidiary and other documentation with respect to the conditions specified in ss.12 hereof, and 100% of the equity interests and assets oF each such new Subsidiary shall be pledged to the Administrative Agent for the benefit of the Lenders and the Administrative Agent. In such event, the Administrative Agent is hereby authorized by the parties hereto to amend SCHEDULE 8.19 to include each such new Subsidiary. 9.18. FURTHER ASSURANCES. Each of the Borrowers will, and will cause each of their Subsidiaries to, cooperate with the Lenders and the Administrative Agent and execute such further instruments and documents as the Lenders or the Administrative Agent shall reasonably request to carry out to their satisfaction the transactions contemplated by this Credit Agreement and the other Loan Documents. 10. CERTAIN NEGATIVE COVENANTS. Each of the Borrowers covenants and agrees that, so long as any Loan, Unpaid Reimbursement Obligation, Letter of Credit or Note is outstanding or any -72- Lender has any obligation to make any Loans or the Administrative Agent has any obligations to issue, extend or renew any Letters of Credit: 10.1. RESTRICTIONS ON INDEBTEDNESS. None of the Borrowers will, and none will permit any of its Subsidiaries to, create, incur, assume, guarantee or be or remain liable, contingently or otherwise, with respect to any Indebtedness other than (each of the following being referred to as "PERMITTED INDEBTEDNESS"): (a) Indebtedness to the Lenders and the Administrative Agent arising under any of the Loan Documents; (b) endorsements for collection, deposit or negotiation and warranties of products or services, in each case incurred in the ordinary course of business; (c) Indebtedness incurred in connection with the acquisition after the date hereof of any real or personal property by such Borrower or such Subsidiary or under any Capitalized Lease, PROVIDED that (i) the aggregate principal amount of such Indebtedness of the Borrowers and their Subsidiaries shall not exceed the aggregate amount of $2,000,000 at any one time, and (ii) no Event of Default shall have occurred and be continuing (A) prior to the incurrence of such Indebtedness or (B) as a result of the incurrence of such Indebtedness on a Pro Forma Basis; (d) Indebtedness in respect of Interest Rate Agreements; (e) Indebtedness existing on the date hereof and listed and described on SCHEDULE 10.1 hereto; and (f) Indebtedness of one Borrower to another then existing Borrower; PROVIDED that all such intercompany Indebtedness permitted by this ss.10.1(f), and all instruments evidencing any thereof, shall bE pledged and delivered to the Administrative Agent, for the benefit of the Lenders and the Administrative Agent, as security for the Obligations pursuant to the provisions of the applicable Security Documents, and the Administrative Agent shall have a first priority perfected lien and security interest therein; PROVIDED FURTHER that all such intercompany Indebtedness shall be subordinated to the Obligations on terms satisfactory to the Administrative Agent. 10.2. RESTRICTIONS ON LIENS. 10.2.1 . PERMITTED LIENS. None of the Borrowers will, and none will permit any of its Subsidiaries to, (a) create or incur or suffer to be created or incurred or to exist any Lien upon any of its property or assets of any character whether now owned or hereafter acquired, or upon the income or profits therefrom; (b) transfer any of such property or assets or the income or profits therefrom for the purpose of subjecting the same to the payment of Indebtedness or performance of any other obligation in -73- priority to payment of its general creditors; (c) acquire, or agree or have an option to acquire, any property or assets upon conditional sale or other title retention or purchase money security agreement, device or arrangement; (d) suffer to exist for a period of more than thirty (30) days after the same shall have been incurred any Indebtedness or claim or demand against it that if unpaid might by law or upon bankruptcy or insolvency, or otherwise, be given any priority whatsoever over its general creditors; or (e) sell, assign, pledge or otherwise transfer any "RECEIVABLES" as defined in clause (g) of the definition of the term "INDEBTEDNESS," with or without recourse; PROVIDED that any of the Borrowers or any of their Subsidiaries may create or incur or suffer to be created or incurred or to exist: (i) Liens in favor of any Borrower on all or part of the assets of Subsidiaries of such Borrower securing Indebtedness owing by Subsidiaries of such Borrower to such Borrower; (ii) Liens to secure taxes, assessments and other government charges in respect of obligations not overdue or Liens on properties to secure claims for labor, material or supplies in respect of obligations not overdue more than thirty (30) days; (iii) deposits or pledges made in connection with, or to secure payment of, workmen's compensation, unemployment insurance, old age pensions or other social security obligations; (iv) Liens on properties (including Mortgaged Properties) in respect of judgments or awards that have been in force for less than the applicable period for taking an appeal so long as (x) execution is not levied thereunder or in respect of which such Borrower or such Subsidiary shall at the time in good faith be prosecuting an appeal or proceedings for review and in respect of which a stay of execution shall have been obtained pending such appeal or review and (y) if such property is a Mortgaged Property, such Lien is subordinate to the Lien created by the applicable Mortgage; (v) Liens of carriers, warehousemen, mechanics and materialmen, and other like Liens on properties, in existence less than 120 days from the date of creation thereof in respect of obligations not overdue; (vi) encumbrances on Real Estate consisting of easements, rights of way, zoning restrictions, restrictions on the use of real property and defects and irregularities in the title thereto, landlord's or lessor's liens and other minor Liens, PROVIDED that none of such Liens (A) interferes materially with the use of the property affected in the ordinary conduct of the business of the Borrowers and their Subsidiaries, and (B) individually or in the aggregate have a Material Adverse Effect; -74- (vii) Liens existing on the date hereof and listed on SCHEDULE 10.2 hereto and in the event such Liens secure Indebtedness which is refinanced or extended, Liens securing such refinanced Indebtedness so long as such refinanced Indebtedness constitutes Permitted Indebtedness and the Liens cover only the assets which secured the original Indebtedness as specified on SCHEDULE 10.2 hereto; (viii) purchase money security interests in or purchase money mortgages on real or personal property acquired after the date hereof to secure either (x) purchase money Indebtedness of the type and amount permitted by ss.10.1(c), incurred in connection with the acquisition of such property or (y) trade payables for the purchasE of inventory and supplies incurred in the ordinary course of business and not overdue more than thirty (30) days, which security interests or mortgages in any case cover only the real or personal property so acquired, and Liens in respect of Capitalized Leases to the extent such Capitalized Leases are permitted by ss.10.1(c) and to thE extent such Liens cover only the property subject to such Capitalized Leases; (ix) Liens on each Mortgaged Property as and to the extent permitted by the Mortgage applicable thereto; and (x) Liens in favor of the Administrative Agent for the benefit of the Lenders and the Administrative Agent under the Loan Documents and any Interest Rate Agreements. 10.2.2 . RESTRICTIONS ON NEGATIVE PLEDGES AND UPSTREAM LIMITATIONS. None of the Borrowers will, and none will permit any of its Subsidiaries to (a) enter into or permit to exist any arrangement or agreement (excluding the Credit Agreement and the other Loan Documents) which directly or indirectly prohibits any of the Borrowers or any of their Subsidiaries from creating, assuming or incurring any Lien upon its properties, revenues or assets or those of any of its Subsidiaries whether now owned or hereafter acquired, or (b) enter into any agreement, contract or arrangement (excluding the Credit Agreement and the other Loan Documents) restricting the ability of any Subsidiary of a Borrower to pay or make dividends or distributions in cash or kind to such Borrower, to make loans, advances or other payments of whatsoever nature to such Borrower, or to make transfers or distributions of all or any part of its assets to such Borrower; in each case other than (i) restrictions on specific assets which assets are the subject of purchase money security interests to the extent permitted under ss.10.2.1, and (ii) customary anti-assignment provisions contained in leases and licensing agreements entered into by such Borrower or such Subsidiary in the ordinary course of its business. 10.3. RESTRICTIONS ON INVESTMENTS. None of the Borrowers will, and none will permit any of its Subsidiaries to make or permit to exist or to remain outstanding any Investment except Investments in: -75- (a) marketable direct or guaranteed obligations of the United States of America that mature within one (1) year from the date of purchase by such Borrower; (b) demand deposits, certificates of deposit, bank acceptances and time deposits of United States banks having total assets in excess of $1,000,000,000; (c) securities commonly known as "COMMERCIAL PAPER" issued by a corporation organized and existing under the laws of the United States of America or any state thereof that at the time of purchase have been rated and the ratings for which are not less than "P 1" if rated by Moody's, and not less than "A 1" if rated by S&P; (d) Investments existing on the date hereof and listed on SCHEDULE 10.3 hereto; (e) Loan, Investments and advances by any Borrower in or to another Borrower to the extent permitted by ss.10.1(f); (f) Investments consisting of Permitted Acquisitions; (g) Investments consisting of promissory notes received as proceeds of asset dispositions permitted by ss.10.5.2, PROVIDED that the aggregate value of such promissory notes received in connection with any such asseT disposition shall not exceed five percent (5%) of the aggregate value of the proceeds of such asset disposition; and (h) Investments consisting of loans and advances to employees for moving, entertainment, travel and other similar expenses in the ordinary course of business not to exceed $500,000 in the aggregate at any time outstanding; PROVIDED, HOWEVER, that, with the exception of demand deposits referred to in ss.10.3(b) and loans and advances referred tO in ss.10.3(h), such Investments will be considered Investments permitted by this ss.10.3 only if all actions have been taKen to the satisfaction of the Administrative Agent to provide to the Administrative Agent, for the benefit of the Lenders and the Administrative Agent, a first priority perfected security interest in all of such Investments free of all Liens other than Permitted Liens. 10.4. RESTRICTED PAYMENTS. None of the Borrowers will make any Restricted Payments except for Distributions payable by a Subsidiary of a Borrower to such Borrower. 10.5. MERGER, CONSOLIDATION, DISPOSITION OF ASSETS AND ACQUISITIONS. 10.5.1 . MERGERS AND CONSOLIDATIONS. Subject to ss.10.5.3, none of the Borrowers will, and none will permit any of its Subsidiaries to, become a -76- party to any merger, amalgamation or consolidation, except the merger or consolidation of one or more of the Subsidiaries of any Borrower with and into a Borrower, or the merger or consolidation of two or more Subsidiaries of the Borrowers. 10.5.2 . DISPOSITION OF ASSETS. None of the Borrowers will, and none will permit any of its Subsidiaries to, become a party to or agree to or effect any disposition of assets, other than (a) the sale of inventory and the disposition of obsolete assets, in each case in the ordinary course of business consistent with past practices, (b) Permitted Sale-Leasebacks, (c) the sale of Unprofitable Units in any year, provided that the proceeds of such sales are reinvested in new or existing Units within two hundred seventy (270) days thereafter or are used to prepay the Obligations pursuant to ss.4.4.2.3, (d) the non-exclusive licensing of intellectual property in connection with franchise agreements, and (e) the transfer of the shares of PBN Beverage, Inc. to certain individuals in connection with the issuance of certain liquor licenses to PBN Beverage. Nothing in this ss.10.5.2 is intended to prohibit any Borrower or any of the Borrowers' Subsidiaries from conditionally agreeing to dispose of any assets subject to the prior approval of the Required Lenders (or all of the Lenders in the case of the sale of a material portion of the Collateral) if such Borrower or Subsidiary will not be subject to any penalties in connection with such agreement in the event that the Required Lenders do not consent to such disposition. The Administrative Agent shall release any Collateral disposed of by any Borrower or any Subsidiary of any Borrower if such disposition is in compliance with this ss.10.5.2 and otherwise in accordance with the terms of this Credit Agreement. 10.5.3 . ACQUISITIONS. None of the Borrowers will, and none will permit any of its Subsidiaries to, agree to or effect any asset acquisition or stock acquisition except (a) the acquisition of assets in the ordinary course of business consistent with past practices, and (b) the acquisition in a single transaction or series of related transactions (a "PERMITTED ACQUISITION") by a Borrower of (i) a 100% interest in any other person (whether of stock or of substantially all of the assets of a business or business division as a going concern or by means of a merger or consolidation) or (ii) two or more restaurants that will become Units, PROVIDED that all of the following conditions shall have been satisfied: (i) such other Person shall operate a similar business to that of the Borrowers, (ii) no Default or Event of Default shall have occurred and be continuing and none shall exist or could reasonably be expected to exist on a Pro Forma Basis after giving effect thereto, (iii) if a Borrower shall merge with such other Person, such Borrower shall be the surviving party of such merger, (iv) if such Person shall become a Subsidiary of any Borrower, such new Subsidiary shall become a Borrower pursuant to, and take all other actions required by,ss.9.17 hereof, (v) such Borrower shall have delivered to the Administrative Agent Compliance Certificates (such Compliance Certificates to be distributed to the Lenders by the Administrative Agent) -77- demonstrating, both immediately prior to and immediately after such acquisition, compliance on a Pro Forma Basis with the covenants set forth in ss.11 of this Credit Agreement, (vi) the aggregate amount expended (either in cash or through the issuance of Indebtedness) by the Borrowers and their Subsidiaries for any single Permitted Acquisition shall not exceed $2,500,000, (vii) the aggregate amount expended (either in cash or through the issuance of Indebtedness) by the Borrowers and their Subsidiaries for all Permitted Acquisitions shall not exceed $5,000,000, and (viii) the aggregate value of capital stock issued by the Borrowers in payment for any Permitted Acquisitions shall not exceed $7,500,000 during the term of this Credit Agreement. Nothing in this ss.10.5.3 is intended to prohibit any Borrower or any of the Borrowers' Subsidiaries from conditionally agreeing to any asset or stock acquisition subject to the prior approval of the Required Lenders if such Borrower or Subsidiary will not be subject to any penalties in connection with such agreement in the event that the Required Lenders do not consent to such acquisition. 10.6. SALE AND LEASEBACK. None of the Borrowers will, and none will permit any of its Subsidiaries to, enter into any arrangement, directly or indirectly, whereby any Borrower or any Subsidiary of any Borrower shall sell or transfer any property owned by it in order then or thereafter to lease such property or lease other property that any Borrower or any Subsidiary of any Borrower intends to use for substantially the same purpose as the property being sold or transferred (a "SALE-LEASEBACK"); PROVIDED that, so long as no Event of Default has occurred and is continuing, a Borrower or a Borrower's Subsidiary may enter into a Sale-Leaseback with respect to Units or a leasehold or fee interest in Real Estate if (a) the terms of the sale as such are comparable to terms which could be obtained in an arms length sale among unaffiliated parties not involving a Sale-Leaseback transaction and (b) the terms of the lease as such are comparable to terms which could be obtained in an arms length commercial operating lease among unaffiliated parties and, PROVIDED FURTHER that, assuming that such Sale-Leaseback (and any repayment of Indebtedness in conjunction therewith) had occurred immediately prior to the period of four consecutive fiscal quarters most recently ended, no Event of Default would have occurred under ss.11 after giving effect to such Sale-Leaseback (such Sale-Leaseback referred to herein as a "PERMITTED SALE-LEASEBACK"). Notwithstanding anything to the contrary set forth in ss.4.4.2.3 and ss.4.4.2.4 , (x) if a Unit which is sold in connectIon with a Permitted Sale-Leaseback was acquired by a Borrower or a Subsidiary of a Borrower within the 180-day period immediately preceding the date of such Permitted Sale-Leaseback, and the Borrowers did not deduct from the calculation of Consolidated Excess Operating Cash Flow in the current fiscal period or any prior period any Capital Expenditures associated with the Unit sold in connection with such Permitted Sale-Leaseback, the Borrowers shall apply the Net Cash Proceeds from such sale to repay any outstanding Revolving Credit Loans (but the Total Revolving Commitment shall not be reduced by the amount of such payment) and so long as no Event of Default is then continuing, any excess Net Cash Proceeds remaining after the Revolving Credit Loans have been repaid in full may be retained by the Borrowers. The Administrative Agent shall release any Collateral disposed of by such Borrower or any Subsidiary of such Borrower -78- if such disposition is in compliance with ss.10.5.2 and otherwise with the terms hereof. 10.7. COMPLIANCE WITH ENVIRONMENTAL LAWS. Except to the extent permitted under applicable Environmental Laws and in connection with the primary business of the Borrowers or their Subsidiaries, none of the Borrowers will, and none will permit any of its Subsidiaries to, (a) use any of the Real Estate or any portion thereof for the handling, processing, storage or disposal of Hazardous Substances, (b) cause or permit to be located on any of the Real Estate any underground tank or other underground storage receptacle for Hazardous Substances, or (c) generate any Hazardous Substances on any of the Real Estate. None of the Borrowers will, and none will permit any of its Subsidiaries to (i) conduct any activity at any Real Estate or use any Real Estate in any manner so as to cause a release (i.e. releasing, spilling, leaking, pumping, pouring, emitting, emptying, discharging, injecting, escaping, leaching, disposing or dumping) or threatened release of Hazardous Substances on, upon or into the Real Estate or (ii) otherwise conduct any activity at any Real Estate or use any Real Estate in any manner that would violate any Environmental Law or bring such Real Estate in violation of any Environmental Law. 10.8. EMPLOYEE BENEFIT PLANS.None of the Borrowers nor any ERISA Affiliate will: (a) engage in any "PROHIBITED TRANSACTION" within the meaning of ss.406 of ERISA or ss.4975 of the COde which could result in a material liability for any of the Borrowers or any of their Subsidiaries; or (b) permit any Guaranteed Pension Plan to incur an "ACCUMULATED FUNDING DEFICIENCY", as such term is defined in ss.302 of ERISA, whether or not such deficiency is or may be waived; oR (c) fail to contribute to any Guaranteed Pension Plan to an extent which, or terminate any Guaranteed Pension Plan in a manner which, could result in the imposition of a lien or encumbrance on the assets of any of the Borrowers or any of their Subsidiaries pursuant to ss.302(f) or ss.4068 of ERISA; or (d) amend any Guaranteed Pension Plan in circumstances requiring the posting of security pursuant to ss.307 of ERISA or ss.401(a)(29) of the Code; or (e) permit or take any action which would result in the aggregate projected benefit obligations as determined for financial accounting purposes of all Guaranteed Pension Plans exceeding the value of the aggregate assets of such Plans by an amount which at the relevant time of reference thereto is in excess of $6,428,000, disregarding for this purpose the benefit liabilities and assets of any such Plan with assets in excess of benefit liabilities. -79- 10.9. FISCAL YEAR. None of the Borrowers will, and none will permit any of its Subsidiaries to, change the date of the end of its Fiscal Year from that set forth in ss.8.4.1. 10.10. TRANSACTIONS WITH AFFILIATES. None of the Borrowers will, and none will permit any of its Subsidiaries to, engage in any transaction with any Affiliate (other than for services as employees, officers and directors), including any contract, agreement or other arrangement providing for the furnishing of services to or by, providing for rental of real or personal property to or from, or otherwise requiring payments to or from any such Affiliate or, to the knowledge of any Borrower, any corporation, partnership, trust or other entity in which any such Affiliate has a substantial interest or is an officer, director, trustee or partner, on terms more favorable to such Person than would have been obtainable on an arm's-length basis in the ordinary course of business. 10.11. BANK ACCOUNTS. None of the Borrowers will, and none will permit any of its Subsidiaries to, (a) establish any bank accounts other than those listed on SCHEDULE 8.20, without the Administrative Agent's prior written consent (not to be unreasonably withheld in the case of accounts that will contain less than ten thousand dollars ($10,000) at any one time), unless an Agency Account Agreement is executed with respect to such account (and such account becomes an Agency Account) concurrently with the opening of such account, (b) violate directly or indirectly any Agency Account Agreement or other bank agency or lock box agreement in favor of the Administrative Agent for the benefit of the Lenders and the Administrative Agent with respect to such account, or (c) deposit into any of the payroll accounts listed on SCHEDULE 8.20 any amounts in excess of amounts necessary to pay current payroll obligations from such accounts. 10.12. MAXIMUM NUMBER OF UNPROFITABLE UNITS. None of the Borrowers will, and none will permit any of its Subsidiaries to, permit the ratio of (a) the aggregate number of Unprofitable Units to (b) the aggregate number of Units to be at any time more than seven and one-half percent (7.5%), PROVIDED that the Administrative Agent may in its sole discretion exclude any Unprofitable Unit from the calculation of the ratio described in this ss.10.13 if the Borrowers notify thE Administrative Agent that the Borrowers or one of their Subsidiaries intends to sell or shut down such Unprofitable Unit and informs the Administrative Agent of all steps it has taken to sell or shut down such Unit. 11. FINANCIAL COVENANTS. Each of the Borrowers covenants and agrees that, so long as any Loan, Unpaid Reimbursement Obligation, Letter of Credit or Note is outstanding or any Lender has any obligation to make any Loans or the Administrative Agent has any obligation to issue, extend or renew any Letters of Credit: 11.1. LEVERAGE RATIO. The Borrowers will not permit the Leverage Ratio determined at the end of and for any Reference Period ending during any period -80- described in the table below, to be greater than the ratio set forth opposite such period in such table: - ----------------------------------------------- ------------------------------- PERIOD RATIO ------ ----- (inclusive of end dates) - ----------------------------------------------- ------------------------------- Closing Date - end of Fiscal Year 2001 2.75:1.00 - ----------------------------------------------- ------------------------------- - ----------------------------------------------- ------------------------------- Fiscal Year 2002 2.00:1.00 - ----------------------------------------------- ------------------------------- - ----------------------------------------------- ------------------------------- Fiscal Year 2003 and thereafter 1.50:1.00 - ----------------------------------------------- ------------------------------- 11.2. CASH FLOW. The Borrowers will not permit the Cash Flow Ratio, determined for any Reference Period ending on the last day of any fiscal quarter of the Borrowers, to be less than 1.10:1.00. 11.3. EBITDAR TO INTEREST AND RENTAL. The Borrowers will not permit the ratio of (a) Consolidated EBITDAR for any Reference Period ending during any period described in the table below to (b) the sum of (i) Consolidated Total Interest Expense for such period PLUS (ii) Consolidated Rental Expense for such period to be less than the ratio set forth opposite such period in such table: - ---------------------------------------------- ------------------------------- PERIOD RATIO ------ ----- (inclusive of end dates) - ---------------------------------------------- ------------------------------- - ---------------------------------------------- ------------------------------- Closing Date - end of Fiscal Year 2001 1.50:1.00 - ---------------------------------------------- ------------------------------- - ---------------------------------------------- ------------------------------- Fiscal Year 2002 1.75:1.00 - ---------------------------------------------- ------------------------------- - ---------------------------------------------- ------------------------------- Fiscal Year 2003 2.00:1.00 - ---------------------------------------------- ------------------------------- - ---------------------------------------------- ------------------------------- Fiscal Year 2004 and thereafter 2.25:1.00 - ---------------------------------------------- ------------------------------- 11.4. MINIMUM EBITDA. The Borrowers will not permit Consolidated EBITDA for any period of twelve consecutive fiscal months ending during any period described in the table below to be less than the amount set forth opposite such period in such table: - ------------------------------------------------------- --------------------- PERIOD AMOUNT ------ ------ (inclusive of end dates) - ------------------------------------------------------- --------------------- - ------------------------------------------------------- --------------------- February 2001 - end of Fiscal Year 2001 $17,250,000 - ------------------------------------------------------- --------------------- - ------------------------------------------------------- --------------------- Fiscal Year 2002 $16,300,000 - ------------------------------------------------------- --------------------- - ------------------------------------------------------- --------------------- Fiscal Year 2003 $16,500,000 - ------------------------------------------------------- --------------------- - ------------------------------------------------------- --------------------- Fiscal Year 2004 and thereafter $16,000,000 - ------------------------------------------------------- --------------------- -81- 11.5. CAPITAL EXPENDITURES. The Borrowers will not make, nor will they permit any of their Subsidiaries to make aggregate Capital Expenditures during any fiscal year that exceed the amounts (exclusive of any portion of such Capital Expenditures financed through the issuance of Capital Stock of the Borrowers) set forth in the table below opposite such fiscal year, PROVIDED that (i) for purposes of calculating compliance with this ss.11.5 only, the Borrowers may excludE Capital Expenditures made in connection with the acquisition, construction or refurbishment of a restaurant if the Borrowers give the Administrative Agent written notice within three (3) months of such Capital Expenditure that the Borrowers intend to sell such restaurant within one hundred and eighty (180) days from the date of such Capital Expenditure as part of a Permitted Sale-Leaseback transaction and the Administrative Agent has approved the terms of such transaction and (ii) the maximum amount of Capital Expenditures permitted in any Fiscal Year shall be increased by 75% of the unused Capital Expenditures from the previous Fiscal Year (calculated without reference to any amounts carried forward from prior years pursuant to this provision): - ----------------------------------------- ------------------------------------- PERIOD MAXIMUM CAPITAL EXPENDITURES - ----------------------------------------- ------------------------------------- - ----------------------------------------- ------------------------------------- Fiscal Year 2001 $3,550,000 - ----------------------------------------- ------------------------------------- - ----------------------------------------- ------------------------------------- Fiscal Year 2002 $5,650,000 - ----------------------------------------- ------------------------------------- - ----------------------------------------- ------------------------------------- Fiscal Year 2003 $7,950,000 - ----------------------------------------- ------------------------------------- - ----------------------------------------- ------------------------------------- Fiscal Year 2004 $8,050,000 - ----------------------------------------- ------------------------------------- - ----------------------------------------- ------------------------------------- Fiscal Year 2005 and thereafter $8,150,000 - ----------------------------------------- ------------------------------------- Notwithstanding the foregoing, the Borrowers will not make, nor will they permit any of their Subsidiaries to make or commit to make, any Growth Capital Expenditures (including the signing of any new leases) at any time that the Leverage Ratio as at the end of the most recently ended Reference Period for which the Borrowers have delivered a Compliance Certificate exceeds the Incurrence Ratio. 12. CLOSING CONDITIONS. The obligations of the Lenders to make the initial Revolving Credit Loans and the Term Loans and of the Administrative Agent to issue any initial Letters of Credit shall be subject to the satisfaction of the following conditions precedent: 12.1. LOAN DOCUMENTS. Each of the Loan Documents shall have been duly executed and delivered by the respective parties thereto, shall be in full force and effect and shall be in form and substance satisfactory to each of the Lenders. Each Lender or the Administrative Agent on behalf of each Lender shall have received a fully executed copy of each such document. 12.2. CERTIFIED COPIES OF GOVERNING DOCUMENTS AND INDENTURE. Each of the Lenders shall have received from each of the Borrower and each of their -82- Subsidiaries a copy, certified by a duly authorized officer of such Person to be true and complete on the Closing Date, of each of its Governing Documents and the Indenture as in effect on such date of certification. 12.3. CORPORATE OR OTHER ACTION. All corporate (or other) action necessary for the valid execution, delivery and performance by each of the Borrowers and each of their Subsidiaries of this Credit Agreement and the other Loan Documents to which it is or is to become a party shall have been duly and effectively taken, and evidence thereof satisfactory to the Lenders shall have been provided to each of the Lenders. 12.4. INCUMBENCY CERTIFICATE. Each of the Lenders shall have received from each of the Borrower and each of its Subsidiaries an incumbency certificate, dated as of the Closing Date, signed by a duly authorized officer of such Person, and giving the name and bearing a specimen signature of each individual who shall be authorized: (a) to sign, in the name and on behalf of each such Person, each of the Loan Documents to which such Person is or is to become a party; (b) in the case of the Borrowers, to make Loan Requests and Conversion Requests and to apply for Letters of Credit; and (c) to give notices and to take other action on its behalf under the Loan Documents. 12.5. VALIDITY OF LIENS. Except to the extent specified in and permitted pursuant to a letter from the Administrative Agent to the Borrowers detailing exceptions, the Security Documents shall be effective to create in favor of the Administrative Agent for the benefit of the Lenders and the Administrative Agent a legal, valid and enforceable first (except for Permitted Liens entitled to priority under applicable law) security interest in and Lien upon the Collateral. All filings, recordings, deliveries of instruments and other actions necessary or desirable in the opinion of the Administrative Agent to protect and preserve such security interests shall have been duly effected. The Administrative Agent shall have received evidence thereof in form and substance satisfactory to the Administrative Agent. 12.6. PERFECTION CERTIFICATES AND UCC SEARCH RESULTS. The Administrative Agent shall have received from each of the Borrowers and their Subsidiaries a completed and fully executed Perfection Certificate and the results of UCC searches (and the equivalent thereof in all applicable foreign jurisdictions) with respect to the Collateral, indicating no Liens other than Permitted Liens and otherwise in form and substance satisfactory to the Administrative Agent. 12.7. SURVEY AND TAXES. The Administrative Agent shall have received (a) an updated Survey of each Mortgaged Property together with a Surveyor Certificate relating thereto and (b) evidence of payment of real estate taxes and municipal charges on all Real Estate not delinquent on or before the Closing Date. -83- 12.8. TITLE INSURANCE. The Administrative Agent shall have received a Title Policy covering each Mortgaged Property (or commitments to issue such policies, with all conditions to issuance of the Title Policy deleted by an authorized agent of the Title Insurance Company) together with proof of payment of all fees and premiums for such policies, from the Title Insurance Company and in amounts satisfactory to the Administrative Agent, insuring the interest of the Administrative Agent and each of the Lenders as mortgagee under the Mortgages. 12.9. LANDLORD CONSENTS. The Borrowers and their Subsidiaries shall have delivered to the Administrative Agent all consents required for the Administrative Agent to receive, as part of the Security Documents, a collateral assignment of each leasehold of personal property, and a mortgage of each leasehold of real property listed on SCHEDULE 12.9 hereto, together in each case with such estoppel certificates as the Administrative Agent may request. 12.10. ENVIRONMENTAL ASSESSMENTS. The Administrative Agent shall have received environmental assessments from environmental engineers and in form and substance satisfactory to the Administrative Agent, covering all Mortgaged Property and all other real property in respect of which any of the Borrowers or any of their Subsidiaries may have material liability, whether contingent or otherwise, for dumping or disposal of Hazardous Substances. 12.11. CERTIFICATES OF INSURANCE. The Administrative Agent shall have received (a) a certificate of insurance from an independent insurance broker dated as of the Closing Date, identifying insurers, types of insurance, insurance limits, and policy terms, and otherwise describing the insurance obtained in accordance with the provisions of the Security Agreements and (b) certified copies of all policies evidencing such insurance (or certificates therefore signed by the insurer or an agent authorized to bind the insurer). 12.12. AGENCY ACCOUNT AGREEMENTS. The Administrative Agent shall have received an Agency Account Agreement executed by each depository institution with a bank account listed on SCHEDULE 8.20 hereto. 12.13. SOLVENCY CERTIFICATE. Each of the Lenders shall have received an officer's certificate of the Borrowers dated as of the Closing Date as to the solvency of the Borrowers and their Subsidiaries following the consummation of the transactions contemplated herein and in form and substance satisfactory to the Lenders. 12.14. OPINION OF COUNSEL. Each of the Lenders and the Administrative Agent shall have received a favorable legal opinion addressed to the Lenders and the Administrative Agent, dated as of the Closing Date, in form and substance satisfactory to the Lenders and the Administrative Agent, from Bracewell & Patterson LLP, counsel to the Borrowers and their Subsidiaries. 12.15. PAYMENT OF FEES. The Borrowers shall have paid to the Lenders or the Administrative Agent, as appropriate, all Fees due hereunder and under the Fee -84- Letter. The Borrowers shall have reimbursed the Administrative Agent for, or paid directly, all fees, costs and expenses incurred by the Administrative Agent's Special Counsel and local counsel to the Administrative Agent in all relevant jurisdictions in connection with the closing of the transactions contemplated hereby. 12.16. PAYOFF LETTERS. (a) UNSECURED NOTES. The Administrative Agent shall have received payoff letters from the holders of the Unsecured Notes, indicating the amount of the loan obligations of the Borrowers to the holders of the Unsecured Notes to be discharged on the Closing Date and an acknowledgment by the holders of the Unsecured Notes that upon receipt of such funds the Unsecured Notes shall be paid in full and the holders thereof shall forthwith execute and deliver to the Administrative Agent for filing all termination statements and take such other actions as may be necessary to discharge all mortgages, deeds of trust and security interests granted by any of the Borrowers or any of their Subsidiaries in favor of the holders of the Unsecured Notes. (b) SENIOR SECURED NOTES. The Administrative Agent shall have received (i) a payoff letter from the Trustee under the Indenture (the "TRUSTEE") indicating the amount that must be deposited with the Trustee pursuant to the Indenture in order to effect the defeasance of the Senior Secured Notes pursuant to Article Eleven of the Indenture and acknowledging that upon receipt of such funds, the liens securing the Senior Secured Notes shall be terminated and released and the Trustee shall forthwith execute and deliver to the Administrative Agent for filing the termination statements and take such other actions as may be necessary to discharge all mortgages, deeds of trust and security interests granted by any of the Borrowers or any of their Subsidiaries to the Trustee to secure the Senior Secured Notes, (ii) evidence that Cafeteria Operators shall have paid all other amounts payable under the Indenture, (iii) a copy of the Officer's Certificate and Opinion of Counsel for Cafeteria Operations required to be delivered by Cafeteria Operators in connection with the defeasance of the Senior Secured Notes, together with a letter from such counsel for Cafeteria Operators in form and substance satisfactory to the Administrative Agent stating that the Administrative Agent and the Lenders may rely on such opinion of counsel, and (iv) a copy of the form of notice of redemption to be sent by Cafeteria Operators to the Trustee and the holders of the Senior Secured Notes, together with evidence satisfactory to the Administrative Agent that such notice is satisfactory to the Trustee and otherwise satisfies the requirements under the Indenture for redemption and defeasance of the Senior Secured Notes. 12.17. DISBURSEMENT INSTRUCTIONS. The Administrative Agent shall have received disbursement instructions from the Borrowers, indicating that a portion of the proceeds of the Loans in an amount equal to the aggregate loan obligations of the Borrowers to the holders of the Unsecured Notes are paid to the holders of the Unsecured Notes, and that the amount required to be deposited with the Trustee in connection with the defeasance of the Senior Secured Notes is to be paid to the Trustee. -85- 12.18. NO MATERIAL ADVERSE CHANGE. The Administrative Agent shall be satisfied that there shall have occurred no material adverse change in the business, operations, assets, management, properties, financial condition, income or prospects of the Borrowers and their Subsidiaries taken as a whole since the Balance Sheet Date. 12.19. FINANCIAL STATEMENTS AND PROJECTIONS; SOURCES AND USES OF FUNDS. The Administrative Agent shall have received copies of the financial statements and projections described in ss.8.4 and a Statement of Sources and Uses of Funds as oF the Closing Date, and the Administrative Agent shall be satisfied with such Statement of Sources and Uses of Funds and that such financial statements fairly present the financial condition, income and prospects of the Borrowers and their Subsidiaries as at the close of business on the date thereof and the results of operations for the fiscal period then ended and showing compliance on a Pro Forma Basis with the covenants contained in ss.11 and all other terms and conditionS hereof. 12.20. NO LITIGATION. No litigation, inquiry, injunction or restraining order shall be pending, entered or threatened that, in the reasonable opinion of the Administrative Agent, could reasonably be expected to have a Material Adverse Effect. 12.21. REAL ESTATE APPRAISALS. The Administrative Agent shall have received copies of the appraisals conducted by an appraiser acceptable to the Administrative Agent with respect to the Borrowers' owned Real Estate and such appraisals shall show the fair market value of the owned Real Estate constituting Collateral to be not less than $15,000,000 and shall otherwise be in form and substance satisfactory to the Administrative Agent. 12.22. LEVERAGE RATIO. The Borrowers shall provide evidence satisfactory to the Administrative Agent that the Leverage Ratio of the Borrowers as of the Closing Date (after giving effect to the borrowings hereunder as of the Closing Date other than Letters of Credit issued hereunder), shall not exceed 2.50:1.00. 12.23. PRO FORMA EBITDA. The Borrowers shall provide evidence satisfactory to the Administrative Agent that (a) the pro forma Consolidated EBITDA of the Borrowers and their Subsidiaries for the period of twelve consecutive fiscal months ending February 6, 2001 (with such adjustments as the Administrative Agent and the Arranger have approved) is not less than $18,266,000 and (b) the trends of the Consolidated EBITDA of the Borrowers and their Subsidiaries for the previous twelve consecutive fiscal months are either stable or positive. 12.24. ABSENCE OF DEFAULT UNDER OTHER AGREEMENTS. No default shall exist in respect of any material contract or agreement to which any Borrower or any of their Subsidiaries is party. -86- 12.25. MAXIMUM REVOLVING CREDIT LOANS. The aggregate principal amount of the Revolving Credit Loans outstanding on the Closing Date shall not exceed $9,000,000. 12.26. OTHER DOCUMENTATION. All other documentation shall be reasonably satisfactory in form and substance to the Administrative Agent. 13. CONDITIONS TO ALL BORROWINGS. The obligations of the Lenders to make any Loan, including the Revolving Credit Loan and the Term Loans, and of the Administrative Agent to issue, extend or renew any Letter of Credit, in each case whether on or after the Closing Date, shall also be subject to the satisfaction of the following conditions precedent: 13.1. REPRESENTATIONS TRUE; NO EVENT OF DEFAULT. Each of the representations and warranties of any of the Borrowers and their Subsidiaries contained in this Credit Agreement, the other Loan Documents or in any document or instrument delivered pursuant to or in connection with this Credit Agreement shall be true in all material respects as of the date as of which they were made and shall also be true in all material respects at and as of the time of the making of such Loan or the issuance, extension or renewal of such Letter of Credit, with the same effect as if made at and as of that time (except to the extent of changes resulting from transactions contemplated or permitted by this Credit Agreement and the other Loan Documents and changes occurring in the ordinary course of business that singly or in the aggregate are not materially adverse, and to the extent that such representations and warranties relate expressly to an earlier date) and no Default or Event of Default shall have occurred and be continuing. 13.2. NO LEGAL IMPEDIMENT. No change shall have occurred in any law or regulations thereunder or interpretations thereof that in the reasonable opinion of any Lender would make it illegal for such Lender to make such Loan or to participate in the issuance, extension or renewal of such Letter of Credit or in the reasonable opinion of the Administrative Agent would make it illegal for the Administrative Agent to issue, extend or renew such Letter of Credit. 13.3. PROCEEDINGS AND DOCUMENTS. All proceedings in connection with the transactions contemplated by this Credit Agreement, the other Loan Documents and all other documents incident thereto shall be satisfactory in substance and in form to the Lenders and to the Administrative Agent and the Administrative Agent's Special Counsel, and the Lenders, the Administrative Agent and such counsel shall have received all information and such counterpart originals or certified or other copies of such documents as the Administrative Agent may reasonably request. 13.4. GOVERNMENTAL REGULATION. Each Lender shall have received such statements in substance and form reasonably satisfactory to such Lender as such Lender shall require for the purpose of compliance with any applicable -87- regulations of the Comptroller of the Currency or the Board of Governors of the Federal Reserve System. 14. EVENTS OF DEFAULT; ACCELERATION; ETC. 14.1. EVENTS OF DEFAULT AND ACCELERATION. If any of the following events ("EVENTS OF DEFAULT" or, if the giving of notice or the lapse of time or both is required, then, prior to such notice or lapse of time, "DEFAULTS") shall occur: (a) the Borrowers shall fail to pay any principal of the Loans or any Reimbursement Obligation when the same shall become due and payable, whether at the stated date of maturity or any accelerated date of maturity or at any other date fixed for payment; (b) any of the Borrowers or any of their Subsidiaries shall fail to pay any interest on the Loans, any Fees, or other sums due hereunder or under any of the other Loan Documents, within three (3) Business Days of when the same shall become due and payable, whether at the stated date of maturity or any accelerated date of maturity or at any other date fixed for payment; (c) any of the Borrowers shall fail to comply with any of its covenants contained in ss.ss.9.4, 9.5, 9.7, 9.9, 9.12, 10 or 11 or any of the covenants contained in any of the Mortgages; (d) any of the Borrowers or any of their Subsidiaries shall fail to perform any term, covenant or agreement contained herein or in any of the other Loan Documents (other than those specified elsewhere in this ss.14.1) for thirty (30) days after written notice of such failure has been given to the Borrowers by thE Administrative Agent; (e) any representation or warranty of any of the Borrowers or any of their Subsidiaries in this Credit Agreement or any of the other Loan Documents or in any other document or instrument delivered pursuant to or in connection with this Credit Agreement shall prove to have been false in any material respect upon the date when made or deemed to have been made or repeated; (f) any of the Borrowers or any of their Subsidiaries shall fail to pay at maturity, or within any applicable period of grace, any obligation for borrowed money or credit received or in respect of any Capitalized Leases, in each case in an amount in excess of $500,000 or fail to observe or perform any material term, covenant or agreement contained in any agreement by which it is bound, evidencing or securing borrowed money or credit received or in respect of any Capitalized Leases, in each case in an amount in excess of $500,000 for such period of time as would permit (assuming the giving of appropriate notice if required) the holder or holders thereof or of any obligations issued thereunder to accelerate the -88- maturity thereof, or any such holder or holders shall rescind or shall have a right to rescind the purchase of any such obligations; (g) any of the Borrowers or any of their Subsidiaries shall make an assignment for the benefit of creditors, or admit in writing its inability to pay or generally fail to pay its debts as they mature or become due, or shall petition or apply for the appointment of a trustee or other custodian, liquidator or receiver of any of the Borrowers or any of their Subsidiaries or of any substantial part of the assets of any of the Borrowers or any of their Subsidiaries or shall commence any case or other proceeding relating to any of the Borrowers or any of their Subsidiaries under any bankruptcy, reorganization, arrangement, insolvency, readjustment of debt, dissolution or liquidation or similar law of any jurisdiction, now or hereafter in effect, or shall take any action to authorize or in furtherance of any of the foregoing, or if any such petition or application shall be filed or any such case or other proceeding shall be commenced against any of the Borrowers or any of their Subsidiaries and any of the Borrowers or any of their Subsidiaries shall indicate its approval thereof, consent thereto or acquiescence therein or such petition or application shall not have been dismissed within forty-five (45) days following the filing thereof; (h) a decree or order is entered appointing any such trustee, custodian, liquidator or receiver or adjudicating any of the Borrowers or any of their Subsidiaries bankrupt or insolvent, or approving a petition in any such case or other proceeding, or a decree or order for relief is entered in respect of any Borrower or any Subsidiary of any Borrower in an involuntary case under federal bankruptcy laws as now or hereafter constituted; (i) there shall remain in force, undischarged, unsatisfied and unstayed, for more than thirty days, whether or not consecutive, any final judgment against any of the Borrowers or any of their Subsidiaries that, with other outstanding final judgments, undischarged, against any of the Borrowers or any of their Subsidiaries exceeds in the aggregate $500,000; (j) if any of the Loan Documents shall be cancelled, terminated, revoked or rescinded or the Administrative Agent's security interests, mortgages or liens in a substantial portion of the Collateral shall cease to be perfected, or shall cease to have the priority contemplated by the Security Documents, in each case otherwise than in accordance with the terms thereof or with the express prior written agreement, consent or approval of the Lenders, or any action at law, suit or in equity or other legal proceeding to cancel, revoke or rescind any of the Loan Documents shall be commenced by or on behalf of any of the Borrowers or any of their Subsidiaries party thereto or any of their respective stockholders, or any court or any other governmental or regulatory authority or agency of competent jurisdiction shall make a determination that, or issue a -89- judgment, order, decree or ruling to the effect that, any one or more of the Loan Documents is illegal, invalid or unenforceable in accordance with the terms thereof; (k) any Borrower or any ERISA Affiliate incurs any liability to the PBGC or a Guaranteed Pension Plan pursuant to Title IV of ERISA in an aggregate amount exceeding $250,000, or any Borrower or any ERISA Affiliate is assessed withdrawal liability pursuant to Title IV of ERISA by a Multiemployer Plan requiring aggregate annual payments exceeding $250,000, or any of the following occurs with respect to a Guaranteed Pension Plan: (i) an ERISA Reportable Event, or a failure to make a required installment or other payment (within the meaning of ss.302(f)(1) of ERISA), PROVIDED that the Administrative Agent determines in its reasonable discretioN that such event (A) could be expected to result in liability of any of the Borrowers or any of their Subsidiaries to the PBGC or such Guaranteed Pension Plan in an aggregate amount exceeding $250,000 and (B) could constitute grounds for the termination of such Guaranteed Pension Plan by the PBGC, for the appointment by the appropriate United States District Court of a trustee to administer such Guaranteed Pension Plan or for the imposition of a lien in favor of such Guaranteed Pension Plan; or (ii) the appointment by a United States District Court of a trustee to administer such Guaranteed Pension Plan; or (iii) the institution by the PBGC of proceedings to terminate such Guaranteed Pension Plan; (l) any of the Borrowers or any of their Subsidiaries shall be enjoined, restrained or in any way prevented by the order of any Governmental Authority from conducting any material part of its business and such order shall continue in effect for more than thirty (30) days; (m) there shall occur any material damage to, or loss, theft or destruction of, any Collateral, whether or not insured, or any strike, lockout, labor dispute, embargo, condemnation, act of God or public enemy, or other casualty, which in any such case causes, for more than thirty (30) consecutive days, the cessation or substantial curtailment of revenue producing activities at any facility of any of the Borrowers or any of their Subsidiaries if such event or circumstance is not covered by business interruption insurance and would have a Material Adverse Effect; (n) there shall occur the loss, suspension or revocation of, or failure to renew, any license or permit now held or hereafter acquired by any of the Borrowers or any of their Subsidiaries if such loss, suspension, revocation or failure to renew would have a Material Adverse Effect; (o) any of the Borrowers or any of their Subsidiaries shall be indicted for a state or federal crime, or any civil or criminal action -90- shall otherwise have been brought against any of the Borrowers or any of their Subsidiaries, a punishment for which in any such case could include the forfeiture of any assets of such Borrower or such Subsidiary having a fair market value in excess of $500,000; (p) a Change of Control shall occur; or (q) (i) either the Chief Executive Officer or Chief Financial Officer shall cease, for any reason, to be employed in such capacity with Furr's and there shall not be a replacement Person employed in such management position with similar duties and responsibilities, who is reasonably acceptable to the Required Lenders within one hundred twenty (120) days after the occurrence of such event; then, and in any such event, so long as the same may be continuing, the Administrative Agent may, and upon the request of the Required Lenders shall, by notice in writing to the Borrowers declare all amounts owing with respect to this Credit Agreement, the Notes and the other Loan Documents and all Reimbursement Obligations to be, and they shall thereupon forthwith become, immediately due and payable without presentment, demand, protest or other notice of any kind, all of which are hereby expressly waived by the Borrowers; PROVIDED that in the event of any Event of Default specified in ss.ss.14.1(g) or 14.1(h), all such amounts shall become immediately due and payable automatically and without any requiremEnt of notice from the Administrative Agent or any Lender. 14.2. TERMINATION OF COMMITMENTS. If any one or more of the Events of Default specified in ss.14.1(g) or ss.14.1(h) shall occur, any unused portion of the credit hereunder shall forthwith terminate and each of the Lenders shall be relieved of all further obligations to make Loans to the Borrowers and the Administrative Agent shall be relieved of all further obligations to issue, extend or renew Letters of Credit. If any other Event of Default shall have occurred and be continuing, or if on any Drawdown Date or other date for issuing, extending or renewing any Letter of Credit the conditions precedent to the making of the Loans to be made on such Drawdown Date or (as the case may be) to issuing, extending or renewing such Letter of Credit on such other date are not satisfied, the Administrative Agent may and, upon the request of the Required Lenders, shall, by notice to the Borrowers, terminate the unused portion of the credit hereunder, and upon such notice being given such unused portion of the credit hereunder shall terminate immediately and each of the Lenders shall be relieved of all further obligations to make Loans and the Administrative Agent shall be relieved of all further obligations to issue, extend or renew Letters of Credit. No termination of the credit hereunder shall relieve any of the Borrowers or any of their Subsidiaries of any of the Obligations. 14.3. REMEDIES. In case any one or more of the Events of Default shall have occurred and be continuing, and whether or not the Lenders shall have accelerated the maturity of the Loans pursuant to ss.14.1, each Lender, if owed any amounT with respect to the Loans or the Reimbursement Obligations, may -91- proceed to protect and enforce its rights by suit in equity, action at law or other appropriate proceeding, whether for the specific performance of any covenant or agreement contained in this Credit Agreement and the other Loan Documents or any instrument pursuant to which the Obligations to such Lender are evidenced, including as permitted by applicable law the obtaining of the EX PARTE appointment of a receiver, and, if such amount shall have become due, by declaration or otherwise, proceed to enforce the payment thereof or any other legal or equitable right of such Lender; provided that unless an Event of Default is then continuing under ss.14.1(a) or (b) with respect to amounts payable to such Lender, such Lender may not exercise its rights hereunder withouT the prior consent of the Required Lenders. No remedy herein conferred upon any Lender or the Administrative Agent or the holder of any Note or purchaser of any Letter of Credit Participation is intended to be exclusive of any other remedy and each and every remedy shall be cumulative and shall be in addition to every other remedy given hereunder or now or hereafter existing at law or in equity or by statute or any other provision of law. 14.4. DISTRIBUTION OF COLLATERAL PROCEEDS. In the event that, following the occurrence and during the continuance of any Event of Default, the Administrative Agent or any Lender, as the case may be, receives any monies in connection with the enforcement of any the Security Documents, or otherwise with respect to the realization upon any of the Collateral, such monies shall be distributed for application as follows: (a) First, to the payment of, or (as the case may be) the reimbursement of the Administrative Agent for or in respect of all reasonable costs, expenses, disbursements and losses which shall have been incurred or sustained by the Administrative Agent in connection with the collection of such monies by the Administrative Agent, for the exercise, protection or enforcement by the Administrative Agent of all or any of the rights, remedies, powers and privileges of the Administrative Agent under this Credit Agreement or any of the other Loan Documents or in respect of the Collateral or in support of any provision of adequate indemnity to the Administrative Agent against any taxes or liens which by law shall have, or may have, priority over the rights of the Administrative Agent to such monies; (b) Second, to all other Obligations in such order or preference as the Required Lenders may determine; PROVIDED, HOWEVER, that (i) distributions shall be made (A) PARI PASSU among Obligations with respect to the Administrative Agent's fee and all other Obligations and (B) with respect to each type of Obligation owing to the Lenders, such as interest, principal, fees and expenses, among the Lenders PRO RATA, and (ii) the Administrative Agent may in its discretion make proper allowance to take into account any Obligations not then due and payable; (c) Third, upon payment and satisfaction in full or other provisions for payment in full satisfactory to the Lenders and the Administrative Agent of all of the Obligations, to the payment of any obligations required -92- to be paid pursuant to ss.9-504(1)(c) of the Uniform Commercial Code of the Commonwealth oF Massachusetts; and (d) Fourth, the excess, if any, shall be returned to the Borrowers or to such other Persons as are entitled thereto. 15. THE ADMINISTRATIVE AGENT. 15.1. AUTHORIZATION. (a) The Administrative Agent is authorized to take such action on behalf of each of the Lenders and to exercise all such powers as are hereunder and under any of the other Loan Documents and any related documents delegated to the Administrative Agent, together with such powers as are reasonably incident thereto, including the authority, without the necessity of any notice to or further consent of the Lenders, from time to time to take any action with respect to any Collateral or the Security Documents which may be necessary to perfect, maintain perfected or insure the priority of the security interest in and liens upon the Collateral granted pursuant to the Security Documents, PROVIDED that no duties or responsibilities not expressly assumed herein or therein shall be implied to have been assumed by the Administrative Agent. (b) The relationship between the Administrative Agent and each of the Lenders is that of an independent contractor. The use of the term "ADMINISTRATIVE AGENT" is for convenience only and is used to describe, as a form of convention, the independent contractual relationship between the Administrative Agent and each of the Lenders. Nothing contained in this Credit Agreement nor the other Loan Documents shall be construed to create an agency, trust or other fiduciary relationship between the Administrative Agent and any of the Lenders. (c) As an independent contractor empowered by the Lenders to exercise certain rights and perform certain duties and responsibilities hereunder and under the other Loan Documents, the Administrative Agent is nevertheless a "REPRESENTATIVE" of the Lenders, as that term is defined in Article 1 of the Uniform Commercial Code, for purposes of actions for the benefit of the Lenders and the Administrative Agent with respect to all collateral security and guaranties contemplated by the Loan Documents. Such actions include the designation of the Administrative Agent as "SECURED PARTY", "MORTGAGEE" or the like on all financing statements and other documents and instruments, whether recorded or otherwise, relating to the attachment, perfection, priority or enforcement of any security interests, mortgages or deeds of trust in collateral security intended to secure the payment or performance of any of the Obligations, all for the benefit of the Lenders and the Administrative Agent. -93- 15.2. EMPLOYEES AND ADMINISTRATIVE AGENTS. The Administrative Agent may exercise its powers and execute its duties by or through employees or agents and shall be entitled to take, and to rely on, advice of counsel concerning all matters pertaining to its rights and duties under this Credit Agreement and the other Loan Documents. The Administrative Agent may utilize the services of such Persons as the Administrative Agent in its sole discretion may reasonably determine, and all reasonable fees and expenses of any such Persons shall be paid by the Borrowers. 15.3. NO LIABILITY. Neither the Administrative Agent nor any of its shareholders, directors, officers or employees nor any other Person assisting them in their duties nor any agent or employee thereof, shall be liable for any waiver, consent or approval given or any action taken, or omitted to be taken, in good faith by it or them hereunder or under any of the other Loan Documents, or in connection herewith or therewith, or be responsible for the consequences of any oversight or error of judgment whatsoever, except that the Administrative Agent or such other Person, as the case may be, may be liable for losses due to its willful misconduct or gross negligence. 15.4. NO REPRESENTATIONS. 15.4.1 GENERAL. The Administrative Agent shall not be responsible for the execution or validity or enforceability of this Credit Agreement, the Notes, the Letters of Credit, any of the other Loan Documents or any instrument at any time constituting, or intended to constitute, collateral security for the Notes, or for the value of any such collateral security or for the validity, enforceability or collectability of any such amounts owing with respect to the Notes, or for any recitals or statements, warranties or representations made herein or in any of the other Loan Documents or in any certificate or instrument hereafter furnished to it by or on behalf of any of the Borrowers or any of their Subsidiaries, or be bound to ascertain or inquire as to the performance or observance of any of the terms, conditions, covenants or agreements herein or in any instrument at any time constituting, or intended to constitute, collateral security for the Notes or to inspect any of the properties, books or records of any of the Borrowers or any of their Subsidiaries. The Administrative Agent shall not be bound to ascertain whether any notice, consent, waiver or request delivered to it by the Borrowers or any holder of any of the Notes shall have been duly authorized or is true, accurate and complete. The Administrative Agent has not made nor does it now make any representations or warranties, express or implied, nor does it assume any liability to the Lenders, with respect to the credit worthiness or financial conditions of any of the Borrowers or any of their Subsidiaries. Each Lender acknowledges that it has, independently and without reliance upon the Administrative Agent or any other Lender, and based upon such information and documents as it has deemed appropriate, made its own credit analysis and decision to enter into this Credit Agreement. -94- 15.4.2 . CLOSING DOCUMENTATION, ETC. For purposes of determining compliance with the conditions set forth in ss.12,each Lender that has executed this Credit Agreement shall be deemed to have consented to, approved or accepted, or to be satisfied with, each document and matter either sent, or made available, by the Administrative Agent or the Arranger to such Lender for consent, approval, acceptance or satisfaction, or required thereunder to be to be consent to or approved by or acceptable or satisfactory to such Lender, unless an officer of the Administrative Agent or the Arranger active upon the Borrower's account shall have received notice from such Lender prior to the Closing Date specifying such Lender's objection thereto and such objection shall not have been withdrawn by notice to the Administrative Agent or the Arranger to such effect on or prior to the Closing Date. 15.5. PAYMENTS. 15.5.1 . PAYMENTS TO ADMINISTRATIVE AGENT. A payment by the Borrowers to the Administrative Agent hereunder or any of the other Loan Documents for the account of any Lender shall constitute a payment to such Lender. The Administrative Agent agrees promptly to distribute to each Lender such Lender's PRO RATA share of payments received by the Administrative Agent for the account of the Lenders except as otherwise expressly provided herein or in any of the other Loan Documents. 15.5.2 . DISTRIBUTION BY ADMINISTRATIVE AGENT. If in the opinion of the Administrative Agent the distribution of any amount received by it in such capacity hereunder, under the Notes or under any of the other Loan Documents might involve it in liability, it may refrain from making distribution until its right to make distribution shall have been adjudicated by a court of competent jurisdiction. If a court of competent jurisdiction shall adjudge that any amount received and distributed by the Administrative Agent is to be repaid, each Person to whom any such distribution shall have been made shall either repay to the Administrative Agent its proportionate share of the amount so adjudged to be repaid or shall pay over the same in such manner and to such Persons as shall be determined by such court. 15.5.3 . DELINQUENT LENDERS. Notwithstanding anything to the contrary contained in this Credit Agreement or any of the other Loan Documents, any Lender that fails (a) to make available to the Administrative Agent its PRO RATA share of any Loan or to purchase any Letter of Credit Participation or (b) to comply with the provisions of ss.17.1 with respect to making dispositions and arrangements with the other Lenders, where such Lender's share of any payment received, whether by setoff or otherwise, is in excess of its PRO RATA share of such payments due and payable to all of the Lenders, in each case as, when and to the full extent required by the provisions of this Credit Agreement, shall be deemed delinquent (a "DELINQUENT LENDER") and shall be deemed a Delinquent Lender until such -95- time as such delinquency is satisfied. A Delinquent Lender shall be deemed to have assigned any and all payments due to it from the Borrower, whether on account of outstanding Loans, Unpaid Reimbursement Obligations, interest, fees or otherwise, to the remaining nondelinquent Lenders for application to, and reduction of, their respective PRO RATA shares of all outstanding Loans and Unpaid Reimbursement Obligations. The Delinquent Lender hereby authorizes the Administrative Agent to distribute such payments to the nondelinquent Lenders in proportion to their respective PRO RATA shares of all outstanding Loans and Unpaid Reimbursement Obligations. A Delinquent Lender shall be deemed to have satisfied in full a delinquency when and if, as a result of application of the assigned payments to all outstanding Loans and Unpaid Reimbursement Obligations of the nondelinquent Lenders, the Lenders' respective PRO RATA shares of all outstanding Loans and Unpaid Reimbursement Obligations have returned to those in effect immediately prior to such delinquency and without giving effect to the nonpayment causing such delinquency. 15.6. HOLDERS OF NOTES. The Administrative Agent may deem and treat the payee of any Note or the purchaser of any Letter of Credit Participation as the absolute owner or purchaser thereof for all purposes hereof until it shall have been furnished in writing with a different name by such payee or by a subsequent holder, assignee or transferee. 15.7. INDEMNITY. The Lenders ratably agree hereby to indemnify and hold harmless the Administrative Agent and its affiliates from and against any and all claims, actions and suits (whether groundless or otherwise), losses, damages, costs, expenses (including any expenses for which the Administrative Agent or such affiliate has not been reimbursed by the Borrowers as required by ss.17.2), and liabilities of every nature and character arising out of or related to thiS Credit Agreement, the Notes, or any of the other Loan Documents or the transactions contemplated or evidenced hereby or thereby, or the Administrative Agent's actions taken hereunder or thereunder, except to the extent that any of the same shall be directly caused by the Administrative Agent's willful misconduct or gross negligence. 15.8. ADMINISTRATIVE AGENT AS LENDER. In its individual capacity, Fleet shall have the same obligations and the same rights, powers and privileges in respect to its Revolving Commitment and the Loans made by it, and as the holder of any of the Notes and as the purchaser of any Letter of Credit Participations, as it would have were it not also the Administrative Agent. 15.9. RESIGNATION. The Administrative Agent may resign at any time by giving sixty (60) days prior written notice thereof to the Lenders and the Borrowers. Upon any such resignation, the Required Lenders shall have the right to appoint a successor Administrative Agent. Unless an Event of Default shall have occurred and be continuing, such successor Administrative Agent shall be reasonably acceptable to the Borrowers. If no successor Administrative Agent -96- shall have been so appointed by the Required Lenders and shall have accepted such appointment within thirty (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, which shall be a financial institution having a rating of not less than A or its equivalent by S&P. Upon the acceptance of any appointment as Administrative Agent hereunder by a successor Administrative Agent, such successor Administrative Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Administrative Agent, and the retiring Administrative Agent shall be discharged from its duties and obligations hereunder. After any retiring Administrative Agent's resignation, the provisions of this Credit Agreement and the other Loan Documents 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. 15.10. NOTIFICATION OF DEFAULTS AND EVENTS OF DEFAULT. Each Lender hereby agrees that, upon learning of the existence of a Default or an Event of Default, it shall promptly notify the Administrative Agent thereof. The Administrative Agent hereby agrees that upon receipt of any notice under this ss.15.10 it shall promptly notify the other Lenders of thE existence of such Default or Event of Default. 15.11. DUTIES IN THE CASE OF ENFORCEMENT. In case one of more Events of Default have occurred and shall be continuing, and whether or not acceleration of the Obligations shall have occurred, the Administrative Agent shall, if (a) so requested by the Required Lenders and (b) the Lenders have provided to the Administrative Agent such additional indemnities and assurances against expenses and liabilities as the Administrative Agent may reasonably request, proceed to enforce the provisions of the Security Documents authorizing the sale or other disposition of all or any part of the Collateral and exercise all or any such other legal and equitable and other rights or remedies as it may have in respect of such Collateral. The Required Lenders may direct the Administrative Agent in writing as to the method and the extent of any such sale or other disposition, the Lenders hereby agreeing to indemnify and hold the Administrative Agent, harmless from all liabilities incurred in respect of all actions taken or omitted in accordance with such directions, PROVIDED that the Administrative Agent need not comply with any such direction to the extent that the Administrative Agent reasonably believes the Administrative Agent's compliance with such direction to be unlawful or commercially unreasonable in any applicable jurisdiction. 16. ASSIGNMENT AND PARTICIPATION. 16.1. CONDITIONS TO ASSIGNMENT BY LENDERS. Except as provided herein, each Lender may assign to one or more commercial banks, other financial institutions or other Persons, all or a portion of its interests, rights and obligations under this Credit Agreement (including all or a portion of (i) its Revolving Credit Commitment Percentage, Revolving Credit Commitment and the same portion of the Revolving Credit Loans at the time owing to it, the Revolving Credit -97- Notes held by it and its participating interest in the risk relating to any Letters of Credit (ii) its Term A Commitment Percentage and the same portion of Term Loan A at the time owing to it and the Term A Note held by it or (iii) its Term B Commitment Percentage and the same portion of Term Loan B at the time owing to it and the Term B Note held by it); provided that (a) each of the Administrative Agent and, unless an Event of Default shall have occurred and be continuing, the Borrowers shall have given its prior written consent to such assignment, which consent will not be unreasonably withheld; except that the consent of the Borrowers or the Administrative Agent shall not be required in connection with any assignment by a Lender to (i) an existing Lender or (ii) a Lender Affiliate of such Lender, (b) each such assignment shall be of a constant, and not a varying, percentage of all the assigning Lender's rights and obligations in respect of each of the following considered separately: (i) its Revolving Credit Commitment Percentage and Revolving Credit Commitment, the Revolving Credit Loans at the time owing to it, and its participating interest in the risk relating to any Letters of Credit, (ii) its Term A Commitment and the portion of Term Loan A at the time owing to it, or, as the case may be, and (iii) its Term B Commitment and the portion of Term Loan B at the time owing to it, (c) each assignment (or, in the case of assignments by a Lender to its Lender Affiliates, the aggregate holdings of such Lender and its Lender Affiliates after giving effect to such assignments), shall be in an amount that is a whole multiple of $2,500,000 and (d) the parties to such assignment shall execute and deliver to the Administrative Agent, for recording in the Register (as hereinafter defined), an Assignment and Acceptance, substantially in the form of EXHIBIT F hereto (an "ASSIGNMENT AND ACCEPTANCE"), together with any Notes subject to such assignment. Upon such execution, delivery, acceptance and recording, from and after the effective date specified in each Assignment and Acceptance, which effective date shall be at least five (5) Business Days after the execution thereof, (y) the assignee thereunder shall be a party hereto and, to the extent provided in such Assignment and Acceptance, have the rights and obligations of a Lender hereunder, and (z) the assigning Lender shall, to the extent provided in such assignment and upon payment to the Administrative Agent of the registration fee referred to in ss.16.3, be released from its obligations under this Credit Agreement. 16.2. CERTAIN REPRESENTATIONS AND WARRANTIES; LIMITATIONS; COVENANTS. By executing and delivering an Assignment and Acceptance, the parties to the assignment thereunder confirm to and agree with each other and the other parties hereto as follows: (a) other than the representation and warranty that it is the legal and beneficial owner of the interest being assigned thereby free and clear of any adverse claim, the assigning Lender makes no representation or warranty, express or implied, and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with this Credit Agreement or the execution, legality, validity, enforceability, genuineness, sufficiency or value of this Credit Agreement, the other Loan Documents or any other instrument or document furnished pursuant hereto or -98- the attachment, perfection or priority of any security interest or mortgage, (b) the assigning Lender makes no representation or warranty and assumes no responsibility with respect to the financial condition of the Borrowers and their Subsidiaries or any other Person primarily or secondarily liable in respect of any of the Obligations, or the performance or observance by the Borrowers and their Subsidiaries or any other Person primarily or secondarily liable in respect of any of the Obligations of any of their obligations under this Credit Agreement or any of the other Loan Documents or any other instrument or document furnished pursuant hereto or thereto; (c) such assignee confirms that it has received a copy of this Credit Agreement, together with copies of the most recent financial statements referred to in ss.8.4 and ss.9.4 and such other documents And information as it has deemed appropriate to make its own credit analysis and decision to enter into such Assignment and Acceptance; (d) such assignee will, independently and without reliance upon the assigning Lender, the Administrative Agent or any other Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Credit Agreement; (e) such assignee appoints and authorizes the Administrative Agent to take such action as agent on its behalf and to exercise such powers under this Credit Agreement and the other Loan Documents as are delegated to the Administrative Agent by the terms hereof or thereof, together with such powers as are reasonably incidental thereto; (f) such assignee agrees that it will perform in accordance with their terms all of the obligations that by the terms of this Credit Agreement are required to be performed by it as a Lender; (g) such assignee represents and warrants that it is legally authorized to enter into such Assignment and Acceptance; and (h) if such assignee is acquiring a Revolving Credit Commitment, such assignee acknowledges that it has made arrangements with the assigning Lender satisfactory to such assignee with respect to its PRO RATA share of Letter of Credit Fees in respect of outstanding Letters of Credit. 16.3. REGISTER. The Administrative Agent shall maintain a copy of each Assignment and Acceptance delivered to it and a register or similar list (the "REGISTER") for the recordation of the names and addresses of the Lenders and the Revolving Credit Commitment Percentage, Term A Commitment Percentage and Term B Commitment Percentage of, and principal amount of the Loans owing to and -99- Letter of Credit Participations purchased by, the Lenders from time to time. The entries in the Register shall be conclusive, in the absence of manifest error, and the Borrowers, the Administrative Agent and the Lenders may treat each Person whose name is recorded in the Register as a Lender hereunder for all purposes of this Credit Agreement. The Register shall be available for inspection by the Borrowers and the Lenders at any reasonable time and from time to time upon reasonable prior notice. Upon each such recordation, the assigning Lender agrees to pay to the Administrative Agent a registration fee in the sum of $3,500. 16.4. NEW NOTES. Upon its receipt of an Assignment and Acceptance executed by the parties to such assignment, together with each Note subject to such assignment, the Administrative Agent shall (a) record the information contained therein in the Register, and (b) give prompt notice thereof to the Borrowers and the Lenders (other than the assigning Lender). Within five (5) Business Days after receipt of such notice, the Borrowers, at their own expense, shall execute and deliver to the Administrative Agent, in exchange for each surrendered Note, a new Note to the order of such Assignee in an amount equal to the amount assumed by such Assignee pursuant to such Assignment and Acceptance and, if the assigning Lender has retained some portion of its obligations hereunder, a new Note to the order of the assigning Lender in an amount equal to the amount retained by it hereunder. Such new Notes shall provide that they are replacements for the surrendered Notes, shall be in an aggregate principal amount equal to the aggregate principal amount of the surrendered Notes, shall be dated the effective date of such Assignment and Acceptance and shall otherwise be in substantially the form of the assigned Notes. Within five (5) days of issuance of any new Notes pursuant to this ss.16.4, the Borrowers shalL deliver upon the request of the assignee Lender an opinion of counsel, addressed to the Lenders and the Administrative Agent, relating to the due authorization, execution and delivery of such new Notes and the legality, validity and binding effect thereof, in form and substance satisfactory to the Lenders. The surrendered Notes shall be cancelled and returned to the Borrowers. 16.5. PARTICIPATIONS. Each Lender may sell participations to one or more Lenders or other entities in all or a portion of such Lender's rights and obligations under this Credit Agreement and the other Loan Documents; PROVIDED that (a) each such participation shall be in an amount of not less than $2,500,000, (b) any such sale or participation shall not affect the rights and duties of the selling Lender hereunder to the Borrowers and (c) the only rights granted to the participant pursuant to such participation arrangements with respect to waivers, amendments or modifications of the Loan Documents shall be the rights to approve waivers, amendments or modifications that would reduce the principal of or the interest rate on any Loans, extend the term or increase the amount of the Revolving Credit Commitment of such Lender as it relates to such participant, reduce the amount of any Commitment Fee or Letter of Credit Fees to which such participant is entitled or extend any regularly scheduled payment date for principal or interest. -100- 16.6. ASSIGNEE OR PARTICIPANT AFFILIATED WITH THE BORROWERS. If any assignee Lender is an Affiliate of any Borrower, then any such assignee Lender shall have no right to vote as a Lender hereunder or under any of the other Loan Documents for purposes of granting consents or waivers or for purposes of agreeing to amendments or other modifications to any of the Loan Documents or for purposes of making requests to the Administrative Agent pursuant to ss.14.1 or ss.14.2, and The determination of the Required Lenders shall for all purposes of this Credit Agreement and the other Loan Documents be made without regard to such assignee Lender's interest in any of the Loans or Reimbursement Obligations. If any Lender sells a participating interest in any of the Loans or Reimbursement Obligations to a participant, and such participant is a Borrower or an Affiliate of a Borrower, then such transferor Lender shall promptly notify the Administrative Agent of the sale of such participation. A transferor Lender shall have no right to vote as a Lender hereunder or under any of the other Loan Documents for purposes of granting consents or waivers or for purposes of agreeing to amendments or modifications to any of the Loan Documents or for purposes of making requests to the Administrative Agent pursuant to ss.14.1 or ss.14.2 to the extent that such participation is beneficially owned by a Borrower or any Affiliate of a BorrowEr, and the determination of the Required Lenders shall for all purposes of this Credit Agreement and the other Loan Documents be made without regard to the interest of such transferor Lender in the Loans or Reimbursement Obligations to the extent of such participation. The provisions of this ss.16.6 shall not apply to an assignee Lender or participant which is also A Lender on the Closing Date or to an assignee Lender or participant which has disclosed to the other Lenders that it is an Affiliate of any Borrower and which, following such disclosure, has been excepted from the provisions of this ss.16.6 in A writing signed by the Required Lenders determined without regard to the interest of such assignee Lender or transferor Lender, to the extent of such participation, in Loans or Reimbursement Obligations. 16.7. MISCELLANEOUS ASSIGNMENT PROVISIONS. Any assigning Lender shall retain its rights to be indemnified pursuant to ss.17.3 with respect to any claims or actions arising prior to the date of such assignment. Anything contained in thiS ss.16 to the contrary notwithstanding, any Lender may at any time pledge or assign a security interest in all or any portioN of its interest and rights under this Credit Agreement (including all or any portion of its Notes) to secure obligations of such Lender, including any pledge or assignment to secure obligations to (a) any of the twelve Federal Reserve Banks organized under ss.4 of the Federal Reserve Act, 12 U.S.C. ss.341 and (b) with respect to any Lender that is a fund tHat invests in bank loans, to any lender or any trustee for, or any other representative of, holders of obligations owed or securities issued by such fund as security for such obligations or securities or any institutional custodian for such fund or for such lender. Any foreclosure or similar action by any Person in respect of such pledge or assignment shall be subject to the other provisions of this ss.16. No such pledge or the enforcement thereof shall release the pledgor LendeR from its obligations hereunder or under any of the other Loan Documents, provide any voting rights hereunder to the -101- pledgee thereof, or affect any rights or obligations of the Borrower or Administrative Agent hereunder. 16.8. ASSIGNMENT BY BORROWER. None of the Borrowers shall assign or transfer any of its rights or obligations under any of the Loan Documents without the prior written consent of each of the Lenders. 16.9. SYNDICATION. Each of the Borrowers hereby agrees to assist and cooperate with the Arranger in its efforts to complete the syndication of the commitments and Loans hereunder, including, but not limited to, promptly preparing and providing materials and information reasonably deemed necessary by the Arranger to successfully complete and otherwise facilitate such syndication, including, without limitation, all projections prepared by or on behalf of the Borrowers relating to the transactions contemplated hereby. Each of the Borrowers and its directors, officers, employees and agents shall, at the reasonable request of the Arranger, meet with potential lenders and provide such additional information as such Persons may reasonably request. 17. PROVISIONS OF GENERAL APPLICATIONS. 17.1. SETOFF. Each of the Borrowers hereby grants to the Administrative Agent and each of the Lenders a continuing lien, security interest and right of setoff as security for all liabilities and obligations to the Administrative Agent and each Lender, whether now existing or hereafter arising, upon and against all deposits, credits, collateral and property, now or hereafter in the possession, custody, safekeeping or control of the Administrative Agent or such Lender or any Lender Affiliate and their successors and assigns or in transit to any of them. Regardless of the adequacy of any collateral, if any of the Obligations are due and payable and have not been paid or any Event of Default shall have occurred, any deposits or other sums credited by or due from any of the Lenders to any Borrower and any securities or other property of any Borrower in the possession of such Lender may be applied to or set off by such Lender against the payment of Obligations and any and all other liabilities, direct, or indirect, absolute or contingent, due or to become due, now existing or hereafter arising, of any Borrower to such Lender. ANY AND ALL RIGHTS TO REQUIRE ANY LENDER TO EXERCISE ITS RIGHTS OR REMEDIES WITH RESPECT TO ANY OTHER COLLATERAL WHICH SECURES THE OBLIGATIONS, PRIOR TO EXERCISING ITS RIGHT OF SETOFF WITH RESPECT TO SUCH DEPOSITS, CREDITS OR OTHER PROPERTY OF THE BORROWERS ARE HEREBY KNOWINGLY, VOLUNTARILY AND IRREVOCABLY WAIVED. Each of the Lenders agree with each other Lender that (a) if an amount to be set off is to be applied to Indebtedness of any Borrower to such Lender, other than Indebtedness evidenced by the Notes held by such Lender or constituting Reimbursement Obligations owed to such Lender, such amount shall be applied ratably to such other Indebtedness and to the Indebtedness evidenced by all such Notes held by such Lender or constituting Reimbursement Obligations owed to such Lender, and -102- (b) if such Lender shall receive from any Borrower, whether by voluntary payment, exercise of the right of setoff, counterclaim, cross action, enforcement of the claim evidenced by the Notes held by, or constituting Reimbursement Obligations owed to, such Lender by proceedings against any Borrower at law or in equity or by proof thereof in bankruptcy, reorganization, liquidation, receivership or similar proceedings, or otherwise, and shall retain and apply to the payment of the Note or Notes held by, or Reimbursement Obligations owed to, such Lender any amount in excess of its ratable portion of the payments received by all of the Lenders with respect to the Notes held by, and Reimbursement Obligations owed to, all of the Lenders, such Lender will make such disposition and arrangements with the other Lenders with respect to such excess, either by way of distribution, pro tanto assignment of claims, subrogation or otherwise as shall result in each Lender receiving in respect of the Notes held by it or Reimbursement Obligations owed it, its proportionate payment as contemplated by this Credit Agreement; provided that if all or any part of such excess payment is thereafter recovered from such Lender, such disposition and arrangements shall be rescinded and the amount restored to the extent of such recovery, but without interest. 17.2. EXPENSES. The Borrowers jointly and severally agree to pay (a) the reasonable costs of producing and reproducing this Credit Agreement, the other Loan Documents and the other agreements and instruments mentioned herein, (b) any taxes (including any interest and penalties in respect thereto) payable by the Administrative Agent or any of the Lenders (other than taxes based upon the Administrative Agent's or any Lender's net income) on or with respect to the transactions contemplated by this Credit Agreement (the Borrowers hereby agreeing to indemnify the Administrative Agent and each Lender with respect thereto), (c) the reasonable fees, expenses and disbursements of the Administrative Agent's Special Counsel or any local counsel to the Administrative Agent incurred in connection with the preparation, syndication, administration or interpretation of the Loan Documents and other instruments mentioned herein, each closing hereunder, any amendments, modifications, approvals, consents or waivers hereto or hereunder, or the cancellation of any Loan Document upon payment in full in cash of all of the Obligations or pursuant to any terms of such Loan Document for providing for such cancellation, (d) the reasonable fees, expenses and disbursements of the Administrative Agent or any of its affiliates incurred by the Administrative Agent or such affiliate in connection with the preparation, syndication, administration or interpretation of the Loan Documents and other instruments mentioned herein, including all title insurance premiums and surveyor, engineering, appraisal and examination charges, (e) any fees, costs, expenses and bank charges, including bank charges for returned checks, incurred by the Administrative Agent in establishing, maintaining or handling agency accounts, lock box accounts and other accounts for the collection of any of the Collateral, (f) all reasonable out-of-pocket expenses (including without limitation reasonable attorneys' fees and costs, which attorneys may be employees of any Lender or the Administrative Agent, and reasonable consulting, accounting, appraisal, investment bankruptcy and similar professional fees and charges) incurred by any Lender or the Administrative -103- Agent in connection with (i) the enforcement of or preservation of rights under any of the Loan Documents against any of the Borrowers or any of their Subsidiaries or the administration thereof after the occurrence of an Event of Default and (ii) any litigation, proceeding or dispute whether arising hereunder or otherwise, in any way related to any Lender's or the Administrative Agent's relationship with any of the Borrowers or any of their Subsidiaries and (g) all reasonable fees, expenses and disbursements of any Lender or the Administrative Agent incurred in connection with UCC searches, UCC filings, intellectual property searches, intellectual property filings or mortgage recordings. The covenants contained in this ss.17.2 shall survive payment or satisfaction in full of all other obligations. 17.3. INDEMNIFICATION. The Borrowers jointly and severally agree to indemnify and hold harmless the Administrative Agent, its affiliates and the Lenders from and against any and all claims, actions and suits whether groundless or otherwise, and from and against any and all liabilities, losses, damages and expenses of every nature and character arising out of this Credit Agreement or any of the other Loan Documents or the transactions contemplated hereby including, without limitation, (a) any actual or proposed use by any of the Borrowers or any of their Subsidiaries of the proceeds of any of the Loans or Letters of Credit, (b) the reversal or withdrawal of any provisional credits granted by the Administrative Agent upon the transfer of funds from lock box, bank agency, concentration accounts or otherwise under any cash management arrangements with the Borrower or any Subsidiary or in connection with the provisional honoring of funds transfers, checks or other items, (c) any actual or alleged infringement of any patent, copyright, trademark, service mark or similar right of any Borrower or any of their Subsidiaries comprised in the Collateral, (d) any of the Borrowers or any of their Subsidiaries entering into or performing this Credit Agreement or any of the other Loan Documents or (e) with respect to the Borrowers and their Subsidiaries and their respective properties and assets, the violation of any Environmental Law, the presence, disposal, escape, seepage, leakage, spillage, discharge, emission, release or threatened release of any Hazardous Substances or any action, suit, proceeding or investigation brought or threatened with respect to any Hazardous Substances (including, but not limited to, claims with respect to wrongful death, personal injury or damage to property), in each case including, without limitation, the reasonable fees and disbursements of counsel and allocated costs of internal counsel incurred in connection with any such investigation, litigation or other proceeding. In litigation, or the preparation therefor, the Lenders and the Administrative Agent and its affiliates shall be entitled to select their own counsel and, in addition to the foregoing indemnity, each Borrower, jointly and severally, agrees to pay promptly the reasonable fees and expenses of such counsel. If, and to the extent that the obligations of the Borrowers under this ss.17.3 are unenforceable for any reason, each Borrower hereby agrees to make the maximum contribution to thE payment in satisfaction of such obligations which is permissible under applicable law. The covenants contained in this ss.17.3 shall survive payment or satisfaction in full of all other Obligations. -104- 17.4. TREATMENT OF CERTAIN CONFIDENTIAL INFORMATION. 17.4.1 . CONFIDENTIALITY. Each of the Lenders and the Administrative Agent agrees with the Borrowers, on behalf of itself and each of its affiliates, directors, officers, employees and representatives, to use reasonable precautions to keep confidential, in accordance with their customary procedures for handling confidential information of the same nature and in accordance with safe and sound banking practices, any non-public information supplied to it by any of the Borrowers or any of their Subsidiaries pursuant to this Credit Agreement that is identified by such Person as being confidential at the time the same is delivered to the Lenders or the Administrative Agent, PROVIDED that nothing herein shall limit the disclosure of any such information (a) after such information shall have become public other than through a violation of this ss.17.4, or becomes available to any of the Lenders or the Administrative Agent on a nonconfidential basis from a source other than the Borrowers, (b) to the extent required by statute, rule, regulation or judicial process, (c) to counsel for any of the Lenders or the Administrative Agent, (d) to bank examiners or any other regulatory authority having jurisdiction over any Lender or the Administrative Agent, or to auditors or accountants, (e) to the Administrative Agent, any Lender or any Financial Affiliate, (f) in connection with any litigation to which any one or more of the Lenders, the Administrative Agent or any Financial Affiliate is a party, or in connection with the enforcement of rights or remedies hereunder or under any other Loan Document, (g) to a Lender Affiliate or a Subsidiary or affiliate of the Administrative Agent, (h) to any actual or prospective assignee or participant or any actual or prospective counterparty (or its advisors) to any swap or derivative transactions referenced to credit or other risks or events arising under this Credit Agreement or any other Loan Document so long as such assignee, participant or counterparty, as the case may be, agrees to be bound by the provisions of ss.17.4 or (i) with the consent of the Borrowers. Moreover, each of the Administrative Agent, the Lenders and any Financial Affiliate is hereby expressly permitted by the Borrower to refer to any of the Borrowers and their Subsidiaries in connection with any advertising, promotion or marketing undertaken by the Administrative Agent, such Lender or such Financial Affiliate relating to the transactions contemplated in this Credit Agreement and, for such purpose, the Administrative Agent, such Lender or such Financial Affiliate may utilize any trade name, trademark, logo or other distinctive symbol associated with any of the Borrowers or any of their Subsidiaries or any of their businesses. 17.4.2 . PRIOR NOTIFICATION. Unless specifically prohibited by applicable law or court order, each of the Lenders and the Administrative Agent shall, upon receipt of a request for disclosure and prior to such disclosure, notify the Borrowers of any request for disclosure of any such non-public information by any governmental agency or representative thereof (other than any such request in connection with an examination of the -105- financial condition of such Lender by such governmental agency) or pursuant to legal process. 17.4.3 . OTHER. In no event shall any Lender or the Administrative Agent be obligated or required to return any materials furnished to it or any Financial Affiliate by any of the Borrowers or any of their Subsidiaries. The obligations of each Lender under this ss.17.4 shall supersede and replace the obligations of such Lender under anY confidentiality letter in respect of this financing signed and delivered by such Lender to the Borrowers prior to the date hereof and shall be binding upon any assignee of, or purchaser of any participation in, any interest in any of the Loans or Reimbursement Obligations from any Lender. 17.5. SURVIVAL OF COVENANTS, ETC. All covenants, agreements, representations and warranties made herein, in the Notes, in any of the other Loan Documents or in any documents or other papers delivered by or on behalf of any of the Borrowers or any of their Subsidiaries pursuant hereto shall be deemed to have been relied upon by the Lenders and the Administrative Agent, notwithstanding any investigation heretofore or hereafter made by any of them, and shall survive the making by the Lenders of any of the Loans and the issuance, extension or renewal of any Letters of Credit, as herein contemplated, and shall continue in full force and effect so long as any Letter of Credit or any amount due under this Credit Agreement or the Notes or any of the other Loan Documents remains outstanding or any Lender has any obligation to make any Loans or the Administrative Agent has any obligation to issue, extend or renew any Letter of Credit, and for such further time as may be otherwise expressly specified in this Credit Agreement. All statements contained in any certificate or other paper delivered to any Lender or the Administrative Agent at any time by or on behalf of any of the Borrowers or any of their Subsidiaries pursuant hereto or in connection with the transactions contemplated hereby shall constitute representations and warranties by such Borrower or such Subsidiary hereunder. 17.6. NOTICES. Except as otherwise expressly provided in this Credit Agreement, all notices and other communications made or required to be given pursuant to this Credit Agreement or the Notes or any Letter of Credit Applications shall be in writing and shall be delivered in hand, mailed by United States registered or certified first class mail, postage prepaid, sent by overnight courier, or sent by telegraph, telecopy, facsimile or telex and confirmed by delivery via courier or postal service, addressed as follows: (a) if to the Borrowers, at 3001 E. President George Bush Highway, Suite 200, Richardson, Texas 75082, Attention: Chief Financial Officer, or at such other address for notice as the Borrower shall last have furnished in writing to the Person giving the notice, with a copy to Michael W. Tankersley, Esq. at Bracewell & Patterson LLP, Lincoln Plaza, 500 North Akard Street, Suite 4000, Dallas, Texas 75201-3387; -106- (b) if to the Administrative Agent, at 100 Federal Street, Boston, Massachusetts 02110, USA, Attention: J. Nicholas Cole, Director, or such other address for notice as the Administrative Agent shall last have furnished in writing to the Person giving the notice with a copy to Sula R. Fiszman, Esq. at Bingham Dana LLP, 150 Federal Street, Boston, MA 02110; and (c) if to any Lender, at such Lender's address set forth on SCHEDULE 1 hereto, or such other address for notice as such Lender shall have last furnished in writing to the Person giving the notice. Any such notice or demand shall be deemed to have been duly given or made and to have become effective (i) if delivered by hand, overnight courier or facsimile to a responsible officer of the party to which it is directed, at the time of the receipt thereof by such officer or the sending of such facsimile and (ii) if sent by registered or certified first-class mail, postage prepaid, on the third Business Day following the mailing thereof. 17.7. GOVERNING LAW. THIS CREDIT AGREEMENT AND, EXCEPT AS OTHERWISE SPECIFICALLY PROVIDED THEREIN, EACH OF THE OTHER LOAN DOCUMENTS ARE CONTRACTS UNDER THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS AND SHALL FOR ALL PURPOSES BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF SAID COMMONWEALTH OF MASSACHUSETTS (EXCLUDING THE LAWS APPLICABLE TO CONFLICTS OR CHOICE OF LAW). EACH OF THE BORROWERS AGREES THAT ANY SUIT FOR THE ENFORCEMENT OF THIS CREDIT AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS MAY BE BROUGHT IN THE COURTS OF THE COMMONWEALTH OF MASSACHUSETTS OR ANY FEDERAL COURT SITTING THEREIN AND CONSENTS TO THE NONEXCLUSIVE JURISDICTION OF SUCH COURT AND SERVICE OF PROCESS IN ANY SUCH SUIT BEING MADE UPON THE BORROWERS BY MAIL AT THE ADDRESS SPECIFIED IN ss.17.6. EACH OF THE BORROWERS HEREBY WAIVES ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE VENUE OF ANY SUCH SUIT OR ANY SUCH COURT OR THAT SUCH SUIT IS BROUGHT IN AN INCONVENIENT COURT. 17.8. HEADINGS. The captions in this Credit Agreement are for convenience of reference only and shall not define or limit the provisions hereof. 17.9. COUNTERPARTS. This Credit Agreement and any amendment hereof may be executed in several counterparts and by each party on a separate counterpart, each of which when executed and delivered shall be an original, and all of which together shall constitute one instrument. In proving this Credit Agreement it shall not be necessary to produce or account for more than one such counterpart signed by the party against whom enforcement is sought. Delivery by facsimile by any of the parties hereto of an executed counterpart hereof or of any amendment or waiver hereto shall be as effective as an original executed counterpart -107- hereof or of such amendment or waiver and shall be considered a representation that an original executed counterpart hereof or such amendment or waiver, as the case may be, will be delivered. 17.10. ENTIRE AGREEMENT, ETC. The Loan Documents and any other documents executed in connection herewith or therewith express the entire understanding of the parties with respect to the transactions contemplated hereby. Neither this Credit Agreement nor any term hereof may be changed, waived, discharged or terminated, except as provided in ss.17.12. 17.11. WAIVER OF JURY TRIAL. EACH OF THE BORROWERS HEREBY WAIVES ITS RIGHT TO A JURY TRIAL WITH RESPECT TO ANY ACTION OR CLAIM ARISING OUT OF ANY DISPUTE IN CONNECTION WITH THIS CREDIT AGREEMENT, THE NOTES OR ANY OF THE OTHER LOAN DOCUMENTS, ANY RIGHTS OR OBLIGATIONS HEREUNDER OR THEREUNDER OR THE PERFORMANCE OF SUCH RIGHTS AND OBLIGATIONS OR ANY COURSE OF CONDUCT, COURSE OF DEALINGS, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF ANY PARTY, INCLUDING ANY COURSE OF CONDUCT, COURSE OF DEALINGS, STATEMENTS OR ACTIONS OF THE ADMINISTRATIVE AGENT OR ANY LENDER RELATING TO THE ADMINISTRATION OF THE LOANS OR ENFORCEMENT OF THE LOAN DOCUMENTS AND AGREES THAT IT WILL NOT SEEK TO CONSOLIDATE ANY SUCH ACTION WITH ANY OTHER ACTION IN WHICH A JURY TRIAL CANNOT BE OR HAS NOT BEEN WAIVED. Except as prohibited by law, each Borrower hereby waives any right it may have to claim or recover in any litigation referred to in the preceding sentence any special, exemplary, punitive or consequential damages or any damages other than, or in addition to, actual damages. Each Borrower (a) certifies that no representative, agent or attorney of any Lender or the Administrative Agent has represented, expressly or otherwise, that such Lender or the Administrative Agent would not, in the event of litigation, seek to enforce the foregoing waivers and (b) acknowledges that the Administrative Agent and the Lenders have been induced to enter into this Credit Agreement, the other Loan Documents to which it is a party by, among other things, the waivers and certifications contained herein. 17.12. CONSENTS, AMENDMENTS, WAIVERS, ETC. Any consent or approval required or permitted by this Credit Agreement to be given by the Lenders may be given, and any term of this Credit Agreement, the other Loan Documents or any other instrument related hereto or mentioned herein may be amended, and the performance or observance by any of the Borrowers or any of their Subsidiaries of any terms of this Credit Agreement, the other Loan Documents or such other instrument or the continuance of any Default or Event of Default may be waived (either generally or in a particular instance and either retroactively or prospectively) with, but only with, the written consent of the Borrower and the written consent of the Required Lenders. Notwithstanding the foregoing, no amendment, modification or waiver shall: (a) without the written consent of the Borrowers and each Lender directly affected thereby: -108- (i) reduce or forgive the principal amount of any Loans or Reimbursement Obligations, or reduce the rate of interest on the Notes (other than interest accruing pursuant to ss.6.10.2 following thE effective date of any waiver by the Required Lenders of the Default or Event of Default relating thereto) or the amount of the Commitment Fee or Letter of Credit Fees or increase the rate of interest on any Note if the rate of interest is not increased proportionally on all the Notes or amend the definition of Leverage Ratio or any of the components thereof or the method of calculation thereof for purposes of calculating the Applicable Margin; (ii) increase the amount of any Lender's Revolving Credit Commitment, Term A Commitment, or Term B Commitment or extend the expiration date of such Lender's Revolving Credit Commitment; (iii) postpone or extend the Revolving Credit Maturity Date, the Term A Maturity Date or the Term B Maturity Date or any other regularly scheduled dates for payments of principal of, or interest on, the Loans or Reimbursement Obligations or any Fees or other amounts payable to such Lender (it being understood that (A) a waiver of the application of the default rate of interest pursuant to ss.6.10.2, anD (B) any vote to rescind any acceleration made pursuant to ss.14.1 of amounts owing with respect to thE Loans and other Obligations and (C) any modifications of the provisions relating to amounts, timing or application of prepayments of Loans and other Obligations, including under ss.ss.4.4.2.1, 4.4.2.2 And 4.4.2.3 shall require only the approval of the Required Lenders); and (iv) other than pursuant to a transaction permitted by the terms of this Credit Agreement, release a material portion of the Collateral (excluding, if any Borrower or any Subsidiary of a Borrower becomes a debtor under the federal Bankruptcy Code, the release of "cash collateral", as defined in Section 363(a) of the federal Bankruptcy Code pursuant to a cash collateral stipulation with the debtor approved by the Required Lenders); (b) without the written consent of all of the Lenders, amend or waive this ss.17.12 or the definition of Required Lenders; or (c) without the written consent of the Administrative Agent, amend or waive ss.15, the amount or time oF payment of the Administrative Agent's Fee or any Letter of Credit Fees payable for the Administrative Agent's account or any other provision applicable to the Administrative Agent. -109- No waiver shall extend to or affect any obligation not expressly waived or impair any right consequent thereon. No course of dealing or delay or omission on the part of the Administrative Agent or any Lender in exercising any right shall operate as a waiver thereof or otherwise be prejudicial thereto. No notice to or demand upon the Borrowers shall entitle the Borrowers to other or further notice or demand in similar or other circumstances. 17.13. SEVERABILITY. The provisions of this Credit Agreement are severable and if any one clause or provision hereof shall be held invalid or unenforceable in whole or in part in any jurisdiction, then such invalidity or unenforceability shall affect only such clause or provision, or part thereof, in such jurisdiction, and shall not in any manner affect such clause or provision in any other jurisdiction, or any other clause or provision of this Credit Agreement in any jurisdiction. 17.14. USURY. All agreements between the Borrowers, the Administrative Agent and the Lenders are hereby expressly limited so that in no contingency or event whatsoever, whether by reason of acceleration of the maturity of any Note or otherwise, shall the amount paid or agreed to be paid to the Lenders and the Administrative Agent for the use or the forbearance of the Indebtedness represented by the Notes exceed the maximum permissible under applicable law. In this regard, it is expressly agreed that it is the intent of the Borrowers, the Administrative Agent and the Lenders, in the execution, delivery and acceptance of the Notes, to contract in strict compliance with the laws of the Commonwealth of Massachusetts. If, under any circumstances whatsoever, performance or fulfillment of any provision of the Notes or any of the other Loan Documents at the time such provision is to be performed or fulfilled shall involve exceeding the limit of validity prescribed by applicable law, then the obligation so to be performed or fulfilled shall be reduced automatically to the limits of such validity, and if under any circumstances whatsoever the Lenders and the Administrative Agent should ever receive as interest an amount which would exceed the highest lawful rate, such amount which would be excessive interest shall be applied to the reduction of the principal balance evidenced by the Notes and not to the payment of interest. The provisions of this ss.17.14 shall control every other provision of this Credit Agreement and the Notes. -110- IN WITNESS WHEREOF, the undersigned have duly executed this Credit Agreement as a sealed instrument as of the date first set forth above. FURR'S RESTAURANT GROUP, INC. By: _______________________________________________ Name: Paul Hargett Title: Executive Vice President CAFETERIA OPERATORS, L.P. By: Furr's Restaurant Group, Inc., its General Partner By: _______________________________________________ Name: Paul Hargett Title: Executive Vice President CAVALCADE HOLDINGS, INC. By: _______________________________________________ Name: Paul Hargett Title: Vice President CAVALCADE FOODS, INC. By: _______________________________________________ Name: Paul Hargett Title: Vice President FURR'S/BISHOP'S CAFETERIAS, L.P By: Furr's Restaurant Group, Inc., its General Partner By: _______________________________________________ Name: Paul Hargett Title: Executive Vice President CAVALCADE DEVELOPMENT, L.P. By: Furr's Restaurant Group, Inc., its General Partner By: _______________________________________________ Name: Paul Hargett Title: Executive Vice President FLEET NATIONAL BANK, individually and as Administrative Agent By: _______________________________________________ Name: J. Nicholas Cole Title: Director HELLER FINANCIAL LEASING, INC. By: _______________________________________________ Name: Title: WASHINGTON MUTUAL BANK By: _______________________________________________ Name: Title: ORIX FINANCIAL SERVICES, INC. By: _______________________________________________ Name: Title: THE PROVIDENT BANK By: _______________________________________________ Name: Title: TEXTRON FINANCIAL CORPORATION By: _______________________________________________ Name: Title: EX-10.9 4 bonus-agree.htm BONUS AGREEMENT

RETENTION BONUS AGREEMENT

         This Retention Bonus Agreement (the "Agreement") is made by and between _____________ ("Executive") and Furr's Restaurant Group, Inc., a Delaware corporation (the "Company") on ____________, 2001.

RECITALS

        The Company desires to maintain the services of Executive and Executive desires to continue to provide services to the Company.

        The Company and Executive desire this Agreement to insure the establishment and maintenance of sound and vital management in protecting and enhancing the best interest of the Company and its shareholders during the time that the Company is selecting a new Chief Executive Officer.

         Now, therefore, the parties to this Agreement agree as follows.

1.     Employment

        This Agreement is not intended to and does not constitute an employment agreement between the Company and Executive. The Company and Executive acknowledge and agree that the employment relationship that exists between the Company and Executive is “at will.” Nothing contained in this Agreement affects any right of the Company or Executive to terminate employment at any time, nor creates any rights to employment on the part of Executive.

2.     Compensation

         In recognition of the increased responsibility of Executive during the period in which the Company searches for and selects a new Chief Executive Officer, Executive will be paid a bonus (the "Retention Bonus") equal to twenty percent (20%) of Executive's monthly base compensation accruing during the period beginning on June 26, 2001 and ending on the earlier of December 31, 2001 and the date that a successor Chief Executive Officer commences work at the Company's executive offices (the "New CEO Hire Date"). The Retention Bonus will be paid on the earlier of (a) One Hundred Twenty (120) days following the New CEO Hire Date, provided that Executive continues to be employed by the Company on that date, and (b) upon the termination of Executive's employment by the Company for a reason other than Cause. The Retention Bonus contemplated by this Agreement is payable in a lump sum, subject to withholding pursuant to the Company's normal payroll practices.

3.     Severance

        In the event that Executive’s employment is terminated by the Company for a reason other than Cause during the period commencing on the date of this Agreement and ending six months following the New CEO Hire Date, Executive shall be entitled to receive (i) Executive’s current base compensation through the date of termination; (ii) an amount equal to the “2001 Pro Rata Bonus” if the date of Executive’s termination of employment is on or prior to December 31, 2001, or an amount equal to the “2002 Pro Rata Bonus” if the date of Executive’s termination of employment is after December 31, 2001; (iii) the amount of the Retention Bonus accrued to the date of termination; and (iv) an amount equal to six (6) months base compensation as then in effect (the “Severance Payments”). Severance Payments, other than the 2001 Pro Rata Bonus, if applicable, required by this Section 3 are payable in a lump sum, subject to withholding pursuant to the Company’s normal payroll practices. The 2001 Pro Rata Bonus means a portion of the bonus that Executive would be entitled to receive pursuant to participation in the Company’s 2001 cash bonus program for executives had Executive’s employment continued through the payment date of such bonus (the “Full 2001 Bonus”), which will be equal to the number of calendar days Executive was employed during 2001 divided by 365 multiplied by the amount of the Full 2001 Bonus, which will be payable to Executive at the time that bonuses attributable to the Company’s 2001 cash bonus program for executives are paid generally. The 2002 Pro Rata Bonus means a portion of the bonus that Executive would be entitled to receive pursuant to participation in the Company’s 2002 cash bonus program for executives had Executive’s employment continued through the payment date of such bonus (the “Full 2002 Bonus”), which will be based upon the performance of the Company in achieving the objectives of the 2002 cash bonus program through the last day of the month preceding the date of termination of Executive’s employment (for example, if Executive is to receive a bonus of 20% of his or her base compensation of $100,000 if the Company’s EBITDA goal for 2002 is achieved, and Executive’s employment is terminated by the Company without Cause on April 20, 2002, if the Company’s EBITDA through March 31, 2002 is at budget, Executive will be paid an amount equal to $25,000 (3 months base compensation) multiplied by 20%, or $5,000, which will be payable upon the date of Executive’s termination of employment, or as promptly thereafter as it may be determined).

4.     Definitions

         "Cause" as used in this Agreement means any one or more of the following events:

        (i)     Executive fails to devote substantially all of Executive’s full business time, attention, and energies to the business of the Company or to discharge the duties faithfully, diligently, to the best of Executive’s abilities, and in a manner consistent with those duties normally associated with the position of Executive, and such failure continues for a period of ten business days after Executive receives written notice setting forth with reasonable specificity the nature of such failure.

        (ii)     Executive fails to follow a directive of the Board of Directors or the Chief Executive Officer and such failure continues for a period of ten business days after Executive receives written notice setting forth with reasonable specificity the nature of such failure.

        (iii)     Executive willfully engages in conduct that is significantly injurious to the Company, financially or otherwise.

         (iv)    Executive is convicted of a crime involving moral turpitude.

5.     Confidentiality and Property.

        (a)     Executive represents and agrees that, except as specifically authorized in writing by the Company or as may be required for Executive to obtain advice regarding this Agreement from professional advisors who agree to observe the confidentiality restrictions applicable to Executive hereunder, Executive will not disclose the existence or terms of this Agreement to any person or entity.

        (b)     Executive acknowledges that all customer, supplier and distributor lists, trade secrets, plans, production techniques, sales, marketing and expansion strategies, and technology and process of the Company and its Affiliates, as they may exist from time to time, and information concerning the products, services, production, development, technology and all technical information, procurement and sales activities and procedures, promotion and pricing techniques, and credit and financial data concerning customers of the Company and its Affiliates are valuable, special, and unique assets of the Company and its Affiliates (collectively, “Confidential Information”). Executive acknowledges that access to and knowledge of the Confidential Information is essential to the performance of Executive’s duties under this Agreement. Executive represents and agrees that, except as specifically authorized in writing by the Company or in connection with the performance of Executive’s duties, Executive will not (i) disclose any Confidential Information to any person or entity or (ii) make use of any Confidential Information for Executive’s own purposes or for the benefit of any other person or entity, other than the Company.

        (c)     Executive acknowledges and agrees that all manuals, drawings, blueprints, letters, notes, notebooks, reports, books, procedures, forms, documents, records, or paper or copies thereof used in connection with the operations or business of the Company made or received by Executive or made known to Executive in any way in connection with Executive’s employment and any other Confidential Information are and will be the exclusive property of the Company. Executive agrees not to copy or remove any of the above from the premises or custody of the Company, or disclose the contents thereof to any other person or entity, other than as may be required in order for Executive to perform the duties under this Agreement. Executive acknowledges that all such papers and records will at all times be subject to the control of the Company, and Executive agrees to surrender the same upon request of the Company, and will surrender such no later than any termination of employment with the Company, whether voluntary or involuntary. The Company may notify anyone employing Executive at any time of the provision of this Agreement.

6.     Restrictive Covenant

        The increased responsibilities of Executive as referred to above in Section 2 will result in Executive being furnished with certain confidential information, to which he was not previously entitled. The Company shall provide such confidential information immediately upon and following the execution of this Agreement by Executive.

        In addition to any other covenants or agreements to which Executive may be subject during Executive’s employment by the Company, and in consideration of the agreements and obligations of the Company set forth in this Agreement, during the term of Executive’s employment and for a period of six (6) months from the date of the Executive’s termination of employment for any reason (the “Noncompete Period”), Executive will not, directly or indirectly, either as an individual or as an employee, officer, director, shareholder, partner, adviser, or consultant, or in any capacity whatsoever:

        (a)     conduct or assist others in conducting any business that is in competition with the Business of the Company (as defined below) or any of its Affiliates (as defined below) which are engaged in Business substantially similar to the Business of the Company within twenty-five (25) miles of any geographic location in the United States and any other nation where the Company or any of its Affiliates operates its restaurants;

        (b)     recruit, hire, assist others in recruiting or hiring, discuss employment or refer to others for employment (collectively referred to as “Recruiting Activity”) any person who is, or within the 12 month period immediately preceding the date of any such Recruiting Activity was, an employee of the Company or any of its Affiliates, in each case without the prior consent of the Company, which may not be unreasonably withheld; or

        (c)     approach or solicit any vendor of the Company for the purpose of competing with the Company or causing, directly or indirectly, any such person to cease doing business with the Company.

For the purpose of this Agreement, the “Business of the Company” means the business of owning, operating, managing, consulting or otherwise advising restaurants, diners, cafes, cafeterias or other eating establishments offering buffets or a-la-cartes or “all you can eat” cafeteria style meals, in each case at a comparable price point to that offered by the Company, that are competitive with any products served, produced or sold by the Company. The term “Affiliates” means all subsidiaries of the Company and each person or entity that controls, is controlled by, or is under common control with the Company. It is understood and agreed that the scope of each of the covenants contained in this Section 6 is reasonable as to time, area, and persons and is necessary to protect the legitimate business interest of the Company. It is further agreed that such covenants will be regarded as divisible and will be operative as to time, area and persons to the extent that they may be operative. The terms of this Section 6 shall not apply to the ownership by Executive of less than 5% of a class of equity securities of an entity, which securities are publicly traded on the New York Stock Exchange, the American Stock Exchange, the National Market System of the National Association of Securities Dealers Automated Quotation System or other national market system. The provisions of this Section 6 will survive any termination or expiration of this Agreement.

7.     Injunctive Relief, Arbitration

        (a)     Executive acknowledges that a remedy of law for any breach or attempted breach of Sections 5 or 6 of this Agreement by Executive will be inadequate, agrees that the Company will be entitled to specific performance and injunctive and other equitable relief in case of any breach or attempted breach of such sections by Executive, and agrees not to use as a defense that the Company has an adequate remedy at law. Notwithstanding paragraphs (b), (c), and (d) below, Sections 5 and 6 of this Agreement shall be enforceable in a court of equity, or other tribunal with jurisdiction, by a decree of specific performance, and appropriate injunctive relief may be applied for and granted in connection herewith. Such remedy shall not be exclusive and shall be in addition to any other remedies now or hereafter existing at law or in equity, by statute or otherwise, which remedies shall be determined by binding arbitration as provided below. No delay or omission in exercising any right or remedy set forth in this Agreement shall operate as a waiver thereof or of any other right or remedy and no single or partial exercise thereof shall preclude any others or further exercise thereof or the exercise of any other right or remedy.

        (b)     Executive and the Company acknowledge and agree that any claim or controversy arising out of or relating to this Agreement or the breach of this Agreement, or any other dispute arising out of or relating to the employment of Executive by the Company, other than claims described in paragraph (a) above, shall be settled by final and binding arbitration in Dallas, Texas in accordance with the Commercial Arbitration Rules of the American Arbitration Association in effect on the date of the claim or controversy arises. Executive and the Company further acknowledge and agree that either party must request arbitration of any claim or controversy within one year of the date the claim or controversy accrues or first arises by giving written notice of the party’s request for arbitration by certified U.S. mail or personal delivery addressed to the Company’s principal business address or to Executive’s last known address reflected in the Company’s personnel records. Notice shall be effective upon delivery or mailing. Failure to give notice of any claim or controversy within ninety days shall constitute a waiver of the claim or controversy.

        (c)     All claims or controversies subject to arbitration shall be submitted to arbitration within six months from the date the written notice of a request for arbitration is effective. All claims or controversies shall be resolved by a panel of three arbitrators who are licensed to practice law in the State of Texas and who are experienced in the arbitration of labor and employment disputes. These arbitrators shall be selected in accordance with the Commercial Arbitration Rules of the American Arbitration Association in effect at the time the claim or controversy arises. Either party may request that the arbitration proceeding be stenographically recorded by a Certified Shorthand Reporter. The arbitrators shall issue a written decision with respect to all claims or controversies are submitted to arbitration. The parties shall be entitled to be represented by legal counsel at any arbitration proceeding. The parties shall be responsible for paying their own attorneys’ fees, if any.

        (d)     The Company and Executive agree that the arbitration provisions in the preceding paragraphs may be specifically enforced by either party and by any court of competent jurisdiction. The Company and Executive further acknowledge and agree that the decision of the arbitrators may be specifically enforced by either party in any court of competent jurisdiction.

8.     Term.

        The term of this Agreement is one year from the date of this Agreement. Upon any termination of Executive’s employment, the provisions of Sections 3, 5, 6 and 7 of this Agreement will survive and continue in full force and effect.

9.     Binding Nature

        The rights and obligations of the Company under this Agreement will inure to the benefit of and will be binding upon the successors and assigns of the Company.

10.   Severability

        If any provision of this Agreement is declared or found to be illegal, unenforceable, or void, in whole or in part, then both parties will be relieved of all obligations arising under such provision, but only to the extent it is illegal, unenforceable, or void. The intent and agreement of the parties to this Agreement is that this Agreement will be deemed amended by modifying any such illegal, unenforceable, or void provision to the extent necessary to make it legal and enforceable while preserving its intent, or if such is not possible, by substituting therefore another provision that is legal and enforceable and achieves the same objectives. Notwithstanding the foregoing, if the remainder of this Agreement will not be affected by such declaration or finding and is capable of substantial performance, then each provision not so affected will be enforced to the extent permitted by law.

11.   Governing Law

        THIS AGREEMENT WILL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE SUBSTANTIVE LAWS OF THE STATE OF TEXAS WITHOUT GIVING EFFECT TO ANY PRINCIPLE OF CONFLICT-OF-LAWS THAT WOULD REQUIRE THE APPLICATION OF THE LAW OF ANY OTHER JURISDICTION.

12.   Notices

        All notices which are required or may be given pursuant to this Agreement will be in writing and mailed or delivered to the addresses set forth on the signature page of this Agreement or to such other address as either party will request of the other in writing. All notices will be deemed to be effective upon delivery to any agent for personal delivery or upon mailing.

13.   Entire Agreement

        This Agreement constitutes the entire agreement between the parties to this Agreement with respect to the subject matter of this Agreement and there are no understandings or agreements relative to this Agreement which are not fully expressed in this Agreement, except for any option agreements by and between the Company and Executive. All prior agreements with respect to the subject matter of this Agreement are expressly superseded by this Agreement. No change, waiver, or discharge of this Agreement will be valid unless in writing and signed by the party against which such change, waiver, or discharge is to be enforced.

        IN WITNESS WHEREOF, the parties to this Agreement have executed and delivered this Agreement on the date first above written.

         THE COMPANY:

         FURR'S RESTAURANT GROUP, INC.


                                                                                
         Phil Ratner
         President and Chief Executive Officer

         Address:                                                     

         EXECUTIVE::


                                                                              
         Print Name:                                                 

         Address:                                                     

                                                                              

EX-23.1 5 consent-letter.htm CONSENT LETTER

Exhibit 23.1               

The Board of Directors
Furr's Restaurant Group, Inc.:

We consent to the incorporation by reference in the registration statements numbers 333-11291, 333-86209, 333-92349, and 333-56182 on Form S-8 of Furr’s Restaurant Group, Inc. of our report dated February 22, 2002, relating to the consolidated balance sheets of Furr’s Restaurant Group, Inc. and subsidiaries as of January 1, 2002 and January 2, 2001, and the related consolidated statements of operations, changes in stockholders’ equity (deficit) and cash flows for each of the years in the three-year period ended January 1, 2002, and the related schedule, which report appears in the January 1, 2002 annual report on Form 10-K of Furr’s Restaurant Group, Inc.

KPMG LLP                                                           

Dallas, Texas
March 28, 2002

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