-----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, F9Zbo+b/fItCVnvvJlhLHkyvfQClr/VC/LuRYFJk+8dWejsH1nhHYnwWt7jdggRP Kt/hlnz2V9Rr0/NnO6V8Xg== 0000950130-98-004363.txt : 19980903 0000950130-98-004363.hdr.sgml : 19980903 ACCESSION NUMBER: 0000950130-98-004363 CONFORMED SUBMISSION TYPE: S-4 PUBLIC DOCUMENT COUNT: 24 FILED AS OF DATE: 19980902 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: NE RESTAURANT CO INC CENTRAL INDEX KEY: 0001061588 STANDARD INDUSTRIAL CLASSIFICATION: [] STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4 SEC ACT: SEC FILE NUMBER: 333-62775 FILM NUMBER: 98703332 BUSINESS ADDRESS: STREET 1: 80A TURNPIKE ROAD CITY: WESTBOROUGH STATE: MA ZIP: 01581 BUSINESS PHONE: 5088709200 MAIL ADDRESS: STREET 1: 80 A TURNPIKE RD CITY: WESTBOROUGH STATE: MA ZIP: 01581 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BERTUCCIS INC CENTRAL INDEX KEY: 0000874971 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-EATING PLACES [5812] IRS NUMBER: 042947209 STATE OF INCORPORATION: MA FISCAL YEAR END: 1228 FILING VALUES: FORM TYPE: S-4 SEC ACT: SEC FILE NUMBER: 333-62775-01 FILM NUMBER: 98703333 BUSINESS ADDRESS: STREET 1: C/O NE RESTAURANT CO INC STREET 2: 80A TURNPIKE ROAD CITY: WESTBOROUGH STATE: MA ZIP: 01581 BUSINESS PHONE: 5088709200 MAIL ADDRESS: STREET 1: C/O NE RESTAURANT CO INC STREET 2: 80A TURNPIKE ROAD CITY: WESTBOROUGH STATE: MA ZIP: 01581 FORMER COMPANY: FORMER CONFORMED NAME: BERTUCCIS HOLDING CORP DATE OF NAME CHANGE: 19600201 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BERTUCCIS RESTAURANT CORP CENTRAL INDEX KEY: 0001069012 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 042844750 STATE OF INCORPORATION: MA FISCAL YEAR END: 1228 FILING VALUES: FORM TYPE: S-4 SEC ACT: SEC FILE NUMBER: 333-62775-02 FILM NUMBER: 98703334 BUSINESS ADDRESS: STREET 1: C/O NE RESTAURANT CO INC STREET 2: 80A TURNPIKE ROAD CITY: WESTBOROUGH STATE: MA ZIP: 01581 BUSINESS PHONE: 5088709200 MAIL ADDRESS: STREET 1: C/O NE RESTAURANT CO INC STREET 2: 80A TURNPIKE ROAD CITY: WESTBOROUGH STATE: MA ZIP: 01581 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BERTUCCIS SECURITIES CORP CENTRAL INDEX KEY: 0001069013 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 043132772 STATE OF INCORPORATION: MA FISCAL YEAR END: 1228 FILING VALUES: FORM TYPE: S-4 SEC ACT: SEC FILE NUMBER: 333-62775-03 FILM NUMBER: 98703335 BUSINESS ADDRESS: STREET 1: C/O NE RESTAURANT CO INC STREET 2: 80A TURNPIKE ROAD CITY: WESTBOROUGH STATE: MA ZIP: 01581 BUSINESS PHONE: 5088709200 MAIL ADDRESS: STREET 1: C/O NE RESTAURANT CO INC STREET 2: 80A TURNPIKE ROAD CITY: WESTBOROUGH STATE: MA ZIP: 01581 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BERESTCO INC CENTRAL INDEX KEY: 0001069015 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 043173720 STATE OF INCORPORATION: MA FISCAL YEAR END: 1228 FILING VALUES: FORM TYPE: S-4 SEC ACT: SEC FILE NUMBER: 333-62775-04 FILM NUMBER: 98703336 BUSINESS ADDRESS: STREET 1: C/O NE RESTAURANT CO INC STREET 2: 80A TURNPIKE ROAD CITY: WESTBOROUGH STATE: MA ZIP: 01581 BUSINESS PHONE: 5088709200 MAIL ADDRESS: STREET 1: C/O NE RESTAURANT CO INC STREET 2: 80A TURNPIKE ROAD CITY: WESTBOROUGH STATE: MA ZIP: 01581 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SAL & VINNIES SICILLIAN STEAKHOUSE INC CENTRAL INDEX KEY: 0001069016 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 043260622 STATE OF INCORPORATION: MA FISCAL YEAR END: 1228 FILING VALUES: FORM TYPE: S-4 SEC ACT: SEC FILE NUMBER: 333-62775-05 FILM NUMBER: 98703337 BUSINESS ADDRESS: STREET 1: C/O NE RESTAURANT CO INC STREET 2: 80A TURNPIKE ROAD CITY: WESTBOROUGH STATE: MA ZIP: 01581 BUSINESS PHONE: 5088709200 MAIL ADDRESS: STREET 1: C/O NE RESTAURANT CO INC STREET 2: 80A TURNPIKE ROAD CITY: WESTBOROUGH STATE: MA ZIP: 01581 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BERTUCCIS OF ANNE ARUNDEL COUNTY INC CENTRAL INDEX KEY: 0001069017 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 521854761 STATE OF INCORPORATION: MD FISCAL YEAR END: 1228 FILING VALUES: FORM TYPE: S-4 SEC ACT: SEC FILE NUMBER: 333-62775-06 FILM NUMBER: 98703338 BUSINESS ADDRESS: STREET 1: C/O NE RESTAURANT CO INC STREET 2: 80A TURNPIKE ROAD CITY: WESTBOROUGH STATE: MA ZIP: 01581 BUSINESS PHONE: 5088709200 MAIL ADDRESS: STREET 1: C/O NE RESTAURANT CO INC STREET 2: 80A TURNPIKE ROAD CITY: WESTBOROUGH STATE: MA ZIP: 01581 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BERTUCCIS OF COLUMBIA INC CENTRAL INDEX KEY: 0001069018 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 521854761 STATE OF INCORPORATION: MD FISCAL YEAR END: 1228 FILING VALUES: FORM TYPE: S-4 SEC ACT: SEC FILE NUMBER: 333-62775-07 FILM NUMBER: 98703339 BUSINESS ADDRESS: STREET 1: C/O NE RESTAURANT CO INC STREET 2: 80A TURNPIKE ROAD CITY: WESTBOROUGH STATE: MA ZIP: 01581 BUSINESS PHONE: 5088709200 MAIL ADDRESS: STREET 1: C/O NE RESTAURANT CO INC STREET 2: 80A TURNPIKE ROAD CITY: WESTBOROUGH STATE: MA ZIP: 01581 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BERTUCCIS OF BALTIMORE COUNTY INC CENTRAL INDEX KEY: 0001069019 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 521819001 STATE OF INCORPORATION: MD FISCAL YEAR END: 1228 FILING VALUES: FORM TYPE: S-4 SEC ACT: SEC FILE NUMBER: 333-62775-08 FILM NUMBER: 98703340 BUSINESS ADDRESS: STREET 1: C/O NE RESTAURANT CO INC STREET 2: 80A TURNPIKE ROAD CITY: WESTBOROUGH STATE: MA ZIP: 01581 BUSINESS PHONE: 5088709200 MAIL ADDRESS: STREET 1: C/O NE RESTAURANT CO INC STREET 2: 80A TURNPIKE ROAD CITY: WESTBOROUGH STATE: MA ZIP: 01581 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BERTUCCIS OF BEL AIR INC CENTRAL INDEX KEY: 0001069021 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 521854759 STATE OF INCORPORATION: MD FISCAL YEAR END: 1228 FILING VALUES: FORM TYPE: S-4 SEC ACT: SEC FILE NUMBER: 333-62775-09 FILM NUMBER: 98703341 BUSINESS ADDRESS: STREET 1: C/O NE RESTAURANT CO INC STREET 2: 80A TURNPIKE ROAD CITY: WESTBOROUGH STATE: MA ZIP: 01581 BUSINESS PHONE: 5088709200 MAIL ADDRESS: STREET 1: C/O NE RESTAURANT CO INC STREET 2: 80A TURNPIKE ROAD CITY: WESTBOROUGH STATE: MA ZIP: 01581 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BERTUCCIS OF WHITE MARSH INC CENTRAL INDEX KEY: 0001069022 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 521854760 STATE OF INCORPORATION: MD FISCAL YEAR END: 1228 FILING VALUES: FORM TYPE: S-4 SEC ACT: SEC FILE NUMBER: 333-62775-10 FILM NUMBER: 98703342 BUSINESS ADDRESS: STREET 1: C/O NE RESTAURANT CO INC STREET 2: 80A TURNPIKE ROAD CITY: WESTBOROUGH STATE: MA ZIP: 01581 BUSINESS PHONE: 5088709200 MAIL ADDRESS: STREET 1: C/O NE RESTAURANT CO INC STREET 2: 80A TURNPIKE ROAD CITY: WESTBOROUGH STATE: MA ZIP: 01581 S-4 1 FORM S-4 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 2, 1998 REGISTRATION STATEMENT NO. 333- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 --------------- FORM S-4 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 --------------- NE RESTAURANT COMPANY, INC. AND THE GUARANTORS LISTED IN SCHEDULE A (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) --------------- SEE SCHEDULE A SEE SCHEDULE A SEE SCHEDULE A (STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER JURISDICTION INDUSTRIAL IDENTIFICATION NUMBER) OF INCORPORATION OR CLASSIFICATION CODE ORGANIZATION) NO.) --------------- 80A TURNPIKE ROAD WESTBOROUGH, MASSACHUSETTS 01581 (508) 870-9200 (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) DENNIS PEDRA PRESIDENT AND CHIEF EXECUTIVE OFFICER NE RESTAURANT COMPANY, INC. 80A TURNPIKE ROAD WESTBOROUGH, MASSACHUSETTS 01581 (508) 870-9200 (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE) WITH A COPY TO: DAVID H. KAUFMAN, ESQ. STROOCK & STROOCK & LAVAN LLP 180 MAIDEN LANE NEW YORK, NEW YORK 10038 --------------- APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: As soon as practicable after this Registration Statement becomes effective. If the securities being registered on this form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box. [_] If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_] If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_] CALCULATION OF REGISTRATION FEE - ------------------------------------------------------------------------------- - -------------------------------------------------------------------------------
PROPOSED PROPOSED MAXIMUM TITLE OF EACH CLASS OF AMOUNT MAXIMUM AGGREGATE AMOUNT OF SECURITIES TO BE TO BE OFFERING PRICE OFFERING REGISTRATION REGISTERED REGISTERED PER UNIT(1) PRICE(1) FEE - ------------------------------------------------------------------------------- 10 3/4% Senior Notes due 2008................... $100,000,000 100% $100,000,000 $29,500 - ------------------------------------------------------------------------------- Guarantees of the 10 3/4% Senior Notes due 2008................... $100,000,000 N/A N/A (2)
- ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- (1) Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(f). (2) This Registration Statement covers the Guarantees to be issued under the 10 3/4% Senior Notes due 2008. Such Guarantees are to be issued for no additional consideration and therefore no registration fee is required. --------------- THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- SCHEDULE A
STATE OR OTHER JURISDICTION PRIMARY STANDARD OF INCORPORATION OR INDUSTRIAL CLASSIFICATION I.R.S. EMPLOYER REGISTRANT ORGANIZATION CODE NO. IDENTIFICATION NUMBER ---------- --------------------------- ------------------------- --------------------- NE Restaurant Company, Inc.................... Delaware 5812 06-1311266 STATE OR OTHER JURISDICTION PRIMARY STANDARD OF INCORPORATION OR INDUSTRIAL CLASSIFICATION I.R.S. EMPLOYER GUARANTORS ORGANIZATION CODE NO. IDENTIFICATION NUMBER ---------- --------------------------- ------------------------- --------------------- Bertucci's, Inc......... Massachusetts 5812 04-2947209 Bertucci's Restaurant Corp................... Massachusetts 5812 04-2844750 Bertucci's Securities Corporation............ Massachusetts 6719 04-3132772 Berestco, Inc........... Massachusetts 9999 04-3173720 Sal & Vinnie's Sicilian Steakhouse, Inc........ Massachusetts 5812 04-3260622 Bertucci's of Anne Arundel County, Inc.... Maryland 5812 52-1854761 Bertucci's of Columbia, Inc.................... Maryland 5812 52-1854758 Bertucci's of Baltimore County, Inc............ Maryland 5812 52-1819001 Bertucci's of Bel Air, Inc.................... Maryland 5812 52-1854759 Bertucci's of White Marsh, Inc............. Maryland 5812 52-1854760
CROSS REFERENCE SHEET PURSUANT TO ITEM 501(B) OF REGULATION S-K SHOWING LOCATION IN PROSPECTUS OF INFORMATION REQUIRED BY ITEMS OF PART I OF FORM S-4
REGISTRATION STATEMENT ITEM NUMBER AND CAPTION CAPTION OR LOCATION IN PROSPECTUS -------------------------------------- ------------------------------------ 1. Forepart of Registration Statement and Outside Front Cover Page of Prospectus........................ Outside Front Cover Page 2. Inside Front and Outside Back Cover Pages of Prospectus............... Inside Front Cover Page; Outside Back Cover Page 3. Risk Factors, Ratio of Earnings to Fixed Charges and Other Prospectus Summary; Risk Factors; Information....................... Unaudited Pro Forma Data; Selected Financial Data of the Company; Selected Financial Data of Bertucci's 4. Terms of the Transaction........... Outside Front Cover Page; Prospectus Summary; The Exchange Offer; Description of Exchange Notes; Certain U.S. Federal Income Tax Considerations 5. Pro Forma Financial Information.... Unaudited Pro Forma Financial Data 6. Material Contracts with the Company Being Acquired.................... Inapplicable 7. Additional Information Required.... Inapplicable 8. Interests of Named Experts and Counsel........................... Legal Matters; Independent Auditors 9. Disclosure of Commission Position on Indemnification for Securities Act Liabilities................... Inapplicable 10. Information with Respect to S-3 Registrants....................... Inapplicable 11. Incorporation of Certain Information by Reference.......... Inapplicable 12. Information with Respect to S-3 or S-2 Registrants................... Inapplicable 13. Incorporation of Certain Information by Reference.......... Inapplicable 14. Information with Respect to Registrants other than S-3 or S-2 Outside Front Cover Page; Prospectus Registrants....................... Summary; Risk Factors; Use of Proceeds; Capitalization; Unaudited Pro Forma Financial Data; Selected Financial Data of the Company; Selected Financial Data of Bertucci's; Management's Discussion and Analysis of Financial Condition and Results of Operations of the Company; Management's Discussion and Analysis of Financial Condition and Results of Operations of Bertucci's; Business; Management; Security Ownership of Certain Beneficial Owners and Management; Certain Transactions of the Company; Description of Other Indebtedness
REGISTRATION STATEMENT ITEM NUMBER AND CAPTION CAPTION OR LOCATION IN PROSPECTUS -------------------------------------- ------------------------------------ 15. Information with Respect to S-3 Companies.......................... Inapplicable 16. Information with Respect to S-3 or S-2 Companies...................... Inapplicable 17. Information with Respect to Companies other than S-3 or S-2 Companies.......................... Inapplicable 18. Information if Proxies, Consents or Authorizations are to be Solicited.......................... Inapplicable 19. Information if Proxies, Consents or Authorizations are not to be Management; Security Ownership of Solicited or in an Exchange Offer.. Certain Beneficial Owners and Management; Certain Transactions of the Company
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ +INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A + +REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE + +SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY + +OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT + +BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR + +THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE + +SECURITIES IN ANY JURISDICTION IN WHICH SUCH OFFER, SOLICITATION OR SALE + +WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES + +LAWS OF ANY SUCH JURISDICTION. + ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ SUBJECT TO COMPLETION, DATED SEPTEMBER 2, 1998 PRELIMINARY PROSPECTUS NE RESTAURANT COMPANY, INC. OFFER TO EXCHANGE 10 3/4% SENIOR NOTES DUE 2008 FOR ANY AND ALL OUTSTANDING 10 3/4% SENIOR NOTES DUE 2008 ----------- THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON , , 1998, UNLESS EXTENDED BY NE RESTAURANT COMPANY, INC. As more fully described herein under "The Exchange Offer--Expiration Date; Extensions; Amendments," the time the Exchange Offer expires (including extensions, if any, by NE Restaurant Company, Inc.) is referred to as the "Expiration Date." NE Restaurant Company, Inc., a Delaware corporation ("NERCO" or the "Company"), is hereby offering (the "Exchange Offer"), upon the terms and subject to the conditions set forth in this prospectus (the "Prospectus") and the accompanying letter of transmittal (the "Letter of Transmittal"), to exchange $1,000 principal amount of its 10 3/4% Senior Notes due July 15, 2008 (the "Exchange Notes"), which exchange has been registered under the Securities Act of 1933, as amended (the "Securities Act"), pursuant to a registration statement of which this Prospectus is a part (the "Registration Statement"), for each $1,000 principal amount of its outstanding 10 3/4% Senior Notes due July 15, 2008 (the "Private Notes" and, collectively with the Exchange Notes, the "Notes"), of which $100,000,000 in aggregate principal amount was issued and sold on July 20, 1998 in a transaction exempt from registration under the Securities Act (the "Private Offering") and is outstanding on the date hereof. The form and terms of the Exchange Notes are substantially identical in all respects (including principal amount, interest rate, maturity and ranking) to the form and terms of the Private Notes, except that (i) the Exchange Notes will have been registered under the Securities Act and, therefore, will not bear legends restricting the transfer thereof and (ii) holders of the Exchange Notes will not be entitled to certain rights of holders of the Private Notes under the Exchange and Registration Rights Agreement (as defined herein), which rights will terminate upon consummation of the Exchange Offer. The Exchange Notes will evidence the same indebtedness as the Private Notes and will be issued pursuant to, and entitled to the benefits of, the Indenture (as defined herein) governing the Private Notes. The Exchange Offer is being made to satisfy the obligations of the Company under the Exchange and Registration Rights Agreement relating to the Private Notes. See "The Exchange Offer" and "Description of Exchange Notes." The Exchange Notes will bear interest at the rate of 10 3/4% per annum, payable in cash semi-annually on January 15 and July 15 of each year, commencing on January 15, 1999. The Exchange Notes will mature on July 15, 2008. Except as described below, the Company may not redeem the Exchange Notes prior to July 15, 2003. On and after such date, the Company may redeem the Exchange Notes, in whole or in part, at any time at the redemption prices set forth herein, plus accrued and unpaid interest thereon, if any, to the date of redemption. In addition, at any time and from time to time prior to July 15, 2001, the Company may, subject to certain requirements, redeem up to 35% of the original aggregate principal amount of the Notes with the net cash proceeds of one or more Equity Offerings (as defined herein) at a redemption price equal to 110.75% of the principal amount thereof, plus accrued and unpaid interest thereon, if any, to the date of redemption. The Exchange Notes will not be subject to any sinking fund requirements. Upon the occurrence of a Change of Control (as defined herein), each holder of Exchange Notes will have the right to require the Company to repurchase all or any part of such holder's Exchange Notes at a purchase price in cash equal to 101% of the principal amount thereof, together with accrued and unpaid interest, if any, to the date of purchase. See "Description of Exchange Notes." (CONTINUED ON NEXT PAGE) ----------- SEE "RISK FACTORS" BEGINNING ON PAGE 21 HEREOF FOR CERTAIN FACTORS WHICH HOLDERS OF THE PRIVATE NOTES SHOULD CONSIDER IN CONNECTION WITH THE EXCHANGE OFFER. ----------- THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS OR THE LETTER OF TRANSMITTAL. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THE DATE OF THIS PROSPECTUS IS , 1998 (CONTINUED FROM PREVIOUS PAGE) The Exchange Notes will be senior unsecured obligations of the Company and will rank pari passu in right of payment with all present and future senior indebtedness of the Company and senior in right of payment to any subordinated indebtedness of the Company. Substantially all of the assets of the Company are, or will be, pledged to lenders other than the holders of Exchange Notes. The Exchange Notes will be fully and unconditionally guaranteed on a senior unsecured basis (the "Guarantees") by the Company's existing and future Restricted Subsidiaries (as defined herein) other than Restricted Subsidiaries that are, or will become, parties to the FFCA Loans (as defined herein) and other similar secured financings (such guarantors, collectively, the "Subsidiary Guarantors"). The Guarantees will be effectively subordinated in right of payment to all existing and future secured indebtedness of the Subsidiary Guarantors to the extent of the value of the assets securing such indebtedness. The Exchange Notes will be effectively subordinated to the Company's Senior Bank Facility (as defined herein) to the extent of the value of the assets securing such indebtedness and to any additional secured indebtedness of the Company permitted under the Indenture and the Exchange Notes will be structurally subordinated to indebtedness under the FFCA Loans and to other similar secured indebtedness of the Company permitted under the Indenture. As of the end of the First Six Months 1998 (as defined herein), on an adjusted basis after giving effect to the Transactions (as defined herein), (i) the aggregate principal amount of senior indebtedness of the Company and the Restricted Subsidiaries would have been approximately $124.0 million (excluding unused revolving loan availability), of which $23.8 million would have been indebtedness in respect of the FFCA Loans, and (ii) the Company would have had no subordinated indebtedness outstanding. See "Description of Exchange Notes" and "Description of Other Indebtedness." The Private Notes were originally issued and sold in the Private Offering to "qualified institutional buyers," as defined in Rule 144A under the Securities Act ("QIB's"), pursuant to Rule 144A of the Securities Act ("Rule 144A") and in offshore transactions to persons other than "U.S. persons," as defined in Regulation S under the Securities Act ("Non-U.S. Persons"), in reliance on Regulation S under the Securities Act. Based on an interpretation by the staff of the Securities and Exchange Commission (the "Commission") set forth in no- action letters issued to third parties, the Company believes that the Exchange Notes issued pursuant to the Exchange Offer in exchange for Private Notes may be offered for resale, resold and otherwise transferred by a holder thereof (other than an "affiliate" of the Company within the meaning of Rule 405 under the Securities Act) without compliance with the registration and prospectus delivery requirements of the Securities Act; provided that the holder is acquiring Exchange Notes in the ordinary course of its business and is not participating, and has no arrangement or understanding with any person to participate, in a distribution of the Exchange Notes. Holders of Private Notes wishing to accept the Exchange Offer must represent to the Company, as required by the Exchange and Registration Rights Agreement, that such conditions have been met. The Company believes that none of the registered holders of the Private Notes is an affiliate (as such term is defined in Rule 405 under the Securities Act) of the Company. Each broker-dealer that receives Exchange Notes for its own account in exchange for Private Notes must acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Notes. The Letter of Transmittal states that by so acknowledging and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. This Prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with resales of Exchange Notes received in exchange for Private Notes, where such Private Notes were acquired by such broker-dealer as a result of market- making or other trading activities. The Company has agreed to make this Prospectus (as it may be amended or supplemented) available to any broker- dealer, upon request, for use in connection with any such resale, for a period of up to 180 days after the Registration Statement is declared effective by the Commission or until such earlier date on which all the Exchange Notes are freely tradable. However, any broker-dealer who acquired the Private Notes directly from the Company may not fulfill its prospectus delivery requirements with this Prospectus, but must comply with the registration and prospectus delivery requirements of the Securities Act. See "The Exchange Offer--Resale of the Exchange Notes" and "Plan of Distribution." i The Company will not receive any proceeds from, and has agreed to bear the expenses of, the Exchange Offer. No underwriter is being used in connection with the Exchange Offer. See "The Exchange Offer--Resale of the Exchange Notes," "Use of Proceeds" and "Plan of Distribution." Prior to the Exchange Offer, there has been no public market for the Notes. The Company does not intend to apply for listing of the Exchange Notes on any national securities exchange or for their quotation on an automated dealer quotation system, but the Private Notes are eligible for trading by QIB's in the Private Offerings, Resales and Trading through Automated Linkages ("PORTAL") market of the National Association of Securities Dealers, Inc. There can be no assurance that an active market for the Exchange Notes will develop. To the extent that a market for the Exchange Notes does develop, the market value of the Exchange Notes will depend on market conditions (such as yields on alternative investments), general economic conditions, the Company's financial condition and certain other factors. Such conditions might cause the Exchange Notes, to the extent they are traded, to trade at a significant discount from face value. In addition, any Private Notes not tendered and accepted in the Exchange Offer will remain outstanding. To the extent that the Private Notes are tendered and accepted in the Exchange Offer, a holder's ability to sell untendered, and tendered but unaccepted, Private Notes could be adversely affected. Following consummation of the Exchange Offer, the holders of Private Notes will continue to be subject to the existing restrictions on transfer thereof and the Company will have no further obligation to such holders to provide for the registration under the Securities Act of the Private Notes except under certain limited circumstances. See "The Exchange Offer--Termination of Certain Rights." The Company will accept for exchange any and all validly tendered Private Notes not withdrawn prior to 5:00 p.m., New York City time, on the Expiration Date. Tenders of Private Notes may be withdrawn at any time prior to 5:00 p.m., New York City time, on the Expiration Date. The Exchange Offer is not conditioned on any minimum aggregate principal amount of Private Notes being tendered or accepted for exchange; provided, however, Private Notes may be tendered only in integral multiples of $1,000. The Exchange Offer is subject to certain customary conditions. See "The Exchange Offer--Conditions. THE EXCHANGE OFFER IS NOT BEING MADE TO, NOR WILL THE COMPANY ACCEPT SURRENDERS FOR EXCHANGE FROM, HOLDERS OF PRIVATE NOTES IN ANY JURISDICTION IN WHICH THE EXCHANGE OFFER OR THE ACCEPTANCE THEREOF WOULD NOT BE IN COMPLIANCE WITH THE SECURITIES OR BLUE SKY LAWS OF SUCH JURISDICTION. NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING HEREBY TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS OR THE ACCOMPANYING LETTER OF TRANSMITTAL, AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. THE INFORMATION CONTAINED HEREIN IS AS OF THE DATE HEREOF AND SUBJECT TO CHANGE, COMPLETION OR AMENDMENT WITHOUT NOTICE. NEITHER THE DELIVERY OF THIS PROSPECTUS OR THE ACCOMPANYING LETTER OF TRANSMITTAL AT ANY TIME NOR ANY EXCHANGE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN OR THEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF. UNTIL , 1998 (90 DAYS AFTER COMMENCEMENT OF THE EXCHANGE OFFER), ALL DEALERS EFFECTING TRANSACTIONS IN THE EXCHANGE NOTES, WHETHER OR NOT PARTICIPATING IN THE EXCHANGE OFFER, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS. IN MAKING AN INVESTMENT DECISION REGARDING THE SECURITIES OFFERED HEREBY, PROSPECTIVE INVESTORS MUST RELY ON THEIR OWN EXAMINATION OF THE COMPANY AND THE TERMS OF THE EXCHANGE OFFER, INCLUDING THE MERITS AND RISKS INVOLVED. THE EXCHANGE OFFER IS BEING MADE ON THE BASIS OF THIS PROSPECTUS. ANY DECISION TO EXCHANGE PRIVATE NOTES IN THE EXCHANGE OFFER MUST BE BASED ON THE INFORMATION CONTAINED HEREIN. PROSPECTIVE INVESTORS IN THE EXCHANGE NOTES ARE NOT TO CONSTRUE THE CONTENTS OF THIS PROSPECTUS AS INVESTMENT, LEGAL OR TAX ADVICE. EACH INVESTOR SHOULD CONSULT ITS OWN COUNSEL, ACCOUNTANT AND OTHER ADVISORS AS TO LEGAL, TAX, BUSINESS, FINANCIAL AND RELATED ASPECTS OF THE EXCHANGE NOTES. THE COMPANY IS NOT MAKING ANY REPRESENTATION TO ANY PROSPECTIVE INVESTOR IN THE EXCHANGE NOTES REGARDING THE LEGALITY OF AN INVESTMENT THEREIN BY SUCH PERSON UNDER APPROPRIATE LEGAL INVESTMENT OR SIMILAR LAWS. ii Except as described herein, the Exchange Notes will be represented by global Exchange Notes in fully registered form, deposited with a custodian for and registered in the name of a nominee of The Depository Trust Company ("DTC"). Beneficial interests in such Exchange Notes will be shown on, and transfers thereof will be effected through, records maintained by DTC and its participants. Beneficial interests in such Exchange Notes will trade in DTC's Same-Day Funds Settlement System, and secondary market trading activity in such interests will therefore settle in immediately available funds. See "The Exchange Offer--Book-Entry Transfer." FORWARD-LOOKING STATEMENTS All statements other than statements of historical facts included in this Prospectus, including, without limitation, statements set forth under "Prospectus Summary," "Risk Factors," "Management's Discussion and Analysis of Financial Condition and Results of Operations of the Company," "Management's Discussion and Analysis of Financial Condition and Results of Operations of Bertucci's" and "Business" regarding the Company's future financial position, business strategy, budgets, projected costs and plans and objectives of management for future operations, are forward-looking statements. In addition, forward-looking statements generally can be identified by the use of forward- looking terminology such as "may," "will," "expect," "intend," "estimate," "anticipate" or "believe" or the negative thereof or variations thereon or similar terminology. Although the Company believes that the expectations reflected in such forward-looking statements will prove to have been correct, it can give no assurance that such expectations will prove to have been correct. Prospective investors are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. The Company undertakes no obligation to publicly release any revisions to these forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. Important factors that could cause actual results to differ materially from the Company's expectations (the "Cautionary Statements") are disclosed under "Risk Factors" and elsewhere in this Prospectus, including, without limitation, in conjunction with some of the forward-looking statements included in this Prospectus. All subsequent written and oral forward-looking statements attributable to the Company, or persons acting on its behalf, are expressly qualified in their entirety by the Cautionary Statements. iii AVAILABLE INFORMATION The Company has filed with the Commission a Registration Statement on Form S-4 (together with all amendments, exhibits, annexes and schedules thereto, the "Registration Statement") pursuant to the Securities Act, and the rules and regulations promulgated thereunder, with respect to the securities being offered hereby. This Prospectus does not contain all the information set forth in the Registration Statement, certain parts of which are omitted in accordance with the rules and regulations of the Commission. For further information with respect to the Company and the securities offered hereby, reference is made to the Registration Statement, including the exhibits filed as a part thereof and otherwise incorporated therein. Statements made in this Prospectus as to the contents of any contract, agreement or other document referred to are not necessarily complete; with respect to such contract, agreement or other document filed as an exhibit to the Registration Statement, reference is made to such exhibit for a more complete description of the matter involved, and each such statement shall be deemed qualified in its entirety by such reference. Copies of the Registration Statement and the exhibits may be inspected, without charge, at the Public Reference Section of the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and at the regional offices of the Commission located at Northwest Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and 7 World Trade Center, Suite 1300, New York, New York 10048. Copies of such material may also be obtained at prescribed rates from the Public Reference Section of the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549. Such materials can also be inspected on the Internet at http://www.sec.gov. Periodic reports, proxy statements and other documents filed by Bertucci's, Inc. with the Commission pursuant to the informational requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), to which Bertucci's, Inc. was subject prior to its termination of registration under the Exchange Act in connection with the consummation of the Acquisition (as defined herein), may be inspected, and copies thereof obtained, at the places and in the manner set forth above. Upon consummation of the Exchange Offer, the Company will become subject to the informational reporting requirements of the Exchange Act, and in accordance therewith will file reports and other information with the Commission. Such materials filed by the Company with the Commission may be inspected, and copies thereof obtained, at the places, and in the manner, set forth above. In the event that the Company ceases to be subject to the informational reporting requirements of the Exchange Act, the Company has agreed that, for so long as any of the Notes remain outstanding, it will furnish to the holders of the Notes and file with the Commission (unless the Commission will not accept such a filing) (i) all quarterly and annual financial information that would be required to be contained in a filing with the Commission on Forms 10- Q and 10-K as if the Company were required to file such forms, including a "Management's Discussion and Analysis of Financial Condition and Results of Operations" and, with respect to the annual information only, a report thereon by the Company's independent accountants, and (ii) all reports that would be required to be filed with the Commission on Form 8-K as if the Company were required to file such reports, in each case within the time periods set forth in the Commission's rules and regulations. In addition, for so long as any of the Notes remain outstanding, the Company has agreed to make available to any prospective purchaser of the Notes or beneficial owner of the Notes in connection with any sale thereof the information required by Rule 144A(d)(4) under the Securities Act. NEITHER THE FRANCHISOR (AS DEFINED HEREIN) NOR ANY OF ITS SUBSIDIARIES, AFFILIATES, OFFICERS, DIRECTORS, AGENTS, EMPLOYEES, ACCOUNTANTS OR ATTORNEYS ARE IN ANY WAY PARTICIPATING IN, APPROVING OR ENDORSING THE EXCHANGE OFFER, ANY OF THE SELLING OR ACCOUNTING PROCEDURES USED IN THE EXCHANGE OFFER, OR ANY REPRESENTATIONS MADE IN CONNECTION WITH THE EXCHANGE OFFER. THE GRANT BY THE FRANCHISOR OF ANY FRANCHISE OR OTHER RIGHTS TO THE COMPANY IS NOT INTENDED AS, AND SHOULD NOT BE INTERPRETED AS, AN EXPRESS OR IMPLIED APPROVAL, ENDORSEMENT OR ADOPTION OF ANY STATEMENT REGARDING FINANCIAL OR OTHER PERFORMANCE WHICH MAY BE CONTAINED IN THIS PROSPECTUS. iv ANY REVIEW BY THE FRANCHISOR OF THIS PROSPECTUS OR THE INFORMATION INCLUDED HEREIN HAS BEEN CONDUCTED SOLELY FOR THE BENEFIT OF THE FRANCHISOR TO DETERMINE CONFORMANCE WITH THE FRANCHISOR'S INTERNAL POLICIES, AND NOT TO BENEFIT OR PROTECT ANY OTHER PERSON. NO INVESTOR SHOULD INTERPRET SUCH REVIEW BY THE FRANCHISOR OR THE USE AND DISPLAY OF ANY FRANCHISOR LOGOS, TRADEMARKS OR SERVICEMARKS HEREIN AS APPROVAL, ENDORSEMENT, ACCEPTANCE OR ADOPTION OF ANY REPRESENTATION, WARRANTY OR COVENANT CONTAINED IN THE MATERIALS REVIEWED. THE ENFORCEMENT OR WAIVER OF ANY OBLIGATION OF THE COMPANY UNDER ANY AGREEMENT BETWEEN THE COMPANY AND THE FRANCHISOR OR FRANCHISOR'S AFFILIATES IS A MATTER OF THE FRANCHISOR'S OR THE FRANCHISOR'S AFFILIATES' SOLE DISCRETION. NO INVESTOR SHOULD RELY ON ANY REPRESENTATION, ASSUMPTION OR BELIEF THAT THE FRANCHISOR OR FRANCHISOR'S AFFILIATES WILL ENFORCE OR WAIVE PARTICULAR OBLIGATIONS OF THE COMPANY UNDER SUCH AGREEMENTS. CERTAIN DEFINITIONS All references to "Fiscal 1991" refer to the 53-week period ended October 7, 1991 which was the final year of operations by an unaffiliated prior franchisee of the Company's initial 15 Chili's (as defined herein) restaurants. All historical references to the Company's "fiscal years" or "fiscal quarters" or "fiscal six months" refer to calendar years and calendar quarters and calendar six- month periods. For example, references to "fiscal 1997" shall mean the Company's fiscal year ended December 31, 1997 and to "first fiscal six months 1998" shall mean the Company's fiscal six-month period ended June 30, 1998. All historical references to "Bertucci's fiscal" year refer to the 52- or 53-week period ended on the last Saturday in December of any calendar year. For example, references to "Bertucci's fiscal 1997" shall mean Bertucci's fiscal year ended December 27, 1997. All historical references to "Bertucci's first fiscal six months" refer to the 28-week period following the end of the immediately preceding Bertucci's fiscal year. Bertucci's fiscal year has historically consisted of a 16-week first fiscal quarter followed by two 12-week fiscal quarters and a 12- or 13-week fourth fiscal quarter. For example, Bertucci's first fiscal quarter 1997, Bertucci's second fiscal quarter 1997, Bertucci's third fiscal quarter 1997 and Bertucci's fourth fiscal quarter 1997 shall mean Bertucci's fiscal quarters ended April 19, 1997, July 12, 1997, October 4, 1997 and December 27, 1997, respectively. For purposes of pro forma financial data, "Fiscal 1997" shall mean a combined fiscal year comprising the Company's fiscal year ended December 31, 1997 and Bertucci's fiscal year ended December 27, 1997, as adjusted for the Transactions (as defined herein). The "First Six Months 1997" shall mean a combination of the Company's fiscal six-month period ended June 30, 1997 and Bertucci's fiscal six-month period ended July 12, 1997, as adjusted for the Transactions. The "First Six Months 1998" shall mean a combination of the Company's fiscal six-month period ended June 30, 1998 and Bertucci's fiscal six-month period ended July 11, 1998, as adjusted for the Transactions. The "Last Twelve Months" shall mean a combined fiscal period ended with the end of the First Six Months 1998 comprising the last twelve months ended as of June 30, 1998 for the Company and the last twelve months ended as of July 11, 1998 for Bertucci's, as adjusted for the Transactions. v PROSPECTUS SUMMARY The following summary is intended to highlight certain information contained elsewhere in this Prospectus. This summary is not intended to be a complete statement of all material features of the Exchange Offer and is qualified in its entirety by the more detailed information, risk factors and consolidated financial statements and the notes thereto appearing elsewhere in this Prospectus. Unless the context otherwise requires, all references herein (i) to the "Company" or "NERCO" refer to NE Restaurant Company, Inc., a Delaware corporation and its subsidiaries, including Bertucci's, and (ii) to "Bertucci's" refer to Bertucci's, Inc. and its subsidiaries. All references to the Company as the owner and operator of the Bertucci's and Sal and Vinnie's Sicilian Steakhouse ("Sal and Vinnie's") restaurants give pro forma effect to the Acquisition. Prior to consummation of the Acquisition, the Company did not own or operate any of the Bertucci's or Sal and Vinnie's restaurants. THE COMPANY The Company is a leading operator of full-service, casual dining restaurants in New England. The Company develops and operates two distinct restaurant franchises, Chili's Grill & Bar(R) ("Chili's") and On The Border Mexican Cafe ("On The Border") restaurants, under franchise agreements with Brinker International, Inc., a publicly-owned company ("Brinker" or the "Franchisor"), together with a proprietary restaurant concept under the name Bertucci's Brick Oven Pizzeria(R). The Company is the largest Chili's franchisee and has received numerous awards from the Franchisor, including being named Chili's "Franchisee of the Year" and "Developer of the Year." As of July 31, 1998, the Company operated 31 Chili's and two On The Border restaurants in five New England states. The Company is the successor to a series of limited partnerships formed in 1991 to acquire 15 Chili's restaurants from a prior franchisee. Upon its acquisition of the 15 Chili's restaurants in 1991, the Company recruited a new management team and undertook a series of steps to enhance operations, including reducing administrative overhead, coordinating a new advertising campaign, introducing new menu items, renovating restaurant facilities, installing new information systems and improving purchasing decisions. The Company has increased the average sales per restaurant of its Chili's restaurants from approximately $1.8 million for Fiscal 1991, the final year of ownership by the prior franchisee, to $2.5 million for fiscal 1997. In addition, since 1991, the Company has grown through the addition of 16 new Chili's and two On The Border restaurants in the New England market. The Company also has increased overall net sales and EBITDA (as defined herein) from approximately $27.5 million and $0.3 million, respectively, for Fiscal 1991 to $81.4 million and $9.0 million, respectively, for fiscal 1997. In July 1998, the Company completed its acquisition of Bertucci's, a publicly-owned restaurant company. As of July 31, 1998, the Company owned and operated 87 full-service, casual dining, Italian-style restaurants under the name Bertucci's Brick Oven Pizzeria(R) located primarily in the northeastern and Mid-Atlantic United States and one Sal and Vinnie's steakhouse located in Massachusetts. Management believes that Bertucci's is a proven value-based concept with strong brand recognition and that the Acquisition strengthens the Company's position as a leading operator of casual dining restaurants in the northeastern United States. As a result of the Acquisition, the Company offers its targeted customer base three distinct yet complementary casual dining menus--"American/southwestern" at Chili's, "Tex-Mex" at On The Border and Italian at Bertucci's. In addition, management expects to realize cost savings from the Acquisition primarily due to headcount reductions and, to a lesser extent, reduced administrative and overhead expenses, improved purchasing practices and greater economies of scale. After giving pro forma effect to the Transactions, for the Last Twelve Months, the Company had net sales of $230.8 million and Adjusted EBITDA (as defined herein) of $27.8 million. CONCEPTS The Company's restaurants are full-service restaurants, featuring substantial portions of a variety of high quality foods at moderate prices accompanied by quick, efficient and friendly table service. The Company's 1 restaurants are all casual dining concepts which are intended to fill a market niche between the fine-dining and fast-food segments of the restaurant industry. These restaurants are designed to appeal to a broad customer base of adults and families with children. Chili's. Chili's restaurants feature a variety of "All-American" foods with a southwestern emphasis. The Chili's concept was initiated in 1975 with the opening of the first Chili's restaurant in Dallas, Texas. As of July 31, 1998, the Chili's restaurant system in the United States consisted of 530 restaurants in 46 states, of which 411 were Franchisor-owned and 119 were franchised. During 1997, system-wide revenues from Chili's restaurants in the United States were approximately $1.2 billion. The Company holds the exclusive rights to operate up to an aggregate of 55 Chili's restaurants (including the 31 it currently operates) in all six New England states and in Westchester County, New York. On The Border. On The Border restaurants feature a Tex-Mex menu served in a distinctive dining atmosphere reminiscent of a Mexican cantina. The On The Border concept was initiated in 1982 with the opening of the first On The Border restaurant in Dallas, Texas. As of July 31, 1998, the On The Border restaurant system in the United States consisted of 62 restaurants in 19 states, of which 49 were Franchisor-owned and 13 were franchised. The Company holds the exclusive rights to operate up to an aggregate of 31 On The Border restaurants (including the two it currently operates) in all six New England states and in Westchester County and upstate New York. Bertucci's. Bertucci's restaurants feature Italian-style entrees made from original recipes, including gourmet pizza and specialty pasta dishes. Bertucci's endeavors to differentiate itself from other pizzerias by offering a variety of freshly prepared foods using high-quality ingredients and brick-oven baking techniques. Bertucci's also seeks to distinguish itself with its contemporary European-style, open-kitchen design. The first Bertucci's was opened in Somerville, Massachusetts in 1981. As a proprietary concept, Bertucci's provides the Company with significant flexibility to execute the concept as the Company may best determine. COMPETITIVE STRENGTHS Proven Restaurant Concepts. The Chili's, On The Border and Bertucci's concepts have been in existence for 23, 16 and 17 years, respectively. Management believes that Chili's, with its high quality American/southwestern menu, On The Border, with its distinctive Tex-Mex menu, and Bertucci's, with its gourmet brick-oven pizza, have each proven popular with consumers over time. Management believes that the reputation of these restaurants for offering a distinctive selection of moderately priced, high quality food, combined with a high level of customer service, has created valuable operations with strong brand name recognition and customer loyalty. To maintain its strong brand awareness and promote its restaurants, the Company: (i) clusters restaurant locations; (ii) seeks to ensure an enjoyable guest experience; and (iii) implements strategic marketing and advertising initiatives. Innovative Operator. The Company has developed and implemented several strategies to enhance operations of the Chili's concept including: (i) tailoring the national menu with innovative and regional specialties such as "boneless buffalo wings," "fish & chips" and New England clam chowder; (ii) initiating a comprehensive management training program, elements of which have been adopted by the Franchisor; (iii) redesigning the restaurant facility from the standard Chili's prototype to a more efficient model, elements of which the Franchisor has begun to incorporate into its own restaurants; (iv) formulating media strategies and developing its own creative material to supplement advertising materials supplied by the Franchisor; and (v) implementing sophisticated management information systems, components of which have been incorporated by the Franchisor. The Company has received numerous awards from the Franchisor, including being named Chili's "Franchisee of the Year" and "Developer of the Year." In addition, the Company participates in the Franchisor's franchisee advisory council. 2 Clustered Restaurant Locations. The Company believes that its strategy of building a critical mass of restaurants in specific cities in the New England market has enabled it to quickly respond to the needs of its guests, employees and markets. Clustering restaurant locations allows the Company to realize certain benefits including: (i) improved purchasing power; (ii) marketing efficiencies; and (iii) increased knowledge of the Company's customers, markets and future site locations. The Company believes that the Acquisition should yield further operational efficiencies as a substantial number of Bertucci's restaurants are located in the same markets as the Company's existing Chili's restaurants. Commitment to Personnel Training. The Company believes that an essential aspect of its continued success is the training of its personnel. The Company requires all of its Chili's and On The Border general and restaurant managers to complete a comprehensive 13-week management training program developed by the Company. The program instructs management trainees in detailed, concept- specific food preparation standards and procedures as well as administrative and human resource functions. The Company also requires each of its non- management employees to undergo extensive training administered by the managers. Each of these levels of training is designed to increase product quality, improve operational safety, increase overall productivity and guest satisfaction and promote the concept of "continuous improvement." Management expects to enhance the Bertucci's training program by increasing its length from eight to 13 weeks and centralizing administration of the program from its current regional administration. Management Structure and Experience. The Company believes that one of its greatest strengths is the operating philosophy of its highly experienced management team. The five most senior members of the Company's management team have an average of more than: (i) 20 years in the restaurant industry; (ii) 11 years in the casual dining segment of the industry; and (iii) six years with the Company. Since the Company's inception in 1991, this management team has significantly improved the operating performance of the Company's initial 15 Chili's restaurants and successfully developed an additional 18 new restaurants. Senior management closely monitors and actively supports the operations of each of the Company's restaurants and incentivizes restaurant- level managers, through hiring, training, motivational and reward practices, to operate individual restaurants in a proprietary manner by developing their own methods to improve operations and enhance the guest experience. The Company believes that the independent entrepreneurial spirit of its on-site personnel together with the guidance provided by senior management will continue to be a key factor in the Company's efforts to maximize revenue, control costs, engender employee satisfaction and build brand loyalty. Members of the Company's senior management team own approximately 12.1% of the common stock of the Company. BUSINESS STRATEGY The Company's objective is to strengthen its position as a leading operator of full-service, casual dining restaurants, thereby increasing net sales and cash flow. In order to accomplish its goal, the Company intends to pursue the following strategies: Further Enhance the Guest Dining Experience. The Company continually evaluates new initiatives which will improve food presentation and customer service, and create a consistent enhanced brand image for each of its restaurants. This strategy recognizes that food quality, dining atmosphere and attentive service all contribute to customer satisfaction. The Company seeks to maintain a consistently high standard of food preparation and customer service through stringent operational controls and extensive employee training. Increase Market Penetration. The Company's development strategy is to increase market penetration of each of the Chili's, On The Border and Bertucci's concepts by continuing to cluster its restaurants. The Company believes that such clustering will enable it to expand brand awareness of the three concepts in under-penetrated markets and increase marketing, advertising, management, purchasing and administrative efficiencies. 3 Increase Operating Efficiencies. The Company believes there are significant opportunities for improvement in margins and cash flow through intercompany cooperation among the three restaurant concepts, including: (i) realizing economies of scale from the combined purchasing power of a larger company; (ii) achieving operating efficiencies through the implementation of a "best practices" program; and (iii) reducing headcount, certain professional fees and other selling, general and administrative expenses. Management estimates that the Company will realize at least $2.0 million of annual cost savings in connection with such increased operating efficiencies. Pursue Selective Restaurant Expansion. Management intends: (i) to continue to open new Chili's and On The Border restaurants in select New England, Westchester County and additionally, in the case of On The Border, upstate New York markets pursuant to its Area Development Agreements (as defined herein) with the Franchisor; and (ii) as a result of the Acquisition, to expand in select additional markets through new Bertucci's restaurant openings in the New England, Mid-Atlantic and other regions that Bertucci's currently serves and in such other markets as the Company may determine. Management also believes that, as a result of the Acquisition, future opportunities may arise to develop Bertucci's and Chili's or Bertucci's and On The Border restaurants together on single real estate parcels, yielding improved development economics and capital returns. Standardize and Enhance Bertucci's Design. Bertucci's restaurants historically have been constructed in varying sizes (averaging approximately 6,200 square feet) and designs, with no two interior decors exactly alike. The Company's management believes that Bertucci's restaurant investment economics would benefit from a standardized design which the Company expects to implement in restaurants to be opened during 1999. Bertucci's management recently has begun to build smaller restaurants with fewer seats and smaller bar areas, a format which the Company expects to enhance by introducing a prototype that: (i) further reduces building size to a range of 4,800 to 5,400 square feet, with seating for approximately 150 guests; (ii) features service bars instead of full bar areas to account for Bertucci's moderate levels of alcohol sales; and (iii) standardizes interior decor. THE TRANSACTIONS Pursuant to the terms of an Agreement and Plan of Merger dated as of May 13, 1998, the Company, through its wholly-owned subsidiary NERC Acquisition Corp. ("Acquisition Sub"), commenced on May 20, 1998 a "first step" tender offer by which it acquired shares of Bertucci's common stock at a purchase price of $10.50 per share, net to the seller in cash, which, together with the shares owned by the Company, represented 98.3% of the outstanding common stock of Bertucci's. On July 21, 1998, the Company caused Bertucci's to be merged with Acquisition Sub, with Acquisition Sub as the surviving entity. Following the merger of Bertucci's into Acquisition Sub, Acquisition Sub changed its name to Bertucci's, Inc. The above-described tender offer and merger are collectively referred to herein as the "Acquisition." As part of the Acquisition, the Company repaid all amounts outstanding under the Bertucci's revolving credit facility with BankBoston, N.A. (the "Bertucci's Bank Facility") and all amounts outstanding under the Company's revolving credit facility with BankBoston, N.A. (the "Company Bank Facility"). The Company Bank Facility was replaced with a new revolving credit facility, which provides for borrowings of up to $20.0 million, with BankBoston, N.A. acting as administrative agent and Chase Bank of Texas, N.A. acting as documentation agent (the "Senior Bank Facility"). The transactions described in this paragraph, together with the Private Offering and the Equity Investment, are collectively referred to herein as the "Transactions." The Company required approximately $132.5 million in cash to consummate the Acquisition, to repay the Bertucci's Bank Facility, to repay the Company Bank Facility and to pay fees and expenses in connection with the Transactions. The funds required to consummate the Transactions were provided by: (i) the $100.0 million in gross proceeds from the sale of the Private Notes; (ii) the $28.8 million of proceeds from a private placement of the Company's common stock to existing shareholders, including certain members of management, and certain affiliates of Jacobson Partners (the "Equity Investment"); and (iii) approximately $3.7 million of cash on hand of Bertucci's. See "Use of Proceeds" and "Description of Other Indebtedness." 4 The following table summarizes the sources and uses of funds in connection with the Transactions assuming the consummation of the Transactions had occurred at the end of the First Six Months 1998:
AMOUNT ---------------------- (DOLLARS IN THOUSANDS) SOURCES: Cash on hand of Bertucci's............................... $ 3,670 Senior Bank Facility(a).................................. -- Senior Notes due 2008.................................... 100,000 Equity Investment........................................ 28,800 -------- Total sources.......................................... $132,470 ======== USES: Purchase price of the Acquisition(b)..................... $ 90,911 Repayment of Bertucci's Bank Facility.................... 13,500 Repayment of Company Bank Facility....................... 18,058 General corporate purposes............................... 1,001 Fees and expenses(c)..................................... 9,000 -------- Total uses............................................. $132,470 ========
- -------- (a) The Senior Bank Facility permits borrowings of up to an aggregate principal amount of $20,000. By the consummation of the Transactions, the Company received approximately $3,000 of additional financing from FFCA (as defined herein), a portion of the proceeds of which were used to repay amounts outstanding under the Company Bank Facility. As a result, the Company was not required to borrow any amounts under the Senior Bank Facility. See "Description of Other Indebtedness." (b) Reflects (i) 8,478,621 outstanding shares purchased at a price of $10.50 per share as part of the Transactions and (ii) $1,851 in payment for cancellation of outstanding stock options to purchase 352,975 shares at exercise prices below $10.50 per share under the option plans of Bertucci's and the Merger Agreement. Does not reflect the purchase of 430,000 shares acquired by the Company prior to the Acquisition. (c) Represents fees and expenses incurred with the Transactions including financing fees and advisory fees for both the Company and Bertucci's. Not included are fees and expenses of approximately $2,250 paid to Ten Ideas Acquisition Corp., an entity formed and owned by Joseph Crugnale, Bertucci's founder and, until the consummation of the Acquisition, its president and chief executive officer, for fees and reimbursement of certain expenses payable in connection with Bertucci's termination of the Going Private Transaction (as defined herein). 5 MANAGEMENT AND OWNERSHIP All of the outstanding capital stock of the Company is owned by management of the Company and by investors represented by Jacobson Partners, a private investment firm of which Benjamin R. Jacobson, Chairman of the Board of Directors of the Company, is a general partner. The Company's principal executive offices are located at 80A Turnpike Road, Westborough, Massachusetts 01581. Its telephone number at that location is (508) 870-9200. The Company was founded in 1991 as a Massachusetts corporation (serving first as a general partner to a Massachusetts limited partnership and then as the successor entity to such partnership and two other limited partnerships) and was re-incorporated in Delaware on October 20, 1994. THE EXCHANGE OFFER Securities Offered.......... $100,000,000 aggregate principal amount of 10 3/4% Senior Notes due 2008. The Exchange Offer.......... The Company is hereby offering to exchange $1,000 principal amount of Exchange Notes for each $1,000 principal amount of Private Notes that are properly tendered and accepted. Private Notes may be tendered for exchange in multiples of $1000. The Company will issue Exchange Notes on or promptly after the Expiration Date. As of the date hereof, $100,000,000 aggregate principal amount of Private Notes are outstanding. See "The Exchange Offer--Purpose of the Exchange Offer." Based on an interpretation by the staff of the Commission set forth in no-action letters issued to third parties, the Company believes that the Exchange Notes issued pursuant to the Exchange Offer in exchange for Private Notes may be offered for resale, resold and otherwise transferred by a holder thereof (other than an "affiliate" of the Company within the meaning of Rule 405 under the Securities Act) without compliance with the registration and prospectus delivery requirements of the Securities Act; provided that the holder is acquiring Exchange Notes in the ordinary course of its business and is not participating, and has no arrangement or understanding with any person to participate, in the distribution of the Exchange Notes. Holders of Private Notes wishing to accept the Exchange Offer must represent to the Company, as required by the Exchange and Registration Rights Agreement, that such conditions have been met. The Company believes that none of the registered holders of the Private Notes is an affiliate (as such term is defined in Rule 405 under the Securities Act) of the Company. Any broker dealer that resells Exchange Notes that were received by it for its own account pursuant to the Exchange Offer and any broker or dealer that participates in the distribution of such Exchange Notes may be deemed to be an "underwriter" within the meaning of the Securities Act and any profit on any such resale of Exchange Notes and any commissions or concessions received by any such persons may be deemed to be underwriting compensation under the Securities Act. 6 Each broker dealer that receives Exchange Notes for its own account in exchange for Private Notes must acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Notes. The Letter of Transmittal states that by so acknowledging and by delivering a prospectus, a broker dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. This Prospectus, as it may be amended or supplemented from time to time, may be used by a broker dealer in connection with resales of Exchange Notes received in exchange for Private Notes, where such Private Notes were acquired by such broker dealer as a result of market-making or other trading activities. The Company has agreed to make this Prospectus (as it may be amended or supplemented) available to any broker-dealer, upon request, for use in connection with any such resale, for a period of up to 180 days after the Registration Statement is declared effective by the Commission or until such earlier date on which all the Exchange Notes are freely tradable. However, any broker-dealer who acquired the Private Notes directly from the Company other than as a result of market-making activities or ordinary trading activities may not fulfill its prospectus delivery requirements with this Prospectus, but must comply with the registration and prospectus delivery requirements of the Securities Act. See "The Exchange Offer--Resale of the Exchange Notes." Exchange and Registration Rights Agreement........... The Private Notes were sold by the Company on July 20, 1998 to Chase Securities Inc. and BancBoston Securities Inc. (the "Initial Purchasers") pursuant to a Purchase Agreement, dated July 13, 1998, as amended on July 21, 1998, by and between the Company and the Initial Purchasers (the "Purchase Agreement"). Pursuant to the Purchase Agreement, the Company and the Initial Purchasers entered into an Exchange and Registration Rights Agreement, dated as of July 20, 1998 (the "Exchange and Registration Rights Agreement"), which grants the holders of the Private Notes certain exchange and registration rights. The Exchange Offer is intended to satisfy such rights, which will terminate upon the consummation of the Exchange Offer, except under certain limited circumstances. See "The Exchange Offer--Termination of Certain Rights." Holders of Private Notes who do not tender their Private Notes in the Exchange Offer will continue to hold such Private Notes and will be entitled to all the rights and limitations applicable thereto under the Indenture. All untendered, and tendered but not accepted, Private Notes will continue to be subject to the restrictions on transfer provided for in the Private Notes and the Indenture. To the extent that Private Notes are tendered and accepted in the Exchange Offer, the trading market, if any, for the Private Notes could be adversely affected. 7 Expiration Date............. The Exchange Offer will expire at 5:00 p.m., New York City time, on , , 1998, unless the Exchange Offer is extended by the Company, in its sole discretion, in which case the term "Expiration Date" shall mean the latest date and time to which the Exchange Offer is extended. See "The Exchange Offer--Expiration Date; Extensions; Amendments." Accrued Interest on the Exchange Notes and the Private Notes.............. The Exchange Notes will bear interest from and including the date of issuance of the Private Notes (July 20, 1998). Interest on the Private Notes accepted for exchange will cease to accrue upon the issuance of the Exchange Notes. See "The Exchange Offer--Interest on the Exchange Notes." Conditions to the Exchange The Exchange Offer is subject to certain Offer...................... customary conditions that may be waived by the Company. The Exchange Offer is not conditioned upon any minimum aggregate principal amount of Private Notes being tendered for exchange. See "The Exchange Offer--Conditions." Procedures for Tendering Privates Notes............. Each holder of Private Notes wishing to accept the Exchange Offer must complete, sign and date the Letter of Transmittal, or a facsimile thereof, in accordance with the instructions contained herein and therein, and mail or otherwise deliver such Letter of Transmittal, or such facsimile, together with such Private Notes and any other required documentation to United States Trust Company of New York, as exchange agent (the "Exchange Agent"), at its address set forth herein. By executing the Letter of Transmittal, the holder will represent to and agree with the Company that, among other things, (i) any Exchange Notes to be received by such holder of Private Notes in connection with the Exchange Offer are being acquired by such holder in the ordinary course of its business, (ii) such holder is not currently participating and has no arrangement or understanding with any person to participate in a distribution of the Exchange Notes, (iii) if such holder is a broker dealer registered under the Exchange Act or is participating in the Exchange Offer for the purposes of distributing the Exchange Notes, such holder will comply with the registration and prospectus delivery requirements of the Securities Act in connection with a secondary resale transaction of the Exchange Notes acquired by such person and cannot rely on the position of the staff of the Commission set forth in no action letters (see "The Exchange Offer--Resale of Exchange Notes"), (iv) such holder understands that a secondary resale transaction described in clause (iii) above and any resales of Exchange Notes obtained by such holder in exchange for Private Notes acquired by such holder directly from the Company should be covered by an effective registration statement containing the selling securityholder information required by Item 507 or Item 508, as applicable, of Regulation SK of the Commission and (v) such 8 holder is not an "affiliate" (as defined in Rule 405 under the Securities Act), of the Company. If the holder is a broker-dealer that will receive Exchange Notes for its own account in exchange for Private Notes that were acquired as a result of market-making activities or other trading activities, such holder will be required to acknowledge in the Letter of Transmittal that such holder will deliver a prospectus in connection with any resale of such Exchange Notes; however, by so acknowledging and by delivering a prospectus, such holder will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. See "The Exchange Offer--Procedures for Tendering." Consequences of Failure to The Private Notes that are not exchanged pursuant Exchange................... to the Exchange Offer will remain restricted securities. Accordingly, such Private Notes must be resold only (i) to a person whom the seller reasonably believes is a QIB in a transaction meeting the requirements of Rule 144A, (ii) in a transaction meeting the requirements of Rule 144 under the Securities Act, (iii) outside the United States to a foreign person in a transaction meeting the requirements of Rule 904 under the Securities Act, (iv) in accordance with another exemption from the registration requirements of the Securities Act (and based upon an opinion of counsel if the Company so requests), (v) to the Company or (vi) pursuant to an effective registration statement and, in each case, in accordance with any applicable securities laws of any state of the United States or any other applicable jurisdiction. See "The Exchange Offer--Consequences of Failure to Exchange." Shelf Registration If any holder of Private Notes (other than any Statement.................. such holder which is an "affiliate" of the Company within the meaning of Rule 405 under the Securities Act) is not eligible to participate in the Exchange Offer, the Company has agreed to file a shelf registration statement (the "Shelf Registration Statement") to cover resales of Private Notes by such holders who satisfy certain conditions relating to the provision of information to the Company for use therein. The Company will use its reasonable best efforts to have the Shelf Registration Statement declared effective by the Commission as promptly as practicable after the filing thereof and to keep the Shelf Registration Statement effective until the earlier of two years after the Issue Date or such time as all of the applicable Private Notes have been sold thereunder. Special Procedures for Beneficial Owners.......... Any beneficial owner whose Private Notes are registered in the name of a broker, commercial bank, trust company or other nominee and who wishes to tender such Private Notes in the Exchange Offer should contact such registered holder promptly and instruct such registered holder to tender on such beneficial owner's behalf. If such beneficial owner wishes to tender on such owner's own behalf, such owner must, prior to completing and executing the Letter of Transmittal and delivering such owner's Private Notes, either make 9 appropriate arrangements to register ownership of the Private Notes in such owner's name or obtain a properly completed bond power from the registered holder. The transfer of registered ownership may take considerable time and may not be able to be completed prior to the Expiration Date. See "The Exchange Offer--Procedures for Tendering." Guaranteed Delivery Holders of Private Notes who wish to tender their Procedures................. Private Notes and whose Private Notes are not immediately available or who cannot deliver their Private Notes, the Letter of Transmittal or any other documentation required by the Letter of Transmittal to the Exchange Agent prior to the Expiration Date must tender their Private Notes according to the guaranteed delivery procedures set forth under "The Exchange Offer--Guaranteed Delivery Procedures." Acceptance of the Private Notes and Delivery of the Exchange Notes............. Upon the terms and subject to the satisfaction or waiver of the conditions to the Exchange Offer, the Company will accept for exchange any and all Private Notes that are validly tendered in the Exchange Offer and not withdrawn prior to the Expiration Date. The Exchange Notes issued pursuant to the Exchange Offer will be delivered on the earliest practicable date following the Expiration Date. See "The Exchange Offer--Terms of the Exchange Offer." Withdrawal Rights........... Tenders of Private Notes may be withdrawn at any time prior to the Expiration Date. See "The Exchange Offer--Withdrawal of Tenders." Certain U.S. Federal Income Tax Considerations......... For a discussion of certain material U.S. federal income tax considerations relating to the exchange of the Exchange Notes for the Private Notes, see "Certain U.S. Federal Income Tax Considerations." Exchange Agent.............. United States Trust Company of New York is serving as the Exchange Agent in connection with the Exchange Offer. Use of Proceeds............. The Company will not receive any cash proceeds from the issuance of the Exchange Notes offered hereby. See "Use of Proceeds." Risk Factors................ Investors should carefully consider the risk factors relating to the Company and the Exchange Offer described on pages 21 through 29 of this Prospectus. 10 TERMS OF THE EXCHANGE NOTES The Exchange Offer applies to $100,000,000 aggregate principal amount of the Private Notes. The form and terms of the Exchange Notes are substantially identical in all respects (including principal amount, interest rate, maturity and ranking) to the form and terms of the Private Notes, except that (i) the Exchange Notes will have been registered under the Securities Act and, therefore, will not bear legends restricting the transfer thereof and (ii) holders of the Exchange Notes will not be entitled to certain rights of holders of the Private Notes under the Exchange and Registration Rights Agreement, which rights will terminate upon consummation of the Exchange Offer. The Exchange Notes will evidence the same indebtedness as the Private Notes and will be issued pursuant to, and entitled to the benefits of, the Indenture governing the Private Notes. The Exchange Offer is being made to satisfy the obligations of the Company under the Exchange and Registration Rights Agreement relating to the Private Notes. For further information and for definitions of certain capitalized terms used below, see "The Exchange Offer" and "Description of Exchange Notes." Issuer...................... NE Restaurant Company, Inc. Securities Offered.......... $100,000,000 aggregate principal amount of 10 3/4% Senior Notes due 2008 (the "Exchange Notes"). Maturity Date............... July 15, 2008. Interest Rate............... The Exchange Notes will bear interest at a rate of 10 3/4% per annum. Interest Payment Dates...... Interest will accrue on the Exchange Notes from and including the date of the initial issuance of the Private Notes (July 20, 1998) and will be payable on January 15 and July 15 of each year, commencing January 15, 1999. Optional Redemption......... Except as described below, the Company may not redeem the Exchange Notes prior to July 15, 2003. On or after such date, the Company may redeem the Exchange Notes, in whole or in part, at any time at the redemption prices set forth herein, together with accrued and unpaid interest, if any, to the date of redemption. In addition, at any time and from time to time prior to July 15, 2001, the Company may, subject to certain requirements, redeem up to 35% of the original aggregate principal amount of the Exchange Notes with the net cash proceeds of one or more Equity Offerings, at a redemption price equal to 110.75% of the principal amount thereof, together with accrued and unpaid interest, if any, to the date of redemption, provided that at least 65% of the original aggregate principal amount of the Exchange Notes remains outstanding immediately after each such redemption. See "Description of Exchange Notes--Optional Redemption". Change of Control........... Upon a Change of Control, holders of the Exchange Notes will have the right, subject to certain restrictions and conditions, to require the Company to repurchase all or any portion of their Exchange Notes at a purchase price equal to 101% of the principal amount thereof plus accrued and unpaid interest, if any, to the date of repurchase. See "Description of Exchange Notes-- Change of Control." 11 Guarantees.................. The Exchange Notes will be (as are the Private Notes) fully and unconditionally guaranteed (the "Guarantees") on an unsecured senior basis by the Company's existing and future Restricted Subsidiaries other than Restricted Subsidiaries that are, or will become, parties to the FFCA Loans and other similar secured financings. See "Description of Exchange Notes--Guarantees." Ranking..................... The Exchange Notes will be (as are the Private Notes) senior unsecured obligations of the Company and will rank pari passu in right of payment with all present and future senior indebtedness of the Company and senior in right of payment to any subordinated indebtedness of the Company. Substantially all of the assets of the Company are, or will be, pledged to lenders other than the holders of Notes. The Guarantees will be effectively subordinated in right of payment to all existing and future secured indebtedness of the Subsidiary Guarantors to the extent of the value of the assets securing such indebtedness. The Exchange Notes will be (as are the Private Notes) effectively subordinated to the Senior Bank Facility to the extent of the value of the assets securing such indebtedness and to any additional secured indebtedness of the Company permitted under the Indenture, and the Exchange Notes will be (as are the Private Notes) structurally subordinated to indebtedness under the FFCA Loans and to other similar secured indebtedness of the Company permitted under the Indenture. As of the end of the First Six Months 1998, on an adjusted basis after giving effect to the Transactions, (i) the aggregate principal amount of senior indebtedness of the Company and the Restricted Subsidiaries would have been approximately $124.0 million (excluding unused revolving loan availability), of which $23.8 million would have been indebtedness in respect of the FFCA Loans and $0.3 million would have been capital lease obligations, and (ii) the Company would have had no subordinated indebtedness outstanding. See "Description of Exchange Notes" and "Description of Other Indebtedness." Certain Covenants........... The Indenture governing the Exchange Notes, which is the Indenture governing the Private Notes, contains certain covenants with respect to the Company and the Restricted Subsidiaries that limit the ability of the Company and the Restricted Subsidiaries to, among other things, (i) incur certain additional indebtedness, (ii) pay dividends and other restricted payments, (iii) make certain investments, (iv) create certain liens, (v) sell certain assets, (vi) enter into certain transactions with affiliates, and (vii) enter into certain mergers or consolidations involving the Company. See "Description of Exchange Notes--Certain Covenants." Absence of a Public Market for the Notes.............. The Exchange Notes are new securities and there is currently no established market for the Exchange Notes. Accordingly, there can be no assurance as to the development or liquidity of any market for 12 the Exchange Notes. The Initial Purchasers have advised the Company that they currently intend to make a market for the Exchange Notes. However, they are not obligated to do so, and any market- making with respect to the Exchange Notes may be discontinued without notice. The Company does not intend to apply for listing of the Exchange Notes on any national securities exchange or for their quotation on an automated dealer quotation system. See "Plan of Distribution." RISK FACTORS Holders of the Private Notes should consider carefully the information set forth under the caption "Risk Factors" and all other information set forth in this Prospectus for risks in connection with the Exchange Offer. 13 SUMMARY UNAUDITED PRO FORMA FINANCIAL DATA The following table sets forth summary unaudited pro forma financial data for Fiscal 1997, the First Six Months 1997, the First Six Months 1998, and the Last Twelve Months, assuming in each case the consummation of the Transactions. The summary pro forma financial data set forth below reflect pro forma adjustments that are based upon available information and certain assumptions that the Company believes are reasonable. The summary pro forma financial data set forth below are not necessarily indicative of the results that would have been achieved had the Transactions been consummated as of the dates indicated or that may be achieved in the future. The summary pro forma financial data have been derived from, and should be read in conjunction with the consolidated financial statements of the Company and the notes thereto included herein, the consolidated financial statements of Bertucci's and the notes thereto included herein, the data contained in "Unaudited Pro Forma Financial Data," "Management's Discussion and Analysis of Financial Condition and Results of Operations of the Company," "Management's Discussion and Analysis of Financial Condition and Results of Operations of Bertucci's," "Selected Financial Data of the Company" and the notes thereto, "Selected Financial Data of Bertucci's" and the notes thereto and the other financial information included elsewhere in this Prospectus.
PRO FORMA ---------------------------------------- FIRST SIX MONTHS LAST ------------------ TWELVE FISCAL 1997 1997 1998 MONTHS ----------- -------- -------- -------- (DOLLARS IN THOUSANDS) INCOME STATEMENT DATA: Net sales........................... $218,084 $110,852 $123,530 $230,762 Cost of sales and expenses: Cost of sales...................... 57,486 29,281 32,210 60,415 Operating expenses................. 112,037 56,801 63,745 118,981 General and administrative expenses.......................... 13,035 6,345 7,612 14,302 Deferred rent, depreciation and amortization...................... 14,262 7,770 7,797 14,289 Taxes other than income............ 10,819 5,713 6,185 11,291 -------- -------- -------- -------- Total cost of sales and expenses... 207,639 105,910 117,549 219,278 -------- -------- -------- -------- Income from operations............. 10,445 4,942 5,981 11,484 Interest expense, net............... 12,136 6,162 7,279 13,253 Income tax benefit.................. (592) (419) (509) (682) -------- -------- -------- -------- Net loss............................ $ (1,099) $ (801) $ (789) $ (1,087) ======== ======== ======== ======== OTHER FINANCIAL DATA: Adjusted EBITDA(a).................. $ 26,707 $ 13,212 $ 14,278 $ 27,773 Capital expenditures................ 12,493 4,262 8,240 16,471 Ratio of earnings to fixed charges(b)......................... -- -- -- -- Ratio of Adjusted EBITDA to interest expense............................ 2.1x Ratio of long-term debt to Adjusted EBITDA............................. 4.5x OPERATING STATISTICS (AT END OF PERIOD): Number of Chili's restaurants....... 31 31 31 31 Number of On The Border restaurants........................ 1 1 2 2 Number of Bertucci's restaurants(c)..................... 85 85 88 88 COMBINED BALANCE SHEET DATA (AT END OF PERIOD): Working capital (deficit)........... $(16,552) Total assets........................ 166,270 Total liabilities................... 149,634 Long-term debt...................... 124,071 Shareholders' equity................ 16,636
See Notes to Summary Unaudited Pro Forma Financial Data 14 NOTES TO SUMMARY UNAUDITED PRO FORMA FINANCIAL DATA (a) "EBITDA" is defined as income from operations before deferred rent, depreciation and amortization. EBITDA is not a measure of performance defined by GAAP. EBITDA should not be considered in isolation or as a substitute for net income or the statement of cash flows which have been prepared in accordance with GAAP. The Company believes EBITDA provides useful information regarding the Company's ability to service its debt and the Company understands that such information is considered by certain investors to be an additional basis for evaluating a company's ability to pay interest and repay debt. The EBITDA measures presented herein may not be comparable to similarly titled measures of other companies. Deferred rent expense for each of Fiscal 1997, First Six Months 1997, First Six Months 1998 and the Last Twelve Months was $899, $592, $664 and $971, respectively. "Adjusted EBITDA" represents EBITDA adjusted as follows:
FIRST SIX FIRST SIX LAST TWELVE FISCAL 1997 MONTHS 1997 MONTHS 1998 MONTHS ----------- ----------- ----------- ----------- EBITDA..................... $24,707 $12,712 $13,778 $25,773 Elimination of salaries and benefits of certain employees................. 1,700 425 425 1,700 Elimination of duplicative professional and office overhead services......... 300 75 75 300 ------- ------- ------- ------- Adjusted EBITDA............ $26,707 $13,212 $14,278 $27,773
The foregoing positive adjustments represent the Company's estimates of cost savings. However, there can be no assurance as to when, or if, such savings will be realized. (b) Pro forma earnings were insufficient to cover fixed charges for the pro forma Fiscal 1997, First Six Months 1997, First Six Months 1998 and the Last Twelve Months by $1.7 million, $1.2 million, $1.3 million and $1.8 million, respectively. (c) Includes one Sal and Vinnie's restaurant. 15 SUMMARY FINANCIAL DATA OF THE COMPANY The following table sets forth summary historical and other consolidated financial data for the Company (or its predecessors) for the periods and at the dates indicated. The historical financial data for each of the three years ended December 31, 1997 and at December 31, 1996 and 1997, have been derived from the Company's historical consolidated financial statements which are included elsewhere in this Prospectus and have been audited and reported on by Arthur Andersen LLP, independent public accountants ("Arthur Andersen"). The historical financial data for each of the two years ended December 31, 1994 and at December 31, 1993, 1994 and 1995 have been derived from the Company's historical consolidated financial statements audited and reported on by Arthur Andersen, which are not included in this Prospectus. The historical financial data for the six months ended and at June 30, 1997 and 1998 have been derived from the Company's unaudited financial statements and reflect, in the opinion of management, all adjustments (consisting only of normal recurring adjustments) necessary to present fairly the financial position as of, and the results for, such interim periods. The historical financial information for the six months ended June 30, 1998 is not necessarily indicative of results for the full year ending December 31, 1998. This information should be read in conjunction with the consolidated financial statements of the Company and the notes thereto, "Management's Discussion and Analysis of Financial Condition and Results of Operations of the Company," "Selected Financial Data of the Company" and the notes thereto and the other financial information included elsewhere in this Prospectus.
SIX MONTHS ENDED YEAR ENDED DECEMBER 31, JUNE 30, ---------------------------------------------- ------------------ 1993 1994 1995 1996 1997 1997 1998 ------- ------- ------- ------- ---------- -------- -------- (DOLLARS IN THOUSANDS) (UNAUDITED) INCOME STATEMENT DATA: Net sales............... $37,729 $46,588 $60,300 $70,094 $ 81,364 $ 38,872 $ 45,049 Cost of sales and expenses: Cost of sales.......... 11,182 13,451 18,095 21,203 23,384 11,334 12,722 Operating expenses..... 19,250 23,130 30,101 34,268 40,932 19,444 22,678 General and administrative expenses.............. 2,941 3,359 3,449 3,679 4,207 2,013 2,298 Deferred rent, depreciation and amortization.......... 1,298 1,684 3,201 3,679 3,911 2,055 1,989 Taxes other than income................ 1,764 2,142 2,871 3,207 3,829 1,890 2,082 ------- ------- ------- ------- ---------- -------- -------- Total cost of sales and expenses.............. 36,435 43,766 57,717 66,036 76,263 36,736 41,769 ------- ------- ------- ------- ---------- -------- -------- Income from operations............ 1,294 2,822 2,583 4,058 5,101 2,136 3,280 Interest expense, net... 27 90 463 1,053 1,918 607 1,864 ------- ------- ------- ------- ---------- -------- -------- Income before income tax expense........... 1,267 2,732 2,120 3,005 3,184 1,529 1,416 Income tax expense...... -- 1,122 699 1,047 1,084 543 473 ------- ------- ------- ------- ---------- -------- -------- Net income............. $ 1,267 $ 1,610 $ 1,421 $ 1,958 $ 2,100 $ 986 $ 943 ======= ======= ======= ======= ========== ======== ======== OTHER FINANCIAL DATA: Ratio of earnings to fixed charges (a)...... 2.5x 3.7x 2.5x 2.5x 2.0x 2.3x 1.5x EBITDA(b)............... $ 2,592 $ 4,506 $ 5,784 $ 7,737 $ 9,012 $ 4,191 $ 5,269 EBITDA margin(c)........ 6.9% 9.7% 9.6% 11.0% 11.1% 10.8% 11.7% Capital expenditures.... $ 3,619 $ 7,989 $10,359 $ 7,946 $ 4,479 $ 1,308 $ 3,476 OPERATING STATISTICS: Number of restaurants (end of period)........ 16 19 26 30 32 31 33 Average annual revenue per restaurant......... $ 2,421 $ 2,623 $ 2,589 $ 2,518 $ 2,614 $ 2,521 $ 2,744 Comparable restaurant sales(d)............... 14.5% 6.6% (1.6)% (0.4)% 2.7% 0.5% 7.0% BALANCE SHEET DATA (AT END OF PERIOD): Working capital (deficit).............. $(3,375) $(3,750) $(4,524) $(4,996) $ (8,406) $ (4,735) $ (5,043) Total assets............ 9,704 18,162 27,848 34,340 37,337 34,932 43,126 Long-term debt, including current portion................ -- 5,280 11,570 15,273 37,908(e) 13,976 42,105 Shareholders' equity (deficit).............. 4,468 6,078 7,499 9,457 (13,107)(e) 10,441 (12,164)
See Notes to Summary Financial Data of the Company 16 NOTES TO SUMMARY FINANCIAL DATA OF THE COMPANY (a) For purposes of calculating this ratio, "earnings" consist of earnings from continuing operations before provision for income taxes and fixed charges. "Fixed charges" consist of interest expense and the estimated interest portion of rental payments on operating leases. (b) "EBITDA" is defined as income from operations before deferred rent, depreciation and amortization. EBITDA is not a measure of performance defined by GAAP. EBITDA should not be considered in isolation or as a substitute for net income or the statement of cash flows which have been prepared in accordance with GAAP. The Company believes EBITDA provides useful information regarding the Company's ability to service its debt and the Company understands that such information is considered by certain investors to be an additional basis for evaluating a company's ability to pay interest and repay debt. The EBITDA measures presented herein may not be comparable to similarly titled measures of other companies. (c) EBITDA margin represents EBITDA divided by net sales. (d) The Company defines comparable restaurant sales as net sales from restaurants that have been open for at least one full fiscal year. (e) In August 1997, the Company paid a dividend and return of capital distribution to shareholders of $8.31 per share, in the aggregate amount of $16,670. In addition, the Company repurchased 716,429 shares of common stock at $11.63 per share, for an aggregate amount of $8,332. The Company's repurchase of shares of common stock was recorded as treasury stock, at cost, and resulted in a reduction of shareholders' (deficit) equity. These transactions were funded from the proceeds of the FFCA Loans. See "Description of Other Indebtedness." 17 SUMMARY FINANCIAL DATA OF BERTUCCI'S The following table sets forth summary historical and other consolidated financial data for Bertucci's for the periods and at the dates indicated. The historical financial data for each of the years ended December 30, 1995, December 28, 1996 and December 27, 1997 and at December 28, 1996 and December 27, 1997 have been derived from Bertucci's historical consolidated financial statements which are included elsewhere in this Prospectus and have been audited and reported upon by Arthur Andersen. The historical financial data for each of the years ended December 25, 1993 and December 31, 1994 and at December 25, 1993, December 31, 1994 and December 30, 1995 have been derived from Bertucci's historical consolidated financial statements audited and reported on by Arthur Andersen, which are not included in this Prospectus. The historical financial data for the 28 weeks ended and at July 12, 1997 and July 11, 1998 have been derived from Bertucci's unaudited financial statements and reflect, in the opinion of Bertucci's management, all adjustments (consisting only of normal recurring adjustments) necessary to present fairly the results for such interim periods. The historical financial information for the 28 weeks ended July 11, 1998 is not necessarily indicative of results for the full year ending December 26, 1998. Bertucci's fiscal year has historically consisted of a 16- week first fiscal quarter followed by two 12-week fiscal quarters and a 12- or 13-week fourth fiscal quarter. This information should be read in conjunction with the consolidated financial statements of Bertucci's and the notes thereto included herein, "Management's Discussion and Analysis of Financial Condition and Results of Operations of Bertucci's," "Selected Financial Data of Bertucci's" and the notes thereto and the other financial information included elsewhere in this Prospectus. 18
YEAR ENDED 28 WEEKS ENDED ---------------------------------------------------------------- ------------------ DECEMBER 25, DECEMBER 31, DECEMBER 30, DECEMBER 28, DECEMBER 27, JULY 12, JULY 11, 1993 1994 1995 1996 1997 1997 1998 ------------ ------------ ------------ ------------ ------------ -------- -------- (DOLLARS IN THOUSANDS) (UNAUDITED) INCOME STATEMENT DATA: Net sales............... $74,625 $102,797 $120,260 $128,044 $136,720 $ 71,980 $ 78,481 Costs and expenses: Cost of sales.......... 19,368 26,039 31,060 32,484 34,102 17,947 19,488 Operating expenses..... 33,778 48,804 60,673 65,986 71,652 37,776 41,327 General and administrative expenses.............. 4,918 6,566 8,239 7,720 8,828 4,332 5,315 Depreciation and amortization.......... 4,840 7,327 9,083 8,781 8,626 4,707 4,958 Taxes other than income................ 3,530 5,106 6,268 6,633 6,990 3,823 4,103 Restaurant closing expense............... -- -- 5,336 -- -- -- -- ------- -------- -------- -------- -------- -------- -------- Total costs and expenses.............. 66,434 93,842 120,659 121,604 130,198 68,585 75,191 ------- -------- -------- -------- -------- -------- -------- Operating income (loss)................ 8,191 8,955 (399) 6,440 6,522 3,395 3,290 Interest expense, net... 82 155 1,253 1,297 1,037 622 482 Interest income......... 657 33 21 15 32 8 8 ------- -------- -------- -------- -------- -------- -------- Income (loss) before income tax expense (benefit)............. 8,766 8,833 (1,631) 5,158 5,517 2,781 2,816 Income tax expense (benefit).............. 3,127 3,223 (745) 1,933 2,009 1,014 994 ------- -------- -------- -------- -------- -------- -------- Net income (loss)...... $ 5,639 $ 5,610 $ (886) $ 3,225 $ 3,508 $ 1,767 $ 1,822 ======= ======== ======== ======== ======== ======== ======== OTHER FINANCIAL DATA: EBITDA(a)............... $14,195 $ 17,422 $ 9,717 $ 15,711 $ 15,694 $ 8,521 $ 8,509 EBITDA margin(b)........ 19.0% 16.9% 8.1% 12.3% 11.5% 11.8% 10.8% Capital expenditures.... $33,068 $ 27,634 $ 14,039 $ 9,462 $ 8,014 $ 2,954 $ 4,764 OPERATING STATISTICS: Number of restaurants (end of period)(c)..... 50 67 76 80 85 81 88 Average annual revenue per restaurant......... $ 1,820 $ 1,826 $ 1,673 $ 1,671 $ 1,712 $ 1,654 $ 1,691 Comparable restaurant sales(d)............... 5.8% 0.2% (2.0)% 1.0% 2.5% 0.8% 2.5% BALANCE SHEET DATA (AT END OF PERIOD): Working capital (deficit).............. $(3,973) $ (5,738) $ (5,258) $ (2,857) $ (3,740) $ (3,114) $ (4,405) Total assets............ 70,181 93,114 98,938 102,528 105,516 101,918 106,059 Long-term debt, including current portion................ -- 14,000 19,438 18,438 13,525 14,525 13,525 Shareholders' equity.... 58,804 64,846 64,092 67,538 71,371 69,412 73,286
See Notes to Summary Financial Data of Bertucci's 19 NOTES TO SUMMARY FINANCIAL DATA OF BERTUCCI'S (a) "EBITDA" is defined as operating income before deferred rent, depreciation and amortization. EBITDA is not a measure of performance defined by GAAP. EBITDA should not be considered in isolation or as a substitute for net income or the statement of cash flows which have been prepared in accordance with GAAP. The Company believes EBITDA provides useful information regarding the Company's ability to service its debt and the Company understands that such information is considered by certain investors to be an additional basis for evaluating a company's ability to pay interest and repay debt. EBITDA measures presented herein may not be comparable to similarly titled measures of other companies. Deferred rent for Bertucci's fiscal 1993, 1994, 1995, 1996 and 1997 was $1,164, $1,140, $1,033, $490 and $546, respectively, and for Bertucci's first fiscal six months 1997 and 1998 was $419 and $261, respectively. (b) EBITDA margin represents EBITDA divided by net sales. (c) For all periods including and after Bertucci's fiscal 1997, includes one Sal and Vinnie's restaurant. (d) Comparable restaurant sales are defined as net sales from restaurants that have been open for at least one full fiscal year. 20 RISK FACTORS Holders of the Private Notes should carefully consider the following factors in addition to the other information set forth in this Prospectus in connection with the Exchange Offer. The risk factors set forth below are generally applicable to the Private Notes as well as the Exchange Notes. SUBSTANTIAL LEVERAGE; ABILITY TO SERVICE INDEBTEDNESS As a result of the Acquisition, the Company is highly leveraged. After giving pro forma effect to the Transactions, at the end of the First Six Months 1998, the Company's aggregate outstanding indebtedness would have been $124.0 million and the Company's shareholders' equity would have been $16.6 million. The Company's high degree of leverage could have important consequences to holders of Exchange Notes (and to holders of Private Notes), including but not limited to the following: (i) the Company's ability to obtain additional financing for working capital, capital expenditures, acquisitions, general corporate purposes or other purposes may be impaired in the future; (ii) a substantial portion of the Company's cash flow from operations must be dedicated to the payment of principal and interest on its indebtedness, thereby reducing the funds available to the Company for its operations and other purposes, including investments in development and capital spending; (iii) the Company may be substantially more leveraged than certain of its competitors, which may place the Company at a competitive disadvantage; and (iv) the Company's substantial degree of leverage may limit its flexibility to adjust to changing market conditions, reduce its ability to withstand competitive pressures and make it more vulnerable to a downturn in general economic conditions or in its business. See "Description of Other Indebtedness" and "Description of Exchange Notes." The Company's ability to repay or to refinance its obligations with respect to its indebtedness will depend on its future financial and operating performance, which, in turn, will be subject to prevailing economic and competitive conditions and to certain financial, business, legislative, regulatory and other factors, many of which are beyond the Company's control. These factors could include operating difficulties, increased operating costs, product pricing pressures, the response of competitors, regulatory developments, and delays in implementing strategic projects. The Company's ability to meet its debt service and other obligations may depend in significant part on the extent to which the Company can implement successfully its business strategy. There can be no assurance that the Company will be able to implement its strategy fully or that the anticipated results of its strategy will be realized. See "Business--Business Strategy." If the Company's cash flow and capital resources are insufficient to fund its debt service obligations, the Company may be forced to reduce or delay capital expenditures, sell assets, or seek to obtain additional equity capital, or to refinance or restructure its debt. There can be no assurance that the Company's cash flow and capital resources will be sufficient for payment of principal of, and premium, if any, and interest on, its indebtedness in the future, or that any such alternative measures would be successful or would permit the Company to meet its scheduled debt service obligations. In addition, because the Company's obligations under the Senior Bank Facility bear interest at floating rates, an increase in interest rates could adversely affect, among other things, the Company's ability to meet its debt service obligations. See "Description of Other Indebtedness." If the Company is required to reduce or delay capital expenditures, the Company may fail to meet its obligations under its Area Development Agreements, under which the Company is required to open two to three new Chili's restaurants each year in accordance with a specified schedule over approximately the next three years and two to four new On The Border restaurants each year in accordance with a specified schedule over approximately the next six years. A breach under the Area Development Agreements may cause the Company to lose its exclusive right to develop Chili's and On The Border restaurants in Connecticut, New Hampshire, Maine, Massachusetts, Rhode Island, Vermont, Westchester County, and additionally, in the case of On The Border, upstate New York. A breach under the Area Development Agreements could also constitute a default under the Senior Bank Facility and the FFCA Loans, permitting the applicable lender to declare all amounts due thereunder immediately due and payable. See "Description of Other Indebtedness." 21 EFFECTIVE SUBORDINATION OF THE NOTES The Exchange Notes (as well as Private Notes) and the Guarantees constitute unsecured obligations of the Company and the Subsidiary Guarantors, respectively, and rank pari passu in right of payment with all present and future senior indebtedness of the Company and the Subsidiary Guarantors, as applicable. However, substantially all of the assets of the Company and the Restricted Subsidiaries are pledged to lenders other than the holders of Notes and, therefore, the Exchange Notes (as well as the Private Notes) and the Guarantees will be effectively subordinated to borrowings under the Senior Bank Facility to the extent of the value of the assets securing such indebtedness and to any additional secured indebtedness of the Company and the Restricted Subsidiaries, respectively, permitted under the Indenture, including without limitation the FFCA Loans (but only with respect to properties mortgaged under such loans). At the end of the First Six Months 1998, on a pro forma basis after giving effect to the Transactions, there would have been approximately $24.0 million of such secured indebtedness to which the Notes would have been effectively subordinated. See "Description of Exchange Notes" and "Description of Other Indebtedness." In the event of bankruptcy, liquidation, dissolution, reorganization or any similar proceeding regarding the Company, or any default in payment or acceleration of any debt thereof, the assets of the Company will be available to pay obligations on the Exchange Notes (as well as the Private Notes) only after the secured indebtedness of the Company has been paid in full, and there may not be sufficient assets remaining to pay amounts due on all or any of the Exchange Notes (as well as the Private Notes). See "Description of Exchange Notes." RESTRICTIVE DEBT COVENANTS The Indenture, the Senior Bank Facility and the FFCA Loans impose significant operating and financial restrictions on the Company (and its subsidiaries). Such restrictions will affect, and in many respects significantly limit or prohibit, among other things, the ability of the Company to incur additional indebtedness, pay dividends or make other distributions, make certain investments, create certain liens, sell certain assets, enter into certain transactions with affiliates, or engage in certain mergers or consolidations involving the Company. In addition, the Senior Bank Facility and the FFCA Loans contain other and more restrictive covenants and require the Company (and its subsidiaries) to maintain specified financial ratios and satisfy certain financial tests. The Company's ability to meet such financial ratios and tests may be affected by events beyond its control, and there can be no assurance that the Company will meet such tests. These restrictions could limit the ability of the Company to obtain future financing, make needed capital expenditures, withstand a future downturn in its business or the economy, or otherwise conduct necessary corporate activities. A failure by the Company to comply with the restrictions contained in the Indenture, the FFCA Loans or the Senior Bank Facility could lead to a default under the terms of the Indenture, the FFCA Loans or the Senior Bank Facility. In the event of a default, the applicable lender could elect to declare all amounts borrowed pursuant thereto, and all amounts due under other instruments (including but not limited to the Indenture, the FFCA Loans or the Senior Bank Facility, as applicable) that may contain cross-acceleration or cross-default provisions may also be declared to be, immediately due and payable, together with accrued and unpaid interest, and the lenders could terminate all commitments thereunder. In such event, there can be no assurance that the Company would be able to make such payments or borrow sufficient funds from alternative sources to make any such payment. Even if additional financing could be obtained, there can be no assurance that it would be on terms that are favorable or acceptable to the Company. In addition, the indebtedness of the Company or its subsidiaries under the FFCA Loans and Senior Bank Facility is secured by a substantial portion of the assets of the Company or its subsidiaries and, upon the occurrence of a default and the acceleration of such indebtedness, the holders of such indebtedness could seize such assets and sell them as a means to satisfy all or part of such indebtedness. The Senior Bank Facility also contains provisions that prohibit any modification of the Indenture in any manner adverse to the Senior Lenders and that limit the Company's ability to refinance the Exchange Notes (as well as the Private Notes) without the consent of such Senior Lenders. See "Description of Exchange Notes--Certain Covenants" and "Description of Other Indebtedness." 22 RISKS ASSOCIATED WITH THE ACQUISITION Expected Benefits of Combined Business May Not Be Achieved. Acquisitions are subject to a number of special risks, including, without limitation, those associated with adverse short-term effects on the Company's reported operating results, diversion of management's attention, standardization of accounting systems, dependence on retaining, hiring and training key personnel and unanticipated problems or legal liabilities. Achieving the anticipated benefits of the Acquisition will depend in part upon whether the integration of the businesses of the companies can be accomplished in an efficient and effective manner, and there can be no assurance that this will occur. The combination of the two companies will necessitate, among other things, integration of management philosophies, personnel and arrangements with third party vendors, standardization of training programs, realization of economies of scale, and effective coordination of sales, marketing and financial reporting efforts. There can be no assurance that such integration will be accomplished smoothly or successfully. Failure to successfully accomplish the integration of the operations of the two companies would have a material adverse effect on the Company. See "Business." Increased Size of Company. As a result of the Acquisition, the size of the Company's combined operations is more than double the pre-Acquisition size of NERCO. The Company's future operating results will depend largely upon its ability to manage a growing business profitably such that it continues the successful operation of its existing restaurants and also successfully implements its operating strategies for the Bertucci's restaurants it acquired as a result of the Acquisition as well as any new restaurants the Company may open or acquire in the future. Any failure of the Company to manage successfully and profitably the growth of its business may have a material adverse effect on the Company. See "Business." Consent of Franchisor. The Franchisor's consent to the Acquisition was granted subject to the terms and conditions of its franchise agreements and Area Development Agreements with the Company, including, without limitation, the development schedule and menu restrictions contained in such agreements. Under these agreements, the Company is prohibited from directly or indirectly engaging in the operation of any restaurant which utilizes or duplicates the menu, trade secrets or service marks of either Chili's or On The Border restaurants. In addition, the Company is obligated to use its "best efforts" to promote and develop the Chili's and On The Border concepts. Although it has no present intention of doing so, the Company, among other things, would be prevented from developing menu items for the Bertucci's concept in violation of such agreements. See "Business." No Prior Ownership of a Restaurant Concept. Although the Company's management has significant experience in the casual dining segment of the restaurant industry, the Company has no prior experience as an owner of its own restaurant concept. There can be no assurance that the Company will be able to successfully assume the ownership, and undertake execution, of the Bertucci's concept. As the Company has not had prior experience as the owner of a restaurant concept, there may be new challenges and risks associated with such ownership that the Company cannot fully anticipate at this time and which may have a material adverse effect on the Company. See "Business." Geographic Expansion. All of the restaurants operated by the Company prior to the Acquisition were located in New England. Following consummation of the Acquisition, nearly one-third of the Company's restaurants are outside of New England. The ability of the Company's management to effectively recognize and account for diverse regional conditions and to manage restaurants that are geographically remote will be critical to the success of the Company. Any inability of the Company to successfully manage its geographic expansion may have a material adverse effect on the Company. See "Business." EXPANSION Pursuant to its Area Development Agreements with the Franchisor, the Company is currently obligated to open two to three new Chili's restaurants each year in accordance with a specified schedule over approximately the next three years and two to four new On The Border restaurants each year in accordance with a specified 23 schedule over approximately the next six years. Failure to adhere to the development schedules contained in each of the Area Development Agreements would constitute a breach of those agreements. In the event of such a breach, the Franchisor would be able to terminate the territorial exclusivity granted to the Company. In addition, a breach under any of the Company's Area Development Agreements could constitute a default under the Senior Bank Facility and FFCA Loans, permitting the applicable lender to declare all amounts borrowed thereunder immediately due and payable. For the past several years, the Company has satisfied these minimum development requirements, having opened 16 new Company-owned Chili's restaurants since May 1993 and two new Company-owned On The Border restaurants since November 1996. Although there can be no assurance that it will continue to be able to do so, the Company expects to continue its steady growth strategy over the next several years. During the remainder of fiscal 1998, the Company intends to develop an additional three Chili's and two On The Border restaurants and, in addition to the 88 restaurants acquired through the Acquisition, three new Bertucci's restaurants. The Company anticipates that in fiscal 1998 it will spend approximately $19.5 million for capital expenditures (not including land costs) (of which approximately $1.9 million will be pre-opening expenses) relating to new restaurant openings. The Company currently plans to spend at least $31.2 million in fiscal 1999 to open an expected six each of the Chili's, On The Border and Bertucci's restaurants. The Company reviews its expansion plans and budget on a regular basis, in light of circumstances and opportunities that may arise, and may determine to open a smaller or larger number of stores than currently planned. The Company's future operating results will depend largely upon its ability to open and operate new or newly acquired restaurants successfully and to manage a growing business profitably. This will depend on a number of factors (some of which are beyond the control of the Company), including (i) selection and availability of suitable restaurant locations, (ii) negotiation of acceptable lease or financing terms, (iii) securing of required governmental permits and approvals, (iv) timely completion of necessary construction or remodeling of restaurants, (v) hiring and training of skilled management and personnel, (vi) successful integration of new or newly acquired restaurants into the Company's existing operations and (vii) recognition and response to regional differences in guest menu and concept preferences. The Company identifies and sources its real estate through a third-party consultant who specializes in New England and Mid-Atlantic real estate. This consultant is retained by the Company on an exclusive basis to facilitate sites in Connecticut and substantially all of Massachusetts. The consultant is paid by the Company on a contingency basis. Although the Company believes that it would be able to replace such consultant if it were required to do so, any disruption in the services of such consultant or the Company's inability to replace such consultant, when required, may have a material adverse effect on the Company. There can be no assurance that the Company's expansion plans can be achieved on a timely and profitable basis or that it will be able to achieve results similar to those achieved in existing locations in prior periods or that such expansion will not result in reduced sales at existing restaurants that are near new or newly acquired restaurants. Any failure to successfully and profitably execute its expansion plans could have a material adverse effect on the Company. See "Business--Franchise and Development Agreements" and "Business--Restaurant Development." CHANGES IN FOOD COSTS AND SUPPLIES; KEY SUPPLIER The Company's profitability is dependent on, among other things, its continuing ability to offer fresh, high quality food at moderate prices. Various factors beyond the Company's control, such as adverse weather, labor disputes or other unforeseen circumstances, may affect its food costs and supplies. While management has been able to anticipate and react to changing food costs and supplies to date through its purchasing practices and menu price adjustments, there can be no assurance that it will be able to do so in the future. The Company obtains approximately 75% to 80% of its supplies for its Chili's and On The Border restaurants through a single vendor pursuant to a contract for delivery and distribution, with the vendor charging 24 fixed mark-ups over prevailing wholesale prices. The Company has a two-year contract with this vendor which expires in October 1999 and is otherwise terminable by either party upon 30 days' prior notice following breach of such contract and 60 days' prior notice for any other reason. The Company has similar supply arrangements for Bertucci's, obtaining 75% to 80% through a single vendor pursuant to a new four-year contract which expires July 2002 and is otherwise terminable upon 30 days' prior notice following breach of such contract. The Company believes that it would be able to replace either such vendor if it were required to do so; however, any disruption in supply from such vendors or the Company's inability to replace such vendors, when required, may have a material adverse effect on the Company. See "Business-- Purchasing." IMPACT OF ECONOMIC, REGIONAL AND OTHER BUSINESS CONDITIONS The Company's business is sensitive to guests' spending patterns, which in turn are subject to prevailing regional and national economic conditions such as interest rates, taxation and consumer confidence. Most of the restaurants owned by the Company are located in the northeastern and Mid-Atlantic United States, with a large concentration in New England. In addition, the Company anticipates substantially all restaurants to be opened in fiscal 1998 will be in states where the Company presently has operations or in contiguous states. As a result, the Company is, and will continue to be, susceptible to changes in regional economic conditions, weather conditions, demographic and population characteristics, consumer preferences and other regional factors. See "Business--Restaurant Locations." DEPENDENCE UPON KEY PERSONNEL The Company's business depends upon the efforts, abilities and expertise of its executive officers and other key employees, including Dennis Pedra, its President and Chief Executive Officer. The Company has no long-term employment contracts with any of its executive officers or key employees. The loss of the services of certain of these executive officers or key employees or the inability to retain key personnel required to effect a successful integration of the Bertucci's business with the Company's business existing prior to the Acquisition would have a material adverse effect on the Company. See "Management." COMPETITION The restaurant industry is intensely competitive with respect to, among other things, price, service, location and food quality. The Company competes with many well-established national, regional and locally-owned foodservice companies with substantially greater financial and other resources and longer operating histories than the Company, which, among other things, may better enable them to react to changes in the restaurant industry. With respect to quality and cost of food, size of food portions, decor and quality service, the Company competes with casual dining, family-style restaurants offering eat-in and take-out menus, including Applebee's International, Inc., TGI Friday's Inc., a subsidiary of Carlson Hospitality Worldwide, Ruby Tuesday Inc., and as a result of the Acquisition, also competes with Italian-style restaurant concepts such as Uno Restaurant Corp. and Olive Garden Restaurants, a division of Darden Restaurants Inc. Many of the Company's restaurants are located in areas of high concentration of such restaurants. Among other things, the Company also competes with its competitors in attracting guests, in obtaining premium locations for restaurants (including shopping malls and strip shopping centers) and in attracting and retaining employees. See "Business--Competition." GOVERNMENT REGULATION The restaurant business is subject to extensive federal, state and local laws and regulations relating to the development and operation of restaurants, including those concerning alcoholic beverage sales, preparation and sale of food, relationships with employees (including minimum wage requirements, overtime and working conditions and citizenship requirements), land use, zoning and building codes, as well as other health, sanitation, safety and environmental matters. Compliance with such laws and regulations can impede the operations of existing Company restaurants and may delay or preclude construction and completion of new Company restaurants. Bertucci's has restaurants in 11 states and the District of Columbia and has obtained liquor licenses 25 in such jurisdictions for its restaurants. The Company is required to obtain approvals from certain liquor licensing authorities in connection with the change of control of Bertucci's. While certain of these approvals have been obtained, there can be no assurance that all such approvals and licenses, or approvals and licenses for new restaurants, will be obtained and, if obtained, will be renewed or not revoked. The Company is subject in certain states to "dram-shop" statutes, which generally provide a person injured by an intoxicated person the right to recover damages from an establishment that wrongfully served alcoholic beverages to the intoxicated person. The Company carries liquor liability coverage as part of its existing comprehensive general liability insurance. In addition, the Company may also in certain jurisdictions be required to comply with regulations limiting smoking in restaurants. See "Business--Government Regulations." SEASONALITY The Company's revenues are subject to seasonal fluctuations. Customer traffic and consequently revenues are highest in the summer months and lowest during the winter months because of the high proportion of restaurants located in states where inclement weather adversely affects guest visits. See "Management's Discussion and Analysis of Financial Condition and Results of Operations of the Company--Seasonality." RELIANCE ON INFORMATION SYSTEMS The Company relies on various information systems to manage its operations and regularly makes investments to upgrade, enhance or replace such systems. The Company expects that its basic information systems will be largely compatible with those of Bertucci's. However, any delays or difficulties in transitioning the two systems or in implementing new systems, or any other disruption affecting the Company's information systems, could have a material adverse effect on the Company. "See Business--Information Systems and Restaurant Reporting." ABSENCE OF A PUBLIC MARKET COULD ADVERSELY AFFECT THE VALUE OF EXCHANGE NOTES The Private Notes were issued to, and the Company believes are currently owned by, a relatively small number of beneficial owners. Prior to the Exchange Offer, there has not been any public market for the Private Notes. The Private Notes have not been registered under the Securities Act and will be subject to restrictions on transferability to the extent that they are not exchanged for Exchange Notes by holders who are entitled to participate in the Exchange Offer. The market for Private Notes not tendered for exchange in the Exchange Offer is likely to be more limited than the existing market for such Notes. The holders of Private Notes (other than any such holder that is an "affiliate" of the Company within the meaning of Rule 405 under the Securities Act) who are not eligible to participate in the Exchange Offer are entitled to certain registration rights, and the Company is required to file a Shelf Registration Statement (as defined herein) with respect to such Private Notes and to use its best efforts to cause it to be declared effective by the Commission as promptly as practicable on or after the consummation of the Exchange Offer. The Exchange Notes will constitute a new issue of securities with no established trading market. There can be no assurance regarding the future development of a market for the Exchange Notes, or the ability of holders of the Exchange Notes to sell their Exchange Notes, or the price at which such holders might be able to sell their Exchange Notes. If such a market were to develop, the Exchange Notes could trade at prices that may be higher or lower than their principal amount, depending on many factors, including prevailing interest rates, the Company's operating results and the market for similar securities. The Company does not intend to apply for listing of the Exchange Notes on any national securities exchange or for their quotation on an automated dealer quotation system. The Initial Purchasers have advised the Company that they currently intend to make a market in the Exchange Notes, but they are not obligated to do so and may discontinue such market-making at any time without notice to the holders of the Exchange Notes. In addition, such market-making activity will be subject to the limits imposed by the Securities Act and the Exchange Act and may be limited during the Exchange Offer and the pendency of the Shelf Registration Statement. Accordingly, no assurance can be given that an active public or other market will develop for the Exchange Notes or as to the liquidity of the trading market for the Exchange Notes. If a trading market does not develop or is not maintained, holders of Exchange Notes may experience difficulty in reselling the Exchange Notes or may be 26 unable to sell them at all. If a market for the Exchange Notes develops, any such market making may be discontinued at any time. CHANGE OF CONTROL Upon a Change of Control, the Company is obligated to offer to repurchase the Exchange Notes at a price equal to 101% of the principal amount thereof, plus accrued and unpaid interest, if any, to the date of repurchase. The events that constitute a Change of Control under the Exchange Notes could also constitute a default under the Senior Bank Facility and, in turn, may prohibit the repurchase of the Exchange Notes by the Company in the event of certain Change of Control events unless and until such time as the Company's indebtedness under the Senior Bank Facility is repaid in full. There can be no assurance that the Company would have sufficient financial resources available to satisfy all of its obligations under the Senior Bank Facility, which could have a material adverse effect on the Company's business. See "Description of Other Indebtedness" and "Description of Exchange Notes--Change of Control." FRAUDULENT TRANSFER CONSIDERATIONS The incurrence of indebtedness by the Company, such as the Exchange Notes (and the related incurrence by the Subsidiary Guarantors of guarantees), may be subject to review under federal bankruptcy law or relevant state fraudulent conveyance laws if a bankruptcy case or lawsuit is commenced by the Company or on behalf of unpaid creditors of the Company. Under these laws, if, in a bankruptcy or reorganization case or a lawsuit by the Company or on behalf of creditors of the Company, a court were to find that, at the time the Company incurred indebtedness, including indebtedness under the Exchange Notes, (i) the Company incurred such indebtedness with the intent of hindering, delaying or defrauding current or future creditors or (ii) (a) the Company received less than reasonably equivalent value or fair consideration for incurring such indebtedness and (b) the Company (1) was insolvent or was rendered insolvent by reason of any of the transactions, (2) was engaged, or about to engage, in a business or transaction for which its assets constituted unreasonably small capital, (3) intended to incur, or believed that it would incur, debts beyond its ability to pay as such debts matured (as all of the foregoing terms are defined in or interpreted under the relevant fraudulent transfer or conveyance statutes) or (4) was a defendant in an action for money damages, or had a judgment for money damages docketed against it (if, in either case, after final judgment the judgment is unsatisfied), then such court could avoid or subordinate the amounts owing under the Exchange Notes to presently existing and future indebtedness of the Company and take other actions detrimental to the holders of the Exchange Notes. The measure of insolvency for purposes of the foregoing considerations will vary depending upon the law of the jurisdiction that is being applied in any such proceeding. Generally, however, the Company would be considered insolvent if, at the time it incurred the indebtedness, either (i) the sum of its debts (including contingent liabilities) is greater than its assets, at a fair valuation, or (ii) the present fair salable value of its assets is less than the amount required to pay the probable liability on its total existing debts and liabilities (including contingent liabilities) as they become absolute and matured. There can be no assurance as to what standards a court would use to determine whether the Company was solvent at the relevant time, or whether, whatever standard was used, the Exchange Notes would not be avoided or further subordinated on another of the grounds set forth above. In rendering their opinions in connection with the initial borrowings, counsel for the Company and counsel for the lenders did not express any opinion as to the applicability of federal or state fraudulent transfer and conveyance laws. The Company believes that, at time the indebtedness constituting the Private Notes was incurred, the Company (and its subsidiaries, after giving effect to the Transactions) (i) was (a) neither insolvent nor rendered insolvent thereby, (b) in possession of sufficient capital to run its businesses effectively and (c) incurring debts within its ability to pay as the same mature or become due and (ii) had sufficient assets to satisfy any probable money judgment against it in any pending action. In reaching the foregoing conclusions, the Company has relied upon its analyses of internal cash flow projections and estimated values of assets and liabilities of the Company. There can be no assurance, however, that a court passing on such questions would reach the same conclusions. 27 FAILURE TO EXCHANGE PRIVATE NOTES Exchange Notes will be issued in exchange for Private Notes only after timely receipt by the Exchange Agent of such Private Notes, a properly completed and duly executed Letter of Transmittal (or Agent's Message (as defined in the Letter of Transmittal)) and all other required documentation. Therefore, holders of Private Notes desiring to tender such Private Notes in exchange for Exchange Notes should allow sufficient time to ensure timely delivery. Neither the Exchange Agent nor the Company is under any duty to give notification of defects or irregularities with respect to tenders of Private Notes for exchange. Private Notes that are not tendered, or are tendered but not accepted, will, following consummation of the Exchange Offer, continue to be subject to the existing restrictions upon transfer thereof and, upon consummation of the Exchange Offer, certain registration rights under the Exchange and Registration Rights Agreement will terminate. In addition, any holder of Private Notes who tenders in the Exchange Offer for the purpose of participating in a distribution of the Exchange Notes may be deemed to have received restricted securities, and if so, will be required to comply with the registration and prospectus delivery requirements of the Securities Act in connection with any resale transaction. Each broker-dealer that receives Exchange Securities for its own account in exchange for Private Notes, where such Private Notes were acquired by such broker-dealer as a result of market- making activities or any other trading activities, must acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Securities. See "Plan of Distribution." To the extent that Private Notes are tendered and accepted in the Exchange Offer, the trading market for untendered and tendered but unaccepted Private Notes could be adversely affected. See "The Exchange Offer." RESALE OF THE EXCHANGE NOTES The Company is making the Exchange Offer in reliance upon interpretations by the staff of the Commission set forth in no-action letters issued to third parties. Based on such interpretations, the Company believes that Exchange Notes issued pursuant to the Exchange Offer in exchange for Private Notes may be offered for resale, resold or otherwise transferred by a holder thereof (other than an "affiliate" of the Company within the meaning of Rule 405 under the Securities Act) without compliance with the registration and prospectus delivery requirements of the Securities Act; provided, that the holder is acquiring the Exchange Notes in the ordinary course of its business and is not participating, and has no arrangement or understanding with any person to participate, in the distribution of the Exchange Notes. However, the Company has not sought its own no-action letter and there can be no assurance that the staff of the Commission would make a similar determination with respect to the Exchange Offer as in such other circumstances. Each holder of Private Notes, other than a broker-dealer, must acknowledge that it is not participating, and has no arrangement or understanding with any person to participate in, a distribution of the Exchange Notes. If any holder is an affiliate of the Company or is engaged in or intends to engage in or has any arrangement or understanding with respect to the distribution of the Exchange Notes to be acquired pursuant to the Exchange Offer, such holder (i) may not rely on the applicable interpretations of the staff of the Commission and (ii) must comply with the registration and prospectus delivery requirements of the Securities Act in connection with any resale transaction. Each broker-dealer that receives Exchange Notes for its own account in exchange for Private Notes must acknowledge that such Exchange Securities were acquired by such broker-dealer as a result of market-making activities and that it will deliver a prospectus in connection with any resale of such Exchange Notes. The Letter of Transmittal states that by so acknowledging and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. This Prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with resales of Exchange Notes received in exchange for Private Notes, where such Private Notes were acquired by such broker-dealer as a result of market-making or other trading activities. The Company has agreed to make this Prospectus (as it may be amended or supplemented) available to any broker-dealer, upon request, for use in connection with any such resale, for a period of up to 180 days after the Registration Statement is declared effective by the Commission or until such earlier date on which all the Exchange Notes are freely tradable. However, any broker-dealer who acquired the Private Notes directly from the Company other than as a result of market-making activities or ordinary trading activities may not fulfill its prospectus delivery requirements with this Prospectus, 28 but must comply with the registration and prospectus delivery requirements of the Securities Act. See "The Exchange Offer--Resale of the Exchange Notes." USE OF PROCEEDS The Exchange Offer is intended to satisfy certain of the Company's obligations under the Exchange and Registration Rights Agreement. The Company will not receive any cash proceeds from the issuance of the Exchange Notes offered hereby. In consideration of issuing the Exchange Notes as contemplated in this Prospectus, the Company will receive in exchange Private Notes in like principal amount, the form and terms of which are the same as the form and terms of the Exchange Notes, except as otherwise described herein. The Private Notes surrendered in exchange for the Exchange Notes will be retired and canceled and cannot be reissued. Accordingly, issuance of the Exchange Notes will not result in any increase in the indebtedness of the Company. The net proceeds to the Company from the Private Offering were approximately $96.0 million (after deducting estimated expenses in connection with the Private Offering payable by the Company). The Company used such net proceeds, together with the $28.8 million proceeds of the Equity Investment, cash on hand of Bertucci's and borrowings under the Senior Bank Facility, to pay amounts due in connection with the Acquisition and certain related transactions, including repayment of amounts outstanding under the Company Bank Facility, the Bertucci's Bank Facility, and fees and expenses related to the Acquisition. 29 CAPITALIZATION The following table sets forth (i) the actual unaudited capitalization of the Company as of the end of the First Six Months 1998, and (ii) such unaudited capitalization as adjusted to give effect to the Transactions. The information set forth below should be read in conjunction with the "Selected Historical Financial Data of the Company" and the notes thereto, "Unaudited Pro Forma Financial Information," "Management's Discussion and Analysis of Financial Condition and Results of Operations of the Company" and the consolidated financial statements of the Company and the notes thereto included elsewhere in this Prospectus.
AS OF THE END OF THE FIRST SIX MONTHS 1998 ------------------------- ACTUAL AS ADJUSTED ---------- ------------- (DOLLARS IN THOUSANDS) Long-term debt (including current portion): Company Bank Facility................................ $ 18,058 $ -- Senior Bank Facility(a).............................. -- $ -- FFCA Loans(a)(b)..................................... 23,778 23,778 10 3/4% Senior Notes due 2008........................ -- 100,000 Other debt outstanding............................... 268 293 ---------- ---------- Total long-term debt............................... 41,399 124,071 ---------- ---------- Shareholders' (deficit) equity(c)...................... (12,164) 16,636 ---------- ---------- Total capitalization............................. $ 29,235 $ 140,707 ========== ==========
- -------- (a) The Senior Bank Facility permits borrowings of up to an aggregate principal amount of $20,000. By the consummation of the Transactions, the Company received approximately $3,000 of additional financing from FFCA, a portion of the proceeds of which were used to repay amounts outstanding under the Company Bank Facility. As a result, the Company was not required to borrow any amounts under the Senior Bank Facility. See "Description of Other Indebtedness." (b) The FFCA Loans mature on various dates from September 2002 through September 2017. The outstanding borrowings under the FFCA Loans are currently secured by first priority mortgages on, and security interests in, 20 of the Company's restaurant properties. See "Description of Other Indebtedness--FFCA Loans." (c) The as adjusted shareholders' equity reflects the $28,800 of proceeds of the sale of common stock of the Company to existing shareholders, including certain members of management, and affiliates of Jacobson Partners. 30 UNAUDITED PRO FORMA FINANCIAL DATA The following unaudited pro forma financial data with respect to the Company and Bertucci's (the "Unaudited Pro Forma Financial Data") is based on the historical consolidated financial statements of the Company and Bertucci's included elsewhere in this Prospectus as adjusted to give effect to the Transactions. The unaudited pro forma balance sheet gives effect to the Transactions as if they had occurred on the respective dates presented and the unaudited pro forma income statements give effect to the Transactions as if they had occurred on the first day of the stated period. The Transactions and the related adjustments are described in the accompanying notes. In the opinion of management, all adjustments have been made that are necessary to present fairly the pro forma data. Actual amounts could differ from those set forth below. The Unaudited Pro Forma Financial Data should be read in conjunction with the notes included herein, the consolidated financial statements of the Company and of Bertucci's and, in each case, the notes thereto included herein, "Management's Discussion and Analysis of Financial Condition and Results of Operations of the Company," "Management's Discussion and Analysis of Financial Condition and Results of Operations of Bertucci's," "Selected Financial Data of the Company" and the notes thereto, "Selected Financial Data of Bertucci's" and the notes thereto and the other financial information included elsewhere in this Prospectus. The unaudited pro forma financial data do not purport to represent what the Company's results of operations or financial position would have been had the Transactions occurred on the dates specified, or to project the Company's results of operations or financial position for any future period or date. 31 NE RESTAURANT COMPANY, INC. UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET AS OF THE END OF THE FIRST SIX MONTHS 1998 (DOLLARS IN THOUSANDS)
HISTORICAL ----------------------- PRO FORMA NERCO BERTUCCI'S ADJUSTMENTS PRO FORMA -------- ---------- ----------- --------- ASSETS: Current assets: Cash and cash equivalents.... $ -- $ 3,670 $ (3,670)(a) $ -- Marketable securities...... 3,434 (b) -- (3,434)(b) -- Inventories................ 570 1,205 -- 1,775 Receivables................ 394 814 -- 1,208 Prepaid expense and other current assets............ 342 1,204 -- 1,546 Deferred taxes, current.... 112 1,104 -- 1,216 -------- -------- -------- -------- Total current assets....... 4,852 7,997 (7,104) 5,745 Net property and equipment..... 32,798 91,568 -- 124,366 Goodwill....................... 151 2,336 17,684 (c) 20,171 Other assets................... 5,325 4,158 6,505 (d) 15,988 -------- -------- -------- -------- Total assets............... $ 43,126 $106,059 $ 17,085 $166,270 ======== ======== ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY: Current liabilities: Accounts payable............. $ 3,658 $ 4,550 $ -- $ 8,208 Accrued expenses............. 5,531 7,827 -- 13,358 Other current liabilities.... 706 25 -- 731 -------- -------- -------- -------- Total current liabilities.... 9,895 12,402 -- 22,297 Long-term debt................. 41,399 13,500 68,442 (e) 123,341 Other noncurrent liabilities... 3,996 6,871 (6,871)(c) 3,996 -------- -------- -------- -------- Total liabilities.......... 55,290 32,773 61,571 149,634 Common Stock................... 20 44 (44)(f) 20 Treasury Stock................. (8,017) (8,017) Additional Paid in Capital..... 22 45,259 (16,459)(f) 28,822 (Accumulated Deficit) Retained Earnings...................... (4,189) 27,983 (27,983)(f) (4,189) Total Equity............... (12,164) 73,286 (44,486) 16,636 ======== ======== ======== ======== Total liabilities and shareholders' equity...... $ 43,126 $106,059 $ 17,085 $166,270 ======== ======== ======== ========
See Notes to Unaudited Pro Forma Balance Sheet 32 NE RESTAURANT COMPANY, INC. NOTES TO UNAUDITED PRO FORMA BALANCE SHEET (DOLLARS IN THOUSANDS) (a) Represents the use of available cash to pay down the Bertucci's Bank Facility. (b) Marketable securities consists of 430,000 shares of Bertucci's common stock. The pro forma adjustment represents use of such stock which is owned by the Company prior to the Acquisition as a credit against the purchase price for the Acquisition. (c) Represents goodwill and other intangible assets resulting from the Acquisition to be amortized over a fifteen year useful life as follows: Purchase price including transaction costs......................... $97,841 Bertucci's shareholders' equity, plus deferred rent liability not assumed of $6,871................................................. 80,157 ------- Goodwill........................................................... $17,684 =======
(d) Represents the financing costs associated with indebtedness incurred in connection with the Transactions which is amortized over the life of the related borrowings. (e) Represents net indebtedness incurred in connection with the Transactions. This amount has been calculated as follows: Issuance of new debt: Senior Bank Facility............................................. $ -- Senior Notes due 2008............................................ 100,000 -------- Total of new debt issued....................................... 100,000 Repayment of existing debt: Company Bank Facility.......................................... (18,058) Bertucci's Bank Facility....................................... (13,500) -------- Total of existing debt repaid.................................. (31,558) -------- Total........................................................ $ 68,442 ========
(f) Adjustments to shareholders' equity represents elimination of Bertucci's shareholder's equity of $73,286 and an increase in the Company's paid in capital of $28,800 as a result of the Equity Investment. 33 NE RESTAURANT COMPANY, INC. UNAUDITED PRO FORMA CONDENSED COMBINED INCOME STATEMENTS FOR THE LAST TWELVE MONTHS (DOLLARS IN THOUSANDS)
HISTORICAL ------------------ PRO FORMA NERCO BERTUCCI'S ADJUSTMENTS PRO FORMA ------- ---------- ----------- --------- INCOME STATEMENT DATA: Net sales......................... $87,541 $143,221 $ -- $230,762 Cost of sales and expenses: Cost of sales................... 24,772 35,643 -- 60,415 Operating expenses.............. 44,165 74,816(a) -- 118,981 General and administrative expenses....................... 4,492 9,810 -- 14,302 Deferred rent, depreciation and amortization................... 3,845 9,265(a) 1,179 (b) 14,289 Taxes other than income......... 4,021 7,270 -- 11,291 ------- -------- -------- -------- Total cost of sales and expenses....................... 81,295 136,804 1,179 219,278 ------- -------- -------- -------- Income from operations.......... 6,246 6,417 (1,179) 11,484 Interest expense, net............. 3,175 865 9,213 (c) 13,253 ------- -------- -------- -------- Income (loss) before income taxes.......................... 3,071 5,552 (10,392) (1,769) Provision (benefit) for income taxes............................ 1,014 1,989 (3,685)(d) (682) ------- -------- -------- -------- Net income (loss)............... $ 2,057 $ 3,563 $ (6,707) $ (1,087) ======= ======== ======== ======== OTHER FINANCIAL DATA: Ratio of earnings to fixed charges(e)....................... -- Adjusted EBITDA(f)................ $10,091 $ 15,682 $ 2,000 (f) $ 27,773 Capital expenditures.............. 6,647 9,824 -- 16,471
34 FOR FISCAL 1997
HISTORICAL ------------------ PRO FORMA NERCO BERTUCCI'S ADJUSTMENTS PRO FORMA ------- ---------- ----------- --------- INCOME STATEMENT DATA: Net sales......................... $81,364 $136,720 $ -- $218,084 Cost of sales and expenses: Cost of sales................... 23,384 34,102 -- 57,486 Operating expenses.............. 40,931 71,106(a) -- 112,037 General and administrative expenses....................... 4,207 8,828 -- 13,035 Deferred rent, depreciation and amortization................... 3,911 9,172(a) 1,179 (b) 14,262 Taxes other than income......... 3,829 6,990 -- 10,819 ------- -------- -------- -------- Total cost of sales and expenses....................... 76,262 130,198 1,179 207,639 ------- -------- -------- -------- Income from operations.......... 5,102 6,522 (1,179) 10,445 Interest expense, net............. 1,918 1,005 9,213 (c) 12,136 ------- -------- -------- -------- Income (loss) before income expense........................ 3,184 5,517 (10,392) (1,691) Provision (benefit) for income taxes............................ 1,084 2,009 (3,685)(d) (592) ------- -------- -------- -------- Net income (loss)............... $ 2,100 $ 3,508 $ (6,707) $ (1,099) ======= ======== ======== ======== OTHER FINANCIAL DATA: Ratio of earnings to fixed charges(e)..................... -- Adjusted EBITDA(f).............. $ 9,013 $ 15,694 $ 2,000 (f) $ 26,707 Capital expenditures............ 4,479 8,014 -- 12,493
See Notes to Unaudited Pro Forma Income Statements 35 NE RESTAURANT COMPANY, INC. UNAUDITED PRO FORMA CONDENSED COMBINED INCOME STATEMENTS FOR FIRST SIX MONTHS 1997 (DOLLARS IN THOUSANDS)
HISTORICAL ------------------ PRO FORMA NERCO BERTUCCI'S ADJUSTMENTS PRO FORMA ------- ---------- ----------- --------- INCOME STATEMENT DATA: Net sales.......................... $38,872 $71,980 $ -- $110,852 Cost of sales and expenses: Cost of sales.................... 11,334 17,947 -- 29,281 Operating expenses............... 19,444 37,357(a) -- 56,801 General and administrative expenses........................ 2,013 4,332 -- 6,345 Deferred rent, depreciation and amortization.................... 2,055 5,126(a) 589 (b) 7,770 Taxes other than income.......... 1,890 3,823 -- 5,713 ------- ------- ------- -------- Total cost of sales and expenses........................ 36,736 68,585 589 105,910 ------- ------- ------- -------- Income from operations........... 2,136 3,395 (589) 4,942 Interest expense, net.............. 607 614 4,941 (c) 6,162 Income (loss) before income taxes........................... 1,529 2,781 (5,530) (1,220) Provisions (benefit) for income taxes............................. 543 1,014 (1,976)(d) (419) ------- ------- ------- -------- Net income (loss)................ $ 986 $ 1,767 $(3,554) $ (801) ======= ======= ======= ======== OTHER FINANCIAL DATA: Ratio of earnings to fixed charges(e)........................ -- Adjusted EBITDA(f)................. $ 4,191 $ 8,521 $ 500 (f) $ 13,212 Capital expenditures............... 1,308 2,954 -- 4,262
36 FOR FIRST SIX MONTHS 1998 INCOME STATEMENT DATA: Net sales............................. $45,049 $78,481 $ -- $123,530 Cost of sales and expenses: Cost of sales....................... 12,722 19,488 -- 32,210 Operating expenses.................. 22,678 41,067(a) -- 63,745 General and administrative ex- penses............................. 2,298 5,314 -- 7,612 Deferred rent, depreciation and am- ortization......................... 1,989 5,219(a) 589 (b) 7,797 Taxes other than income............. 2,082 4,103 -- 6,185 ------- ------- ------- -------- Total cost of sales and expenses.. 41,769 75,191 589 117,549 ------- ------- ------- -------- Income from operations............ 3,280 3,290 (589) 5,981 Interest expense, net................. 1,864 474 4,941 (c) 7,279 ------- ------- ------- -------- Income (loss) before income taxes... 1,416 2,816 (5,530) (1,298) Provision (benefit) for income taxes.. 473 994 (1,976)(d) (509) ------- ------- ------- -------- Net income (loss)................... $ 943 $ 1,822 $(3,554) $ (789) ======= ======= ======= ======== OTHER FINANCIAL DATA: Ratio of earnings to fixed charges(e)........................... -- Adjusted EBITDA(f).................... $ 5,269 $ 8,509 $ 500 (f) $ 14,278 Capital expenditures.................. 3,476 4,764 -- 8,240
See Notes to Unaudited Pro Forma Income Statements 37 NE RESTAURANT COMPANY, INC. NOTES TO UNAUDITED PRO FORMA INCOME STATEMENTS (DOLLARS IN THOUSANDS) (a) To conform with the Company's financial presentation, the following deferred rent expense amounts on Bertucci's income statement have been reclassified from operating expense to depreciation and amortization:
FIRST SIX FIRST SIX LAST TWELVE FISCAL 1997 MONTHS 1997 MONTHS 1998 MONTHS ----------- ----------- ----------- ----------- $546 $419 $261 $388
(b) Reflects goodwill amortization as a result of the Acquisition. Goodwill will be amortized on a straight line basis over 15 years. (c) Represents adjustments necessary to reflect pro forma interest expense and amortization of deferred financing costs based on pro forma debt levels and applicable interest rates.
FIRST FIRST SIX SIX FISCAL MONTHS MONTHS LAST TWELVE 1997 1997 1998 MONTHS ------- ------ ------- ----------- Amortization of financing costs......... $ 651 $ 163 $ 163 $ 651 Senior Notes due 2008 (at the 10 3/4% rate).................................. 10,750 5,375 5,375 10,750 FFCA Loans (at an average 9.7% rate)....... 708 -- 1,152 1,860 Other debt--various..................... 27 11 11 27 Elimination of historical interest...... (2,923) (608) (1,760) (4,075) ------- ------ ------- ------- $ 9,213 $4,941 $ 4,941 $ 9,213 ======= ====== ======= =======
(d) Reflects a reduction in the provisions for income taxes as a result of the pro forma decrease in income before taxes, computed at an effective tax rate of 40%. The amortization of goodwill is nondeductible for taxes. (e) Pro forma earnings were insufficient to cover fixed charges for the pro forma Fiscal 1997, First Six Months 1997, First Six Months 1998 and the Last Twelve Months by $1.7 million, $1.2 million, $1.3 million and $1.8 million, respectively. For purposes of calculating this ratio, "earnings" consist of earnings from continuing operations before provision for income taxes and fixed charges. "Fixed charges" consist of interest expense and the estimated interest portion of rental payments on operating leases. (f) "EBITDA" is defined as income from operations before deferred rent, depreciation and amortization. EBITDA is not a measure of performance defined by GAAP. EBITDA should not be considered in isolation or as a substitute for net income or the statement of cash flows which have been prepared in accordance with GAAP. The Company believes EBITDA provides useful information regarding the Company's ability to service its debt and the Company understands that such information is considered by certain investors to be an additional basis for evaluating a company's ability to pay interest and repay debt. The EBITDA measures presented herein may not be comparable to similarly titled measures of other companies. Deferred rent expense for each of Fiscal 1997, the First Six Months 1997, the First Six Months 1998 and the Last Twelve Months was $899, $592, $664 and $971, respectively. "Adjusted EBITDA" represents EBITDA adjusted as follows:
FIRST SIX FIRST SIX LAST FISCAL MONTHS MONTHS TWELVE 1997 1997 1998 MONTHS ------- --------- --------- ------- EBITDA.................................. $24,707 $12,712 $13,778 $25,773 Elimination of salaries and benefits of certain employees...................... 1,700 425 425 1,700 Elimination of duplicative professional and office overhead services........... 300 75 75 300 ------- ------- ------- ------- Adjusted EBITDA......................... $26,707 $13,212 $14,278 $27,773
The foregoing positive adjustments represent the Company's estimates of cost savings. However, there can be no assurance as to when, or if, such savings will be realized. 38 SELECTED FINANCIAL DATA OF THE COMPANY The following table sets forth the selected historical and other consolidated financial data for the Company for the periods and at the dates indicated. The historical financial data for each of the three years ended December 31, 1997 and at December 31, 1996 and 1997 have been derived from the Company's historical consolidated financial statements which are included elsewhere in this Prospectus and have been audited and reported upon by Arthur Andersen. The historical financial data for each of the two years ended December 31, 1994 and at December 31, 1993, 1994 and 1995 have been derived from the Company's historical consolidated financial statements audited and reported upon by Arthur Andersen, which are not included in this Prospectus. The historical financial data for the six months ended and at June 30, 1997 and 1998 have been derived from the Company's unaudited financial statements and reflect, in the opinion of management, all adjustments (consisting only of normal recurring adjustments) necessary to present fairly the financial position as of, and the results for, such interim periods. The historical financial information for the six months ended June 30, 1998 is not necessarily indicative of results for the full year ending December 31, 1998. This information should be read in conjunction with the consolidated financial statements of the Company and the notes thereto, "Management's Discussion and Analysis of Financial Condition and Results of Operations of the Company" and the other financial information included elsewhere in this Prospectus.
SIX MONTHS YEAR ENDED DECEMBER 31, ENDED JUNE 30, ------------------------------------------------ ----------------- 1993 1994 1995 1996 1997 1997 1998 ------- ------- ------- ------- -------- ------- ------- (DOLLARS IN THOUSANDS) (UNAUDITED) INCOME STATEMENT DATA: Net sales............... $37,729 $46,588 $60,300 $70,094 $ 81,364 $38,872 $45,049 Cost of sales and ex- penses: Cost of sales........... 11,182 13,451 18,095 21,203 23,384 11,334 12,722 Operating expenses..... 19,250 23,130 30,101 34,268 40,932 19,444 22,678 General and administra- tive expenses......... 2,941 3,359 3,449 3,679 4,207 2,013 2,298 Deferred rent, depreci- ation and amortiza- tion.................. 1,298 1,684 3,201 3,679 3,911 2,055 1,989 Taxes other than in- come.................. 1,764 2,142 2,871 3,207 3,829 1,890 2,082 ------- ------- ------- ------- -------- ------- ------- Total costs of sales and expenses.......... 36,435 43,766 57,717 66,036 76,263 36,736 41,769 ------- ------- ------- ------- -------- ------- ------- Income from opera- tions................. 1,294 2,822 2,583 4,058 5,101 2,136 3,280 ------- ------- ------- ------- -------- ------- ------- Interest expense, net... 27 90 463 1,053 1,918 607 1,864 Income before income tax expense........... 1,267 2,732 2,120 3,005 3,184 1,529 1,416 Income tax expense...... -- 1,122 699 1,047 1,084 543 473 ------- ------- ------- ------- -------- ------- ------- Net income............. $ 1,267 $ 1,610 $ 1,421 $ 1,958 $ 2,100 $ 986 $ 943 ------- ------- ------- ------- -------- ------- ------- OTHER FINANCIAL DATA: Ratio of earnings to fixed charges(a)....... 2.5x 3.7x 2.5x 2.5x 2.0x 2.3x 1.5x EBITDA(b)............... $ 2,592 $ 4,506 $ 5,784 $ 7,737 $ 9,012 $ 4,191 $ 5,269 EBITDA margin(c)........ 6.9 % 9.7 % 9.6 % 11.0 % 11.1 % 10.8 % 11.7 % Capital expenditures.... $ 3,619 $ 7,989 $10,359 $ 7,946 $ 4,479 $ 1,308 $ 3,476 OPERATING STATISTICS: Number of restaurants (end of period)........ 16 19 26 30 32 31 33 Average annual revenue per restaurant......... $ 2,421 $ 2,623 $ 2,589 $ 2,518 $ 2,614 $ 2,521 $ 2,744 Comparable restaurant sales(d)............... 14.5 % 6.6 % (1.6)% (0.4)% 2.7 % 0.5 % 7.0 % BALANCE SHEET DATA (AT END OF PERIOD): Working capital (defi- cit)................... $(3,375) $(3,750) $(4,524) $(4,996) $ (8,406) $(4,735) $(5,043) Total assets............ 9,704 18,162 27,848 34,340 37,337 34,932 43,126 Long-term debt, includ- ing current portion.... -- 5,280 11,570 15,273 37,908 (e) 13,976 42,105 Shareholders' equity (deficit)(e)........... 4,468 6,078 7,499 9,457 (13,107)(e) 10,441 (12,164)
See Notes to Selected Financial Data of the Company 39 NOTES TO SELECTED FINANCIAL DATA OF THE COMPANY (a) For purposes of calculating this ratio, "earnings" consist of earnings from continuing operations before provision for income taxes and fixed charges. "Fixed charges" consist of interest expense and the estimated interest portion of rental payments on operating leases. (b) "EBITDA" is defined as income from operations before deferred rent, depreciation and amortization. EBITDA is not a measure of performance defined by GAAP. EBITDA should not be considered in isolation or as a substitute for net income or the statement of cash flows which have been prepared in accordance with GAAP. The Company believes EBITDA provides useful information regarding the Company's ability to service its debt and the Company understands that such information is considered by certain investors to be an additional basis for evaluating a company's ability to pay interest and repay debt. EBITDA measures presented herein may not be comparable to similarly titled measures of other companies. (c) EBITDA margin represents EBITDA divided by net sales. (d) The Company defines comparable restaurant sales as net sales from restaurants that have been open for at least one full fiscal year. (e) In August 1997, the Company paid a dividend and return of capital distribution to shareholders of $8.31 per share, in the aggregate amount of $16,670. In addition, the Company repurchased 716,429 shares of common stock at $11.63 per share, for an aggregate amount of $8,332. The Company's repurchase of shares of common stock was recorded as treasury stock, at cost, and resulted in a reduction of shareholders' (deficit) equity. These transactions were funded from the proceeds of the FFCA Loan. See "Description of Other Indebtedness." 40 SELECTED FINANCIAL DATA OF BERTUCCI'S The following table sets forth the selected historical and other consolidated financial data for Bertucci's for the periods and at the dates indicated. The historical financial data for each of the years ended December 30, 1995, December 28, 1996 and December 27, 1997 and at December 28, 1996 and December 27, 1997 have been derived from Bertucci's historical consolidated financial statements which are included elsewhere in this Prospectus and have been audited and reported upon by Arthur Andersen. The historical financial data for each of the years ended December 25, 1993 and December 25, 1994; and at December 25, 1993, December 31, 1994 and December 30, 1995 have been derived from Bertucci's historical consolidated financial statements audited and reported upon by Arthur Andersen, which are not included in this Prospectus. The unaudited historical financial data for the 28 weeks ended and at July 12, 1997 and July 11, 1998 have been derived from Bertucci's unaudited financial statements and reflect, in the opinion of management, all adjustments (consisting only of normal recurring adjustments) necessary to present fairly the results for such interim periods. The historical financial information for the 28 weeks ended July 11, 1998 is not necessarily indicative of results for the full year ending December 26, 1998. Bertucci's fiscal year has historically consisted of a 16-week first fiscal quarter followed by two 12-week fiscal quarters and a 12- or 13-week fourth fiscal quarter. This information should be read in conjunction with the consolidated financial statements of Bertucci's and the notes thereto included herein, "Management's Discussion and Analysis of Financial Condition and Results of Operations of Bertucci's" and the other financial information included elsewhere in this Prospectus.
FISCAL YEARS ENDED 28 WEEKS ENDED ---------------------------------------------------------------- ------------------- DECEMBER 25, DECEMBER 31, DECEMBER 30, DECEMBER 28, DECEMBER 27, JULY 12, JULY 11, 1993 1994 1995 1996 1997 1997 1998 ------------ ------------ ------------ ------------ ------------ -------- -------- (UNAUDITED) (DOLLARS IN THOUSANDS) INCOME STATEMENT DATA: Net sales............... $74,625 $102,797 $120,260 $128,044 $136,720 $ 71,980 $ 78,481 Costs and expenses: Cost of sales.......... 19,368 26,039 31,060 32,484 34,102 17,947 19,488 Operating expenses..... 33,778 48,804 60,673 65,986 71,652 37,776 41,327 General and administra- tive expenses.............. 4,918 6,566 8,239 7,720 8,828 4,332 5,315 Depreciation and amor- tization.............. 4,840 7,327 9,083 8,781 8,626 4,707 4,958 Taxes other than in- come.................. 3,530 5,106 6,268 6,633 6,990 3,823 4,103 Restaurant closing ex- pense................. -- -- 5,336 -- -- -- -- ------- -------- -------- -------- -------- -------- -------- Total costs and ex- penses................ 66,434 93,842 120,659 121,604 130,198 68,585 75,191 ------- -------- -------- -------- -------- -------- -------- Income (loss) from oper- ations................. 8,191 8,955 (399) 6,440 6,522 3,395 3,290 Interest expense, net... 82 155 1,253 1,297 1,037 622 482 Interest income......... 657 33 21 15 32 8 8 ------- -------- -------- -------- -------- -------- -------- Income (loss) before income tax expense (benefit)............. 8,766 8,833 (1,631) 5,158 5,517 2,781 2,816 Income tax expense (ben- efit).................. 3,127 3,223 (745) 1,933 2,009 1,014 994 ------- -------- -------- -------- -------- -------- -------- Net income (loss)...... $ 5,639 $ 5,610 $ (886) $ 3,225 $ 3,508 $ 1,767 $ 1,822 ======= ======== ======== ======== ======== ======== ======== OTHER FINANCIAL DATA: EBITDA(a)............... $14,195 $ 17,422 $ 9,717 $ 15,711 $ 15,694 $ 8,521 $ 8,509 EBITDA margin(b)........ 19.0 % 16.9 % 8.1 % 12.3 % 11.5 % 11.8 % 10.8 % Deferred rent, deprecia- tion and amortization........... $ 6,004 $ 8,467 $ 10,116 $ 9,271 $ 9,172 $ 5,126 $ 5,219 Capital expenditures.... 33,068 27,634 14,309 9,462 8,014 2,954 4,764 OPERATING STATISTICS: Number of restaurants (end of period)(c)..... 50 67 76 80 85 81 88 Average annual revenue per restaurant......... $ 1,820 $ 1,826 $ 1,673 $ 1,671 $ 1,712 $ 1,654 $ 1,691 Comparable restaurant sales(d)............... 5.8 % 0.2 % (2.0)% 1.0 % 2.5 % 0.8 % 2.5 % BALANCE SHEET DATA (AT END OF PERIOD): Working capital (defi- cit)................... $(3,973) $ (5,738) $ (5,258) $ (2,857) $ (3,740) $ (3,114) $ (4,405) Total assets............ 70,181 93,114 98,938 102,528 105,516 101,918 100,059 Long-term debt, includ- ing current portion.... -- 14,000 19,438 18,438 13,525 14,525 13,525 Shareholders' equity.... 58,804 64,846 64,092 67,538 71,371 69,412 73,286
See Notes to Selected Financial Data of Bertucci's 41 NOTES TO SELECTED FINANCIAL DATA OF BERTUCCI'S (a) "EBITDA" is defined as operating income before deferred rent, depreciation and amortization. EBITDA is not a measure of performance defined by GAAP. EBITDA should not be considered in isolation or as a substitute for net income or the statement of cash flows which have been prepared in accordance with GAAP. The Company believes EBITDA provides useful information regarding the Company's ability to service its debt and the Company understands that such information is considered by certain investors to be an additional basis for evaluating a company's ability to pay interest and repay debt. EBITDA measures presented herein may not be comparable to similarly titled measures of other companies. Deferred rent for Bertucci's fiscal 1993, 1994, 1995, 1996 and 1997 was $1,164, $1,140, $1,033, $490 and $546, respectively, and for Bertucci's first fiscal six months 1997 and 1998 was $419 and $261, respectively. (b) EBITDA margin represents EBITDA divided by net sales. (c) For all periods including and after Bertucci's fiscal 1997, includes one Sal and Vinnie's restaurant. (d) Comparable restaurant sales are defined as net sales from restaurants that have been open for at least one full fiscal year. 42 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF THE COMPANY The following discussion should be read in conjunction with the "Selected Financial Data of the Company" and the notes thereto, and the consolidated financial statements of the Company and the notes thereto, included herein, and the other more detailed financial data appearing elsewhere herein. GENERAL The Company operates 31 Chili's and two On The Border restaurants in five New England states, and, as a result of the Acquisition, owns and operates 87 Bertucci's restaurants located primarily in the northeastern and Mid-Atlantic United States and one Sal and Vinnie's steakhouse located in Massachusetts. The Company has entered into franchise and development agreements with Brinker to operate the 33 restaurants and to exclusively develop additional restaurants in New England and Westchester County and additionally, in the case of On The Border, upstate New York. The Company is a successor to a series of limited partnerships formed in 1991 to acquire 15 Chili's restaurants originally developed by another franchisee. Upon its acquisition of the 15 Chili's restaurants in 1991, the Company recruited a new management team and undertook a series of steps to enhance operations, including reducing administrative overhead, coordinating a new advertising campaign, introducing new menu items, renovating restaurant facilities, installing new information systems and improving purchasing decisions. These efforts resulted in significant increases in comparable restaurant sales. During the Company's first three full years of operation, same store sales increased over the prior year by 10.0%, 14.5%, and 6.6%, respectively. From Fiscal 1991, the final year of operations by the prior franchisee, to fiscal 1997 average sales per restaurant for the Company's Chili's restaurants increased over 30.0% to $2.5 million from $1.8 million. Additionally, over the same period net sales and EBITDA increased from $27.5 million and $0.3 million to $81.4 million and $9.0 million, respectively. For all the Company's restaurants, net sales consist of food, beverage and alcohol sales. For fiscal 1997, with respect to the Company's Chili's restaurants, food accounted for approximately 73%, alcoholic beverages approximately 18%, and non-alcoholic beverages approximately 9%, of net sales. For fiscal 1997, with respect to the Company's On The Border restaurants, food accounted for approximately 64%, alcoholic beverages for approximately 31%, and non-alcoholic beverages for approximately 5% of total sales. The larger bar area for On The Border restaurants combined with a four-season patio contribute to the higher liquor mix in this concept. Cost of sales consists of food, beverage and alcohol costs. Total operating expenses consist of five primary categories: (i) labor expenses; (ii) restaurant operations; (iii) facility costs; (iv) office expenses; and (v) non-controllable expenses, which include such items as Brinker's royalty and advertising fees, rent, insurance, and real estate and personal property taxes. General and administrative expenses include costs associated with those departments of the Company that assist in restaurant operations and management of the business, including accounting, management information systems, training, executive management, purchasing and construction. 43 RESULTS OF OPERATIONS The following table sets forth the percentage relationship to net sales, unless otherwise indicated, of certain items included in the Company's income statement, as well as certain operating data, for the periods indicated:
YEAR ENDED SIX MONTHS ENDED DECEMBER 31, JUNE 30, ------------------------ --------------------- 1995 1996 1997 1997 1998 ------ ------ ------ -------- -------- INCOME STATEMENT DATA: Net sales.................. 100.0 % 100.0 % 100.0% 100.0 % 100.0% ------ ------ ------ -------- -------- Cost of sales and expenses: Cost of sales............ 30.0 30.3 28.7 29.2 28.2 Operating expenses....... 49.9 48.9 50.3 50.0 50.3 General and administrative expenses................ 5.7 5.2 5.2 5.2 5.1 Deferred rent, depreciation and amortization............ 5.3 5.2 4.8 5.3 4.4 Taxes other than income.. 4.8 4.6 4.7 4.9 4.6 ------ ------ ------ -------- -------- Total cost of sales and expenses.............. 95.7 94.2 93.7 94.5 92.7 ------ ------ ------ -------- -------- Income from operations............ 4.3 5.8 6.3 5.5 7.3 ------ ------ ------ -------- -------- Interest expense, net...... 0.8 1.5 2.4 1.6 4.1 Income before income tax expense................. 3.5 4.3 3.9 3.9 3.1 Income tax expense......... 1.2 1.5 1.3 1.4 1.1 ------ ------ ------ -------- -------- Net income............... 2.3 % 2.8 % 2.6% 2.5% 2.1% ====== ====== ====== ======== ======== RESTAURANT OPERATING DATA (DOLLARS IN THOUSANDS): Average annual sales per restaurant................ $2,589 $2,518 $2,614 $ 2,521 (a) $ 2,744(a) Comparable restaurant sales..................... (1.6)% (0.4)% 2.7% 0.5% 7.0% Number of restaurants: Restaurants open at beginning of period..... 19 26 30 30 32 Restaurants opened..... 7 4 2 1 1 Restaurants closed..... 0 0 0 0 0 ------ ------ ------ -------- -------- Total restaurants open at end of period............. 26 30 32 31 33 ====== ====== ====== ======== ========
- -------- (a) Average sales per restaurant for the fiscal six months have been annualized to reflect a full year of operations, but are not necessarily indicative of results for a full year. SIX MONTHS ENDED JUNE 30, 1998 COMPARED TO SIX MONTHS ENDED JUNE 30, 1997 Net Sales. Net sales increased by $6.2 million, or 15.9%, to $45.0 million during the first fiscal six months 1998 from $38.9 million during the first half of 1997. The increase was primarily due to the opening of two Chili's restaurants during fiscal 1997 and one On The Border restaurant during March 1998, combined with a comparable restaurant sales increase of 7.0% for the first six months of 1998. Annualized average sales per restaurant increased by 8.8% to $2.7 million during the first half of 1998 as compared to $2.5 million during the first half of 1997. The increases in comparable restaurant sales and annualized average sales per restaurant reflected an increase in menu prices by an average of 0.5% in March 1997 and 1.0% in July 1997, as well as an increase in guest counts resulting from improved advertising and operations in the restaurants during the first two fiscal quarters of 1998 as compared to the first two fiscal quarters of 1997. Cost of Sales. Cost of sales increased by $1.4 million, or 12.2%, to $12.7 million during the first six months of 1998 from $11.3 million during the first half of 1997. Expressed as a percentage of net sales, cost of sales decreased to 28.2% during the first half of 1998 from 29.2% during the first two quarters of 1997. The decrease was primarily attributable to reduced pricing from a new broadline food supplier combined with a more efficient, automated ordering system implemented during the fourth fiscal quarter 1997. 44 Operating Expenses. Operating expenses increased by $3.2 million, or 16.6%, to $22.7 million during the first six months of 1998 from $9.4 million during the first half of 1997. Expressed as a percentage of net sales, operating expenses increased to 50.3% during the first six months of 1998 from 50.0% during the first two quarters of 1997. The increase was primarily due to increased advertising expenditures during the first fiscal quarter 1998 as compared to the first fiscal quarter 1997. General and Administrative Expenses. General and administrative expenses increased by $0.3 million, or 14.2%, to $2.3 million during the first two fiscal quarters of 1998 from $2.0 million during the first two fiscal quarters of 1997. Expressed as a percentage of sales, general and administrative expenses decreased to 5.1% during the first half of 1998 from 5.2% during the first half of 1997. The decrease was attributable to an increase in net sales, combined with relatively flat general and administrative expenses, during 1998 as compared to 1997. Deferred Rent, Depreciation and Amortization. Deferred rent, depreciation and amortization expenses were $2.0 million during the first six months of 1998 and $2.1 million during the first fiscal six months 1997. Taxes Other than Income Taxes. Taxes, other than income taxes increased by $0.2 million, or 10.2%, to $2.1 million during the first two fiscal quarters of 1998 from $1.9 million for the first two fiscal quarters of 1997. Expressed as a percentage of net sales, taxes, other than income taxes, decreased to 4.6% during the first two fiscal quarters of 1998 from 4.9% for the first two fiscal quarters of 1997. The improvement was primarily due to decreases in state unemployment tax rates for fiscal year 1998. Interest Expense. Interest expense increased by $1.3 million to $1.9 million during the first half of 1998 from $0.6 million during the first half of 1997. The increase was primarily due to approximately $1.2 million of interest expense on approximately $24.3 million aggregate principal amount of borrowings under the FFCA Loan during the third fiscal quarter 1997 as discussed below under "Liquidity and Capital Resources." Income Taxes. The effective income tax rate decreased to 33.4% during the first six months of 1998 from 35.5% during the first six months of 1997 due to a higher FICA credit as a result of increased payroll in the first half of 1998 in comparison to the first half of 1997. YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996 Net Sales. Net sales increased by $11.3 million, or 16.1%, to $81.4 million during fiscal 1997 from $70.1 million during fiscal 1996. The increase in net sales was primarily attributable to the opening of two Chili's restaurants during fiscal 1997 and the full year impact of three Chili's and one On The Border restaurant opened during fiscal 1996. Comparable restaurant sales for locations opened prior to 1996 increased 2.7% in fiscal 1997 as compared to fiscal 1996. Average sales per restaurant increased 4.0% to $2.6 million during fiscal 1997 from $2.5 million during fiscal 1996. The increases in comparable restaurant sales and average sales per restaurant reflected an increase in menu prices by an average of 0.5% in March 1997 and another 1.0% in July 1997, as well as an increase in guest counts resulting from improved advertising and operations in the restaurants. Cost of Sales. Cost of sales increased by $2.2 million, or 10.3%, to $23.4 million during fiscal 1997 from $21.2 million during fiscal 1996. Expressed as a percentage of net sales, cost of sales decreased to 28.7% during fiscal 1997 from 30.2% during fiscal 1996. The decrease was primarily attributable to reduced pricing from a new broadline food supplier combined with a more efficient, automated ordering system implemented during the fourth fiscal quarter 1997. Operating Expenses. Operating expenses increased by $6.6 million, or 19.2%, to $40.9 million during fiscal 1997 from $34.3 million during fiscal 1996. Expressed as a percentage of net sales, operating expenses increased to 50.3% during fiscal 1997 from 48.9% during fiscal 1996. The increase was primarily due to increased advertising expenditures and increased payroll costs as a result of federal minimum wage increases during fiscal 1997. 45 General and Administrative Expenses. General and administrative expenses increased by $0.5 million, or 13.5%, to $4.2 million during fiscal 1997 from $3.7 million during fiscal 1996. As a percentage of net sales, general and administrative expenses were 5.2% of net sales in both years. Deferred Rent, Depreciation and Amortization. Deferred rent, depreciation and amortization expenses increased by $0.2 million, or 5.4%, to $3.9 million during fiscal 1997 from $3.7 million during fiscal 1996. Expressed as a percentage of sales, deferred rent, depreciation and amortization decreased to 4.8% during fiscal 1997 from 5.2% during fiscal 1996. Amortization expense was impacted because of a reduction in amortization costs associated with new restaurant openings as fewer restaurants were opened during fiscal 1997 than during fiscal 1996. Taxes Other than Income Taxes. Taxes, other than income taxes increased by $0.6 million, or 18.8%, to $3.8 million during fiscal 1997 from $3.2 million during fiscal 1996. Expressed as a percentage of net sales, taxes other than income taxes, increased to 4.7% during fiscal 1997 from 4.6% during fiscal 1996. The increase was primarily due to higher payroll taxes resulting from increased payroll costs associated with minimum wage increases enacted during fiscal 1997. Interest Expense. Interest expense increased by $0.8 million to $1.9 million during fiscal 1997 from $1.1 million during fiscal 1996. The increase was primarily attributable to borrowings under the FFCA Loan during fiscal 1997 as discussed below under "--Liquidity and Capital Resources." Income Taxes. The effective income tax rate decreased to 34.0% during fiscal 1997 from 34.8% during fiscal 1996. YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995 Net Sales. Net sales increased by $9.8 million, or 16.3%, to $70.1 million during fiscal 1996, from $60.3 million during fiscal 1995. The increase in net sales was primarily attributable to the opening of four new Chili's restaurants during fiscal 1996 and the full year impact of seven new Chili's restaurants opened during fiscal 1995. Comparable restaurant sales for locations opened prior to 1995 decreased by 0.4% during fiscal 1996. Average sales per restaurant decreased slightly to $2.5 million during fiscal year 1996 from $2.6 million during fiscal 1995. The decreases in comparable restaurant sales and average sales per restaurant were primarily due to the combined effect of opening four Chili's restaurants, reduced advertising expenditures and new competing entrants in the markets in which the Company operated restaurants during fiscal 1996. Cost of Sales. Cost of sales increased by $3.1 million, or 17.1%, to $21.2 million during fiscal 1996 from $18.1 million during fiscal 1995. Expressed as a percentage of net sales, cost of sales increased to 30.2% during fiscal 1996 from 30.0% during fiscal 1995. This increase was primarily due to changes in menu strategies by the Franchisor that resulted in increased portion sizes. Operating Expenses. Operating expenses increased by $4.2 million, or 14.0%, to $34.3 million during fiscal 1996 from $30.1 million during fiscal 1995. Expressed as a percentage of net sales, operating expenses decreased to 48.9% during fiscal 1996 from 49.9% during fiscal 1995. The decrease was primarily due to reductions in renewal premiums for worker's compensation coverage and employee health insurance combined with a reduction in advertising expenditures during fiscal 1996. General and Administrative Expenses. General and administrative expenses increased by $0.3 million, or 8.8%, to $3.7 million during fiscal 1996 from $3.4 million during fiscal 1995. Expressed as a percentage of net sales, general and administrative expenses decreased to 5.2% during fiscal 1996 from 5.7% during fiscal 1995. This decrease was primarily attributable to the spreading of fixed costs over a larger sales base during fiscal 1996 as compared to fiscal 1995. Deferred Rent, Depreciation and Amortization. Deferred rent, depreciation and amortization expenses increased by $0.5 million, or 15.6%, to $3.7 million during fiscal 1996 from $3.2 million during fiscal 1995. 46 Expressed as a percentage of net sales, deferred rent, depreciation and amortization decreased to 5.2% during fiscal 1996 from 5.3% during fiscal 1995. Taxes Other than Income Taxes. Taxes, other than income taxes, increased by $0.3 million, or 10.3%, to $3.2 million during fiscal 1996 from $2.9 million during fiscal 1995. Expressed as a percentage of net sales, taxes, other than income taxes, decreased to 4.6% during fiscal 1996 from 4.8% during fiscal 1995. Interest Expense. Interest expense increased by $0.6 million to $1.1 million, during fiscal 1996 from $0.5 million during fiscal 1995. The increase was primarily due to increases in bank borrowings due to restaurant expansion during fiscal 1995 and fiscal 1996. Income Taxes. The effective income tax rate increased to 34.8% during fiscal 1996 from 33.0% during fiscal 1995. LIQUIDITY AND CAPITAL RESOURCES The Company has historically met its capital expenditures and working capital needs through a combination of operating cash flow, borrowings under the FFCA Loans and borrowings under the Company Bank Facility. Net cash flows from operating activities were $3.3 million for the six months ended June 30, 1998 as compared to $2.3 million for the six months ended June 30, 1997. This increase was primarily due to a decrease in working capital needs for new restaurant locations. Net cash flows from operating activities increased to $8.4 million for fiscal 1997 from $5.7 million for fiscal 1996. The Company's capital expenditures were $10.4 million, $7.9 million and $4.5 million for fiscal 1995, 1996 and 1997, respectively. In fiscal 1997, capital expenditures for routine maintenance and repair of the Company's restaurants were approximately $2.8 million. Under its Area Development Agreements, the Company is required to open at least two Chili's and two On The Border restaurants in each of 1998 and 1999. Based on its current estimates, the Company would be required to expend approximately $7.8 million in each of fiscal 1998 and fiscal 1999 to meet its minimum development requirements. The Company currently expects to exceed these minimum requirements by opening a total of three Chili's and three On The Border restaurants (one of which it has already opened) in fiscal 1998, requiring capital expenditures of approximately $11.7 million, and six Chili's and six On The Border restaurants in fiscal 1999, requiring capital expenditures of approximately $23.4 million. In addition, the Company expects to open three new Bertucci's restaurants during the remainder of fiscal 1998, requiring capital expenditures of approximately $3.9 million, and six new Bertucci's restaurants in fiscal 1999, requiring capital expenditures of approximately $7.8 million. The Company believes that it will have sufficient working capital and bank borrowing availability to finance its expansion plans for the foreseeable future. In August 1997, the Company paid a dividend and return of capital distribution to shareholders of approximately $16.7 million from additional paid-in capital, with the excess payout being charged to retained earnings. In addition, as part of such transaction, the Company repurchased a portion of its capital stock, for an aggregate amount of approximately $8.3 million. The Company's repurchase of shares of common stock was recorded as treasury stock, at cost, and resulted in a reduction of shareholders' equity. These payments were funded through the use of proceeds from the FFCA Loan. The Company incurred a significant amount of indebtedness in connection with the Transactions. As of the end of the First Six Months 1998, after giving pro forma effect to the Transactions, the Company would have had approximately $124.0 million of consolidated indebtedness, including $100.0 million of indebtedness pursuant to the Notes, $23.8 million of borrowings under the FFCA Loans and $0.3 million of capital lease obligations. Significant liquidity demands will arise from debt service on the Notes, the FFCA Loans and borrowings under the Senior Bank Facility. In addition to its debt service obligations, the Company will require liquidity for capital expenditures, lease obligations and general working capital needs. 47 The Company believes that the cash flow generated from its operations, together with available borrowings under the Senior Bank Facility and under the FFCA Loans and similar secured indebtedness, should be sufficient to fund its debt service requirements, lease obligations, working capital needs, current expected capital expenditures and other operating expenses for the foreseeable future. The Senior Bank Facility provides the Company with available borrowings up to an aggregate amount of $20.0 million. On a pro forma basis, as of the end of the First Six Months 1998, approximately $20.0 million would have been available. The Company's future operating performance and ability to service or refinance the Notes, the FFCA Loans and the Senior Bank Facility will be subject to future economic conditions and to financial, business and other factors, many of which are beyond the Company's control. IMPACT OF INFLATION Inflationary factors such as increases in labor, food or other operating costs could adversely affect the Company's operations. The Company does not believe that inflation has had a material impact on its financial position or results of operations for the periods discussed above. Management believes that through the proper leveraging of purchasing size, labor scheduling, and restaurant development analysis, inflation will not have a material adverse effect on income during the foreseeable future. There can be no assurance that inflation will not materially adversely affect the Company. SEASONALITY The Company's quarterly results of operations have fluctuated and are expected to continue to fluctuate depending on a variety of factors, including the timing of new restaurant openings and related pre-opening and other startup expenses, net sales contributed by new restaurants, increases or decreases in comparable restaurant sales, competition and overall economic conditions. The Company's business is also subject to seasonal influences of consumer spending, dining out patterns and weather. As is the case with many restaurant companies, the Company typically experiences lower net sales and net income during the first and fourth fiscal quarters. Because of these fluctuations in net sales and net income (loss), the results of operations of any quarter are not necessarily indicative of the results that may be achieved for a full fiscal year or any future quarter. YEAR 2000 IMPACT Many currently installed computer systems and software products are coded to accept only two digit entries in the date code field. Beginning in the year 2000, these date code fields will need to accept four digit entries to distinguish twenty-first century dates from twentieth century dates. As a result, within the next two years, computer systems and/or software used by many companies may need to be upgraded to comply with such "Year 2000" requirements. The Company is currently assessing the potential impact of Year 2000 on the processing of data-sensitive information by the Company's automated information and point-of-sale systems and Bertucci's computerized information systems. While there can be no assurance that Year 2000 matters will be satisfactorily identified and resolved, the Company currently believes, based on preliminary discussions with its and Bertucci's information systems vendors, that Year 2000 issues will not have a material adverse effect on the Company. NEW ACCOUNTING PRONOUNCEMENTS In April 1998, the American Institute of Certified Public Accountants issued its Statement of Position 98-5 ("SOP 98-5"), Reporting on the Costs of Start- Up Activities. SOP 98-5 requires that costs incurred during start-up activities, including organization costs, be expensed as incurred. SOP 98-5 is effective for financial statements for fiscal years beginning after December 15, 1998, although early application is encouraged. Initial application of SOP 98-5 should be as of the beginning of the fiscal year in which it is first adopted and should be reported as a cumulative effect of a change in accounting principle. The Company currently intends to adopt SOP 98-5 on January 1, 1999. Upon adoption, the Company estimates it will incur a cumulative effect of a change in accounting principle that will range from $0.3 million to $1.0 million. This estimate primarily includes unamortized pre-opening costs which were previously amortized over the 12-month period following the opening of a restaurant. 48 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF BERTUCCI'S GENERAL Prior to the Acquisition, Bertucci's operated a chain of 87 full-service, Italian restaurants in the northeastern and Mid-Atlantic United States and the Chicago, Illinois and Atlanta, Georgia metropolitan areas as well as one Sal and Vinnie's steakhouse in Massachusetts. Bertucci's menu features original- recipe gourmet pizza, prepared in brick ovens, and other high quality, moderately priced Italian food. Prior to the Acquisition, Bifurcated's net sales consisted of food, beverage and liquor sales. Food sales accounted for the majority of the revenues generated at Bertucci's restaurants, or approximately 90% in Bertucci's fiscal 1997, with sales of alcoholic beverages accounting for approximately 9%, and with non-alcoholic beverages accounting for the balance. Cost of sales primarily consisted of food, beverage and alcohol costs. Operating expenses consisted of four primary categories: (i) labor costs; (ii) restaurant operating costs; (iii) facility costs; and (iv) other office expenses. Labor costs included direct labor and associated taxes and benefits, as well as restaurant management payroll, bonuses, taxes and benefits. Restaurant operating costs included other expenses incurred in the daily operation of the restaurant including smallwares, wood, and cleaning supplies. Facility costs included utilities, repairs and maintenance and trash removal. General and administrative expenses included costs associated with those departments that assist in restaurant operations and management of the business, including accounting, management information systems, purchasing and construction. The following table sets forth the percentage relationship to net sales, unless otherwise indicated, of certain items included in Bertucci's income statement, as well as certain operating data, for the periods indicated:
SIX MONTHS FISCAL YEARS ENDED ENDED -------------------------------------- --------------------- DECEMBER 30, DECEMBER 28, DECEMBER 27, JULY 12, JULY 11, 1995 1996 1997 1997 1998 (52 WEEKS) (52 WEEKS) (52 WEEKS) (28 WEEKS) (28 WEEKS) ------------ ------------ ------------ ---------- ---------- INCOME STATEMENT DATA: Net sales............... 100.0 % 100.0% 100.0% 100.0% 100.0% ----- ----- ----- ----- ----- Cost and expenses: Cost of sales......... 25.8 25.4 24.9 24.9 24.8 Operating expenses.... 50.4 51.5 52.4 52.5 52.7 General and administrative expenses............. 6.9 6.0 6.5 6.0 6.8 Depreciation and amortization......... 7.6 6.9 6.3 6.6 6.3 Taxes other than income............... 5.2 5.2 5.1 5.3 5.2 Restaurant closing expense.............. 4.4 -- -- -- -- ----- ----- ----- ----- ----- Total costs and expenses........... 100.3 95.0 95.2 95.3 95.8 ----- ----- ----- ----- ----- Operating income (loss)............. (0.3) 5.0 4.8 4.7 4.2 Interest expense, net... 1.0 1.0 0.8 0.8 0.6 Interest income......... -- -- -- -- -- ----- ----- ----- ----- ----- Income (loss) before income tax expense (benefit)............ (1.3) 4.0 4.0 3.9 3.6 Income tax expense (ben- efit).................. (0.6) 1.5 1.5 1.4 1.3 ----- ----- ----- ----- ----- Net income (loss)... (0.7)% 2.5% 2.5% 2.5% 2.3% ===== ===== ===== ===== =====
49
SIX MONTHS FISCAL YEARS ENDED ENDED -------------------------------------- --------------------- DECEMBER 30, DECEMBER 28, DECEMBER 27, JULY 12, JULY 11, 1995 1996 1997 1997 1998 (52 WEEKS) (52 WEEKS) (52 WEEKS) (28 WEEKS) (28 WEEKS) ------------ ------------ ------------ ---------- ---------- RESTAURANT OPERATING DATA (DOLLARS IN THOUSANDS): Average sales per restaurant open for full period............ $1,673 $1,671 $1,712 $1,654 $1,691 Percentage change in average sales per restaurant open for full period............ (8.4)% (0.1)% 2.5% (2.4)% 2.2% Percentage change in comparable restaurant sales.................. (2.0)% 1.0 % 2.5% 0.8 % 2.5% Number of restaurants: Restaurants open at beginning of period.. 67 76 80 80 85 Restaurants opened.. 9 7 5 1 3 Restaurants closed.. -- (3) -- -- -- ------ ------ ------ ------ ------ Total restaurants open at end of period....... 76 80 85 81 88 ====== ====== ====== ====== ======
TWENTY-EIGHT WEEKS ENDED JULY 11, 1998 COMPARED TO TWENTY-EIGHT WEEKS ENDED JULY 12, 1997 Net Sales. Net sales increased $6.5 million, or 9.0%, to $78.5 million for the twenty-eight week period ended July 11, 1998, compared to $72.0 million for the same period in 1997. New restaurants opened in 1997 and 1998 primarily contributed to the increase. Comparative restaurant sales during the twenty- eight week period ended July 11, 1998 were positive by 2.5%. Cost of Sales. Cost of sales, primarily food and beverages, increased from $17.9 million in the twenty-eight weeks ended July 12, 1997, to $19.5 million in the corresponding 1998 period, and decreased as a percentage of net sales, from 24.9% to 24.8% for the twenty-eight week periods in 1997 and 1998. The percentage decrease came from better buying opportunities and better efficiency at the operations level. Operating Expenses. Restaurant operating expenses for the twenty-eight-week period increased from $37.8 million in Bertucci's fiscal 1997, to $41.3 million in fiscal year 1998. As a percentage of net sales, operating expenses increased from 52.5% during the twenty-eight weeks ended July 12, 1997, to 52.7% during the corresponding period in 1998. The increase was the result of higher payroll costs offsetting lower advertising costs. General and Administrative Expenses. General and administrative expenses, as a percentage of net sales, increased from 6.0% in 1997, to 6.8% in 1998. This increase was due to higher costs associated with opening new restaurants and recruiting and training managers for existing restaurants. Depreciation and Amortization. Depreciation and amortization expense, as a percentage of net sales, decreased from 6.6% in the 1997 twenty-eight week period, to 6.3% in the 1998 twenty-eight-week period. This decrease was attributable to the amortization expense on fewer new restaurants. Taxes Other than Income Taxes. Taxes other than income increased from $3.8 million during the twenty-eight weeks ended July 12, 1997, to $4.1 million in the corresponding 1998 period, and decreased, as a percentage of net sales, from 5.3% in 1997 to 5.2% in 1998. Interest Expense. Interest expense decreased from $621,000 to $482,000 for the corresponding twenty-eight week periods of 1997 and 1998, respectively. This decrease was attributable to the lower amount of bank borrowings in the 1998 twenty-eight-week period. 50 Income Taxes. The effective income tax rate decreased from 36.5% for the twenty-eight weeks ended July 12, 1997, to 35.3% for the corresponding period ending July 11, 1998. YEAR ENDED DECEMBER 27, 1997 COMPARED TO YEAR ENDED DECEMBER 28, 1996 Net Sales. Net sales increased by $8.7 million, or 6.8%, to $136.7 million in Bertucci's fiscal 1997, from $128.0 million in Bertucci's fiscal 1996. Most of the increase was attributed to five new restaurants that opened in Bertucci's fiscal 1997 and seven new restaurants that were opened in Bertucci's fiscal 1996. Comparable restaurant sales for locations opened prior to 1996 increased 2.5% from Bertucci's fiscal 1996 to Bertucci's fiscal 1997. Menu price increases averaged about 1.9% during the periods under comparison. Average sales per restaurant open for both periods increased 2.5% to $1.71 million, from $1.67 million the previous year. Cost of Sales. Cost of sales, primarily food and beverages, increased from $32.5 million in Bertucci's fiscal 1996 to $34.1 million in Bertucci's fiscal 1997 and decreased as a percentage of revenues from 25.4% in Bertucci's fiscal 1996 to 24.9% in Bertucci's fiscal 1997. The decrease was the result of lower costs paid for cheese, chicken and flour. Operating Expenses. Operating expenses increased from $66.0 million in Bertucci's fiscal 1996 to $71.7 million in Bertucci's fiscal 1997 and increased as a percentage of sales from 51.5% in Bertucci's fiscal 1996 to 52.4% in Bertucci's fiscal 1997. The increase was attributable to increases in payroll and advertising costs over Bertucci's fiscal 1996. General and Administrative Expenses. General and administrative expenses increased from $7.7 million in Bertucci's fiscal 1996 to $8.8 million in Bertucci's fiscal 1997 and increased as a percentage of sales from 6.0% in Bertucci's fiscal 1996 to 6.5% in Bertucci's fiscal 1997. The increase primarily came from higher payroll, training and recruitment costs. Depreciation and Amortization. Depreciation and amortization expense decreased from $8.8 million in Bertucci's fiscal 1996 to $8.6 million in Bertucci's fiscal 1997, a decrease, as a percentage of sales, from 6.9% in 1996 to 6.3% in 1997. This decrease was attributable to a reduction in amortization costs on new restaurant openings. Taxes Other than Income Taxes. Taxes, other than income taxes, increased from $6.6 million in Bertucci's fiscal 1996 to $7.0 million in Bertucci's fiscal 1997 and decreased as a percentage of net sales from 5.2% to 5.1% in Bertucci's fiscal 1997. Interest Expense. Interest expense decreased from $1.3 million in Bertucci's fiscal 1996 to $1.0 million in Bertucci's fiscal 1997. The decrease came from the lower amount of bank borrowings during Bertucci's fiscal 1997. Income Taxes. The effective income tax rate decreased from 37.5% for Bertucci's fiscal 1996 to 36.4% for Bertucci's fiscal 1997. FISCAL YEAR 1996 VERSUS FISCAL YEAR 1995 Net Sales. Net sales increased $7.8 million, or 6.5%, to $128.0 million in Bertucci's fiscal 1996, from $120.3 million in Bertucci's fiscal 1995. Most of the increase was attributed to seven new restaurants that were opened in Bertucci's fiscal 1996 and nine new restaurants that were opened in Bertucci's fiscal 1995. Comparable restaurant sales increased 1.0% for the fifty-two week period. Menu price increases averaged about 2.2% during the periods under comparison. Average sales per restaurant open for the full period remained at $1.67 million for Bertucci's fiscal 1996. Cost of Sales. Cost of sales, primarily food and beverages, increased from $31.1 million in Bertucci's fiscal 1995 to $32.5 million in Bertucci's fiscal 1996 and decreased as a percentage of revenues from 25.8% in 51 Bertucci's fiscal 1995 to 25.4% in Bertucci's fiscal 1996. Through more efficient operations and pricing, Bertucci's was able to control the higher costs of flour, cheese and chicken during Bertucci's fiscal 1996. Operating Expenses. Operating expenses increased from $60.7 million in Bertucci's fiscal 1995 to $66.0 million in Bertucci's fiscal 1996 and increased as a percentage of sales from 50.4% in Bertucci's fiscal 1995 to 51.5% in Bertucci's fiscal 1996. The increase was the result of a $1.2 million increase in advertising costs during Bertucci's fiscal 1996. Labor costs increased slightly, but were offset by lower costs for insurance. General and Administrative Expenses. General and administrative expenses decreased from $8.2 million in Bertucci's fiscal 1995 to $7.7 million in Bertucci's fiscal 1996 and decreased as a percentage of sales from 6.9% in Bertucci's fiscal 1995 to 6.0% in Bertucci's fiscal 1996. This decrease was the result of attrition at the corporate level, reduction in training costs associated with new restaurant openings and a reduction of in-house marketing costs. Depreciation and Amortization. Depreciation and amortization expense was $9.1 million in Bertucci's fiscal 1995 and $8.8 million in Bertucci's fiscal 1996, a decrease, as a percentage of net sales, from 7.6% in Bertucci's fiscal 1995 to 6.9% in Bertucci's fiscal 1996. This decrease was attributable to a reduction in amortization costs on new restaurant openings. Taxes Other than Income Taxes. Taxes, other than income taxes, increased from $6.3 million in Bertucci's fiscal 1995 to $6.6 million in Bertucci's fiscal 1996 and were 5.2% of net sales for both the 1995 and 1996 periods. Restaurant-Closing Expenses. Restaurant-closing expenses of $5.3 million in Bertucci's fiscal 1995 were associated with the closing of three restaurants, which occurred at the close of business on February 22, 1996. The expense consisted of $3.8 million for the disposal of fixed assets, $1.0 million for the liabilities associated with the termination of leases and $500,000 for legal and other related closing costs. At December 28, 1996, $45,000 of this reserve remained. This reserve was adequate to cover any remaining costs associated with the three restaurant closings. Interest Expense. Interest expense remained constant at $1.3 million for each of Bertucci's fiscal 1995 and Bertucci's fiscal 1996. Income Taxes. For Bertucci's fiscal 1995, Bertucci's incurred a tax benefit of $745,000 due to the closing of the three restaurants. The effective income tax rate for Bertucci's fiscal 1996 was 37.5%. LIQUIDITY AND CAPITAL RESOURCES Prior to the Acquisition, Bertucci's financed its expansion from operations, bank borrowings and the private placement and public offering of equity securities. Following the Acquisition, Bertucci's sources of capital are the same as the Company's. See "Management's Discussion and Analysis of Financial Condition and Results of Operations of the Company--Liquidity and Capital Resources." During Bertucci's fiscal 1995, 1996 and 1997, Bertucci's investment in property and equipment was $14.3 million, $9.5 million and $8.0 million, respectively. The investments were funded with cash provided by operations and with the proceeds of financing activities. During Bertucci's fiscal 1995, 1996 and 1997, Bertucci's generated net cash, from continuing operations, of $10.7 million, $14.1 million and $14.7 million, respectively. During Bertucci's fiscal 1995, 1996 and 1997, Bertucci's received cash from financing activities of $5.5 million, $(0.8) million and $(4.6) million, respectively. During the twenty-eight weeks ended July 12, 1997 and July 11, 1998, Bertucci's investment in property and equipment was $2.2 million and $2.3 million, respectively. The investments were funded with cash provided by operations and with the proceeds of financing activities. During the twenty-eight weeks ended July 12, 1997, and July 11, 1998, Bertucci's generated net cash, from continuing operations, of $3.8 million and $2.0 million, respectively. 52 Pursuant to the terms of the Merger Agreement, Bertucci's paid Ten Ideas Acquisition Corp. a fee of $1.5 million and up to $750,000 as reimbursement for certain expenses in connection with Bertucci's termination of the Going Private Transaction (as defined herein). IMPACT OF INFLATION The impact of inflation on food, labor and occupancy costs can affect Bertucci's operations significantly. Many of Bertucci's employees are paid hourly rates related to the federal minimum wage, which was increased in Bertucci's fiscal 1997. Food costs were essentially stable during Bertucci's fiscal 1997. Building costs, taxes, maintenance and insurance costs all have an impact on Bertucci's occupancy costs, which continued to increase during Bertucci's fiscal 1997. The Company believes that Bertucci's current practice of maintaining adequate operating margins through a combination of menu price- increases and cost-controls, careful evaluation of property and equipment needs and efficient purchasing practices will be Bertucci's most effective tool for coping with inflation. SEASONALITY Bertucci's results of operations have not been materially affected by seasonality. 53 BUSINESS OVERVIEW The Company is a leading operator of full-service, casual dining restaurants in New England. The Company develops and operates two distinct restaurant franchises, Chili's and On The Border restaurants, under franchise agreements with Brinker, together with a proprietary restaurant concept under the name Bertucci's Brick Oven Pizzeria.(R) The Company is the largest Chili's franchisee and has received numerous awards from the Franchisor, including being named Chili's "Franchisee of the Year" and "Developer of the Year." As of July 31, 1998, the Company operated 31 Chili's and two On The Border restaurants in five New England states. The Company is the successor to a series of limited partnerships formed in 1991 to acquire 15 Chili's restaurants from a prior franchisee. Upon its acquisition of the 15 Chili's restaurants in 1991, the Company recruited a new management team and undertook a series of steps to enhance operations, including reducing administrative overhead, coordinating a new advertising campaign, introducing new menu items, renovating restaurant facilities, installing new information systems and improving purchasing decisions. The Company has increased the average sales per restaurant of its Chili's restaurants from approximately $1.8 million for Fiscal 1991, the final year of ownership by the prior franchisee, to $2.5 million for fiscal 1997. In addition, since 1991, the Company has grown through the addition of 16 new Chili's and two On The Border restaurants in the New England market. The Company also has increased overall net sales and EBITDA from approximately $27.5 million and $0.3 million, respectively, for Fiscal 1991 to $81.4 million and $9.0 million, respectively, for fiscal 1997. In July 1998, the Company completed its acquisition of Bertucci's, a publicly-owned restaurant company. As of July 31, 1998, Bertucci's owned and operated 87 full-service, casual dining, Italian-style restaurants under the name Bertucci's Brick Oven Pizzeria(R) located primarily in the northeastern and Mid-Atlantic United States and one Sal and Vinnie's steakhouse located in Massachusetts. Management believes that Bertucci's is a proven value-based concept with strong brand recognition and that the Acquisition will strengthen the Company's position as a leading operator of casual dining restaurants in the northeastern United States. As a result of the Acquisition, the Company offers its targeted customer base three distinct yet complementary casual dining menus--"American/southwestern" at Chili's, "Tex-Mex" at On The Border and Italian at Bertucci's. In addition, management expects to realize cost savings from the Acquisition primarily due to headcount reductions and, to a lesser extent, reduced administrative and overhead expenses, improved purchasing practices and greater economies of scale. After giving pro forma effect to the Transactions, for the Last Twelve Months, the Company had net sales of $230.8 million and Adjusted EBITDA of $27.8 million. CONCEPTS The Company's restaurants are full-service restaurants, featuring substantial portions of a variety of high quality foods at moderate prices accompanied by quick, efficient and friendly table service. The Company's restaurants are all casual dining concepts which are intended to fill a market niche between the fine-dining and fast-food segments of the restaurant industry. These restaurants are designed to appeal to a broad customer base of adults and families with children. Chili's. Chili's restaurants feature a variety of "All-American" foods with a southwestern emphasis. The Chili's concept was initiated in 1975 with the opening of the first Chili's restaurant in Dallas, Texas. As of July 31, 1998, the Chili's restaurant system in the United States consisted of 530 restaurants in 46 states, of which 411 were Franchisor-owned and 119 were franchised. During 1997, system-wide revenues from Chili's restaurants in the United States were approximately $1.2 billion. The Company holds the exclusive rights to operate up to an aggregate of 55 Chili's restaurants (including the 31 it currently operates) in all six New England states and in Westchester County, New York. On The Border. On The Border restaurants feature a Tex-Mex menu served in a distinctive dining atmosphere reminiscent of a Mexican cantina. The On The Border concept was initiated in 1982 with the opening 54 of the first On The Border restaurant in Dallas, Texas. As of July 31, 1998, the On The Border restaurant system in the United States consisted of 62 restaurants in 19 states, of which 49 were Franchisor-owned and 13 were franchised. The Company holds the exclusive rights to operate up to an aggregate of 31 On The Border restaurants (including the two it currently operates) in all six New England states and in Westchester County and upstate New York. Bertucci's. Bertucci's restaurants feature Italian-style entrees made from original recipes, including gourmet pizza and specialty pasta dishes. Bertucci's endeavors to differentiate itself from other pizzerias by offering a variety of freshly prepared foods using high-quality ingredients and brick- oven baking techniques. Bertucci's also seeks to distinguish itself with its contemporary European-style, open-kitchen design. The first Bertucci's was opened in Somerville, Massachusetts in 1981. As a proprietary concept, Bertucci's will provide the Company with significant flexibility to execute the concept as the Company may best determine. COMPETITIVE STRENGTHS Proven Restaurant Concepts. The Chili's, On The Border and Bertucci's concepts have been in existence for 23, 16 and 17 years, respectively. Management believes that Chili's, with its high quality American/southwestern menu, On The Border, with its distinctive Tex-Mex menu, and Bertucci's, with its gourmet brick-oven pizza, have each proven popular with consumers over time. Management believes that the reputation of these restaurants for offering a distinctive selection of moderately priced, high quality food, combined with a high level of customer service, has created valuable operations with strong brand name recognition and customer loyalty. To maintain its strong brand awareness and promote its restaurants, the Company: (i) clusters restaurant locations; (ii) seeks to ensure an enjoyable guest experience; and (iii) implements strategic marketing and advertising initiatives. Innovative Operator. The Company has developed and implemented several strategies to enhance operations of the Chili's concept including: (i) tailoring the national menu with innovative and regional specialties such as "boneless buffalo wings," "fish & chips" and New England clam chowder; (ii) initiating a comprehensive management training program, elements of which have been adopted by the Franchisor; (iii) redesigning the restaurant facility from the standard Chili's prototype to a more efficient model, elements of which the Franchisor has begun to incorporate into its own restaurants; (iv) formulating media strategies and developing its own creative material to supplement advertising materials supplied by the Franchisor; and (v) implementing sophisticated management information systems, components of which have been incorporated by the Franchisor. The Company has received numerous awards from the Franchisor, including being named Chili's "Franchisee of the Year" and "Developer of the Year." In addition, the Company participates in the Franchisor's franchisee advisory council. Clustered Restaurant Locations. The Company believes that its strategy of building a critical mass of restaurants in specific cities in the New England market has enabled it to quickly respond to the needs of its guests, employees and markets. Clustering restaurant locations allows the Company to realize certain benefits including: (i) improved purchasing power; (ii) marketing efficiencies; and (iii) increased knowledge of the Company's customers, markets and future site locations. The Company believes that the Acquisition should yield further operational efficiencies as a substantial number of Bertucci's restaurants are located in the same markets as the Company's existing Chili's restaurants. Commitment to Personnel Training. The Company believes that an essential aspect of its continued success is the training of its personnel. The Company requires all of its Chili's and On The Border general and restaurant managers to complete a comprehensive 13-week management training program developed by the Company. The program instructs management trainees in detailed, concept specific food preparation standards and procedures as well as administrative and human resource functions. The Company also requires each of its non- management employees to undergo extensive training administered by the managers. Each of these levels of training is designed to increase product quality, improve operational safety, increase overall productivity and guest satisfaction and promote the concept of "continuous improvement." Management expects to enhance the 55 Bertucci's training program by increasing its length from eight to 13 weeks and centralizing administration of the program from its current regional administration. Management Structure and Experience. The Company believes that one of its greatest strengths is the operating philosophy of its highly experienced management team. The five most senior members of the Company's management team have an average of more than: (i) 20 years in the restaurant industry; (ii) 11 years in the casual dining segment of the industry; and (iii) six years with the Company. Since the Company's inception in 1991, this management team has significantly improved the operating performance of the Company's initial 15 Chili's restaurants and successfully developed an additional 18 new restaurants. Senior management closely monitors and actively supports the operations of each of the Company's restaurants and incentivizes restaurant- level managers, through hiring, training, motivational and reward practices, to operate individual restaurants in a proprietary manner by developing their own methods to improve operations and enhance the guest experience. The Company believes that the independent entrepreneurial spirit of its on-site personnel together with the guidance provided by senior management will continue to be a key factor in the Company's efforts to maximize revenue, control costs, engender employee satisfaction and build brand loyalty. Members of the Company's senior management team own approximately 12.1% of the common stock of the Company. BUSINESS STRATEGY The Company's objective is to strengthen its position as a leading operator of full-service, casual dining restaurants, thereby increasing net sales and cash flow. In order to accomplish its goal, the Company intends to pursue the following strategies: Further Enhance the Guest Dining Experience. The Company continually evaluates new initiatives which will improve food presentation and customer service, and create a consistent enhanced brand image for each of its restaurants. This strategy recognizes that food quality, dining atmosphere and attentive service all contribute to customer satisfaction. The Company seeks to maintain a consistently high standard of food preparation and customer service through stringent operational controls and extensive employee training. Increase Market Penetration. The Company's development strategy is to increase market penetration of each of the Chili's, On The Border and Bertucci's concepts by continuing to cluster its restaurants. The Company believes that such clustering will enable it to expand brand awareness of the three concepts in under-penetrated markets and increase marketing, advertising, management, purchasing and administrative efficiencies. Increase Operating Efficiencies. The Company believes there are significant opportunities for improvement in margins and cash flow through intercompany cooperation among the three restaurant concepts, including: (i) realizing economies of scale from the combined purchasing power of a larger company; (ii) achieving operating efficiencies through the implementation of a "best practices" program; and (iii) reducing headcount, certain professional fees and other selling, general and administrative expenses. Management estimates that the Company will realize at least $2.0 million of annual cost savings in connection with such increased operating efficiencies. Pursue Selective Restaurant Expansion. Management intends: (i) to continue to open new Chili's and On The Border restaurants in select New England, Westchester County and additionally, in the case of On The Border, upstate New York markets pursuant to its Area Development Agreements with the Franchisor; and (ii) as a result of the Acquisition, to expand in select additional markets through new Bertucci's restaurant openings in the New England, Mid- Atlantic and other regions that Bertucci's currently serves and in such other markets as the Company may determine. Management also believes that, as a result of the Acquisition, future opportunities may arise to develop Bertucci's and Chili's or Bertucci's and On The Border restaurants together on single real estate parcels, yielding improved development economics and capital returns. Standardize and Enhance Bertucci's Design. Bertucci's restaurants historically have been constructed in varying sizes (averaging approximately 6,200 square feet) and designs, with no two interior decors exactly alike. 56 The Company's management believes that Bertucci's restaurant investment economics would benefit from a standardized design which the Company expects to implement in restaurants to be opened during 1999. Bertucci's management recently has begun to build smaller restaurants with fewer seats and smaller bar areas, a format which the Company expects to enhance by introducing a prototype that: (i) further reduces building size to a range of 4,800 to 5,400 square feet, with seating for approximately 150 guests; (ii) features service bars instead of full bar areas to account for Bertucci's moderate levels of alcohol sales; and (iii) standardize interior decor. RESTAURANT OVERVIEW AND MENU The Company's restaurants are full-service, casual dining restaurants, featuring substantial portions of high quality food at moderate prices accompanied by quick, efficient and friendly table service designed to minimize guest waiting time and facilitate table turnover. All of the Company's restaurants are open for lunch and dinner seven days a week. To encourage patronage by families with children, the Company's restaurants feature lower-priced children's' menus in addition to the standard menus. Chili's Grill and Bar. Chili's restaurants feature a casual dining atmosphere and a menu of "All-American" food items with a southwestern emphasis, including a variety of hamburger, fajita, chicken, steak, seafood and vegetarian entrees, as well as a number of sandwich, barbecue, salad, appetizer and dessert selections, prepared fresh daily according to recipes specified by Chili's. The Company has its own executive chef who has worked with senior management to develop certain innovative and regional menu items to supplement the basic Chili's menu, including a "boneless buffalo wings" appetizer, a "fish & chips" entree and a New England clam chowder, each of which have proven popular with the Company's guests. Each Chili's restaurant also has a fully licensed bar serving beer, wine and cocktails. Price points for entrees generally range from $5.99 to $10.99. For fiscal 1997, the per guest average check was $10.75. On The Border. On The Border restaurants also feature a casual yet distinctive dining atmosphere, focusing on the cuisine of the border region between Texas and Mexico. The On The Border menu offers an assortment of authentic fajita, chicken, steak, shrimp, barbecued ribs, enchilada, burrito and other Tex-Mex specialties, prepared fresh daily according to recipes specified by On The Border. There is a luncheon menu as well as a full dinner menu. Each On The Border restaurant also has a full-service bar which specializes in Tex-Mex alcoholic beverages, including a variety of popular margaritas. Price points generally range from $4.79 to $6.79 for lunch entrees and from $6.99 to $10.99 for dinner entrees. For fiscal 1997, the per guest average check was $11.43 at the one Company-owned On The Border restaurant that had been operating for at least 12 months as of December 31, 1997. Bertucci's. Bertucci's restaurants offer a distinctive menu and a contemporary European-style design which in the opinion of management offer a unique dining experience at a reasonable price. Bertucci's signature product, gourmet pizza, is offered with a wide variety of cheese, vegetable and meat toppings and is prepared in brick ovens. Management believes that Bertucci's original recipes and brick-oven baking techniques combine to produce a superior pizza that is difficult to duplicate. During Bertucci's fiscal 1997, sales of pizza accounted for approximately 40% of net sales. In addition to pizzas, Bertucci's menu features a variety of pasta items, appetizers, soups, salads, calzones and desserts that are prepared fresh daily according to Bertucci's original recipes. Natural, fresh ingredients are a cornerstone of the Bertucci's concept. In an effort to ensure the uniform high-quality and freshness of its menu offerings, Bertucci's prepares all of its own dough, sauces and desserts. Full bar service is available at most Bertucci's restaurants and beer and wine are available at all locations. Price points generally range from $4.95 to $6.75 for lunch entrees and from $5.95 to $10.99 for dinner entrees. For fiscal 1997, the per guest average check was $7.40 for lunch and $9.95 for dinner. Most items on the menu may be purchased for take- out service or delivery, which together, during Bertucci's fiscal 1997, accounted for approximately 27% of net sales. In addition to the Bertucci's concept, as a result of the Acquisition, the Company also acquired one Sal and Vinnie's steakhouse. The Sal and Vinnie's concept features steak, chicken and fish entrees seasoned with Italian 57 spices, as well as a variety of Italian pasta dishes. The Company is evaluating the further development of the Sal and Vinnie's concept and has made no conclusive determinations as to whether or how it may proceed with such development. RESTAURANT LOCATIONS The table below identifies the location of the 121 restaurants operated by the Company at July 31, 1998.
STATE CHILI'S ON THE BORDER BERTUCCI'S TOTAL ----- ------- ------------- ---------- ----- Connecticut............................. 9 1 9 19 Georgia................................. -- -- 6 6 Illinois................................ -- -- 7 7 Maine................................... 1 -- -- 1 Maryland................................ -- -- 6 6 Massachusetts........................... 13 1 34(a) 48 New Hampshire........................... 4 -- 3 7 New York................................ -- -- 3 3 New Jersey.............................. -- -- 5 5 Pennsylvania............................ -- -- 4 4 Rhode Island............................ 4 -- 2 6 Virginia................................ -- -- 7 7 Washington D.C.......................... -- -- 2 2 --- --- --- --- Total................................. 31 2 88 121 === === === ===
- -------- (a) Includes one Sal and Vinnie's restaurant. In fiscal 1998, through July 31, 1998, the Company has opened one On The Border and three Bertucci's restaurants. In addition to the restaurants listed in the table above, the Company is currently developing three Chili's, two On The Border and three Bertucci's restaurants which are expected to be opened by the end of fiscal 1998. Although prior to the Acquisition Bertucci's had considered developing one additional Sal and Vinnie's restaurant, the Company has made no conclusive determinations whether or how to proceed with such development. Of the 121 restaurants operated by the Company at July 31, 1998, the Company owned the land for 10 restaurants and leased the land for all other restaurants. All but five of its existing Chili's and On The Border restaurant locations are leased by the Company, with lease terms expiring between 2003 and 2016 with an average unexpired lease term of 14 years (not including additional option terms). The leases for most of the existing restaurants are for terms of 20 years and provide for additional option terms and, in the case of a limited number of leases, a specified annual rental plus additional rents based on sales volumes exceeding specified levels. Leases for future restaurants will likely include similar rent provisions. The Sal and Vinnie's restaurant is leased from Joseph Crugnale, who until consummation of the Acquisition was president and chief executive officer of Bertucci's. Initial Bertucci's restaurant lease terms range from two years to 40 years. The majority of such leases provide for an option to renew for additional terms ranging from five years to 20 years. All of Bertucci's leases provide for a specified annual rental and most leases call for additional rent based on sales volumes exceeding specified levels. Generally, the leases are net leases that require Bertucci's or the Company, as applicable, to pay all taxes, insurance and maintenance costs. RESTAURANT DESIGN Chili's. The Company's Chili's restaurants are prototypically free-standing buildings (ranging from 5,300 to 7,200 square feet) that average approximately 5,800 square feet in size and have a seating capacity of approximately 190 people. The bar area consists of approximately 10 tables and 60 seats. The Chili's decor includes booth and table seating with table-tops inlaid with decorative ceramic tiles, beamed ceilings, tiled or 58 brick floors, and wood paneled and brick walls. The walls are decorated with a variety of nostalgic American artifacts, with a significant number of items evoking images of the American southwest. Live cactus and other greenery are placed in clay pots or hanging baskets throughout the restaurant. Of the 16 new Chili's restaurants that the Company has opened since 1991, 14 have been built pursuant to a prototype designed and developed by the Company. Management believes that its prototype, which, among other things, sets apart the bar area to one side of the restaurant, provides an optimal use of space. A significant portion of the Company's revenues have been from sales of alcoholic beverages and the Company believes its prototype bar design promotes such increased beverage sales. In fiscal 1997, such sales accounted for approximately 19.0% of revenues among the group of the Company's Chili's restaurants that were built pursuant to the prototype design, as compared to approximately 17.5% of revenues among the group of the Company's Chili's restaurants that were not built pursuant to such design. In addition, the overall design provides management a broader view of the entire restaurant, allowing greater supervision of customer service. Since the Company's implementation of its prototype, the Franchisor has begun to introduce a similar prototype. On The Border. The Company's On The Border restaurants are free-standing buildings averaging approximately 7,800 square feet in size with a seating capacity of approximately 305 people. The bar area has approximately seven tables and 60 seats. The On The Border decor includes booth and table seating, stucco walls, some with frescoes depicting images of the Mexican "vaquero" cowboy, wrought iron and glass light fixtures and an array of Mexican handicrafts, many of which emphasize the "vaquero" theme. Each restaurant has a large stone fireplace with a gas-fired flame, an authentic handmade tortilla machine producing fresh product within the guests' view and a four-season patio which incorporates outdoor dining as the weather permits. Bertucci's. Bertucci's restaurants are free standing or in-line buildings (ranging from 1,000 to 12,000 square feet) averaging approximately 6,200 square feet in size with a seating capacity of approximately 170 people. The bar area has approximately 12 seats. Each of Bertucci's restaurants features a contemporary European-style, open-kitchen design centered around brick ovens. Ingredients are displayed and food is prepared on polished granite counters located in front of the brick ovens, in plain view of diners. Bertucci's restaurants historically have been built in varying sizes and designs, with no two interior decors exactly alike. Management believes that unit economics would benefit from a standardized design which the Company expects to implement for restaurants to be opened during fiscal 1999. Bertucci's has recently begun to build smaller restaurants. Management believes that further decreasing building size to a range of 4,800 to 5,400 square feet with seating for approximately 150 guests would maximize efficiency of Bertucci's dine-in business (73% of sales in Bertucci's fiscal 1997) and its take-out and delivery business (27% of sales in Bertucci's fiscal 1997). In addition, with Bertucci's moderate sale of alcoholic beverages accounting for approximately 9% of net sales during Bertucci's fiscal 1997, the Company expects to introduce service bars in new restaurants instead of full bar areas to further optimize utilization of space. Finally, the Company expects to introduce a more cost-efficient, standardized interior decor. RESTAURANT ECONOMICS Chili's. During fiscal 1997, average revenue per restaurant was $2.5 million and average restaurant cash flow was $410,000 (after average rent expense of $115,000). Corporate general and administrative costs are not included in average restaurant cash flow. Lunch and dinner accounted for approximately 35% and 65% of net sales, respectively, during fiscal 1997. The percentage of net sales from alcoholic beverages for the Company's Chili's restaurants during fiscal 1997 was approximately 18%. On The Border. During fiscal 1997, for the one Company-owned On The Border restaurant that had been operating for at least 12 months as of December 31, 1997, revenue was $4.2 million and cash flow was approximately $723,000 (after rent expense of $153,000). Lunch and dinner accounted for approximately 35% and 65% of net sales, respectively, during fiscal 1997. The percentage of net sales from alcoholic beverages for the Company's On The Border restaurants during fiscal 1997 was approximately 31%. 59 Bertucci's. During Bertucci's fiscal 1997, average revenue per restaurant was $1.7 million and average restaurant cash flow was $245,000 (after average rent expense of $135,000). Lunch and dinner accounted for approximately 26% and 74% of net sales, respectively, during Bertucci's fiscal 1997. The percentage of net sales from alcoholic beverages for Bertucci's restaurants during Bertucci's fiscal 1997 was approximately 9%. FRANCHISE AND DEVELOPMENT AGREEMENTS The Company operates its Chili's and On The Border restaurants under individual franchise agreements that are part of broader exclusive development agreements (the "Area Development Agreements") with the Franchisor. These agreements grant the Company the exclusive right to develop up to 55 Chili's and 31 On The Border restaurants (inclusive of the 33 such restaurants that the Company currently operates) in New England, Westchester County and additionally, in the case of On The Border, upstate New York markets. The Area Development Agreements require the Company to develop a minimum of two to three Chili's and two to four On The Border restaurants each year in accordance with a specified schedule during the term of the agreement in order to maintain its exclusive development rights. If the Company opens fewer restaurants than required by the development schedule in any development territory, the Franchisor has the right to terminate the Company's development rights in the territory where the deficiency occurs. In addition, a breach under an Area Development Agreement could constitute a default under the Senior Bank Facility and FFCA Loans, permitting the applicable lender to declare all amounts borrowed thereunder immediately due and payable. The Area Development Agreements expire in 2000 in the case of Chili's and 2001 in the case of On The Border, but are each renewable at the Company's option at the scheduled expiration date. Under the Area Development Agreements, the Company is responsible for all costs and expenses incurred in locating, acquiring, and developing restaurant sites, although the Franchisor must approve each proposed restaurant site and the related real estate purchase contract or lease agreement. The franchise agreements convey the right to use the Franchisor's trade names, trademarks, and service marks with respect to specific restaurant units. The Franchisor also provides general construction specifications, designs, color schemes, signs and equipment, recipes for food and beverage products, marketing concepts, and materials. Generally, each new franchise agreement requires an initial $40,000 franchise fee which is, typically, in addition to a $10,000 nonrefundable development fee per proposed restaurant, paid under the Area Development Agreements. The franchise agreements also require payment to Brinker of a royalty fee of 4.0% of annual net sales. In addition, pursuant to its franchise agreements, the Company contributes 0.5% of monthly net sales from each of its Chili's or On The Border restaurant to Brinker for advertising and marketing to benefit all restaurants in the Chili's or On The Border system, respectively. The Company is also required to spend at least 2.0% of annual net sales on local advertising. RESTAURANT DEVELOPMENT Expansion. The Company expects to continue its steady growth strategy through the opening of new restaurants over the next several years. During the remainder of fiscal 1998, the Company intends to develop an additional three Chili's and two On The Border restaurants and, in addition to the 88 restaurants acquired through the Acquisition, three new Bertucci's restaurants. For a typical new Chili's restaurant, capital expenditures (not including land costs) approximate $1.7 million (of which approximately $190,000 are pre-opening expenses), and for an On The Border restaurant approximate $2.2 million (of which approximately $250,000 are pre-opening expenses). Based on the current capital expenditures typically associated with a new Bertucci's restaurant, management estimates that the Company will spend approximately $1.2 million (of which approximately $100,000 will be pre- opening expenses) to open each new Bertucci's restaurant. During fiscal 1998 through July 31, 1998, the Company had spent approximately $6.0 million (of which approximately $450,000 were pre-opening expenses) to open one On The Border and three Bertucci's restaurants and anticipates that for the remainder of fiscal 1998 it will spend an additional $13.4 million (of which approximately $1.4 million will be pre-opening expenses) to open an additional three Chili's, two On The Border and three Bertucci's restaurants. The Company currently plans to spend at least $31.2 million in fiscal 1999 to open an 60 expected six each of the Chili's, On The Border and Bertucci's restaurants. The Company expects to finance the development of its Chili's and On The Border restaurants through borrowings under the Senior Bank Facility and loans from FFCA and similar lenders, and of its Bertucci's restaurants through cash flows from operations and borrowings under the Senior Bank Facility. The Company reviews its expansion plans and budget on a regular basis, in light of opportunities that may arise, and may determine to open a smaller or larger number of stores than currently planned. As a market area becomes more fully developed, each restaurant normally benefits from increased customer recognition, greater advertising capabilities, and economies of scale with respect to food costs, advertising and promotion, and certain other expenses. Markets which have reached this minimum level of penetration are characterized as "efficient" and typically are more profitable than emerging markets. The Company attempts to balance its new restaurant development by (i) selectively locating restaurants in areas where an appropriate level of market penetration has been achieved, (ii) increasing the level of market penetration in territories that are not yet "efficient," and (iii) expanding into new territory. Management believes that the Company's existing development territory will support over 55 Chili's and 31 On The Border restaurants (inclusive of the 33 such restaurants that the Company currently operates) and will accommodate planned Chili's and On The Border restaurant development for approximately five to seven years. Site Selection and Construction. Management's site selection strategy for new restaurants focuses on high-density, high-traffic, high-visibility free standing sites which are, for the most part, positioned within existing markets to take advantage of certain operational efficiencies. Management seeks out sites with a mixture of retail, office, residential and entertainment concentration which promote both lunch and dinner business. Management devotes significant time and resources to identify and analyze potential sites, as it believes that site selection is crucial to its success. Management also believes that multiple locations focused in defined geographic areas will result in increased market penetration, brand recognition and permit advertising, management, purchasing and administrative efficiencies. The typical time period required to select a site and build and open a Company restaurant is approximately 18 months. QUALITY CONTROL Chili's and On The Border. The Company's general and assistant managers are responsible for assuring compliance with the Company's operating procedures. Both the Company and the Franchisor have uniform operating standards and specifications relating to the quality, preparation and selection of menu items, maintenance and cleanliness of the premises, and employee conduct. Compliance with these standards and specifications is monitored by periodic on-site visits and inspections by area supervisors and directors of operations and by representatives of the Franchisor. Each restaurant typically has a general manager and three to four assistant managers who together train and supervise employees and are, in turn, supported by Quality Assurance Managers and Regional Directors of Operations. The Company's operational structure encourages all employees to assume a proprietary role in ensuring that such standards and specifications are consistently adhered to. Bertucci's. Each Bertucci's restaurant typically has a general manager and two to three assistant managers who are responsible for assuring compliance with Bertucci's operating procedures and for the training and supervision of restaurant employees. The general managers report to regional managers who oversee six to 10 Bertucci's restaurants. Bertucci's also has an innovative, toll-free "customer comment line" that encourages customer feedback with respect to restaurant operations. The Company believes that through an improved "customer comment line," increased centralized training and other support for regional managers, the quality control operations of Bertucci's can be further enhanced. MANAGEMENT INCENTIVE PROGRAMS Since the Company's founding in 1991, management has developed a profit- based reward system for its restaurant level managers such that their bonus levels are directly tied to an individual restaurant's profitability. 61 The Company has also implemented a program whereby certain managers make modest financial investments in the Company for which they receive a larger portion of their restaurant's cash flow. The Company believes these incentive programs have contributed significantly to the entrepreneurial spirit of its restaurants and, ultimately, to overall guest satisfaction and Company profitability. Management believes that it will offer similar incentive programs to Bertucci's managers. TRAINING Chili's and On The Border. The Company places significant emphasis on the proper training of its employees. To maintain its high service and quality standards, the Company has developed its own training programs that are coordinated through the Company's training department which is supervised by a four-member senior management training team. Each level of Company training is designed to increase product quality, operational safety, overall productivity and guest satisfaction and to foster the concept of "continuous improvement." The Company requires new non-management employees to undergo extensive training administered by restaurant-level managers to improve the confidence, productivity, proficiency level and customer relations skills of such employees. The Company also requires all of its general and restaurant managers to complete a comprehensive 13-week management training program developed by the Company. This program instructs management trainees in detailed, concept-specific food preparation standards and procedures as well as administrative and human resource functions. This training is largely conducted at specified restaurants throughout New England which are designated as "training restaurants" and also incorporates training manuals and other written guides. At the end of the 13-week process, trainee skills are tested by a variety of means including a full-day written examination. Initial instruction is typically followed up by periodic supplemental training. Following the Company's creation and successful implementation of this management-trainee program, certain of its elements have been adopted by the Franchisor, system-wide. When the Company opens a new restaurant, management positions are typically staffed with personnel who have had previous experience in a management position at another Chili's or On The Border restaurant. In addition, a highly experienced opening team assists in opening the restaurant. Prior to opening, all staff personnel undergo a week of intensive training conducted by the restaurant opening team. The training includes drills in which test meals and beverages are served. Bertucci's. Bertucci's currently requires all of its general and restaurant managers to participate in an eight to 10-week training program which instructs management trainees in Bertucci's detailed food preparation standards and procedures as well as administration and human resource matters. The Company expects to enhance the Bertucci's training program by increasing its length to 13 weeks and centralizing administration of the program from its current regional administration. ADVERTISING AND MARKETING The Company's marketing strategy is to continue to strengthen the brand equity of each of its restaurant groups and to increase profitability and build revenues across all three groups. Management utilizes strategies designed to encourage consumer trial of new products and increase the average guest check while reinforcing each restaurant concept's distinctive dining experience. The Company's advertising and promotion plan is designed to build awareness and increase trial among key target audiences while optimizing spending by market, based on media cost efficiencies. The Company classifies markets based upon restaurant penetration and the resulting advertising and promotion costs per restaurant. The Company's three most highly-penetrated markets are supported with regular spot television advertisements during all but the first fiscal quarter of each year. The Company augments its marketing efforts in these markets with radio advertising to target the lunch and dinner time periods and to increase the frequency of the promotional message. In its secondary markets, the Company utilizes more cost-effective localized marketing initiatives such as radio, direct mail and newspaper advertising. The Company expects to benefit from enhanced marketing and volume discounts as a result of additional spending related to the Bertucci's restaurants. 62 Chili's. The Company determines its own marketing strategies and where to place and how much to pay for its advertisements. Although advertisements for television have historically been developed by the Franchisor for system-wide use, the Company has developed its own radio advertisements. The Company expends a significant portion (approximately 90%) of its total advertising dollars in its areas of dominant influence--Boston, Hartford and Providence-- where management believes there is strong brand awareness of the Chili's concept because of strong market penetration and well-placed media expenditures. Pursuant to its franchise agreements with the Franchisor, the Company contributes 0.5% of net sales from each Chili's restaurant to the Franchisor for advertising and marketing to benefit all of the Franchisor's restaurants. The Franchisor uses these funds to develop advertising and sales promotion materials and concepts. The Company is also required to spend 2.0% of net sales from each restaurant on local advertising. The Company's advertising expenditures generally have exceeded the levels required under its agreements, ranging between 2.5% and 3.0%. During fiscal 1997, the Company's advertising expenditures for its Chili's restaurants were $2.6 million, or 3.3% as percentage of Chili's net sales. The Company spends substantially all of its advertising dollars on strategically placed television and radio advertising. The Company also conducts promotional marketing efforts targeted at various local markets, including media and printed materials. On The Border. Under the terms of its franchise agreements with the Franchisor, the Company contributes 0.5% of net sales from each On the Border restaurant to the Franchisor for advertising and marketing to benefit all On the Border restaurants and is required is spend 2.0% of net sales from each restaurant on local advertising. During fiscal 1997, the Company's advertising expenditures for its On The Border restaurants were $0.1 million, or 3.3% as percentage of On The Border net sales. Due to the small number of Company- owned On The Border restaurants to date, advertising and marketing efforts have thus far been largely targeted towards printed materials. The Company will consider television and radio advertising once it achieves critical mass in a market with respect to the On The Border concept. Bertucci's. Bertucci's has historically employed broadcast media, print and direct mail as its primary advertising technique, together with local restaurant promotions. During Bertucci's fiscal 1997, Bertucci's expenditures for advertising and marketing were approximately $3.9 million, or 2.9% of Bertucci's net sales. Management believes that the adoption of the marketing techniques and strategies used at Chili's and On The Border will enhance the marketing programs currently employed by Bertucci's. Although management expects to employ consumer focus research to determine its specific marketing strategies for Bertucci's, the Company is currently expected to expend a majority of its Bertucci's-related advertising dollars in Bertucci's core markets. PURCHASING Chili's and On The Border. As a franchisee, the Company must comply with the uniform recipe and ingredient specifications provided by the Franchisor. The Company, however, negotiates directly with suppliers of food and beverage products and other restaurant supplies to ensure consistent quality and freshness of products and to obtain competitive prices. Although the Company believes that essential restaurant supplies and products are available on short notice from several sources, the Company's Chili's and On The Border restaurant groups use one full-service distributor for the substantial portion of their restaurant supplies and products requirements, with such distributor charging the Company fixed mark-ups over prevailing wholesale prices (such distributor, the "Principal Vendor"). The Company has a two-year contract with the Principal Vendor which is terminable by either party upon 30 days' prior notice following breach and 60 days' prior notice for any other reason. The Company also has arrangements with several smaller and regional distributors for the balance of its purchases. These distribution arrangements have allowed the Company to benefit from economies of scale and resulting lower commodity costs. Most major purchasing decisions for the Company's restaurants are made by its senior management which includes a Vice President of Food Purchase and Procurement. Smaller day-to-day purchasing decisions are made at the individual restaurant level. The Company has not experienced any significant delays in receiving food and beverage inventories or restaurant supplies. 63 Bertucci's. Bertucci's has maintained as much on-site preparation of food products at its restaurants as possible in order to ensure freshness and quality and to enhance the dining experience through the visual display of fresh ingredients. Bertucci's has negotiated directly with manufacturers, importers, brokers and wholesale suppliers of primary food ingredients and beverage products to ensure consistent quality and freshness of products in its restaurants and to obtain competitive pricing. Bertucci's has a four-year contract, which is terminable upon 30 days' prior notice following breach, with a full-service distributor through which Bertucci's currently obtains a substantial portion of its restaurant supplies and products requirements. The Company expects to refine and consolidate the purchasing practices of Bertucci's to conform to such practices for the Company's Chili's and On The Border restaurants. Management believes that these initiatives, including consolidation of vendors and economies of scale, will result in cost savings in this area. INFORMATION SYSTEMS AND RESTAURANT REPORTING The Company's sophisticated information systems provide detailed monthly financial statements for each restaurant, weekly restaurant inventories, menu mix, cash management and payroll analysis, as well as daily operating statistics such as sales, labor, guest check and average table turns. The varying levels of systems data are consolidated and processed by the Company at its headquarters daily, weekly or monthly as management deems appropriate. The Company's point-of-sale systems not only relay information within the Company, but also are linked to the ordering system of the Principal Vendor. In addition, the Company has an in-house payroll system which the Company believes is more efficient for restaurant managers than third-party payroll systems. Components of the Company's information systems, particularly its point-of-sale systems, have been adopted by the Franchisor. Based upon its preliminary review of Bertucci's information systems, management believes that such systems are largely compatible with those used by the Company for its Chili's and On The Border restaurant groups. In particular, the point-of-sale systems used by Bertucci's and the Company's Chili's and On The Border restaurant groups are manufactured by the same company. The Company expects to evaluate the most efficient means for integrating the information systems for all three restaurant groups. PROPERTIES The Company's executive offices are located in Westborough, Massachusetts and are occupied under the terms of a lease covering approximately 14,000 square feet that is scheduled to expire in 2007 and has a six year option term. In September 1993, Bertucci's moved into its current corporate headquarters in Wakefield, Massachusetts. Bertucci's purchased its 60,000 square foot office building in December 1992 and, after renovations were completed, approximately 20,000 square feet of office and administrative space were created. Another 40,000 square feet of storage space is available and can be utilized as additional office space when needed. The Company is analyzing its post-Acquisition requirements with respect to certain Bertucci's properties, but to date has made no conclusive determinations. See "-- Restaurant Locations." TRADEMARKS, SERVICEMARKS AND OTHER INTELLECTUAL PROPERTY Prior to the Acquisition, the Company had no proprietary intellectual property. As a franchisee of Brinker, the Company has contractual rights to use certain Franchisor-owned trademarks, servicemarks and other intellectual property relating to the Chili's and On The Border concepts. Bertucci's has registered the names "Bertucci's," "Bertucci's Brick Oven Pizzeria" and "Sal and Vinnie's Sicilian Steakhouse" as service marks and trademarks with the United States Patent and Trademark Office. As a result of the Acquisition, the Company assumed ownership of these marks. Management is aware of names similar to that of Bertucci's used by third parties in certain limited geographical areas. Such third-party use may prevent the Company from licensing the use of the Bertucci's mark for restaurants in such areas. Except for these areas, management is not aware of any infringing uses that could materially affect the Bertucci's business. Bertucci's has filed applications with the United States Patent and Trademark Office to register "Food Does Not 64 Lie" as a service mark and its olive design as a trademark and service mark. Management intends to protect the Bertucci's service marks and trademarks by appropriate legal action whenever necessary. COMPETITION The Company's business and the restaurant industry in general are highly competitive and are often affected by changes in consumer tastes and dining preferences, by local and national economic conditions and by population and traffic patterns. The Company competes directly or indirectly with all restaurants, from national and regional chains to local establishments, as well as with other foodservice providers. Many of its competitors are significantly larger than the Company and have substantially greater resources. EMPLOYEES At July 31, 1998, the Company had approximately 1,094 full-time employees (of whom approximately 40 are based at the Company's headquarters) and approximately 1,667 part-time employees. None of the Company's employees is covered by a collective bargaining agreement. The Company believes its relations with its employees are good. Management believes that the Company's continued success will depend to a large degree on its ability to attract and retain good management employees. While the Company will continually have to address the high level of employee attrition normal in the food-service industry, the Company has taken steps to attract and keep qualified management personnel through the implementation of a variety of employee benefit plans, including a management incentive plan, a 401(k) plan, and a non-qualified stock option plan for its key employees. LEGAL PROCEEDINGS The Company is involved in various legal proceedings from time to time incidental to the conduct of its business. In the opinion of management, any ultimate liability arising out of such proceedings will not have a material adverse effect on the financial condition or results of operations of the Company. Management is not aware of any litigation to which the Company or Bertucci's is a party (other than lawsuits filed from time to time against the Company or Bertucci's in the ordinary course of its business) which is likely to have a material adverse effect on the Company or Bertucci's. GOVERNMENT REGULATIONS Each of the Company's restaurants is subject to licensing and regulation by a number of governmental authorities, which include health, safety, fire and alcoholic beverage control agencies in the state or municipality in which the restaurant is located. Difficulties or failures in obtaining required licenses or approvals could delay or prevent the opening of a new restaurant in a particular area. In 1997, approximately 18% of the Company's Chili's, approximately 31% of the Company's On The Border, and approximately 9% of Bertucci's sales were attributable to the sale of alcoholic beverages. Alcoholic beverage control regulations require each of the Company's restaurants to apply to a state authority and, in certain locations, county or municipal authorities for a license or permit to sell alcoholic beverages on the premises and to provide service for extended hours and on Sundays. Some of the counties in which the Company has restaurants prohibit the sales of alcoholic beverages on Sundays. Typically, licenses or permits must be renewed annually and may be revoked or suspended for cause at any time. Alcoholic beverage control regulations relate to numerous aspects of the daily operations of the Company's restaurants, including minimum age of patrons and employees, hours of operation, advertising, wholesale purchasing, inventory control and handling, storage, and dispensing of alcoholic beverages. The Company is required to obtain approvals from certain liquor licensing authorities in connection with the change of control of Bertucci's as a result of the Acquisition. 65 The Company may be subject in certain states to "dram-shop" statutes, which generally provide a person injured by an intoxicated patron the right to recover damages from an establishment that wrongfully served alcoholic beverages to the intoxicated person. The Company carries liquor liability coverage as part of its existing comprehensive general liability insurance. The Company is also subject to various other federal, state and local laws relating to the development and operation of restaurants, including those concerning preparation and sale of food, relationships with employees (including minimum wage requirements, overtime and working conditions and citizenship requirements), land use, zoning and building codes, as well as other health, sanitation, safety and environmental matters. 66 MANAGEMENT DIRECTORS AND EXECUTIVE OFFICERS The following table sets forth certain information with respect to the executive officers and directors of the Company:
NAME AGE POSITION ---- --- -------- Benjamin R. Jacobson.... 53 Chairman of the Board of Directors Dennis D. Pedra......... 45 President, Chief Executive Officer and Director Paul V. Hoagland........ 45 Executive Vice President, Chief Financial Officer and Director Raymond P. Barbrick..... 45 Vice President--Operations of Chili's Richmond A. Britting- 50 Regional Director--South Region ham.................... Gary S. Schwab.......... 41 Vice President and Controller Stephen F. Mandel, Jr... 42 Director James J. Morgan......... 56 Director David A. Roosevelt...... 28 Director
BENJAMIN R. JACOBSON. Mr. Jacobson has served as Chairman of the Board of Directors of the Company since 1991. Since 1989, Mr. Jacobson has served as the Managing General Partner of Jacobson Partners, which specializes in direct equity investments. Mr. Jacobson is a director of Childtime, Inc. and a number of privately-held corporations. DENNIS D. PEDRA. Mr. Pedra has been employed in the restaurant industry for 24 years and has served as President, Chief Executive Officer and a director of the Company since its inception in 1991. From 1984 to 1991, Mr. Pedra was President of UNO Concepts, Inc., a multi-unit Pizzeria Uno franchisee. From 1980 to 1984, Mr. Pedra was employed by PepsiCo/Taco Bell Restaurants, first as regional operations manager for the southeastern and then for the northeastern United States. From 1974 to 1980, Mr. Pedra held various management positions with Sambo's Restaurants, Big Wheel, Inc. and Marriott Corporation. Mr. Pedra also serves as a director of Lakeview Savings Bank. PAUL V. HOAGLAND. Mr. Hoagland has been employed in the restaurant industry for 18 years and has served as the Company's Executive Vice President since 1992 and its Chief Financial Officer and a director since the Company's inception in 1991. Mr. Hoagland is also responsible for all administrative and new restaurant development functions within the Company. Prior to joining the Company, Mr. Hoagland was employed by Burger King Corporation from 1981 to 1990, where he held various positions over time, including Vice President of Operations, Vice President of Finance for Europe, and Regional Controller for New England. From 1974 to 1981, Mr. Hoagland was employed by I.T.T. Continental Baking Company first as a financial manager and then as controller. RAYMOND P. BARBRICK. Mr. Barbrick has been employed in the restaurant industry for 29 years and has served as the Company's Vice President of Operations for Chili's since January 1998. Prior to that, he served as Senior Director of Operations, from 1992 through 1997, with responsibility for all of the Company's Chili's restaurants in Connecticut and western Massachusetts. Prior to joining the Company, Mr. Barbrick was employed by Back Bay Restaurant Group, where he held the position of director of regional operations from 1989 to 1992. RICHMOND A. BRITTINGHAM. Mr. Brittingham has been employed in the restaurant industry for 30 years and has served as the Company's Regional Director for the South Region since 1992. In such capacity, he is responsible for the operational performance of all the Company's Chili's restaurants in southeastern Massachusetts and Rhode Island. Prior to joining the Company, Mr. Brittingham served as director of operations for Legal Sea Foods Company. GARY S. SCHWAB. Mr. Schwab has been employed in the restaurant industry for 12 years and has served as a Vice President of the Company since 1996 and as its Controller since 1991. Mr. Schwab's present 67 responsibilities include oversight of all accounting, financial analysis and planning, information systems, cash management and tax compliance. Prior to joining the Company, Mr. Schwab was employed from 1985 to 1990 by Trefz Corporation/McDonald's, one of the largest McDonald's franchisees in the United States, where he held the positions of Accounting Manager and Controller. STEPHEN F. MANDEL, JR. Mr. Mandel has served as a director of the Company since December 1997. Since July 1997, Mr. Mandel has served as managing director, portfolio manager and consumer retail/analyst at Lone Pine Capital LLC, a hedge fund which he founded. Prior to that, he served as senior managing director and consumer analyst at Tiger Management Corporation from 1990 to 1997 and served on that company's management committee, as director of equities and portfolio manager. Prior to 1990, Mr. Mandel served as a vice president and mass-market retailing analyst at Goldman, Sachs and Co. JAMES J. MORGAN. Mr. Morgan has served as a director of the Company since December 1997. From 1963 until his retirement in 1997, Mr. Morgan was employed by Philip Morris U.S.A. where he served as President and Chief Executive Officer from 1994 until his retirement in 1997. Prior to 1994, Mr. Morgan served in various capacities at Philip Morris including Senior Vice President of Marketing, and Corporate Vice President of Marketing Planning of the Philip Morris Companies Inc. DAVID A. ROOSEVELT. Mr. Roosevelt has served as a director of the Company since December 1997. Mr. Roosevelt has been an associate at Jacobson Partners since 1996. Prior to that he was a principal of General Gas Company, a natural gas marketing company from 1995 to 1996 and a financial analyst in the account management group of Blackrock Financial Management from 1993 to 1995. TERM AND COMPENSATION OF DIRECTORS The Company's directors serve in such capacity until the next annual meeting of the shareholders of the Company or until their successors are duly elected and qualified. Each of the Company's directors is reimbursed for any expenses incurred by such director in connection with such director's attendance at a meeting of the Board of Directors, or committee thereof. In addition, all directors are eligible to receive options under the Company's stock option plans. Directors receive no other compensation from the Company for serving on the Board of Directors. COMMITTEES OF THE BOARD OF DIRECTORS Effective as of January 1, 1998, the Board of Directors has appointed a Compensation Committee comprising Messrs. Jacobson, Mandel, Morgan and Roosevelt and an Audit Committee comprising Messrs. Jacobson, Mandel and Roosevelt. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION Prior to 1998, the Board of Directors of the Company did not have a formal compensation committee and decisions with respect to executive officer compensation for Messrs. Pedra and Hoagland were made by Mr. Jacobson and other non-management directors, and for other executive officers by Messrs. Pedra and Hoagland. LIMITATION OF LIABILITY AND INDEMNIFICATION As permitted by the Delaware General Corporation Law, the Company has adopted provisions in its Certificate of Incorporation and Bylaws which provide for the indemnification of directors and officers of the Company to the fullest extent permitted by applicable law. These agreements, among other things, indemnify each of the Company's directors for certain expenses (including attorneys' fees), judgments, fines and settlement amounts incurred by such director in any action or proceeding, including any action by or in the right of the Company, on account of such director's service as a director of the Company. The Company believes that these indemnification provisions are necessary to attract and retain qualified persons as directors. 68 EXECUTIVE COMPENSATION The following table summarizes the compensation for fiscal 1997 for the Company's Chief Executive Officer and each of its four other most highly compensated executive officers (the Chief Executive Officer and such other officers, collectively, the "Named Executive Officers"): SUMMARY COMPENSATION TABLE
LONG-TERM ANNUAL COMPENSATION COMPENSATION ----------------------- ------------ SECURITIES ALL OTHER UNDERLYING COMPENSATION NAME AND PRINCIPAL POSITION SALARY($) BONUS($) OPTIONS(#) ($) --------------------------- ---------- --------- ------------ ------------ Dennis D. Pedra............. $ 212,508(a) $ 100,000 99,198 $70,698(c) President and Chief Execu- tive Officer Paul V. Hoagland............ $ 150,242(b) $ 75,000 33,068 $52,275(c) Executive Vice President and Chief Financial Officer Raymond P. Barbrick......... $ 89,720 $ 66,431 21,268 -- Vice President--Operations of Chili's Richmond A. Brittingham..... $ 85,787 $ 69,217 14,178 -- Regional Director--South Region Gary S. Schwab.............. $ 95,204 $ 27,720 21,268 -- Vice President and Control- ler
- -------- (a) Includes $100,000 payable for fiscal 1997 but deferred pursuant to the Non-qualified Deferred Compensation Plan. See "--Stock Option and Other Plans for Employees--Non-qualified Deferred Compensation Plan." (b) Includes $103,496 payable for fiscal 1997 but deferred pursuant to the Non-qualified Deferred Compensation Plan. See "--Stock Option and Other Plans for Employees--Non-qualified Deferred Compensation Plan." (c) Reflects compensation to cover certain taxes incurred by such officer in connection with the payment by the Company in August 1997 of a dividend and return of capital contribution to shareholders of $8.31 per share and the related repurchase by the Company of certain shares of common stock at $11.63 per share. OPTIONS GRANTED IN LAST FISCAL YEAR The following table sets forth information concerning options granted during fiscal 1997 to each of the Named Executive Officers. To date, no such options have been exercised.
POTENTIAL REALIZABLE VALUE AT ASSUMED ANNUAL NUMBER OF STOCK PRICE SECURITIES APPRECIATION FOR UNDERLYING % OF TOTAL OPTION TERM(C) OPTIONS GRANTED IN EXERCISE EXPIRATION ------------------ NAME GRANTED(A) FISCAL 1997 PRICE(B) DATE 5% 10% ---- ---------- ----------- -------- ---------- -------- --------- Dennis D. Pedra......... 99,198 29.96% $11.63 9/15/02 $ 3.22 $ 7.11 Paul V. Hoagland........ 33,068 9.99% $11.63 9/15/02 $ 3.22 $ 7.11 Raymond P. Barbrick..... 21,268 6.42% $11.63 9/15/02 $ 3.22 $ 7.11 Richmond A. Britting- ham.................... 14,178 4.28% $11.63 9/15/02 $ 3.22 $ 7.11 Gary S. Schwab.......... 21,268 6.42% $11.63 9/15/02 $ 3.22 $ 7.11
- -------- (a) Each of the options granted becomes exercisable at the rate of 25% on or after each of the second, third, fourth and fifth anniversaries of the date of grant. Each of the options expires 90 days following the fifth anniversary of the date of the grant. See "--Stock Option and Other Plans for Employees--Stock Option Plan." 69 (b) The exercise price was fixed at the date of the grant and represented the fair market value per share of common stock on such date. (c) In accordance with the rules of the Commission, the amounts shown on this table represent hypothetical gains that could be achieved for the respective options if exercised at the end of the option term. These gains are based on assumed rates of stock appreciation of 5% and 10% compounded annually from the date the respective options were granted to their expiration date and do not reflect the Company's estimates or projections of future prices of the Company's common stock. The gains shown are net of the option exercise price, but do not include deductions for taxes or other expenses associated with the exercise. Actual gains, if any, on stock option exercises will depend on the future performance of the Company's common stock, the option holders' continued employment through the option period, and the date on which the options are exercised. EMPLOYMENT AGREEMENTS Executive officers of the Company are elected by the Board of Directors and serve at the discretion of the Board or pursuant to an employment agreement. The Company is party to certain short-term employment agreements with certain executive officers as described below: DENNIS D. PEDRA. Mr. Pedra's employment agreement (as amended, the "Pedra Agreement") provides that he will serve as President and Chief Operating Officer of the Company until such time as such agreement is terminated by either party upon six months' prior written notice or pursuant to the other termination provisions of the Pedra Agreement. If Mr. Pedra's employment is terminated, the Pedra Agreement provides that he may not engage in a competing business within a ten mile radius of a Company-owned restaurant, for a period of one year following his termination. Mr. Pedra's fiscal 1998 base salary of $225,000 may be increased, from time to time, in the Company's sole discretion. In addition to his base salary, Mr. Pedra is entitled to receive (i) an annual performance bonus in the amount of up to fifty (50%) percent of his base salary which will be based on a bonus plan tied to the combined operating results of the Company as such plan may be revised from time to time, (ii) a $790 per month automobile allowance and reimbursement of reasonable expenses, including insurance and repairs, and (iii) certain insurance and other benefits to be maintained and paid by the Company. PAUL V. HOAGLAND. Mr. Hoagland's employment agreement (as amended, the "Hoagland Agreement") provides that he will serve as Vice President and Chief Financial Officer of the Company until such time as such agreement is terminated by either party upon six months' prior written notice or pursuant to the other termination provisions of the Hoagland Agreement. If Mr. Hoagland's employment is terminated, the Hoagland Agreement provides that he may not engage in a competing business within a ten mile radius of a Company- owned restaurant, for a period of one year following his termination. Mr. Hoagland's fiscal 1998 base salary of $158,788 may be increased, from time to time, in the Company's sole discretion. In addition to his base salary, Mr. Hoagland is entitled to receive (i) an annual performance bonus in the amount of up to fifty (50%) percent of his base salary which will be based on a bonus plan tied to the combined operating results of the Company as such plan may be revised from time to time, (ii) a $650 per month automobile allowance and reimbursement of reasonable expenses, including insurance and repairs, and (iii) certain insurance and other benefits to be maintained and paid by the Company. STOCK OPTION AND OTHER PLANS FOR EMPLOYEES Stock Option Plan. On September 15, 1997, the Board of Directors of the Company established the 1997 Equity Incentive Plan, which includes a nonqualified stock option plan (the "Stock Option Plan"), for certain key employees and directors. The Stock Option Plan is administered by the Board of Directors of the Company and may be modified or amended by the Board of Directors in any respect. 70 Options granted to employees under the Stock Option Plan are generally exercisable cumulatively at the rate of 25% on or after each of the second, third, fourth and fifth anniversaries of the date of grant and options granted to directors thereunder are generally exercisable immediately upon grant. Options granted under the Stock Option Plan to date expire 90 days following the fifth anniversary of the date of the grant. Between September 15, 1997 and December 31, 1997, 331,123 options were granted at a price of $11.63 per share under the Stock Option Plan (of which 11,020 options have been exercised as of the date of this Prospectus). At December 31, 1997, there were 1,316,656 shares of common stock of the Company outstanding. It is expected that an additional 1,644,775 such shares will be issued pursuant to the Equity Investment. 401(k) Savings Plan. The Company maintains a defined contribution plan (the "401(k) Plan") whereby after six months of employment substantially all employees of the Company may defer a portion of their current salary, on a pretax basis, to the 401(k) Plan. The Company may also make a discretionary profit sharing contribution to the 401(k) Plan that is allocated, based on a formula as defined by the 401(k) Plan, to the 401(k) Plan participants. Discretionary contributions made by the Company for the years ended December 31, 1997 and 1996 were approximately $67,000 and $43,000, respectively. Two of the Named Executive Officers, Dennis Pedra and Paul Hoagland, serve as the 401(k) Plan's trustees. Management Incentive Plan. Certain management employees of the Company, including directors of operations, managing partners (who are senior general managers), general managers and assistant managers are eligible, at the discretion of the Company, to participate in the Company's management incentive plan that incentivizes and rewards the performance of such personnel with bonus awards that reflect a percentage of each restaurant's cash contribution. Payments under the management incentive plan are payable monthly or in accordance with the then current payroll cycle of the Company. During fiscal 1997, these awards ranged from $8,000 to $60,000 and aggregate payments under this plan amounted to $2.0 million. Non-qualified Deferred Compensation Plan. The Company has established the NE Restaurant Company Deferred Compensation Plan (the "Non-qualified Deferred Compensation Plan") pursuant to which certain eligible executives of the Company may elect to defer a portion of their salary. The Company maintains an irrevocable grantor trust (also known as a "rabbi trust") which has been established by the Company, as grantor, pursuant to The Merrill Lynch Non- qualified Deferred Compensation Plan Trust Agreement, dated December 21, 1993, by and between the Company and Merrill Lynch Trust Company of America, an Illinois corporation, as trustee, for the purpose of paying benefits under the Non-qualified Deferred Compensation Plan. The trust assets are held separately from other funds of the Company, but remain subject to claims of the Company's general creditors in the event of the Company's insolvency. As of July 31, 1998, trust account balances for Paul Hoagland and Dennis Pedra were $369,995 and $788,354, respectively. 71 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table provides information at July 31, 1998, with respect to ownership of the Company's common stock $0.01 par value per share (the "Company Common Stock"), by (i) each beneficial owner of five percent or more of the Company's Common Stock, (ii) each director of the Company, (iii) each of the Named Executive Officers and (iv) all directors and officers as a group. For the purpose of computing the percentage of the shares of Company Common Stock owned by each person or group listed in this table, shares which are subject to options exercisable within 60 days after July 31, 1998 have been deemed to be outstanding and owned by such person or group, but have not been deemed to be outstanding for the purpose of computing the percentage of the shares of Company Common Stock owned by any other person. Except as indicated in the footnotes to this table, the persons named in the table have sole voting and investment power with respect to all shares of Company Common Stock shown as beneficially owned by them.
SHARES BENEFICIALLY PERCENT NAME AND ADDRESS OF BENEFICIAL OWNER OWNED OF CLASS - ------------------------------------ ------------ -------- Puma Limited Partnership(1)............................. 727,012 24.46% 101 Park Avenue New York, New York 10176 Thomas R. Devlin(2)..................................... 234,504 7.89% 1313 North Webb Road P.O. Box 782170 Wichita, Kansas 67206 Benjamin R. Jacobson(3)................................. 691,872 22.89% Stephen F. Mandel, Jr.(4)............................... 89,602 3.01% James J. Morgan(5)...................................... 19,162 * David A. Roosevelt...................................... 2,856 * Dennis D. Pedra(6)...................................... 190,670 6.41% Paul V. Hoagland(7)..................................... 114,132 3.84% Raymond P. Barbrick..................................... 7,467 * Richmond A. Brittingham................................. 2,778 * Gary S. Schwab.......................................... 7,667 * All directors and executive officers as a group (10 1,124,618 37.21% persons)...............................................
- -------- * Less than 1%. (1) Puma Limited Partnership, a New York limited partnership ("Puma") previously held its interest in the Company through Puma's wholly-owned subsidiary Holdings Group, Inc., a Delaware holding company ("HGI"). To permit Puma to directly hold such shares, HGI was merged with and into the Company pursuant to a merger agreement dated as of August 31, 1996 among HGI, Puma and the Company. (2) Includes 53,207 shares of Company Common Stock held by J.P. Acquisition Fund II, L.P., a Delaware limited partnership ("JPAF II"), representing Mr. Devlin's pro rata interest as a limited partner of JPAF II. (3) Includes (a) 481,016 shares of Company Common Stock held by JPAF II, (b) 49,599 shares of Company Common Stock issuable upon exercise of outstanding stock options exercisable within 60 days after July 31, 1998 held by Jacobson Partners and (c) 13,800 shares of Company Common Stock held by trusts for the benefit of Mr. Jacobson's children, with respect to which a third party is trustee and has voting control. JPAF, Inc., a Delaware corporation, is the general partner of JPAF II and Mr. Jacobson is president of JPAF, Inc. Mr. Jacobson is a general partner of Jacobson Partners, which is the sole shareholder of JPAF, Inc. Mr. Jacobson disclaims beneficial ownership of the shares described (i) in clause (a) above, except to the extent of his general partnership interest in JPAF II, and (ii) in clause (c) above. 72 (4) Includes 2,596 shares of Company Common held by Lone Spruce, L.P., 6,812 shares of Company Common Stock held by Lone Balsam, L.P. 6,812 shares of Company Common Stock held by Lone Sequoia, L.P. and 73,382 shares of Company Common Stock held by Lone Cypress, Ltd. Each of Lone Spruce, L.P., Lone Balsam, L.P. and Lone Sequoia, L.P., is a Delaware limited partnership of which Lone Pine Associates LLC is the general partner. Mr. Mandel is the managing member of Lone Pine Associates LLC. Lone Cypress Ltd. is a Cayman Islands company of which Lone Pine Capital LLC is the investment manager. Mr. Mandel is the managing member of Lone Pine Capital LLC. Mr. Mandel disclaims beneficial ownership of all such shares. (5) Includes 6,651 shares of Company Common Stock held by JPAF II, representing Mr. Morgan's pro rata interest as a limited partner of JPAF II. (6) Includes 30,000 shares of Company Common Stock held by trusts for the benefit of Mr. Pedra's children, with respect to which Mr. Pedra's sister is trustee and has sole voting control. Mr. Pedra disclaims beneficial ownership of all such shares. (7) Includes 14,000 shares of Company Common Stock held in custodial accounts for the benefit of Mr. Hoagland's children, with respect to which Mr. Hoagland is custodian and has sole voting control. Mr. Hoagland disclaims beneficial ownership of all such shares. STOCKHOLDERS AGREEMENT The Company and the current stockholders of the Company are parties to a Shareholders' Agreement, dated as of December 31, 1993 (the "Stockholders Agreement"). The Stockholders Agreement provides, among other things, that (i) a stockholder may not transfer his or its shares in the Company, whether voluntarily or by operation of law, other than in certain limited circumstances specified therein, including transfers through a right of first refusal procedure, distributions by a partnership to its partners, and gifts, trust contributions or bequests to or in favor of family members, (ii) the Company shall have the option to purchase the shares of any stockholder who is a manager of the Company following the termination of such stockholder's employment with the Company for any reason at a purchase price equal to book value or fair market value depending upon the reason for such termination as permitted under the Indenture, (iii) if the Company fails to exercise its option to purchase as described in the immediately preceding clause (ii), the remaining stockholders shall have the option to purchase the applicable shares, (iv) in certain circumstances, a stockholder seeking to transfer shares shall have the option to require the Company to purchase such stockholder's shares, (v) no transfer of shares may occur unless the transferee thereof agrees to be bound by the terms of the Stockholders Agreement and (vi) all share certificates shall bear customary legends and all share transfers must be in compliance with applicable securities laws. 73 CERTAIN TRANSACTIONS OF THE COMPANY Prior to the Acquisition, in consideration of certain financial advisory services provided by Benjamin R. Jacobson to the Company, Mr. Jacobson received from the Company a consulting fee of $200,000 per year together with reimbursement of certain travel and other incidental expenses. In connection with the Acquisition, and in lieu of the Company's arrangement with Mr. Jacobson, the Company entered into a financial advisory services agreement with Jacobson Partners, a general partnership of which Mr. Jacobson is the managing general partner. Under this agreement, Jacobson Partners will provide various financial advisory services to the Company, including, among other things, assistance in preparing internal budgets, performing cash management activities, maintaining and improving accounting and other management information systems, negotiating financing arrangements, complying with public reporting and disclosure requirements and communicating with creditors and investors. In consideration of these services, Jacobson Partners will receive a consulting fee of $500,000 per year together with reimbursement of certain travel and other incidental expenses. In addition, Jacobson Partners received from the Company a $1.0 million cash fee as compensation for Jacobson Partners' services as financial advisors in connection with the Transactions. Jacobson Partners is the sole shareholder of the corporate general partner of JPAF II, which owns approximately 16.2% of the outstanding common stock of the Company. Mr. Jacobson is the Chairman of the Board of Directors of the Company. David A. Roosevelt, an associate with Jacobson Partners, is a Director of the Company. 74 DESCRIPTION OF OTHER INDEBTEDNESS The description set forth below does not purport to be complete and is subject to, and qualified in its entirety by reference to, all of the provisions (including all of the definitions therein of terms not defined in this Prospectus) of certain agreements setting forth the principal terms and conditions of the Senior Bank Facility and the FFCA Loans, which are available upon request from the Company. SENIOR BANK FACILITY In connection with, and contemporaneously with the consummation of, the Acquisition, the Company and its direct and indirect subsidiaries entered into the Senior Bank Facility with BankBoston, N.A. ("BankBoston"), as administrative agent, and Chase Bank of Texas, N.A. ("Chase Texas" and, collectively with BankBoston and such other banks, financial institutions and other entities that are lenders under the Senior Bank Facility, the "Senior Lenders"), as documentation agent. The Senior Bank Facility replaced the Amended and Restated Revolving Credit and Term Loan Agreement, dated as of October 20, 1994, between the Company and BankBoston, as amended by Amendments No. 1, 2, 3 and 4 thereto (as so amended, the "Company Bank Facility"). The following is a summary of certain terms provisions of the Senior Bank Facility. The Senior Bank Facility consists of a revolving credit facility providing for revolving loans to the Company in an aggregate principal amount not to exceed $20.0 million and includes a $1.0 million sub-limit for the issuance of letters of credit for the account of the Company. Loans and letters of credit under the Senior Bank Facility are available at any time prior to July 21, 2001 provided that the maturity date of the Senior Bank Facility may be extended to July 21, 2002 subject to the Senior Lenders' approval. The Senior Bank Facility is secured by first priority or equivalent security interests in (i) substantially all of the tangible and intangible assets of the Company, including certain real estate, (ii) all capital stock of Bertucci's and (iii) substantially all of the tangible and intangible assets of each direct and indirect subsidiary of the Company, including certain real estate, other than (a) NERC SPE (as defined herein), NERC LP (as defined herein) NERC SPE II Inc. or NERC Limited Partnership II and (b) any future subsidiaries that are special purpose entities (and any special purpose corporate general partners thereof) created in respect of the FFCA Loans and similar secured financing. The Senior Bank Facility is not secured by a security interest in any liquor licenses held by the Company or any of its subsidiaries or in the equity securities of any such subsidiary directly holding such licenses. At the Company's option, the interest rates per annum applicable to the Senior Bank Facility will be either the rate (grossed-up for maximum statutory reserve requirements for eurocurrency liabilities) at which LIBOR deposits for one, two, three or six months (as selected by the Company) are offered in the interbank LIBOR market (the "LIBOR Rate") plus a margin of between 1.25% and 2.50% (depending upon the Company's ratio of debt to EBITDA) or the Base Rate plus a margin of between 0.0% and 0.75% (depending upon the Company's ratio of debt to EBITDA) (the "Applicable Margin"). The "Base Rate" is the higher of (a) the rate of interest publicly announced by BankBoston as its base rate in effect at its principal office in Boston, Massachusetts, and (b) the federal funds effective rate plus 0.50%. At July 31, 1998, no borrowings were outstanding under the Senior Bank Facility. The Company pays a per annum fee equal to 0.375% on the aggregate undrawn portion of the Senior Bank Facility commitments. The Senior Bank Facility contains a number of significant covenants that, among other things, restrict the ability of the Company to dispose of assets, incur additional indebtedness, repay other indebtedness or amend other debt instruments, pay dividends, create liens on assets, enter into leases, investments or acquisitions, engage in mergers or consolidations, make capital expenditures, or engage in certain transactions with subsidiaries and affiliates and otherwise restrict corporate activities. In addition, under the Senior Bank Facility, the Company is required to comply with specified financial ratios and tests, including minimum interest coverage, minimum fixed 75 charge coverage, and maximum leverage ratios, minimum net worth levels and maximum capital expenditure amounts. The Senior Bank Facility also contains provisions that prohibit any modification of the Indenture in any manner adverse to the Senior Lenders and that limit the Company's ability to refinance the Exchange Notes without the consent of such Senior Lenders. FFCA LOANS On August 6, 1997, NERC Limited Partnership ("NERC LP"), a Delaware limited partnership of which the sole general partner is NERC SPE Inc., a wholly-owned subsidiary of the Company ("NERC SPE"), and of which the sole limited partner is the Company, entered into a mortgage loan agreement (the "FFCA Loan") with FFCA Acquisition Corporation, a Delaware corporation ("FFCA"), providing for borrowings in the aggregate amount of $22.4 million, maturing on various dates from September 2002 through September 2017, with interest on amounts outstanding thereunder accruing at the rate of 9.67% per annum. Each of the borrowings under the FFCA Loan is secured by a first priority mortgage on, and security interest in, the 17 restaurant properties (the right, title and interest in and to each of which was transferred by the Company to the NERC LP) which were pledged by NERC LP as collateral and which are leased by the NERC LP to the Company for an annual rent sufficient to pay debt service on the FFCA Loan. Proceeds from the FFCA Loan were used to pay the dividend and return of capital contribution to shareholders and to repurchase certain outstanding shares of the Company as described in note 12 to the Company's consolidated financial statements included elsewhere in this Prospectus. On August 28, 1997, NERC LP obtained additional financing from FFCA in the amount of $1.85 million, maturing on various dates from September 2007 through September 2017, with interest at the rate of 9.701% per annum (together with the FFCA Loan and all future financing obtained by the Company or its subsidiaries from the FFCA, the "FFCA Loans"). This additional financing has been collateralized by three restaurant properties which were transferred by the Company to NERC LP and which are leased by NERC LP to the Company. The total cost of all properties pledged to FFCA under the FFCA Loans to date is $25.9 million. FFCA has entered into a commitment with the Company to finance additional restaurant properties of the Company on terms substantially similar to the outstanding FFCA Loans (the "FFCA Commitment"). In the case of each new financing by FFCA, the Company will establish a new subsidiary to which restaurant properties would be transferred at the time such loan is made. Such transferred properties will serve as collateral for the relevant new loan. Under the FFCA Commitment, the amount of each new FFCA Loan will be based on the sum of (i) actual restaurant construction costs, (ii) for fee properties, the fair market value of the land, (iii) the 1% commitment fee due to FFCA and (iv) costs, including closing costs, associated with such financing and approved by FFCA. The maximum loan amount per restaurant is $2.0 million for a Chili's restaurant and $2.5 million for an On The Border restaurant, reduced by ten times the annual ground lease rent for ground leased sites. A loan made pursuant to the FFCA Commitment will bear interest, during the construction period, at a variable rate equal to 30-day LIBOR plus 3.00% and, after the construction period, at the 10-year U.S. Treasury Note Rate in effect ten (10) days prior to closing plus 3.00%. The FFCA Commitment requires that each of the new loans be structured in the same manner as the outstanding FFCA Loans, including the formation by the Company of a limited partnership or limited liability company, intended to be bankruptcy remote, to serve as the borrower. The sole assets of such "bankruptcy remote" borrower will be the fee simple or leasehold interest in the real estate and equipment associated with each restaurant and transferred to the borrower by the Company, subject to a lease to the Company. Each loan will be secured by a first priority mortgage on, and security interest in, the restaurant premises and equipment, and the lease to the Company from the borrower will require an annual rent sufficient to pay the debt service on the loan. 76 The outstanding FFCA Loans provide that a default by the Company under any lease relating to properties held by an FFCA borrower will result in a default under the FFCA Loan related to that property as well as a cross-default under all other outstanding FFCA Loans. The Company may enter into financing arrangements that are similar to the FFCA Loans with other lenders who are engaged in similar secured financings. 77 DESCRIPTION OF EXCHANGE NOTES GENERAL The Exchange Notes will be issued pursuant to the Indenture dated as of July 20, 1998, as amended July 21, 1998, among the Company, the Subsidiary Guarantors and United States Trust Company of New York, as trustee (the "Trustee"). The Exchange Notes will evidence the same indebtedness as the Private Notes (which they replace) and will be entitled to the benefits of the Indenture. The Indenture is limited in aggregate principal amount to $100 million. The form and terms of the Exchange Notes are the same as the form and terms of the Private Notes except that (i) the Exchange Notes will have been registered under the Securities Act and, therefore, the Exchange Notes will not bear legends restricting the transfer thereof and (ii) holders of the Exchange Notes will not be entitled to certain rights of holders of the Private Notes under the Exchange and Registration Rights Agreement, which rights will terminate upon consummation of the Exchange Offer. The terms of the Exchange Notes include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939, as amended (the "Trust Indenture Act"), as in effect on the date of the Indenture. The Exchange Notes are subject to all such terms and holders of the Exchange Notes are referred to the Indenture and the Trust Indenture Act for a statement thereof. The following summary of certain provisions of the Indenture does not purport to be complete and is subject to, and is qualified in its entirety by reference to, the Trust Indenture Act and the provisions of the Indenture (a copy of which has been filed as an Exhibit to the Registration Statement of which this Prospectus forms a part), including the definitions therein of certain terms used below. The definitions of certain terms used in the following summary are set forth below under "--Certain Definitions." The Exchange Notes will be unsecured, senior obligations of the Company, limited to $100 million aggregate principal amount, and will mature on July 15, 2008. Each Exchange Note will bear interest at the rate per annum shown on the front cover of this Prospectus from the Issue Date, or from the most recent date to which interest has been paid or provided for, payable semi- annually on January 15 and July 15 of each year commencing on January 15, 1999 to holders of record at the close of business on the January 1 or July 1 immediately preceding the interest payment date. Interest will be computed on the basis of a 360 day year comprised of twelve 30 day months. Principal of, premium, if any, and interest on the Notes will be payable, and the Notes may be exchanged or transferred, at the office or agency of the Company in the Borough of Manhattan, The City of New York (which initially will be the corporate trust office of the Trustee in New York, New York), except that, at the option of the Company, payment of interest may be made by check mailed to the address of the holders as such address appears in the Note Register. No service charge will be made for any registration of transfer or exchange of Notes, but the Company may require payment of a sum sufficient to cover any transfer tax or other similar governmental charge payable in connection therewith. The Notes will be issued in fully registered form without interest coupons, in denominations of $1,000 and any integral multiple of $1,000. The Notes will be represented by one or more registered notes in global form and in certain circumstances may be represented by Notes in definitive form. OPTIONAL REDEMPTION The Notes will not be redeemable at the option of the Company prior to July 15, 2003. On and after such date, the Notes will be redeemable, at the Company's option, in whole or in part, at any time upon not less than 30 nor more than 60 days prior notice mailed by first-class mail to each holder's registered address, at the following redemption prices (expressed in percentages of principal amount), plus accrued and unpaid interest to the redemption date (subject to the right of holders of record on the relevant record date to receive interest due on the relevant interest payment date): 78 If redeemed during the 12-month period commencing on July 15 of the years set forth below:
REDEMPTION PERIOD PRICE ------ ---------- 2003............................................................ 105.375% 2004............................................................ 103.583% 2005............................................................ 101.792% 2006 and thereafter............................................. 100.000%
In addition, at any time and from time to time prior to July 15, 2001, the Company may redeem in the aggregate up to 35% of the original principal amount of the Notes with the proceeds of one or more Equity Offerings received by, or invested in, the Company so long as there is a Public Market at the time of such redemption, at a redemption price (expressed as a percentage of principal amount) of 110.75% plus accrued and unpaid interest, if any, to the redemption date (subject to the right of holders of record on the relevant record date to receive interest due on the relevant interest payment date); provided, however, that at least 65% of the original principal amount of the Notes must remain outstanding after each such redemption; provided further, that each such redemption occurs within 90 days of the date of closing of such Equity Offering. In the case of any partial redemption, selection of the Notes for redemption will be made by the Trustee on a pro rata basis, by lot or by such other method as the Trustee in its sole discretion will deem to be fair and appropriate, although no Note of $1,000 in original principal amount or less will be redeemed in part. If any Note is to be redeemed in part only, the notice of redemption relating to such Note will state the portion of the principal amount thereof to be redeemed. A new Note in principal amount equal to the unredeemed portion thereof will be issued in the name of the holder thereof upon cancellation of the original Note. GUARANTEES Each Subsidiary Guarantor has unconditionally guaranteed, jointly and severally, to each holder and the Trustee, on a senior basis, the full and prompt payment of principal of, premium, if any, and interest on the Notes, and of all other obligations under the Indenture. The obligations of each Subsidiary Guarantor will be limited to the maximum amount as will, after giving effect to all other contingent and fixed liabilities of such Subsidiary Guarantor (including, without limitation, any Guarantees under the Senior Credit Agreement) and after giving effect to any collections from or payments made by or on behalf of any other Subsidiary Guarantor in respect of the obligations of such other Subsidiary Guarantor under its Subsidiary Guarantee or pursuant to its contribution obligations under the Indenture, result in the obligations of such Subsidiary Guarantor under its Subsidiary Guarantee not constituting a fraudulent conveyance or fraudulent transfer under federal or state law. Each Subsidiary Guarantor may consolidate with or merge into or sell its assets to the Company or another Wholly-Owned Subsidiary Guarantor without limitation. Each Subsidiary Guarantor may consolidate with or merge into or sell all or substantially all its assets to a corporation, partnership, trust, limited partnership, limited liability company or other similar entity other than the Company or a Wholly-Owned Subsidiary Guarantor (whether or not affiliated with the Subsidiary Guarantor) except that if the surviving corporation of any such merger or consolidation is a Subsidiary of the Company, such Subsidiary shall not be a Foreign Subsidiary. Upon the sale or disposition of a Subsidiary Guarantor (by merger, consolidation, the sale of its Capital Stock or the sale of all or substantially all of its assets) to a Person (whether or not an Affiliate of the Subsidiary Guarantor) which is not a Subsidiary of the Company, which sale or disposition is otherwise in compliance with the Indenture (including the covenant described under "Certain Covenants--Limitation on Sales of Assets and Subsidiary Stock"), such Subsidiary Guarantor will be deemed released from all its obligations under the Indenture and its Subsidiary Guarantee and such Subsidiary Guarantee will terminate; provided, however, that any such termination will occur only to the extent that all obligations of such Subsidiary Guarantor under the Senior Credit Agreement and all of its Guarantees of, and under all of its pledges of assets or other security 79 interests which secure, any other Indebtedness of the Company will also terminate upon such release, sale or transfer. CHANGE OF CONTROL Upon the occurrence of any of the following events (each a "Change of Control"), unless the Company shall have exercised its right to redeem the Notes as described under "--Optional Redemption", each holder will have the right to require the Company to repurchase all or any part of such holder's Notes at a purchase price in cash equal to 101% of the principal amount thereof plus accrued and unpaid interest, if any, to the date of purchase (subject to the right of holders of record on the relevant record date to receive interest due on the relevant interest payment date): (i) (A) any "person" (as such term is used in Sections 13(d) and 14(d) of the Exchange Act), other than one or more Permitted Holders, is or becomes the beneficial owner (as defined in Rules 13d-3 and 13d-5 under the Exchange Act, except that such person shall be deemed to have "beneficial ownership" of all shares that any such person has the right to acquire, whether such right is exercisable immediately or only after the passage of time), directly or indirectly, of more than 35% (or, if there is a Public Market at the time such person is or is deemed to have beneficial ownership, more than 50%) of the total voting power of the Voting Stock of the Company (or its successor by merger, consolidation or other business combination) (for the purposes of this clause, such person shall be deemed to beneficially own any Voting Stock of the Company held by a parent corporation, if such person "beneficially owns" (as defined above), directly or indirectly, more than 35% of the voting power of the Voting Stock of such parent corporation); and (B) if there is no Public Market, the Permitted Holders "beneficially own" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act), directly or indirectly, in the aggregate a lesser percentage of the total voting power of the Voting Stock of the Company (or its successor by merger, consolidation or purchase of all or substantially all of its assets) than such other person and do not have the right or ability by voting power, contract or otherwise to elect or designate for election a majority of the board of directors of the Company or such successor (for the purposes of this clause, such other person shall be deemed to beneficially own any Voting Stock of a specified corporation held by a parent corporation, if such other person "beneficially owns" (as defined in clause (A) above), directly or indirectly, more than 35% of the voting power of the Voting Stock of such parent corporation and the Permitted Holders "beneficially own" (as defined in this clause (B)), directly or indirectly, in the aggregate a lesser percentage of the voting power of the Voting Stock of such parent corporation and do not have the right or ability by voting power, contract or otherwise to elect or designate for election a majority of the board of directors of such parent corporation); or (ii) during any period of two consecutive years, individuals who at the beginning of such period constituted the Board of Directors of the Company (together with any new directors whose election by such Board of Directors or whose nomination for election by the shareholders of the Company, as the case may be, was approved by a vote of at least a majority of the directors of the Company then still in office who were either directors at the beginning of such period or whose election or nomination for election was previously so approved or is a designee of the Permitted Holders or was nominated or elected by such Permitted Holders or any of their designees) cease for any reason to constitute a majority of the Board of Directors of the Company then in office; or (iii) the sale, lease, transfer, conveyance or other disposition (other than by way of merger or consolidation), in one or a series of related transactions, of all or substantially all of the assets of the Company and its Restricted Subsidiaries taken as a whole to any "person" (as such term is used in Sections 13(d) and 14(d) of the Exchange Act) other than a Permitted Holder; or (iv) the adoption by the stockholders of a plan for the liquidation or dissolution of the Company. Within 30 days following any Change of Control, unless the Company has mailed a redemption notice with respect to all the outstanding Notes as described under "--Optional Redemption", the Company will mail a notice to each holder with a copy to the Trustee stating: (i) that a Change of Control has occurred and that such 80 holder has the right to require the Company to purchase such holder's Notes at a purchase price in cash equal to 101% of the principal amount thereof plus accrued and unpaid interest, if any, to the date of purchase (subject to the right of holders of record on a record date to receive interest on the relevant interest payment date); (ii) the repurchase date (which shall be no earlier than 30 days nor later than 60 days from the date such notice is mailed); and (iii) the procedures determined by the Company, consistent with the Indenture, that a holder must follow in order to have its Notes purchased. The Company will comply, to the extent applicable, with the requirements of Section 14(e) of the Exchange Act and any other securities laws or regulations in connection with the repurchase of Notes pursuant to this covenant. To the extent that the provisions of any securities laws or regulations conflict with provisions of the Indenture, the Company will comply with the applicable securities laws and regulations and will not be deemed to have breached its obligations described in the Indenture by virtue thereof. The occurrence of certain of the events that would constitute a Change of Control would constitute a default under the Senior Credit Agreement. Future Indebtedness of the Company and its Subsidiaries may also contain prohibitions of certain events that would constitute a Change of Control or require such Indebtedness to be repurchased upon a Change of Control. Moreover, the exercise by the holders of their right to require the Company to repurchase the Notes could cause a default under such Indebtedness, even if the Change of Control itself does not, due to the financial effect of such repurchase on the Company. Finally, the Company's ability to pay cash to the holders upon a repurchase may be limited by the Company's then existing financial resources. There can be no assurance that sufficient funds will be available when necessary to make any required repurchases. Even if sufficient funds were otherwise available, the terms of the Senior Credit Agreement will (and other Indebtedness may) prohibit the Company's prepayment of Notes prior to their scheduled maturity. Consequently, if the Company is not able to prepay the indebtedness under the Senior Credit Agreement and any other Indebtedness containing similar restrictions or obtain requisite consents, as described above, the Company will be unable to fulfill its repurchase obligations if holders of Notes exercise their repurchase rights following a Change of Control, thereby resulting in a default under the Indenture. The Change of Control provisions described above may deter certain mergers, tender offers and other takeover attempts involving the Company by increasing the capital required to effectuate such transactions. The definition of "Change of Control" includes a disposition of all or substantially all of the property and assets of the Company and its Restricted Subsidiaries. With respect to the disposition of property or assets, the phrase "all or substantially all" as used in the Indenture varies according to the facts and circumstances of the subject transaction, has no clearly established meaning under New York law (which is the choice of law under the Indenture) and is subject to judicial interpretation. Accordingly, in certain circumstances there may be a degree of uncertainty in ascertaining whether a particular transaction would involve a disposition of "all or substantially all" of the property or assets of a Person, and therefore it may be unclear as to whether a Change of Control has occurred and whether the Company is required to make an offer to repurchase the Notes as described above. CERTAIN COVENANTS The Indenture contains certain covenants including, among others, the following: Limitation on Indebtedness. (a) The Company will not, and will not permit any of its Restricted Subsidiaries to, Incur any Indebtedness; provided, however, that the Company and its Restricted Subsidiaries which are Subsidiary Guarantors may Incur Indebtedness if on the date thereof, after giving pro forma effect to the incurrence of such Indebtedness and the intended application of the proceeds thereof, the Interest Coverage Ratio for the Company and its Restricted Subsidiaries is at least 2.5 to 1.0. (b) Notwithstanding the foregoing paragraph (a), the Company and its Restricted Subsidiaries may Incur the following Indebtedness: (i) Indebtedness Incurred pursuant to the Senior Credit Agreement; provided that the aggregate principal amount of all Indebtedness (with letters of credit being deemed to have a principal amount equal to the maximum potential liability of the Company and its Restricted Subsidiaries thereunder) outstanding 81 at any time under the Senior Credit Agreement after giving effect to such Incurrence, including all Refinancing Indebtedness Incurred to refund, refinance or replace any other Indebtedness Incurred pursuant to this clause (i), does not exceed an amount equal to $20.0 million; (ii) the Subsidiary Guarantees and Guarantees of Indebtedness Incurred pursuant to paragraph (a) or clause (i) of this paragraph (b); (iii) Indebtedness of the Company owing to and held by any Wholly-Owned Subsidiary or Indebtedness of a Restricted Subsidiary owing to and held by the Company or any Wholly-Owned Subsidiary; provided, however, that any subsequent issuance or transfer of any Capital Stock or any other event which results in any such Wholly-Owned Subsidiary ceasing to be a Wholly-Owned Subsidiary or any subsequent transfer of any such Indebtedness (except to the Company or a Wholly-Owned Subsidiary) will be deemed, in each case, to constitute the Incurrence of such Indebtedness by the issuer thereof; (iv) Indebtedness represented by (x) the Notes and (y) any Indebtedness (other than the Indebtedness described in clauses (i), (ii) and (iii)) outstanding on the Issue Date; (v) Indebtedness of a Restricted Subsidiary Incurred and outstanding on the date on which such Restricted Subsidiary was acquired by the Company; provided, however, that at the time such Restricted Subsidiary is acquired by the Company, the Company would have been able to Incur $1.00 of additional Indebtedness pursuant to paragraph (a) above after giving effect to the Incurrence of such Indebtedness pursuant to this clause (v); (vi) Indebtedness under Interest Rate Agreements; provided, however, that such Interest Rate Agreements are entered into for bona fide hedging purposes of the Company or its Restricted Subsidiaries (as determined in good faith by the Board of Directors or senior management of the Company) and correspond in terms of notional amount, duration, currencies and interest rates, as applicable, to Indebtedness of the Company or its Restricted Subsidiaries Incurred without violation of the Indenture or to business transactions of the Company or its Restricted Subsidiaries on customary terms entered into in the ordinary course of business; (vii) Indebtedness incurred to finance or refinance the purchase price or cost of construction or improvement of property used in the Company's business, and Capitalized Lease Obligations, in each case secured by Liens described in clause (i) of the definition of "Permitted Liens," provided, that the aggregate principal amount thereof incurred in any fiscal year, shall not exceed $15.0 million; (viii) Indebtedness in respect of performance bonds, bankers' acceptances, workers' compensation claims, surety or appeal bonds, payment obligations in connection with self-insurance or similar obligations, and bank overdrafts (and letters of credit in respect thereof) provided by the Company or any Restricted Subsidiary in the ordinary course of its business and which do not secure other Indebtedness; (ix) Indebtedness represented by Guarantees by the Company of Indebtedness otherwise permitted to be Incurred pursuant to this covenant and Indebtedness represented by Guarantees by a Subsidiary Guarantor of Indebtedness of the Company or of another Restricted Subsidiary otherwise permitted to be Incurred pursuant to this covenant; (x) Indebtedness incurred by the Company or any Subsidiary Guarantor and arising from agreements providing for indemnification, adjustment of purchase price or similar obligations, from guarantees or letters of credit, surety bonds or performance bonds securing any obligations of the Company or any Restricted Subsidiary pursuant to such agreements, in each case incurred in connection with the purchase or sale of a business or assets otherwise permitted by the Indenture; (xi) the Incurrence by the Company or any Subsidiary Guarantor of Refinancing Indebtedness in exchange for, or the net proceeds which are used to refund, refinance or replace, Indebtedness that was permitted by the Indenture to be Incurred (other than Indebtedness incurred pursuant to clause (xii) of this paragraph (b)); and (xii) Indebtedness (other than Indebtedness described in clauses (i)(xi)) in a principal amount which, when taken together with the principal amount of all other Indebtedness Incurred pursuant to this clause (xii) and then outstanding, will not exceed $10.0 million. (c) Neither the Company nor any Restricted Subsidiary will Incur any Indebtedness under paragraph (b) above if the proceeds thereof are used, directly or indirectly, to refinance any Subordinated Obligations of the Company unless such Indebtedness will be subordinated to the Notes to at least the same extent as such Subordinated Obligations. No Subsidiary Guarantor will Incur any Indebtedness under paragraph (b) above if the proceeds thereof are used, directly or indirectly, to refinance any Subsidiary Guarantor Subordinated Obligations of such Subsidiary Guarantor unless such Indebtedness will be subordinated to the obligations of such Subsidiary Guarantor under its Subsidiary Guarantee to at least the same extent as such Subsidiary Guarantor Subordinated Obligations. (d) For purposes of determining compliance with, and the outstanding principal amount of any particular Indebtedness Incurred pursuant to and in compliance with, this covenant, in the event that Indebtedness meets 82 the criteria of more than one of the types of Indebtedness described in paragraph (b) above, (i) the Company, in its sole discretion, will classify such item of Indebtedness and only be required to include the amount and type of such Indebtedness in one of such clauses and (ii) such item of Indebtedness may be divided and classified in more than one of such clauses. (e) The Company will not permit any Unrestricted Subsidiary to Incur any Indebtedness other than Non-Recourse Debt. Limitation on Restricted Payments. (a) The Company will not, and will not permit any of its Restricted Subsidiaries, directly or indirectly, to (i) declare or pay any dividend or make any distribution on or in respect of its Capital Stock (including any payment in connection with any merger or consolidation involving the Company or any of its Restricted Subsidiaries) except (A) dividends or distributions payable in its Capital Stock (other than Disqualified Stock) or in options, warrants or other rights to purchase such Capital Stock and (B) dividends or distributions payable to the Company or a Restricted Subsidiary of the Company (and if such Restricted Subsidiary is not a Wholly-Owned Subsidiary, to its other holders of Capital Stock on a pro rata basis), (ii) purchase, redeem, retire or otherwise acquire for value any Capital Stock of the Company held by Persons other than a Restricted Subsidiary of the Company or any Capital Stock of a Restricted Subsidiary of the Company held by any Affiliate of the Company, other than another Restricted Subsidiary (in either case, other than in exchange for its Capital Stock (other than Disqualified Stock)), (iii) purchase, repurchase, redeem, defease or otherwise acquire or retire for value, prior to scheduled maturity, scheduled repayment or scheduled sinking fund payment, any Subordinated Obligations (other than the purchase, repurchase or other acquisition of Subordinated Obligations purchased in anticipation of satisfying a sinking fund obligation, principal installment or final maturity, in each case due within one year of the date of purchase, repurchase or acquisition) or (iv) make any Investment (other than a Permitted Investment) in any Person (any such dividend, distribution, purchase, redemption, repurchase, defeasance, other acquisition, retirement or Investment being herein referred to in clauses (i) through (iv) as a "Restricted Payment"), if at the time the Company or such Restricted Subsidiary makes such Restricted Payment: (1) a Default or an Event of Default shall have occurred and be continuing (or would result therefrom); or (2) the Company and its Restricted Subsidiaries could not Incur an additional $1.00 of Indebtedness pursuant to paragraph (a) under "--Limitation on Indebtedness"; or (3) the aggregate amount of such Restricted Payment and all other Restricted Payments declared or made subsequent to the Issue Date would exceed the sum of: (A) 50% of Consolidated Net Income accrued during the period (treated as one accounting period) from the Issue Date to the end of the most recent fiscal quarter ending prior to the date of such Restricted Payment as to which financial results are available (or, in case such Consolidated Net Income is a deficit, minus 100% of such deficit); (B) the aggregate Net Cash Proceeds received by the Company from the issue or sale of its Capital Stock (other than Disqualified Stock) or other capital contributions subsequent to the Issue Date (other than net proceeds to the extent (x) used to redeem Notes or (y) received from an issuance or sale of such Capital Stock to a Subsidiary of the Company or an employee stock ownership plan or similar trust to the extent such sale to an employee stock ownership plan or similar trust is financed by loans from or guaranteed by the Company or any Restricted Subsidiary unless such loans have been repaid with cash on or prior to the date of determination); (C) the amount by which Indebtedness of the Company is reduced on the Company's balance sheet upon the conversion or exchange (other than by a Subsidiary of the Company) subsequent to the Issue Date of any Indebtedness of the Company convertible or exchangeable for Capital Stock of the Company (less the amount of any cash, or other property, distributed by the Company upon such conversion or exchange); and (D) the amount equal to the net reduction in Investments (other than Permitted Investments) made by the Company or any of its Restricted Subsidiaries in any Person resulting from (i) repurchases or redemptions of such Investments by such Person, proceeds realized upon the sale of such Investment to an unaffiliated purchaser, repayments of loans or advances or other transfers of assets as a return of capital or similar payment (excluding by way of dividend or distribution) by such Person to the Company or any Restricted Subsidiary of the Company or (ii) the redesignation of Unrestricted Subsidiaries as Restricted Subsidiaries (valued in each case as provided in the definition of "Investment") not to exceed, in the case of any Unrestricted Subsidiary, the amount of Investments (excluding Permitted Investments) previously made by the Company or any Restricted Subsidiary in such Unrestricted Subsidiary, which amount was included in the 83 calculation of the amount of Restricted Payments; provided, however, that no amount will be included under this clause (D) to the extent it is already included in Consolidated Net Income. (b) The provisions of paragraph (a) will not prohibit: (i) any purchase, redemption, defeasance or other acquisition of Capital Stock or Subordinated Obligations of the Company made by exchange for, or out of the proceeds of the substantially concurrent sale of, Capital Stock of the Company (other than Disqualified Stock and other than Capital Stock issued or sold to a Subsidiary or an employee stock ownership plan or similar trust to the extent such sale to an employee stock ownership plan or similar trust is financed by loans from or guaranteed by the Company or any Restricted Subsidiary unless such loans have been repaid with cash on or prior to the date of determination); provided, however, that (A) such purchase, redemption, defeasance or other acquisition will be excluded in subsequent calculations of the amount of Restricted Payments and (B) the Net Cash Proceeds from such sale will be excluded from clause (3) (B) of paragraph (a); (ii) any purchase, redemption, defeasance or other acquisition of Subordinated Obligations of the Company made by exchange for, or out of the proceeds of the substantially concurrent sale of, Subordinated Obligations of the Company; provided, however, that such purchase, redemption, defeasance or other acquisition will be excluded in subsequent calculations of the amount of Restricted Payments; (iii) dividends paid within 60 days after the date of declaration if at such date of declaration such dividend would have complied with this provision; provided, however, that such dividends will be included in subsequent calculations of the amount of Restricted Payments; (iv) any redemptions, repurchases, defeasances or other acquisitions of Management Equity Interests, in each case in connection with the repurchase provisions under employee stock option agreement or plan, stock purchase agreements, subscription agreements, employment agreements, employee benefit plan or arrangement, stockholder agreement or other agreements to compensate management employees; provided, however, that such redemptions, repurchases or other acquisitions will be included in subsequent calculations of the amount of Restricted Payments; and provided further, however, that the aggregate amount of Restricted Payments made pursuant to this clause (iv) shall not exceed $5.0 million in the aggregate; and (v) repurchases of Capital Stock deemed to occur upon the exercise of stock options if such Capital Stock represents a portion of the exercise price hereof; provided, however, that such repurchases will be excluded from subsequent calculations of the amount of Restricted Payments. Limitation on Liens. The Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, create, Incur or suffer to exist any Lien (other than Permitted Liens) upon any of its property or assets (including Capital Stock), whether owned on the date of the Indenture or thereafter acquired, securing any Indebtedness, unless contemporaneously therewith effective provision is made to secure the Indebtedness due under the Indenture and the Notes or, in respect of Liens on any Restricted Subsidiary's property or assets, any Subsidiary Guarantee of such Restricted Subsidiary, equally and ratably with (or prior to in the case of Liens with respect to Subordinated Obligations or Subsidiary Guarantor Subordinated Obligations) the Indebtedness secured by such Lien for so long as such Indebtedness is so secured. Limitation on Restrictions on Distributions from Restricted Subsidiaries. The Company will not, and will not permit any Restricted Subsidiary to, create or otherwise cause or permit to exist or become effective any consensual encumbrance or consensual restriction on the ability of any Restricted Subsidiary to (i) pay dividends or make any other distributions on its Capital Stock or pay any Indebtedness or other obligations owed to the Company, (ii) make any loans or advances to the Company or (iii) transfer any of its property or assets to the Company, except (a) any encumbrance or restriction pursuant to an agreement in effect at or entered into on the date of the Indenture (including, without limitation, the Senior Credit Agreement); (b) any encumbrance or restriction with respect to a Restricted Subsidiary pursuant to an agreement relating to any Indebtedness Incurred by a Restricted Subsidiary on or prior to the date on which such Restricted Subsidiary was acquired by the Company (other than Indebtedness Incurred as consideration in, or to provide all or any portion of the funds utilized to consummate, the transaction or series of related transactions pursuant to which such Restricted Subsidiary became a Restricted Subsidiary or was acquired by the Company) and outstanding on such date; (c) any encumbrance or restriction with respect to a Restricted Subsidiary pursuant to an agreement effecting a refinancing of Indebtedness Incurred pursuant to an agreement referred to in clause (a) or (b) of this covenant or 84 this clause (c) or contained in any amendment to an agreement referred to in clause (a) or (b) of this covenant or this clause (c); provided, however, that the encumbrances and restrictions with respect to such Restricted Subsidiary contained in any such agreement or amendment are no less favorable to the holders of the Notes than encumbrances and restrictions contained in such agreements; (d) in the case of clause (iii) above, any encumbrance or restriction (A) that restricts in a customary manner the subletting, assignment or transfer of any property or asset that is subject to a lease, license or similar contract, or the assignment or transfer of any such lease, license or other contract, (B) by virtue of any transfer of, agreement to transfer, option or right with respect to, or Lien on, any property or assets of the Company or any Restricted Subsidiary not otherwise prohibited by the Indenture, (C) contained in mortgages, pledges or other security agreements securing Indebtedness of a Restricted Subsidiary to the extent such encumbrance or restrictions restrict the transfer of the property subject to such mortgages, pledges or other security agreements or (D) pursuant to customary provisions restricting dispositions of real property interests set forth in any reciprocal easement agreements of the Company or any Restricted Subsidiary; (e) any restriction with respect to a Restricted Subsidiary (or any of its property or assets) imposed pursuant to an agreement entered into for the direct or indirect sale or disposition of all or substantially all the Capital Stock or assets of such Restricted Subsidiary (or the property or assets that are subject to such restriction) pending the closing of such sale or disposition; (f) encumbrances or restrictions arising or existing by reason of applicable law and (g) encumbrances or restrictions contained in agreements relating to Indebtedness Incurred by Restricted Subsidiaries in connection with Special Purpose Transactions. Limitation on Sales of Assets and Subsidiary Stock. (a) The Company will not, and will not permit any of its Restricted Subsidiaries to, make any Asset Disposition unless (i) the Company or such Restricted Subsidiary receives consideration at the time of such Asset Disposition at least equal to the fair market value, as determined in good faith by the Board of Directors (including as to the value of all non-cash consideration), of the shares and assets subject to such Asset Disposition and (ii) at least 80% of the consideration thereof received by the Company or such Restricted Subsidiary is in the form of cash or Cash Equivalents. With respect to any Asset Disposition occurring on or after the Issue Date from which the Company or any Restricted Subsidiary receives Net Available Cash, the Company or such Restricted Subsidiary shall apply an amount equal to 100% of the Net Available Cash from such Asset Disposition at its election, to either (i) prepay, repay or purchase Indebtedness (other than any Subordinated Obligations or Preferred Stock) of the Company or a Wholly-Owned Subsidiary (in each case other than Indebtedness owed to the Company or an Affiliate of the Company) within 365 days from the later of the date of such Asset Disposition or the receipt of such Net Available Cash; (ii) invest in Additional Assets within 365 days from the later of the date of such Asset Disposition or the receipt of such Net Available Cash; or (iii) make an offer to purchase the Notes at 100% of the principal amount thereof plus accrued and unpaid interest, if any, to the date of purchase; provided, however, that, in connection with any prepayment, repayment or purchase of Indebtedness pursuant to clause (i) above, the Company or such Restricted Subsidiary will retire such Indebtedness and will cause the related loan commitment (if any) to be permanently reduced to the extent required by the Senior Credit Agreement. Notwithstanding the foregoing provisions, the Company and its Restricted Subsidiaries will not be required to apply any Net Available Cash in accordance herewith except to the extent that the aggregate Net Available Cash from all Asset Dispositions which are not applied in accordance with this covenant exceed $1.0 million. Any Net Available Cash from an Asset Disposition that is not invested or applied as provided and within the time period set forth in the first sentence of this paragraph (a) will be deemed to constitute "Excess Proceeds." For the purposes of this covenant and for no other purpose, the following will be deemed to be cash: (x) the assumption by the transferee of Indebtedness (other than Subordinated Obligations) of the Company or Indebtedness of any Restricted Subsidiary of the Company and the release of the Company or such Restricted Subsidiary from all liability on such Indebtedness or Indebtedness in connection with such Asset Disposition (in which case the Company will, without further action, be deemed to have applied such deemed cash amount in accordance with clause (i) of the preceding paragraph) and (y) securities received by the Company or any Restricted Subsidiary of the Company from the transferee that are promptly converted by the Company or such Restricted Subsidiary into cash. 85 (b) When the aggregate amount of Excess Proceeds exceeds $5.0 million (with lesser amounts to be carried forward for purposes of determining whether an Offer (as defined) is required with respect to the Excess Proceeds from any subsequent Asset Disposition), the Company will be required to make an offer to purchase (an "Asset Sale Offer") within ten days of such time from all holders of the Notes in accordance with the procedures set forth in the Indenture the maximum principal amount (expressed as a multiple of $1,000) of Notes that may be purchased with such Excess Proceeds. If the aggregate purchase price of the Notes tendered pursuant to the Asset Sale Offer is less than the Excess Proceeds, the remaining Excess Proceeds will be available to the Company to fund other corporate purposes not otherwise prohibited by the Indenture. (c) The Company will comply, to the extent applicable, with the requirements of Section 14(e) of the Exchange Act and any other securities laws or regulations in connection with the repurchase of Notes pursuant to an Asset Sale Offer made pursuant to this covenant. To the extent that the provisions of any securities laws or regulations conflict with provisions of this covenant, the Company will comply with the applicable securities laws and regulations and will not be deemed to have breached its obligations under the Indenture by virtue thereof. Limitation on Sale/Leaseback Transactions. The Company will not, and will not permit any Restricted Subsidiary to, enter into any Sale/Leaseback Transaction with respect to any property unless: (i) the Company or such Restricted Subsidiary would be entitled to Incur Indebtedness in an amount equal to the Attributable Indebtedness with respect to such Sale/Leaseback Transaction pursuant to the covenant described under "Limitation on Indebtedness;" (ii) the net proceeds received by the Company or any Restricted Subsidiary in connection with such Sale/Leaseback Transaction are at least equal to the fair value (as determined by the Board of Directors) of such property; and (iii) the transfer of such property is permitted by, and the Company applies the proceeds of such transaction in compliance with, the covenant described under "--Limitation on Sales of Assets and Subsidiary Stock." Limitation on Affiliate Transactions. (a) The Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, enter into or conduct any transaction (including the purchase, sale, lease or exchange of any property or the rendering of any service) with any Affiliate of the Company (an "Affiliate Transaction") unless: (i) the terms of such Affiliate Transaction are no less favorable to the Company or such Restricted Subsidiary, as the case may be, than those that could be obtained at the time of such transaction in arm's-length dealings with a Person who is not such an Affiliate; (ii) in the event such Affiliate Transaction involves an aggregate amount in excess of $1.0 million, the terms of such transaction have been approved by a majority of the members of the Board of Directors of the Company and by a majority of the members of such Board having no personal stake in such transaction, if any (and such majority or majorities, as the case may be, determines, or determine, that such Affiliate Transaction satisfies the criteria in (i) above); and (iii) in the event such Affiliate Transaction involves an aggregate amount in excess of $10.0 million, the Company has received a written opinion from an independent investment banking firm of nationally recognized standing that such Affiliate Transaction is not materially less favorable than those that might reasonably have been obtained in a comparable transaction at such time on an arms-length basis from a Person that is not an Affiliate. (b) The foregoing paragraph (a) will not apply to (i) any Restricted Payment permitted to be made pursuant to the covenant described under "--Limitation on Restricted Payments," (ii) any issuance of (A) securities to any of the Permitted Holders or (B) securities, or other payments, awards or grants in cash, securities or otherwise pursuant to, or the funding of, employment arrangements, stock options and stock ownership plans approved by the Board of Directors of the Company, (iii) loans or advances to employees in the ordinary course of business of the Company or any of its Restricted Subsidiaries, (iv) any transaction between the Company and a Wholly-Owned Subsidiary or between Wholly-Owned Subsidiaries, (v) any fees, indemnities, loans or advances to employees in the ordinary course of business and consistent with past practices and (vi) payments under the Management Agreement as in effect on the Issue Date. Limitation on Dispositions of Capital Stock of Restricted Subsidiaries. The Company (i) will not, and will not permit any Restricted Subsidiary of the Company to, transfer, convey, sell, lease or otherwise dispose of any 86 Capital Stock of any Restricted Subsidiary to any Person (other than the Company or a Wholly Owned Subsidiary), unless (A) such transfer, conveyance, sale, lease or other disposition is a sale of the common stock of such Restricted Subsidiary and, after giving effect to the consummation thereof, the Company owns none or more than 50% of the outstanding common stock of such Restricted Subsidiary and (B) the Net Cash Proceeds from such transfer, conveyance, sale, lease or other disposition are applied in accordance with the covenant described above under "--Limitation on Sales of Assets and Subsidiary Stock;" and (ii) will not permit any Restricted Subsidiary to issue any of its Capital Stock (other than, if necessary, shares of its Capital Stock constituting directors' qualifying shares or any shares required to be held by Persons other than the Company or a Restricted Subsidiary in connection with the maintenance of liquor licenses) to any Person other than to the Company or a Wholly-Owned Subsidiary, unless such issuance is an issuance of the common stock of such Restricted Subsidiary and, after giving effect to the consummation thereof, the Company and/or one or more Wholly- Owned Subsidiaries owns more than 50% of the outstanding common stock of such Restricted Subsidiary; provided, however, that this provision shall not prohibit any pledge or collateral assignment of the Capital Stock of any Restricted Subsidiary that is permitted under "Limitation on Liens" or the exercise of any right or remedy by the holder of any such pledge or assignment. Commission Reports. Notwithstanding that the Company may not be subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act, to the extent permitted by the Exchange Act, the Company will file with the Commission, and provide, within 15 days after the Company is required to file the same with the Commission, the Trustee and the holders of the Notes with the annual reports and the information, documents and other reports (or copies of such portions of any of the foregoing as the Commission may by rules and regulations prescribe) that are specified in Sections 13 and 15(d) of the Exchange Act. In the event that the Company is not permitted to file such reports, documents and information with the Commission pursuant to the Exchange Act, the Company will nevertheless deliver such Exchange Act information to the Trustee and the holders of the Notes as if the Company were subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act. Merger and Consolidation. The Company will not consolidate with or merge with or into, or convey, transfer or lease all or substantially all its assets to, any Person, unless: (i) (A) the resulting, surviving or transferee Person (the "Successor Company") will be a corporation, partnership, trust, limited liability company or other similar entity organized and existing under the laws of the United States of America, any State thereof or the District of Columbia, (B) the Successor Company (if not the Company) will expressly assume, by supplemental indenture, executed and delivered to the Trustee, in form satisfactory to the Trustee, all the obligations of the Company under the Notes and the Indenture, and (C) the Subsidiary Guarantees will remain in effect after any such merger or consolidation; (ii) immediately after giving effect to such transaction (and treating any Indebtedness that becomes an obligation of the Successor Company or any Subsidiary of the Successor Company as a result of such transaction as having been Incurred by the Successor Company or such Subsidiary at the time of such transaction), no Default or Event of Default shall have occurred and be continuing; (iii) immediately after giving effect to such transaction, the Successor Company would be able to Incur at least an additional $1.00 of Indebtedness pursuant to paragraph (a) of "--Limitation on Indebtedness;" and (iv) the Company has delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that such consolidation, merger or transfer and such supplemental indenture (if any) comply with the Indenture. The Successor Company will succeed to, and be substituted for, and may exercise every right and power of, the Company under the Indenture, but, in the case of a lease of all or substantially all its assets, the Company will not be released from the obligation to pay the principal of and interest on the Notes. Notwithstanding the foregoing clauses (ii) and (iii), (x) any Restricted Subsidiary of the Company may consolidate with, merge into or transfer all or part of its properties and assets to the Company and (y) the Company may merge with an Affiliate incorporated solely for the purpose of reincorporating the Company in another jurisdiction to realize tax or other benefits. 87 Future Subsidiary Guarantors. The Company will cause each Restricted Subsidiary (other than (i) a Foreign Subsidiary or (ii) a special purpose entity and/or limited partnership created solely to Incur Indebtedness of the type specified in clause (b)(vii) under "--Limitation on Indebtedness" in connection with a Special Purpose Transaction or any special purpose corporate general partner thereof) created or acquired by the Company to execute and deliver to the Trustee a Subsidiary Guarantee pursuant to which such Subsidiary Guarantor will unconditionally Guarantee, on a joint and several basis, the full and prompt payment of the principal of, premium, if any and interest on the Notes on a senior basis. EVENTS OF DEFAULT Each of the following constitutes an Event of Default under the Indenture: (i) a default in any payment of interest on any Note when due, continued for 30 days, (ii) a default in the payment of principal of any Note when due at its Stated Maturity, upon optional redemption, upon special mandatory redemption, upon required repurchase, upon declaration or otherwise, (iii) the failure by the Company to comply with its obligations under "--Certain Covenants--Merger and Consolidation" above, (iv) failure by the Company to comply for 30 days after notice with any of its obligations under the covenants described under "Change of Control" above or under covenants described under "--Certain Covenants" above (in each case, other than a failure to purchase Notes which will constitute an Event of Default under clause (ii) above), (v) the failure by the Company to comply for 60 days after notice with its other agreements contained in the Indenture, (vi) Indebtedness of the Company or any Restricted Subsidiary is not paid within any applicable grace period after final maturity or is accelerated by the holders thereof because of a default and the total amount of such Indebtedness unpaid or accelerated exceeds $5.0 million (the "cross acceleration provision"), (vii) certain events of bankruptcy, insolvency or reorganization of the Company or a Significant Subsidiary (the "bankruptcy provisions"), (viii) any judgment or decree for the payment of money in excess of $5.0 million is rendered against the Company or a Significant Subsidiary and such judgment or decree remains undischarged or unstayed for a period of 60 days after such judgment becomes final and non-appealable (the "judgment default provision") or (ix) any Subsidiary Guarantee ceases to be in full force and effect (except as contemplated by the terms of the Indenture) or any Subsidiary Guarantor denies or disaffirms its obligations under the Indenture or its Subsidiary Guarantee (except as contemplated by the terms of the Indenture). However, a default under clauses (iv) and (v) will not constitute an Event of Default until the Trustee notifies the Company or the holders of 25% in principal amount of the then outstanding Notes notify the Company of the default and the Company does not cure such default within the time specified in clauses (iv) and (v) hereof after receipt of such notice. If an Event of Default (other than an Event of Default specified in clause (vii) above with respect to the Company) occurs and is continuing, the Trustee or the holders of at least 25% in principal amount of the outstanding Notes by notice to the Company and the Trustee may declare the principal of and accrued and unpaid interest, if any, on all the Notes to be due and payable. Upon such a declaration, such principal and accrued and unpaid interest will be due and payable immediately. If an Event of Default relating to certain events of bankruptcy, insolvency or reorganization of the Company occurs and is continuing, the principal of and accrued and unpaid interest on all the Notes will become and be immediately due and payable without any declaration or other act on the part of the Trustee or any holders. Under certain circumstances, the holders of a majority in principal amount of the outstanding Notes may rescind any such acceleration with respect to the Notes and its consequences. Subject to the provisions of the Indenture relating to the duties of the Trustee, if an Event of Default occurs and is continuing, the Trustee will be under no obligation to exercise any of the rights or powers under the Indenture at the request or direction of any of the holders unless such holders have offered to the Trustee reasonable indemnity or security against any loss, liability or expense. Except to enforce the right to receive payment of principal, premium, if any, or interest when due, no holder may pursue any remedy with respect to the Indenture or the Notes unless (i) such holder has previously given the Trustee notice that an Event of Default is continuing, (ii) holders of at least 25% in principal amount of the outstanding Notes have requested the Trustee to pursue the remedy, (iii) such holders have offered the Trustee reasonable security or indemnity against any 88 loss, liability or expense, (iv) the Trustee has not complied with such request within 60 days after the receipt of the request and the offer of security or indemnity and (v) the holders of a majority in principal amount of the outstanding Notes have not given the Trustee a direction that, in the opinion of the Trustee, is inconsistent with such request within such 60-day period. Subject to certain restrictions, the holders of a majority in principal amount of the outstanding Notes are given the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or of exercising any trust or power conferred on the Trustee. The Trustee, however, may refuse to follow any direction that conflicts with law or the Indenture or that the Trustee determines is unduly prejudicial to the rights of any other holder or that would involve the Trustee in personal liability. Prior to taking any action under the Indenture, the Trustee will be entitled to indemnification satisfactory to it in its sole discretion against all losses and expenses caused by taking or not taking such action. The Indenture provides that if a Default occurs and is continuing and is known to the Trustee, the Trustee must mail to each holder notice of the Default within 90 days after it occurs. Except in the case of a Default in the payment of principal of, premium, if any, or interest on any Note, the Trustee may withhold notice if and so long as a committee of its Trust officers in good faith determines that withholding notice is in the interests of the holders of Notes. In addition, the Company is required to deliver to the Trustee, within 120 days after the end of each fiscal year, a certificate indicating whether the signers thereof know of any Default that occurred during the previous year. The Company also is required to deliver to the Trustee, within 30 days after the occurrence thereof, written notice of any events which would constitute certain Defaults, their status and what action the Company is taking or proposes to take in respect thereof. AMENDMENTS AND WAIVERS Subject to certain exceptions, the Indenture may be amended with the consent of the holders of a majority in principal amount of the Notes then outstanding and any past default or compliance with any provisions may be waived with the consent of the holders of a majority in principal amount of the Notes then outstanding. However, without the consent of each holder of an outstanding Note affected, no amendment may, among other things, (i) reduce the amount of Notes whose holders must consent to an amendment, (ii) reduce the stated rate of or extend the stated time for payment of interest on any Note, (iii) reduce the principal of or extend the Stated Maturity of any Note, (iv) reduce the premium payable upon the redemption or repurchase of any Note or change the time at which any Note may be redeemed as described under "Optional Redemption" above, (v) make any Note payable in money other than that stated in the Note, (vi) impair the right of any holder to receive payment of principal of and interest on such holder's Notes on or after the due dates therefor or to institute suit for the enforcement of any payment on or with respect to such holder's Notes or (vii) make any change in the amendment provisions which require each holder's consent or in the waiver provisions. Without the consent of any holder, the Company, the Subsidiary Guarantors and the Trustee may amend the Indenture to cure any ambiguity, omission, defect or inconsistency, to provide for the assumption by a successor corporation, partnership, trust or limited liability company of the obligations of the Company under the Indenture, to provide for uncertificated Notes in addition to or in place of certificated Notes (provided that the uncertificated Notes are issued in registered form for purposes of Section 163(f) of the Code, or in a manner such that the uncertificated Notes are described in Section 163(f) (2) (B) of the Code), to add Guarantees with respect to the Notes, to secure the Notes, to add to the covenants of the Company for the benefit of the holders or to surrender any right or power conferred upon the Company, to make any change that does not adversely affect the rights of any holder or to comply with any requirement of the Commission in connection with the qualification of the Indenture under the Trust Indenture Act. The consent of the holders is not necessary under the Indenture to approve the particular form of any proposed amendment. It is sufficient if such consent approves the substance of the proposed amendment. After an amendment under the Indenture becomes effective, the Company is required to mail to the holders a notice briefly describing such amendment. However, the failure to give such notice to all the holders, or any defect therein, will not impair or affect the validity of the amendment. 89 DEFEASANCE The Company at any time may terminate all its obligations under the Notes and the Indenture ("legal defeasance"), except for certain obligations, including those respecting the defeasance trust and obligations to replace mutilated, destroyed, lost or stolen Notes and to maintain a registrar and paying agent in respect of the Notes. If the Company exercises its legal defeasance option, the Subsidiary Guarantees in effect at such time will terminate. The Company at any time may terminate its obligations under covenants described under "--Certain Covenants" (other than "--Merger and Consolidation"), the operation of the cross acceleration provision, the bankruptcy provisions with respect to Significant Subsidiaries, the judgment default provision and the Subsidiary Guarantee provision described under "-- Events of Default" above and the limitations contained in clauses (iii) and (iv) under "--Certain Covenants--Merger and Consolidation" above ("covenant defeasance") and thereafter any omission to comply with such obligations shall no longer constitute a Default or Event of Default with respect to the Notes. The Company may exercise its legal defeasance option notwithstanding its prior exercise of its covenant defeasance option. If the Company exercises its legal defeasance option, payment of the Notes may not be accelerated because of an Event of Default with respect thereto. If the Company exercises its covenant defeasance option, the events specified in clause (iv), (vi), (vii) (with respect only to Significant Subsidiaries), (viii) or (ix) under "Events of Default" above will no longer constitute an Event of Default, and payment of the Notes may not be accelerated because of the occurrence of any such event or because of the failure of the Company to comply with clause (iii) or (iv) under "--Certain Covenants--Merger and Consolidation" above. In order to exercise either defeasance option, the Company must irrevocably deposit in trust (the "defeasance trust") with the Trustee money or U.S. Government Obligations for the payment of principal, premium, if any, and interest on the Notes to redemption or maturity, as the case may be, and must comply with certain other conditions, including delivery to the Trustee of an Opinion of Counsel to the effect that holders of the Notes will not recognize income, gain or loss for Federal income tax purposes as a result of such deposit and defeasance and will be subject to Federal income tax on the same amount and in the same manner and at the same times as would have been the case if such deposit and defeasance had not occurred (and, in the case of legal defeasance only, such Opinion of Counsel must be based on a ruling of the Internal Revenue Service or other change in applicable Federal income tax law). CONCERNING THE TRUSTEE United States Trust Company of New York shall be the Trustee under the Indenture and has been appointed by the Company as Registrar and Paying Agent with regard to the Notes. GOVERNING LAW The Indenture provides that it, the Notes and the Subsidiary Guarantees will be governed by, and construed in accordance with, the laws of the State of New York without giving effect to applicable principles of conflicts of law to the extent that the application of the law of another jurisdiction would be required thereby. CERTAIN DEFINITIONS "Additional Assets" means (i) any property or assets (other than Indebtedness and Capital Stock) to be used by the Company or a Restricted Subsidiary in a Related Business; (ii) the Capital Stock of a Person that becomes a Restricted Subsidiary as a result of the acquisition of such Capital Stock by the Company or a Restricted Subsidiary of the Company; or (iii) Capital Stock constituting a minority interest in any Person that at such time is a Restricted Subsidiary of the Company; provided, however, that, in the case of clauses (ii) and (iii), such Restricted Subsidiary is primarily engaged in a Related Business. "Affiliate" of any specified Person means any other Person, directly or indirectly, controlling or controlled by or under direct or indirect common control with such specified Person. For the purposes of this definition, 90 "control" when used with respect to any Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. "Asset Disposition" means any sale, lease, transfer, issuance or other disposition (or series of related sales, leases, transfers, issuances or dispositions that are part of a common plan) of shares of Capital Stock of a Restricted Subsidiary (other than directors' qualifying shares or shares required to be held by Persons other than the Company or a Restricted Subsidiary in connection with the maintenance of liquor licenses), property or other assets (each referred to for the purposes of this definition as a "disposition") by the Company or any of its Restricted Subsidiaries (including any disposition by means of a merger, consolidation or similar transaction) other than (i) a disposition by a Restricted Subsidiary to the Company or by the Company or a Restricted Subsidiary to a Wholly-Owned Subsidiary, (ii) the sale of Cash Equivalents in the ordinary course of business, (iii) a disposition of inventory in the ordinary course of business, (iv) a disposition of obsolete or worn out equipment or equipment that is no longer useful in the conduct of the business of the Company and its Restricted Subsidiaries and that is disposed of in each case in the ordinary course of business (including, without limitation, any real property interests, equipment or other tangible property disposed of in connection with the relocation or closing of a restaurant), (v) transactions permitted under "Certain Covenants--Merger and Consolidation" above and (vi) for purposes of "Limitation on Sales of Assets and Subsidiary Stock" only, a disposition subject to "Limitation on Restricted Payments" and (vii) any pledge or collateral assignment of Capital Stock of any Restricted Subsidiary that is permitted under "Certain Covenants--Limitation on Liens" or the exercise of any right or remedies by the holder of any such pledge or assignment. "Attributable Indebtedness" in respect of a Sale/Leaseback Transaction means, as at the time of determination, the present value (discounted at the interest rate borne by the Notes, compounded semi-annually) of the total obligations of the lessee for rental payments during the remaining term of the lease included in such Sale/Leaseback Transaction (including any period for which such lease has been extended). "Board of Directors" means, as to any Person, the board of directors of such Person or any duly authorized committee thereof. "Capital Stock" of any Person means any and all shares, interests, rights to purchase, warrants, options, participations or other equivalents of or interests in (however designated) equity of such Person, including any Preferred Stock, partnership interests and limited liability company membership interests, but excluding any debt securities convertible into such equity. "Capitalized Lease Obligations" means an obligation that is required to be classified and accounted for as a capitalized lease for financial reporting purposes in accordance with GAAP, and the amount of Indebtedness represented by such obligation will be the capitalized amount of such obligation determined in accordance with GAAP, and the Stated Maturity thereof will be the date of the last payment of rent or any other amount due under such lease prior to the first date such lease may be terminated without penalty. "Cash Equivalents" means (i) securities issued or directly and fully guaranteed or insured by the United States Government or any agency or instrumentality thereof, having maturities of not more than one year from the date of acquisition; (ii) marketable general obligations issued by any state of the United States of America or any political subdivision of any such state or any public instrumentality thereof maturing within one year from the date of acquisition thereof and, at the time of acquisition thereof, having a credit rating of "A" or better from either Standard & Poor's Ratings Group or Moody's Investors Service, Inc.; (iii) certificates of deposit, time deposits, eurodollar time deposits, overnight bank deposits or bankers' acceptances having maturities of not more than one year from the date of acquisition thereof issued by any commercial bank the long-term debt of which is rated at the time of acquisition thereof at least "A" or the equivalent thereof by Standard & Poor's Rating Group, or "A" or the equivalent thereof by Moody's Investors Service, Inc., and having capital and surplus in excess of $500 million; (iv) repurchase obligations with a term of not more than seven days for underlying securities of the types described in clauses (i), (ii) and (iii) entered into with any bank meeting the 91 qualifications specified in clause (iii) above; (v) commercial paper rated at the time of acquisition thereof at least "A-2" or the equivalent thereof by Standard & Poor's Rating Group or "P-2" or the equivalent thereof by Moody's Investors Service, Inc., or carrying an equivalent rating by a nationally recognized rating agency, if both of the two named rating agencies cease publishing ratings of investments, and in either case maturing within 270 days after the date of acquisition thereof; and (vi) interests in any investment company which invests solely in instruments of the type specified in clauses (i) through (v) above. "Code" means the Internal Revenue Code of 1986, as amended. "Consolidated EBITDA" for any period means the Consolidated Net Income for such period, plus the following to the extent deducted in calculating such Consolidated Net Income: (i) income tax expense, (ii) Consolidated Interest Expense, (iii) depreciation expense, (iv) amortization of intangibles, (v) other non-cash charges reducing Consolidated Net Income (excluding any such non-cash charge to the extent it represents an accrual of or reserve for cash charges in any future period or amortization of a prepaid cash expense that was paid in a prior period not included in the calculation) and (vi) Deferred Rent. Notwithstanding the foregoing, the provision for taxes based on the income or profits of, and the interest, depreciation and amortization of, a Restricted Subsidiary of a Person will be added to Consolidated Net Income to compute Consolidated EBITDA of such Person only to the extent (and in the same proportion) that the net income of such Subsidiary was included in calculating the Consolidated Net Income of such Person. "Consolidated Interest Expense" means, for any period, the total interest expense of the Company and its consolidated Subsidiaries, plus, to the extent not included in such interest expense, (i) interest expense attributable to Capitalized Lease Obligations and the interest portion of rent expense associated with Attributable Indebtedness in respect of the relevant lease giving rise thereto, determined as if such lease were a capitalized lease in accordance with GAAP, (ii) amortization of debt discount and debt issuance cost, (iii) capitalized interest and accrued interest, (iv) non-cash interest expense, (v) commissions, discounts and other fees and charges owed with respect to letters of credit and bankers' acceptance financing, (vi) interest actually paid by the Company or any such Subsidiary under any Guarantee of Indebtedness or other obligation of any other Person, (vii) net costs associated with Interest Rate Agreements (including amortization of fees), (viii) dividends in respect of all Disqualified Stock of the Company and all Preferred Stock of Subsidiaries, in each case, held by Persons other than the Company or a Wholly Owned Subsidiary and (ix) the cash contributions to any employee stock ownership plan or similar trust to the extent such contributions are used by such plan or trust to pay interest or fees to any Person (other than the Company) in connection with Indebtedness Incurred by such plan or trust; provided, however, that there will be excluded therefrom any such interest expense of any Unrestricted Subsidiary to the extent the related Indebtedness is not Guaranteed or paid by the Company or any Restricted Subsidiary. For purposes of the foregoing, total interest expense will be determined after giving effect to any net payments made or received by the Company and its Subsidiaries with respect to Interest Rate Agreements. Notwithstanding the foregoing, the Consolidated Interest Expense with respect to any Restricted Subsidiary of the Company that was not a Wholly-Owned Subsidiary will be included only to the extent (and in the same proportion) that the net income of such Restricted Subsidiary was included in calculating Consolidated Net Income. "Consolidated Net Income" means, for any period, the net income (loss) of the Company and its Consolidated Subsidiaries; provided, however, that there will be excluded in such Consolidated Net Income: (i) any net income (loss) of any Person if such Person is not a Restricted Subsidiary, except that (A) subject to the limitations contained in (iv) below, the Company's equity in the net income of any such Person for such period will be included in such Consolidated Net Income up to the aggregate amount of cash actually distributed by such Person during such period to the Company or a Restricted Subsidiary as a dividend or other distribution (subject, in the case of a dividend or other distribution to a Restricted Subsidiary, to the limitations contained in clause (iii) below) and (B) the Company's equity in a net loss of any such Person (other than an Unrestricted Subsidiary) for such period will be included in determining such Consolidated Net Income to the extent such loss has been funded with cash from the Company or a Restricted Subsidiary; (ii) any net income (loss) of any 92 Person acquired by the Company or a Subsidiary in a pooling of interests transaction for any period prior to the date of such acquisition; (iii) any net income of any Restricted Subsidiary if such Subsidiary is subject to restrictions, directly or indirectly, on the payment of dividends or the making of distributions by such Restricted Subsidiary, directly or indirectly, to the Company, except that (A) subject to the limitations contained in (iv) below the Company's equity in the net income of any such Restricted Subsidiary for such period will be included in such Consolidated Net Income up to the aggregate amount of cash that could have been distributed by such Restricted Subsidiary during such period to the Company or another Restricted Subsidiary as a dividend (subject, in the case of a dividend to another Restricted Subsidiary, to the limitation contained in this clause) and (B) the Company's equity in a net loss of any such Restricted Subsidiary for such period will be included in determining such Consolidated Net Income; (iv) any gain (loss) realized upon the sale or other disposition of any property, plant or equipment of the Company or its consolidated Subsidiaries (including pursuant to any Sale/Leaseback Transaction) which is not sold or otherwise disposed of in the ordinary course of business and any gain (loss) realized upon the sale or other disposition of any Capital Stock of any Person; (v) any extraordinary gain or loss; and (vi) the cumulative effect of a change in accounting principles. "Default" means any event which, after notice or passage of time or both, would be an Event of Default. "Deferred Rent" means the excess (deficit) of accrued rent calculated in accordance with Statement of Financial Accounting Standards No. 13 and GAAP as compared to amounts paid under operating lease arrangements, as set forth in the Company's cash flow statements. "Disqualified Stock" means, with respect to any Person, any Capital Stock of such Person which by its terms (or by the terms of any security into which it is convertible or for which it is exchangeable) or upon the happening of any event (i) matures or is mandatorily redeemable pursuant to a sinking fund obligation or otherwise, (ii) is convertible or exchangeable for Indebtedness or Disqualified Stock (excluding Capital Stock which is convertible or exchangeable solely at the option of the Company or a Restricted Subsidiary) or (iii) is redeemable at the option of the holder thereof, in whole or in part, in each case on or prior to the Stated Maturity of the Notes, provided,that only the portion of Capital Stock which so matures or is mandatorily redeemable, is so convertible or exchangeable or is so redeemable at the option of the holder thereof prior to such Stated Maturity will be deemed to be Disqualified Stock. "Equity Offering" means an offering for cash by the Company of its common stock, or options, warrants or rights with respect to its common stock. "Foreign Subsidiary" means any Restricted Subsidiary that is not organized under the laws of the United States of America or any state thereof or the District of Columbia. "GAAP" means generally accepted accounting principles in the United States of America as in effect as of the date of the Indenture, including those set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as approved by a significant segment of the accounting profession. All ratios and computations based on GAAP contained in the Indenture will be computed in conformity with GAAP. "Guarantee" means any obligation, contingent or otherwise, of any Person directly or indirectly guaranteeing any Indebtedness of any other Person and any obligation, direct or indirect, contingent or otherwise, of such Person (i) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness of such other Person (whether arising by virtue of partnership arrangements, or by agreement to keep-well, to purchase assets, goods, securities or services, to take-or-pay, or to maintain financial statement conditions or otherwise) or (ii) entered into for purposes of assuring in any other manner the obligee of such Indebtedness of the payment thereof or to protect such obligee against loss in respect thereof (in whole or in part); provided, however, that the term "Guarantee" will not include endorsements for collection or deposit and 93 indemnities given by the Company or any of its Subsidiaries in connection with exhibitions, in each case, in the ordinary course of business. The term "Guarantee" used as a verb has a corresponding meaning. "Incur" means issue, assume, Guarantee, incur or otherwise become liable for; provided, however, that any Indebtedness or Capital Stock of a Person existing at the time such Person becomes a Restricted Subsidiary (whether by merger, consolidation, acquisition or otherwise) will be deemed to be incurred by such Restricted Subsidiary at the time it becomes a Restricted Subsidiary. "Indebtedness" means, with respect to any Person on any date of determination (without duplication), (i) the principal of and premium (if any) in respect of indebtedness of such Person for borrowed money; (ii) the principal of and premium (if any) in respect of obligations of such Person evidenced by bonds, debentures, notes or other similar instruments; (iii) all obligations of such Person in respect of letters of credit or other similar instruments (including reimbursement obligations with respect thereto); (iv) all obligations of such Person to pay the deferred and unpaid purchase price of property or services (except trade payables), which purchase price is due more than six months after the date of placing such property in service or taking delivery and title thereto or the completion of such services (if and to the extent any such obligation would appear as a liability upon a balance sheet of such Person prepared in accordance with GAAP); (v) all Capitalized Lease Obligations and all Attributable Indebtedness of such Person; (vi) the amount of all obligations of such Person with respect to the redemption, repayment or other repurchase of any Disqualified Stock or, with respect to any Subsidiary, any Preferred Stock (but excluding, in each case, any accrued dividends); (vii) all Indebtedness of other Persons secured by a Lien on any asset of such Person, whether or not such Indebtedness is assumed by such Person; provided, however, that the amount of such Indebtedness will be the lesser of (A) the fair market value of such asset at such date of determination and (B) the amount of such Indebtedness of such other Persons; (viii) all Indebtedness of other Persons to the extent Guaranteed by such Person; and (ix) to the extent not otherwise included in this definition, net obligations of such Person under Interest Rate Agreements (the amount of any such obligations to be equal at any time to the termination value of such agreement or arrangement giving rise to such obligation that would be payable by such Person at such time). The amount of Indebtedness of any Person at any date will be the outstanding balance at such date of all unconditional obligations as described above and the maximum liability, upon the occurrence of the contingency giving rise to the obligation, of any contingent obligations at such date; provided that the amount outstanding at any one time of any Indebtedness issued with original issue discount is the principal amount of such Indebtedness less the remaining unamortized portion of the original issue discount of such Indebtedness at such time as determined in conformity with GAAP. Notwithstanding the foregoing, Indebtedness shall exclude (i) obligations created, issued or incurred by any Person with respect to customer subscription payments or customer deposits for trade shows and exhibitions and (ii) any indemnification obligation of the Company to third parties in respect of customary representations and warranties contained in stock purchase, asset purchase or similar acquisition agreements to which the Company is a party, if such indemnification obligation would not appear as a liability upon a balance sheet of the Company prepared in accordance with GAAP. "Interest Coverage Ratio" as of any date of determination means, with respect to any Person, the ratio of (i) the aggregate amount of Consolidated EBITDA of such Person for the period of the most recent four consecutive fiscal quarters ending prior to the date of such determination to (ii) Consolidated Interest Expense of such Person for such period; provided, however, that (1) if since the beginning of such period the Company or any Restricted Subsidiary shall have made any Asset Disposition or if the transaction giving rise to the need to calculate the Interest Coverage Ratio is an Asset Disposition, the Consolidated EBITDA for such period will be reduced by an amount equal to the Consolidated EBITDA (if positive) directly attributable to the assets which are the subject of such Asset Disposition for such period or increased by an amount equal to the Consolidated EBITDA (if negative) directly attributable thereto for such period, (2) if since the beginning of such period the Company or any Restricted Subsidiary (by merger or otherwise) shall have made an Investment in any Restricted Subsidiary (or any Person which becomes a Restricted Subsidiary or is merged with or into the Company) or an acquisition of assets, including any acquisition of assets occurring in connection with a transaction causing a calculation to be made hereunder, which constitutes all or substantially all of an operating unit of a business, 94 Consolidated EBITDA for such period will be calculated after giving pro forma effect thereto (including the Incurrence of any Indebtedness and including the pro forma expenses and cost reductions calculated in accordance with Regulation S-X promulgated by the Commission) as if such Investment or acquisition occurred on the first day of such period and (3) if since the beginning of such period any Person (that subsequently became a Restricted Subsidiary or was merged with or into the Company or any Restricted Subsidiary since the beginning of such period) will have made any Asset Disposition or any Investment or acquisition of assets that would have required an adjustment pursuant to clause (1) or (2) above if made by the Company or a Restricted Subsidiary during such period, Consolidated EBITDA for such period will be calculated after giving pro forma effect thereto (including the Incurrence of any Indebtedness and including the pro forma expenses and cost reductions calculated in accordance with Regulation S-X promulgated by the Commission) as if such Asset Disposition or Investment occurred on the first day of such period. For purposes of this definition, whenever pro forma effect is to be given to an acquisition of assets, the amount of income or earnings relating thereto, the pro forma calculations will be determined in good faith by a responsible financial or accounting officer of the Company. Notwithstanding anything herein to the contrary, if at the time the calculation of the Interest Coverage Ratio is to be made, the Company does not have available consolidated financial statements reflecting the consummation of the Transactions for a period of at least four full fiscal quarters, all calculations required by the Interest Coverage Ratio shall be prepared on a pro forma basis, as though each of the Transactions (to the extent not otherwise reflected in the consolidated financial statements of the Company) had occurred on the first day of the most recently completed four fiscal quarters for which such calculation is being made. "Interest Rate Agreement" means with respect to any Person any interest rate protection agreement, interest rate future agreement, interest rate option agreement, interest rate swap agreement, interest rate cap agreement, interest rate collar agreement, interest rate hedge agreement or other similar agreement or arrangement as to which such Person is party or a beneficiary. "Investment" in any Person means any direct or indirect advance, loan (other than advances to customers in the ordinary course of business) or other extension of credit (including by way of Guarantee or similar arrangement, but excluding any debt or extension of credit represented by a bank deposit other than a time deposit) or capital contribution to (by means of any transfer of cash or other property to others or any payment for property or services for the account or use of others), or any purchase or acquisition of Capital Stock for consideration, Indebtedness or other similar instruments issued by, such Person. For purposes of the "Limitation on Restricted Payments" covenant, (i) "Investment" will include the portion (proportionate to the Company's equity interest in a Restricted Subsidiary to be designated as an Unrestricted Subsidiary) of the fair market value of the net assets of such Restricted Subsidiary of the Company at the time that such Restricted Subsidiary is designated an Unrestricted Subsidiary; provided, however, that upon a redesignation of such Subsidiary as a Restricted Subsidiary, the Company will be deemed to continue to have a permanent "Investment" in an Unrestricted Subsidiary in an amount (if positive) equal to (x) the Company's "Investment" in such Subsidiary at the time of such redesignation less (y) the portion (proportionate to the Company's equity interest in such Subsidiary) of the fair market value of the net assets of such Subsidiary at the time that such Subsidiary is so re-designated a Restricted Subsidiary; and (ii) any property transferred to or from an Unrestricted Subsidiary will be valued at its fair market value at the time of such transfer, in each case as determined in good faith by the Board of Directors of the Company. "Lien" means any mortgage, pledge, security interest, encumbrance, lien or charge of any kind (including any conditional sale or other title retention agreement or lease in the nature thereof). "Management Agreement" means the management agreement, dated as of July 21, 1998, between Jacobson Partners and the Company relating to management services to be provided to the Company by Jacobson Partners. "Management Equity Interests" means shares of Capital Stock of the Company or of a Subsidiary Guarantor, options, warrants or stock appreciation or similar rights in respect of such Capital Stock, in each case held by any current or former officer, employee or other member of management (or their estates or beneficiaries 95 under their estates) of the Company or of such Subsidiary Guarantor which were acquired or granted or are subject to any management equity subscription agreement, employment agreement, employee benefit plan or arrangement, stockholder agreement, stock option agreement or similar management investor plan or agreement and which may be required to be repurchased, redeemed or otherwise acquired by the Company or such Subsidiary Guarantor in each case pursuant to the terms of such agreement, plan or arrangement. "Merger Agreement" means the Agreement and Plan of Merger, dated as of May 13, 1998, among the Company, NERC Acquisition Corp. and Bertucci's. "Net Available Cash" from an Asset Disposition means cash payments received (including any cash payments received by way of deferred payment of principal pursuant to a note or installment receivable or otherwise, but only as and when received, but excluding any other consideration received in the form of assumption by the acquiring Person of Indebtedness or other obligations relating to the properties or assets that are the subject of such Asset Disposition or received in any other noncash form) therefrom, in each case net of (i) all legal, accounting, investment banking, title and recording tax expenses, commissions and other fees and expenses incurred, and all Federal, state, provincial, foreign and local taxes required to be paid or accrued as a liability under GAAP, as a consequence of such Asset Disposition, (ii) all payments made on any Indebtedness which is secured by any assets subject to such Asset Disposition, in accordance with the terms of any Lien upon such assets, or which must by its terms, or in order to obtain a necessary consent to such Asset Disposition, or by applicable law be repaid out of the proceeds from such Asset Disposition, (iii) all distributions and other payments required to be made to minority interest holders in Subsidiaries or joint ventures as a result of such Asset Disposition and (iv) the deduction of appropriate amounts to be provided by the seller as a reserve, in accordance with GAAP, against any liabilities associated with the assets disposed of in such Asset Disposition and retained by the Company or any Restricted Subsidiary after such Asset Disposition. "Net Cash Proceeds", with respect to any issuance or sale of Capital Stock, means the cash proceeds of such issuance or sale net of attorneys' fees, accountants' fees, underwriters' or placement agents' fees, discounts or commissions and brokerage, consultant and other fees actually incurred in connection with such issuance or sale and net of taxes paid or payable as a result of such issuance or sale. "Non-Recourse Debt" means Indebtedness (i) as to which neither the Company nor any Restricted Subsidiary (a) provides any guarantee or credit support of any kind (including any undertaking, guarantee, indemnity, agreement or instrument that would constitute Indebtedness) or (b) is directly or indirectly liable (as a guarantor or otherwise) and (ii) no default with respect to which (including any rights that the holders thereof may have to take enforcement action against an Unrestricted Subsidiary) would permit (upon notice, lapse of time or both) any holder of any other Indebtedness of the Company or any Restricted Subsidiary to declare a default under such other Indebtedness or cause the payment thereof to be accelerated or payable prior to its stated maturity. "Officer" means the Chairman of the Board, the President, any Vice President, the Treasurer or the Secretary of the Company. "Officers' Certificate" means a certificate signed by two Officers. "Opinion of Counsel" means a written opinion from legal counsel who is acceptable to the Trustee. The counsel may be an employee of or counsel to the Company or the Trustee. "Permitted Holders" means (i) Jacobson Partners or any Affiliate of Jacobson Partners; (ii) any stockholder of the Company; (iii) family members or relatives of the Persons described in clause (ii); (iv) any trusts created for the benefit of the Persons described in clause (ii) or (iii) and (v) in the event of the incompetence or death of any or the Persons described in clause (ii) or (iii), such Person's estate, executor, administrator, committee or other personal representatives or beneficiaries. 96 "Permitted Investment" means an Investment by the Company or any Restricted Subsidiary in (i) the Company or in a Restricted Subsidiary or a Person which will, upon the making of such Investment, become a Restricted Subsidiary; provided, however, that the primary business of such Restricted Subsidiary is a Related Business; (ii) another Person if as a result of such Investment such other Person is merged or consolidated with or into, or transfers or conveys all or substantially all its assets to, the Company or a Restricted Subsidiary; provided, however, that such Person's primary business is a Related Business; (iii) cash and Cash Equivalents; (iv) payroll, travel, relocation and similar advances to cover matters that are expected at the time of such advances ultimately to be treated as expenses for accounting purposes and that are made in the ordinary course of business; (v) loans or advances to employees made in the ordinary course of business not exceeding in the aggregate, at any time, $1.0 million; (vi) stock, obligations or securities received in settlement of debts created in the ordinary course of business and owing to the Company or any Restricted Subsidiary or in satisfaction of judgments; (vii) Investments in a Related Business in the form of joint ventures, operating agreements, partnership agreements or other similar or customary agreements, interests or arrangements with unaffiliated third parties, the aggregate outstanding amount of which does not exceed $10.0 million at any time; (viii) receivables owing to the Company or any Restricted Subsidiary, if created or acquired in the ordinary course of business and payable or dischargeable in accordance with customary trade terms; provided, however, that such trade terms may include such concessionary trade terms as the Company or any such Restricted Subsidiary deems reasonable under the circumstances; (ix) Guarantees permitted to be made pursuant to the covenant "Limitation on Indebtedness"; (x) Investments acquired by the Company or any Restricted Subsidiary in connection with or as a result of a bankruptcy, insolvency, workout, reorganization, recapitalization or similar arrangement with respect to the obligor under or issuer of any accounts receivable or Investment held by the Company or any Restricted Subsidiary; (xi) Interest Rate Agreements entered into in the ordinary course of business that are permitted under clause (vi) of paragraph (b) of the covenant "Limitation of Indebtedness"; (xii) Investments made by the Company or a Restricted Subsidiary in connection with an Assets Disposition made in compliance with the covenant "Limitation on Sales of Assets and Subsidiary Stock;" (xiii) Investments made solely in exchange for the issuance of Capital Stock (other than Disqualified Stock) of the Company; and (xiv) any Investment existing on the date of the Indenture. "Permitted Liens" means, with respect to any Person, (a) pledges or deposits by such Person under workers' compensation laws, unemployment insurance laws or similar legislation, or good faith deposits in connection with bids, tenders, contracts (other than for the payment of Indebtedness) or leases to which such Person is a party, or deposits to secure public or statutory obligations of such Person or deposits or cash or United States government bonds to secure surety or appeal bonds, performance bonds or other obligations of a like nature to which such Person is a party, or deposits as security for contested taxes or import duties or for the payment of rent, in each case Incurred in the ordinary course of business; (b) Liens imposed by law, including carriers', warehousemen's and mechanics' Liens, in each case for sums not yet due or being contested in good faith by appropriate proceedings, or other Liens arising out of judgments or awards against such Person with respect to which such Person is then proceeding with an appeal or other proceedings for review; (c) Liens for taxes, assessments or other governmental charges not yet subject to penalties for non-payment or which are being contested in good faith by appropriate proceedings provided appropriate reserves have been taken on the books of the Company; (d) Liens in favor of issuers of surety bonds or letters of credit issued pursuant to the request of and for the account of such Person in the ordinary course of its business; provided, however, that such letters of credit do not constitute Indebtedness; (e) encumbrances, easements, minor title defects, irregularities in title or reservations of, or rights of others for, licenses, rights of way, sewers, electric lines, telegraph and telephone lines and other similar purposes, or zoning or other restrictions as to the use of real properties or liens incidental to the conduct of the business of such Person or to the ownership of its properties which do not in the aggregate materially adversely affect the value of said properties or materially impair their use in the operation of the business of such Person; (f) Liens securing an Interest Rate Agreement so long as the related Indebtedness is, and is permitted to be under the Indenture, secured by a Lien on the same property securing the Interest Rate Agreement; (g) leases and subleases of real property which do not materially interfere with the ordinary conduct of the business of the Company or any of its Restricted Subsidiaries; (h) judgment Liens not giving rise to an Event of Default so long as such Lien is adequately bonded and any appropriate legal proceedings which may 97 have been duly initiated for the review of such judgment have not been finally terminated or the period within which such proceedings may be initiated has not expired; (i) Liens for the purpose of securing the payment (or the refinancing of the payment) of all or a part of the purchase price of, Capitalized Lease Obligations with respect to, or costs of construction or improvement of, assets or property acquired or constructed in the ordinary course of business provided that (x) the aggregate principal amount of Indebtedness secured by such Liens is otherwise permitted to be Incurred under the Indenture and does not exceed such costs and (y) such Liens are created within one year of construction or acquisition of such assets or property (or such longer period as may be permitted by the Senior Credit Agreement) and do not encumber any other assets or property of the Company or any Restricted Subsidiary other than such assets or property and assets affixed or appurtenant thereto; (j) Liens arising solely by virtue of any statutory or common law provision relating to banker's Liens, rights of set-off or similar rights and remedies as to deposit accounts or other funds maintained with a creditor depository institution; provided that (x) such deposit account is not a dedicated cash collateral account and is not subject to restrictions against access by the Company in excess of those set forth by regulations promulgated by the Federal Reserve Board, and (y) such deposit account is not intended by the Company or any Restricted Subsidiary to provide collateral to the depository institution; (k) Liens arising from Uniform Commercial Code financing statement filings regarding operating leases entered into by the Company and its Restricted Subsidiaries in the ordinary course of business; (l) Liens existing on the Issue Date; (m) Liens on property or shares of stock of a Person at the time such Person becomes a Subsidiary or is merged into or consolidated with the Company or any Subsidiary of the Company; provided, however, that such Liens are not created, Incurred or assumed in connection with, or in contemplation of, such other Person becoming a Subsidiary; provided further, however, that any such Lien may not extend to any other property owned by the Company or any Restricted Subsidiary; (n) Liens on property at the time the Company or a Subsidiary acquired the property, including any acquisition by means of a merger or consolidation with or into the Company or any Restricted Subsidiary; provided, however, that such Liens are not created, Incurred or assumed in connection with, or in contemplation of, such acquisition; provided further, however, that such Liens may not extend to any other property owned by the Company or any Restricted Subsidiary; (o) Liens securing Indebtedness or other obligations of a Subsidiary owing to the Company or a Wholly Owned Subsidiary; (p) Liens securing indebtedness under, or Subsidiary Guarantors relating to, the Senior Credit Agreement; and (q) Liens securing Refinancing Indebtedness Incurred to refinance Indebtedness that was previously so secured, provided that any such Lien is limited to all or part of the same property or assets (plus improvements, accessions, proceeds or dividends or distributions in respect thereof) that secured (or, under the written arrangements under which the original Lien arose, could secure) the obligations to which such Liens relate. "Person" means any individual, corporation, partnership, joint venture, limited liability company, association, joint-stock company, trust, unincorporated organization, government or any agency or political subdivision hereof or any other entity. "Preferred Stock", as applied to the Capital Stock of any corporation, means Capital Stock of any class or classes (however designated) which is preferred as to the payment of dividends, or as to the distribution of assets upon any voluntary or involuntary liquidation or dissolution of such corporation, over shares of Capital Stock of any other class of such corporation. A "Public Market" exists at any time with respect to the common stock of the Company if (i) the common stock of the Company is then registered with the Commission pursuant to Section 12(b) or 12(g) of the Exchange Act and traded either on a national securities exchange or in the National Association of Securities Dealers Automated Quotation System and (ii) at least 15% of the total issued and outstanding common stock of the Company has been distributed prior to such time by means of an effective registration statement under the Securities Act. "Refinancing Indebtedness" means Indebtedness that is Incurred to refund, refinance, replace, renew, repay or extend (including pursuant to any defeasance or discharge mechanism) (collectively, "refinance", "refinances," and "refinanced" shall have a correlative meaning) any Indebtedness existing on the date of the 98 Indenture or Incurred in compliance with the Indenture (including Indebtedness of the Company that refinances Indebtedness of any Restricted Subsidiary and Indebtedness of any Restricted Subsidiary that refinances Indebtedness of another Restricted Subsidiary) including Indebtedness that refinances Refinancing Indebtedness; provided, however, that (i) (x) if the Stated Maturity of the Indebtedness being refinanced is earlier than the Stated Maturity of the Notes, the Refinancing Indebtedness has a Stated Maturity no earlier than the Stated Maturity of the Indebtedness being refinanced or (y) if the Stated Maturity of the Indebtedness being refinanced is later than the Stated Maturity of the Notes, the Refinancing Indebtedness has a Stated Maturity later than the Notes, (ii) the Refinancing Indebtedness has an Average Life at the time such Refinancing Indebtedness is Incurred that is equal to or greater than the Average Life of the Indebtedness being refinanced, and (iii) such Refinancing Indebtedness is Incurred in an aggregate principal amount (or if issued with original issue discount, an aggregate issue price) that is equal to or less than the sum of the aggregate principal amount (or if issued with original issue discount, the aggregate accreted value) then outstanding (plus fees and expenses, including any premium and defeasance costs) of the Indebtedness being refinanced (except to the extent such increase is a result of a concurrent Incurrence of Indebtedness permitted to be Incurred under the Indenture). "Related Business" means the business conducted by the Company and the Restricted Subsidiaries on the Issue Date and any business related, ancillary or complementary thereto, in each case as determined by the Company in good faith. "Restaurant Property" means, with respect to any restaurant location, the real property, land, buildings, improvements, machinery and equipment, and structures comprising such restaurant or in which such restaurant is located. "Restricted Subsidiary" means any Subsidiary of the Company other than an Unrestricted Subsidiary. "Sale/Leaseback Transaction" means an arrangement relating to property now owned or hereafter acquired whereby the Company or a Restricted Subsidiary transfers such property to a Person (other than the Company or a Restricted Subsidiary) and the Company or a Subsidiary leases it from such Person. "Senior Credit Agreement" means (i) the credit agreement entered into concurrently with the consummation of the Acquisition among the Company, the lenders parties thereto from time to time and BankBoston, N.A., as administrative agent, and Chase Bank of Texas, N.A., as documentation agent, and any guarantees issued thereunder, as the same may be amended, supplemented or otherwise modified from time to time and (ii) any renewal, extension, refunding, restructuring, replacement, restatement or refinancing thereof. "Significant Subsidiary" means any Subsidiary that would be a "Significant Subsidiary" of the Company within the meaning of Rule 1-02 under Regulation S- X promulgated by the Commission. "Special Purpose Transaction" means a transaction between the Company or any Restricted Subsidiary, on the one hand ("Transferor"), and a Restricted Subsidiary, on the other ("Transferee"), in which (i) Transferor shall sell, assign and transfer to Transferee Transferor's interests in one or more Restaurant Properties, which interest may be in the form of fee interests, leasehold interests or a combination thereof, (ii) the purchase price for such interest shall consist solely of cash which shall be (x) paid by Transferee concurrently with such transfer and (y) applied by Transferor promptly after such transfer in repayment of outstanding Indebtedness of the Transferor and (iii) concurrently with such transfer, Transferee, as lessor, and Transferor, as lessee, shall enter into a lease (or sublease, if appropriate) with respect to each transferred Restaurant Property which shall provide for rental payments at least equal to the sum of all interest and principal due in respect of Transferee's Indebtedness incurred by the Transferee in connection with such Special Purpose Transaction, all lease payments, utility payments, property taxes and other similar costs, and all other payments due in respect of the Restaurant Property. "Stated Maturity" means, with respect to any security, the date specified in such security as the fixed date on which the payment of principal of such security is due and payable, including pursuant to any mandatory redemption provision. 99 "Subordinated Obligation" means any Indebtedness of the Company (whether outstanding on the Issue Date or thereafter Incurred) which is subordinate or junior in right of payment to the Notes pursuant to a written agreement. "Subsidiary" of any Person means any corporation, association, partnership or other business entity of which more than 50% of the total voting power of shares of Capital Stock or other interests (including partnership interests) entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by (i) such Person, (ii) such Person and one or more Subsidiaries of such Person or (iii) one or more Subsidiaries of such Person. Unless otherwise specified herein, each reference to a Subsidiary will refer to a Subsidiary of the Company. "Subsidiary Guarantee" means, individually, any Guarantee of payment of the Notes by a Subsidiary Guarantor pursuant to the terms of the Indenture, and, collectively, all such Guarantees. Each such Subsidiary Guarantee will be in the form prescribed in the Indenture. "Subsidiary Guarantor" means each Subsidiary of the Company (other than (i) a Foreign Subsidiary or (ii) NERC Limited Partnership, NERC SPE Inc., NERC Limited Partnership II or NERC SPE II Inc.) in existence on the Issue Date and any Restricted Subsidiary (other than (i) a Foreign Subsidiary or (ii) a special purpose entity and/or limited partnership created solely to Incur Indebtedness of the type specified in clause (b)(vii) under "Limitation on Indebtedness" in connection with a Special Purpose Transaction or any special purpose corporate general partner thereof) created or acquired by the Company after the Issue Date. "Subsidiary Guarantor Subordinated Obligation" means, with respect to a Subsidiary Guarantor, any Indebtedness of such Subsidiary Guarantor (whether outstanding on the Issue Date or thereafter Incurred) which is expressly subordinate in right of payment to the obligations of such Subsidiary Guarantor under its Subsidiary Guarantee pursuant to a written agreement. "Unrestricted Subsidiary" means (i) any Subsidiary of the Company that at the time of determination shall be designated an Unrestricted Subsidiary by the Board of Directors in the manner provided below and (ii) any Subsidiary of an Unrestricted Subsidiary. The Board of Directors may designate any Subsidiary of the Company (including any newly acquired or newly formed Subsidiary of the Company) to be an Unrestricted Subsidiary unless such Subsidiary or any of its Subsidiaries owns any Capital Stock or Indebtedness of, or owns or holds any Lien on any property of, the Company or any Restricted Subsidiary of the Company that is not a Subsidiary of the Subsidiary to be so designated; provided, however, that either (A) the Subsidiary to be so designated has total consolidated assets of $10,000 or less or (B) if such Subsidiary has consolidated assets greater than $10,000, then such designation would be permitted under "Limitation on Restricted Payments." The Board of Directors may designate any Unrestricted Subsidiary to be a Restricted Subsidiary; provided, however, that immediately after giving effect to such designation (x) the Company could Incur $1.00 of additional Indebtedness pursuant to paragraph (a) under "Limitation on Indebtedness" and (y) no Default or Event of Default shall have occurred and be continuing. Any such designation by the Board of Directors shall be evidenced to the Trustee by promptly filing with the Trustee a copy of the Board Resolution giving effect to such designation and an Officers' Certificate certifying that such designation complied with the foregoing provisions. "Voting Stock" of a corporation means all classes of Capital Stock of such corporation then outstanding and normally entitled to vote in the election of directors. "Wholly-Owned Subsidiary" means a Restricted Subsidiary of the Company, all of the Capital Stock of which (other than directors' qualifying shares or any shares required to be held by Persons other than the Company or a Restricted Subsidiary in connection with the maintenance of liquor licenses) is owned by the Company or another Wholly-Owned Subsidiary. 100 THE EXCHANGE OFFER PURPOSE OF THE EXCHANGE OFFER The Private Notes were sold by the Company on July 20, 1998 (the "Issue Date") to the Initial Purchasers pursuant to the Purchase Agreement. The Initial Purchasers subsequently sold the Private Notes (i) within the United States to QIB's in reliance on Rule 144A and (ii) outside the United States only in offshore transactions in reliance on Regulation S under the Securities Act. As a condition to the sale of the Private Notes, the Company and the Initial Purchasers entered into the Exchange and Registration Rights Agreement on July 20, 1998. Pursuant to the Exchange and Registration Rights Agreement, the Company and the Subsidiary Guarantors agreed, unless the Exchange Offer is not permitted by applicable law or applicable interpretation of the staff of the Commission, to use their best efforts to (i) file with the Commission a Registration Statement on Form S-1 or Form S-4 under the Securities Act with respect to the Exchange Notes (the "Exchange Offer Registration Statement") on or prior to 60 days after the Issue Date relating to a registered exchange offer (the "Exchange Offer"), (ii) cause the Exchange Offer Registration Statement to become effective under the Securities Act within 135 days after the Issue Date and (iii) consummate the Exchange Offer within 165 days after the Issue Date. A copy of the Exchange and Registration Rights Agreement has been filed as an exhibit to the Registration Statement. The Exchange Offer Registration Statement is intended to satisfy certain of the Company's obligations under the Exchange and Registration Rights Agreement and the Purchase Agreement. TERMS OF THE EXCHANGE OFFER Upon the terms and subject to the conditions set forth in this Prospectus and in the Letter of Transmittal, the Company will accept any and all Private Notes validly tendered and not withdrawn prior to the Expiration Date. The Company will issue $1,000 principal amount of Exchange Notes in exchange for each $1,000 principal amount of outstanding Private Notes surrendered pursuant to the Exchange Offer. Private Notes may be tendered only in integral multiples of $1,000. The form and terms of the Exchange Notes are the same as the form and terms of the Private Notes except that (i) the exchange will be registered under the Securities Act and, therefore, the Exchange Notes will not bear legends restricting the transfer thereof and (ii) holders of the Exchange Notes will not be entitled to any of the rights of holders of Private Notes under the Exchange and Registration Rights Agreement, which rights will terminate upon the consummation of the Exchange Offer except under certain limited circumstances. See "--Termination of Certain Rights." The Exchange Notes will evidence the same indebtedness as the Private Notes (which they replace) and will be issued under, and be entitled to the benefits of, the Indenture, which also authorized the issuance of the Private Notes, such that both series of Notes will be treated as a single class of debt securities under the Indenture. The Exchange Offer is not conditioned upon any minimum principal amount of Private Notes being tendered. As of the date of this Prospectus, $100,000,000 in aggregate principal amount of the Private Notes are outstanding. Holders of the Private Notes do not have any appraisal or dissenters' rights under the Indenture in connection with the Exchange Offer. The Company intends to conduct the Exchange Offer in accordance with the provisions of the Exchange and Registration Rights Agreement and the applicable requirements of the Securities Act, the Exchange Act and the rules and regulations of the Commission thereunder. The Company shall be deemed to have accepted validly tendered Private Notes when, as and if the Company has given oral or written notice thereof to the Exchange Agent. The Exchange Agent will act as agent for the tendering holders of Private Notes for the purposes of receiving the Exchange Notes from the Company. If any tendered Private Notes are not accepted for exchange because of an invalid tender, the occurrence of certain other events set forth herein or otherwise, any such unaccepted Private Notes will be returned, without expense, to the tendering holder thereof as promptly as practicable. 101 Holders who tender Private Notes in the Exchange Offer will not be required to pay brokerage commissions or fees or, subject to the instructions in the Letter of Transmittal, transfer taxes with respect to the exchange of Private Notes pursuant to the Exchange Offer. The Company will pay all charges and expenses, other than certain applicable taxes described below, in connection with the Exchange Offer. See "--Fees and Expenses." EXPIRATION DATE; EXTENSIONS; AMENDMENTS The term "Expiration Date" shall mean 5:00 p.m., New York City time, on 1998, unless the Company, in its sole discretion, extends the Exchange Offer, in which case the term "Expiration Date" shall mean the latest date and time to which the Exchange Offer is extended. In order to extend the Exchange Offer, the Company will (i) notify the Exchange Agent of any extension by oral or written notice and (ii) issue a press release or other public announcement, which shall include disclosure of the approximate number of Private Notes deposited to date, each prior to 9:00 a.m., New York City time, on the next business day after the previously scheduled Expiration Date. Without limiting the manner in which the Company may choose to make a public announcement of any delay, extension, amendment or termination of the Exchange Offer, the Company shall have no obligation to publish, advertise, or otherwise communicate any such public announcement, other than by making a timely release to an appropriate news agency. The Company reserves the right, in its reasonable discretion, (i) to delay accepting any Private Notes, (ii) to extend the Exchange Offer, (iii) if any conditions set forth below under "--Conditions" shall not have been satisfied, to terminate the Exchange Offer by giving oral or written notice of such delay, extension or termination to the Exchange Agent, and (iv) to amend the terms of the Exchange Offer in any manner. Any such delay in acceptance, extension, termination or amendment will be followed as promptly as practicable by oral or written notice thereof to the registered holders. If the Exchange Offer is amended in a manner determined by the Company to constitute a material change, the Company will promptly disclose such amendment by means of a prospectus supplement that will be distributed to the registered holders, and the Company will extend the Exchange Offer for a period of five to ten business days, depending upon the significance of the amendment and the manner of disclosure to the registered holders, if the Exchange Offer would otherwise expire during such five to ten business day period. INTEREST ON THE EXCHANGE NOTES The Exchange Notes will bear interest at a rate equal to 10 3/4% per annum. Interest on the Exchange Notes will be payable semi-annually in arrears on each January 15 and July 15, commencing January 15, 1999. Holders of Exchange Notes will receive interest on January 15, 1999 from the Issue Date. Interest on the Private Notes accepted for exchange will cease to accrue upon the issuance of the Exchange Notes. PROCEDURES FOR TENDERING Only a registered holder of Private Notes may tender such Private Notes in the Exchange Offer. To tender in the Exchange Offer, a holder of Private Notes must complete, sign and date the Letter of Transmittal, or a facsimile thereof, have the signatures thereon guaranteed if required by the Letter of Transmittal, and mail or otherwise deliver such Letter of Transmittal or such facsimile to the Exchange Agent at the address set forth below under "-- Exchange Agent" for receipt prior to the Expiration Date. In addition, either (i) certificates for such Private Notes must be received by the Exchange Agent along with the Letter of Transmittal, (ii) a timely confirmation of a book- entry transfer (a "Book-Entry Confirmation") of such Private Notes, if such procedure is available, into the Exchange Agent's account at DTC pursuant to the procedure for book-entry transfer described below, must be received by the Exchange Agent prior to the Expiration Date or (iii) the holder must comply with the guaranteed delivery procedures described below. To be tendered effectively, the Private Notes, the Letter of Transmittal and other required documents must be received by the Exchange Agent at the address set forth below under "Exchange Agent" prior to 5:00 p.m., New York City time, on the Expiration Date. 102 THE TENDER BY A HOLDER THAT IS NOT WITHDRAWN PRIOR TO THE EXPIRATION DATE WILL CONSTITUTE AN AGREEMENT BETWEEN SUCH HOLDER AND THE COMPANY IN ACCORDANCE WITH THE TERMS AND SUBJECT TO THE CONDITIONS SET FORTH HEREIN AND IN THE LETTER OF TRANSMITTAL. THE METHOD OF DELIVERY OF PRIVATE NOTES AND THE LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK OF THE HOLDER. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT HOLDERS USE AN OVERNIGHT OR HAND DELIVERY SERVICE, PROPERLY INSURED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT BEFORE THE EXPIRATION DATE. NO LETTER OF TRANSMITTAL OR PRIVATE NOTES SHOULD BE SENT TO THE COMPANY. HOLDERS MAY REQUEST THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL BANKS, TRUST COMPANIES OR NOMINEES TO EFFECT THE ABOVE TRANSACTIONS FOR SUCH HOLDERS. Any beneficial owner(s) of the Private Notes whose Private Notes are registered in the name of a broker, dealer, commercial bank, trust company or other nominee and who wishes to tender should contact the registered holder promptly and instruct such registered holder to tender on such beneficial owner's behalf. If such beneficial owner wishes to tender on such owner's own behalf, such owner must, prior to completing and executing the Letter of Transmittal and delivering such owner's Private Notes, either make appropriate arrangements to register ownership of the Private Notes in such owner's name or obtain a properly completed bond power from the registered holder. The transfer of registered ownership may take considerable time. Signatures on a Letter of Transmittal or a notice of withdrawal described below (see "--Withdrawal of Tenders"), as the case may be, must be guaranteed by an Eligible Institution (as defined herein) unless the Private Notes tendered pursuant thereto are tendered (i) by a registered holder who has not completed the box titled "Special Delivery Instructions" on the Letter of Transmittal or (ii) for the account of an Eligible Institution. In the event that signatures on a Letter of Transmittal or a notice of withdrawal, as the case may be, are required to be guaranteed, such guarantee must be made by a member firm of a registered national securities exchange or of the National Association of Securities Dealers, Inc., a commercial bank or trust company having an office or correspondent in the United States or an "eligible guarantor institution" within the meaning of Rule 17Ad-15 under the Exchange Act which is a member of one of the recognized signature guarantee programs identified in the Letter of Transmittal (an "Eligible Institution"). If the Letter of Transmittal is signed by a person other than the registered holder of any Private Notes listed therein, such Private Notes must be endorsed or accompanied by a properly completed bond power, signed by such registered holder as such registered holder's name appears on such Private Notes. If the Letter of Transmittal or any Private Notes or bond powers are signed by trustees, executors, administrators, guardians, attorneys-in-fact, officers of corporations or others acting in a fiduciary or representative capacity, such persons should so indicate when signing, and unless waived by the Company, evidence satisfactory to the Company of their authority to so act must be submitted with the Letter of Transmittal. The Exchange Agent and DTC have confirmed that any financial institution that is a participant in DTC's system may utilize DTC's Automated Tender Offer Program to tender Private Notes. All questions as to the validity, form, eligibility (including time of receipt), acceptance and withdrawal of tendered Private Notes will be determined by the Company in its reasonable discretion, which determination will be final and binding. The Company reserves the absolute right to reject any and all Private Notes not properly tendered or any Private Notes the Company's acceptance of which would, in the opinion of counsel for the Company, be unlawful. The Company also reserves the right to waive any defects, irregularities or conditions of tender as to particular Private Notes. The Company's interpretation of the terms and conditions of the Exchange Offer (including the instructions in the Letter of Transmittal) will be final and binding on all parties. Unless waived, any defects or irregularities in connection with tenders of Private Notes must be cured within such time 103 as the Company shall determine. Although the Company intends to notify holders of defects or irregularities with respect to tenders of Private Notes, neither the Company, the Exchange Agent nor any other person shall incur any liability for failure to give such notification. Tenders of Private Notes will not be deemed to have been made until such defects or irregularities have been cured or waived. While the Company has no present plan to acquire any Private Notes that are not tendered in the Exchange Offer or to file a registration statement to permit resales of any Private Notes that are not tendered pursuant to the Exchange Offer, the Company reserves the right in its sole discretion to purchase or make offers for any Private Notes that remain outstanding subsequent to the Expiration Date or, as set forth below under "--Conditions," to terminate the Exchange Offer and, to the extent permitted by applicable law, purchase Private Notes in the open market, in privately negotiated transactions or otherwise. The terms of any such purchases or offers could differ from the terms of the Exchange Offer. Each holder of Private Notes who wishes to exchange such Private Notes for Exchange Notes in the Exchange Offer will be required to make certain representations, including representations that (i) any Exchange Notes to be received by it will be acquired in the ordinary course of its business; (ii) it has no arrangement or understanding with any person to participate in the distribution of the Exchange Notes within the meaning of the Securities Act; and (iii) it is not an "affiliate" (as defined in Rule 405 under the Securities Act) of the Company or, if it is an affiliate, that it will comply with the registration and prospectus delivery requirements of the Securities Act to the extent applicable. If the holder is not a broker-dealer, it will be required to represent that it is not engaged in, and does not intend to engage in, the distribution of the Exchange Notes. If the holder is a broker-dealer that will receive Exchange Notes for its own account in exchange for Private Notes that were acquired as a result of market-making activities or other trading activities, it may be deemed and "underwriter" under the Securities Act and, therefore, will be required to acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Notes. RETURN OF PRIVATE NOTES If any tendered Private Notes are not accepted for any reason set forth in the terms and conditions of the Exchange Offer or if Private Notes are withdrawn or are submitted for a greater principal amount than the holders desire to exchange, such unaccepted, withdrawn or non-exchanged Private Notes will be returned without expense to the tendering holder thereof (or, in the case of Private Notes tendered by book-entry transfer into the Exchange Agent's account at DTC pursuant to the book-entry transfer procedures described below, such Private Notes will be credited to an account maintained with DTC) as promptly as practicable. BOOK-ENTRY TRANSFER The Exchange Agent will make a request to establish an account with respect to the Private Notes at DTC for purposes of the Exchange Offer within two business days after the date of this Prospectus, and any financial institution that is a participant in DTC's systems may make book-entry delivery of Private Notes by causing DTC to transfer such Private Notes into the Exchange Agent's account at DTC in accordance with DTC's procedures for transfer. However, although delivery of Private Notes may be effected through book-entry transfer at DTC, the Letter of Transmittal or facsimile thereof, with any required signature guarantees and any other required documents, must, in any case, be transmitted to and received by the Exchange Agent at the address set forth below under "--Exchange Agent" on or prior to the Expiration Date or pursuant to the guaranteed delivery procedures described below. GUARANTEED DELIVERY PROCEDURES Holders who wish to tender their Private Notes and (i) whose Private Notes are not immediately available or (ii) who cannot deliver their Private Notes, the Letter of Transmittal or any other required documents to the Exchange Agent prior to the Expiration Date, may effect a tender if: 104 (a) The tender is made through an Eligible Institution; (b) Prior to the Expiration Date, the Exchange Agent receives from such Eligible Institution a properly completed and duly executed Notice of Guaranteed Delivery substantially in the form provided by the Company (by facsimile transmission, mail or hand delivery) setting forth the name and address of the holder, the certificate number(s) of such Private Notes and the principal amount of Private Notes tendered, stating that the tender is being made thereby and guaranteeing that, within three New York Stock Exchange trading days after the Expiration Date, the Letter of Transmittal (or a facsimile thereof), together with the certificate(s) representing the Private Notes in proper form for transfer or a Book-Entry Confirmation, as the case may be, and any other documents required by the Letter of Transmittal, will be deposited by the Eligible Institution with the Exchange Agent; and (c) Such properly executed Letter of Transmittal (or facsimile thereof), as well as the certificate(s) representing all tendered Private Notes in proper form for transfer and all other documents required by the Letter of Transmittal are received by the Exchange Agent within three New York Stock Exchange trading days after the Expiration Date. Upon request to the Exchange Agent, a Notice of Guaranteed Delivery will be sent to holders who wish to tender their Private Notes according to the guaranteed delivery procedures set forth above. WITHDRAWAL OF TENDERS Except as otherwise provided herein, tenders of Private Notes may be withdrawn at any time prior to the Expiration Date. To withdraw a tender of Private Notes in the Exchange Offer, a written or facsimile transmission notice of withdrawal must be received by the Exchange Agent at its address set forth herein prior to the Expiration Date. Any such notice of withdrawal must (i) specify the name of the person having deposited the Private Notes to be withdrawn (the "Depositor"), (ii) identify the Private Notes to be withdrawn (including the certificate number or numbers and principal amount of such Private Notes) and (iii) be signed by the holder in the same manner as the original signature on the Letter of Transmittal by which such Private Notes were tendered (including any required signature guarantees). All questions as to the validity, form and eligibility (including time of receipt) of such notices will be determined by the Company, in its sole discretion, whose determination shall be final and binding on all parties. Any Private Notes so withdrawn will be deemed not to have been validly tendered for purposes of the Exchange Offer and no Exchange Notes will be issued with respect thereto unless the Private Notes so withdrawn are validly retendered. Properly withdrawn Private Notes may be retendered by following one of the procedures described above under "The Exchange Offer-- Procedures for Tendering" at any time prior to the Expiration Date. CONDITIONS Notwithstanding any other term of the Exchange Offer, the Company shall not be required to accept for exchange, or exchange the Exchange Notes for, any Private Notes, and may terminate the Exchange Offer as provided herein before the acceptance of such Private Notes, if: (i) the Exchange Offer violates applicable law, rules or regulations or an applicable interpretation of the staff of the Commission; (ii) any action or proceeding is instituted or threatened in any court or by any governmental agency that might materially impair the ability of the Company to proceed with the Exchange Offer or any material adverse development has occurred in any existing action or proceeding with respect to the Company; or (iii) any governmental approval has not been obtained, which approval the Company shall deem necessary for the consummation of the Exchange Offer. If the Company determines in its reasonable discretion that any of these conditions are not satisfied, the Company may (i) refuse to accept any Private Notes and return all tendered Private Notes to the tendering holders, (ii) extend the Exchange Offer and retain all Private Notes tendered prior to the expiration of the Exchange Offer, subject, however, to the rights of holders to withdraw such Private Notes (see "--Withdrawal 105 of Tenders") or (iii) waive such unsatisfied conditions with respect to the Exchange Offer and accept all properly tendered Private Notes that have not been withdrawn. If such waiver constitutes a material change to the Exchange Offer, the Company will promptly disclose such waiver by means of a prospectus supplement that will be distributed to the registered holders of the Private Notes, and the Company will extend the Exchange Offer for a period of five to ten business days, depending upon the significance of the waiver and the manner of disclosure to the registered holders, if the Exchange Offer would otherwise expire during such five to ten business day period. TERMINATION OF CERTAIN RIGHTS All rights under the Exchange and Registration Rights Agreement (including registration rights) of holders of the Private Notes eligible to participate in the Exchange Offer will terminate upon consummation of the Exchange Offer except with respect to the Company's continuing obligations (i) to indemnify such holders (including any broker dealers) and certain parties related to such holders against certain liabilities (including liabilities under the Securities Act), (ii) to provide, upon the request of any holder of a Transfer Restricted Security (as defined herein), the information required by Rules 144 and 144A under the Securities Act (including, without limitation, the requirements of Rule 144A(d)(4)) in order to permit resales of such Private Notes pursuant to Rules 144 and 144A, (iii) to use its best efforts to keep the Registration Statement effective to the extent necessary to ensure that it is available for resales of Exchange Notes by broker-dealers for a period of up to 180 days from the date the Registration Statement is declared effective or until such earlier date on which the Exchange Notes are freely tradable and to provide copies of the latest version of the Prospectus to such broker- dealers upon their request during such period and (iv) to file a shelf registration statement as required by the Exchange and Registration Rights Agreement, as described below under "The Exchange Offer--Shelf Registration." SHELF REGISTRATION The Exchange and Registration Rights Agreement provides that the Company and the Subsidiary Guarantors will be required, to the extent not prohibited by applicable law or applicable interpretation of the staff of the Commission, to use their reasonable best efforts to (i) file the Exchange Offer Registration Statement with the Commission on or prior to 60 days after the Issue Date and (ii) cause the Exchange Offer Registration Statement to be declared effective under the Securities Act within 135 days after the Issue Date. As soon as practicable after the effectiveness of the Exchange Offer Registration Statement, the Company will offer to the holders of Transfer Restricted Securities who are not prohibited by any law or policy of the Commission from participating in the Exchange Offer the opportunity to exchange their Transfer Restricted Securities for Exchange Notes. The Company will keep the Exchange Offer open for not less than 20 business days (or longer, if required by applicable law) after the date on which notice of the Exchange Offer is mailed to the holders of the Private Notes. If (i) because of any change in law or applicable interpretations thereof by the staff of the Commission, the Company or the Guarantors are not permitted to effect the Exchange Offer as contemplated hereby, (ii) any Private Notes validly tendered pursuant to the Exchange Offer are not exchanged for Exchange Notes within 165 days after the Issue Date, (iii) any Initial Purchaser so requests with respect to Private Notes not eligible to be exchanged for Exchange Notes in the Exchange Offer, (iv) any applicable law or interpretations do not permit any holder of Private Notes to participate in the Exchange Offer, (v) any holder of Private Notes that participates in the Exchange Offer does not receive freely transferable Exchange Notes in exchange for tendered Private Notes or (vi) the Company so elects, then the Company and the Guarantors will use their reasonable best efforts to file with the Commission a shelf registration statement (the "Shelf Registration Statement") to cover resales of Transfer Restricted Securities by such holders who satisfy certain conditions relating to the provision of information in connection with the Shelf Registration Statement. For purposes of the foregoing, "Transfer Restricted Securities" means each Private Note until (i) the date on which such Private Note has been exchanged for a freely transferable Exchange Note in the Exchange Offer, (ii) the date on which such Private Note has been effectively registered under the Securities Act and disposed of in accordance with the Shelf Registration 106 Statement or (iii) the date on which such Private Note is distributed to the public pursuant to Rule 144 under the Securities Act or is salable pursuant to Rule 144(k) under the Securities Act. The Company will use its reasonable best efforts to have the Exchange Offer Registration Statement or, if applicable, the Shelf Registration Statement declared effective by the Commission as promptly as practicable after the filing thereof. Unless the Exchange Offer would not be permitted by applicable law or a policy of the Commission, the Company will commence the Exchange Offer and will use its reasonable best efforts to consummate the Exchange Offer as promptly as practicable, but in any event prior to 165 days after the Issue Date. If applicable, the Company will use its reasonable best efforts to keep the Shelf Registration Statement effective until the earlier of two years after the Issue Date or such time as all of the applicable Private Notes have been sold thereunder. LIQUIDATED DAMAGES If (i) the applicable Registration Statement is not filed with the Commission on or prior to 60 days after the Issue Date; (ii) the Exchange Offer Registration Statement or the Shelf Registration Statement, as the case may be, is not declared effective within 135 days after the Issue Date (or in the case of a Shelf Registration Statement required to be filed (A) in response to a change in law or the applicable interpretations of the Commission's staff, within 45 days after publication of the change in law or interpretation or, (B) in the case of clauses (iii), (iv) and (v) of the second paragraph under "--Shelf Registration" above, within 45 days of the receipt of a request for such Shelf Registration Statement; provided, however, in each such case under clauses (A) and (B), only to the extent such 45 day period extends such 135 day period); (iii) if required to be consummated, the Exchange Offer is not consummated on or prior to 165 days after the Issue Date; or (iv) the Shelf Registration Statement is filed and declared effective within 135 days after the Issue Date (or in the case of a Shelf Registration Statement required to be filed (A) in response to a change in law or the applicable interpretations of the Commission's staff, within 45 days after publication of the change in law or interpretation or, (B) in the case of clauses (iii), (iv) and (v) of the second paragraph under "--Shelf Registration" above, within 45 days of the receipt of a request for such Shelf Registration Statement; provided, however, in each such case under clauses (A) and (B), only to the extent such 45 day period extends such 135 day period) but shall thereafter cease to be effective (at any time that the Company is obligated to maintain the effectiveness thereof) without being succeeded within 45 days by an additional Registration Statement filed and declared effective (each such event referred to in clauses (i) through (iv), a "Registration Default"), the Company will be obligated to pay liquidated damages to each holder of Transfer Restricted Securities, during the period of one or more such Registration Defaults, in an amount equal to $0.192 per week per $1,000 principal amount of the Notes constituting Transfer Restricted Securities held by such holder until the applicable Registration Statement is filed, the Exchange Offer Registration Statement is declared effective and the Exchange Offer is consummated or the Shelf Registration Statement is declared effective or again becomes effective, as the case may be. All accrued liquidated damages shall be paid to holders in the same manner as interest payments on the Notes on semi-annual payment dates which correspond to interest payment dates for the Notes. Following the cure of all Registration Defaults, the accrual of liquidated damages will cease. Notwithstanding the foregoing, the Company may issue a notice, based upon an opinion of counsel, that the Shelf Registration Statement is unusable pending the announcement of a material corporate transaction and may issue any notice suspending the use of the Shelf Registration Statement required under applicable securities laws to be issued and, to the extent that the aggregate number of days in any consecutive 12-month period for which all such notices are issued and effective does not exceed 45 days, then liquidated damages will not be payable as described above as a result of such suspension. Holders of the Private Notes will be required to make certain representations to the Company (as described above) in order to participate in the Exchange Offer and will be required to deliver information to be used in connection with the Shelf Registration Statement in order to have their Private Notes included in the Shelf Registration Statement and benefit from the provisions regarding liquidated damages set forth in the preceding paragraphs. A holder who sells Private Notes pursuant to the Shelf Registration Statement generally will be required to be named as a selling securityholder in the related prospectus and to deliver a prospectus to 107 purchasers, will be subject to certain of the civil liability provisions under the Securities Act in connection with such sales and will be bound by the provisions of the Exchange and Registration Rights Agreement which are applicable to such a holder (including certain indemnification obligations). FEES AND EXPENSES The Exchange and Registration Rights Agreement provides that the Company shall pay all expenses incident to the Exchange Offer (including the expense of one counsel to the holders of the Notes) and will indemnify certain holders of the Notes (including any broker-dealer) against certain liabilities, including liabilities under the Securities Act. The expenses of soliciting tenders will be borne by the Company. The principal solicitation is being made by mail; however, additional solicitation may be made by telegraph, telephone or in person by officers and regular employees of the Company and its affiliates. The Company has not retained any dealer-manager in connection with the Exchange Offer and will not make any payments to brokers, dealers or others soliciting acceptances of the Exchange Offer. The Company, however, will pay the Exchange Agent reasonable and customary fees for its services and will reimburse it for its reasonable out-of-pocket expenses in connection therewith. The cash expenses to be incurred in connection with the Exchange Offer will be paid by the Company. Such expenses include registration fees, fees and expenses of the Exchange Agent and the Trustee, accounting and legal fees and printing costs, among others. The Company will pay all transfer taxes, if any, applicable to the exchange of Private Notes pursuant to the Exchange Offer. If, however, a transfer tax is imposed for any reason other than the exchange of the Private Notes pursuant to the Exchange Offer, then the amount of any such transfer taxes (whether imposed on the registered holder or any other persons) will be payable by the tendering holder. If satisfactory evidence of payment of such taxes or exemption therefrom is not submitted with the Letter of Transmittal, the amount of such transfer taxes will be billed directly to such tendering holder. CONSEQUENCES OF FAILURE TO EXCHANGE Participation in the Exchange Offer is voluntary. Holders of the Private Notes are urged to consult their financial and tax advisors in making their own decisions on what action to take. The Private Notes that are not exchanged for the Exchange Notes pursuant to the Exchange Offer will remain restricted securities. Accordingly, such Private Notes may be resold only (i) to a person whom the seller reasonably believes is a QIB in a transaction meeting the requirements of Rule 144A, (ii) in a transaction meeting the requirements of Rule 144 under the Securities Act, (iii) outside the United States to a foreign person in a transaction meeting the requirements of Rule 904 under the Securities Act, (iv) in accordance with another exemption from the registration requirements of the Securities Act (and based upon an opinion of counsel if the Company so requests), (v) to the Company or (vi) pursuant to an effective registration statement and, in each case, in accordance with any applicable securities laws of any state of the United States or any other applicable jurisdiction. ACCOUNTING TREATMENT For accounting purposes, the Company will recognize no gain or loss as a result of the Exchange Offer. The expenses of the Exchange Offer will be amortized over the term of the Exchange Notes. 108 EXCHANGE AGENT United States Trust Company of New York has been appointed as Exchange Agent for the Exchange Offer. Questions and requests for assistance, requests for additional copies of this Prospectus or of the Letter of Transmittal, and requests for Notice of Guaranteed Delivery should be directed to the Exchange Agent addressed as follows: By Registered or By Overnight Courier: By Hand: Certified Mail: United States Trust Company United States Trust United States Trust of New York Company Company 770 Broadway, 13th Floor of New York of New York New York, New York 10003 111 Broadway, Lower P.O. Box 844 Attn: Corporate Trust Services Level Attn: Corporate Trust Attn: Corporate Trust Services Services Cooper Station New York, New York 10006 New York, New York 10276 By Facsimile for Eligible Institutions: (212) 420-6152 DELIVERY TO AN ADDRESS OTHER THAN SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY. RESALE OF THE EXCHANGE NOTES With respect to resales of Exchange Securities, based on interpretations by the staff of the Commission set forth in no-action letters issued to third parties, the Company believes that the Exchange Notes issued pursuant to the Exchange Offer in exchange for Private Notes may be offered for resale, resold and otherwise transferred by a holder thereof (other than an "affiliate" of the Company within the meaning of Rule 405 under the Securities Act) without compliance with the registration and prospectus delivery requirements of the Securities Act; provided that the holder is acquiring Exchange Notes in the ordinary course of its business and is not participating, and has no arrangement or understanding with any person to participate, in the distribution of the Exchange Notes. Holders of Private Notes wishing to accept the Exchange Offer must represent to the Company, as required by the Exchange and Registration Rights Agreement, that such conditions have been met. The Company believes that none of the registered holders of the Private Notes is an affiliate (as such term is defined in Rule 405 under the Securities Act) of the Company. Any broker-dealer that resells Exchange Notes that were received by it for its own account pursuant to the Exchange Offer and any broker or dealer that participates in the distribution of such Exchange Notes may be deemed to be an "underwriter" within the meaning of the Securities Act and any profit on any such resale of Exchange Notes and any commissions or concessions received by any such persons may be deemed to be underwriting compensation under the Securities Act. Each broker-dealer that receives Exchange Notes for its own account in exchange for Private Notes must acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Notes. The Letter of Transmittal states that by so acknowledging and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. This Prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with resales of Exchange Notes received in exchange for Private Notes, where such Private Notes were acquired by such broker-dealer as a result of market- making or other trading activities. The Company has agreed to make this Prospectus (as it may be amended or supplemented) available to any broker- dealer, upon request, for use in connection with any such resale, for a period of up to 180 days after the Registration Statement is declared effective by the Commission or until such earlier date on which all the Exchange Notes are freely tradable. However, any broker-dealer who acquired the Private Notes directly from the Company other than as a result of market-making activities or ordinary trading activities may not fulfill its prospectus delivery requirements with this Prospectus, but must comply with the registration and prospectus delivery requirements of the Securities Act. See "--Resale of the Exchange Notes." 109 PLAN OF DISTRIBUTION Based on an interpretation by the staff of the Commission set forth in no- action letters issued to third parties, the Company believes that the Exchange Notes issued pursuant to the Exchange Offer in exchange for Private Notes may be offered for resale, resold and otherwise transferred by a holder thereof (other than an "affiliate" of the Company within the meaning of Rule 405 under the Securities Act) without compliance with the registration and prospectus delivery requirements of the Securities Act; provided that the holder is acquiring Exchange Notes in the ordinary course of its business and is not participating, and has no arrangement or understanding with any person to participate, in the distribution of the Exchange Notes. Holders of Private Notes wishing to accept the Exchange Offer must represent to the Company, as required by the Exchange and Registration Rights Agreement, that such conditions have been met. The Company believes that none of the registered holders of the Private Notes is an affiliate (as such term is defined in Rule 405 under the Securities Act) of the Company. Each broker-dealer that receives Exchange Notes for its own account in exchange for Private Notes must acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Notes. The Letter of Transmittal states that by so acknowledging and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. This Prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with resales of Exchange Notes received in exchange for Private Notes, where such Private Notes were acquired by such broker-dealer as a result of market- making activities or other trading activities. The Company has agreed to make this Prospectus (as it may be amended or supplemented) available to any broker-dealer, upon request, for use in connection with any such resale, for a period of up to 180 days after the Registration Statement is declared effective by the Commission or until such earlier date on which all the Exchange Notes are freely tradable. However, any broker-dealer who acquired the Notes directly from the Company may not fulfill its prospectus delivery requirements with this Prospectus, but must comply with the registration and prospectus delivery requirements of the Securities Act. The Company will not receive any proceeds from any sale of the Exchange Notes by broker-dealers or any other persons. Exchange Notes received by broker-dealers for their own accounts pursuant to the Exchange Offer may be sold for time to time in one or more transactions in the over-the-counter market, in negotiated transactions, through the writing of options on the Exchange Notes or a combination of such methods of resale, at market prices prevailing at the time of such resale, at prices related to such prevailing market prices or at negotiated prices. Any such resale may be made directly to purchasers or to or through brokers or dealers who may receive compensation in the form of commissions or concessions from any such broker-dealer and/or purchasers of any such Exchange Notes. Any broker-dealer that resells Exchange Notes that were received by it for its own account pursuant to the Exchange Offer and any broker or dealer that participates in the distribution of such Exchange Notes may be deemed to be an "underwriter" within the meaning of the Securities Act and any profit on any such resale of Exchange Notes and any commissions or concessions received by any such persons may be deemed to be underwriting compensation under the Securities Act. The Letter of Transmittal states that by acknowledging that it will deliver and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. By acceptance of this Exchange Offer, each broker-dealer that receives Exchange Notes pursuant to the Exchange Offer agrees that, upon receipt of notice from the Company of the happening of any event which makes any statement in the Prospectus untrue in any material respect or which requires the making of any changes in the Prospectus in order to make the statements therein not misleading (which notice the Company agrees to deliver promptly to such broker-dealer), such broker-dealer will suspend use of the Prospectus until the Company has amended or supplemented the Prospectus to correct such misstatement or omission and has furnished copies of the amended or supplemented Prospectus to such broker-dealer. If the Company shall give any such notice to suspend the use of the Prospectus, it shall extend the 180-day period referred to above by the number of days during the period from and including the date of the giving of such notice to and including the 110 date when the broker-dealers shall have received copies of the supplemented or amended Prospectus necessary to permit resales of the Exchange Notes. The Company has agreed to pay all expenses incident to the Company's performance of, or compliance with, the Exchange and Registration Rights Agreement and will indemnify the holders (including any broker-dealers) and certain parties related to the holders against certain liabilities, including liabilities under the Securities Act. 111 CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS The following discussion is a summary of certain U.S. federal income tax considerations relevant to the exchange of Private Notes for Exchange Notes, but does not purport to be a complete analysis of all potential tax effects. The discussion is based upon the Internal Revenue Code of 1986, as amended (the "Code"), Treasury regulations, Internal Revenue Service rulings and pronouncements and judicial decisions now in effect, all of which are subject to change at any time by legislative, judicial or administrative action. Any such changes may be applied retroactively in a manner that could adversely affect a holder of the Exchange Notes. The description does not consider the effect of any applicable foreign, state, local or other tax laws or estate or gift tax considerations. THE PRECEDING DISCUSSION OF CERTAIN UNITED STATES FEDERAL TAX CONSEQUENCES IS FOR GENERAL INFORMATION ONLY AND IS NOT TAX ADVICE. EACH HOLDER SHOULD CONSULT HIS OR HER OWN TAX ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES TO IT OF EXCHANGING PRIVATE NOTES FOR EXCHANGE NOTES, INCLUDING THE APPLICABILITY AND EFFECT OF ANY STATE, LOCAL OR FOREIGN TAX LAWS. The exchange of Private Notes for Exchange Notes in the Exchange Offer should not constitute a taxable event to holders of Private Notes for United States federal income tax purposes because the Exchange Notes should not be considered to differ materially in kind or extent from the Private Notes and because the exchange will occur by operation of the terms of the Private Notes. If, however, the exchange of the Private Notes for the Exchange Notes were treated as an exchange for United States federal income tax purposes, such exchange should constitute a non-taxable recapitalization for United States federal income tax purposes. Accordingly, the Exchange Notes should have the same issue price as the Private Notes, and a holder should have the same adjusted tax basis and holding period in the Exchange Notes as the holder had in the Private Notes immediately before the exchange. 112 ERISA CONSIDERATIONS Each of the Company and its affiliates and the Trustee may be considered a "party in interest" (within the meaning of the Employee Retirement Income Security Act of 1974, as amended ("ERISA")) or a "disqualified person" (within the meaning of Section 4975 of the Code) with respect to many employee benefit plans ("Plans") that are subject to ERISA. Any purchaser proposing to acquire Exchange Notes with assets of any Plan should consult with its counsel. The purchase and/or holding of Exchange Notes by a Plan that is subject to the fiduciary responsibility provisions of ERISA or the prohibited transaction provisions of Section 4975 of the Code (including individual retirement arrangements and other plans described in Section 4975(e)(1) of the Code) and with respect to which the Company, the Trustee or any affiliate is a service provider (or otherwise is a party in interest or a disqualified person) may constitute or result in a prohibited transaction under ERISA or Section 4975 of the Code, unless such Exchange Notes are acquired pursuant to and in accordance with an applicable exemption, such as Prohibited Transaction Class Exemption ("PTCE") 84-14 (an exemption for certain transactions determined by an independent qualified professional asset manager), PTCE 91-38 (an exemption for certain transactions involving bank collective investment funds), PTCE 90- 1 (an exemption for certain transactions involving insurance company pooled separate accounts), PTCE 95-60 (an exemption for transactions involving certain insurance company general accounts), or PTCE 95-23 (an exemption for certain transactions determined by an in-house asset manager). INDEPENDENT AUDITORS The audited financial statements of NE Restaurant Company, Inc. included in this Prospectus for the years ended December 31, 1995, 1996 and 1997 have been audited by Arthur Andersen LLP, independent public accountants, as stated in their reports thereto, and are included herein in reliance upon the authority said firm as experts in giving said reports. The audited financial statements of Bertucci's, Inc. included in this Prospectus for the years ended, December 30, 1995, December 28, 1996 and December 27, 1997 have been audited by Arthur Andersen LLP, independent public accountants, as stated in their reports thereto, and are included herein in reliance upon the authority said firm as experts in giving said reports. LEGAL MATTERS The validity of the Exchange Notes will be passed upon for the Company by Stroock & Stroock & Lavan LLP, New York, New York. 113 INDEX TO FINANCIAL STATEMENTS
PAGE ---- NE RESTAURANT COMPANY, INC. Report of Independent Public Accountants................................ F-2 Consolidated Balance Sheets as of December 31, 1996 and 1997 and June 30, 1998 (unaudited)................................................... F-3 Consolidated Statements of Income for each of the three years in the period ended December 31, 1997 and for the six months ended June 30, 1997 (unaudited) and June 30, 1998 (unaudited)......................... F-4 Statements of Changes in Stockholders (Deficit) Equity for each of the three years in the period ended December 31, 1997 and for the six months ended June 30, 1998 (unaudited)................................. F-5 Consolidated Statements of Cash Flows for each of the three years in the period ended December 31, 1997 and for the six months ended June 30, 1997 (unaudited) and June 30, 1998 (unaudited).............................................. F-6 Notes to Financial Statements........................................... F-7 BERTUCCI'S, INC. Report of Independent Public Accountants................................ F-17 Consolidated Balance Sheets as of December 28, 1996, and December 27, 1997................................................................... F-18 Consolidated Statements of Operations for the years ended December 30, 1995, December 28, 1996, and December 27, 1997......................... F-19 Consolidated Statements of Shareholders' Equity for the years ended December 30, 1995, December 28, 1996, and December 27, 1997............ F-20 Consolidated Statements of Cash Flows for the years ended December 30, 1995, December 28, 1996, and December 27, 1997......................... F-21 Notes to Consolidated Financial Statements.............................. F-22 Consolidated Condensed Balance Sheets as of July 11, 1998 (unaudited)... F-31 Consolidated Condensed Statements of Operations for the twenty-eight weeks ended July 12, 1997 (unaudited) and July 11, 1998 (unaudited).... F-32 Consolidated Condensed Statements of Shareholders' Equity for the twenty-eight weeks ended July 11, 1998 (unaudited)..................... F-33 Consolidated Condensed Statements of Cash Flows for the twenty-eight weeks ended July 12, 1997 (unaudited) and July 11, 1998 (unaudited).... F-34 Notes to Consolidated Condensed Financial Statements for the twenty- eight weeks ended July 11, 1998........................................ F-35
F-1 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To NE Restaurant Company, Inc.: We have audited the accompanying consolidated balance sheets of NE Restaurant Company, Inc. (the "Company") and its subsidiary as of December 31, 1997 and 1996, and the related consolidated statements of income, changes in stockholders' (deficit) equity and cash flows for each of the three years in the period ended December 31, 1997. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of NE Restaurant Company, Inc. and its subsidiary as of December 31, 1997 and 1996, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1997, in conformity with generally accepted accounting principles. /s/ Arthur Andersen LLP Boston, Massachusetts February 20, 1998 F-2 NE RESTAURANT COMPANY, INC. CONSOLIDATED BALANCE SHEETS
DECEMBER 31, ------------------------- JUNE 30, 1996 1997 1998 ----------- ------------ ------------ (UNAUDITED) ASSETS CURRENT ASSETS: Cash................................ $ 410,929 $ 247,675 $ -- Marketable securities............... -- -- 3,434,610 Credit card receivables............. 408,921 297,221 394,287 Inventories......................... 707,169 592,143 569,760 Prepaid expenses and other current assets............................. 302,289 184,494 -- Pre-opening costs, net of accumulated amortization........... 338,525 159,728 342,184 Deferred taxes, current............. 68,452 111,504 111,504 ----------- ------------ ------------ Total current assets.............. 2,236,285 1,592,765 4,852,345 ----------- ------------ ------------ PROPERTY AND EQUIPMENT, AT COST: Land and land right................. 3,792,524 3,792,524 3,792,524 Buildings........................... 4,213,426 4,216,126 4,264,168 Leasehold improvements.............. 13,923,838 16,623,160 16,729,123 Furniture and equipment............. 13,712,979 15,155,666 15,696,392 ----------- ------------ ------------ 35,642,767 39,787,476 40,482,207 Less--Accumulated depreciation...... (7,070,313) (9,992,744) (11,623,376) ----------- ------------ ------------ 28,572,454 29,794,732 28,858,831 Construction work in process........ 823,767 1,157,813 3,939,178 ----------- ------------ ------------ Net property and equipment........ 29,396,221 30,952,545 32,798,009 DEFERRED TAXES, NONCURRENT............ 71,197 62,388 62,388 OTHER ASSETS: Liquor licenses..................... 1,175,423 1,195,887 1,211,698 Restricted investments.............. 489,053 931,676 1,275,340 Other assets........................ 971,845 2,601,565 2,925,885 ----------- ------------ ------------ $34,340,024 $ 37,336,826 $ 43,125,665 =========== ============ ============ LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY CURRENT LIABILITIES: Current portion of mortgage loan payable............................ $ -- $ 632,538 $ 668,679 Accounts payable.................... 2,611,430 3,987,794 3,658,185 Accrued expenses.................... 4,544,733 5,298,000 5,531,241 Capital lease obligation--current portion............................ 76,059 79,997 72,647 ----------- ------------ ------------ Total current liabilities......... 7,232,222 9,998,329 9,930,752 LINE-OF-CREDIT LOANS.................. 14,875,000 13,500,000 18,058,000 CAPITAL LEASE OBLIGATION, NET OF CURRENT PORTION...................... 321,891 232,490 195,722 MORTGAGE LOAN PAYABLE, NET OF CURRENT PORTION.............................. -- 23,463,313 23,108,561 DEFERRED RENT AND OTHER LONG-TERM LIABILITIES.......................... 2,453,665 3,249,548 3,996,578 ----------- ------------ ------------ Total liabilities................. 24,882,778 50,443,680 55,289,613 ----------- ------------ ------------ COMMITMENTS AND CONTINGENCIES (NOTE 7) STOCKHOLDERS' EQUITY: Common stock, $.01 par value Authorized--4,000,000 shares Issued--2,006,000 shares........... 20,000 20,060 20,060 Less--Treasury stock--689,344 shares, at cost.................... -- (8,017,070) (8,017,070) Additional paid-in capital.......... 4,447,933 22,440 22,440 (Accumulated deficit) retained earnings........................... 4,989,313 (5,132,284) (4,189,378) ----------- ------------ ------------ Total stockholders' (deficit) equity........................... 9,457,246 (13,106,854) (12,163,948) ----------- ------------ ------------ $34,340,024 $ 37,336,826 $ 43,125,665 =========== ============ ============
The accompanying notes are an integral part of these consolidated financial statements. F-3 NE RESTAURANT COMPANY, INC. CONSOLIDATED STATEMENTS OF INCOME
SIX MONTHS ENDED YEARS ENDED DECEMBER 31, JUNE 30, ----------------------------------- ----------------------- 1995 1996 1997 1997 1998 ----------- ----------- ----------- ----------- ----------- (UNAUDITED) NET SALES............... $60,300,069 $70,094,027 $81,363,751 $38,872,372 $45,049,038 ----------- ----------- ----------- ----------- ----------- COST OF SALES AND EXPENSES: Cost of sales......... 18,095,226 21,203,336 23,383,851 11,334,082 12,721,827 Operating expenses.... 30,101,147 34,267,183 40,931,889 19,444,087 22,677,939 General and administrative expenses............. 3,448,949 3,678,875 4,206,862 2,012,996 2,298,308 Deferred rent, depreciation and amortization......... 3,200,140 3,679,095 3,910,946 2,055,475 1,989,313 Taxes other than income............... 2,871,328 3,207,253 3,828,798 1,889,788 2,081,765 ----------- ----------- ----------- ----------- ----------- Total cost of sales and expenses....... 57,716,790 66,035,742 76,262,346 36,736,428 41,769,152 ----------- ----------- ----------- ----------- ----------- Income from operations........... 2,583,279 4,058,285 5,101,405 2,135,944 3,279,886 INTEREST EXPENSE, NET... 462,756 1,053,432 1,917,605 606,792 1,863,939 ----------- ----------- ----------- ----------- ----------- Income before income tax expense.......... 2,120,523 3,004,853 3,183,800 1,529,152 1,415,947 INCOME TAX EXPENSE...... 699,338 1,046,407 1,083,470 543,007 473,041 ----------- ----------- ----------- ----------- ----------- Net income............ $ 1,421,185 $ 1,958,446 $ 2,100,330 $ 986,145 $ 942,906 =========== =========== =========== =========== =========== BASIC AND DILUTED EARNINGS PER SHARE..... $ 0.71 $ 0.98 $ 1.22 $ 0.49 $ 0.72 =========== =========== =========== =========== =========== WEIGHTED AVERAGE SHARES OUTSTANDING............ 2,000,000 2,000,000 1,722,918 2,000,000 1,316,656 =========== =========== =========== =========== ===========
The accompanying notes are an integral part of these consolidated financial statements. F-4 NE RESTAURANT COMPANY, INC. STATEMENTS OF CHANGES IN STOCKHOLDERS' (DEFICIT) EQUITY FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 AND THE SIX MONTHS ENDED JUNE 30, 1998 (UNAUDITED)
COMMON STOCK TREASURY STOCK (ACCUMULATED TOTAL ------------------ ---------------------- ADDITIONAL DEFICIT) STOCKHOLDERS' NUMBER OF $.01 PER NUMBER OF PAID-IN RETAINED (DEFICIT) SHARES SHARE SHARES AMOUNT CAPITAL EARNINGS EQUITY --------- -------- --------- ----------- ----------- ------------ ------------- --- BALANCE, DECEMBER 31, 1994................... 2,000,000 $20,000 -- $ -- $ 4,447,933 $ 1,609,682 $ 6,077,615 Net income............ -- -- -- -- -- 1,421,185 1,421,185 --------- ------- -------- ----------- ----------- ------------ ------------ BALANCE, DECEMBER 31, 1995................... 2,000,000 20,000 -- -- 4,447,933 3,030,867 7,498,800 Net income............ -- -- -- -- -- 1,958,446 1,958,446 --------- ------- -------- ----------- ----------- ------------ ------------ BALANCE, DECEMBER 31, 1996................... 2,000,000 20,000 -- -- 4,447,933 4,989,313 9,457,246 Net income............ -- -- -- -- -- 2,100,330 2,100,330 Issuance of common stock................ 6,000 60 -- -- 22,440 -- 22,500 Cash dividend and return of capital.... -- -- -- -- (4,447,933) (12,221,927) (16,669,860) Purchase of treasury stock................ -- -- (716,429) (8,332,069) -- -- (8,332,069) Sale of treasury stock................ -- -- 27,085 314,999 -- -- 314,999 --------- ------- -------- ----------- ----------- ------------ ------------ BALANCE, DECEMBER 31, 1997................... 2,006,000 20,060 (689,344) (8,017,070) 22,440 (5,132,284) (13,106,854) Net income............ -- -- -- -- -- 942,906 942,906 --------- ------- -------- ----------- ----------- ------------ ------------ BALANCE, JUNE 30, 1998.. 2,006,000 $20,060 (689,344) $(8,017,070) $ 22,440 $ (4,189,378) $(12,163,948) ========= ======= ======== =========== =========== ============ ============
The accompanying notes are an integral part of these consolidated financial statements. F-5 NE RESTAURANT COMPANY, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE YEARS ENDED DECEMBER 31, 30, -------------------------------------- ----------------------- 1995 1996 1997 1997 1998 ------------ ----------- ----------- ----------- ---------- (UNAUDITED) CASH FLOWS FROM OPERATING ACTIVITIES: Net income............. $ 1,421,185 $ 1,958,446 $ 2,100,330 $ 983,970 $ 942,906 ------------ ----------- ----------- ----------- ---------- Adjustments to reconcile net income to net cash provided by (used in) operating activities-- Depreciation and amortization......... 2,871,187 3,298,345 3,557,686 2,055,475 1,989,313 Deferred taxes....... 40,053 (271,789) (34,243) 1,891,159 -- Deferred rent........ 328,953 380,750 353,260 173,061 403,366 Changes in operating assets and liabilities-- Refundable income taxes.............. (111,960) 133,091 -- (1,489,276) -- Inventories........ (229,607) (53,740) 115,026 78,432 22,383 Prepaid expenses, credit card receivables and other current assets............. (111,347) (219,213) 229,495 (502,402) 87,428 Accrued expenses... 718,503 931,398 753,267 (2,534,557) 233,241 Accounts payable... 677,148 (412,554) 1,376,364 1,690,138 (329,609) ------------ ----------- ----------- ----------- ---------- Total adjustments....... 4,182,930 3,786,288 6,350,855 1,362,030 2,406,122 ------------ ----------- ----------- ----------- ---------- Net cash provided by (used in) operating activities........ 5,604,115 5,744,734 8,451,185 2,346,000 3,349,028 ------------ ----------- ----------- ----------- ---------- CASH FLOWS FROM INVESTING ACTIVITIES: Additions to property and equipment.......... (10,359,463) (7,946,034) (4,478,755) (1,308,471) (3,476,095) Development and franchise fees paid.... (400,000) (160,000) (320,000) (280,000) (60,000) Acquisition of liquor licenses............... (133,296) (61,937) (20,464) (5,186) (15,811) Decrease (increase) in other assets and liabilities............ -- (115,125) 65,595 324,180 (443,662) Additions to pre- opening costs.......... (864,990) (730,021) (392,371) (190,079) (361,796) Acquisition of marketable securities.. -- -- -- -- (3,434,610) ------------ ----------- ----------- ----------- ---------- Net cash used in investing activities........ (11,757,749) (9,013,117) (5,145,995) (1,459,556) (7,791,974) ------------ ----------- ----------- ----------- ---------- CASH FLOWS FROM FINANCING ACTIVITIES: Borrowings of mortgage loans.................. -- -- 24,250,000 -- -- Repayment of mortgage loans.................. -- -- (154,149) -- (318,611) Financing costs........ -- -- (1,439,402) -- -- Cash dividend paid..... -- -- (12,221,927) -- -- Return of capital...... -- -- (4,447,933) -- -- Issuance of common shares................. -- -- 22,500 -- -- Repurchase of treasury stock.................. -- -- (8,260,827) -- -- Sale of treasury shares................. -- -- 243,757 -- -- Principal payments under capital lease obligations............ -- (23,223) (85,463) (42,373) (44,118) Net (payments) borrowings under line of credit.............. 6,290,000 3,305,000 (1,375,000) (1,255,000) 4,558,000 ------------ ----------- ----------- ----------- ---------- Net cash (used in) provided by financing activities........ 6,290,000 3,281,777 (3,468,444) (1,297,373) 4,195,271 ------------ ----------- ----------- ----------- ---------- NET (DECREASE) INCREASE IN CASH................. 136,366 13,394 (163,254) (410,929) (247,675) CASH, BEGINNING OF PERIOD.................. 261,169 397,535 410,929 410,929 247,675 ------------ ----------- ----------- ----------- ---------- CASH, END OF PERIOD..... $ 397,535 $ 410,929 $ 247,675 $ -- $ -- ============ =========== =========== =========== ========== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the period for interest, net of amounts capitalized............ $ 393,682 $ 1,067,325 $ 1,946,811 $ 700,156 $ 621,787 ============ =========== =========== =========== ========== Cash paid during the period for income taxes.................. $ 756,314 $ 1,151,186 $ 1,217,812 $ 205,000 $ 457,000 ============ =========== =========== =========== ==========
During 1996, a capital lease obligation of approximately $400,000 was incurred when the Company entered into a lease for new equipment. The accompanying notes are an integral part of these consolidated financial statements. F-6 NE RESTAURANT COMPANY, INC. NOTES TO FINANCIAL STATEMENTS (1) ORGANIZATION AND OPERATIONS NE Restaurant Company, Inc. (a Delaware corporation) (the "Company") was incorporated on January 1, 1994. On January 1, 1994, the partners of NE Restaurant Holdings Group (the "Group") transferred 100% of their respective partnership interests in exchange for an aggregate of 2,000,000 shares of the common stock of the Company. All significant leases, franchise agreements and other contracts were assigned from the Group to the Company. The Company was formed to acquire and operate restaurants situated in Massachusetts, New Hampshire, Maine, Vermont, Rhode Island, Connecticut and portions of New York. The restaurants, which operate under the name of Chili's and On The Border, are operated under franchise agreements with Brinker International (a Texas corporation) ("Brinker"). The restaurants offer a full bar and dining service featuring a limited menu of broadly appealing food items prepared daily according to special Chili's and On The Border recipes. On August 6, 1997, the Company formed a wholly-owned limited partnership, NERC Limited Partnership ("NERCLP"), to obtain the mortgage loans discussed below. All significant intercompany accounts and transactions have been eliminated in consolidation. (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Reclassification Certain reclassifications have been made to prior year financial statements to make them consistent with the current year's presentation. Use of Management Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Interim Financial Statements The accompanying consolidated financial statements as of June 30, 1998 and for the six months ended June 30, 1997 and 1998 are unaudited, but in the opinion of management, include all adjustments consisting of normal recurring adjustments necessary for a fair presentation of results for the interim periods. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been omitted although the Company believes that the disclosures included are adequate to make the information presented not misleading. Results for the six months ended June 30, 1998 are not necessarily indicative of the results that may be expected for the year ending December 31, 1998. Inventories Inventories are carried at the lower of first-in, first-out cost or market value, and consist of the following:
1997 1996 -------- -------- Food..................................................... $287,226 $358,508 Liquor................................................... 304,917 348,661 -------- -------- Total inventory........................................ $592,143 $707,169 ======== ========
F-7 NE RESTAURANT COMPANY, INC. NOTES TO FINANCIAL STATEMENTS--(CONTINUED) Property and Equipment Property and equipment are carried at cost. The Company provides for depreciation and amortization using the straight-line method to charge the cost of properties to expense over the estimated useful lives of the assets. The lives used are as follows:
ASSET CLASSIFICATION ESTIMATED USEFUL LIFE -------------------- -------------------------- Buildings 31-40 years Leasehold improvements Term of the lease (ranging between 10-20 years) Furniture and equipment 5-7 years
Included in furniture and equipment in the accompanying consolidated balance sheets is smallwares. The Company capitalizes a normal complement of smallwares for each location prior to the store's opening date and expenses all smallwares purchased after each store's opening date. Long-Lived Assets In 1996, the Company adopted SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of. The Company's long-lived assets consist primarily of real estate and leasehold improvements related to its restaurant operations. SFAS No. 121 requires management to consider whether long-lived assets have been impaired by comparing gross future cash flows expected to be generated from utilizing these assets to their carrying amounts. If cash flows are not sufficient to recover the carrying amount of the assets, an impairment has occurred and the assets should be written down to their fair market value. Significant estimates and assumptions regarding future sales, cost trends, productivity and market maturity are required to be made by management in order to test for impairment under this standard. Based on current facts, estimates and assumptions, management believes that no assets are impaired under this standard. There is no assurance that management's estimates and assumptions will prove correct. Land Right In 1994, the Company executed an agreement to prepay the rent associated with a 99-year lease for land in Southington, Connecticut. Prepaid rental payments totaled $735,000 and are reflected as a land right in the accompanying consolidated balance sheets. The lease is renewable for an additional 99 years for a payment of $1. Capitalized Interest The Company capitalizes interest costs during the construction period on capital expenditures funded by debt. Total interest costs incurred and amounts capitalized are as follows:
1997 1996 1995 ---------- ---------- -------- Total interest expense.................... $1,961,428 $1,151,490 $793,953 Less--Amount capitalized.................. 43,823 98,058 331,197 ---------- ---------- -------- Interest expense, net of amounts capitalized........................... $1,917,605 $1,053,432 $462,756 ========== ========== ========
Liquor Licenses Liquor licenses purchased are accounted for at the lower of cost or market. Annual renewal fees are expensed as incurred. F-8 NE RESTAURANT COMPANY, INC. NOTES TO FINANCIAL STATEMENTS--(CONTINUED) Other Assets Other assets are comprised partially of development and franchise fees (see Note 9). Development fees are amortized over seven years, and franchise fees are amortized over the life of the franchise agreements (20 years). Accumulated amortization of these assets amounts to approximately $303,000 and $204,000 at December 31, 1997 and 1996, respectively. Underwriting, legal and other direct costs incurred in connection with the issuance of the mortgages discussed below have been capitalized and are being amortized over the life of the related mortgages. Other assets also include investments restricted for the payment of certain officers' deferred compensation. These investments are stated at market value at December 31, 1997 and 1996. Since these securities are from time to time bought and sold at the discretion of the officers they are classified as trading securities. Pre-opening Costs Capitalized pre-opening costs include the direct and incremental costs typically associated with the opening of a new restaurant. These costs primarily consist of costs incurred to develop new restaurant management teams; travel and lodging for both the training and opening unit management teams; and the food, beverage and supplies costs incurred to perform role-play testing of all equipment, concept systems and recipes. Subsequent to the restaurant opening, costs are amortized over a 12-month period. Accumulated amortization of these costs at December 31, 1997 and 1996 amounted to approximately $188,000 and $336,000, respectively. Accrued Liabilities Accrued liabilities consist of the following as of December 31, 1997 and 1996:
1997 1996 ---------- ---------- Accrued occupancy costs............................. $ 687,622 $ 578,299 Accrued payroll and related benefits................ 2,305,483 1,839,860 Accrued interest.................................... 71,199 100,325 Accrued advertising................................. 421,855 455,110 Accrued royalty..................................... 362,947 294,783 Unredeemed gift certificates........................ 772,164 511,418 Accrued sales tax................................... 378,568 309,049 Accrued construction costs.......................... -- 225,083 Other accrued liabilities........................... 298,162 230,806 ---------- ---------- $5,298,000 $4,544,733 ========== ==========
Marketable Securities Marketable Securities consists of 430,000 shares of common stock of Bertucci's, Inc. No provision has been made to adjust the carrying amount of these Securities to market value as the Company intends to hold them to maturity. The market value of these Securities at June 30, 1998 was $4,407,500. Fair Value of Financial Instruments The Company's financial instruments consist mainly of cash and cash equivalents, marketable securities, accounts receivable, accounts payable, line of credit loans and long-term debt. The carrying amounts of the Company's cash and cash equivalents, accounts receivable and accounts payable approximate fair value due to F-9 NE RESTAURANT COMPANY, INC. NOTES TO FINANCIAL STATEMENTS--(CONTINUED) the short-term nature of these instruments. The fair value of marketable securities as of June 30, 1998 was $4,407,500. The line of credit loans bear interest at a variable market rate and therefore, the carrying amount approximates fair value. The fair value of the Company's mortgage loans based on quoted market prices for similar issues approximates the current carrying value. New Accounting Pronouncements In April 1998, the AICPA issued its Statement of Position 98-5 ("SOP 98-5"), Reporting on the Costs of Start-Up Activities. SOP 98-5 requires that costs incurred during start-up activities, including organization costs, be expensed as incurred. SOP 98-5 is effective for financial statements for fiscal years beginning after December 15, 1998, although early application is encouraged. Initial application of SOP 98-5 should be as of the beginning of the fiscal year in which it is first adopted and should be reported as a cumulative effect of a change in accounting principle. The Company currently intends to adopt SOP 98-5 on January 1, 1999. Upon adoption, the Company estimates it will incur a cumulative effect of a change in accounting principle that will range from $300,000 to $1 million. This estimate primarily includes unamortized preopening costs which were previously amortized over the 12-month period subsequent to a restaurant opening. (3) INCOME TAXES The Company accounts for income taxes under the liability method. The components of the provision for income taxes for the years ended December 31, 1997, 1996 and 1995 are as follows:
1997 1996 1995 ---------- ---------- -------- Current-- Federal................................. $ 704,254 $1,016,485 $398,491 State................................... 304,834 301,711 260,794 ---------- ---------- -------- 1,009,088 1,318,196 659,285 ---------- ---------- -------- Deferred-- Federal................................. 56,835 (278,597) 30,576 State................................... 17,547 6,808 9,477 ---------- ---------- -------- 74,382 (271,789) 40,053 ---------- ---------- -------- Total provision for income taxes...... $1,083,470 $1,046,407 $699,338 ========== ========== ========
A reconciliation of the amount computed by applying the statutory federal income tax rate of 34% to income before taxes for the years ended December 31, 1997, 1996 and 1995 is as follows:
1997 1996 1995 ---------- ---------- -------- Income tax expense computed at federal statutory rate.......................... $1,082,492 $1,020,821 $720,978 State taxes, net of federal benefit...... 212,771 204,326 186,289 FICA tax credit.......................... (216,253) (180,756) (211,902) Targeted jobs tax credit................. (1,897) -- -- Other.................................... 6,357 2,016 3,973 ---------- ---------- -------- Income tax provision................... $1,083,470 $1,046,407 $699,338 ========== ========== ========
F-10 NE RESTAURANT COMPANY, INC. NOTES TO FINANCIAL STATEMENTS--(CONTINUED) Significant items giving rise to deferred tax assets and deferred tax liabilities at December 31, 1997 and 1996 are as follows:
1997 1996 ----------- ----------- Deferred tax assets: Deferred rent................................. $ 933,407 $ 791,150 Deferred and accrued compensation............. 425,952 385,594 Other......................................... 13,882 43,954 ----------- ----------- 1,373,241 1,220,698 ----------- ----------- Deferred tax liabilities-- Accelerated tax depreciation.................. (984,220) (825,941) Pre-opening costs............................. (64,322) (136,324) Liquor licenses............................... (150,807) (118,784) ----------- ----------- (1,199,349) (1,081,049) ----------- ----------- Total net deferred tax assets............... $ 173,892 $ 139,649 =========== =========== Current portion................................. $ 111,504 $ 68,452 =========== =========== Noncurrent portion.............................. $ 62,388 $ 71,197 =========== ===========
No valuation allowance has been provided as the Company estimates that all of the tax assets will be realized. (4) LINE-OF-CREDIT LOANS During 1997, the Company amended and restated its existing bank line of credit with BankBoston, N.A. (the "Bank"). The new bank line-of-credit agreement (the "Agreement"), secured by cash flows of the Company, is in effect until November 30, 2001, under which the Company may borrow up to $20,000,000 in base rate loans or Eurodollar loans, as defined, less outstanding letters of credit and lease obligations payable to the Bank. On November 30, 2001, the Company must pay the Bank the entire unpaid principal of and interest on the line of credit. The Company pays a commitment fee of .250% on the unused portion of the line of credit. Borrowings bear interest at the bank's base rate, as defined in the Agreement, plus an applicable margin based on current funded debt leverage ratio, for base rate loans, and the Eurodollar rate, as defined in the Agreement, plus an applicable margin based on current funded debt leverage ratio, for a Eurodollar loan. The weighted- average interest rate of the line of credit outstanding during 1997 was 7.7%. Loans can be converted into a loan of another type in the amount of $500,000 and $100,000 increments thereafter, as the Company deems beneficial. The loan agreement contains various restrictive covenants that, among other things, require minimum earnings before interest, taxes, depreciation and amortization, restrict total borrowings and the amount of borrowings used for capital expenditures, and require certain levels of net worth, as defined. The Company was in compliance with these covenants at December 31, 1997. F-11 NE RESTAURANT COMPANY, INC. NOTES TO FINANCIAL STATEMENTS--(CONTINUED) (5) CAPITAL LEASE OBLIGATION During 1996, the Company entered into a capital lease with the Bank for restaurant equipment. At the expiration of the lease in 2001, the Company may purchase the equipment at the then fair market value. The minimum lease payments due under the lease as of December 31, 1997 are as follows:
LEASE PAYMENTS TO BE MADE ----------- Year Ending December 31, 1998................................ $ 92,398 1999................................ 92,398 2000................................ 92,398 2001................................ 69,301 -------- 346,495 Less--Interest...................... 34,008 -------- $312,487 ========
(6) MORTGAGE LOANS On August 6, 1997, NERCLP entered into a loan agreement (the "Loan Agreement") with FFCA Acquisition Corporation ("FFCA") in the aggregate amount of $22,400,000 (the "Initial FFCA Loans"), evidenced by promissory notes maturing on various dates from September 2002 through September 2017, with interest at 9.67% per annum. Proceeds from the FFCA Loans were used to pay the Company for real estate assets sold and transferred to NERCLP. The Company then used the sale proceeds to make certain payments to its shareholders (see Note 12 for further discussion). NERCLP mortgaged 17 restaurant properties to FFCA as collateral for the Initial FFCA Loans. On or about August 28, 1997, NERCLP obtained additional financing from FFCA in the aggregate amount of $1,850,000 (the "Additional FFCA Loans", which together with the Initial FFCA Loans are hereinafter referred to as the "FFCA Loans"), evidenced by promissory notes maturing on various dates from September 2007 through September 2017, with interest at 9.701% per annum. The Additional FFCA Loans were collateralized by mortgages on three restaurant properties. The net book value of all properties covered by mortgages granted to FFCA on the dates of borrowing was $25,897,000. For the year ended December 31, 1997, interest related to the FFCA Loans was $708,000. The Loan Agreement with FFCA contains a restrictive covenant that requires the maintenance of a Fixed Charge Coverage Ratio of 1.25:1, as determined on each December 31, with respect to each of the FFCA mortgaged restaurant properties. "Fixed Charge Coverage Ratio" is defined in the Loan Agreement to mean the ratio of (a) the sum of net income, depreciation and amortization, interest expense and operating lease expense, less a corporate overhead allocation equal to 5% of gross sales, for an FFCA mortgaged restaurant property to (b) the sum of FFCA debt service payments, equipment lease and equipment loan payments and ground lease rental payments for such restaurant property. If the Fixed Charge Coverage Ratio is not achieved, NERCLP is required to pay FFCA an amount sufficient to comply with the Fixed Charge Coverage Ratio. NERCLP was in compliance with this covenant as of December 31, 1997. Existing loan documents between FFCA and NERCLP are cross-defaulted and cross-collateralized with all other loan agreements, existing or forthcoming, between FFCA and NERCLP or the Company, subject to certain limited exceptions. F-12 NE RESTAURANT COMPANY, INC. NOTES TO FINANCIAL STATEMENTS--(CONTINUED) The loan payments due under the mortgage loan as of December 31, 1997 are as follows:
LOAN PRINCIPAL PAYMENTS TO BE MADE ----------- Year Ending December 31, 1998................................ $ 632,538 1999................................ 701,666 2000................................ 772,627 2001................................ 850,754 2002................................ 904,904 Thereafter.......................... 20,233,362 ----------- $24,095,851 ===========
(7) COMMITMENTS AND CONTINGENCIES Operating Leases The Company has entered into numerous lease arrangements, primarily for restaurant land, equipment and buildings, which are noncancelable and expire on various dates through 2017. Some operating leases contain rent escalation clauses whereby the rent payments increase over the term of the lease. Rent expense includes base rent amounts, percentage rent payable periodically, as defined in each lease, and rent expense accrued to recognize lease escalation provisions on a straight- line basis over the lease term. Rent expense recognized in restaurant expenses in the accompanying consolidated statements of income was approximately $3,955,000, $3,324,000 and $3,286,000 for the years ended December 31, 1997, 1996 and 1995, respectively. The excess of accrued rent over amounts paid is classified as deferred rent in the accompanying consolidated balance sheets. The approximate minimum rental payments due under all noncancelable operating leases as of December 31, 1997 are as follows:
RENTAL PAYMENTS TO BE MADE ----------- Year Ending December 31, 1998................................ $ 3,842,238 1999................................ 3,890,099 2000................................ 3,774,633 2001................................ 3,821,976 2002................................ 3,915,520 Thereafter.......................... 32,096,919 ----------- $51,341,385 ===========
Certain leases require the payment of an additional amount, calculated as a percentage of annual sales, as defined in the lease agreement, which exceeds annual minimum rentals. The percentage rent factors generally range from 3% to 6% of sales. F-13 NE RESTAURANT COMPANY, INC. NOTES TO FINANCIAL STATEMENTS--(CONTINUED) Contingencies The Company is subject to various legal proceedings that arise in the ordinary course of business. Based on discussion with the Company's legal counsel, management believes that the amount of ultimate liability with respect to these actions will not be material to the financial position or results of operations of the Company. (8) RELATED PARTIES Under the terms of the corporation agreements, the stockholders have consented to the payment of an ongoing financial consulting fee to Jacobson Partners, Limited Partnership ("Jacobson"), a stockholder of the corporation. The amounts paid to Jacobson for financial consulting fees were $160,000 for each of the three years ended December 31, 1997, and are included in general and administrative expenses in the accompanying consolidated statements of income. In addition, Jacobson was paid $400,000 for consulting fees associated with obtaining the above mentioned mortgages. The Company has a nonqualified deferred compensation plan (the "Plan") for certain officers and management personnel, which allows them to defer receiving a portion of their compensation. This compensation is not taxable to the employee or deductible to the Company for tax purposes until the compensation is paid. An officer of the Company, who is also a participant in the Plan, is the trustee of the Plan. (9) FRANCHISE AND DEVELOPMENT AGREEMENTS All of the Company's restaurants operate under franchise agreements with Brinker. The agreements provide, among other things, that the Company pay an initial franchise fee of $40,000 per restaurant and a royalty fee ranging from 2% to 4% of sales. The initial franchise fee is payable in two installments of $20,000. The first installment is due on or before the construction commencement date. The second installment is due at least 10 days prior to the date on which the restaurant opens for business. The initial franchise fees are capitalized and amortized over the term of the franchise agreement. Royalty fees averaged 3.8% of sales in 1997, 3.9% in 1996 and 3.8% in 1995. In addition, the Company is required to pay an advertising fee to Brinker of .5% of sales and spend an additional 2% of sales on local advertising. In return, Brinker is obligated to provide certain support for restaurant operations, siting and promotion. Royalty and advertising fees are expensed as incurred. In 1991, the Company entered into a development agreement with Brinker whereby the Company was granted the exclusive right to develop additional Chili's franchises within a certain geographic territory. In 1995, the Company paid $150,000 to renew the agreement, which now expires in 2000. The Company is required to develop a certain number of Chili's restaurants during the term of the agreement in order to maintain its exclusive development rights. The agreement is renewable at the Company's option for payment of additional sums at the expiration date. Also during 1995, the Company paid $50,000 to Brinker in exchange for both the right to open its first On The Border franchise and the option to enter into an On The Border development agreement in the future. In 1997, the Company elected the option to enter into the On The Border development agreement, and the above $50,000 fee was applied against the cost of the development agreement. (10) 401(K) PROFIT SHARING PLAN The Company maintains a defined contribution plan (the "401(k) Plan") whereby substantially all employees of the Company may defer a portion of their current salary, on a pretax basis, to the 401(k) Plan. The Company may also make a discretionary profit sharing contribution to the 401(k) Plan that is allocated, based on a formula as defined by the 401(k) Plan, to the 401(k) Plan participants. Discretionary contributions made by the Company for the years ended December 31, 1997, 1996 and 1995 were approximately $67,000, $43,000 and $59,000, respectively. Two officers of the Company are also the 401(k) Plan's trustees. F-14 NE RESTAURANT COMPANY, INC. NOTES TO FINANCIAL STATEMENTS--(CONTINUED) (11) STOCK OPTION PLAN On September 15, 1997, the Board of Directors of the Company established the 1997 Equity Incentive Plan, which included a nonqualified stock option plan (the "Option Plan"), for certain key employees and directors. The Option Plan will be administered by the Board of Directors of the Company and may be modified or amended by the Board of Directors in any respect. Between September 15, 1997 and December 4, 1997, 331,123 options were granted. The options are exercisable as follows: Two years beyond options grant date............... 25%
Three years beyond option grant date.............. 50% Four years beyond option grant date............... 75% Five years beyond option grant date............... 100%
The Company accounts for the Option Plan under Accounting Principles Board Opinion No. 25, under which no compensation cost has been recognized since the options are granted at fair market value. Had compensation cost for the Option Plan been determined consistent with Statement of Financial Accounting Standards No. 123, Accounting for Stock Based Compensation, the Company's net income and earnings per share would have been reduced to the following pro forma amounts:
1997 ---------- Net income As reported.......................... $2,100,330 Pro Forma............................ 2,041,288 EPS-- As reported.......................... $ 1.22 Pro Forma............................ 1.18
A summary of the Option Plan at December 31, 1997, and changes during the year then ended, is presented in the table and narrative below.
1997 ----------------- WEIGHTED AVERAGE EXERCISE SHARES PRICE -------- -------- Outstanding at beginning of year.... -- $ -- Granted............................. 331,123 11.63 Exercised........................... -- -- Forfeited........................... -- -- Expired............................. -- -- ------- ------ Outstanding at end of year.......... 331,123 $11.63 ======= ====== Exercisable at end of year.......... -- -- Weighted average fair value of each option granted..................... -- $ 3.06
The 331,123 options outstanding at December 31, 1997 have a remaining weighted average contractual life of approximately five years. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model with the following assumptions used for grants in 1997: weighted average risk-free interest rates of 6.1 percent; weighted average expected lives of five years; and expected volatility of 0%. F-15 NE RESTAURANT COMPANY, INC. NOTES TO FINANCIAL STATEMENTS--(CONTINUED) (12) STOCKHOLDERS' EQUITY In August 1997, the Company made a dividend and return of capital payout to shareholders of $8.31 per share from additional paid-in capital, with the excess payout being charged to retained earnings. In addition, the Company repurchased 716,429 shares of common stock at $11.63 per share. The Company's repurchase of shares of common stock was recorded as treasury stock, at cost, and resulted in a reduction of Stockholders' (Deficit) Equity. (13) SUBSEQUENT EVENTS (UNAUDITED) On July 21, 1998, the Company completed its acquisition of Bertucci's, Inc. pursuant to the terms of an Agreement and Plan of Merger dated as of May 13, 1998. The Company purchased all the outstanding shares of Bertucci's, Inc. common stock at a price of $10.50 per share. The total purchase price is approximately $98 million. F-16 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To Bertucci's, Inc.: We have audited the accompanying consolidated balance sheets of Bertucci's, Inc. (a Massachusetts corporation) and subsidiaries as of December 28, 1996 and December 27, 1997 and the related consolidated statements of operations, shareholders' equity and cash flows for each of the three years in the period ended December 27, 1997. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Bertucci's, Inc. and subsidiaries as of December 28, 1996 and December 27, 1997 and the results of its operations and its cash flows for each of the three years in the period ended December 27, 1997, in accordance with generally accepted accounting principles. /s/ Arthur Andersen LLP Boston, Massachusetts February 12, 1998 F-17 BERTUCCI'S, INC. AND ACQUISITION SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
FISCAL YEARS ENDED ------------------------- DECEMBER 28, DECEMBER 27, 1996 1997 ------------ ------------ ASSETS CURRENT ASSETS: Cash and cash equivalents.......................... $ 4,265,596 $ 5,755,306 Inventories........................................ 1,048,361 1,221,698 Accounts receivable................................ 179,280 241,547 Note receivable.................................... 76,455 4,057 Other receivables.................................. -- 831,756 Prepaid expenses and other current assets.......... 474,641 678,799 Deferred pre-opening costs......................... 510,082 433,706 Prepaid taxes...................................... 1,026,685 1,103,661 ------------ ------------ Total current assets............................. 7,581,100 10,270,530 ------------ ------------ PROPERTY AND EQUIPMENT, AT COST: Land............................................... 2,902,012 2,902,012 Buildings and improvements......................... 10,359,565 10,474,081 Leasehold improvements............................. 72,416,258 76,044,989 Machinery and equipment............................ 35,673,484 39,971,654 Construction in progress........................... 250,238 222,555 ------------ ------------ 121,601,557 129,615,291 Less--Accumulated depreciation..................... 29,704,655 38,089,819 ------------ ------------ Net property and equipment....................... 91,896,902 91,525,472 PREPAID TAXES........................................ 1,274,686 1,865,003 OTHER ASSETS......................................... 1,775,741 1,855,188 ------------ ------------ $102,528,429 $105,516,193 ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Notes payable--current............................. $ 25,000 $ 25,000 Accounts payable................................... 4,179,347 5,982,594 Accrued expenses................................... 1,077,565 2,384,181 Accrued payroll and employee benefits.............. 3,297,703 3,738,477 Accrued taxes...................................... 1,858,788 1,880,364 ------------ ------------ Total current liabilities........................ 10,438,403 14,010,616 DEFERRED RENT........................................ 6,064,085 6,609,921 NOTES PAYABLE........................................ 50,000 25,000 LONG-TERM DEBT....................................... 18,437,500 13,500,000 COMMITMENTS AND CONTINGENCIES (NOTE 6) SHAREHOLDERS' EQUITY: Preferred stock, $.01 par value--Authorized-- 200,000 shares, none issued....................... -- -- Common stock, $.005 par value--Authorized-- 15,000,000 shares Issued and outstanding-- 8,790,428 shares at December 28, 1996 and 8,896,016 shares at December 27, 1997............. 43,952 44,480 Additional paid-in capital......................... 44,841,296 45,165,440 Retained earnings.................................. 22,653,193 26,160,736 ------------ ------------ Total shareholders' equity....................... 67,538,441 71,370,656 ------------ ------------ $102,528,429 $105,516,193 ============ ============
The accompanying notes are an integral part of these consolidated financial statements. F-18 BERTUCCI'S, INC. AND ACQUISITION SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
FISCAL YEARS ENDED --------------------------------------- DECEMBER 30, DECEMBER 28, DECEMBER 27, 1995 1996 1997 ------------ ------------ ------------ Net Sales.............................. $120,259,850 $128,044,405 $136,719,498 ------------ ------------ ------------ Cost and Expenses: Cost of sales........................ 31,059,985 32,484,063 34,100,501 Operating expenses................... 60,672,341 65,986,007 71,652,188 General and administrative expenses.. 8,239,250 7,719,582 8,828,601 Depreciation and amortization........ 9,083,381 8,781,155 8,625,607 Taxes other than income.............. 6,267,958 6,632,779 6,990,344 Restaurant closing expense........... 5,336,000 -- -- ------------ ------------ ------------ Total costs and expenses........... 120,658,915 121,603,586 130,197,241 ------------ ------------ ------------ Operating income (loss).............. (399,065) 6,440,819 6,522,257 Interest Expense, net.................. 1,253,241 1,297,700 1,037,273 Interest Income........................ 21,464 14,809 32,059 ------------ ------------ ------------ Income (loss) before income tax expense (benefit)................... (1,630,842) 5,157,928 5,517,043 Income Tax Expense (Benefit)........... (744,893) 1,933,101 2,009,500 ------------ ------------ ------------ Net income (loss).................... $ (885,949) $ 3,224,827 $ 3,507,543 ============ ============ ============ Weighted Average Shares Outstanding Basic................................ 8,728,442 8,790,428 8,807,940 ============ ============ ============ Diluted.............................. 8,728,442 8,853,745 8,899,944 ============ ============ ============ Earnings (Loss) per Common Share Basic................................ $ (0.10) $ 0.37 $ 0.40 ============ ============ ============ Diluted.............................. $ (0.10) $ 0.36 $ 0.39 ============ ============ ============
The accompanying notes are an integral part of these consolidated financial statements. F-19 BERTUCCI'S INC. AND ACQUISITION SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
COMMON STOCK ------------------- ADDITIONAL TOTAL NUMBER OF $0.005 PAID-IN RETAINED SHAREHOLDERS' SHARES PAR VALUE CAPITAL EARNINGS EQUITY --------- --------- ----------- ----------- ------------- Balance, December 31, 1994................... 8,710,943 $43,555 $44,488,415 $20,314,315 $64,846,285 Exercise of options..... 3,000 15 10,538 -- 10,553 Issuance of stock....... 14,499 72 120,979 -- 121,051 Net loss................ -- -- -- (885,949) (885,949) --------- ------- ----------- ----------- ----------- Balance, December 30, 1995................... 8,728,442 43,642 44,619,932 19,428,366 64,091,940 Exercise of options..... 37,500 187 98,892 -- 99,079 Issuance of stock....... 24,486 123 122,472 -- 122,595 Net income.............. -- -- -- 3,224,827 3,224,827 --------- ------- ----------- ----------- ----------- Balance, December 28, 1996................... 8,790,428 43,952 44,841,296 22,653,193 67,538,441 Exercise of options..... 76,750 384 193,993 -- 194,377 Issuance of stock....... 28,838 144 130,151 -- 130,295 Net income.............. -- -- -- 3,507,543 3,507,543 --------- ------- ----------- ----------- ----------- Balance, December 27, 1997................... 8,896,016 $44,480 $45,165,440 $26,160,736 $71,370,656 ========= ======= =========== =========== ===========
The accompanying notes are an integral part of these consolidated financial statements. F-20 BERTUCCI'S, INC. AND ACQUISITION SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
FISCAL YEARS ENDED ---------------------------------------- DECEMBER 30, DECEMBER 28, DECEMBER 27, 1995 1996 1997 ------------ ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss)................... $ (885,949) $ 3,224,827 $ 3,507,543 Adjustments to reconcile net income (loss) to net cash provided by operating activities-- Depreciation and amortization..... 9,277,795 9,073,727 8,950,291 Loss on restaurant closing........ 5,336,000 -- -- Increase in inventories........... (172,197) (97,796) (173,337) Decrease (increase) in prepaid expenses and other current assets, accounts receivable, notes receivable, and other assets........................... 125,622 (2,798) (989,252) Increase (decrease) in accounts payable.......................... (1,427,603) (63,976) 1,803,247 Increase in accrued expenses and deferred rent.................... 2,134,647 229,624 2,293,226 Increase (decrease) in accrued, deferred and prepaid taxes....... (3,649,742) 1,701,681 (645,717) ------------ ------------ ----------- Net cash provided by operating activities....................... 10,738,573 14,065,289 14,746,001 ------------ ------------ ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Additions to pre-opening costs...... (1,332,814) (918,553) (488,751) Additions to property and equipment.......................... (14,308,842) (9,461,931) (8,013,734) Purchases of liquor licenses........ (7,000) -- (115,978) ------------ ------------ ----------- Net cash used in investing activities....................... (15,648,656) (10,380,484) (8,618,463) ------------ ------------ ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Issuance of common stock............ 121,051 122,595 130,295 Exercise of stock options........... 10,553 99,079 194,377 Proceeds from debt.................. 5,437,500 -- -- Paydown of debt..................... -- (1,000,000) (4,937,500) Decrease in notes payable........... (25,000) (25,000) (25,000) ------------ ------------ ----------- Net cash provided by (used in) financing activities............. 5,544,104 (803,326) (4,637,828) ------------ ------------ ----------- Net increase in cash and cash equivalents.......................... 634,021 2,881,479 1,489,710 Cash and cash equivalents, beginning of year.............................. 750,096 1,384,117 4,265,596 ------------ ------------ ----------- Cash and cash equivalents, end of year................................. $ 1,384,117 $ 4,265,596 $ 5,755,306 Supplemental disclosures of cash flow information: Cash paid during the year for-- Interest, net of amount capitalized...................... $ 1,154,376 $ 1,357,786 $ 1,140,994 Income taxes...................... $ 2,329,311 $ 340,104 $ 2,943,547 ============ ============ ===========
The accompanying notes are an integral part of these consolidated financial statements. F-21 BERTUCCI'S, INC. AND ACQUISITION SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 27, 1997 (1) ORGANIZATION AND OPERATION Bertucci's, Inc. is a holding company for four wholly owned subsidiaries, Bertucci's Restaurant Corp. (Bertucci's), Bertucci's Securities Corp., Berestco, Inc. and Sal and Vinnie's Sicilian Steakhouse, Inc. (collectively, the Company). Bertucci's, Inc. provides managerial, financial and other services to Bertucci's and assists in its daily operations. Bertucci's Securities Corp. holds all of the Company's short-term investments. Berestco, Inc. is a real estate holding company for the corporate headquarters in Wakefield, Massachusetts. Bertucci's operates 84 restaurants that feature original recipe gourmet pizza prepared in brick ovens and other Italian-style foods. The restaurants are located in Connecticut, Georgia, Illinois, Maryland, Massachusetts, New Hampshire, New Jersey, New York, Pennsylvania, Rhode Island, Virginia and Washington, DC. In addition, the Company also operates Sal & Vinnie's Sicilian Steakhouse, which was opened in the first quarter of 1997, in Norwood, MA. (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation The accompanying consolidated financial statements include the accounts of Bertucci's, Inc. and its subsidiaries. All significant intercompany transactions and balances have been eliminated in consolidation. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Cash and Cash Equivalents Cash equivalents are highly liquid securities with an original maturity of not more than 90 days. Inventories Inventories consist of supplies and food and are carried at the lower of first-in, first-out cost or market value. Fair Value of Financial Instruments Bertucci's financial instruments consist mainly of cash and cash equivalents, accounts receivable, accounts payable and long-term debt. The carrying amounts of Bertucci's cash and cash equivalents, accounts receivable and accounts payable approximate fair value due to the short-term nature of these instruments. Long-term debt bears interest at a variable market rate; therefore, the carrying amount approximates fair value. Property and equipment Property and equipment are recorded at cost. Bertucci's provides for depreciation using the straight-line method for financial reporting purposes over the expected useful lives of the assets. The useful lives are five to ten years for machinery and equipment and three years for equipment under capital lease. Buildings and leasehold improvements are amortized over the remaining period of the lease or 20 years, whichever is shorter. F-22 BERTUCCI'S, INC. AND ACQUISITION SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 27, 1997 Capitalized Interest Interest was capitalized on major capital expenditures on funds borrowed during the period of construction. Total interest costs incurred and amounts capitalized were as follows:
FISCAL YEARS ENDED ---------------------------------- DECEMBER DECEMBER DECEMBER 30, 1995 28, 1996 27, 1997 ---------- ---------- ---------- Total interest costs..................... $1,389,142 $1,365,545 $1,098,301 Interest capitalized..................... (135,901) (67,845) (61,028) ---------- ---------- ---------- Interest expense, net.................... $1,253,241 $1,297,700 $1,037,273 ========== ========== ==========
Stock-Based Compensation Effective December 31, 1995, Bertucci's adopted the provisions of Statement of Financial Accounting Standards (SFAS) No. 123, Accounting for Stock-Based Compensation. Bertucci's has elected to continue to account for stock options at intrinsic value with disclosure of the effects of fair value accounting on net income and earnings per share on a pro forma basis. Long-Lived Assets In 1996, Bertucci's adopted SFAS No. 121, ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF. Bertucci's long-lived assets consist primarily of real estate and leasehold improvements related to its restaurant operations. SFAS No. 121 requires management to consider whether long-lived assets have been impaired by comparing gross future cash flows expected to be generated from utilizing these assets to their carrying amounts. If cash flows are not sufficient to recover the carrying amount of the assets, an impairment has occurred and the assets should be written down to their fair market value. Significant estimates and assumptions regarding future sales, cost trends, productivity and market maturity are required to be made by management in order to test for impairment under this standard. Based on current facts, estimates and assumptions, management believes that no assets are impaired under this standard. There is no assurance that management's estimates and assumptions will prove correct. Fiscal Year Bertucci's fiscal year is the 52- or 53-week period ended on the Saturday closest to December 31. References to 1995, 1996 and 1997, are for the 52-week periods ended December 30, 1995, December 28, 1996 and December 27, 1997, respectively. Deferred Pre-opening Costs Costs related to the opening of new restaurants, such as pre-opening payroll and various training expenses, are deferred until the restaurants open and are amortized over the subsequent 12 months. Income Taxes Bertucci's follows the LIABILITY method of accounting for income taxes as set forth in SFAS No. 109, ACCOUNTING FOR INCOME TAXES. Under SFAS No.109, deferred tax assets and liabilities are recognized for the expected future tax consequences of events that have been included in the financial statements or tax returns. The amount of deferred tax asset or liability is based on the difference between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. F-23 BERTUCCI'S, INC. AND ACQUISITION SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 27, 1997 Earnings Per Common Share During 1997, Bertucci's adopted the provisions of SFAS No. 128, EARNINGS PER SHARE, which is effective for financial statements for periods ending after December 15, 1997. SFAS No. 128 requires replacement of primary earnings per share (EPS) with basic EPS, which is computed by dividing income available to common shareholders by the weighted average number of common shares outstanding. Diluted EPS, which gives effect to all dilutive potential common shares outstanding, is also required. Reclassifications Certain prior-year amounts have been reclassified to confirm with the current year's presentation. New Accounting Pronouncements The Financial Accounting Standards Board has issued two new statements in June 1997. SFAS No. 130, REPORTING COMPREHENSIVE INCOME, establishes standards for reporting and display of comprehensive income and its components. SFAS No. 131, DISCLOSURE ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION, establishes standards for the way that public business enterprises report information and operating segments in annual financial statements and requires reporting of selected information in interim financial reports. Both statements are effective for fiscal years beginning after December 15, 1997. (3) STOCK OPTIONS AND EMPLOYEE STOCK PURCHASE PLAN Under the 1987 Incentive Stock Option Plan, Bertucci's may grant stock options for the purchase of up to 775,000 shares of common stock at an exercise price equal to the fair market value of the common stock on the date of the grant. The plan provides for options to be exercisable in four annual installments. All options must be exercised within 10 years of the date of grant. At December 27, 1997, 478,050 of these options were outstanding. In 1989, the Board of Directors of Bertucci's approved the issuance of 150,000 shares of time-accelerated restricted stock options to members of senior management. These options are fully vested and exercisable through November, 1999. Options are exercisable at a price equal to the fair market value of the common stock on the date of the grant. At December 27, 1997, 43,000 of these options were outstanding. On March 25, 1992, the Board of Directors approved an Employee Stock Purchase Plan permitting eligible employees to purchase common stock semi annually on June 30 and December 31, through payroll deductions of up to 8% of each participating employee's compensation, at 85% of the average trading price during the six-month period, but not less than specified minimums. At December 26, 1992, 100,000 shares were reserved for the plan. At December 27, 1997, 14,000 of these options were outstanding. In July 1993, the Board of Directors of Bertucci's established the 1993 Stock Option Plan for Non-Employee Directors. Under this plan, Bertucci's may grant stock options for the purchase of up to 75,000 shares of common stock at an exercise price equal to the fair market value of the common stock on the date of the grant. Each director is entitled to receive options to purchase 3,000 shares of Common Stock of Bertucci's per year. At December 27, 1997, 32,000 of these options were outstanding. In 1997, Bertucci's amended the 1993 Stock Option Plan for Non-Employee Directors pursuant to which the number of shares reserved for issuance will be increased from 75,000 shares of Common Stock to 155,000 shares of Common Stock. Also, in 1997, Bertucci's amended and restated the 1992 Stock Purchase Plan pursuant to which the number of shares reserved for issuance will be increased from 100,000 shares of Common Stock to 200,000 shares of Common Stock and the term of the plan will be extended indefinitely. F-24 BERTUCCI'S, INC. AND ACQUISITION SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 27, 1997 In 1997, Bertucci's adopted the 1997 Stock Option Plan that provides for the grant of incentive options and non-qualified options for the purchase of an aggregate of 250,000 shares of Bertucci's Common Stock by the employees of Bertucci's. The exercise price for options granted under the 1997 Plan shall be the mean between the high and low sales prices of Bertucci's common stock on the NASDAQ exchange on the date of the grant for the immediately preceding business day. Options granted under the 1997 Plan shall not be exercisable before the first anniversary of the date of grant. At December 27, 1997, 14,000 of these options were outstanding. No option shall be exercisable after ten years from the date on which it was granted. The following table summarizes Bertucci's option transactions for the three years ended December 27, 1997:
EXERCISABLE ----------------- SHARES WEIGHTED- WEIGHTED- SUBJECT TO AVERAGE AVERAGE OPTIONS PRICE SHARES PRICE ---------- --------- ------- --------- Outstanding at December 31, 1994.... 517,400 $ 7.79 294,150 $5.76 Granted........................... 237,000 4.88 Exercised......................... (3,000) (1.17) Forfeited......................... (197,000) (12.70) -------- ------- Outstanding at December 30, 1995.... 554,400 4.97 356,475 $5.48 Granted........................... 24,000 5.66 Exercised......................... (37,500) (1.33) Forfeited......................... (23,500) (4.88) -------- ------- Outstanding at December 28, 1996.... 517,400 5.27 378,200 $5.43 Granted........................... 195,500 5.49 Exercised......................... (76,750) (2.07) Forfeited......................... (69,100) (9.26) -------- ------- Outstanding at December 27, 1997.... 567,050 $ 5.30 294,350 $5.30 ======== =======
The following table summarizes information as of December 27, 1997, concerning outstanding and exercisable options:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE --------------------------------- --------------------- WEIGHTED- AVERAGE WEIGHTED- WEIGHTED- RANGE OF REMAINING AVERAGE AVERAGE EXERCISE NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE PRICE OUTSTANDING LIFE PRICE EXERCISABLE PRICE -------- ----------- ----------- --------- ----------- --------- $1.00-2.00.............. 43,000 1.30 $ 1.33 43,000 $ 1.33 $4.00-6.00.............. 394,550 8.60 $ 5.16 121,850 $ 4.87 $6.00-8.00.............. 127,000 3.90 $ 6.79 127,000 $ 6.79 $15.00-19.00............ 2,500 4.90 $18.50 2,500 $18.50 ------- ------- 567,050 294,350 $ 5.30 ======= =======
Bertucci's accounts for stock option and stock purchase plans under Accounting Principles Board Opinion No. 25, under which no compensation cost has been recognized since options are granted with exercise prices equal to the fair market value of the common stock at the date of grant. Had compensation cost for these plans F-25 BERTUCCI'S, INC. AND ACQUISITION SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 27, 1997 been determined consistent with SFAS No. 123, Bertucci's pro forma net income (loss) and earnings (loss) per common share for the years ended December 30, 1995, December 28, 1996 and December 27, 1997 would have been as follows:
1995 1996 1997 ----------- ---------- ---------- Net income (loss) As reported............................. $ (885,949) $3,224,827 $3,507,543 Pro forma............................... $(1,096,693) $2,953,734 $3,442,776 Earnings (loss) per share As Reported Basic................................. $ (.10) $ 0.37 $ 0.40 Diluted............................... $ (.10) $ 0.36 $ 0.39 Pro forma Basic................................. $ (.13) $ 0.34 $ 0.39 Diluted............................... $ (.13) $ 0.33 $ 0.39
Because the method prescribed by SFAS No. 123 has not been applied to options granted prior to January 1, 1995, the resulting pro forma compensation expense may be greater as additional options are granted. The weighted-average fair value of the options granted in 1996 and 1997 were $4.53 and $5.49 respectively. The fair value of each option grant is estimated on the date of the grant using the Black-Scholes option pricing model with the following assumptions used for grants in 1995, 1996 and 1997:
1995 1996 1997 ------- -------- -------- Expected volatility................................ 68% 68% 53% Risk-free interest rate............................ 6.35% 6.36% 6.36% Expected life...................................... 9 years 10 years 10 years Expected dividend yield............................ 0% 0% 0%
(4) LINE OF CREDIT Bertucci's has a bank line of credit, refinanced in November 1997, in effect until November 30, 2002, under which it may borrow up to $22.5 million. Bertucci's pays a commitment fee to the bank and interest is calculated using LIBOR plus an applicable LIBOR margin. The applicable LIBOR margin and the applicable commitment fee rate for any fiscal quarter shall be determined as of the last day of the previous fiscal quarter based on the ratio of consolidated total funded debt to consolidated EBITDA. Based on the determination of the aforementioned ratio, Bertucci's will pay between .50% and 1.25% as a LIBOR Margin and between .125% and .250% as an applicable commitment fee rate. There are no compensating balance arrangements or legal restrictions as to the withdrawal of these funds. At December 28, 1996 and December 27, 1997 the amounts outstanding under this line of credit were $18.4 million and $13.5 million, respectively, and the interest rates were 6.75% and 6.79%. F-26 BERTUCCI'S, INC. AND ACQUISITION SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 27, 1997 (5) INCOME TAXES The components of the provision (benefit) for income taxes were as follows:
FISCAL YEARS ENDED ---------------------------------- DECEMBER DECEMBER DECEMBER 30, 1995 28, 1996 27, 1997 ----------- ---------- ---------- Current: Federal............................... $ 1,635,906 $ 507,107 $1,888,928 State................................. 731,922 325,210 793,380 ----------- ---------- ---------- 2,367,828 832,317 2,682,308 ----------- ---------- ---------- Deferred: Federal............................... (2,346,138) 829,655 (507,092) State................................. (766,583) 271,129 (165,716) ----------- ---------- ---------- (3,112,721) 1,100,784 (672,808) ----------- ---------- ---------- Total provision (benefit) for income taxes.............................. $ (744,893) $1,933,101 $2,009,500 =========== ========== ==========
A reconciliation of the amount computed by applying the statutory federal income tax rate of 34% to income before income taxes is as follows:
FISCAL YEARS ENDED --------------------------------- DECEMBER DECEMBER DECEMBER 30, 1995 28, 1996 27, 1997 --------- ---------- ---------- Income tax expense (benefit) computed at federal statutory rate............. $(554,486) $1,753,695 $1,875,795 State taxes, net of federal benefit.... (22,876) 393,584 364,125 FICA tax credit........................ (333,792) (353,760) (297,000) Other.................................. 166,261 139,582 66,580 --------- ---------- ---------- Income tax provision (benefit)....... $(744,893) $1,933,101 $2,009,500 ========= ========== ==========
Significant items giving rise to deferred tax assets and deferred tax liabilities at December 28, 1996 and December 27, 1997 are as follows:
FISCAL YEARS ENDED --------------------- DECEMBER DECEMBER 28, 1996 27, 1997 ---------- ---------- Deferred Tax Assets: Deferred rent....................................... $2,462,019 $2,683,628 Accrued workers' compensation....................... 705,331 705,331 Accrued vacation.................................... 202,793 230,481 Accrued restaurant closing costs.................... 18,270 -- Other............................................... 311,307 346,686 ---------- ---------- $3,699,720 $3,966,126 ========== ========== Deferred Tax Liabilities: Deferred state taxes................................ $ -- $ 56,349 Pre-opening costs................................... 206,280 178,837 Property and equipment.............................. 1,082,806 632,871 Other............................................... 109,263 138,565 ---------- ---------- $1,398,349 $ 950,273 ========== ==========
F-27 BERTUCCI'S, INC. AND ACQUISITION SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 27, 1997 (6) COMMITMENTS AND CONTINGENCIES Operating Leases Bertucci's has entered into numerous operating lease arrangements, primarily for its restaurants, with initial terms ranging from 2 to 40 years. Many of these leases contain renewal options ranging from 5 to 20 years. The minimum rental commitments under all noncancelable operating leases as of December 27, 1997 are as follows:
AMOUNT YEAR ------------ 1998.......................................................... $ 10,889,170 1999.......................................................... 10,602,282 2000.......................................................... 10,179,670 2001.......................................................... 10,278,866 2002.......................................................... 9,679,007 Thereafter.................................................... 56,372,316 ------------ Total....................................................... $108,001,311 ============
Deferred rent liability, including current portion, was approximately $6,161,000 and $6,732,000 at December 28, 1996 and December 27, 1997, respectively. Restaurant rental expense included in the accompanying consolidated statements of operations consists of the following:
FISCAL YEAR ENDED ------------------------------------ DECEMBER DECEMBER DECEMBER 30, 28, 27, 1995 1996 1997 ------------ ----------- ----------- Base rent expense....................... $8,704,028 $ 9,685,370 $10,337,978 Percentage rent expense................. 200,930 209,026 226,120 Straight-line expense................... 1,032,645 489,512 545,835 ---------- ----------- ----------- Total rent expense.................... $9,937,603 $10,383,908 $11,109,933 ========== =========== ===========
Government Regulation Bertucci's is subject in certain states to "dram-shop" statutes, which generally provide a person injured by an intoxicated person the right to recover damages from an establishment that wrongfully served alcoholic beverages to such person. While Bertucci's carries liquor liability coverage as part of its existing comprehensive general liability insurance, a judgment against Bertucci's under a dram-shop statute in excess of Bertucci's liability coverage could have a material adverse effect on Bertucci's. Litigation From time to time, lawsuits are filed against Bertucci's in the ordinary course of business. After consulting with legal counsel, management does not believe that the result of any pending litigation would have a material adverse effect on Bertucci's financial statements or its business. (7) TRANSACTIONS WITH RELATED PARTIES During 1992, Bertucci's purchased property for a restaurant site in Westport, Connecticut, for approximately $1.2 million from an affiliate of a partnership whose general partner is a director of Bertucci's. The director was not involved in the purchase negotiation of that particular property and management believes that the price paid represented fair market value. F-28 BERTUCCI'S, INC. AND ACQUISITION SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 27, 1997 Bertucci's has entered into an agreement with its president pursuant to which, upon the death of the president, his estate will have the right, but not the obligation, to cause Bertucci's to purchase shares of Bertucci's common stock held by the estate at their fair market value. The purchase price will be payable out of and to the extent of, the proceeds of a $3.0 million life insurance policy on the president's life held by Bertucci's. If the estate chooses to sell such shares to a third party within a specified time after the president's death, Bertucci's shall have the right of first refusal with respect to the purchase of such shares. During 1992, the president of Bertucci's made a personal loan amounting to $837,175, to the Orange, Connecticut landlord, with whom Bertucci's has an operating lease. The repayment terms require Bertucci's to make the rental payments directly to the president through the year 2002. Bertucci's paid approximately $150,000 per year in 1995, 1996 and 1997, related to this agreement. In March 1997, Bertucci's leased a building and real property for the first Sal and Vinnie's Sicilian Steakhouse location from Bertucci's president and purchased all furniture, fixtures and equipment currently at the facility for their appraised value of $650,000. In conjunction with this transaction, Bertucci's loaned to its president approximately $637,500, which was repaid during 1997. (8) BENEFIT PLANS In 1990, an incentive plan was established in which general, district and restaurant managers participate. Awards under the plan are tied to achievement of specific operating targets. Expenses under the plan were approximately $597,000, $647,000 and $909,000 in 1995, 1996 and 1997, respectively. In March of 1997, Bertucci's implemented a 401(k) plan for management and office employees. Currently there are 183 participants in the plan and Bertucci's made matching contributions of approximately $62,000 to the plan in 1997. (9) OTHER RECEIVABLES The Company has recorded as "Other receivables" amounts due from landlords relating to construction allowances for locations opened during 1997. The Company is awaiting reimbursement of these amounts. (10) EPS CALCULATIONS Basic and diluted earnings per share were calculated as follows:
BASIC 1995 1996 1997 ----- ---------- ---------- ---------- Net income................................ $ (885,949) $3,224,827 $3,507,543 Weighted average shares................... 8,728,442 8,790,428 8,807,940 ---------- ---------- ---------- Basic earnings per share.................. $ (0.10) $ 0.37 $ 0.40 ========== ========== ========== DILUTED 1995 1996 1997 ------- ---------- ---------- ---------- Net income................................ $ (885,949) $3,224,827 $3,507,543 Weighted average shares................... 8,728,442 8,790,428 8,807,940 Effect of stock options................... -- 63,317 92,004 ---------- ---------- ---------- Weighted average shares as adjusted....... 8,728,442 8,853,745 8,899,944 ========== ========== ========== Basic earnings per share.................. $ (0.10) $ 0.36 $ 0.39 ========== ========== ==========
F-29 BERTUCCI'S, INC. AND ACQUISITION SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 27, 1997 Options to purchase 129,500 shares of common stock at prices ranging from $6.69 to $18.50 per share were outstanding during 1997, but were not included in the computation of diluted EPS because the options' exercise price was greater than the average market price of the common shares. These options, which expire June 2001 through May 2006 were still outstanding at the end of 1997. (11) MERGER AGREEMENT Subsequent to year-end, the Company had entered into a definitive merger agreement with a group led by Bertucci's president. Pursuant to the transaction, the group was to acquire all of the outstanding shares of Bertucci's common stock (other than stock currently owned by the president) for a purchase price of approximately $54 million, or $8.00 per share in cash. The closing of the merger was subject to approval by the stockholders of Bertucci's and other necessary regulatory authorities and customary closing conditions. This transaction has been superseded by the acquisition of Bertucci's by NERC Acquisition Corp. ("Acquisition Sub"), a subsidiary of NE Restaurant Company, Inc. ("NERCO"), pursuant to the Agreement and Plan of Merger dated as of May 13, 1998, among NERCO, Acquisition Sub and Bertucci's. (12) QUARTERLY FINANCIAL DATA (UNAUDITED)
QUARTER ENDED --------------------------------------------------------- 16 WEEKS TWELVE WEEKS ENDED ENDED ------------------------------------------- APRIL 22, JULY 15, OCTOBER 7, DECEMBER 30, ------------ ------------ ------------ -------------- (IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA) 1995 ---- Net sales............... $ 35,446 $ 28,521 $ 28,211 $ 28,082 Operating income (loss)................. 1,734 1,105 1,300 (4,538) Net income (loss)....... 902 525 610 (2,923) Earnings (loss) per share.................. $ 0.10 $ 0.06 $ 0.07 $ (0.33) 16 WEEKS TWELVE WEEKS ENDED ENDED ------------------------------------------- APRIL 20, JULY 13, OCTOBER 5, DECEMBER 28, ------------ ------------ ------------ -------------- 1996 ---- Net sales............... $ 38,259 $ 30,235 $ 29,549 $ 30,001 Operating income........ 1,290 1,414 1,543 2,193 Net income.............. 549 685 792 1,199 Earnings per share...... $ 0.06 $ 0.08 $ 0.09 $ 0.14 16 WEEKS TWELVE WEEKS ENDED ENDED ------------------------------------------- APRIL 19, JULY 12, OCTOBER 4, DECEMBER 27, ------------ ------------ ------------ -------------- 1997 ---- Net sales............... $ 40,337 $ 31,643 $ 32,663 $ 32,076 Operating income........ 1,942 1,453 1,723 1,403 Net income.............. 1,003 764 973 768 Earnings per share...... $ 0.11 $ 0.09 $ 0.11 $ 0.09
F-30 BERTUCCI'S INC. CONSOLIDATED CONDENSED BALANCE SHEETS (UNAUDITED)
JULY 11, DECEMBER 27, 1998 1997 -------- ------------ (IN THOUSANDS) ASSETS CURRENT ASSETS: Cash and cash equivalents............................... $ 3,670 $ 5,755 Inventories............................................. 1,205 1,222 Accounts receivable..................................... 208 242 Note receivables........................................ 6 4 Other receivables....................................... 600 832 Prepaid expenses........................................ 784 678 Deferred preopening costs............................... 420 434 Prepaid taxes........................................... 1,104 1,104 -------- -------- Total current assets.................................. 7,997 10,271 -------- -------- PROPERTY AND EQUIPMENT, at cost Land.................................................... 2,902 2,902 Buildings............................................... 10,481 10,474 Leasehold improvements.................................. 78,178 76,045 Machinery and equipment................................. 41,998 39,972 Construction in progress................................ 821 222 -------- -------- 134,380 129,615 Less--Accumulated depreciation.......................... 42,812 38,090 -------- -------- Net property and equipment............................ 91,568 91,525 PREPAID TAXES............................................. 1,865 1,865 OTHER ASSETS.............................................. 4,629 1,855 -------- -------- $106,059 $105,516 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES: Notes payable-current...................................... $ 25 $ 25 Accounts payable........................................... 4,550 5,983 Accrued expenses........................................... 1,441 2,384 Accrued payroll and employee benefits...................... 3,608 3,738 Accrued taxes.............................................. 2,778 1,880 -------- -------- Total current liabilities................................ 12,402 14,010 DEFERRED RENT................................................ 6,870 6,610 NOTES PAYABLE................................................ -- 25 LONG-TERM DEBT............................................... 13,500 13,500 SHAREHOLDERS' EQUITY: Preferred stock, $.01 par value - Authorized - 200,000 shares, none issued................... -- -- Common stock, $.005 par value - Authorized - 15,000,000 shares Issued and outstanding - 8,896,016 shares at December 27, 1997 and 8,912,821 shares at July 11, 1998.......................... 45 45 Additional paid-in capital................................. 45,259 45,165 Retained earnings.......................................... 27,983 26,161 -------- -------- Total shareholders' equity............................... 73,287 71,371 -------- -------- $106,059 $105,516 ======== ========
The accompanying notes are an integral part of these consolidated condensed financial statements. F-31 BERTUCCI'S, INC. CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
TWENTY-EIGHT WEEKS ENDED --------------------------------- JULY 11, JULY 12, 1998 1997 ---------------- ---------------- (IN THOUSANDS, EXCEPT SHARE DATA) NET SALES.................................... $ 78,481 $ 71,980 ---------------- ---------------- COST AND EXPENSES: Cost of Sales.............................. 19,488 17,946 Operating expenses......................... 41,327 37,776 General and administrative expenses........ 5,315 4,332 Depreciation and amortization.............. 4,958 4,707 Taxes other than income.................... 4,103 3,824 ---------------- ---------------- Total costs and expenses................. 75,191 68,585 ---------------- ---------------- Operating income......................... 3,290 3,395 INTEREST EXPENSE, net........................ 482 621 INTEREST INCOME.............................. 8 8 ---------------- ---------------- Income before income tax expense........... 2,816 2,782 INCOME TAX EXPENSE........................... 994 1,015 ---------------- ---------------- Net income................................. $ 1,822 $ 1,767 ================ ================ WEIGHTED AVERAGE COMMON SHARES OUTSTANDING AND DILUTIVE POTENTIAL COMMON SHARES.............................. 9,004,585 8,899,082 ================ ================ EARNINGS PER SHARE BASIC AND DILUTED INCOME PER COMMON SHARES.......................... $ 0.20 $ 0.20 ================ ================
The accompanying notes are an integral part of these consolidated condensed financial statements. F-32 BERTUCCI'S, INC. CONSOLIDATED CONDENSED STATEMENTS OF SHAREHOLDERS' EQUITY (UNAUDITED)
COMMON STOCK ADDITIONAL ------------ PAID-IN RETAINED SHAREHOLDERS' SHARES PAR CAPITAL EARNINGS EQUITY ------- ---- ---------- -------- ------------- (IN THOUSANDS) BALANCE, December 27, 1997...... $ 8,896 $ 45 $45,165 $26,161 $71,371 Issuance of stock............. 9 -- 49 -- 49 Exercise of options........... 8 -- 45 -- 45 Net Income.................... -- -- -- 1,822 1,822 ------- ---- ------- ------- ------- BALANCE, July 11, 1998.......... $ 8,913 $ 45 $45,259 $27,983 $73,287 ======= ==== ======= ======= =======
The accompanying notes are an integral part of these consolidated condensed financial statements. F-33 BERTUCCI'S, INC. CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
TWENTY-EIGHT WEEKS ENDED ------------------ JULY 11, JULY 12, 1998 1997 -------- -------- (IN THOUSANDS) CASH FLOWS FROM OPERATING ACTIVITIES: Net Income............................................... $ 1,822 $ 1,767 Adjustments to reconcile net income to net cash provided by operating activities................................. Depreciation and amortization.......................... 4,722 4,890 (Increase) decrease in inventories..................... 16 (36) Increase (decrease) in prepaid expenses, accounts receivable, notes receivable and other assets......... 177 (337) Decrease in accounts payable............................. (1,433) 6 Increase (decrease) in accrued expenses and deferred rent.................................................... (813) 1,614 Increase (decrease) in accrued, deferred and prepaid taxes................................................... 898 (142) -------- -------- Net cash provided by operations........................ 5,389 7,762 -------- -------- CASH FLOWS USED FROM INVESTING ACTIVITIES: Merger costs............................................. (2,336) -- Additions (reductions) to preopening costs............... 13 (104) Additions to property and equipment...................... (4,764) (2,954) Purchases of liquor licenses............................. (456) (110) -------- -------- Net cash used by investing activities.................. (7,543) (3,168) -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Issuance of common stock................................. 94 106 Paydown of debt.......................................... -- (3,938) Decrease in notes payable................................ (25) (25) -------- -------- Net cash provided by (used by) financing activities.... 69 (3,857) -------- -------- NET DECREASE IN CASH AND CASH EQUIVALENTS.................. (2,085) 737 CASH AND CASH EQUIVALENTS, beginning of period............. 5,755 4,266 -------- -------- CASH AND CASH EQUIVALENTS, end of period................... $ 3,670 $ 5,003 ======== ======== SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the period for-- Interest, net of amount capitalized.................... $ 550 $ 656 ======== ======== Income taxes........................................... $ 318 $ 1,360 ======== ========
The accompanying notes are an integral part of these consolidated condensed financial statements. F-34 BERTUCCI'S, INC. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS APRIL 18, 1998 1. BASIS OF PRESENTATION In the opinion of management, the accompanying consolidated condensed financial statements contain all normal recurring adjustments necessary for a fair presentation. The results of operations for the twenty-eight-week period ended July 11, 1998 are not necessarily indicative of the results to be expected for the full year. The significant accounting policies followed by the Company are set forth in the notes to Consolidated Financial Statements in the Company's 1997 Form 10-K filed with the Securities and Exchange Commission. These financial statements should be read in conjunction with the financial statements included in the 1997 Form 10-K. 2. EARNINGS PER SHARE During 1997, the Company adapted the provisions of SFAS No. 128, Earnings Per Share, which was effective for financial statements for periods ending after December 15, 1997. SFAS No. 128 requires replacement of primary earnings per share (EPS) with basic EPS, which is computed by dividing income available to common shareholders by the weighted average number of common shares outstanding. Diluted EPS, which gives effect to all dilutive potential common shares outstanding, is also required. For the twenty-eight-week periods ended July 11, 1998, and July 12, 1997, basis and diluted earnings are the same amount at $0.21 and $0.20, respectively. 3. SUBSEQUENT EVENTS (UNAUDITED) On July 21, 1998, the Company completed its acquisition of Bertucci's, Inc. pursuant to the terms of an Agreement and Plan of Merger dated as of May 13, 1998. The Company purchased all the outstanding shares of Bertucci's, Inc. common stock at a price of $10.50 per share. The total purchase price is approximately $98 million. F-35 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRE- SENTATIONS IN CONNECTION WITH THE OFFER CONTAINED HEREIN OTHER THAN THOSE CON- TAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESEN- TATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OF- FER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO WHICH IT RELATES OR ANY OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL. NEITHER THE DE- LIVERY OF THIS PROSPECTUS NOR ANY OFFER OR SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE. --------------- TABLE OF CONTENTS Available Information..................................................... iv Certain Definitions....................................................... v Prospectus Summary........................................................ 1 Risk Factors.............................................................. 21 Use of Proceeds........................................................... 29 Capitalization............................................................ 30 Unaudited Pro Forma Financial Data........................................ 31 Selected Financial Data of the Company.................................... 39 Selected Financial Data of Bertucci's..................................... 41 Management's Discussion and Analysis of Financial Condition and Results of Operations of the Company................................................ 43 Management's Discussion and Analysis of Financial Condition and Results of Operations of Bertucci's................................................. 49 Business.................................................................. 54 Management................................................................ 67 Security Ownership of Certain Beneficial Owners and Management............ 72 Certain Transactions of the Company....................................... 74 Description of Other Indebtedness......................................... 75 Description of Exchange Notes............................................. 78 The Exchange Offer........................................................ 101 Plan of Distribution...................................................... 110 Certain U.S. Federal Income Tax Considerations............................ 112 Erisa Considerations...................................................... 113 Independent Auditors...................................................... 113 Legal Matters............................................................. 113 Index to Financial Statements............................................. F-1
- ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- $100,000,000 NE RESTAURANT COMPANY, INC. 10 3/4% SENIOR NOTES DUE 2008 --------------- PROSPECTUS --------------- , 1998 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS. Section 145 of the General Corporation Law of the State of Delaware (the "DGCL") provides, in summary, that directors and officers of Delaware corporations are entitled, under certain circumstances, to be indemnified against all expenses and liabilities (including attorneys' fees) incurred by them as a result of suits brought against them in their capacity as a director or officer, if they acted in good faith and in a manner they reasonably believed to be in, or not opposed to, the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe their conduct was unlawful; provided, that no indemnification may made against expenses in respect of any claim, issue or matter as to which they shall have been adjudged to be liable to the corporation, unless and only to the extent that the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all circumstances of the case, they are fairly and reasonably entitled to indemnity for such expenses which such court shall deem proper. Any such indemnification may be made by the corporation only as authorized in each specific case upon a determination by the stockholders or disinterested directors that indemnification is proper because the indemnitee has met the applicable standard of conduct. Section 67 of the Massachusetts Business Corporation Law provides that indemnification of directors, officers, employees and other agents of a corporation, and persons who serve at its request as directors, officers, employees or other agents of another organization, or who serve at its request in any capacity with respect to any employee benefit plan, may be provided by it to whatever extent shall be specified in or authorized by (i) the articles of organization or (ii) a by-law adopted by the stockholders or (iii) a vote adopted by the holders of a majority of the shares of stock entitled to vote on the election of directors. Except as the articles of organization or by- laws otherwise require, indemnification of any persons referred to in the preceding sentence who are not directors of the corporation may be provided by it to the extent authorized by the directors. Such indemnification may include payment by the corporation of expenses incurred in defending a civil or criminal action or proceeding in advance of the final disposition of such action or proceeding. Any such indemnification may be provided although the person to be indemnified is no longer an officer, director, employee or agent of the corporation or of such other organization or no longer serves with respect to any such employee benefit plan. No indemnification shall be provided for any person with respect to any matter as to which he shall have been adjudicated in any proceeding not to have acted in good faith in the reasonable belief that his action was in the best interest of the corporation or to the extent that such matter relates to service with respect to an employee benefit plan, in the best interests of the participants or beneficiaries of such employee benefit plan. Section 2-418 of the Maryland General Corporation Law provides that a corporation may indemnify any director made a party to any proceeding by reason of service in that capacity unless it is established that: (i) the act or omission of the director was material to the matter giving rise to the proceeding, and was committed in bad faith or was the result of active and deliberate dishonesty; or (ii) the director actually received an improper personal benefit in money, property, or services; or (iii) in the case of any criminal proceeding, the director had reasonable cause to believe that the act or omission was unlawful. Such indemnification may be against judgments, penalties, fines, settlements, and reasonable expenses actually incurred by the director in connection with the proceeding. However, if the proceeding was one by or in the right of the corporation, indemnification may not be made in respect of any proceeding in which the director shall have been adjudged to be liable to the corporation. A director may not be indemnified as described above in respect of any proceeding charging improper personal benefit to the director, whether or not involving action in the director's official capacity, in which the director was adjudged to be liable on the basis that personal benefit was improperly received. Unless limited by the charter: (x) a director who has been successful, on the merits or otherwise, in the defense of any proceeding referred to in the first sentence of this paragraph shall be indemnified against reasonable expenses incurred by the director in connection with the proceeding; and (y) a court of appropriate jurisdiction, upon application of a director and such notice as the court shall require, may order indemnification in the following II-1 circumstances: (1) if it determines a director is entitled to reimbursement under clause (x), the court shall order indemnification, in which case the director shall be entitled to recover the expenses of securing such reimbursement; or (2) if it determines that the director is fairly and reasonably entitled to indemnification in view of all the relevant circumstances, whether or not the director has met the standards of conduct set forth in the first sentence of this paragraph or has been adjudged liable on the basis that the director improperly received personal benefit, the court may order such indemnification as the court shall deem proper. However, indemnification with respect to any proceeding by or in the right of the corporation or in which liability shall have been adjudged on the basis that the director improperly received personal benefit, shall be limited to expenses. The Company's Certificate of Incorporation and By-Laws provide that the Company may, to the fullest extent permitted by Section 145 of the DGCL, as the same may be amended and supplemented, indemnify any and all persons whom it shall have power to indemnify under said section from and against any and all of the expenses, liabilities or other matters referred to in or covered by said section, and the indemnification provided for therein shall not be deemed exclusive of any other rights to which a person indemnified may be entitled under any By-Law, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in such person's official capacity and as to action in another capacity while holding such office, and shall continue as to a person who has ceased to be director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such a person. The Company's Certificate of Incorporation and By-Laws further provide that the Company may maintain insurance to protect itself or any person who is or was a director, officer, employee or agent of the Corporation or another enterprise against liability asserted against him and incurred by him in such capacity, or arising out of his status as such, whether or not the Company would have the power to indemnify any such person against liability under the DGCL. Moreover, the Company's Certificate of Incorporation further provides that no director shall be personally liable to the Company or its stockholders for any breach of fiduciary duty by such director as director, except a director shall be liable to the extent provided by applicable law (i) for breach of such director's duty of loyalty to the Company or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) for liability under Section 174 of the DGCL (involving certain unlawful dividends or stock repurchases) or (iv) for any transaction from which such director derived an improper personal benefit. II-2 ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
EXHIBIT NO. DESCRIPTION ------- ----------- 2.1* Agreement and Plan of Merger, dated as of May 13, 1998 among Bertucci's, Inc., NE Restaurant Company, Inc. ("NERCO") and NERC Acquisition Corp. 3.1* Certificate of Incorporation of NERCO. 3.2* Certificate of Amendment of Certificate of Incorporation of NERCO, dated August 1, 1998. 3.3* Certificate of Amendment of Certificate of Incorporation of NERCO, dated August 20, 1998. 3.4* By-laws of NERCO. 4.1* Indenture, dated July 20, 1998 between NERCO and United States Trust Company of New York ("U.S. Trust") as Trustee (including the form of 10 3/4% Senior Note due July 15, 2008). 4.2* Supplemental Indenture, dated as of July 21, 1998 by and among Bertucci's, Inc., Bertucci's Restaurant Corp., Bertucci's Securities Corporation, Berestco, Inc., Sal & Vinnie's Sicilian Steakhouse, Inc., Bertucci's of Anne Arundel County, Inc., Bertucci's of Columbia, Inc., Bertucci's of Baltimore County, Inc., Bertucci's of Bel Air, Inc. and Bertucci's of White Marsh, Inc. (collectively, the "Guarantors"), NERCO and U.S. Trust. 4.3* Purchase Agreement, dated July 13, 1998 by and among NERCO, Chase Securities Inc. and BancBoston Securities Inc. 4.4* Amendment No. 1 to the Purchase Agreement, dated July 21, 1998 by and among NERCO, Chase Securities Inc., BancBoston Securities Inc. and the Guarantors. 4.5* Exchange and Registration Rights Agreement, dated July 20, 1998 by and among NERCO, Chase Securities Inc. and BancBoston Securities Inc. 4.6* Amendment No. 1 to Exchange and Registration Rights Agreement, dated July 21, 1998 by and among NERCO, Chase Securities Inc., BancBoston Securities Inc. and the Guarantors. 4.7* Form of Stockholders Agreement, dated as of December 31, 1993 between the stockholders of NERCO and NERCO. 4.8* Form of Stockholders Agreement, dated September 15, 1997 by and among certain stockholders of NERCO and NERCO. 5.1** Opinion of Stroock & Stroock & Lavan LLP as to the legality of the Exchange Notes. 10.1* 1997 Equity Incentive Plan of NERCO, dated September 15, 1997 for certain key employees and directors of NERCO. 10.2** N.E. Restaurant Company, Inc. Amended and Restated 401(k) Profit Sharing Plan, dated January 1, 1996. 10.3** NE Restaurant Company Deferred Compensation Plan for certain eligible executives of NERCO, dated December 21, 1993. 10.4* Employment Agreement by and between NE Restaurant Company Limited Partnership, NE Restaurant (Glastonbury) Limited Partnership and NE Restaurant (Cambridge) Limited Partnership (collectively, the "Partnerships"), the respective general partners of the Partnerships, NERCO, NE Restaurant (Connecticut), Inc. and NE Restaurant (Cambridge), Inc. and Dennis D. Pedra, dated September 30, 1991 (the "Pedra Employment Agreement"). 10.5* Employment Agreement by and between NE Restaurant Company Limited Partnership, NE Restaurant (Glastonbury) Limited Partnership and NE Restaurant (Cambridge) Limited Partnership (collectively, the "Partnerships"), the respective general partners of the Partnerships, NERCO, NE Restaurant (Connecticut), Inc. and NE Restaurant (Cambridge), Inc. and Paul V. Hoagland, dated September 30, 1991 (the "Hoagland Employment Agreement"). 10.6* Amendment to the Pedra Employment Agreement, dated December 31, 1993. 10.7* Amendment to the Hoagland Employment Agreement, dated December 31, 1993. 10.8** Chili's Grill & Bar Restaurant Development Agreement, dated May 17, 1994 between Brinker International, Inc. and NERCO (including form of Franchise Agreement). 10.9** On The Border Restaurant Development Agreement, dated June 23, 1997 between Brinker International, Inc. and NERCO (including form of Franchise Agreement).
II-3
EXHIBIT NO. DESCRIPTION ------- ----------- 10.10** Lease of Headquarters of the Company at 80A Turnpike Road, Westborough, Massachusetts. 10.11* Form of Credit Agreement among BankBoston, N.A., Chase Bank of Texas, N.A., NERCO, the Guarantors and Bertucci's of Montgomery County, Inc., dated as of July 21, 1998. 10.12* Form of Management Incentive Agreement. 12.1* Statement Regarding Computation of Ratio of Earnings to Fixed Charges. 21.1* Subsidiaries of Registrant. 23.1* Consent of Arthur Andersen LLP. 23.2** Consent of Stroock & Stroock & Lavan LLP (included in Exhibit 5.1). 24.1* Power of Attorney of certain officers and directors of NERCO (included in signature page). 25.1** Form T-1 Statement of Eligibility of U.S. Trust to act as Trustee under the Indenture. 27.1** Financial Data Schedule. 99.1** Form of Letter of Transmittal. 99.2** Form of Notice of Guaranteed Delivery. 99.3** Form of Letter to Nominees. 99.4** Form of Letter to Clients. 99.5** Form of Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9.
- -------- * Filed herewith ** To be filed by amendment ITEM 22. UNDERTAKINGS. The undersigned registrant hereby undertakes: (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement; (i) To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933; (ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20% change in the maximum aggregate offering price set forth in the "Calculation of Registration Fee" table in the effective registration statement. (iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement; (2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at the time shall be deemed to be in the initial bona fide offering thereof; (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering; and (4) The undersigned registrant hereby undertakes as follows: that prior to any public reoffering of the securities registered hereunder through use of a prospectus which is a part of this registration statement, by any person or party who is deemed to be an underwriter within the meaning of Rule 145(c), the issuer undertakes that such reoffering prospectus will contain the information called for by the applicable registration form with respect to reofferings by persons who may be deemed underwriters, in addition to the information called for by the other items of the applicable form. II-4 (5) The registrant undertakes that every prospectus: (i) that is filed pursuant to paragraph (1) immediately preceding, or (ii) that purports to meet the requirements of Section 10(a)(3) of the Act and is used in connection with an offering of securities subject to Rule 415, will be filed as a part of an amendment to the registration statement and will not be used until such amendment is effective, and that, for purposes of determining any liability under the Securities Act of 1933, each such post- effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. Insofar as indemnification for liabilities arising under the Securities Act of 1933 (the "Securities Act") may be permitted to directors, officers and controlling persons of the registrant pursuant to the provisions described under Item 20 or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. The undersigned registrant hereby undertakes that: (6) For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be a part of this registration statement as of the time it was declared effective. (7) For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (8) The undersigned registrant hereby undertakes to respond to requests for information that is incorporated by reference into the prospectus pursuant to Item 4, 10(b), 11 or 13 of this form, within one business day of receipt of such request, and to send the incorporated documents by first class mail or other equally prompt means. This includes information contained in documents filed subsequent to the effective date of the registration statement through the date of responding to the request. (9) The undersigned registrant hereby undertakes to supply by means of a post-effective amendment all information concerning a transaction, and the company being acquired involved therein, that was not the subject of and included in the registration statement when it became effective. II-5 SIGNATURES PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT HAS DULY CAUSED THIS REGISTRATION STATEMENT ON FORM S-4 TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF WESTBOROUGH, STATE OF MASSACHUSETTS, ON SEPTEMBER 2, 1998. NE RESTAURANT COMPANY, INC. ("NERCO") AND THE GUARANTORS LISTED ON ANNEX A-1 /s/ Paul Hoagland By: _________________________________ NAME: PAUL HOAGLAND TITLE: VICE PRESIDENT, FINANCE OF NERCO, BERTUCCI'S, INC., BERTUCCI'S RESTAURANT CORP., BERTUCCI'S SECURITIES CORPORATION, BERESTCO, INC. AND SAL & VINNIE'S SICILIAN STEAKHOUSE, INC. AND TREASURER OF BERTUCCI'S OF ANNE ARUNDEL COUNTY, INC. AND BERTUCCI'S OF COLUMBIA, INC. THE GUARANTORS LISTED ON ANNEX A-2 (AND, TOGETHER WITH THE GUARANTORS LISTED ON ANNEX A-1, THE "GUARANTORS") /s/ Gary Schwab By: _________________________________ NAME: GARY SCHWAB TITLE: PRESIDENT OF BERTUCCI'S OF BEL AIR, INC. AND VICE PRESIDENT OF BERTUCCI'S OF BALTIMORE COUNTY, INC. AND BERTUCCI'S OF WHITE MARSH, INC. II-6 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Benjamin R. Jacobson, Dennis D. Pedra, Paul V. Hoagland and David Roosevelt and each of them, his true and lawful attorneys- in-fact and agents with full power of substitution and resubstitution for him and in his name, place and stead, in any and all capacities, to sign any or all amendments (including post-effective amendments) of and supplements to this Registration Statement and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto such attorneys-in-fact and agents and each of them full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, to all intents and purposes and as fully as they might or could do in person, hereby ratifying and confirming all that such attorneys-in-fact and agents, or their substitutes, may lawfully do or cause to be done by virtue hereof. PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS REGISTRATION STATEMENT ON FORM S-4 HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED.
SIGNATURE CAPACITY DATE --------- -------- ---- /s/ Benjamin R. Jacobson Treasurer and Director of September 2, ______________________________________ NERCO and Bertucci's, Inc., 1998 BENJAMIN R. JACOBSON Chairman of the Board of Directors and Treasurer of each Guarantor listed on Annex B and Director of Bertucci's of Anne Arundel County, Inc. /s/ Dennis D. Pedra President and Director of September 2, ______________________________________ NERCO and each Guarantor 1998 DENNIS D. PEDRA listed on Annex C. /s/ Paul V. Hoagland Vice President-Finance, September 2, ______________________________________ Assistant Treasurer and 1998 PAUL V. HOAGLAND Director of NERCO and Bertucci's, Inc., Vice President, Finance and Director of each Guarantor listed on Annex B, Director of Bertucci's of Baltimore County, Inc., Bertucci's of White Marsh, Inc. and Bertucci's of Bel Air, Inc., and Treasurer, Secretary and Director of Bertucci's of Anne Arundel County, Inc. and Bertucci's of Columbia, Inc. /s/ David A. Roosevelt Director of each Guarantor September 2, ______________________________________ listed on Annex D. 1998
DAVID A. ROOSEVELT II-7
SIGNATURE CAPACITY DATE --------- -------- ---- /s/ Gary S. Schwab Vice President, Secretary September 2, ______________________________________ and Director of Bertucci's 1998 GARY S. SCHWAB of Baltimore County, Inc. and Bertucci's of White Marsh, Inc. and President and Director of Bertucci's of Bel Air, Inc. /s/ Paul J. Seidman President, Treasurer and September 2, ______________________________________ Director of Bertucci's of 1998
PAUL J. SEIDMAN Baltimore County, Inc. and Bertucci's of White Marsh, Inc. and Vice President, Treasurer and Director of Bertucci's of Bel Air, Inc. II-8 ANNEX A-1 Bertucci's, Inc. Bertucci's Restaurant Corp. Bertucci's Securities Corporation Berestco, Inc. Sal & Vinnie's Sicilian Steakhouse, Inc. Bertucci's of Anne Arundel County, Inc. Bertucci's of Columbia, Inc. A-1 ANNEX A-2 Bertucci's of Baltimore County, Inc. Bertucci's of Bel Air, Inc. Bertucci's of White Marsh, Inc. A-2 ANNEX B Bertucci's Restaurant Corp. Bertucci's Securities Corporation Berestco, Inc. Sal & Vinnie's Sicilian Steakhouse, Inc. B-1 ANNEX C Bertucci's, Inc. Bertucci's Restaurant Corp. Bertucci's Securities Corporation Berestco, Inc. Sal & Vinnie's Sicilian Steakhouse, Inc. Bertucci's of Anne Arundel County, Inc. Bertucci's of Columbia, Inc. C-1 ANNEX D Bertucci's, Inc. Bertucci's Restaurant Corp. Bertucci's Securities Corporation Berestco, Inc. Sal & Vinnie's Sicilian Steakhouse, Inc. Bertucci's of Anne Arundel County, Inc. D-1 EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION ------- ----------- 2.1* Agreement and Plan of Merger, dated as of May 13, 1998 among Bertucci's, Inc., NE Restaurant Company, Inc. ("NERCO") and NERC Acquisition Corp. 3.1* Certificate of Incorporation of NERCO. 3.2* Certificate of Amendment of Certificate of Incorporation of NERCO, dated August 1, 1998. 3.3* Certificate of Amendment of Certificate of Incorporation of NERCO, dated August 20, 1998. 3.4* By-laws of NERCO. 4.1* Indenture, dated July 20, 1998 between NERCO and United States Trust Company of New York ("U.S. Trust") as Trustee (including the form of 10 3/4% Senior Note due July 15, 2008). 4.2* Supplemental Indenture, dated as of July 21, 1998 by and among Bertucci's, Inc., Bertucci's Restaurant Corp., Bertucci's Securities Corporation, Berestco, Inc., Sal & Vinnie's Sicilian Steakhouse, Inc., Bertucci's of Anne Arundel County, Inc., Bertucci's of Columbia, Inc., Bertucci's of Baltimore County, Inc., Bertucci's of Bel Air, Inc. and Bertucci's of White Marsh, Inc. (collectively, the "Guarantors"), NERCO and U.S. Trust. 4.3* Purchase Agreement, dated July 13, 1998 by and among NERCO, Chase Securities Inc. and BancBoston Securities Inc. 4.4* Amendment No. 1 to the Purchase Agreement, dated July 21, 1998 by and among NERCO, Chase Securities Inc., BancBoston Securities Inc. and the Guarantors. 4.5* Exchange and Registration Rights Agreement, dated July 20, 1998 by and among NERCO, Chase Securities Inc. and BancBoston Securities Inc. 4.6* Amendment No. 1 to Exchange and Registration Rights Agreement, dated July 21, 1998 by and among NERCO, Chase Securities Inc., BancBoston Securities Inc. and the Guarantors. 4.7* Form of Stockholders Agreement, dated as of December 31, 1993 between the stockholders of NERCO and NERCO. 4.8* Form of Stockholders Agreement, dated September 15, 1997 by and among certain stockholders of NERCO and NERCO. 5.1** Opinion of Stroock & Stroock & Lavan LLP as to the legality of the Exchange Notes. 10.1* 1997 Equity Incentive Plan of NERCO, dated September 15, 1997 for certain key employees and directors of NERCO. 10.2** N.E. Restaurant Company, Inc. Amended and Restated 401(k) Profit Sharing Plan, dated January 1, 1996. 10.3** NE Restaurant Company Deferred Compensation Plan for certain eligible executives of NERCO, dated December 21, 1993. 10.4* Employment Agreement by and between NE Restaurant Company Limited Partnership, NE Restaurant (Glastonbury) Limited Partnership and NE Restaurant (Cambridge) Limited Partnership (collectively, the "Partnerships"), the respective general partners of the Partnerships, NERCO, NE Restaurant (Connecticut), Inc. and NE Restaurant (Cambridge), Inc. and Dennis D. Pedra, dated September 30, 1991 (the "Pedra Employment Agreement"). 10.5* Employment Agreement by and between NE Restaurant Company Limited Partnership, NE Restaurant (Glastonbury) Limited Partnership and NE Restaurant (Cambridge) Limited Partnership (collectively, the "Partnerships"), the respective general partners of the Partnerships, NERCO, NE Restaurant (Connecticut), Inc. and NE Restaurant (Cambridge), Inc. and Paul V. Hoagland, dated September 30, 1991 (the "Hoagland Employment Agreement"). 10.6* Amendment to the Pedra Employment Agreement, dated December 31, 1993. 10.7* Amendment to the Hoagland Employment Agreement, dated December 31, 1993. 10.8** Chili's Grill & Bar Restaurant Development Agreement, dated May 17, 1994 between Brinker International, Inc. and NERCO (including form of Franchise Agreement). 10.9** On The Border Restaurant Development Agreement, dated June 23, 1997 between Brinker International, Inc. and NERCO (including form of Franchise Agreement).
1
EXHIBIT NO. DESCRIPTION ------- ----------- 10.10** Lease of Headquarters of the Company at 80A Turnpike Road, Westborough, Massachusetts. 10.11* Form of Credit Agreement among BankBoston, N.A., Chase Bank of Texas, N.A., NERCO, the Guarantors and Bertucci's of Montgomery County, Inc., dated as of July 21, 1998. 10.12* Form of Management Incentive Agreement. 12.1* Statement Regarding Computation of Ratio of Earnings to Fixed Charges. 21.1* Subsidiaries of Registrant. 23.1* Consent of Arthur Andersen LLP. 23.2** Consent of Stroock & Stroock & Lavan LLP (included in Exhibit 5.1). 24.1* Power of Attorney of certain officers and directors of NERCO (included in signature page). 25.1** Form T-1 Statement of Eligibility of U.S. Trust to act as Trustee under the Indenture. 27.1** Financial Data Schedule. 99.1** Form of Letter of Transmittal. 99.2** Form of Notice of Guaranteed Delivery. 99.3** Form of Letter to Nominees. 99.4** Form of Letter to Clients. 99.5** Form of Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9.
- -------- * Filed herewith ** To be filed by amendment 2 EX-2.1 2 AGREE & PLAN OF MERGER, DATED AS OF 05/13/98 Exhibit 2.1 [Execution Copy] AGREEMENT AND PLAN OF MERGER DATED AS OF MAY 13, 1998 AMONG BERTUCCI'S, INC., NE RESTAURANT COMPANY, INC., AND NERC ACQUISITION CORP. TABLE OF CONTENTS PAGE ---- ARTICLE I THE OFFER 1 SECTION 1.1. THE OFFER 1 SECTION 1.2. COMPANY ACTION. 3 SECTION 1.3. DIRECTORS. 5 ARTICLE II THE MERGER 6 SECTION 2.1. THE MERGER 6 SECTION 2.2. CLOSING 7 SECTION 2.3. EFFECTIVE TIME 7 SECTION 2.4. EFFECTS OF THE MERGER 7 SECTION 2.5. ARTICLES OF ORGANIZATION; BY-LAWS 7 SECTION 2.6. DIRECTORS 7 SECTION 2.7. OFFICERS 8 ARTICLE III EFFECT OF THE MERGER ON THE SECURITIES OF THE CONSTITUENT CORPORATIONS 8 SECTION 3.1. EFFECT ON CAPITAL STOCK 8 SECTION 3.2. STOCK OPTIONS 9 SECTION 3.3. EXCHANGE OF CERTIFICATES 10 ARTICLE IV REPRESENTATIONS AND WARRANTIES 12 SECTION 4.1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY 12 SECTION 4.2. REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB 20 ARTICLE V COVENANTS RELATING TO CONDUCT OF BUSINESS PRIOR TO MERGER 23 SECTION 5.1. CONDUCT OF BUSINESS OF THE COMPANY 23 SECTION 5.2. OTHER ACTIONS 25 ARTICLE VI ADDITIONAL AGREEMENTS 26 SECTION 6.1. MEETING OF STOCKHOLDERS 26 SECTION 6.2. PROXY STATEMENT 26 SECTION 6.3. ACCESS TO INFORMATION; CONFIDENTIALITY 27 SECTION 6.4. COMMERCIALLY REASONABLE EFFORTS 27 SECTION 6.5. FINANCING 28 SECTION 6.6. INDEMNIFICATION; DIRECTORS' AND OFFICERS' INSURANCE 28 SECTION 6.7. PUBLIC ANNOUNCEMENTS 29 SECTION 6.9. ACQUISITION PROPOSALS 30 SECTION 6.9. STOCKHOLDER LITIGATION 31 SECTION 6.10. BOARD ACTION RELATING TO STOCK OPTION PLANS 31 SECTION 6.11. CONSENTS AND APPROVALS 31 SECTION 6.12. REPAYMENT OF INDEBTEDNESS 32 SECTION 6.13. PAYMENT OF FEE AND EXPENSES 32 ARTICLE VII CONDITIONS PRECEDENT 32 SECTION 7.1. CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE MERGER 32 SECTION 7.2. CONDITIONS TO OBLIGATIONS OF PARENT AND SUB 33 SECTION 7.3. CONDITIONS TO OBLIGATIONS OF THE COMPANY 33 ARTICLE VIII TERMINATION, AMENDMENT AND WAIVER 34 SECTION 8.1. TERMINATION 34 SECTION 8.2. EFFECT OF TERMINATION 35 SECTION 8.3. AMENDMENT 37 SECTION 8.4. EXTENSION; WAIVER 37 SECTION 8.5. PROCEDURE FOR TERMINATION, AMENDMENT, EXTENSION OR WAIVER 38 ARTICLE IX GENERAL PROVISIONS 38 SECTION 9.1. NONSURVIVAL OF REPRESENTATIONS AND WARRANTIES 38 SECTION 9.2. FEES AND EXPENSES 38 SECTION 9.3. DEFINITIONS 38 SECTION 9.4. NOTICES 38 SECTION 9.5. INTERPRETATION 39 SECTION 9.6. COUNTERPARTS 40 SECTION 9.7. ENTIRE AGREEMENT; THIRD-PARTY BENEFICIARIES 40 SECTION 9.8. GOVERNING LAW 40 SECTION 9.9. ASSIGNMENT 40 SECTION 9.10. ENFORCEMENT 41 SECTION 9.11. SEVERABILITY 41 AGREEMENT AND PLAN OF MERGER DATED AS OF MAY 13, 1998 AMONG BERTUCCI'S, INC., A MASSACHUSETTS CORPORATION (THE "COMPANY"), NE RESTAURANT COMPANY, INC., A DELAWARE CORPORATION ("PARENT"), AND NERC ACQUISITION CORP., A MASSACHUSETTS CORPORATION AND A WHOLLY OWNED SUBSIDIARY OF PARENT ("SUB") WITNESSETH: WHEREAS, the Board of Directors of the Company has determined that this Agreement and the transactions contemplated hereby including the Offer and the Merger (each, as defined herein) are fair to and in the best interest of the Company and its stockholders; WHEREAS, the Board of Directors of each of Parent and Sub has determined that the transactions contemplated by this Agreement (including the Offer and the Merger) are in the best interests of Parent and Sub and their respective stockholders; and WHEREAS, the Boards of Directors of the Company, Parent and Sub, have each approved and adopted this Agreement and approved the Offer and the Merger and the other transactions contemplated hereby and recommended, in the case of the Company, acceptance of the Offer by its stockholders. NOW, THEREFORE, in consideration of the representations, warranties, covenants and agreements contained in this Agreement, the parties agree as follows: ARTICLE I THE OFFER SECTION 1.1. THE OFFER. (a) Provided that nothing shall have occurred that would result in a failure to satisfy any of the conditions set forth in paragraphs (a) through (i) of Annex I hereto, Parent shall or shall cause Sub to, as promptly as practicable following the date hereof, but in no event later than five business days after the initial public announcement of the Offer, commence (within the meaning of Rule 14d-2 under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) a tender offer (as amended from time to time in accordance with this Agreement, the "Offer") to purchase all of the issued and outstanding shares of common stock, par value $0.005 per share, of the Company (the "Shares" or "Common Stock"), at a price of not less than $10.50 per Share, net to the seller in cash. For purposes of this Article I, the party which makes the Offer, whether Parent or Sub, shall be referred to as the "Offeror." The obligation of Offeror to accept for payment and to pay for any Shares tendered in the Offer shall be subject only to (i) the condition that there shall be validly tendered in accordance with the terms of the Offer prior to the expiration date of the Offer and not withdrawn a number of Shares which, together with any Shares then owned by Parent or Sub, represents at least ninety (90%) percent of the Shares outstanding on a fully-diluted basis (the "Minimum Condition"), (ii) the receipt of cash proceeds of the Financing (as defined in Section 4.2(d) of this Agreement) in an amount sufficient to consummate the transactions contemplated hereby pursuant to the terms of the Commitments (as defined in said Section 4.2(d)) or such other terms as Parent and the Company shall agree or as are not materially more onerous than as set forth in the Commitments (the "Financing Condition") and (iii) the other conditions set forth in Annex I hereto. Offeror expressly reserves the right in its sole discretion to waive any such condition (including the Minimum Condition, provided that no such waiver of the Minimum Condition shall decrease the Minimum Condition to less than sixty-six and two-thirds (66 2/3%) percent), to increase the price per Share payable in the Offer, to extend the Offer and to make any other changes in the terms and conditions of the Offer; provided, however, that unless -------- ------- previously approved by the Company in writing, Offeror will not (i) decrease the price per Share payable in the Offer, (ii) decrease the maximum number of Shares to be purchased in the Offer, (iii) impose conditions to the Offer in addition to those set forth in Annex I hereto, (iv) change the conditions to the Offer in any material respect adverse to the Company, (v) except as provided in the next sentence, extend the Offer, (vi) change the form of consideration payable in the Offer or (vii) amend any other term of the Offer in a manner adverse to the holders of the Shares. Notwithstanding the foregoing, Offeror may, without the consent of the Company, (i) extend the Offer beyond any scheduled expiration date (the initial scheduled expiration date being 20 business days following commencement of the Offer) for a period not to extend beyond July 31, 1998, if at any scheduled expiration date of the Offer, any of the conditions to Offeror's obligation to accept for payment, and pay for, Shares (including, with respect to the Financing Condition, the consummation of the sale of the Senior Notes (as defined in Section 4.2(d)) shall not be satisfied or waived, until such time as such conditions are satisfied or waived and (ii) extend the Offer for any period required by any rule, regulation, interpretation or position of the Securities and Exchange Commission (the "SEC") or the staff thereof applicable to the Offer. The limitations regarding the terms and conditions of the Offer, as set forth in the second preceding and the immediately preceding sentences, shall not be applicable in the event this Agreement is terminated pursuant to Section 8.1(d) of this Agreement. Subject to the terms and conditions of the Offer and this Agreement, Offeror shall accept for payment , and pay for, all Shares validly tendered and not withdrawn pursuant to the Offer that Offeror becomes obligated to accept for payment, and pay for, pursuant to the Offer as soon as practicable after expiration of the Offer, subject to compliance with Rule 14e-1(c) under the Exchange Act. Subject to the terms and conditions of the Offer, Parent and Sub will each use 2 its reasonable best efforts to take, or cause to be taken, all actions and to do, or cause to be done, all things necessary, proper or advisable under applicable laws and regulations to consummate the Offer. (b) As soon as practicable on the date of the commencement of the Offer, Offeror shall file with the SEC a Tender Offer Statement on Schedule 14D-1 with respect to the Offer which will contain the offer to purchase and form of the related letter of transmittal and summary advertisement (together with any supplements or amendments thereto and including exhibits thereto, the "Offer Documents"). The Offer Documents will comply in all material respects with applicable federal securities laws and any other applicable laws. Parent, Offeror and the Company each agree to promptly correct any information provided by it for use in the Offer Documents if and to the extent that it shall have become false or misleading in any material respect. Offeror will take all steps necessary to cause the Offer Documents as so corrected to be filed with the SEC and to be disseminated to holders of Shares, in each case as and to the extent required by applicable federal securities laws and any other applicable laws. The Company and its counsel shall be given an opportunity to review and comment on the Offer Documents and any amendments thereto prior to the filing thereof with the SEC; provided that Offeror will attempt to give the Company and its counsel as much time prior to filing to so review and comment as Offeror believes is reasonably practicable under the circumstances. Offeror will provide the Company and its counsel with any comments Offeror and its counsel may receive from the SEC or its staff with respect to the Offer Documents promptly after the receipt thereof. In the event that the Offer is terminated or withdrawn by Offeror, Parent and Sub shall cause all tendered Shares to be returned to the registered holders of the Shares represented by the certificate or certificates surrendered to the Exchange Agent (as defined in Section 3.3 of this Agreement). SECTION 1.2. COMPANY ACTION. (a) The Company hereby consents to the Offer and represents that its Board of Directors (the "Board of Directors"), at a meeting duly called and held, has (i) unanimously determined that this Agreement and the transactions contemplated hereby, including the Offer and the Merger (as defined in Section 2.1), are fair to and in the best interest of the Company and its stockholders, (ii) unanimously approved this Agreement and the transactions contemplated hereby, including the Offer and the Merger, which approvals are sufficient to render entirely inapplicable to the Offer and the Merger or Parent or Sub the provisions of Chapters 110C, 110D, 110E and 110F of the Massachusetts General Laws, (iii) taken such action as is necessary to exempt this Agreement, the purchase of Shares pursuant to the Offer, the Merger and the other transactions contemplated hereby from the provisions set forth in (x) Article 6 of the Company's Restated Articles of Organization under the captions "Vote Required for Certain Business 3 Combinations" and "Redemption of Shares" and (y) Article 11 of the Company's Restated By-Laws and (iv) resolved to recommend acceptance of the Offer and approval and adoption of this Agreement and the Merger by its stockholders. NationsBanc Montgomery Securities LLC (the "Financial Advisor") has delivered to the Board of Directors its written opinion, subject to the qualifications and limitations stated therein, to the effect that the consideration to be received by the holders of the Shares pursuant to each of the Offer and the Merger, taken together, is fair to the holders of Shares from a financial point of view. The Company has been authorized by the Financial Advisor to permit, subject to prior review and consent by the Financial Advisor (such consent not to be unreasonably withheld), the inclusion of the fairness opinion (or a reference thereto) in the Offer Documents and the Schedule 14D-9 (as defined in paragraph (b) of this Section 1.2). The Company has been advised that Joseph Crugnale, President and Chief Executive Officer and a Director of the Company, has agreed, pursuant to the Tender and Voting Agreement, dated the date of this Agreement, among Parent, Offeror and Joseph Crugnale (the "Tender and Voting Agreement"), to tender all of the Shares beneficially owned by him pursuant to the Offer and, to the Company's knowledge, all of its other directors and executive officers intend as of the date hereof to the extent of their beneficial ownership of Shares, to tender their Shares pursuant to the Offer. The Company will promptly furnish Parent with a list of its stockholders, mailing labels containing the names and addresses of all record holders of Shares and lists of securities positions of Shares held in stock depositories, in each case as of the most recent practicable date, and will provide to Parent such additional information (including, without limitation, updated lists of stockholders, mailing labels and lists of securities positions) and such other assistance as Parent may reasonably request from time to time in connection with the Offer and the Merger (including but not limited to communicating the Offer and the Merger to the record and beneficial holders of Shares). Subject to the requirements of applicable law, and except for such steps as are necessary to disseminate the Offer Documents and any other documents necessary to consummate the Offer or the Merger, Parent, Offeror and their agents and advisors shall use the information contained in any such labels and listings only in connection with the Offer and the Merger and, if this Agreement shall be terminated pursuant to Article VIII hereof, shall deliver to the Company all copies and extracts of such information then in their possession or under their control. (b) On or prior to the date that the Offer is commenced, the Company will file with the SEC a Solicitation/Recommendation Statement on Schedule 14D-9, (together with any supplements or amendments thereto and including exhibits thereto, the "Schedule 14D-9") which shall contain the recommendations of the Board of Directors referred to in Section 1.2(a) of this Agreement. The Schedule 14D-9 will comply in all material respects with all applicable federal securities laws and any other applicable laws. The Company, Parent and Sub each agree to promptly correct any information provided by it for use in the Schedule 14D-9 if and to the extent that it shall have become false or misleading in any material respect. The Company will 4 take all steps necessary to cause the Schedule 14D-9 as so corrected to be filed with the SEC and to be disseminated to holders of Shares, in each case as and to the extent required by applicable federal securities laws and any other applicable laws. Parent, Sub and their counsel shall be given an opportunity to review and comment on the Schedule 14D-9 and any amendments thereto prior to the filing thereof with the SEC; provided that the Company will attempt to give -------- Parent, Sub and their counsel as much time prior to filing to so review and comment as the Company believes is reasonably practicable under the circumstances. The Company will provide Parent and Sub and their counsel with any comments the Company or its counsel may receive from the SEC or its staff with respect to the Schedule 14D-9 promptly after the receipt of such comments. SECTION 1.3. DIRECTORS. (a) Effective upon the purchase of and payment for Shares by Offeror pursuant to the Offer such that Offeror shall own at least a majority of the Shares and from time to time thereafter, Parent shall be entitled to designate up to such number of directors, rounded up to the next whole number, on the Board of Directors that equals the product of (i) the total number of directors on the Board of Directors (giving effect to any increase in the number of directors pursuant to this Section 1.3) multiplied by (ii) the percentage that the number of Shares owned by Parent and Sub bears to the total number of Shares outstanding on a primary basis, and the Company shall take all action necessary to cause Parent's designees to be elected or appointed to the Board of Directors, including, without limitation, increasing the number of directors and/or securing the resignations of such number of incumbent directors as is necessary to enable Parent's designees to be elected to the Board of Directors and to cause Parent's designees to be so elected. At such times, the Company will use its best efforts to cause individuals designated by Parent to constitute the same percentage as such individuals represent on the Board of Directors of (x) each committee of the Board of Directors, (y) each board of directors of each Subsidiary (as defined below) of the Company and (z) each committee of each such board. Notwithstanding the foregoing, until the Effective Time (as defined in Section 2.3 of this Agreement), the Company shall use its best efforts to ensure that not less than two persons who are directors on the date hereof shall remain as members of the Board of Directors (the "Continuing Directors") until the Effective Time. In the event there is only one Continuing Director, such Continuing Director shall have the right to designate a person, who is reasonably acceptable to Offeror, to become a Continuing Director. For purposes of this Agreement, "Subsidiary" means any corporation or other entity of which securities or other ownership interests having ordinary voting power to elect a majority of the board of directors or other persons performing similar functions are directly or indirectly owned by the Company or Parent, as applicable. 5 (b) The Company's obligations to appoint designees to the Board of Directors shall be subject to Section 14(f) of the Exchange Act and Rule 14f-1 promulgated thereunder. The Company shall promptly take all actions required pursuant to Section 14(f) and Rule 14f-1 in order to fulfill its obligations under this Section 1.3, including mailing to the stockholders as part of the Schedule 14D-9 the information required by such Section 14f-1, as is necessary to enable Parent's designees to be elected to the Board of Directors. Parent will supply to the Company in writing and be solely responsible for any information with respect to itself and its nominees, officers, directors and affiliates required by Section 14(f) and Rule 14f-1. For purposes of this Agreement, "affiliate" shall mean, as to any person, any other person that would be deemed to be an "affiliate" of such person as that term is defined in Rule 12b-2 of the General Rules and Regulations under the Exchange Act. (c) Following the election or appointment of Parent's designees pursuant to this Section 1.3 and prior to the Effective Time, any amendment of this Agreement, any termination of this Agreement by the Company, any extension by the Company of the time for the performance of any of the obligations or other acts of Parent or Sub, any consent of the Company contemplated hereby, any waiver of any of the Company's rights hereunder, any amendment to the Company's Restated Articles of Organization or any action taken by the Company that materially adversely affects the interests of the stockholders of the Company with respect to the transactions contemplated hereby, will require the concurrence of a majority of the Continuing Directors. ARTICLE II THE MERGER SECTION 2.1. THE MERGER. Upon the terms and subject to the conditions set forth in this Agreement, and in accordance with Section 78 of the Massachusetts Business Corporation Law (the "MBCL"), at the Effective Time (as hereinafter defined), Sub shall be merged with and into the Company (the "Merger"). Upon the Effective Time, the separate existence of Sub shall cease, and the Company shall continue as the surviving corporation (the "Surviving Corporation"). Notwithstanding the foregoing, in the event that Parent and Sub shall acquire in the aggregate at least ninety (90%) percent of the outstanding Shares, pursuant to the Offer or otherwise, the parties hereto shall, at the request of Parent and subject to Article VII hereof, take all necessary and appropriate action to cause the merger of the Company with and into Sub to become effective, without a meeting of stockholders of the Company, on the same day as the purchase of and payment for Shares is made by Offeror pursuant to the Offer in accordance with Section 82 of the MBCL, in which case the separate existence of the Company shall cease and Sub shall continue as the Surviving Corporation and its corporate name shall be changed to 6 "Bertucci's, Inc." and the term "Merger" as used in this Agreement shall be deemed to refer to such merger. SECTION 2.2. CLOSING. Unless this Agreement shall have been terminated and the transactions herein contemplated shall have been abandoned pursuant to Section 8.1, and subject to the satisfaction or waiver of the conditions set forth in Article VII, the closing of the Merger (the "Closing") will take place at 10:00 a.m., Boston time, not later than the second business day following the date on which the last to be fulfilled or waived of the conditions set forth in Article VII shall be fulfilled or waived in accordance with this Agreement (the "Closing Date"), at the offices of Stroock & Stroock & Lavan LLP, 100 Federal Street, Boston, Massachusetts, unless another date, time or place is agreed to in writing by the parties hereto. SECTION 2.3. EFFECTIVE TIME. The parties hereto will file with the Secretary of State of the Commonwealth of Massachusetts (the "Massachusetts Secretary of State") on the Closing Date (or on such other date as Parent and the Company may agree) articles of merger or other appropriate documents, executed in accordance with the relevant provisions of the MBCL, and make all other filings or recordings required under the MBCL in connection with the Merger. The Merger shall become effective upon the filing of the articles of merger with the Massachusetts Secretary of State, or at such later time as is specified in the articles of merger (the "Effective Time"). SECTION 2.4. EFFECTS OF THE MERGER. The Merger shall have the effects set forth in Section 80 of the MBCL. Without limiting the generality of the foregoing, and subject thereto, at the Effective Time, all the properties, rights, privileges, powers and franchises of the Company and Sub shall vest in the Surviving Corporation, and all debts, liabilities and duties of the Company and Sub shall become the debts, liabilities and duties of the Surviving Corporation. SECTION 2.5. ARTICLE OF ORGANIZATION; BY-LAWS. (a) The Company's Restated Articles of Organization, as in effect at the Effective Time, shall be, from and after the Effective Time, the Articles of Organization of the Surviving Corporation until thereafter changed or amended as provided therein or by applicable law. (b) The Company's Restated By-laws, as in effect at the Effective Time, shall be, from and after the Effective Time, the By-laws of the Surviving Corporation until thereafter changed or amended as provided therein or by applicable law. SECTION 2.6. DIRECTORS. The directors of Sub at the Effective Time shall become, from and after the Effective Time, the directors of the Surviving Corporation, until the earlier of 7 their resignation or removal or until their respective successors are duly elected and qualified, as the case may be. SECTION 2.7. OFFICERS. The officers of Sub at the Effective Time shall become, from and after the Effective Time, the officers of the Surviving Corporation, until the earlier of their resignation or removal or until their respective successors are duly elected and qualified, as the case may be. ARTICLE III EFFECT OF THE MERGER ON THE SECURITIES OF THE CONSTITUENT CORPORATIONS SECTION 3.1. EFFECT ON CAPITAL STOCK. As of the Effective Time, by virtue of the Merger and without any action on the part of any holder: (a) COMMON STOCK OF SUB. Each share of the capital stock of Sub issued and outstanding immediately prior to the Effective Time shall be converted into and become one validly issued, fully paid and nonassessable share of common stock, par value $0.005 per share, of the Surviving Corporation. (b) CANCELLATION OF TREASURY STOCK AND PARENT-OWNED STOCK. Each Share issued or outstanding immediately prior to the Effective Time that is owned by the Company or by Parent or Sub shall be canceled automatically and shall cease to exist, and no cash or other consideration shall be delivered or deliverable in exchange therefor. (c) CONVERSION OF COMPANY SHARES. At the Effective Time, each Share other than (i) Shares to be canceled pursuant to Section 3.1(b) and (ii) Dissenting Shares (as hereinafter defined) shall be converted into and become the right to receive, upon surrender of the certificate representing such Shares in accordance with Section 3.3, the cash price per Share paid by Sub pursuant to the Offer (the "Merger Consideration"). (d) DISSENTING SHARES. Notwithstanding anything in this Agreement to the contrary, Shares issued and outstanding immediately prior to the Effective Time and held by a holder (a "Dissenting Stockholder"), if any, who has the right to demand, and who properly demands, an appraisal of such shares in accordance with Section 85 of the MBCL or any successor provision ("Dissenting Shares") shall not be converted into a right to receive the Merger Consideration unless such Dissenting Stockholder fails to perfect or otherwise loses or 8 withdraws such Dissenting Stockholder's right to such appraisal, if any. Provided the holder of any Dissenting Shares complies with the provisions of the MBCL, such holder shall have with respect thereto solely the rights provided under Sections 86 through 98, inclusive, of the MBCL. If, after the Effective Time, such Dissenting Stockholder fails to perfect or otherwise loses or withdraws any such right to appraisal, each such share of such Dissenting Stockholder shall be treated as a share that had been converted as of the Effective Time into the right to receive the Merger Consideration in accordance with this Section 3.1. The Company shall give prompt notice to Parent of any demands received by the Company for appraisal of any Dissenting Shares, and Parent shall have the right to participate in and direct all negotiations and proceedings with respect to such demands. The Company shall not, except with the prior written consent of Parent, which consent shall not be unreasonably withheld, make any payment with respect to, or settle or offer to settle, any such demands. (e) CANCELLATION AND RETIREMENT OF COMMON STOCK. As of the Effective Time all certificates representing Shares, other than certificates representing Shares to be canceled in accordance with Section 3.1(b) or Dissenting Shares, issued and outstanding immediately prior to the Effective Time, shall no longer be outstanding and shall automatically be canceled and shall cease to exist, and each holder of a certificate representing any such Shares shall cease to have any rights with respect thereto, except the right to receive the Merger Consideration upon surrender of such certificate in accordance with Section 3.3. SECTION 3.2. STOCK OPTIONS. As of the Effective Time, each outstanding, unexercised stock option to purchase Shares (a "Company Stock Option") issued under the Company's Amended and Restated 1987 Stock Option Plan (the "1987 Plan"), the 1989 Time Accelerated Restricted Stock Option Plan (the "TARSOP"), the 1993 Stock Option Plan for Non-Employee Directors (the "Director Plan") and the 1997 Stock Option Plan (the "1997 Plan") (collectively, the "Company Stock Option Plans") shall terminate and be canceled and each holder of a Company Stock Option shall be entitled to receive, in consideration therefor, a cash payment from the Company (which payment shall be made as soon as practicable after the Effective Time) equal to the product of (a) the excess, if any, of (x) the Merger Consideration over (y) the per Share exercise price of such Company Stock Option, times (b) the number of Eligible Shares (as defined below) subject to such Company Stock Option. Such cash payment shall be net of any required withholding taxes. Notwithstanding the foregoing, any Director of the Company who is not also an employee of the Company may make any payment of any taxes incurred as a result of receipt of such cash payment and direct the Company not to withhold any portion thereof, provided that any such Director agrees in writing to indemnify the Company against any claim made against the Company for the failure by such Director to make such tax payment. The term "Eligible Shares" shall mean, (i) with respect to any Company Stock Option granted under the 1987 Plan, the number of Shares subject to such option as to which such option 9 shall then be vested and exercisable as of the Effective Date, and (ii) with respect to any Company Stock Option granted under the TARSOP, the Director Plan or the 1997 Plan, the aggregate number of Shares that shall then be subject to such option. The Company's obligation to make any such cash payment (1) shall be subject to the obtaining of any necessary consents of optionees to the cancellation of such Company Stock Options, in form and substance satisfactory to Parent, and (2) shall not require any action which violates any of the Company Stock Option Plans. As of the Effective Time, each of the Company Stock Option Plans and the Company's 1992 Employee Stock Purchase Plan (the "ESPP") shall terminate and be of no further force or effect, and the Company shall take such action as shall be necessary to ensure, to Parent's reasonable satisfaction, that no holder of a Company Stock Option or participant in the ESPP will have any right to acquire any interest in the Surviving Corporation under the Company Stock Option Plans or the ESPP. SECTION 3.3. EXCHANGE OF CERTIFICATES. (a) EXCHANGE AGENT. As of the Effective Time, Sub (or the Company, as the Surviving Corporation) shall deposit, or shall cause to be deposited, with or for the account of a bank, trust company or other agent designated by Sub, which shall be reasonably satisfactory to the Company (the "Exchange Agent"), for the benefit of the holders of Shares, cash in an aggregate amount equal to the product of (x) the number of Shares outstanding immediately prior to the Effective Time (other than Shares to be canceled pursuant to Section 3.1(b) and Dissenting Shares), times (y) the Merger Consideration (such amount being hereinafter referred to as the "Payment Fund"). The Exchange Agent shall invest the Payment Fund as directed by the Surviving Corporation. (b) EXCHANGE PROCEDURES. As soon as practicable after the Effective Time, each holder of an outstanding certificate or certificates which prior thereto represented outstanding Shares shall, upon surrender to the Exchange Agent of such certificate or certificates and acceptance thereof by the Exchange Agent, be entitled to the amount of cash which the aggregate number of Shares previously represented by such certificate or certificates surrendered shall have been converted into the right to receive pursuant to Section 3.1(c). The Exchange Agent shall accept such certificates upon compliance with such reasonable terms and conditions as the Exchange Agent may impose to effect an orderly exchange thereof in accordance with normal exchange practices. If the consideration to be paid in the Merger (or any portion thereof) is to be delivered to any person other than the person in whose name the certificate representing Shares surrendered in exchange therefor is registered, it shall be a condition to such exchange that the certificate so surrendered shall be properly endorsed with the signature guaranteed or otherwise be in proper form for transfer and that the person requesting such exchange shall pay to the Exchange Agent any transfer or other tax required by reason of the payment of such 10 consideration to a person other than the registered holder of the certificate surrendered, or shall establish to the satisfaction of the Exchange Agent that such tax has been paid or is not applicable. After the Effective Time, there shall be no further transfer on the records of the Company or its transfer agent of certificates representing Shares, and if such certificates are presented to the Company for transfer, they shall be canceled against delivery of the Merger Consideration as hereinabove provided. Until surrendered as contemplated by this Section 3.3(b), each certificate representing Shares shall be deemed at any time after the Effective Time to represent only the right to receive upon such surrender the Merger Consideration, without any interest thereon, as contemplated by Section 3.l. No interest will be paid or will accrue on any cash payable as Merger Consideration to any holder of Shares. (c) LETTER OF TRANSMITTAL. Promptly after the Effective Time (but in no event more than five business days thereafter), the Surviving Corporation shall require the Exchange Agent to mail to each record holder of certificates that immediately prior to the Effective Time represented Shares which have been converted pursuant to Section 3.1, a form of letter of transmittal and instructions for use in surrendering such certificates and receiving the consideration to which such holder shall be entitled therefor pursuant to Section 3.1. (d) NO FURTHER OWNERSHIP RIGHTS IN COMMON STOCK. The Merger Consideration paid upon the surrender for exchange of certificates representing Shares in accordance with the terms of this Article III shall be deemed to have been issued and paid in full satisfaction of all rights pertaining to the Shares theretofore represented by such certificates, and no holder of Shares shall thereby have any equity interest in the Surviving Corporation. (e) TERMINATION OF PAYMENT FUND. Any portion of the Payment Fund which remains undistributed to the holders of the certificates representing Shares for one year after the Effective Time (including, without limitation, all interest and other income received by the Exchange Agent in respect to all funds made available to it) shall be delivered to the Surviving Corporation, upon demand, and any such holders of Shares who have not theretofore complied with this Article III shall thereafter look only to the Surviving Corporation (subject to abandoned property, escheat and other similar laws) and only as general creditors thereof for payment of their claim for the Merger Consideration. (f) NO LIABILITY. None of Parent, Sub, the Surviving Corporation or the Exchange Agent shall be liable to any person in respect of any cash, shares, dividends or distributions payable from the Payment Fund delivered to a public official pursuant to any applicable abandoned property, escheat or similar law. If any certificates representing Company Shares shall not have been surrendered prior to five years after the Effective Time (or immediately prior to such earlier date on which the Merger Consideration in respect of such certificate would 11 otherwise escheat to or become the property of any Governmental Entity (as defined in Section 4.1(d)), any such cash, shares, dividends or distributions payable in respect of such certificate shall, to the extent permitted by applicable law, become the property of the Surviving Corporation, free and clear of all claims or interest of any person previously entitled thereto. (g) WITHHOLDING RIGHTS. The Surviving Corporation, Parent or Sub shall be entitled to deduct and withhold from the consideration otherwise payable pursuant to this Agreement to any holder of Shares such amounts as the Surviving Corporation, Parent or Sub is required to deduct and withhold with respect to the making of such payment under the Code, or any provision of state, local or foreign tax law, including, without limitation, withholdings required in connection with payments with respect to Company Stock Options. To the extent that amounts are so withheld by the Surviving Corporation, Parent or Sub, such withheld amounts shall be treated for all purposes of this Agreement as having been paid to the holder in respect of which such deduction and withholding was made. ARTICLE IV REPRESENTATIONS AND WARRANTIES SECTION 4.1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents and warrants to Parent and Sub as follows: (a) ORGANIZATION, STANDING AND CORPORATE POWER. The Company is a corporation duly organized, validly existing and in corporate good standing under the laws of The Commonwealth of Massachusetts and has the requisite corporate power and authority and any necessary governmental authority to carry on its business as now being conducted and to own, operate and lease its properties. The Company is duly qualified or licensed to do business and is in good standing in each jurisdiction in which the nature of its business or the ownership or leasing of its properties makes such qualification or licensing necessary, other than in such jurisdictions where the failure to be so qualified or licensed (individually or in the aggregate) would not have a material adverse effect upon (i) the business, assets, properties, condition (financial or otherwise) or results of operations of the Company and its Subsidiaries taken as a whole, or (ii) the transactions contemplated hereby or the legality or validity of this Agreement (a "Material Adverse Effect"). The Company has delivered to Parent complete and correct copies of its Restated Articles of Organization and Restated By-laws, as amended to the date of this Agreement. 12 (b) SUBSIDIARIES. Section 4.l(b) of the disclosure schedule attached hereto (the "Disclosure Schedule") sets forth the name, jurisdiction of incorporation, capitalization and number of shares of outstanding capital stock of each of the Company's Subsidiaries. All the issued and outstanding shares of capital stock of each Subsidiary are validly issued, fully paid and nonassessable and are owned, directly or indirectly, by the Company, beneficially and of record, free and clear of all liens, pledges, encumbrances or restrictions of any kind. No Subsidiary has outstanding any securities convertible into or exchangeable or exercisable for any shares of its capital stock, there are no outstanding options, warrants or other rights to purchase or acquire any capital stock of any Subsidiary, there are no irrevocable proxies with respect to such shares, and there are no contracts, commitments, understandings, arrangements or restrictions by which any Subsidiary or the Company is bound to issue additional shares of the capital stock of a Subsidiary. Except for the Company's Subsidiaries, and as otherwise disclosed in Section 4.1(b) of the Disclosure Schedule, the Company does not own, directly or indirectly, any capital stock or other equity securities of any corporation or have any direct or indirect equity interest in any business. Each of the Company's Subsidiaries (a) is a corporation duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation; (b) has all requisite corporate power and authority and any necessary governmental authority to carry on its business as it is now being conducted and to own, operate and lease its properties, except where the failure to have such governmental authority would not have a Material Adverse Effect; and (c) is qualified or licensed to do business as a foreign corporation and is in good standing in each of the jurisdictions in which (i) the ownership or leasing of real property or the conduct of its business requires such qualification or licensing and (ii) the failure to be so qualified or licensed, either singly or in the aggregate, would have a Material Adverse Effect. The Company has delivered to Parent complete and correct copies of the Articles of Organization or other charter documents and By-laws of each of its Subsidiaries, each as amended to date. (c) CAPITALIZATION. As of the date hereof, the authorized capital stock of the Company consists of 200,000 shares of Preferred Stock, $0.01 par value per share ("Preferred Stock"), and 15,000,000 shares of Common Stock. As of the date hereof, there are no shares of Preferred Stock issued or outstanding. As of the date hereof, 8,908,621 Shares are issued and outstanding, 521,050 shares of Common Stock are reserved for issuance pursuant to outstanding Company Stock Options, and no shares of Common Stock are held by the Company in its treasury. Except as set forth above, no shares of capital stock or other equity securities of the Company are issued, reserved for issuance or outstanding. All outstanding shares of capital stock of the Company are, and all shares which may be issued pursuant to the Company Stock Option Plans will be, when issued, duly authorized, validly issued, fully paid and nonassessable and not subject to preemptive rights. Section 4.1(c) of the Disclosure Schedule accurately sets forth the number of Shares issuable upon exercise of each outstanding Company Stock Option, 13 the vesting schedule thereof, and the applicable exercise price with respect to each such Company Stock Option. Except as set forth in Section 4.1(c) of the Disclosure Schedule, the Company has no outstanding option, warrant, subscription or other right, agreement or commitment which either (i) obligates the Company to issue, sell or transfer, repurchase, redeem or otherwise acquire or vote any shares of the capital stock of the Company or (ii) restricts the transfer of Common Stock. Except as set forth in Section 4.l(c) of the Disclosure Schedule, the Company has no outstanding stock appreciation rights, phantom stock or stock equivalents. (d) AUTHORITY; ENFORCEABILITY; NONCONTRAVENTION. The Company has the requisite corporate power and authority to enter into this Agreement and, subject to the approval of its stockholders as set forth in Section 7.1(a) with respect to the consummation of the Merger, to consummate the Merger and the other transactions contemplated by this Agreement. The execution and delivery of this Agreement by the Company and the consummation by the Company of the transactions contemplated hereby have been duly authorized by all necessary corporate action on the part of the Company, subject to the approval of its stockholders as set forth in Section 7.1(a). This Agreement has been duly executed and delivered by the Company and constitutes a valid and binding obligation of the Company, enforceable against the Company in accordance with its terms, except that the enforceability hereof may be subject to bankruptcy, insolvency, reorganization, moratorium or other similar laws now or hereafter in effect relating to creditors' rights generally and that the remedy of specific performance and injunctive and other forms of equitable relief may be subject to equitable defenses and to the discretion of the court before which any proceeding therefor may be brought. The execution and delivery of this Agreement do not, and the consummation of the transactions contemplated by this Agreement and compliance with the provisions hereof will not, (i) violate any of the provisions of the Restated Articles of Organization or Restated By-laws of the Company, (ii) except as otherwise set forth in Section 4.1(d) of the Disclosure Schedule and subject to the governmental filings and other matters referred to in the following sentence, contravene any law, rule or regulation of any state or of the United States or any political subdivision thereof or therein, including any licensing board or agency, or any order, writ, judgment, injunction, decree, determination or award currently in effect, or (iii) except for leases requiring Landlord Consents as defined below in Section 6.11 and the existing Revolving Credit and Term Loan Agreement among the Company, certain of its Subsidiaries and The First National Bank of Boston (the "Company Credit Agreement"), violate, conflict with or constitute a breach under any contract, agreement, indenture, mortgage, deed of trust, lease or other instrument to which the Company or any of its Subsidiaries is a party or by which any of its assets is bound or subject, which, in the case of clauses (ii) and (iii) above, singly or in the aggregate, would have a Material Adverse Effect or prevent consummation of the transactions contemplated hereby. No consent, approval or authorization of, or declaration or filing with, or notice to, any governmental agency, board or regulatory authority, domestic or foreign (a "Governmental Entity"), which has not been received 14 or made, is required by or with respect to the Company or any Subsidiary in connection with the execution and delivery of this Agreement by the Company or the consummation by the Company of the transactions contemplated hereby, except for (i) compliance with any applicable requirements of the Exchange Act and the rules and regulations promulgated thereunder, (ii) state securities or blue sky laws and state takeover, antitrust and compensation law filings and approvals, (iii) compliance with any applicable requirements of The Hart-Scott-Rodino Antitrust Improvement Act of 1976, as amended (the "HSR Act"), (iv) the filing of articles of merger with the Massachusetts Secretary of State and appropriate documents with the relevant authorities of other states in which the Company is qualified to do business, and (v) such other consents, approvals, authorizations, filings or notices as are set forth in Section 4.1(d) of the Disclosure Schedule. Neither the Company nor any of its Subsidiaries is a party or subject to, or bound by, any contract, agreement, indenture, mortgage, deed of trust, lease or other instrument which prevents or restricts its power and authority or its ability to guarantee obligations of third parties or pay dividends on its capital stock, except for the Company Credit Agreement. (e) FINANCIAL STATEMENTS; SEC REPORTS. The Company has previously furnished Parent and Sub with true and complete copies of (i) its Annual Reports on Form 10-K for the fiscal years ended December 28, 1996 (the "1996 Annual Report") and December 27, 1997 (the "1997 Annual Report and, together with the 1996 Annual Report, the "Annual Reports") filed by the Company with the SEC, (ii) its Quarterly Reports on Form 10-Q for the quarters ended April 19, July 12 and October 4, 1997 (collectively, the "Quarterly Reports" and, together with the Annual Reports, the "Reports") filed by the Company with the SEC, (iii) the unaudited consolidated balance sheet and the unaudited consolidated statement of operations of the Company and its Subsidiaries as at April 18, 1998 and for the 16 weeks ended April 18, 1998, respectively (the "April 1998 Financial Statements"), (iv) proxy statements relating to all of the Company's meetings of stockholders (whether annual or special) held or scheduled to be held since December 28, 1996 and (v) each other registration statement, proxy or information statement or current report on Form 8-K filed since December 28, 1996 by the Company with the SEC. Since December 24, 1992, the Company has complied in all material respects with its SEC filing obligations under the Exchange Act and the Securities Act of 1933, as amended (the "Securities Act"). The financial statements and related schedules and notes thereto of the Company contained in the Reports (or incorporated therein by reference) and the April 1998 Financial Statements were prepared in accordance with generally accepted accounting principles (except, in the case of interim unaudited financial statements, as permitted by Form 10-Q) applied on a consistent basis except as noted therein, and fairly present in all material respects the consolidated financial position of the Company and its consolidated Subsidiaries as of the dates thereof and the consolidated results of their operations and cash flows for the periods then ended, subject (in the case of interim unaudited financial statements) to normal year-end audit adjustments, and such financial statements complied as to form as of their respective dates in all 15 material respects with applicable rules and regulations of the SEC. Each such registration statement, proxy statement and Report was prepared in accordance with the requirements of the Securities Act or the Exchange Act and did not, on the date of effectiveness in the case of such registration statements, on the date of mailing in the case of such proxy statements and on the date of filing in the case of such Reports, contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. (f) ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as may be disclosed in the Reports or as otherwise disclosed in Section 4.1(f) of the Disclosure Schedule, since December 27, 1997 there has not been (i) any declaration, setting aside or payment of any dividend or other distribution in respect of the capital stock of the Company or any redemption or other acquisition by the Company of any of its capital stock; (ii) any issuance by the Company, or agreement or commitment of the Company to issue, any shares of its Common Stock or securities convertible into or exchangeable for shares of its Common Stock, except for stock options and stock purchase rights set forth in Section 4.1(c) of the Disclosure Schedule; (iii) any change by the Company in accounting methods, principles or practices except as required by generally accepted accounting principles; (iv) any increase in wage or bonus, severance, profit sharing, retirement, deferred compensation, insurance or other compensation or benefits or any new compensation or benefit plans or arrangements or any amendments to any Company Benefit Plans (as hereinafter defined) existing on December 27, 1997, other than bonus payments made in the ordinary course of business consistent with past practice; or (v) any agreement or commitment, whether in writing or otherwise, to take any action described in this subsection 4.1(f). Since December 27, 1997, the Company and its Subsidiaries have conducted their respective businesses in all material respects only in the ordinary course, consistent with past custom and practice, except as contemplated by this Agreement. Since February 13, 1998, the Company and its Subsidiaries have complied with all of the covenants and agreements applicable to the Company and its Subsidiaries under the Agreement and Plan of Merger dated as of February 13, 1998 among the Company, Ten Ideas, Inc. and Ten Ideas Acquisition, Corp. (the "Ten Ideas Merger Agreement"), including the provisions of Article IV thereof, without the necessity of obtaining any consent or waivers from Ten Ideas, Inc. or Ten Ideas Acquisition Corp. (g) NO UNDISCLOSED LIABILITIES. Except as set forth in the Reports, neither the Company nor any of its Subsidiaries has any liabilities (absolute, accrued, contingent or otherwise), except liabilities (i) in the aggregate adequately provided for in the Company's audited balance sheet (including any related notes thereto) for the fiscal year ended December 27, 1997 included in the 1997 Annual Report (the "1997 Balance Sheet"), (ii) incurred in the ordinary course of business and not required under generally accepted accounting principles to be 16 reflected on the 1997 Balance Sheet, (iii) incurred since December 27, 1997 in the ordinary course of business consistent with past practice, (iv) incurred in connection with this Agreement or (v) which could not reasonably be expected to have a Material Adverse Effect. (h) COMPLIANCE WITH LAWS. The business of the Company and each of the Subsidiaries has been operated at all times in material compliance with all applicable statutes, laws, rules, regulations, permits, licenses, orders, injunctions and judgments (collectively, "Laws"), including, without limitation, any applicable Laws regulating environmental matters, immigration, wages and hours, working conditions or health and safety, except for such violations or failures to comply that, individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect nor have a material adverse effect on the Financing. (i) LITIGATION. Except as set forth in Section 4.1(i) of the Disclosure Schedule or otherwise disclosed in the Reports, there is no suit, action or proceeding pending or, to the knowledge of the Company, threatened against the Company or any of its Subsidiaries which, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect, nor is there any judgment, decree, injunction, rule or order of any Governmental Entity outstanding against the Company or any of its Subsidiaries which, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect. (j) DISCLOSURE DOCUMENTS. (i) Each document required to be filed by the Company with the SEC in connection with the transactions contemplated by this Agreement (the "Company Disclosure Documents"), including, without limitation, the Schedule 14D-9, the proxy or information statement of the Company (the "Company Proxy Statement"), if any, to be filed with the SEC in connection with the Merger, and any amendments or supplements thereto, will, when filed, comply as to form in all material respects with the applicable requirements of the Exchange Act and the rules and regulations thereunder. (ii) At the time the Company Proxy Statement or any amendment or supplement thereto is first mailed to stockholders of the Company, at the time such stockholders vote on adoption of this Agreement and approval of the Merger and at the Effective Time, the Company Proxy Statement, as supplemented or amended, if applicable, will not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements made therein, in the light of the circumstances under which they were made, not misleading. At the time of the filing of any Company Disclosure Document other than the Company Proxy Statement, at the time of any distribution thereof and throughout the remaining pendency of the Offer, each such Company Disclosure Document will not contain any untrue 17 statement of a material fact or omit to state a material fact necessary in order to make the statements made therein, in the light of the circumstances under which they were made, not misleading. The representations and warranties contained in paragraphs (i) and (ii) of this Section 4.1(j) will not apply to statements or omissions included in the Company Disclosure Documents or the Company Proxy Statement, if any, based upon information furnished to the Company in writing by Parent or Sub specifically for use therein. (iii) The information with respect to the Company or any Company Subsidiary that the Company furnishes to Parent or Sub in writing specifically for use in the Offer Documents will not, at the time of the filing thereof, at the time of any distribution thereof and throughout the remaining pendency of the Offer, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements made therein, in the light of the circumstances under which they were made, not misleading. (k) TERMINATION OF PRIOR MERGER AGREEMENT; BOARD RECOMMENDATION. The Company's Board of Directors has (i) terminated the Ten Ideas Merger Agreement pursuant to Section 7.1(c) thereof and (ii) taken the actions specified in the first sentence of Section 1.2(a). (l) FAIRNESS OPINION. The Board of Directors has received from the Financial Advisor an oral opinion as of the date hereof, to be followed with a written opinion to be dated the date hereof, in connection with this Agreement to the effect that the consideration to be received by the stockholders of the Company pursuant to the Offer and the Merger is fair to such stockholders from a financial point of view and such written opinion has not been withdrawn or modified. (m) BROKERS. No broker, investment banker, financial advisor or other person, the fees and expenses of which will be paid by the Company, is entitled to any broker's, finder's, financial advisor's or other similar fee or commission in connection with the transactions contemplated by this Agreement, other than pursuant to an engagement letter with the Financial Advisor, a copy of which has been furnished to Parent. (n) EMPLOYEE BENEFIT MATTERS. All employee benefit plans and other benefit arrangements covering employees of the Company and/or of the Subsidiaries (collectively, the "Benefit Plans") are listed in Section 4.1(n) of the Disclosure Schedule. True and complete copies of the Benefit Plans have been made available to Parent and Sub. To the extent applicable, to the Company's knowledge, the Benefit Plans comply in all material respects with the requirements of the Employee Retirement Income Security Act of 1974, as amended and 18 the rules and regulations promulgated thereunder ("ERISA"), the Internal Revenue Code of 1986, as amended (the "Code"), and any Benefit Plan intended to be qualified under Section 401(a) of the Code has been determined by the United States Internal Revenue Service to be so qualified. To the Company's knowledge, no Benefit Plan is covered by Title IV of ERISA or Section 412 of the Code. Neither the Company nor any Subsidiary, respectively, has incurred any liability or penalty under Section 4975 of the Code or Section 502(i) of ERISA with respect to any Benefit Plan, except as would not have a Material Adverse Effect. Each Benefit Plan has been maintained and administered in all material respects in compliance with its terms and with ERISA and the Code to the extent applicable thereto and each Benefit Plan that is a "group health plan" as defined in Section 607(1) of ERISA, has been operated in compliance with the provisions of Part 6 of Title I of ERISA and Sections 162(k) and 4980B of the Code. To the knowledge of the Company, there are no pending, nor has the Company or any Subsidiary received written notice of any threatened, claims against or otherwise involving any of the Benefit Plans, except as would not have a Material Adverse Effect. To the Company's knowledge, all material contributions required to be made as of the date this Agreement to the Benefit Plans have been made or provided for. Neither the Company nor any Subsidiary, respectively, nor any entity under "common control" with the Company and/or of the Subsidiaries within the meaning of Section 4001 of ERISA has contributed to, or been, to the Company's knowledge, required to contribute to, any "multiemployer plan" (as defined in Sections 3 (37) and 4001(a)(3) of ERISA). Neither the Company nor any Subsidiary has any present or future obligation to make any payment to or under any "employee welfare plan" (as defined in Section 3(1) of ERISA, "ERISA Welfare Plan") which provides benefits to retirees. No condition exists, to the Company's knowledge, which would prevent the Company or any Subsidiary from amending or terminating any ERISA Welfare Plan. (o) TAXES. Except as disclosed in the Reports or in Section 4.1(o) of the Disclosure Schedule, each of the Company and the Subsidiaries (i) has timely filed all federal, state and foreign Tax Returns required to be filed by the Company and each Subsidiary, respectively, for Tax years ended prior to the date of this Agreement and all such Tax Returns are correct and complete in all material respects, (ii) has timely paid, withheld or accrued all Taxes shown to be due and payable on such Tax Returns, (iii) has accrued all Taxes for such periods subsequent to the periods covered by such Tax Returns ending on or prior to the date hereof and (iv) has "open" years for federal, state, local and foreign income Tax Returns only as set forth in the Reports or in Section 4.1(o) of the Disclosure Schedule. There are no liens for Taxes on the assets of the Company or the Subsidiaries except for liens for current Taxes not yet due, and, except as set forth in the Reports or in Section 4.1(o) of the Disclosure Schedule, there is no pending, nor has the Company or any Subsidiary received written notice of any threatened, Tax audit, examination, refund litigation or adjustment in controversy. Neither the Company nor any Subsidiary is a party to any agreement providing for the allocation or sharing of Taxes. All 19 Taxes which each of the Company and the Subsidiaries has been required to collect or withhold have been duly collected or withheld and to the extent required when due, have been or will be duly and timely paid to the proper taxing authority. As used in the foregoing paragraph, (a) "Taxes" shall mean (i) all taxes, charges, fees, levies or other assessments, including, without limitation, income, gross receipts, excise, real and personal property, sales, transfer, license, payroll and franchise taxes, imposed by the United States, or any state, county, local or foreign government or subdivision or agency thereof; and such term shall include any interest, penalties or additions to tax attributable to such taxes, charges, fees, levies or other assessments and any obligations under any agreement or arrangements with any other person with respect to such amounts and including any liability for taxes of a predecessor entity and (ii) all obligations, including joint and several liability pursuant to the law of any jurisdiction or otherwise, for the payment of any of the types of taxes referred to in clause (i) of this definition as a result of being a member of an affiliated, consolidated, combined or unitary group for any taxable period and (b) "Tax Returns" shall mean any report, return or other information required to be supplied to any taxing authority in connection with Taxes. SECTION 4.2. REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB. Parent and Sub represent and warrant to the Company as follows: (a) ORGANIZATION, STANDING AND CORPORATE POWER. Parent is a corporation duly organized, validly existing and in corporate good standing under the laws of the State of Delaware. Sub is a corporation duly organized, validly existing and in corporate good standing under the laws of The Commonwealth of Massachusetts. Each of Parent and Sub has the requisite corporate power and authority to carry on its business as now being conducted. Each of Parent and Sub is duly qualified or licensed to do business and is in good standing in each jurisdiction in which the nature of its business or the ownership or leasing of its properties makes such qualification or licensing necessary, other than in such jurisdictions where the failure to be so qualified or licensed (individually or in the aggregate) would not have a Material Adverse Effect. (b) CAPITALIZATION. As of the date of this Agreement, the authorized capital stock of Parent consists of 6,000,000 shares of common stock, par value $0.01 per share, 1,316,656 shares of which are presently issued and outstanding. As of the date of this Agreement, the authorized capital stock of Sub consists of 1,000 shares of common stock, par value $0.01 per share, 1,000 shares of which are presently issued and outstanding, which constitutes all of the issued and outstanding capital stock of Sub. All of the issued and 20 outstanding shares of capital stock of Parent and Sub are validly issued, fully paid and nonassessable. (c) AUTHORITY; ENFORCEABILITY; NONCONTRAVENTION. Parent and Sub have all requisite corporate power and authority to enter into this Agreement and to consummate the Merger and the other transactions contemplated by this Agreement. The execution and delivery of this Agreement by Parent and Sub and the consummation by Parent and Sub of the transactions contemplated by this Agreement have been duly authorized by all necessary corporate action on the part of Parent and Sub. This Agreement has been duly executed and delivered by and constitutes a valid and binding obligation of each of Parent and Sub, enforceable against such party in accordance with its terms, except that the enforceability hereof may be subject to bankruptcy, insolvency, reorganization, moratorium or other similar laws now or hereafter in effect relating to creditors' rights generally and that the remedy of specific performance and injunctive and other forms of equitable relief may be subject to equitable defenses and to the discretion of the court before which any proceeding therefor may be brought. The execution and delivery of this Agreement do not, and the consummation of the transactions contemplated by this Agreement and compliance with the provisions of this Agreement will not (i) violate any of the provisions of the charter documents or By-laws of Parent or Sub, (ii) subject to the governmental filings and other matters referred to in the following sentence, contravene any law, rule or regulation of any state or of the United States or any political subdivision thereof or therein, or any order, writ, judgment, injunction, decree, determination or award currently in effect, or (iii) except for the Parent's existing credit agreement with BankBoston, N.A. (the "Parent Credit Agreement") which, together with the Company Credit Agreement, is to be refinanced with a portion of the proceeds of the Financing as defined below in Section 4.2(d), violate, conflict with or constitute a breach under any contract, agreement, indenture, mortgage, deed of trust, lease or other instrument to which Parent or any of its Subsidiaries is a party or by which any of their assets is bound or subject, which, in the case of clauses (ii) and (iii) above, singly or in the aggregate, would have a material adverse effect on the business, financial condition or results of operations of Parent and Sub taken as a whole or prevent consummation of the transactions contemplated hereby. No consent, approval or authorization of, or declaration or filing with, or notice to, any Governmental Entity which has not been received or made is required by or with respect to Parent or Sub in connection with the execution and delivery of this Agreement by Parent or Sub or the consummation by Parent or Sub, as the case may be, of any of the transactions contemplated by this Agreement, except for (i) compliance with any applicable requirements of the Exchange Act and the rules and regulations promulgated thereunder, (ii) state securities or blue sky laws and state takeover, antitrust and competition law filings and approvals, (iii) compliance with any applicable requirements of the HSR Act, (iv) the filing of the articles of merger with the Massachusetts Secretary of State and appropriate documents with the relevant authorities of other states in which the Company is qualified to do 21 business, and (iii) such other consents, approvals, authorizations, filings or notices as are set forth in Section 4.1(d) of the Disclosure Schedule. Neither Parent nor any of its Subsidiaries is a party or subject to, or bound by, any contract, agreement, indenture, mortgage, deed of trust, lease or other instrument which would prevent or restrict its power and authority or ability to borrow under the "Interim Facility" (as defined below in Section 4.2(d), guarantee obligations of third parties or pay dividends on its capital stock, except for the Parent Credit Agreement and except that pursuant to the Loan Agreement made as of August 6, 1997, as amended, between FFCA Acquisition Corporation and NERC Limited Partnership, a Delaware limited partnership which is a Subsidiary of Parent ("NERC LP"), NERC LP is prohibited from guaranteeing obligations of third parties. (d) FINANCING. Parent and Sub have received (i) a written commitment from The Chase Manhattan Bank and BankBoston, N.A. (collectively, the "Banks") for the provision of a senior credit facility (the "Interim Facility") for the transactions contemplated hereby, on or prior to the Closing Date, in an amount of at least $90 million as interim financing if Parent is unable to issue prior to July 31, 1998 at least $90 million principal amount of senior unsecured notes (the "Senior Notes") in a public offering or a Rule 144A private placement as contemplated by such commitment , (ii) written commitments from stockholders of Parent to subscribe for an aggregate of at least $21.5 million of equity securities of Parent in connection with a rights offering made to stockholders of Parent totaling $40 million of such equity securities to finance the transactions contemplated hereby and (iii) a written commitment from JP Acquisition Fund II, L.P. ("JPAF"), to subscribe for up to $18.5 million of such equity securities of Parent. The aggregate of $130 million of financing (the "Financing") contemplated by the commitments from the Banks and from stockholders of Parent and from JPAF (collectively, the "Commitments"), will be sufficient to consummate the Offer and the Merger. True and correct copies of the Commitments have been provided to the Company prior to the date hereof. (e) DISCLOSURE DOCUMENTS. (i) The information with respect to Parent and its Subsidiaries that Parent furnishes to the Company in writing specifically for use in any Company Disclosure Document will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements made therein, in the light of the circumstances under which they were made, not misleading (i) in the case of the Company Proxy Statement, if any, at the time the Company Proxy Statement or any amendment or supplement thereto is first mailed to stockholders of the Company, at the time the stockholders vote on adoption of this Agreement and at the Effective Time, and (ii) in the case of any Company Disclosure Document other than the Company Proxy Statement, at the time of the filing thereof, at the time of any distribution thereof and throughout the remaining pendency of the Offer. 22 (ii) The Offer Documents will comply in all material respects with the applicable requirements of the Exchange Act and will not, at the time of the filing thereof, at the time of any distribution thereof and throughout the remaining pendency of the Offer contain any untrue statement of material fact or omit to state any material fact required to be stated therein or necessary to make the statements made therein, in the light of the circumstances under which they were made, not misleading; provided, that no representation is made by Parent or Sub with respect to statements or omissions in the Offer Documents based upon information furnished to Parent or Sub in writing by the Company specifically for use therein. (f) BROKERS. No broker, investment banker, financial advisor or other person, the fees and expenses of which will be paid by Parent or Sub, is entitled to any broker's, finder's, financial advisor's or other similar fee or commission in connection with the transactions contemplated by this Agreement, except for fees payable to Jacobson Partners and fees and expenses payable to the Banks, Chase Securities Inc., BancBoston Securities Inc., Donaldson, Lufkin & Jenrette Securities Corporation and Jacobson Partners, which fees and expenses shall remain the sole responsibility of Parent and Sub. ARTICLE V COVENANTS RELATING TO CONDUCT OF BUSINESS PRIOR TO MERGER SECTION 5.1. CONDUCT OF BUSINESS OF THE COMPANY. Except as contemplated by this Agreement, during the period from the date of this Agreement to the Effective Time, the Company shall operate, and shall cause each Subsidiary to operate, its business in the ordinary course of business. Without limiting the generality of the foregoing, during the period from the date of this Agreement to the Effective Time, except as expressly contemplated by this Agreement, the Company and the Subsidiaries shall not, without the prior written consent of Parent: (i) (x) declare, set aside or pay any dividends on, or make any other distributions (whether in cash, stock or property) in respect of, any of the Company's outstanding capital stock, (y) split, combine or reclassify any of its outstanding capital stock or issue or authorize the issuance of any other securities in respect of, in lieu of or in substitution for shares of its outstanding capital stock, or (z) purchase, redeem or otherwise acquire any shares of outstanding capital stock or any rights, warrants or options to acquire any such shares; 23 (ii) issue, sell, grant, pledge or otherwise encumber any shares of its capital stock, any other voting securities or any securities convertible into, or any rights, warrants or options to acquire, any such shares, voting securities or convertible securities, including under the ESPP, except for the issuance of Shares upon exercise of Company Stock Options outstanding prior to the date of this Agreement and disclosed in Section 4.1(c), or take any action that would make the Company's representations and warranties set forth in Section 4.l(c) not true and correct in all material respects; (iii) amend its Restated Articles of Organization or Restated By-laws or the comparable charter or organizational documents of any of its Subsidiaries; (iv) acquire any business or any corporation, partnership, joint venture, association or other business organization or division thereof (or any interest therein), or form any subsidiaries; (v) sell or otherwise dispose of any of its substantial assets, except in the ordinary course of business; (vi) make any capital expenditures, enter into leases or agreements for new locations, or make other commitments with respect thereto, except capital expenditures, leases, agreements or commitments (i) set forth on Section 5.1(vi) of the Disclosure Schedule, or (ii) not exceeding $100,000 in the aggregate as the Company may, in its discretion, deem appropriate; (vii) (x) incur any indebtedness for borrowed money or guaranty any such indebtedness of another person, other than (A) borrowings in the ordinary course under existing lines of credit (or under any refinancing of such existing lines), (B) indebtedness owing to, or guaranties of indebtedness owing to, the Company or (C) in connection with the Financing, or (y) make any loans or advances to any other person, other than routine advances to employees; (viii) except as disclosed in Section 4.1(f) of the Disclosure Schedule, grant or agree to grant to any employee any increase in wages or bonus, severance, profit sharing, retirement, deferred compensation, insurance or other compensation or benefits, or establish any new compensation or benefit plans or arrangements, or amend or agree to amend any existing Company Plans, except as may be required under existing agreements or in the ordinary course of business consistent with past practices; (ix) merge, amalgamate or consolidate with any other person or entity in any transaction, sell all or substantially all of its business or assets, or acquire all or substantially all of the business or assets of any other person or entity; 24 (x) except as disclosed in Section 4.1(f) of the Disclosure Schedule, enter into or amend any employment, consulting, severance or similar agreement with any person or amend the engagement letter with the Financial Advisor referred to in Section 4.1(l) hereof; (xi) change its accounting policies in any material respect, except as required by generally accepted accounting principles; (xii) except as set forth in Section 4.1(f) of the Disclosure Schedule, enter into any material contract, agreement or commitment (other than purchase agreements for food and beverages and restaurant supplies entered into in the ordinary course of business) not otherwise permitted under this Section 5.1, including, without limitation, any contract, agreement or commitment involving expenditures by the Company or any of its Subsidiaries in excess of $50,000 or which is not terminable by the Company upon giving 30 days of less prior written notice; or (xiii) commit or agree to take any of the foregoing actions. SECTION 5.2. OTHER ACTIONS. The Company, Parent and Sub shall not take any action that would, or that could reasonably be expected to, result in (i) any of the representations and warranties of such party set forth in this Agreement that are qualified as to materiality becoming untrue, (ii) any of such representations and warranties that are not so qualified becoming untrue in any material respect or (iii) any of the conditions of the Offer set forth in Annex I or of the Merger set forth in Article VII not being satisfied. 25 ARTICLE VI ADDITIONAL AGREEMENTS SECTION 6.1. MEETING OF STOCKHOLDERS. Following the expiration of the Offer, the Company will promptly take all action necessary in accordance with applicable law and its Restated Articles of Organization and Restated By- laws to duly call, give notice of, and convene a meeting of its stockholders (the "Stockholders' Meeting") to consider and vote upon the adoption and approval of this Agreement and the Merger and all actions contemplated hereby which require approval and adoption by the Company's stockholders unless the Merger may be effected pursuant to Section 82 of the MBCL; provided, however, that the obligations contained herein shall be subject to the provisions of Section 6.8. Parent shall agree to cause all of the shares of capital stock of the Company held by Parent and/or Sub to be voted, either in person or by proxy, in favor of the adoption and approval of this Agreement and the Merger at the Stockholders' Meeting. SECTION 6.2. PROXY STATEMENT. (a) In connection with the Stockholders' Meeting contemplated hereby, as promptly as practicable after Offeror first purchased Shares pursuant to the Offer and if required by applicable law, the Company will promptly prepare and file, and Parent will cooperate with the Company in the preparation and filing of, a preliminary Company Proxy Statement (the "Preliminary Proxy Statement") with the SEC and will use its commercially reasonable best efforts to respond to the comments of the SEC concerning the Preliminary Proxy Statement and to cause the Company Proxy Statement to be mailed to the Company's stockholders, in each case as soon as reasonably practicable. The Company shall pay the filing fees for the Preliminary Proxy Statement. Each party to this Agreement will notify the other parties promptly of the receipt of the comments of the SEC, if any, and of any request by the SEC for amendments or supplements to the Preliminary Proxy Statement or the Company Proxy Statement or for additional information, and will supply the other parties with copies of all correspondence between such party or its representatives, on the one hand, and the SEC or members of its staff, on the other hand, with respect to the Preliminary Proxy Statement, the Company Proxy Statement or the Merger. (b) If at any time prior to the Stockholders' Meeting, any event should occur relating to the Company or any of the Subsidiaries which should be set forth in an amendment of, or a supplement to, the Company Proxy Statement, the Company will promptly inform Parent. If at any time prior to the Stockholders' Meeting, any event should occur relating to Parent or Sub or any of their respective Associates or Affiliates, or relating to the plans of any such persons for 26 the Surviving Corporation after the Effective Time of the Merger, or relating to the Financing, that should be set forth in an amendment of, or a supplement to, the Company Proxy Statement, the Company, with the cooperation of Parent, will, upon learning of such event, promptly prepare, file and, if required, mail such amendment or supplement to the Company's stockholders; provided that, prior to such filing or mailing, the Company shall consult with Parent with respect to such amendment or supplement and shall afford Parent reasonable opportunity to comment thereon. (c) Parent will furnish to the Company the information relating to Parent and Sub, their respective Associates and Affiliates and the plans of such persons for the Surviving Corporation after the Effective Time of the Merger, and relating to the Financing, which is required to be set forth in the Preliminary Proxy Statement or the Company Proxy Statement under the Exchange Act and the rules and regulations of the SEC thereunder. The Company shall cause to be included as an exhibit to the Preliminary Proxy Statement and the Company Proxy Statement, the fairness opinion of the Financial Advisor referred to in Section 4.1(l). SECTION 6.3. ACCESS TO INFORMATION; CONFIDENTIALITY. From and after the date hereof, the Company will provide to Parent reasonable access, upon notice and during normal business hours, to the Company's facilities, books and records and shall cause the directors, employees, accountants, attorneys, financial advisors, lenders and other agents and representatives (collectively, "Representatives") of the Company to continue to cooperate fully with Parent and Parent's Representatives in order to enhance such persons' knowledge of the Company's assets, contracts, liabilities, operations, records and other aspects of its business (including any environmental investigation of the Company's facilities) and the efforts of Parent and Sub to secure the Financing as described in Section 4.2(d). Parent shall, and shall cause Parent's Representatives to, keep all information supplied or made available to Parent hereunder in confidence and shall not disclose the same to any party other than its Representatives on a "need to know" basis and only for purposes of evaluating the Merger and the Financing. Parent will not use such information except for evaluating the Merger and in connection with procurement of the Financing. If the Merger is not consummated and this Agreement is terminated in accordance with its terms, Parent shall return any information provided hereunder. SECTION 6.4. COMMERCIALLY REASONABLE EFFORTS. Upon the terms and subject to the conditions and other agreements set forth in this Agreement, each of the parties agrees to use commercially reasonable efforts to take, or cause to be taken, all actions, and to do, or cause to be done, and to assist and cooperate with the other parties in doing, all things necessary, proper or advisable to consummate and make effective, in the most expeditious manner practicable, the Offer, the Merger and the other transactions contemplated by this Agreement, including the satisfaction of the respective conditions set forth in Annex I and 27 Article VII; provided that nothing herein shall be deemed to require the Company or any of its Subsidiaries to participate in any meetings with prospective investors in connection with the sale of any securities constituting a part of the Financing described in Section 4.2(d). SECTION 6.5. FINANCING. Each of Parent and Sub shall use commercially reasonable best efforts to close the Financing on terms consistent with the Commitments or such other terms as shall be satisfactory to them and to execute and deliver definitive agreements with respect to the Financing (the "Definitive Financing Agreements") on or before the Closing Date. Parent and Sub shall use commercially reasonable best efforts to satisfy on or before the Closing Date all requirements of the Definitive Financing Agreements which are conditions to closing the transactions constituting the Financing and to drawing the cash proceeds thereunder. The obligations contained herein are not intended, nor shall they be construed, to benefit or confer any rights upon any person, firm or entity other than the Company. SECTION 6.6. INDEMNIFICATION; DIRECTORS' AND OFFICERS' INSURANCE. (a) From and after the Effective Time, Parent shall cause the Surviving Corporation to indemnify and hold harmless each person who is now, at any time has been or who becomes prior to the Effective Time a "Director/officer" of the Company (as defined in Article 7 of the Company's Restated By-laws ("Article 7")), and their heirs and personal representatives (the "Indemnified Parties"), against any and all "Expenses" (as defined in Article 7) incurred in connection with any "Proceeding" (as defined in Article 7) arising out of or pertaining to any action or omission occurring prior to the Effective Time (including, without limitation, any Proceeding which arises out of or relates to the transactions contemplated by this Agreement), to the full extent permitted under Massachusetts law and the Surviving Corporation's Restated By-laws in effect as of the Effective Date or under any indemnification agreement in effect as of the date of this Agreement. (b) The Surviving Corporation shall control the defense of any such Proceeding with counsel selected by the Surviving Corporation, which counsel shall be reasonably acceptable to the Indemnified Party, provided that the Indemnified Party shall be permitted to participate in the defense of such Proceeding at its own expense; except that the Surviving Corporation shall pay as incurred the reasonable fees and expenses of counsel retained by an Indemnified Party in the event that (i) the Surviving Corporation and the Indemnified Party shall have mutually agreed on the retention of such counsel or (ii) the named parties to any Proceeding include both the Surviving Corporation and the Indemnified Party and representation of both parties by the same counsel would be inappropriate, in the reasonable opinion of counsel to the Indemnified Party, due to actual or potential differing interests between them; and provided, further, that if any D&O Insurance (as defined in paragraph (c) of this Section 6.6) in effect at the time shall require 28 the insurance company to control such defense in order to obtain the full benefits of such insurance and such provision is consistent with the provisions of the Company's D&O Insurance existing as of the date of this Agreement, then the provisions of such policy shall govern. Neither Parent nor the Surviving Corporation shall in any event be liable for any settlement effected without its written consent, which consent shall not be withheld unreasonably. (c) For a period of not less than six years after the Effective Time, Parent or the Surviving Corporation shall maintain officers' and directors' liability insurance ("D&O Insurance") covering each Indemnified Party who is presently covered by the Company's officers' and directors' liability insurance or will be so covered at the Effective Time with respect to actions or omissions occurring prior to the Effective Time, on terms no less favorable than such insurance maintained in effect by the Company as of the date hereof in terms of coverage and amounts, provided that Parent and the Surviving Corporation shall not be required to pay in the aggregate an annual premium for D&O Insurance in excess of 125% of the last annual premium paid prior to the date hereof, but in such case shall purchase as much coverage as may be obtained for such amount. (d) The Restated Articles of Organization and Restated By-laws of the Surviving Corporation shall contain the provisions with respect to indemnification set forth in the Restated Articles of Organization and Restated By-laws of the Surviving Corporation as of the Effective Date, which provisions shall not be amended, repealed or otherwise modified after the Effective Time in any manner that would adversely affect the rights thereunder of the Indemnified Parties in respect of actions or omissions occurring at or prior to the Effective Time (including, without limitation, the transactions contemplated by this Agreement), unless such modification is required by law. Parent, Sub and the Company agree that all rights existing in favor of any Indemnified Party under any indemnification agreement in effect as of the date hereof shall survive the Merger and shall continue in full force and effect, without any amendment thereto. (e) The provisions of this Section 6.6 are intended to be for the benefit of, and shall be enforceable by, each of the Indemnified Parties, his or her heir and his or her personal representatives and shall be binding on all successors and assigns of Parent, Sub, the Company and the Surviving Corporation. SECTION 6.7. PUBLIC ANNOUNCEMENTS. Parent and Sub, on the one hand, and the Company, on the other hand, will consult with each other before issuing, and provide each other the opportunity to review and comment upon, any press release or other public statements with respect to the existence of and transactions contemplated by this Agreement, and shall not issue any such press release or make any such public statement without the consent of the other 29 party following such consultation, except as may be required by applicable law, regulation or judicial process, and in such case only after reasonable notice to the other party. SECTION 6.8. ACQUISITION PROPOSALS. The Company shall not, nor shall it authorize or permit any of its Representatives to, directly or indirectly, (i) solicit, initiate or knowingly encourage any Third Party (as defined in this Section 6.8) with respect to the submission of any Acquisition Proposal (as hereinafter defined) or (ii) participate in any discussions or negotiations regarding, or furnish to any Third Party any non-public information with respect to, or take any other action to facilitate any inquiries or the making of any proposal that constitutes, or may reasonably be expected to lead to, any Acquisition Proposal; provided, however, that the foregoing shall not prohibit the Board of Directors of the Company (or, if applicable, the duly appointed Special Committee thereof) from: (i) furnishing information to, or entering into discussions or negotiations with, any Third Party in connection with an unsolicited bona fide Acquisition Proposal by such Third Party if, and to the extent that, the Board of Directors of the Company (or the Special Committee), after consultation with independent legal counsel (who may be the Company's regularly engaged independent counsel), determines in good faith that such action is required for the Board of Directors of the Company to comply with its fiduciary obligations to stockholders under applicable law; (ii) withdrawing or modifying its recommendation referred to in Section 4.1(k) following receipt of a bona fide unsolicited Acquisition Proposal if the Board of Directors of the Company (or the Special Committee), after consultation with independent legal counsel (who may be the Company's regularly engaged independent counsel), determines in good faith that such action is necessary for the Board of Directors of the Company to comply with its fiduciary duties to stockholders under applicable law; or (iii) making to the Company's stockholders any recommendation and related filing with the SEC as required by Rule 14e-2 and 14d-9 under the Exchange Act, with respect to any tender offer, or taking any other legally required action (including, without limitation, the making of public disclosures as may be necessary or advisable under applicable securities laws); and provided further, however, that, in the event of an exercise of the Company's or its Board of Director's (or the Special Committee's) rights under clause (i), (ii) or (iii) above, notwithstanding anything contained in this Agreement to the contrary, such failure shall not constitute a breach of this Agreement by the Company. The Company shall provide immediate written notice to Parent of the receipt of any such Acquisition Proposal and of the Company's intention to furnish information to, or enter into discussions or negotiations with, such person or entity. For purposes of this Agreement, (i) "Acquisition Proposal" means any proposal with respect to a merger, consolidation, share exchange, tender offer or similar transaction involving the Company, or any purchase or other acquisition of all or any significant portion of the assets of the Company, or any equity interest in the Company, other than the transactions contemplated hereby and (ii) "Third Party" means any corporation, partnership, person or other entity or "group" (as defined in 30 Section 13(d)(3) of the Exchange Act) other than Parent, Sub or any Affiliates of Parent or Sub and their respective directors, officers, employees, representatives and agents. SECTION 6.9. STOCKHOLDER LITIGATION. The Company shall give Parent the opportunity to participate, at the expense of Parent, in the defense or settlement of any stockholder litigation against the Company and its Representatives relating to the transactions contemplated by this Agreement and/or the Ten Ideas Merger Agreement; provided, however, that no such settlement shall be agreed to without Parent's consent, which consent shall not be unreasonably withheld. SECTION 6.10. BOARD ACTION RELATING TO STOCK OPTION PLANS. As soon as practicable following the date of this Agreement, the Board of Directors of the Company (or, if appropriate, any committee administering a Company Stock Option Plan) shall adopt such resolutions or take such actions as may be required to adjust the terms of all outstanding Company Stock Options or accelerate vesting of options granted under the TARSOP, the Director Plan or the 1997 Plan in accordance with Section 3.2 and shall make such other changes to the Company Stock Option Plans and the ESPP as Parent deems appropriate to give effect to the Merger, and to terminate such plans as of the Effective Time. Promptly following the termination of the ESPP, the Company or the Surviving Corporation, as the case may be, shall refund to each participant in the ESPP in cash the amount of payroll deductions, if any, then credited to such participant's account under the ESPP in accordance with the provisions of Section 19 of the ESPP. SECTION 6.11. CONSENTS AND APPROVALS. As soon as practicable following the date of this Agreement, the Company and Parent shall make all filings required to be made with and seek all consents, approvals, permits and authorizations required to be obtained from, any third parties or Governmental Entities in connection with this Agreement and the transactions contemplated hereby, including, without limitation, the filing of any required notification under the HSR Act, the consent of any licensing board or agency governing the sale of alcoholic beverages ("Liquor License Consents"), the consent of any landlord (or of any other person) at any location leased by the Company or any of its Subsidiaries ("Landlord Consents") and any other filing, consent or approval listed on Section 4.1(d) of the Disclosure Schedule, it being understood, however, that the consummation of the Offer and the Merger are not conditioned on the Company, Parent or Sub obtaining any such Liquor License Consents or Landlord Consents. The Company shall pay any required filing fees or other expense in connection therewith; provided that the Company and Parent shall each pay one-half of any filing fees under the HSR Act; provided, further, that Parent shall reimburse the Company for such payment in the event that this Agreement is terminated pursuant to Section 8.1 hereof in any manner which does not entitle Parent to reimbursement from the Company for Expenses (as defined in Section 8.2(b)(i)). 31 SECTION 6.12. REPAYMENT OF INDEBTEDNESS. Parent shall utilize a portion of the net proceeds of the Financing, together with available cash of the Company, to repay, satisfy or otherwise discharge, in full, all of the Company's indebtedness to BankBoston, N.A. existing on the Closing Date. SECTION 6.13. PAYMENT OF FEES AND EXPENSES. Parent and Sub acknowledge that concurrently with the execution of this Agreement, the Company is obligated to pay Ten Ideas a fee of $1,500,000 and an amount not to exceed $750,000, as reimbursement of expenses, all in accordance with the terms of the Ten Ideas Merger Agreement, and agree that they shall in no event contest the propriety of or the obligation to make such payments or to seek to recover all or any portion of such payments. ARTICLE VII CONDITIONS PRECEDENT SECTION 7.1. CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE MERGER. The respective obligation of each party to effect the Merger is subject to the satisfaction or waiver on or prior to the Closing Date of the following conditions: (a) STOCKHOLDER APPROVAL. The Merger shall have been adopted and approved by the affirmative vote of the holders of two-thirds of the outstanding Shares as required under the laws of The Commonwealth of Massachusetts. (b) THIRD-PARTY AND GOVERNMENTAL CONSENTS. All filings required to be made prior to the Effective Time with, and all consents (other than Liquor License Consents and Landlord Consents) and, approvals, permits and authorizations required to be obtained prior to the Effective Time from, any third party or any Governmental Entities, including, without limitation, those set forth in Section 4.1(d) of the Disclosure Schedule, in connection with the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby by the Company, Parent and Sub, and which, either individually or in the aggregate, if not obtained would have a Material Adverse Effect or would prevent consummation of the Merger, shall have been made or obtained (as the case may be). (c) NO INJUNCTIONS, RESTRAINTS OR LITIGATION. No temporary restraining order, judgment, preliminary or permanent injunction or other order issued by any court of competent jurisdiction or other legal restraint or prohibition preventing the 32 consummation of the Merger shall be in effect; provided, however, that the parties invoking this condition shall use their best efforts to have any such order or injunction vacated. (d) SHARES PURCHASED. Sub shall have purchased Shares pursuant to the Offer, provided this condition shall be deemed to be satisfied if Sub fails to accept for payment and pay for Shares in violation of the Offer. SECTION 7.2. CONDITIONS TO OBLIGATIONS OF PARENT AND SUB. The obligations of Parent and Sub to effect the Merger are further subject to the satisfaction, or waiver by Parent, on or prior to the Closing Date, of the following conditions: (a) REPRESENTATIONS AND WARRANTIES. The representations and warranties of the Company set forth in Section 4.1 that are qualified by materiality shall be true and correct and such representations and warranties of the Company set forth in Section 4.1 that are not so qualified shall be true and correct in all material respects, in each case as of the date of this Agreement and as of the Closing Date as though made on and as of the Closing Date, except to the extent such representations and warranties speak as of an earlier date, except for changes permitted or contemplated by this Agreement, and except, in the case of any such breach, where such breach would not have, individually or in the aggregate, a Material Adverse Effect or materially and adversely affect the Financing described in Section 4.2(d) or the ability of Parent and Sub to consummate the Offer and the Merger. Parent shall have received an officers' certificate signed on behalf of the Company to the effect set forth in this paragraph. (b) CONSENTS AND APPROVALS. On or prior to the Effective Date, Parent and/or Sub shall have received all of the necessary consents (other than Liquor License Consents and Landlord Consents) or approvals of Governmental Entities and all third parties in connection with the execution and delivery of this Agreement and the consummation of the Merger and the other transactions contemplated hereby, unless the failure to obtain such consent or approval would not have a Material Adverse Effect nor have a material adverse effect on the Financing. SECTION 7.3. CONDITIONS TO OBLIGATIONS OF THE COMPANY. The obligations of the Company to effect the Merger are further subject to the satisfaction, or waiver by the Company, on or prior to the Closing Date, of the following conditions: (a) REPRESENTATIONS AND WARRANTIES. The representations and warranties of Parent and Sub set forth in Section 4.2 that are qualified by materiality shall be true and correct and such representations and warranties of Parent and Sub set forth in Section 4.2 that are not so qualified shall be true and correct in all material respects, in each case as of the date of this Agreement and as of the Closing Date as though made on and as of the Closing Date, except to 33 the extent such representations and warranties speak as of an earlier date and except for changes permitted or contemplated by this Agreement, and except, in the case of any such breach, where such breach would not, individually or in the aggregate, materially and adversely affect the Financing described in Section 4.2(d) or the ability of Parent and Sub to consummate the Offer and the Merger. The Company shall have received an officers' certificate signed on behalf of Parent to the effect set forth in this paragraph. (b) FAIRNESS OPINION. At or prior to the Effective Time, the Financial Advisor shall not have withdrawn its fairness opinion referred to in Section 4.1(l). ARTICLE VIII TERMINATION, AMENDMENT AND WAIVER SECTION 8.1. TERMINATION. This Agreement may be terminated and abandoned at any time prior to the Effective Time, whether before or after approval of the Merger by the stockholders of the Company: (a) by mutual written consent of Parent and the Company; or (b) by either Parent or the Company if (i) Parent or Sub shall have failed to commence the Offer within five business days following the date hereof or the Offer shall have terminated or expired in accordance with its terms without Parent or Sub having purchased any Shares pursuant to the Offer, or (ii) the Offer has not been consummated by July 31, 1998, or (iii) any change to the Offer is made in contravention of the provisions of Section 1.1; or (c) by either Parent or the Company: (i) if, upon a vote at the Stockholders Meeting, or any adjournment thereof, the adoption and approval of this Agreement and the Merger by the stockholders of the Company required by Massachusetts law, the Company's Restated Articles of Organization or the terms of this Agreement shall not have been obtained; or (ii) if the Merger shall not have been consummated on or before October 31, 1998, provided that the failure to consummate the Merger is not attributable to the failure of the terminating party to fulfill its obligations pursuant to this Agreement; or (iii) if there shall be any law or regulation (other than a law or regulation relating to the issuance or transfer of any licenses or permits of any licensing board or agency governing the sale of alcoholic beverages) that makes consummation of the Offer or the Merger illegal or otherwise prohibited, or if any judgment, injunction, order or decree enjoining or otherwise restraining Sub from purchasing Shares pursuant to the Offer or Sub or the Company from consummating the Merger is entered and such judgment, injunction, order or decree shall become final and nonappealable; or (d) by the Company, immediately after payment to Sub of the fee and expense reimbursement described in Section 8.2(b), if prior to the purchase of Shares pursuant to the Offer, (i) the Board of Directors shall have withdrawn or modified in a manner adverse to Parent or Sub its approval or recommendation of the Offer, this Agreement or the Merger in order to permit the Company to execute an Acquisition Proposal providing for the 34 acquisition of the Company by a Third Party as determined by the Board of Directors in good faith after consultation with independent legal counsel (who may be the Company's regularly engaged independent counsel) that such action is required for the Board of Directors of the Company to comply with its fiduciary obligations to stockholders under applicable law, or (ii) the fairness opinion referred to in Section 4.1(l) shall have been withdrawn; or (e) by Parent, if the Board of Directors of the Company shall have approved an Acquisition Proposal or withdrawn or modified (including by amendment of the Schedule 14D-9), in a manner adverse to Parent or Sub, the Board of Director's recommendation pursuant to Section 4.1(k); or (f) by Parent, if any of the conditions set forth in Section 7.2 shall have become incapable of fulfillment, and shall not have been waived by Parent, or if the Company shall breach in any material respect any of its representations, warranties or obligations hereunder and such breach shall not have been cured in all material respects or waived and the Company shall not have provided reasonable assurance that such breach will be cured in all material respects on or before the Closing Date, but only if such breach, singly or together with all other such breaches, constitutes a failure of the conditions contained in Section 7.2 as of the date of such termination; or (g) by the Company, if any of the conditions set forth in Section 7.3 shall have become incapable of fulfillment, and shall not have been waived by the Company, or if Parent or Sub shall breach in any material respect any of their respective representations, warranties or obligations hereunder and such breach shall not have been cured in all material respects or waived and Parent or Sub, as the case may be, shall not have provided reasonable assurance that such breach will be cured in all material respects on or before the Closing Date, but only if such breach, singly or together with all other such breaches, constitutes a failure of the conditions contained in Section 7.3 as of the date of such termination; provided, however, that the party seeking termination pursuant to clause (f) or (g) hereof is not in breach of any of its material representations, warranties, covenants or agreements contained in this Agreement. SECTION 8.2. EFFECT OF TERMINATION. (a) AGREEMENT VOID. In the event of the termination and abandonment of this Agreement pursuant to Section 8.1 hereof, this Agreement shall forthwith become void and have no effect, without any liability on the part of any party hereto or its affiliates, directors, officers or stockholders and all rights and obligations of any party hereto shall cease except for agreements contained in Sections 6.4, 8.2 and 9.2; provided, however, that nothing contained in this Section 8.2 shall relieve any party from liability for any breach of this Agreement or shall relieve the Company from any liability under this Article VIII. (b) TERMINATION FEE. 35 (i) If this Agreement is terminated pursuant to Section 8.1(d) or 8.1(e), pursuant to Section 8.1(f) as a result of a willful breach by the Company, or pursuant to Section 8.1(g) as a result of the withdrawal or modification of the Financial Advisor's fairness opinion referred to in Section 4.1(l), then the Company shall (provided that neither Parent nor Sub is then in material breach of its obligations under this Agreement) promptly pay to Parent in cash an amount equal to the aggregate out-of-pocket costs and reasonable expenses of Parent and Sub in connection with this Agreement and the transactions contemplated hereby, up to an aggregate amount not to exceed $750,000, including, without limitation, commitment, appraisal and other fees relating to the Financing and the reasonable fees and disbursements of accountants, attorneys and investment bankers, whether retained by Parent or by any other person (collectively, "Expenses"). (ii) In addition to any required payment of Expenses, if this Agreement is terminated pursuant to Section 8.1(d) or 8.1(e), or pursuant to Section 8.1(f) as a result of a willful breach by the Company, then the Company shall (provided that neither Parent nor Sub is then in material breach of its obligations under this Agreement) promptly pay to Parent the sum of $1,500,000 in cash (the "Termination Fee"). (iii) The sum of the Expenses and the Termination Fee, if any, shall be referred to herein as the "Termination Amount." The rights of Parent to receive the Termination Amount shall be in lieu of any damages remedy or claim by Parent or Sub against the Company for termination of this Agreement pursuant to Section 8.1(d) or 8.1(e), Section 8.1(f) in the event of a willful breach by the Company or pursuant to Section 8.1(g) as a result of the Company's reliance on the condition set forth in Section 7.3(b). (iv) Notwithstanding the provisions of Section 8.2(b)(ii) above, if this Agreement is terminated pursuant to Section 8.1(g) as a result of the Company's reliance on the condition set forth in Section 7.3(b) at a time when Parent is ready, willing and able (other than as a result of an inability to consummate the Financing solely because of the withdrawal of the Financial Advisor's fairness opinion referred to in Section 4.1(l)) to proceed with the transactions contemplated hereby but for the withdrawal of such fairness opinion, and within one year after such termination, the Company enters into an agreement relating to an Acquisition Proposal with a person other than Parent or Sub or their Affiliates and Associates, or the Company's Board of Directors recommends or resolves to recommend to the Company's stockholders approval and acceptance of such an Acquisition Proposal, then, upon the entry into such agreement or the making of such recommendation or resolution, the Company shall pay to Parent the Termination Fee. 36 (c) ACQUISITION PROPOSAL FOLLOWING TERMINATION. At no time prior to or within one year after termination of this Agreement shall the Company enter into any agreement relating to an Acquisition Proposal with a person other than Parent or Sub or their Affiliates and Associates unless such agreement provides that such person shall, upon the execution of such agreement, pay any Termination Amount due Parent under this Section 8.2 which at that time remains unpaid. (d) REASONABLE INDUCEMENT. The parties acknowledge and agree that the provisions for payment of the Termination Amount are included herein in order to reasonably induce Parent to enter into this Agreement and to reimburse Parent for incurring the costs and expenses related to entering into this Agreement, obtaining the Commitments and the Financing, and consummating the transactions contemplated by this Agreement. (e) COSTS OF ENFORCEMENT. Notwithstanding anything to the contrary set forth in this Agreement, in the event Parent and/or Sub is required to file suit to seek all or a portion of the Termination Amount, it shall be entitled, in addition to payment of the Expenses, to payment by the Company of all additional expenses, including reasonable attorneys' fees and expenses, which it incurs in enforcing its rights hereunder. SECTION 8.3. AMENDMENT. Subject to the applicable provisions of the MBCL, at any time prior to the Effective Time, the parties hereto may modify or amend this Agreement, by written agreement executed and delivered by duly authorized officers of the respective parties; provided, however, that after approval of the Merger by the stockholders of the Company, no amendment shall be made which reduces the consideration payable in the Merger or adversely affects the rights of the Company's stockholders hereunder without the approval of such stockholders. This Agreement may not be amended except by an instrument in writing signed on behalf of each of the parties. SECTION 8.4. EXTENSION; WAIVER. At any time prior to the Effective Time, the parties may (a) extend the time for the performance of any of the obligations or other acts of the other parties, (b) waive any inaccuracies in the representations and warranties of the other parties contained in this Agreement or in any document delivered pursuant to this Agreement or (c) subject to Section 8.2, waive compliance with any of the agreements or conditions of the other parties contained in this Agreement. Any agreement on the part of a party to any such extension or waiver shall be valid only if set forth in an instrument in writing signed on behalf of such party. The failure of any party to this Agreement to assert any of its rights under this Agreement or otherwise shall not constitute a waiver of such rights. 37 SECTION 8.5. PROCEDURE FOR TERMINATION, AMENDMENT, EXTENSION OR WAIVER. A termination of this Agreement pursuant to Section 8.1, an amendment of this Agreement pursuant to Section 8.3, an extension or waiver pursuant to Section 8.4, or any other approval or consent required or permitted to be given pursuant to this Agreement shall, in order to be effective and in addition to requirements of applicable law, require, in the case of Parent, Sub or the Company, action by its Board of Directors, a duly authorized committee thereof (including, in the case of the Company, the Special Committee), or the duly authorized designee of such Board of Directors or such committee thereof. ARTICLE IX GENERAL PROVISIONS SECTION 9.1. NONSURVIVAL OF REPRESENTATIONS AND WARRANTIES. None of the representations and warranties set forth in of this Agreement or in any instrument delivered pursuant to this Agreement shall survive the Effective Time. This Section 9.1 shall not limit any covenant or agreement of the parties which by its terms contemplates performance after the Effective Time, including, without limitation, Section 6.7. SECTION 9.2. FEES AND EXPENSES. Except as provided otherwise in this Agreement, including, without limitation, in Sections 6.2, 6.11 and 8.2, whether or not the Merger shall be consummated, each party hereto shall pay its own expenses incident to preparing for, entering into and carrying out this Agreement and the consummation of the transactions contemplated hereby. SECTION 9.3. DEFINITIONS. For purposes of this Agreement: (a) "Affiliate" and "Associate" shall have the respective meanings ascribed to such terms in Rule 12b-2 of the General Rules and Regulations under the Exchange Act; and (b) "person" means an individual, corporation, partnership, limited liability company, joint venture, association, trust, unincorporated organization or other entity. SECTION 9.4. NOTICES. All notices, requests, claims, demands and other communications under this Agreement shall be in writing and shall be deemed given when delivered personally or sent by overnight courier (providing proof of delivery) or telecopy to the parties at the following addresses (or at such other address for a party as shall be specified by like notice): 38 (a) if to Parent or Sub, to: NE Restaurant Company, Inc. 80A Turnpike Road Westborough, Massachusetts 01581 Attn: President Telecopy No.: (508) 870-9201 with copies to: Jacobson Partners 595 Madison Avenue New York, New York 10022 Attn: Benjamin Jacobson Telecopy No.: (212) 758-4567 - and - Stroock & Stroock & Lavan LLP 180 Maiden Lane New York, New York 10038 Attn: David L. Finkelman, Esq. Telecopy No.: (212) 806-6006 (b) if to the Company, to: Bertucci's, Inc. 14 Audubon Road Wakefield, Massachusetts 01880 Attn: Board of Directors Telecopy No.: (781) 246-2224 with a copy to: Hutchins, Wheeler & Dittmar A Professional Corporation 101 Federal Street Boston, Massachusetts 02110 Attn: James Westra, Esq. Telecopy No.: (617) 951-1295 SECTION 9.5. INTERPRETATION. When a reference is made in this Agreement to a Section or Schedule, such reference shall be to a Section of, or a Schedule to, this Agreement unless otherwise indicated. The table of contents and headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this 39 Agreement. Whenever the words "include," "includes" or "including" are used in this Agreement, they shall be deemed to be followed by the words "without limitation." SECTION 9.6. COUNTERPARTS. This Agreement may be executed in one or more counterparts, all of which shall be considered one and the same agreement and shall become effective when one or more counterparts have been signed by each of the parties and delivered to the other parties. SECTION 9.7. ENTIRE AGREEMENT; THIRD-PARTY BENEFICIARIES. This Agreement and the other agreements referred to herein constitute the entire agreement, and supersede all prior agreements and understandings, both written and oral, among the parties with respect to the subject matter of this Agreement. This Agreement is not intended to confer upon any person, other than the parties hereto and the third party beneficiaries referred to in the following sentence, any rights or remedies. The parties hereto expressly intend the provisions of Section 6.6 to confer a benefit upon and be enforceable by, as third party beneficiaries of this Agreement, the third persons referred to in, or intended to be benefited by, such provisions. SECTION 9.8. GOVERNING LAW. This Agreement shall be governed by, and construed in accordance with, the laws of the Commonwealth of Massachusetts, regardless of the laws that might otherwise govern under applicable principles of conflicts of laws thereof. SECTION 9.9. ASSIGNMENT. Neither this Agreement nor any of the rights, interests or obligations under this Agreement shall be assigned, in whole or in part, by operation of law or otherwise by any of the parties without the prior written consent of the other parties, and any such assignment that is not consented to shall be null and void, except that Parent may assign this Agreement (i) to any wholly owned subsidiary of Parent or (ii) together with all of the outstanding capital stock of Sub, to an entity organized under the corporate or limited liability laws of a jurisdiction of one of the United States of America, the ownership interests of which entity are substantially identical to the ownership interests of Parent immediately prior to such assignment and which entity specifically and expressly assumes by written agreement the obligations of Parent under this Agreement; in either case so long as such assignment shall not adversely affect the ability of Parent and Sub to secure the Financing described in Section 4.2(d) and without Parent being released from liability hereunder and such transfer or assignment will not relieve Parent or Sub of their obligations under the Offer or prejudice the rights of tendering stockholders to receive payment for Shares validly tendered and accepted for payment pursuant to the Offer. Subject to the preceding sentence, this Agreement will be binding upon, inure to the benefit of, and be enforceable by, the parties and their respective successors and assigns. 40 SECTION 9.10. ENFORCEMENT. The parties agree that irreparable damage would occur in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached. It is accordingly agreed that the parties shall be entitled to an injunction or injunctions to prevent breaches of this Agreement and to enforce specifically (without requirement to post a bond) the terms and provisions of this Agreement, this being in addition to any other remedy to which they are entitled at law or in equity. SECTION 9.11. SEVERABILITY. Whenever possible, each provision or portion of any provision of this Agreement will be interpreted in such manner as to be effective and valid under applicable law but if any provision or portion of any provision of this Agreement is held to be invalid, illegal or unenforceable in any respect under any applicable law or rule in any jurisdiction, such invalidity, illegality or unenforceability will not affect any other provision or portion of any provision in such jurisdiction, and this Agreement will be reformed, construed and enforced in such jurisdiction as if such invalid, illegal or unenforceable provision or portion of any provision had never been contained herein. [Remainder of Page Intentionally Left Blank.] 41 IN WITNESS WHEREOF, the Company, Parent and Sub have caused this Agreement to be executed as an agreement under seal by their respective officers thereunto duly authorized, all as of the date first written above. BERTUCCI'S, INC. By: /s/ Norman S. Mallett ----------------------- Norman S. Mallett, Vice President-Finance, Treasurer and Chief Financial Officer NE RESTAURANT COMPANY, INC. By: /s/ Dennis Pedra ------------------ Dennis Pedra, President By: /s/ Paul Hoagland -------------------- Paul Hoagland, Assistant Treasurer and Chief Financial Officer NERC ACQUISITION CORP. By: /s/ Dennis Pedra ------------------------------------------------ Dennis Pedra, President By: /s/ Paul Hoagland -------------------------------------------------- Paul Hoagland, Assistant Treasurer and Chief Financial Officer 42 ANNEX I The capitalized terms used in this Annex have the meanings set forth in the attached Agreement, except that the term "Merger Agreement" shall be deemed to refer to the attached Agreement. Notwithstanding any other provision of the Offer or the Merger Agreement, Sub shall not be required to accept for payment or, subject to any applicable rules and regulations of the SEC, including Rule 14e-1(c) under the Exchange Act (relating to Sub's obligation to pay for or return tendered Shares after the termination or withdrawal of the Offer), to pay for any Shares, and may terminate the Offer, if (i) the Minimum Condition has not been satisfied, (ii) the applicable waiting period under the HSR Act shall not have expired or been terminated, (iii) the Financing Condition has not been satisfied or (iv) at any time on or after May 13, 1998 and prior to the acceptance for payment of or payment for Shares, any of the following conditions shall occur and be continuing: (a) there shall be instituted or pending any action or proceeding before any domestic court, government or Governmental Entity, other than by Parent or Sub, a stockholder of Parent or Sub or any person affiliated with Parent or Sub, (i) challenging or seeking to make illegal, to delay materially or otherwise to restrain or prohibit the making of the Offer, the acceptance for payment of or payment for some of or all the Shares by Sub or the consummation by Sub of the Merger, (ii) seeking to restrain or prohibit Parent's or the Company's ownership or operation (or that of its respective Subsidiaries or Affiliates) of all or any material portion of the business or assets of the Company and its Subsidiaries, taken as a whole, or of Parent and its Subsidiaries, taken as a whole, (iii) seeking to compel Parent or the Company to sell or otherwise dispose of, or hold separate (through the establishment of a trust or otherwise) any material assets or categories of assets or businesses of any of the Company and its Subsidiaries, taken as a whole, or Parent or any of Parent's Affiliates, taken as a whole, (iv) seeking to prohibit or impose material limitations on the ability of Parent or any of its Subsidiaries or affiliates effectively to exercise full rights of ownership of the Shares (including, without limitation, the right to vote any Shares acquired or owned by Parent or any of its Subsidiaries or affiliates on all matters properly presented to the Company's stockholders), or seeking to prohibit Parent or any of its Subsidiaries from effectively controlling in any material respect the business and operations of the Company and its Subsidiaries, taken as a whole, (v) seeking to require divestiture by Parent or any of its Subsidiaries or affiliates of any Shares or seeking to obtain from the Company, Parent or Sub by reason of any of the transactions contemplated by the Offer or the Merger Agreement any A-1 damages that are material to the Company and its Subsidiaries, taken as a whole, or Parent and its subsidiaries, taken as a whole, or (vi) that otherwise, in the reasonable judgment of Parent, is likely to materially adversely affect the Company and its Subsidiaries, taken as a whole, or Parent and its subsidiaries, taken as a whole, provided that, in any such case, Parent shall have used its best efforts to defeat or have vacated such action or proceeding and shall have failed to do so; or (b) there shall be any action taken, or any statute, rule, regulation, injunction, interpretation, judgment, order or decree enacted, enforced, promulgated, issued or deemed applicable to Parent or any of its Subsidiaries or to the Company or any of its Subsidiaries or the Offer or the Merger, by any court, government or Governmental Entity, other than the application of the waiting period provision of the HSR Act to the Offer or the Merger, and other than a law or regulation relating to the issuance or transfer of any licenses or permits of any licensing board or agency governing the sale of alcoholic beverages, that, in the reasonable judgment of Parent, is likely, directly or indirectly, to result in any of the consequences referred to in clauses (i) through (vi) of paragraph (a) above; or (c) any change, event, occurrence or circumstance shall have occurred in the business, operations, assets or condition (financial or otherwise) of the Company or any of its Subsidiaries, relating to a period commencing after April 18, 1998, that in the reasonable judgment of Parent, is likely to have a Material Adverse Effect on the Company and its Subsidiaries, taken as a whole; or (d) there shall have occurred (i) any general suspension of trading in, or limitation on prices for, securities on the New York Stock Exchange, which suspension or limitation shall continue for at least three consecutive trading days, (ii) any decline in either the Dow Jones Industrial Average or the Standard and Poor's 500 Index by an amount in excess of 25%, measured from May 13, 1998 (iii) a declaration of a banking moratorium or any suspension of payments in respect of banks in the United States, (iv) a commencement of a war or armed hostilities or other national or international calamity directly or indirectly involving the United States which would reasonably be expected to have a material adverse impact on the capital markets of the United States, or (v) in the case of any of the foregoing existing on the date of this Agreement, a material acceleration, escalation or worsening thereof; or (e) the Company shall have breached or failed to perform in any material respect any of its covenants or agreements under the Merger Agreement, or any of the representations and warranties of the Company set forth in the Merger Agreement that are qualified as to materiality shall not be true and correct and any of the representations and warranties without such A-2 qualification shall not be true and correct in any material respect, in each case when made, except, in the case of any such breach, where such breach would not have, individually or in the aggregate, a Material Adverse Effect or materially and adversely affect the Financing described in Section 4.2(d) or the ability of Parent and Sub to consummate the Offer and the Merger,; or (f) the Merger Agreement shall have been terminated in accordance with its terms; or (g) any Third Party (other than Joseph Crugnale or "Permitted Transferees" under the Tender and Voting Agreement) acquires beneficial ownership of 15% or more of the outstanding Shares; or (h) a tender offer or exchange offer for more than 33 1/3% of the Shares shall have been made or publicly proposed by a Third Party for a price in excess of the Merger Consideration; or (i) the Board of Directors of the Company withdraws or modifies in a manner adverse to Sub or Parent its approval or recommendation of the Offer, this Agreement or the Merger or recommends or approves an Acquisition Proposal by a Third Party; which, in the reasonable judgment of Parent, in any such case, and regardless of the circumstances giving rise to any such condition, makes it inadvisable to proceed with the Offer and/or with such acceptance for payment or payments. The foregoing conditions are for the sole benefit of Parent and Sub and may be asserted by Sub regardless of the circumstances giving rise to such condition or may be waived by Sub in whole or in part at any time and from time to time in its sole discretion. The failure by Sub or any Affiliate of Sub at any time to exercise any of the foregoing rights shall not be deemed a waiver of any such right, the waiver of any such right with respect to particular facts and circumstances shall not be deemed a waiver with respect to any other facts and circumstances and each such right shall be deemed an ongoing right that may be asserted at any time and from time to time. A-3 EX-3.1 3 CERTIFICATE OF INCORPORATION OF NERCO EXHIBIT 3.1 STATE OF DELAWARE SECRETARY OF STATE DIVISION OF CORPORATIONS FILED 04:00 pm 01/26/1994 944008593 - 2371641 CERTIFICATE OF INCORPORATION ---------------------------- OF -- NE RESTAURANT COMPANY, INC. --------------------------- The undersigned, a natural person, for the purposes of organizing a corporation for conducting the business and promoting the purposes hereinafter stated, under the provisions and subject to the requirements of the laws of the State of Delaware (particularly Chapter 1, Title 8 of the Delaware Code and the acts amendatory thereof and supplemental thereto, and generally known as the "General Corporation Law of the State of Delaware"), hereby certifies that: FIRST: The name of the corporation (hereinafter called the "Corporation") ----- is NE Restaurant Company, Inc. SECOND: The address, including street, number, city, and county, of the ------ registered office of the Corporation in the State of Delaware is 32 Loockerman Square, Suite L-100, Dover, County of Kent; and the name of the registered agent of the Corporation in the State of Delaware at such address is The Prentice-Hall Corporation System, Inc. THIRD: The nature of the business and the purposes to be conducted and ----- promoted by the Corporation, shall be any lawful business, to promote any lawful purpose, and to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware. FOURTH: The total number of shares of stock which the Corporation shall ------ have authority to issue is 4,000,000 shares of Common Stock, $.01 par value. FIFTH: The name and the mailing address of the incorporator is as follows: ----- NAME ADDRESS ---- ------- Philip J. Flink c/o Brown, Rudnick, Freed & Gesmer, P.C. One Financial Center Boston, MA 02111 SIXTH: The name and the mailing address of the directors of the ----- Corporation, each of whom shall serve until the first annual meeting of shareholders and until his or her successor is elected and qualified, are as follows: NAME ADDRESS ---- ------- Benjamin Jacobson Jacobson Partners, L.P. 625 Madison Avenue, Suite 10B New York, NY 10022 Dennis Pedra NE Restaurant Company, Inc. 300 Pond Street Randolph, MA 02138 Paul Hoagland NE Restaurant Company, Inc. 300 Pond Street Randolph, MA 02138 SEVENTH: The Corporation shall have perpetual existence. ------- EIGHTH: Whenever a compromise or arrangement is proposed between this ------ Corporation and its creditors or any class of them and/or between this Corporation and its stockholders or any class of them, any court of equitable jurisdiction within the State of Delaware may, on the application in a summary way of this Corporation or of any creditor or stockholder thereof or on the application of any receiver or receivers appointed for this Corporation under the provisions of Section 291 of Title 8 of the Delaware Code or on the application of trustees in dissolution or of any receiver or receivers appointed for this Corporation under the provisions of Section 279 of Title 8 of the Delaware Code order a meeting of the creditors or class of creditors, and/or of the stockholders or class of stockholders of this Corporation, as the case may be, to be summoned in such manner as the said court directs. If a majority in number representing three-fourths in value of the creditors or class of creditors, and/or of the stockholders or class of stockholders of this Corporation, as the case may be, agree to any compromise or arrangement and to any reorganization of this Corporation as a consequence of such compromise or arrangement, the said compromise or arrangement and the said reorganization shall, if sanctioned by the court to which the said application has been made, be binding on all the creditors or class of creditors, and/or on all the stockholders or class of stockholders, of this Corporation, as the case may be, and also on this Corporation. NINTH: For the management of the business and for the conduct of the ----- affairs of the Corporation, and in further definition, limitation and regulation of the powers of the Corporation and of its directors and of its stockholders or any class thereof, as the case may be, it is further provided that: 1. The business of the Corporation shall be conducted by the officers of the Corporation under the supervision of the Board of Directors. 2. The number of directors which shall constitute the whole Board of Directors shall be fixed by, or in the manner provided in, the By-Laws. No election of Directors need be by written ballot. - 2 - 3. The Board of Directors of the Corporation may adopt, amend or repeal the By-Laws of the Corporation at any time after the original adoption of the By-Laws according to Section 109 of the General Corporation Law of the State of Delaware; provided, however, that any amendment to provide for the classification of directors of the Corporation for staggered terms pursuant to the provisions of subsection (d) of Section 141 of the General Corporation Law of the State of Delaware shall be set forth in an amendment to this Certificate of Incorporation, in an initial By-Law, or in a By-Law adopted by the stockholders of the Corporation entitled to vote. TENTH: (a) The Corporation may, to the fullest extent permitted by ----- Section 145 of the General Corporation Law of the State of Delaware, as the same may be amended and supplemented, indemnify any and all persons whom it shall have power to indemnify under said section from and against any and all of the expenses, liabilities or other matters referred to in or covered by said section, and the indemnification provided for herein shall not be deemed exclusive of any other rights to which a person indemnified may be entitled under any By-Law, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office, and shall continue as to a person who has ceased to be director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such a person. (b) No director shall be personally liable to the Corporation or its stockholders for monetary damages for any breach of fiduciary duty by such director as a director. Notwithstanding the foregoing sentence, a director shall be liable to the extent provided by applicable law (i) for breach of the director's duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) pursuant to Section 174 of the Delaware General Corporation Law or (iv) for any transaction from which the director derived an improper personal benefit. No amendment to or repeal of this paragraph (b) of this Article Tenth shall apply to or have any effect on the liability or alleged liability of any director of the Corporation for or with respect to any acts or omissions of such Director occurring prior to such amendment. ELEVENTH: From time to time any of the provisions of this Certificate of -------- Incorporation may be amended, altered or repealed, and other provisions authorized by the laws of the State of Delaware at the time in force may be added or inserted in the manner and at the time prescribed by said laws, and all rights at any time conferred upon the stockholders of the Corporation by this Certificate of Incorporation are granted subject to the provisions of this Article Eleventh. Signed on the 26th day of January, 1994. /s/ Philip J. Flink -------------------------------- Philip J. Flink, Incorporator - 3 - EX-3.2 4 CERTIFICATE OF AMENDMENT OF CERTIF OF INCORP DATED 8/1/98 EXHIBIT 3.2 CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION NE RESTAURANT COMPANY, INC. NE Restaurant Company, Inc., a corporation organized and existing under the laws of the State of Delaware (the "Corporation"), pursuant to Section 242 of the Delaware General Corporation Law, hereby certifies as follows: 1. The Board of Directors of the Corporation, by unanimous written consent dated as of April 15, 1998, duly adopted the following resolutions in accordance with the provisions of Sections 141 and 242 of the Delaware General Corporation Law: RESOLVED: That it is hereby declared advisable that Article Fourth of other - -------- Certificate of Incorporation of the Corporation be amended by amending Article Fourth to read in its entirety as follows: "The total number of shares of stock which the corporation shall have authority to issue is 8,000,000 shares of Common Stock, $.01 par value." RESOLVED: That such amendment, and the filing of a Certificate of Amendment - -------- evidencing the same, be submitted to the stockholders for their approval by action by written consent. 2. The foregoing amendment to the Certificate of Incorporation was duly adopted by a majority of the stockholders of the Corporation by written consent given in accordance with Section 228 of the Delaware General Corporation Law pursuant to the provisions of Section 242 of the General Corporation Law of Delaware on April 23, 1998, and written notice of the adoption of this amendment to the Certificate of Incorporation has been given as provided in Section 228 of the Delaware Corporation Law to every stockholder entitled to such notice. IN WITNESS WHEREOF, NE Restaurant Company, Inc. has caused this Certificate of Amendment of its Certificate of Incorporation to be signed by Dennis Pedra, its President, and attested to by Carl Axelrod, its Security, this 1st day of August, 1998. NE RESTAURANT COMPANY, INC. By: /s/ Dennis Pedra -------------------- Dennis Pedra, President ATTEST: By: /s/ Carl Axelrod ----------------------- Carl Axelrod, Secretary ACKNOWLEDGMENT Commonwealth of Massachusetts) ) County of ) On this 1st day of August, 1998, before me appeared Dennis Pedra, to me personally known, who, being by me duly sworn, did say that he is the President of NE Restaurant Company, Inc., that said instrument was executed on behalf of said corporation by authority of its board of directors, that the facts stated therein are true, and said officer acknowledged such instrument to be the free act and deed of the corporation. [NOTARY SEAL] Roberta D. Nicoletta____________________ Notary Public Date Commission Expires: April 27, 2000 EX-3.3 5 CERTIFICATE OF AMENDMENT OF CERTIF OF INCORP DATED 8/20/98 EXHIBIT 3.3 CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION NE RESTAURANT COMPANY, INC. NE Restaurant Company, Inc., a corporation organized and existing under the laws of the State of Delaware (the "Corporation"), pursuant to Section 242 of the Delaware General Corporation Law, hereby certifies as follows: 1. The Board of Directors of the Corporation, by unanimous written consent dated as of August 1, 1998, duly adopted the following resolutions in accordance with the provisions of Sections 141 and 242 of the Delaware General Corporation Law: RESOLVED: That Article Eighth of the Company's Certificate of Incorporation be - -------- amended and restated in its entirety to read as follows: "INTENTIONALLY LEFT BLANK." RESOLVED: That such amendment, and the filing of a Certificate of Amendment - -------- evidencing the same, be submitted to the stockholders for their approval by action by written consent. 2. The foregoing amendment to the Certificate of Incorporation was duly adopted by a majority of the stockholders of the Corporation by written consent given in accordance with Section 228 of the Delaware General Corporation Law pursuant to the provisions of Section 242 of the General Corporation Law of Delaware as of August 1, 1999, and written notice of the adoption of this amendment to the Certificate of Incorporation has been given as provided in Section 228 of the Delaware General Corporation Law to every stockholder entitled to such notice. IN WITNESS WHEREOF, NE Restaurant Company, Inc. has caused this Certificate of Amendment of its Certificate of Incorporation to be signed by Dennis Pedra, its President, and attested to by Carl Axelrod, its Secretary, this 20th day of August, 1998. NE RESTAURANT COMPANY, INC. By: /s/ Dennis Pedra ----------------------------- Dennis Pedra, President ATTEST: By: /s/ Carl Axelrod ----------------------- Carl Axelrod, Secretary ACKNOWLEDGMENT Commonwealth of Massachusetts) ) County of ) On this 20th day of August, 1998, before me appeared Dennis Pedra, to me personally known, who, being by me duly sworn, did say that he is the President of NE Restaurant Company, Inc., that said instrument was executed on behalf of said corporation by authority of its board of directors, that the facts stated therein are true, and said officer acknowledged such instrument to be the free act and deed of the corporation. [NOTARY SEAL] /s/ Roberta D. Nicoletta ---------------------------- Notary Public Date Commission Expires: April 27, 2001 2 EX-3.4 6 BY-LAWS OF NERCO EXHIBIT 3.4 BY-LAWS of NE RESTAURANT COMPANY, INC. A Delaware Corporation Adopted: January 27, 1994 ---------------- Date /s/ Carl E. Axelrod --------------------- Secretary BY-LAWS ------- TABLE OF CONTENTS -----------------
Page ---- ARTICLE I. STOCKHOLDERS.............................................................................1 Section 1.1. Annual Meeting...........................................................................1 Section 1.2. Special Meetings.........................................................................1 Section 1.3. Notice of Meeting........................................................................1 Section 1.4. Quorum...................................................................................2 Section 1.5. Voting and Proxies.......................................................................2 Section 1.6. Action at Meeting........................................................................2 Section 1.7. Action Without Meeting...................................................................2 Section 1.8. Voting of Shares of Certain Holders......................................................2 Section 1.9. Stockholder Lists........................................................................3 ARTICLE II. Board of Directors.......................................................................3 Section 2.1. Powers...................................................................................3 Section 2.2. Number of Directors; Qualifications......................................................4 Section 2.3. Nomination of Directors..................................................................4 Section 2.4. Election of Directors....................................................................4 Section 2.5. Vacancies; Reduction of the Board........................................................4 Section 2.6. Enlargement of the Board.................................................................4 Section 2.7. Tenure and Resignation...................................................................5 Section 2.8. Removal..................................................................................5 Section 2.9. Meetings.................................................................................5 Section 2.10. Notice of Meeting........................................................................5 Section 2.11. Agenda...................................................................................5 Section 2.12. Quorum...................................................................................6 Section 2.13. Action at Meeting........................................................................6 Section 2.14. Action Without Meeting...................................................................6 Section 2.15. Committees...............................................................................6 ARTICLE III. OFFICERS.................................................................................6 Section 3.1. Enumeration..............................................................................6 Section 3.2. Election.................................................................................7 Section 3.3. Qualification............................................................................7 Section 3.4. Tenure...................................................................................7 Section 3.5. Removal..................................................................................7 Section 3.6. Resignation..............................................................................7 Section 3.7. Vacancies................................................................................7
-i- Section 3.8. Chairman of the Board....................................................................7 Section 3.9. President................................................................................7 Section 3.10. Vice-President(s)........................................................................7 Section 3.11. Treasurer and Assistant Treasurers.......................................................8 Section 3.12. Secretary and Assistant Secretaries......................................................8 Section 3.13. Other Powers and Duties..................................................................8 ARTICLE IV. CAPITAL STOCK............................................................................8 Section 4.1. Stock Certificates.......................................................................9 Section 4.2. Transfer of Shares.......................................................................9 Section 4.3. Record Holders...........................................................................9 Section 4.4. Record Date..............................................................................9 Section 4.5. Transfer Agent and Registrar for Shares of Corporation..................................10 Section 4.6. Loss of Certificates....................................................................10 Section 4.7. Restrictions on Transfer................................................................10 Section 4.8. Multiple Classes of Stock...............................................................10 ARTICLE V. DIVIDENDS...............................................................................11 Section 5.1. Declaration of Dividends................................................................11 Section 5.2. Reserves................................................................................11 ARTICLE VI. POWERS OF OFFICERS TO CONTRACT WITH THE CORPORATION...........................................................................11 ARTICLE VII. INDEMNIFICATION.........................................................................12 Section 7.1. Definitions.............................................................................12 Section 7.2. Right to Indemnification in General.....................................................13 Section 7.3. Proceedings Other Than Proceedings by or in the Right of the Corporation...........................................................................14 Section 7.4. Proceedings by or in the Right of the Corporation.......................................14 Section 7.5. Indemnification of a Party Who is Wholly or Partly Successful...........................14 Section 7.6. Indemnification for Expenses of a Witness...............................................15 Section 7.7. Advancement of Expenses.................................................................15 Section 7.8. Notification and Defense of Claim.......................................................15 Section 7.9. Procedures..............................................................................16 Section 7.10. Action by the Corporation...............................................................17 Section 7.11. Non-Exclusivity.........................................................................17 Section 7.12. Insurance...............................................................................17 Section 7.13. No Duplicative Payment..................................................................17 Section 7.14. Expenses of Adjudication................................................................18 Section 7.15. Severability............................................................................18
-ii- ARTICLE VIII. MISCELLANEOUS PROVISIONS................................................................18 Section 8.1. Certificate of Incorporation............................................................18 Section 8.2. Fiscal Year.............................................................................18 Section 8.3. Corporate Seal..........................................................................18 Section 8.4. Execution of Instruments................................................................18 Section 8.5. Voting of Securities....................................................................19 Section 8.6. Evidence of Authority...................................................................19 Section 8.7. Corporate Records.......................................................................19 Section 8.8. Charitable Contributions................................................................19 ARTICLE IX. AMENDMENTS..............................................................................19 Section 9.1. Amendment by Stockholders...............................................................19 Section 9.2. Amendment by Board of Directors.........................................................20
-iii- BY-LAWS OF NE RESTAURANT COMPANY, INC. -------------------------- (A Delaware Corporation) ARTICLE I. --------- Stockholders ------------ Section 1.1. Annual Meeting. The annual meeting of the stockholders of ----------- -------------- the corporation shall be held on the third Wednesday in March of each year, at such time and place within or without the State of Delaware as may be designated in the notice of meeting. If the day fixed for the annual meeting shall fall on a legal holiday, the meeting shall be held on the next succeeding day not a legal holiday. If the annual meeting is omitted on the day herein provided, a special meeting may be held in place thereof, and any business transacted at such special meeting in lieu of annual meeting shall have the same effect as if transacted or held at the annual meeting. Section 1.2. Special Meetings. Special meetings of the stockholders ----------- ---------------- may be called at any time by the chairman of the board, the president or by the board of directors. Special meetings of the stockholders shall be held at such time, date and place within or outside of the State of Delaware as may be designated in the notice of such meeting. Section 1.3. Notice of Meeting. A written notice stating the place, ----------- ----------------- date, and hour of each meeting of the stockholders, and, in the case of a special meeting, the purposes for which the meeting is called, shall be given to each stockholder entitled to vote at such meeting, and to each stockholder who, under the Certificate of Incorporation or these By-laws, is entitled to such notice, by delivering such notice to such person or leaving it at their residence or usual place of business, or by mailing it, postage prepaid, and addressed to such stockholder at his address as it appears upon the books of the corporation, at least ten (10) days and not more than sixty (60) before the meeting. Such notice shall be given by the secretary, an assistant secretary, or any other officer or person designated either by the secretary or by the person or persons calling the meeting. The requirement of notice to any stockholder may be waived (i) by a written waiver of notice, executed before or after the meeting by the stockholder or his attorney thereunto duly authorized, and filed with the records of the meeting, (ii) if communication with such stockholder is unlawful, (iii) by attendance at the meeting without protesting prior thereto or at its commencement the lack of notice, or (iv) as otherwise excepted by law. A waiver of notice of any regular or special meeting of the stockholders need not specify the purposes of the meeting. If a meeting is adjourned to another time or place, notice need not be given of the adjourned meeting if the time and place are announced at the meeting at which the adjournment -1- is taken, except that if the adjournment is for more than thirty days, or if after the adjournment a new record date is fixed for the adjourned meeting, notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. Section 1.4. Quorum. The holders of a majority in interest of all ----------- ------ stock issued, outstanding and entitled to vote at a meeting shall constitute a quorum. Any meeting may be adjourned from time to time by a majority of the votes properly cast upon the question, whether or not a quorum is present. Section 1.5. Voting and Proxies. Stockholders shall have one vote for ----------- ------------------ each share of stock entitled to vote owned by them of record according to the books of the corporation, unless otherwise provided by law or by the Certificate of Incorporation. Stockholders may vote either in person or by written proxy, but no proxy shall be voted or acted upon after three years from its date, unless the proxy provides for a longer period. Proxies shall be filed with the secretary of the meeting, or of any adjournment thereof. Except as otherwise limited therein, proxies shall entitle the persons authorized thereby to vote at any adjournment of such meeting. A proxy purporting to be executed by or on behalf of a stockholder shall be deemed valid unless challenged at or prior to its exercise and the burden of proving invalidity shall rest on the challenger. A proxy with respect to stock held in the name of two or more persons shall be valid if executed by one of them unless at or prior to exercise of the proxy the corporation receives a specific written notice to the contrary from any one of them. Section 1.6. Action at Meeting. When a quorum is present at any ----------- ----------------- meeting, a plurality of the votes properly cast for election to any office shall elect to such office, and a majority of the votes properly cast upon any question other than election to an office shall decide such question, except where a larger vote is required by law, the Certificate of Incorporation or these by-laws. No ballot shall be required for any election unless requested by a stockholder present or represented at the meeting and entitled to vote in the election. Section 1.7. Action Without Meeting. Any action required or permitted ----------- ---------------------- to be taken at any meeting of the stockholders may be taken without a meeting without prior notice and without a vote, if a consent or consents in writing, setting forth the action so taken, shall be signed by the holders of the minimum number of votes necessary to authorize or take such action at a meeting at which shares entitled to vote thereon were present and voted and copies are delivered to the corporation in the manner prescribed by law. Section 1.8. Voting of Shares of Certain Holders. Shares of stock of ----------- ----------------------------------- the corporation standing in the name of another corporation, domestic or foreign, may be voted by such officer, agent, or proxy as the by-laws of such corporation may prescribe, or, in the absence of such provision, as the board of directors of such corporation may determine. Shares of stock of the corporation standing in the name of a deceased person, a minor ward or an incompetent person, may be voted by his administrator, executor, court-appointed guardian or conservator without a transfer of such shares into the name of such administrator, -2- executor, court appointed guardian or conservator. Shares of capital stock of the corporation standing in the name of a trustee or fiduciary may be voted by such trustee or fiduciary. Shares of stock of the corporation standing in the name of a receiver may be voted by such receiver, and shares held by or under the control of a receiver may be voted by such receiver without the transfer thereof into his name if authority so to do be contained in an appropriate order of the court by which such receiver was appointed. A stockholder whose shares are pledged shall be entitled to vote such shares unless in the transfer by the pledgor on the books of the corporation he expressly empowered the pledgee to vote thereon, in which case only the pledgee or its proxy shall be entitled to vote the shares so transferred. Shares of its own stock belonging to this corporation shall not be voted, directly or indirectly, at any meeting and shall not be counted in determining the total number of outstanding shares at any given time, but shares of its own stock held by the corporation in a fiduciary capacity may be- voted and shall be counted in determining the total number of outstanding shares. Section 1.9. Stockholder Lists. The secretary (or the corporation's ----------- ----------------- transfer agent or other person authorized by these By-laws or by law) shall prepare and make, at least ten days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. ARTICLE II. ---------- Board of Directors ------------------ Section 2.1. Powers. Except as reserved to the stockholders by law, by ----------- ------ the Certificate of Incorporation or by these By-laws, the business of the corporation shall be managed under the direction of the board of directors, who shall have and may exercise all of the powers of the corporation. In particular, and without limiting the foregoing, the board of directors shall have the power to issue or reserve for issuance from time to time the whole or any part of the capital stock of the corporation which may be authorized from time to time to such person, for such consideration and upon such terms and conditions as they shall determine, including the granting of options, warrants or conversion or other rights to stock. -3- Section 2.2. Number of Directors; Qualifications. The board of ----------- ----------------------------------- directors shall consist of such number of directors, not less than two nor more than eleven, as shall be fixed initially by the incorporator and thereafter by the board of directors. No director need be a stockholder. Section 2.3. Nomination of Directors. ----------- ----------------------- (a) Nominations for the election of directors may be made by the board of directors or by any stockholder entitled to vote for the election of directors. Nominations by stockholders shall be made by notice in writing, delivered or mailed by first class United States mail, postage prepaid, to the secretary of the corporation not less than 14 days nor more than 60 days prior to any meeting of the stockholders called for the election of directors; provided, however, that if less than 21 written days' notice of the meeting is given to stockholders, such notice of nomination by a stockholder shall be delivered or mailed, in the manner prescribed above, to the secretary of the corporation not later than the close of the fifth day following the day on which notice of the meeting was mailed to stockholders. (b) Each notice under subsection (a) shall set forth (i) the name, age, business address and, if known, residence address of each nominee proposed in such notice, (ii) the principal occupation or employment of each such nominee, and (iii) the number of shares of stock of the corporation which are beneficially owned by each such nominee. (c) The chairman of the meeting of stockholders shall determine whether or not a nomination was made in accordance with the procedures of this Section 2.3, and if he shall determine that it was not, he shall so declare to the meeting and the defective nomination shall be disregarded. Section 2.4. Election of Directors. The initial board of directors ----------- --------------------- shall be designated in the certificate of incorporation, or if not so designated, elected by the incorporator(s) at the first meeting thereof. Thereafter, directors shall be elected by the stockholders at their annual meeting or at any special meeting the notice of which specifies the election of directors as an item of business for such meeting. Section 2.5. Vacancies; Reduction of the Board. Any vacancy in the ----------- --------------------------------- board of directors, however occurring, including a vacancy resulting from the enlargement of the board of directors, may be filled by the stockholders or by the directors then in office or by a sole remaining director. In lieu of filling any such vacancy the stockholders or board of directors may reduce the number of directors, but not to a number less than two. When one or more directors shall resign from the board of directors, effective at a future date, a majority of the directors then in office, including those who have so resigned, shall have power to fill such vacancy or vacancies, the vote thereon to take effect when such resignation or resignations shall become effective. Section 2.6. Enlargement of the Board. The board of directors may be ----------- ------------------------ enlarged by the stockholders at any meeting or by vote of a majority of the directors then in office. -4- Section 2.7. Tenure and Resignation. Except as otherwise provided by ----------- ---------------------- law, by the Certificate of Incorporation or by these By-laws, directors shall hold office until the next annual meeting of stockholders and thereafter until their successors are chosen and qualified. Any director may resign by delivering or mailing postage prepaid a written resignation to the corporation at its principal office or to the chairman of the board, president, secretary or assistant secretary, if any. Such resignation shall be effective upon receipt unless it is specified to be effective at some other time or upon the happening of some other event. Section 2.8. Removal. A director, whether elected by the stockholders ----------- ------- or directors, may be removed from office with or without cause at any annual or special meeting of stockholders by vote of a majority of the stockholders entitled to vote in the election of such directors, or for cause by a vote of a majority of the directors then in office; provided, however, that a director may be removed for cause only after reasonable notice and opportunity to be heard before the body proposing to remove him. Section 2.9. Meetings. Regular meetings of the board of directors may ----------- -------- be held without call or notice at such times and such places within or without the State of Delaware as the board may, from time to time, determine, provided that notice of the first regular meeting following any such determination shall be given to directors absent from such determination. A regular meeting of the board of directors shall be held without notice immediately after, and at the same place as, the annual meeting of the stockholders or the special meeting of the stockholders held in place of such annual meeting, unless a quorum of the directors is not then present. Special meetings of the board of directors may be held at any time and at any place designated in the call of the meeting when called by the chairman of the board, president, treasurer, or one or more directors. Members of the board of directors or any committee elected thereby may participate in a meeting of such board or committee by means of a conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other at the same time, and participation by such means shall constitute presence in person at the meeting. Section 2.10. Notice of Meeting. It shall be sufficient notice to a ------------ ----------------- director to send notice by mail at least seventy-two (72) hours before the meeting addressed to such person at his usual or last known business or residence address or to give notice to such person in person or by telephone at least twenty-four (24) hours before the meeting. Notice shall be given by the secretary, or in his absence or unavailability, may be given by an assistant secretary, if any, or by the officer or directors calling the meeting. The requirement of notice to any director may be waived by a written waiver of notice, executed by such person before or after the meeting or meetings, and filed with the records of the meeting, or by attendance at the meeting without protesting prior thereto or at its commencement the lack of notice. A notice or waiver of notice of a directors' meeting need not specify the purposes of the meeting. Section 2.11. Agenda. Any lawful business may be transacted at a ------------ ------ meeting of the board of directors, notwithstanding the fact that the nature of the business may not have been specified in the notice or waiver of notice of the meeting. -5- Section 2.12. Quorum. At any meeting of the board of directors, a ------------ ------ majority of the directors then in office shall constitute a quorum for the transaction of business. Any meeting may be adjourned by a majority of the votes cast upon the question, whether or not a quorum is present, and the meeting may be held as adjourned without further notice. Section 2.13. Action at Meeting. Any motion adopted by vote of the ------------ ----------------- majority of the directors present at a meeting at which a quorum is present shall be the act of the board of directors, except where a different vote is required by law, by the Certificate of Incorporation or by these By-laws. The assent in writing of any director to any vote or action of the directors taken at any meeting, whether or not a quorum was present and whether or not the director had or waived notice of the meeting, shall have the same effect as if the director so assenting was present at such meeting and voted in favor of such vote or action. Section 2.14. Action Without Meeting. Any action by the directors may ------------ ---------------------- be taken without a meeting if all of the directors consent to the action in writing and the consents are filed with the records of the directors' meetings. Such consent shall be treated for all purposes as a vote of the directors at a meeting. Section 2.15. Committees. The board of directors may, by the ------------ ---------- affirmative vote of a majority of the directors then in office, appoint an executive committee or other committees consisting of one or more directors and may by vote delegate to any such committee some or all of their powers except those which by law, the Certificate of Incorporation or these By-laws they may not delegate. In the absence or disqualification of a member of a committee, the members of the committee present and not disqualified, whether or not they constitute a quorum, may by unanimous vote appoint another member of the board of directors to act at the meeting in place of the absence or disqualified member. Unless the board of directors shall otherwise provide, any such committee may make rules for the conduct of its business, but unless otherwise provided by the board of directors or such rules, its meetings shall be called, notice given or waived, its business conducted or its action taken as nearly as may be in the same manner as is provided in these By-laws with respect to meetings or for the conduct of business or the taking of actions by the board of directors. The board of directors shall have power at any time to fill vacancies in, change the membership of, or discharge any such committee at any time. The board of directors shall have power to rescind any action of any committee, but no such rescission shall have retroactive effect. ARTICLE III ----------- Officers -------- Section 3.1. Enumeration. The officers shall consist of a chairman of ----------- ----------- the board, president, a treasurer, a secretary and such other officers and agents (including one or more vice-presidents, assistant treasurers and assistant secretaries), as the board of directors may, in their discretion, determine. -6- Section 3.2. Election. The chairman of the board, president, treasurer ----------- -------- and secretary shall be elected annually by the directors at their first meeting following the annual meeting of the stockholders or any special meeting held in lieu of the annual meeting. Other officers may be chosen by the directors at such meeting or at any other meeting. Section 3.3. Qualification. An officer may, but need not, be a ----------- ------------- director or stockholder. Any two or more offices may be held by the same person. Any officer may be required by the directors to give bond for the faithful performance of his duties to the corporation in such amount and with such sureties as the directors may determine. The premiums for such bonds may be paid by the corporation. Section 3.4. Tenure. Except as otherwise provided by the Certificate ----------- ------ of Incorporation or theseBy-laws, the term of office of each officer shall be for one year or until his successor is elected and qualified or until his earlier resignation or removal. Section 3.5. Removal. Any officer may be removed from office, with or ----------- ------- without cause, by the affirmative vote of a majority of the directors then in office; provided, however, that an officer may be removed for cause only after reasonable notice and opportunity to be heard by the board of directors prior to Action thereon. Section 3.6. Resignation. Any officer may resign by delivering or ----------- ----------- mailing postage prepaid a written resignation to the corporation at its principal office or to the chairman of the board, president, secretary, or assistant secretary, if any, and such resignation shall be effective upon receipt unless it is specified to be effective at some other time or upon the happening of some event. Section 3.7. Vacancies. A vacancy in any office arising from any ------------ --------- cause may be filled for the unexpired portion of the term by the board of directors. Section 3.8. Chairman of the Board. The chairman of the board shall be ----------- --------------------- the chief executive officer of the corporation. Except as otherwise voted by the board or directors, the chairman of the board shall preside at all meetings of the stockholders and of the board of directors at which present. The chairman of the board shall have such duties and powers as are commonly incident to the office of chief executive officer and such duties and powers as the board of directors shall from time to time designate. Section 3.9. President. The president shall be the chief operating ----------- --------- officer of the corporation. Except as otherwise voted by the board of directors, the president shall preside at all meetings of the stockholders and of the board of directors at which present. The president shall have such duties and powers as are commonly incident to the office and such duties and powers as the board of directors shall from time to time designate. Section 3.10. Vice-President(s). The vice-president(s), if .any, ------------ ----------------- shall have such powers and perform such duties as the board of directors may from time to time determine. -7- Section 3.11. Treasurer and Assistant Treasurers. The treasurer, ------------ ---------------------------------- subject to the direction and under the supervision and control of the board of directors, shall have general charge of the financial affairs of the corporation. The treasurer shall have custody of all funds, securities and valuable papers of the corporation, except as the board of directors may otherwise provide. The treasurer shall keep or cause to be kept full and accurate records of account which shall be the property of the corporation, and which shall be always open to the inspection of each elected officer and director of the corporation. The treasurer shall deposit or cause to be deposited all funds of the corporation in such depository or depositories as may be authorized by the board of directors. The treasurer shall have the power to endorse for deposit or collection all notes, checks, drafts, and other negotiable instruments payable to the corporation. The treasurer shall perform such other duties as are incidental to the office, and such other duties as may be assigned by the board of directors. Assistant treasurers, if any, shall have such powers and perform such duties as the board of directors may from time to time determine. Section 3.12. Secretary and Assistant Secretaries. The secretary shall ------------ ----------------------------------- record, or cause to be recorded, all proceedings of the meetings of the stockholders and directors (including committees thereof) in the book of records of this corporation. The record books shall be open at reasonable times to the inspection of any stockholder, director, or officer. The secretary shall notify the stockholders and directors, when required by law or by these By-laws, of their respective meetings, and shall perform such other duties as the directors and stockholders may from time to time prescribe. The secretary shall have the custody and charge of the corporate seal, and shall affix the seal of the corporation to all instruments requiring such seal, and shall certify under the corporate seal the proceedings of the directors and of the stockholders, when required. In the absence of the secretary at any such meeting, a temporary secretary shall be chosen who shall record the proceedings of the meeting in the aforesaid books. Assistant secretaries, if any, shall have such powers and perform such duties as the board of directors may from time to time designate. Section 3.13. Other Powers and Duties. Subject to these By-laws and to ------------ ----------------------- such limitations as the board of directors may from time to time prescribe, the officers of the corporation shall each have such powers and duties as generally pertain to their respective offices, as well as such powers and duties as from time to time may be conferred by the board of directors. ARTICLE IV ---------- Capital Stock ------------- Section 4.1. Stock Certificates. Each stockholder shall be entitled to ----------- ------------------ a certificate representing the number of shares of the capital stock of the corporation owned by such person in such form as shall, in conformity to law, be prescribed from time to time by the board of directors. Each certificate shall be signed by the president or vice-president and treasurer or assistant treasurer or such other officers designated by the board of directors from time to time as permitted by law, shall bear the seal of the corporation, and shall express on its face its number, date of issue, class, the number of shares for which, and the name of the person to whom, it is -8- issued. The corporate seal and any or all of the signatures of corporation officers may be facsimile if the stock certificate is manually counter-signed by an authorized person on behalf of a transfer agent or registrar other than the corporation or its employee. If an officer, transfer agent or registrar who has signed, or whose facsimile signature has been placed on, a certificate shall have ceased to be such before the certificate is issued, it may be issued by the corporation with the same effect as if he were such officer, transfer agent or registrar at the time of its issue. Section 4.2. Transfer of Shares. Title to a certificate of stock and ----------- ------------------ to the shares represented thereby shall be transferred only on the books of the corporation by delivery to the corporation or its transfer agent of the certificate properly endorsed, or by delivery of the certificate accompanied by a written assignment of the same, or a properly executed written power of attorney to sell, assign or transfer the same or the shares represented thereby. Upon surrender of a certificate for the shares being transferred, a new certificate or certificates shall be issued according to the interests of the parties. Section 4.3. Record Holders. Except as otherwise may -be required by ----------- -------------- law, by Certificate of Incorporation or by these By-laws, the corporation shall be entitled to treat the record hold of stock as shown on its books as the owner of such stock for all purposes, including the payment of dividends and the right to vote with respect thereto, regardless of any transfer, pledge or other disposition of such stock, until the shares have been transferred on the books of the corporation in accordance with the requirements of these By-laws. It shall be the duty of each stockholder to notify corporation of his post office address. Section 4.4. Record Date. In order that the corporation may determine ----------- ----------- the stockholders entitled to receive notice of or to vote at any meeting of stockholders or any adjournments thereof, or to express consent to corporate action in writing without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the board of directors may fix, in advance, a record date, which shall not be more than sixty days prior to any other action. In such case only stockholders of record on such record date shall be so entitled notwithstanding any transfer of stock on the books of the corporation after the record date. If no record date is fixed: (i) the record date for determining stockholders entitled to receive notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held; (ii) the record date for determining stockholders entitled to express consent to corporate action in writing without a meeting, when no prior action by the board of directors is necessary, shall be the day on which the first written consent is expressed; and (iii) the record date for determining stockholders for any other purpose shall be at the close of business on the day on which the board of directors adopts the resolution relating thereto. -9- Section 4.5. Transfer Agent and Registrar for Shares of Corporation. ----------- ------------------------------------------------------ The board of directors may appoint a transfer agent and a registrar of the certificates of stock of the corporation. Any transfer agent so appointed shall maintain, among other records, a stockholders' ledger, setting forth the names and addresses of the holders of all issued shares of stock of the corporation, the number of shares held by each, the certificate numbers representing such shares, and the date of issue of the certificates representing such shares. Any registrar so appointed shall maintain, among other records, a share register, setting forth the total number of shares of each class of shares which the corporation is authorized to issue and the total number of shares actually issued. The stockholders' ledger and the share register are hereby identified as the stock transfer books of the corporation; but as between the stockholders' ledger and the share register, the names and addresses of stockholders, as they appear on the stockholders' ledger maintained by the transfer agent shall be the official list of stockholders of record of the corporation. The name and address of each stockholder of record, as they appear upon the stockholders' ledger, shall be conclusive evidence of who are the stockholders entitled to receive notice of the meetings of stockholders, to vote at such meetings, to examine a complete list of the stockholders entitled to vote at meetings, and to own, enjoy and exercise any other property or rights deriving from such shares against the corporation. Stockholders, but not the corporation, its directors, officers, agents or attorneys, shall be responsible for notifying the transfer agent, in writing, of any changes in their names or addresses from time to time, and failure to do so will relieve the corporation, its other stockholders, directors, officers, agents and attorneys, and its transfer agent and registrar, of liability for failure to direct notices or other documents, or pay over or transfer dividends or other property or rights, to a name or address other than the name and address appearing in the stockholders' ledger maintained by the transfer agent. Section 4.6. Loss of Certificates. In case of the loss, destruction or ----------- -------------------- mutilation of a certificate of stock, a replacement certificate may be issued in place thereof upon such terms as the board of directors may prescribe, including, in the discretion of the board of directors, a requirement of bond and indemnity to the corporation. Section 4.7. Restrictions on Transfer. Every certificate for shares of ----------- ------------------------ stock which are subject to any restriction on transfer, whether pursuant to the Certificate of Incorporation, the By-laws or any agreement to which the corporation is a party, shall have the fact of the restriction noted conspicuously on the certificate and shall also set forth on the face or back either the full text of the restriction or a statement that the corporation will furnish a copy to the holder of such certificate upon written request and without charge. Section 4.8. Multiple Classes of Stock. The amount and classes of the ----------- ------------------------- capital stock and the par value, if any, of the shares, shall be as fixed in the Certificate of Incorporation. At all times when there are two or more classes of stock, the several classes of stock shall conform to the description and the terms and have the respective preferences, voting powers, restrictions and qualifications set forth in the Certificate of Incorporation and these By-laws. Every certificate issued when the corporation is authorized to issue more than one class or series of stock shall set forth on its face or back either (i) the full text of the preferences, voting powers, qualifications and special and relative rights of the shares of each class and series authorized to be issued, or (ii) -10- a statement of the existence of such preferences, powers, qualifications and rights, and a statement that the corporation will furnish a copy thereof to the holder of such certificate upon written request and without charge. ARTICLE V --------- Dividends --------- Section 5.1. Declaration of Dividends. Except as otherwise required by ----------- ------------------------ law or by the Certificate of Incorporation, the board of directors may, in its discretion, declare what, if any, dividends shall be paid from the surplus or from the net profits of the corporation for the current or preceding fiscal year, or as otherwise permitted by law. Dividends may be paid in cash, in property, in shares of the corporation's stock, or in any combination thereof. Dividends shall be payable upon such dates as the board of directors may designate. Section 5.2. Reserves. Before the payment of any dividend and before ----------- -------- making any distribution of profits, the board of directors, from time to time and in its absolute discretion, shall have power to set aside out of the surplus or net profits of the corporation such sum or sums as the board of directors deems proper and sufficient as a reserve fund to meet contingencies or for such other purpose as the board of directors shall deem to be in the best interests of the corporation, and the board of directors may modify or abolish any such reserve. ARTICLE VI. ---------- Powers of Officers to Contract ------------------------------ With the Corporation Any and all of the directors and officers of the corporation, notwithstanding their official relations to it, may enter into and perform any contract or agreement of any nature between the corporation and themselves, or any and all of the individuals from time to time constituting the board of directors of the corporation, or any firm or corporation in which any such director may be interested, directly or indirectly, whether such individual, firm or corporation thus contracting with the -corporation shall thereby derive personal or corporate profits or benefits or otherwise; provided, that (i) the material facts of such interest are disclosed or are known to the board of directors or committee thereof which authorizes such contract or agreement; (ii) if the material facts as to such person's relationship or interest are disclosed or are known to the stockholders entitled to vote thereon, and the contract is specifically approved in good faith by a vote of the stockholders; or (iii) the contract or agreement is fair as to the corporation as of the time it is authorized, approved or ratified by the board of directors, a committee thereof, or the stockholders. Any director of the corporation who is interested in any transaction as aforesaid may nevertheless be counted in determining the existence of a quorum at any meeting of the board of directors which shall authorize or ratify any such transaction. This Article shall not be construed to invalidate any contract or other transaction which would otherwise be valid under the common or statutory law applicable thereto. -11- ARTICLE VII ----------- Indemnification --------------- Section 7.1. Definitions. For purposes of this Article VII the ----------- following terms shall have the meanings indicated: "Corporate Status" describes the status of a person who is or was a director, officer, employee, agent, trustee or fiduciary of the corporation or of any other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise which such person is or was serving at the express written request of the corporation. "Court" means the Court of Chancery of the State of Delaware, the court in which the Proceeding in respect of which indemnification is sought by a Covered Person shall have been brought or is pending, or another court having subject matter jurisdiction and personal jurisdiction over the parties. "Covered Person" means a person who is a present or former director or officer of the corporation and shall include such person's legal representatives, heirs, executors and administrators. "Disinterested" describes any individual, whether or not that individual is a director, Officer, employee or agent of the corporation, who is not and was not and is not threatened to be made a party to the Proceeding in respect of which indemnification, advancement of Expenses or other action is sought by a Covered Person. "Expenses" shall include, without limitation, all reasonable attorneys' fees, retainers, court costs, transcript costs, fees of experts, witness fees, travel expenses, duplicating costs, printing and binding costs, telephone charges, postage, delivery service fees, and all other disbursements or expenses of the types customarily incurred in connection with prosecuting, defending, preparing to prosecute or defend, investigating or being or preparing to be a witness in a Proceeding. "Good Faith" shall mean a Covered Person having acted in good faith and in a manner such Covered Person reasonably believed to be in or not opposed to the best interests of the corporation or, in the case of an employee benefit plan, the best interests of the participants or beneficiaries of said plan, as the case may be, and, with respect to any Proceeding which is criminal in nature, having had no reasonable cause to believe such Covered Person's conduct was unlawful. "Improper Personal Benefit" shall include, but not be limited to, the personal gain in fact by reason of a person's Corporate Status of a financial profit, monies or other advantage not also accruing to the benefit of the corporation or to the stockholders generally and which is unrelated to his usual compensation including, but not limited to, (i) in exchange for the exercise of -12- influence over the corporation's affairs, (ii) as a result of the diversion of corporate opportunity, or (iii) pursuant to the use or communication of confidential or inside information for the purpose of generating a profit from trading in the corporation's securities. Notwithstanding the foregoing, "Improper Personal Benefit" shall not include any benefit, directly or indirectly, related to actions taken in order to evaluate, discourage, resist, prevent or negotiate any transaction with or proposal from any person or entity seeking control of, or a controlling interest in, the corporation. "Independent Counsel" means a law firm, or a member of a law firm, that is experienced in matters of corporation law and may include law firms or members thereof that are regularly retained by the corporation but not by any other party to the Proceeding giving rise to a claim for indemnification hereunder. Notwithstanding the foregoing, the term "Independent Counsel" shall not include any person who, under the standards of professional conduct then prevailing and applicable to such counsel, would have a conflict of interest in representing either the corporation or Covered Person in an action to determine the Covered Person's rights under this Article. "Officer" means the chairman of the board, president, vice presidents, treasurer, assistant treasurer(s), secretary, assistant secretary and such other executive officers as are appointed by the board of directors of the corporation and explicitly entitled to indemnification hereunder. "Proceeding" includes any actual, threatened or completed action, suit, arbitration, alternate dispute resolution mechanism, investigation (including any internal corporate investigation), administrative hearing or any other proceeding, whether civil, criminal, administrative or investigative, other than one initiated by the Covered Person, but including one initiated by a Covered Person for the purpose of enforcing such Covered Person's rights under this Article to the extent provided in Section 7.14 of this Article. "Proceeding" shall not include any counterclaim brought by any Covered Person other than one arising out of the same transaction or occurrence that is the subject matter of the underlying claim. Section 7.2. Right to Indemnification in General. ----------- ----------------------------------- (a) Covered Persons. The corporation may indemnify, and may advance Expenses, to each Covered Person who is, was or is threatened to be made a party or otherwise involved in any Proceeding, as provided in this Article and to the fullest extent permitted by applicable law in effect on the date hereof and to such greater extent as applicable law may hereafter from time to time permit. The indemnification provisions in this Article shall be deemed to be a contract between the corporation and each Covered Person who serves in any Corporate Status at any time while these provisions as well as the relevant provisions of the Delaware General Corporation Law are in effect, and any repeal or modification thereof shall not affect any right or obligation then existing with respect to any state of facts then or previously existing or any Proceeding previously or thereafter brought or threatened based in whole or in part upon any such state of facts. Such a contract right may not be modified retroactively without the consent of such Covered Person. -13- (b) Employees and Agents. The corporation may, to the extent authorized from time to time by the board of directors, grant indemnification and the advancement of Expenses to any employee or agent of the corporation to the fullest extent of the provisions of this Article with respect to the indemnification and advancement of Expenses of Covered Persons. Section 7.3. Proceedings Other Than Proceedings by or in the Right of ----------- -------------------------------------------------------- the Corporation. Each Covered Person may be entitled to the rights of - --------------- indemnification provided in this Section 7.3 if, by reason of such Covered Person's Corporate Status, such Covered Person is, was or is threatened to be made, a party to or is otherwise involved in any Proceeding, other than a Proceeding by or in the right of the corporation. Each Covered Person may be indemnified against Expenses, judgments, penalties, fines and amounts paid in settlements, actually and reasonably incurred by such Covered Person or on such Covered Person's behalf in connection with such Proceeding or any claim, issue or matter therein, if such Covered Person acted in Good Faith and such Covered Person has not been adjudged during the course of such proceeding to have derived an Improper Personal Benefit from the transaction or occurrence forming the basis of such Proceeding. Section 7.4. Proceedings by or in the Right of the Corporation. Each ----------- ------------------------------------------------- Covered Person may be entitled to the rights of indemnification provided in this Section 7.4 if, by reason of such Covered Person's Corporate Status, such Covered Person is, or is threatened to be made, a party to or is otherwise involved in any Proceeding brought by or in the right of the corporation to procure a judgment in its favor. Such Covered Person may be indemnified against Expenses, judgments, penalties, and amounts paid in settlement, actually and reasonably incurred by such Covered Person or on such Covered Person's behalf in connection with such Proceeding if such Covered Person acted in Good Faith and such Covered Person has not been adjudged during the course of such proceeding to have derived an Improper Personal Benefit from the transaction or occurrence forming the basis of such Proceeding. Notwithstanding the foregoing, no such indemnification shall be made in respect of any claim, issue or matter in such Proceeding as to which such Covered Person shall have been adjudged to be liable to the corporation if applicable law prohibits such indemnification; provided, however, that, if applicable law so permits, indemnification shall nevertheless be made by the corporation in such event if and only to the extent that the Court which is considering the matter shall so determine. Section 7.5. Indemnification of a Party Who is Wholly or Partly ----------- -------------------------------------------------- Successful. Notwithstanding any provision of this Article to the contrary, to - ---------- the extent that a Covered Person is, by reason of such Covered Person's Corporate Status, a party to or is otherwise involved in and is successful, on the merits or otherwise, in any Proceeding, such Covered Person shall be indemnified to the maximum extent permitted by law, against all Expenses, judgments, penalties, fines, and amounts paid in settlement, actually and reasonably incurred by such Covered Person or on such Covered Person's behalf in connection therewith. If such Covered Person is not wholly successful in such Proceeding but is successful, on the merits or otherwise, as to one or more but less than all claims, issues or matters in such Proceeding, the corporation shall indemnify such Covered Person to the maximum extent permitted by law, against all Expenses, judgments, penalties, fines, and amounts paid in settlement, actually and reasonably incurred by such Covered Person or on such Covered Person's behalf in connection with each successfully -14- resolved claim, issue or matter. For purposes of this Section 7.5 and without limitation, the termination of any claim, issue or matter in such a Proceeding by dismissal, with or without prejudice, shall be deemed to be a successful result as to such claim, issue or matter. Section 7.6. Indemnification for Expenses of a Witness. ----------- ----------------------------------------- Notwithstanding any provision of this Article to the contrary, to the extent that a Covered Person is, by reason of such Covered Person's Corporate Status, a witness in any Proceeding, such Covered Person shall be indemnified against all Expenses actually and reasonably incurred by such Covered Person or on such Covered Person's behalf in connection therewith. Section 7.7. Advancement of Expenses. Notwithstanding any provision of ----------- ----------------------- this Article to the contrary, the corporation may advance all reasonable Expenses which, by reason of a Covered Person's Corporate Status, were incurred by or on behalf of such Covered Person in connection with any Proceeding, within thirty (30) days after the receipt by the corporation of a statement or statements from such Covered Person requesting such advance or advances, whether prior to or after final disposition of such Proceeding. Such statement or statements shall reasonably evidence the Expenses incurred by the Covered Person and shall include or be preceded or accompanied by an undertaking by or on behalf of the Covered Person to repay any Expenses if such Covered Person shall be adjudged to be not entitled to be indemnified against such Expenses. Any advance and undertaking to repay pursuant to this Section 7.7 may be unsecured interest-free, as the corporation sees fit. Advancement of Expenses pursuant to this Section 7.7 shall not require approval of the board of directors or the stockholders of the corporation, or of any other person or body. The secretary of the corporation shall promptly advise the Board in writing of the request for advancement of Expenses, of the amount and other details of the request and of the undertaking to make repayment provided pursuant to this Section 7.7. Section 7.8. Notification and Defense of Claim. Promptly after receipt ----------- --------------------------------- by a Covered Person of notice of the commencement of any Proceeding, such Covered Person shall, if a claim is to be made against the corporation under this Article, notify the corporation of the commencement of the Proceeding. The failure to notify the corporation will not relieve the corporation from any liability which it may have to such Covered Person otherwise than under this Article. With respect to any such Proceedings to which such Covered Person notifies the corporation: (a) The corporation will be entitled to participate in the defense at its own expense. (b) Except as otherwise provided below in this subparagraph (b), the corporation (jointly with any other indemnifying party similarly notified) will be entitled to assume the defense with counsel reasonably satisfactory to the Covered Person. After notice from the corporation to the Covered Person of its election to assume the defense of a suit, the corporation will not be liable to the Covered Person under this Article for any legal or other expenses subsequently incurred by the Covered Person in connection with the defense of the Proceeding other than reasonable costs of investigation or as otherwise provided below in this subparagraph (b). The Covered Person shall have the right to employ his own counsel in such Proceeding but the fees and expenses of -15- such counsel incurred after notice from the corporation of its assumption of the defense shall be at the expense of the Covered Person except as provided in this paragraph. The fees and expenses of counsel shall be at the expense of the corporation if (i) the employment of counsel by the Covered Person has been authorized by the corporation, (ii) the Covered Person shall have concluded reasonably that there may be a conflict of interest between the corporation and the Covered Person in the conduct of the defense of such action and such conclusion is confirmed in writing by the corporation's outside counsel regularly employed by it in connection with corporate matters, or (iii) the corporation shall not in fact have employed counsel to assume the defense of such Proceeding. The corporation shall be entitled to participate in, but shall not be entitled to assume the defense of any Proceeding brought by or in the right of the corporation or as to which the Covered Person shall have made the conclusion provided for in (ii) above and such conclusion shall have been so confirmed by the corporation's said outside counsel. (c) Notwithstanding any provision of this Article to the contrary, the corporation shall not be obligated to indemnify the Covered Person under this Article for any amounts paid in settlement of any Proceeding effected without its written consent. The corporation shall not settle any Proceeding or claim in any manner which would impose any penalty, limitation or disqualification of the Covered Person for any purpose without such Covered Person's written consent. Neither the corporation nor the Covered Person will unreasonably withhold their consent to any proposed settlement. (d) If it is determined that the Covered Person is entitled to indemnification other than as afforded under subparagraph (b) above, payment to the Covered Person of the additional amounts for which he is to be indemnified shall be made within ten (10) days after such determination. Section 7.9. Procedures. ----------- ---------- (a) Method of Determination. A determination (as provided for by this Article or if required by applicable law in the specific case) with respect to a Covered Person's entitlement to indemnification shall be made either (a) by the board of directors by a majority vote of a quorum consisting of Disinterested directors, or (b) in the event that a quorum of the board of directors consisting of Disinterested directors is not obtainable or, even if obtainable, such quorum of Disinterested directors so directs, by Independent Counsel in a written determination to the board of directors, a copy of which shall be delivered to the Covered Person seeking indemnification, or (c) by the vote of the holders of a majority of the corporation's capital stock outstanding at the time entitled to vote thereon. (b) Initiating Request. A Covered Person who seeks indemnification under this Article shall submit a Request for Indemnification, including such documentation and information as is reasonably available to such Covered Person and is reasonably necessary to determine whether and to what extent such Covered Person is entitled to indemnification. (c) Presumptions. In making a determination with respect to entitlement to indemnification hereunder, the person or persons or entity making such determination shall not presume that the Covered Person is or is not entitled to indemnification under this Article. -16- (d) Burden of Proof. Each Covered Person shall bear the burden of going forward and demonstrating sufficient facts to support his claim for entitlement to indemnification under this Article. That burden shall be deemed satisfied by the submission of an initial Request for Indemnification pursuant to Section 7.9(b) above. (e) Effect of Other Proceedings. The termination of any Proceeding or of any claim, issue or matter therein, by judgment, order, settlement or conviction, or upon a plea of guilty or of nolo contendere or its equivalent, shall not (except as otherwise expressly provided in this Article) of itself adversely affect the right of a Covered Person to indemnification or create a presumption that a Covered Person did not act in Good Faith. (f) Actions of Others. The knowledge, actions, or failure to act, of any director, officer, employee, agent, trustee or fiduciary of the enterprise whose daily activities the Covered Person was actually responsible for may be imputed to a Covered Person for purposes of determining the right to indemnification under this Article. Section 7.10. Action by the Corporation. Any action, payment, advance ------------ ------------------------- determination other than a determination made pursuant to Section 7.9(a) above, authorization, requirement, grant of indemnification or other action taken by the corporation pursuant to this Article shall be effected exclusively through any Disinterested person so authorized by the board of directors of the corporation, including the chairman of the board, president or any vice president of the corporation. Section 7.11. Non-Exclusivity. The rights of indemnification and to ------------ --------------- receive advancement of Expenses as provided by this Article shall not be deemed exclusive of any other rights to which a Covered Person may at any time be entitled under applicable law, the Certificate of Incorporation, these By-laws, any agreement, a vote of stockholders or a resolution of the board of directors, or otherwise. No amendment, alteration, rescission or replacement of this Article or any provision hereof shall be effective as to an Covered Person with respect to any action taken or omitted by such Covered Person in such Covered Person's Corporate Status or with respect to any state of facts then or previously existing or any Proceeding previously or thereafter brought or threatened based in whole or to the extent based in part upon any such state of facts existing prior to such amendment, alteration, rescission or replacement. Section 7.12. Insurance. The corporation may maintain, at its expense, ------------ --------- an insurance policy or policies to protect itself and any Covered Person, officer, employee or agent of the corporation or another enterprise against liability arising out of this Article or otherwise, whether or not the corporation would have the power to indemnify any such person against such liability under the Delaware General Corporation Law. Section 7.13. No Duplicative Payment. The corporation shall not be ------------ ---------------------- 1iable under this Article to make any payment of amounts otherwise indemnifiable hereunder if and to the extent that a Covered Person has otherwise actually received such payment under any insurance policy, contract, agreement or otherwise. -17- Section 7.14. Expenses of Adjudication. In the event that any Covered ------------ ------------------------ Person seeks a judicia1 adjudication, or an award in arbitration, to enforce such Covered Person's rights under, or to recover damages for breach of, this Article, the Covered Person shall be entitled to recover from the corporation, and shall be indemnified by the corporation against, any and all expenses (of the types described in the definition of Expenses in Section 7.1 of this Article) actually and reasonably incurred by such Covered Person in seeking such adjudication or arbitration, but only if such Covered Person prevails therein. If it shall be determined in such adjudication or arbitration that the Covered Person is entitled to receive part but not all of the indemnification of expenses sought, the expenses incurred by such Covered Person in connection with such adjudication or arbitration shall be appropriately prorated. Section 7.15. Severability. If any provision or provisions of this ------------ ------------ Article shall be held to be invalid, illegal or unenforceable for any reason whatsoever: (a) the validity, legality and enforceability of the remaining provisions of this Article (including without limitation, each portion of any Section of this Article containing any such provision held to be invalid, illegal or unenforceable, that is not itself invalid, illegal or unenforceable) shall not in any way be affected or impaired thereby; and (b) to the fullest extent possible, the provisions of this Article (including, without limitation, each portion of any Section of this Article containing any such provision held to be invalid, illegal or unenforceable, that is not itself invalid, illegal or unenforceable) shall be construed so as to give effect to the intent manifested by the provision held invalid, illegal or unenforceable. ARTICLE VIII. ------------ Miscellaneous Provisions ------------------------ Section 8.1. Certificate of Incorporation. All references in these ----------- ---------------------------- By-laws to the Certificate of Incorporation shall be deemed to refer to the Certificate of Incorporation of the corporation, as amended and in effect from time to time. Section 8.2. Fiscal Year. Except as from time to time otherwise ----------- ----------- provided by the board of directors, the fiscal year of the corporation shall end on the 31st day of December of each year. Section 8.3. Corporate Seal. The board of directors shall have the ----------- -------------- power to adopt and alter the seal of the corporation. Section 8.4. Execution of Instruments. All deeds, leases, transfers, ----------- ------------------------ contracts, bonds, notes, and other obligations authorized to be executed by an officer of the corporation on its behalf shall be signed by the chairman of the board, president or the treasurer except as the board of directors may generally or in particular cases otherwise determine. -18- Section 8.5. Voting of Securities. Unless the board of directors ----------- -------------------- otherwise provides, the chairman of the board, president or treasurer may waive notice of and act on behalf of this corporation, or appoint another person or persons to act as proxy or attorney in fact for this corporation with or without discretionary power and/or power of substitution, at any meeting of stockholders or shareholders of any other corporation or organization, any of whose securities are held by this corporation. Section 8.6. Evidence of Authority. A certificate by the secretary or ----------- --------------------- any assistant secretary as to any action taken by the stockholders, directors or any officer or representative of the corporation shall, as to all persons who rely thereon in good faith, be conclusive evidence of such action. The exercise of any power which by law, by the Certificate of Incorporation, or by these By-laws, or under any vote of the stockholders or the board of directors, may be exercised by an officer of the corporation only in the event of absence of another officer or any other contingency shall bind the corporation in favor of anyone relying thereon in good faith, whether or not such absence or contingency existed. Section 8.7. Corporate Records. The original, or attested copies, of ----------- ----------------- the Certificate of Incorporation, By-laws, records of all meetings of the incorporators and stockholders, and the stock transfer books (which shall contain the names of all stockholders and the record address and the amount of stock held by each) shall be kept in Delaware at the principal office of the corporation, or at an office of the corporation, or at an office of its transfer agent or of the secretary or of the assistant secretary, if any. Said copies and records need not all be kept in the same office. They shall be available at all reasonable times to inspection of any stockholder for any purpose but not to secure a list of stockholders for the purpose of selling said list or copies thereof or for using the same for a purpose other than in the interest of the applicant, as a stockholder, relative to the affairs of the corporation. Section 8.8. Charitable Contributions. The board of directors from ----------- ------------------------ time to time may authorize contributions to be made by the corporation in such amounts as it may determine to be reasonable to corporations, trusts, funds or foundations organized and operated exclusively for charitable, scientific or educational purposes, no part of the net earning of which inures to the private benefit of any stockholder or individual. ARTICLE IX ---------- Amendments ---------- Section 9.1. Amendment by Stockholders. Prior to the issuance of ----------- ------------------------- stock, these By-laws may be amended, altered or repealed by the incorporator(s) by majority vote. After stock has been issued, these By-laws may be amended altered or repealed by the stockholders at any annual or special meeting by vote or a majority of all shares outstanding and entitled to vote, except that where the effect of the amendment would be to reduce any voting requirement otherwise required by law, the Certificate of Incorporation or these By-laws, such amendment shall require the vote that would have been required by such other provision. Notice and a copy of any proposal to -19- amend these By-laws must be included in the notice of meeting of stockholders at which action is taken upon such amendment. Section 9.2. Amendment by Board of Directors. These Bylaws may be ----------- ------------------------------- amended or altered by the board of directors at a meeting duly called for the purpose by majority vote of the directors then in office, except that directors shall not amend the By-laws in a manner which: (a) changes the stockholder voting requirements for any action; (b) alters or abolishes any preferential right or right of redemption applicable to a class or series of stock with shares already outstanding; (c) alters the provisions of Article IX hereof; or (d) permits the board of directors to take any action which under law, the Certificate of Incorporation, or these By-laws is required to be taken by the stockholders. Any amendment of these By-laws by the board of directors may be altered or repealed by the stockholders at any annual or special meeting of stockholders. -20- EX-4.1 7 INDENTURE, DATED 7/20/1998 BET NERCO & U.S TRUST EXHIBIT 4.1 EXECUTION COPY NE RESTAURANT COMPANY, INC. AND UNITED STATES TRUST COMPANY OF NEW YORK, as Trustee 10 3/4% Senior Notes due 2008 INDENTURE Dated as of July 20, 1998 TABLE OF CONTENTS Page ARTICLE I Definitions and Incorporation by Reference....................................1 SECTION 1.1. Definitions.....................................................1 SECTION 1.2. Other Definitions..............................................17 SECTION 1.3. Incorporation by Reference of Trust Indenture Act..............18 SECTION 1.4. Rules of Construction..........................................19 ARTICLE II The Securities...............................................................19 SECTION 2.1. Form, Dating and Terms.........................................19 SECTION 2.2. Execution and Authentication...................................26 SECTION 2.3. Registrar and Paying Agent.....................................27 SECTION 2.4. Paying Agent To Hold Money in Trust............................28 SECTION 2.5. Securityholder Lists...........................................28 SECTION 2.6. Transfer and Exchange..........................................28 SECTION 2.7. Form of Certificate to be Delivered in Connection with Transfers to Institutional Accredited Investors................32 SECTION 2.8. Form of Certificate to be Delivered in Connection with Transfers Pursuant to Regulation S.............................33 SECTION 2.9. Mutilated, Destroyed, Lost or Stolen Securities................34 SECTION 2.10. Outstanding Securities.........................................35 SECTION 2.11. Temporary Securities...........................................36 SECTION 2.12. Cancellation...................................................36 SECTION 2.13. Payment of Interest; Defaulted Interest........................36 SECTION 2.14. Computation of Interest........................................37 SECTION 2.15. CUSIP Numbers..................................................37 ARTICLE III Covenants....................................................................38 SECTION 3.1. Payment of Securities..........................................38 SECTION 3.2. SEC Reports and Available Information..........................38 SECTION 3.3. Limitation on Indebtedness.....................................39 SECTION 3.4. Limitation on Restricted Payments..............................40 SECTION 3.5. Limitation on Restrictions on Distributions from Restricted Subsidiaries...................................................42 SECTION 3.6. Limitation on Sales of Assets and Subsidiary Stock.............43 SECTION 3.7. Limitation on Sale/Leaseback Transactions......................44 SECTION 3.8. Limitation on Affiliate Transactions...........................45 SECTION 3.9. Change of Control..............................................45 SECTION 3.10. Limitation on Dispositions of Capital Stock of Restricted Subsidiaries...................................................48 SECTION 3.11. Limitation on Liens............................................48 SECTION 3.12. Future Subsidiary Guarantors...................................48 SECTION 3.13. Maintenance of Office or Agency................................49 SECTION 3.14. Corporate Existence............................................49 SECTION 3.15. Payment of Taxes and Other Claims..............................49 SECTION 3.16. Compliance Certificate.........................................50 SECTION 3.17. Further Instruments and Acts...................................50 ARTICLE IV Successor Company ...........................................................50 SECTION 4.1. Merger and Consolidation.......................................50 ARTICLE V Redemption of Securities.....................................................51 SECTION 5.1. Optional Redemption............................................51 SECTION 5.2. Escrow Account; Special Mandatory Redemption...................51 SECTION 5.3. Applicability of Article.......................................53 SECTION 5.4. Election to Redeem; Notice to Trustee..........................53 SECTION 5.5. Selection by Trustee of Securities to Be Redeemed..............53 SECTION 5.6. Notice of Redemption...........................................54 SECTION 5.7. Deposit of Redemption Price....................................55 SECTION 5.8. Securities Payable on Redemption Date..........................55 SECTION 5.9. Securities Redeemed in Part....................................55 SECTION 5.10. Offer to Purchase by Application of Excess Proceeds............56 ARTICLE VI Defaults and Remedies........................................................58 SECTION 6.1. Events of Default..............................................58 SECTION 6.2. Acceleration...................................................60 SECTION 6.3. Other Remedies.................................................60 SECTION 6.4. Waiver of Past Defaults........................................60 SECTION 6.5. Control by Majority............................................61 SECTION 6.6. Limitation on Suits............................................61 SECTION 6.7. Rights of Holders to Receive Payment...........................61 SECTION 6.8. Collection Suit by Trustee.....................................61 SECTION 6.9. Trustee May File Proofs of Claim...............................61 SECTION 6.10. Priorities.....................................................62 SECTION 6.11. Undertaking for Costs..........................................62 ARTICLE VII Trustee......................................................................62 SECTION 7.1. Duties of Trustee..............................................62 SECTION 7.2. Rights of Trustee..............................................64 SECTION 7.3. Individual Rights of Trustee...................................65 SECTION 7.4. Trustee's Disclaimer...........................................65 SECTION 7.5. Notice of Defaults.............................................65 SECTION 7.6. Reports by Trustee to Holders..................................65 SECTION 7.7. Compensation and Indemnity.....................................66 SECTION 7.8. Replacement of Trustee.........................................66 SECTION 7.9. Successor Trustee by Merger....................................67 SECTION 7.10. Eligibility; Disqualification..................................68 SECTION 7.11. Preferential Collection of Claims Against Company..............68 ARTICLE VIII Discharge of Indenture; Defeasance...........................................68 SECTION 8.1. Discharge of Liability on Securities; Defeasance...............68 SECTION 8.2. Conditions to Defeasance.......................................69 SECTION 8.3. Application of Trust Money.....................................70 SECTION 8.4. Repayment to Company...........................................70 SECTION 8.5. Indemnity for U.S. Government Obligations......................71 SECTION 8.6. Reinstatement..................................................71 ARTICLE IX Amendments...................................................................71 SECTION 9.1. Without Consent of Holders.....................................71 SECTION 9.2. With Consent of Holders........................................72 SECTION 9.3. Compliance with Trust Indenture Act............................73 SECTION 9.4. Revocation and Effect of Consents and Waivers..................73 SECTION 9.5. Notation on or Exchange of Securities..........................73 SECTION 9.6. Trustee To Sign Amendments.....................................73 ARTICLE X Guarantee....................................................................74 SECTION 10.1. Guarantee.....................................................74 SECTION 10.2. Limitation on Liability; Termination, Release and Discharge...75 SECTION 10.3. Right of Contribution.........................................76 SECTION 10.4. No Subrogation................................................76 SECTION 10.5. Execution and Delivery of Subsidiary Guarantee................76 ARTICLE XI Miscellaneous................................................................77 SECTION 11.1. Trust Indenture Act Controls..................................77 SECTION 11.2. Notices.......................................................77 SECTION 11.3. Communication by Holders with other Holders...................78 SECTION 11.4. Certificate and Opinion as to Conditions Precedent............78 SECTION 11.5. Statements Required in Certificate or Opinion.................78 SECTION 11.6. When Securities Disregarded...................................79 SECTION 11.7. Rules by Trustee, Paying Agent and Registrar..................79 SECTION 11.8. Legal Holidays................................................79 SECTION 11.9. GOVERNING LAW.................................................79 SECTION 11.10. No Recourse Against Others....................................79 SECTION 11.11. Successors....................................................80 SECTION 11.12. Multiple Originals............................................80 SECTION 11.13. Variable Provisions...........................................80 SECTION 11.14. Qualification of Indenture....................................80 SECTION 11.15. Table of Contents; Headings...................................80 EXHIBIT A Form of the Initial Security EXHIBIT B Form of the Exchange Security EXHIBIT C Form of Supplemental Indenture EXHIBIT D Form of Notation of Subsidiary Guarantee CROSS-REFERENCE TABLE TIA Indenture Section Section 310(a)(1) ................................... 7.10 (a)(2) ................................... 7.10 (a)(3) ................................... N.A. (a)(4) ................................... N.A. (a)(5) ................................... 7.10 (b) ................................... 7.8; 7.10 (c) ................................... N.A. 311(a) ................................... 7.11 (b) ................................... 7.11 (c) ................................... N.A. 312(a) ................................... 2.5 (b) ................................... 11.3 (c) ................................... 11.3 313(a) ................................... 7.6 (b)(2) ................................... 7.6 (c) ................................... 7.6 (d) ................................... 7.6 314(a) ................................... 3.2; 11.2 (b) ................................... N.A. (c)(1) ................................... 11.4 (c)(2) ................................... 11.4 (c)(3) ................................... N.A. (d) ................................... N.A. (e) ................................... 11.5 315(a) ................................... 7.1 (b) ................................... 7.5; 11.2 (c) ................................... 7.1 (d) ................................... 7.1 (e) ................................... 6.11 316(a)(last sentence) ................................... 11.6 (a)(1)(A) ................................... 6.5 (a)(1)(B) ................................... 6.4 (a)(2) ................................... N.A. (b) ................................... 6.7 317(a)(1) ................................... 6.8 (a)(2) ................................... 6.9 (b) ................................... 2.4 318(a) ................................... 11.1 N.A. means Not Applicable. Note: This Cross-Reference Table shall not, for any purpose, be deemed to be part of the Indenture. INDENTURE dated as of July 20, 1998, among NE RESTAURANT COMPANY, INC., a Delaware corporation (the "COMPANY"), and United States Trust Company of New York, as Trustee (the "TRUSTEE"). Each party agrees as follows for the benefit of the other parties and for the equal and ratable benefit of the Holders of the Company's 10 3/4% Senior Notes due 2008 (the "INITIAL SECURITIES") and, if and when issued in exchange for Initial Securities as provided in the Registration Rights Agreement (as hereinafter defined), the Company's 10 3/4% Senior Notes due 2008 (the "EXCHANGE SECURITIES" and, together with the Initial Securities, the "SECURITIES"): ARTICLE I DEFINITIONS AND INCORPORATION BY REFERENCE SECTION 1.1. DEFINITIONS. "Acquisition" means the acquisition by the Company of at least 90% of the outstanding shares of common stock (including shares currently owned by the Company and determined on a fully diluted basis) of Bertucci's, Inc. and the subsequent merger of NERC Acquisition Corp., a wholly owned subsidiary of the Company, with Bertucci's, Inc. "Additional Assets" means (i) any property or assets (other than Indebtedness and Capital Stock) to be used by the Company or a Restricted Subsidiary in a Related Business; (ii) the Capital Stock of a Person that becomes a Restricted Subsidiary as a result of the acquisition of such Capital Stock by the Company or a Restricted Subsidiary of the Company; or (iii) Capital Stock constituting a minority interest in any Person that at such time is a Restricted Subsidiary of the Company; PROVIDED, HOWEVER, that, in the case of clauses (ii) and (iii), such Restricted Subsidiary is primarily engaged in a Related Business. "Affiliate" of any specified Person means any other Person, directly or indirectly, controlling or controlled by or under direct or indirect common control with such specified Person. For the purposes of this definition, "control" when used with respect to any Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. "Asset Disposition" means any sale, lease, transfer, issuance or other disposition (or series of related sales, leases, transfers, issuances or dispositions that are part of a common plan) of shares of Capital Stock of a Restricted Subsidiary (other than directors' qualifying shares or shares required to be held by Persons other than the Company or a Restricted Subsidiary in connection with the maintenance of liquor licenses), property or other assets (each referred to for the purposes of this definition as a "disposition") by the Company or any of its Restricted Subsidiaries (including any disposition by means of a merger, consolidation or similar transaction) other than (i) a disposition by a Restricted Subsidiary to the Company or by the Company or a Restricted Subsidiary to a Wholly-Owned Subsidiary, (ii) the sale of Cash Equivalents in the ordinary course of business, (iii) a disposition of inventory in the ordinary course of business, (iv) a disposition of obsolete or worn out equipment or equipment that is no longer useful in the conduct of the business of the Company and its Restricted Subsidiaries and that is disposed of in each case in the ordinary course of business (including, without limitation, any real property interests, equipment or other tangible property disposed of in connection with the relocation or closing of a restaurant), (v) transactions permitted under SECTION 4.1 of this Indenture, (vi) for purposes of the covenant regarding limitations on sales of assets and subsidiary stock contained in SECTION 3.6 of this Indenture only, a disposition subject to the covenant regarding limitations on restricted payments contained in SECTION 3.4 of this Indenture and (vii) any pledge or collateral assignment of Capital Stock of any Restricted Subsidiary that is permitted under SECTION 3.11 of this Indenture or the exercise of any right or remedies by the holder of any such pledge or assignment. "Attributable Indebtedness" in respect of a Sale/Leaseback Transaction means, as at the time of determination, the present value (discounted at the interest rate borne by the Securities, compounded semi-annually) of the total obligations of the lessee for rental payments during the remaining term of the lease included in such Sale/Leaseback Transaction (including any period for which such lease has been extended). "Average Life" means, as of the date of determination, with respect to any Indebtedness or Preferred Stock, the quotient obtained by dividing (i) the sum of the products of the numbers of years from the date of determination to the dates of each successive scheduled principal payment of such Indebtedness or redemption or similar payment with respect to such Preferred Stock multiplied by the amount of such payment by (ii) the sum of all such payments. "Board of Directors" means, as to any Person, the board of directors of such Person or any duly authorized committee thereof. "Business Day" means a day other than a Saturday, Sunday or other day on which commercial banking institutions are authorized or required by law to close in New York City. "Capital Stock" of any Person means any and all shares, interests, rights to purchase, warrants, options, participations or other equivalents of or interests in (however designated) equity of such Person, including any Preferred Stock, partnership interests and limited liability company membership interests, but excluding any debt securities convertible into such equity. "Capitalized Lease Obligations" means an obligation that is required to be classified and accounted for as a capitalized lease for financial reporting purposes in accordance with GAAP, and the amount of Indebtedness represented by such obligation will be the capitalized amount of such obligation determined in accordance with GAAP, and the Stated Maturity thereof will be the date of the last payment of rent or any other amount due under such lease prior to the first date such lease may be terminated without penalty. "Cash Equivalents" means (i) securities issued or directly and fully guaranteed or insured by the United States Government or any agency or instrumentality thereof, having maturities of not more than one year from the date of acquisition; (ii) marketable general obligations issued by any state of the United States of America or any political subdivision of any such state or any public instrumentality thereof maturing within one year from the date of acquisition thereof and, at the time of acquisition thereof, having a credit rating of "A" or better from either Standard & Poor's Rating Group or Moody's Investors Service, Inc.; (iii) certificates of deposit, time deposits, eurodollar time deposits, overnight bank deposits or bankers' acceptances having maturities of not more than one year from the date of acquisition thereof issued by any commercial bank the long-term debt of which is rated at the time of acquisition thereof at least "A" or the equivalent thereof by Standard & Poor's Rating Group, or "A" or the equivalent thereof by Moody's Investors Service, Inc., and having capital and surplus in excess of $500 million; (iv) repurchase obligations with a term of not more than seven days for underlying securities of the types described in clauses (i), (ii) and (iii) entered into with any bank meeting the qualifications specified in clause (iii) above; (v) commercial paper rated at the time of acquisition thereof at least "A-2" or the equivalent thereof by Standard & Poor's Rating Group or "P-2" or the equivalent thereof by Moody's Investors Service, Inc., or carrying an equivalent rating by a nationally recognized rating agency, if both of the two named rating agencies cease publishing ratings of investments, and in either case maturing within 270 days after the date of acquisition thereof; and (vi) interests in any investment company which invests solely in instruments of the type specified in clauses (i) through (v) above. "Code" means the Internal Revenue Code of 1986, as amended. "Company" means NE Restaurant Company, Inc. or a successor. "Consolidated EBITDA" for any period means the Consolidated Net Income for such period, plus the following to the extent deducted in calculating such Consolidated Net Income: (i) income tax expense, (ii) Consolidated Interest Expense, (iii) depreciation expense, (iv) amortization of intangibles, (v) other non-cash charges reducing Consolidated Net Income (excluding any such non-cash charge to the extent it represents an accrual of or reserve for cash charges in any future period or amortization of a prepaid cash expense that was paid in a prior period not included in the calculation) and (vi) Deferred Rent. Notwithstanding the foregoing, the provision for taxes based on the income or profits of, and the interest, depreciation and amortization of, a Restricted Subsidiary of a Person will be added to Consolidated Net Income to compute Consolidated EBITDA of such Person only to the extent (and in the same proportion) that the net income of such Subsidiary was included in calculating the Consolidated Net Income of such Person. "Consolidated Interest Expense" means, for any period, the total interest expense of the Company and its consolidated Subsidiaries, plus, to the extent not included in such interest expense, (i) interest expense attributable to Capitalized Lease Obligations and the interest portion of rent expense associated with Attributable Indebtedness in respect of the relevant lease giving rise thereto, determined as if such lease were a capitalized lease in accordance with GAAP, (ii) amortization of debt discount and debt issuance cost, (iii) capitalized interest and accrued interest, (iv) non-cash interest expense, (v) commissions, discounts and other fees and charges owed with respect to letters of credit and bankers' acceptance financing, (vi) interest actually paid by the Company or any such Subsidiary under any Guarantee of Indebtedness or other obligation of any other Person, (vii) net costs associated with Interest Rate Agreements (including amortization of fees), (viii) dividends in respect of all Disqualified Stock of the Company and all Preferred Stock of Subsidiaries, in each case, held by Persons other than the Company or a Wholly Owned Subsidiary and (ix) the cash contributions to any employee stock ownership plan or similar trust to the extent such contributions are used by such plan or trust to pay interest or fees to any Person (other than the Company) in connection with Indebtedness Incurred by such plan or trust; PROVIDED, HOWEVER, that there will be excluded therefrom any such interest expense of any Unrestricted Subsidiary to the extent the related Indebtedness is not Guaranteed or paid by the Company or any Restricted Subsidiary. For purposes of the foregoing, total interest expense will be determined after giving effect to any net payments made or received by the Company and its Subsidiaries with respect to Interest Rate Agreements. Notwithstanding the foregoing, the Consolidated Interest Expense with respect to any Restricted Subsidiary of the Company that was not a Wholly-Owned Subsidiary will be included only to the extent (and in the same proportion) that the net income of such Restricted Subsidiary was included in calculating Consolidated Net Income. "Consolidated Net Income" means, for any period, the net income (loss) of the Company and its Consolidated Subsidiaries; PROVIDED, HOWEVER, that there will be excluded in such Consolidated Net Income: (i) any net income (loss) of any Person if such Person is not a Restricted Subsidiary, except that (A) subject to the limitations contained in (iv) below, the Company's equity in the net income of any such Person for such period will be included in such Consolidated Net Income up to the aggregate amount of cash actually distributed by such Person during such period to the Company or a Restricted Subsidiary as a dividend or other distribution (subject, in the case of a dividend or other distribution to a Restricted Subsidiary, to the limitations contained in clause (iii) below) and (B) the Company's equity in a net loss of any such Person (other than an Unrestricted Subsidiary) for such period will be included in determining such Consolidated Net Income to the extent such loss has been funded with cash from the Company or a Restricted Subsidiary; (ii) any net income (loss) of any Person acquired by the Company or a Subsidiary in a pooling of interests transaction for any period prior to the date of such acquisition; (iii) any net income of any Restricted Subsidiary if such Subsidiary is subject to restrictions, directly or indirectly, on the payment of dividends or the making of distributions by such Restricted Subsidiary, directly or indirectly, to the Company, except that (A) subject to the limitations contained in (iv) below the Company's equity in the net income of any such Restricted Subsidiary for such period will be included in such Consolidated Net Income up to the aggregate amount of cash that could have been distributed by such Restricted Subsidiary during such period to the Company or another Restricted Subsidiary as a dividend (subject, in the case of a dividend to another Restricted Subsidiary, to the limitation contained in this clause) and (B) the Company's equity in a net loss of any such Restricted Subsidiary for such period will be included in determining such Consolidated Net Income; (iv) any gain (loss) realized upon the sale or other disposition of any property, plant or equipment of the Company or its consolidated Subsidiaries (including pursuant to any Sale/Leaseback Transaction) which is not sold or otherwise disposed of in the ordinary course of business and any gain (loss) realized upon the sale or other disposition of any Capital Stock of any Person; (v) any extraordinary gain or loss; and (vi) the cumulative effect of a change in accounting principles. "Default" means any event which, after notice or passage of time or both, would be an Event of Default. "Defaulted Interest" shall have the meaning set forth in SECTION 2.13. "Depositary" means The Depository Trust Company, its nominees and their respective successors and assigns, or such other depository institution hereinafter appointed by the Company. "Deferred Rent" means the excess (deficit) of accrued rent calculated in accordance with Statement of Financial Accounting Standards No. 13 and GAAP as compared to amounts paid under operating lease arrangements, as set forth in the Company's cash flow statements. "Disqualified Stock" means, with respect to any Person, any Capital Stock of such Person which by its terms (or by the terms of any security into which it is convertible or for which it is exchangeable) or upon the happening of any event (i) matures or is mandatorily redeemable pursuant to a sinking fund obligation or otherwise, (ii) is convertible or exchangeable for Indebtedness or Disqualified Stock (excluding Capital Stock which is convertible or exchangeable solely at the option of the Company or a Restricted Subsidiary) or (iii) is redeemable at the option of the holder thereof, in whole or in part, in each case on or prior to the Stated Maturity of the Securities, PROVIDED, that only the portion of Capital Stock which so matures or is mandatorily redeemable, is so convertible or exchangeable or is so redeemable at the option of the holder thereof prior to such Stated Maturity will be deemed to be Disqualified Stock. "Equity Offering" means an offering for cash by the Company of its common stock, or options, warrants or rights with respect to its common stock. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Exchange Securities" means, if and when issued in exchange for the Initial Securities as provided in the Registration Rights Agreement, the Company's 10 3/4% Senior Notes due 2008. "Foreign Subsidiary" means any Restricted Subsidiary that is not organized under the laws of the United States of America or any state thereof or the District of Columbia. "GAAP" means generally accepted accounting principles in the United States of America as in effect as of the date of this Indenture, including those set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as approved by a significant segment of the accounting profession. All ratios and computations based on GAAP contained in this Indenture will be computed in conformity with GAAP. "Guarantee" means any obligation, contingent or otherwise, of any Person directly or indirectly guaranteeing any Indebtedness of any other Person any obligation, direct or indirect, contingent or otherwise, of such Person (i) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness of such other Person (whether arising by virtue of partnership arrangements, or by agreement to keep-well, to purchase assets, goods, securities or services, to take-or-pay, or to maintain financial statement conditions or otherwise) or (ii) entered into for purposes of assuring in any other manner the obligee of such Indebtedness of payment thereof or to protect such obligee against loss in respect thereof (in whole or in part); PROVIDED, HOWEVER, that the term "Guarantee" will not include endorsements for collection or deposit and indemnities given by the Company or any of its Subsidiaries in connection with exhibitions, in each case, in the ordinary course of business. The term "Guarantee" used as a verb has a corresponding meaning. "Holder" or "Securityholder" means the Person in whose name a Security is registered in the Note Register. "Incur" means issue, assume, Guarantee, incur or otherwise become liable for; PROVIDED, HOWEVER, that any Indebtedness or Capital Stock of a Person existing at the time such Person becomes a Restricted Subsidiary (whether by merger, consolidation, acquisition or otherwise) will be deemed to be incurred by such Restricted Subsidiary at the time it becomes a Restricted Subsidiary. "Indebtedness" means, with respect to any Person on any date of determination (without duplication), (i) the principal of and premium (if any) in respect of indebtedness of such Person for borrowed money; (ii) the principal of and premium (if any) in respect of obligations of such Person evidenced by bonds, debentures, notes or other similar instruments; (iii) all obligations of such Person in respect of letters of credit or other similar instruments (including reimbursement obligations with respect thereto); (iv) all obligations of such Person to pay the deferred and unpaid purchase price of property or services (except trade payables), which purchase price is due more than six months after the date of placing such property in service or taking delivery and title thereto or the completion of such services (if and to the extent any such obligation would appear as a liability upon a balance sheet of such Person prepared in accordance with GAAP); (v) all Capitalized Lease Obligations and all Attributable Indebtedness of such Person; (vi) the amount of all obligations of such Person with respect to the redemption, repayment or other repurchase of any Disqualified Stock or, with respect to any Subsidiary, any Preferred Stock (but excluding, in each case, any accrued dividends); (vii) all Indebtedness of other Persons secured by a Lien on any asset of such Person, whether or not such Indebtedness is assumed by such Person; PROVIDED, HOWEVER, that the amount of such Indebtedness will be the lesser of (A) the fair market value of such asset at such date of determination and (B) the amount of such Indebtedness of such other Persons; (viii) all Indebtedness of other Persons to the extent Guaranteed by such Person; and (ix) to the extent not otherwise included in this definition, net obligations of such Person under Interest Rate Agreements (the amount of any such obligations to be equal at any time to the termination value of such agreement or arrangement giving rise to such obligation that would be payable by such Person at such time). The amount of Indebtedness of any Person at any date will be the outstanding balance at such date of all unconditional obligations as described above and the maximum liability, upon the occurrence of the contingency giving rise to the obligation, of any contingent obligations at such date; PROVIDED that the amount outstanding at any one time of any Indebtedness issued with original issue discount is the principal amount of such Indebtedness less the remaining unamortized portion of the original issue discount of such Indebtedness at such time as determined in conformity with GAAP. Notwithstanding the foregoing, Indebtedness shall exclude (i) obligations created, issued or incurred by any Person with respect to customer subscription payments or customer deposits for trade shows and exhibitions and (ii) any indemnification obligation of the Company to third parties in respect of customary representations and warranties contained in stock purchase, asset purchase or similar acquisition agreements to which the Company is a party, if such indemnification obligation would not appear as a liability upon a balance sheet of the Company prepared in accordance with GAAP. "Indenture" means this Indenture as amended or supplemented from time to time. "Initial Securities" means the Company's 10 3/4% Senior Notes due 2008 issued under this Indenture pursuant to Rule 144A or Regulation S under the Securities Act. 2 "Interest Coverage Ratio" as of any date of determination means, with respect to any Person, the ratio of (i) the aggregate amount of Consolidated EBITDA of such Person for the period of the most recent four consecutive fiscal quarters ending prior to the date of such determination to (ii) Consolidated Interest Expense of such Person for such period; PROVIDED, HOWEVER, that (1) if since the beginning of such period the Company or any Restricted Subsidiary shall have made any Asset Disposition or if the transaction giving rise to the need to calculate the Interest Coverage Ratio is an Asset Disposition, the Consolidated EBITDA for such period will be reduced by an amount equal to the Consolidated EBITDA (if positive) directly attributable to the assets which are the subject of such Asset Disposition for such period or increased by an amount equal to the Consolidated EBITDA (if negative) directly attributable thereto for such period, (2) if since the beginning of such period the Company or any Restricted Subsidiary (by merger or otherwise) shall have made an Investment in any Restricted Subsidiary (or any Person which becomes a Restricted Subsidiary or is merged with or into the Company) or an acquisition of assets, including any acquisition of assets occurring in connection with a transaction causing a calculation to be made hereunder, which constitutes all or substantially all of an operating unit of a business, Consolidated EBITDA for such period will be calculated after giving pro forma effect thereto (including the Incurrence of any Indebtedness and including the pro forma expenses and cost reductions calculated in accordance with Regulation S-X promulgated by the SEC) as if such Investment or acquisition occurred on the first day of such period and (3) if since the beginning of such period any Person (that subsequently became a Restricted Subsidiary or was merged with or into the Company or any Restricted Subsidiary since the beginning of such period) will have made any Asset Disposition or any Investment or acquisition of assets that would have required an adjustment pursuant to clause (1) or (2) above if made by the Company or a Restricted Subsidiary during such period, Consolidated EBITDA for such period will be calculated after giving pro forma effect thereto (including the Incurrence of any Indebtedness and including the pro forma expenses and cost reductions calculated in accordance with Regulation S-X promulgated by the SEC) as if such Asset Disposition or Investment occurred on the first day of such period. For purposes of this definition, whenever pro forma effect is to be given to an acquisition of assets, the amount of income or earnings relating thereto, the pro forma calculations will be determined in good faith by a responsible financial or accounting officer of the Company. Notwithstanding anything herein to the contrary, if at the time the calculation of the Interest Coverage Ratio is to be made, the Company does not have available consolidated financial statements reflecting the consummation of the Transactions for a period of at least four full fiscal quarters, all calculations required by the Interest Coverage Ratio shall be prepared on a pro forma basis, as though each of the Transactions (to the extent not otherwise reflected in the consolidated financial statements of the Company) had occurred on the first day of the most recently completed four fiscal quarters for which such calculation is being made. "Interest Rate Agreement" means with respect to any Person any interest rate protection agreement, interest rate future agreement, interest rate option agreement, interest rate swap agreement, interest rate cap agreement, interest rate collar agreement, interest rate hedge agreement or other similar agreement or arrangement as to which such Person is party or a beneficiary. "Investment" in any Person means any direct or indirect advance, loan (other than advances to customers in the ordinary course of business) or other extension of credit (including by way of Guarantee or similar arrangement, but excluding any debt or extension of credit represented by a bank deposit other than a time deposit) or capital contribution to (by means of any transfer of cash or other property to others or any payment for property or services for the account or use of others), or any purchase or acquisition of Capital Stock for consideration, Indebtedness or other similar instruments issued by, such Person. For purposes of SECTION 3.4, (i) "Investment" will include the portion (proportionate to the Company's equity interest in a Restricted Subsidiary to be designated as an Unrestricted Subsidiary) of the fair market value of the net assets of such Restricted Subsidiary of the Company at the time that such Restricted Subsidiary is designated an Unrestricted Subsidiary; PROVIDED, HOWEVER, that upon a redesignation of such Subsidiary as a Restricted Subsidiary, the Company will be deemed to continue to have a permanent "Investment" in an Unrestricted Subsidiary in an amount (if positive) equal to (x) the Company's "Investment" in such Subsidiary at the time of such redesignation less (y) the portion (proportionate to the Company's equity interest in such Subsidiary) of the fair market value of the net assets of such Subsidiary at the time that such Subsidiary is so re-designated a Restricted Subsidiary; and (ii) any property transferred to or from an Unrestricted Subsidiary will be valued at its fair market value at the time of such transfer, in each case as determined in good faith by the Board of Directors of the Company. "Issue Date" means the date on which the Initial Securities are originally issued. "Legal Holiday" has the meaning ascribed to it in SECTION 11.8. "Lien" means any mortgage, pledge, security interest, encumbrance, lien or charge of any kind (including any conditional sale or other title retention agreement or lease in the nature thereof). "Management Agreement" means the management agreement, dated as of the consummation of the Acquisition, between Jacobson Partners and the Company relating to management services to be provided to the Company by Jacobson Partners. "Management Equity Interests" means shares of Capital Stock of the Company or of a Subsidiary Guarantor, options, warrants or stock appreciation or similar rights in respect of such Capital Stock, in each case held by any current or former officer, employee or other member of management (or their estates or beneficiaries under their estates) of the Company or of such Subsidiary Guarantor which were acquired or granted or are subject to any management equity subscription agreement, employment agreement, employee benefit plan or arrangement, stockholder agreement, stock option agreement or similar management investor plan or agreement and which may be required to be repurchased, redeemed or otherwise acquired by the Company or such Subsidiary Guarantor in each case pursuant to the terms of such agreement, plan or arrangement. "Merger Agreement" means the Agreement and Plan of Merger, dated as of May 13, 1998, among the Company, NERC Acquisition Corp. and Bertucci's, Inc. "Net Available Cash" from an Asset Disposition means cash payments received (including any cash payments received by way of deferred payment of principal pursuant to a note or installment receivable or otherwise, but only as and when received, but excluding any other consideration received in the form of assumption by the acquiring Person of Indebtedness or other obligations relating to the properties or assets that are the subject of such Asset Disposition or received in any other noncash form) therefrom, in each case net of (i) all legal, accounting, investment banking, title and recording tax expenses, commissions and other fees and expenses Incurred, and all Federal, state, provincial, foreign and local taxes required to be paid or accrued as a liability under GAAP, as a consequence of such Asset Disposition, (ii) all payments made on any Indebtedness which is secured by any assets subject to such Asset Disposition, in accordance with the terms of any Lien upon such assets, or which must by its terms, or in order to obtain a necessary consent to such Asset Disposition, or by applicable law be repaid out of the proceeds from such Asset Disposition, (iii) all distributions and other payments required to be made to minority interest holders in Subsidiaries or joint ventures as a result of such Asset Disposition and (iv) the deduction of appropriate amounts to be provided by the seller as a reserve, in accordance with GAAP, against any liabilities associated with the assets disposed of in such Asset Disposition and retained by the Company or any Restricted Subsidiary after such Asset Disposition. "Net Cash Proceeds", with respect to any issuance or sale of Capital Stock, means the cash proceeds of such issuance or sale net of attorneys' fees, accountants' fees, underwriters' or placement agents' fees, discounts or commissions and brokerage, consultant and other fees actually Incurred in connection with such issuance or sale and net of taxes paid or payable as a result of such issuance or sale. "Non-Recourse Debt" means Indebtedness (i) as to which neither the Company nor any Restricted Subsidiary (a) provides any guarantee or credit support of any kind (including any undertaking, guarantee, indemnity, agreement or instrument that would constitute Indebtedness) or (b) is directly or indirectly liable (as a guarantor or otherwise) and (ii) no default with respect to which (including any rights that the holders thereof may have to take enforcement action against an Unrestricted Subsidiary) would permit (upon notice, lapse of time or both) any holder of any other Indebtedness of the Company or any Restricted Subsidiary to declare a default under such other Indebtedness or cause the payment thereof to be accelerated or payable prior to its stated maturity. "Non-U.S. Person" means a Person who is not a U.S person, as defined in Regulation S. "Note Register" means the register of Securities, maintained by the Trustee, pursuant to SECTION 2.3. "Officer" means the Chairman of the Board, the President, any Vice President, the Treasurer or the Secretary of the Company. "Officers' Certificate" means a certificate signed by two Officers. "Opinion of Counsel" means a written opinion from legal counsel who is acceptable to the Trustee. The counsel may be an employee of or counsel to the Company or the Trustee. "Permitted Holders" means (i) Jacobson Partners or any Affiliate of Jacobson Partners; (ii) any stockholder of the Company on the Acquisition Closing Date; (iii) family members or relatives of the Persons described in clause (ii); (iv) any trusts created for the benefit of the Persons described in clause (ii) or (iii); and (v) in the event of the incompetence or death of any or the Persons described in clause (ii) or (iii), such Person's estate, executor, administrator, committee or other personal representatives or beneficiaries. "Permitted Investment" means an Investment by the Company or any Restricted Subsidiary in (i) the Company or in a Restricted Subsidiary or a Person which will, upon the making of such Investment, become a Restricted Subsidiary; PROVIDED, HOWEVER, that the primary business of such Restricted Subsidiary is a Related Business; (ii) another Person if as a result of such Investment such other Person is merged or consolidated with or into, or transfers or conveys all or substantially all its assets to, the Company or a Restricted Subsidiary; PROVIDED, HOWEVER, that such Person's primary business is a Related Business; (iii) cash and Cash Equivalents; (iv) payroll, travel, relocation and similar advances to cover matters that are expected at the time of such advances ultimately to be treated as expenses for accounting purposes and that are made in the ordinary course of business; (v) loans or advances to employees made in the ordinary course of business not exceeding in the aggregate, at any time, $1.0 million; (vi) stock, obligations or securities received in settlement of debts created in the ordinary course of business and owing to the Company or any Restricted Subsidiary or in satisfaction of judgments; (vii) Investments in a Related Business in the form of joint ventures, operating agreements, partnership agreements or other similar or customary agreements, interests or arrangements with unaffiliated third parties, the aggregate outstanding amount of which does not exceed $10.0 million at any time; (viii) receivables owing to the Company or any Restricted Subsidiary, if created or acquired in the ordinary course of business and payable or dischargeable in accordance with customary trade terms; PROVIDED, HOWEVER, that such trade terms may include such concessionary trade terms as the Company or any such Restricted Subsidiary deems reasonable under the circumstances; (ix) Guarantees permitted to be made pursuant to SECTION 3.3 of this Indenture; (x) Investments acquired by the Company or any Restricted Subsidiary in connection with or as a result of a bankruptcy, insolvency, workout, reorganization, recapitalization or similar arrangement with respect to the obligor under or issuer of any accounts receivable or Investment held by the Company or any Restricted Subsidiary; (xi) Interest Rate Agreements entered into in the ordinary course of business that are permitted under clause (vi) of paragraph (b) under SECTION 3.3 of this Indenture; (xii) Investments made by the Company or a Restricted Subsidiary in connection with an Assets Disposition made in compliance with SECTION 3.6 of this Indenture; (xiii) Investments made solely in exchange for the issuance of Capital Stock (other than Disqualified Stock) of the Company; and (xiv) any Investment existing on the date of this Indenture. "Permitted Liens" means, with respect to any Person, (a) pledges or deposits by such Person under workers' compensation laws, unemployment insurance laws or similar legislation, or good faith deposits in connection with bids, tenders, contracts (other than for the payment of Indebtedness) or leases to which such Person is a party, or deposits to secure public or statutory obligations of such Person or deposits or cash or United States government bonds to secure surety or appeal bonds, performance bonds or other obligations of a like nature to which such Person is a party, or deposits as security for contested taxes or import duties or for the payment of rent, in each case Incurred in the ordinary course of business; (b) Liens imposed by law, including carriers', warehousemen's and mechanics' Liens, in each case for sums not yet due or being contested in good faith by appropriate proceedings, or other Liens arising out of judgments or awards against such Person with respect to which such Person is then proceeding with an appeal or other proceedings for review; (c) Liens for taxes, assessments or other governmental charges not yet subject to penalties for non-payment or which are being contested in good faith by appropriate proceedings provided appropriate reserves have been taken on the books of the Company; (d) Liens in favor of issuers of surety bonds or letters of credit issued pursuant to the request of and for the account of such Person in the ordinary course of its business; provided, however, that such letters of credit do not constitute Indebtedness; (e) encumbrances, easements, minor title defects, irregularities in title or reservations of, or rights of others for, licenses, rights of way, sewers, electric lines, telegraph and telephone lines and other similar purposes, or zoning or other restrictions as to the use of real properties or liens incidental to the conduct of the business of such Person or to the ownership of its properties which do not in the aggregate materially adversely affect the value of said properties or materially impair their use in the operation of the business of such Person; (f) Liens securing an Interest Rate Agreement so long as the related Indebtedness is, and is permitted to be under this Indenture, secured by a Lien on the same property securing the Interest Rate Agreement; (g) leases and subleases of real property which do not materially interfere with the ordinary conduct of the business of the Company or any of its Restricted Subsidiaries; (h) judgement Liens not giving rise to an Event of Default so long as such Lien is adequately bonded and any appropriate legal proceedings which may have been duly initiated for the review of such judgment have not been finally terminated or the period within which such proceedings may be initiated has not expired; (i) Liens for the purpose of securing the payment (or the refinancing of the payment) of all or a part of the purchase price of, Capitalized Lease Obligations with respect to, or costs of construction or improvement of, assets or property acquired or constructed in the ordinary course of business provided that (x) the aggregate principal amount of Indebtedness secured by such Liens is otherwise permitted to be Incurred under this Indenture and does not exceed such costs and (y) such Liens are created within one year of construction or acquisition of such assets or property (or such longer period as may be permitted by the Senior Credit Agreement) and do not encumber any other assets or property of the Company or any Restricted Subsidiary other than such assets or property and assets affixed or appurtenant thereto; (j) Liens arising solely by virtue of any statutory or common law provision relating to banker's Liens, rights of set- off or similar rights and remedies as to deposit accounts or other funds maintained with a creditor depository institution; provided that (x) such deposit account is not a dedicated cash collateral account and is not subject to restrictions against access by the Company in excess of those set forth by regulations promulgated by the Federal Reserve Board, and (y) such deposit account is not intended by the Company or any Restricted Subsidiary to provide collateral to the depository institution; (k) Liens arising from Uniform Commercial Code financing statement filings regarding operating leases entered into by the Company and its Restricted Subsidiaries in the ordinary course of business; (l) Liens existing on the Issue Date; (m) Liens on property or shares of stock of a Person at the time such Person becomes a Subsidiary or is merged into or consolidated with the Company or any Subsidiary of the Company; PROVIDED, HOWEVER, that such Liens are not created, Incurred or assumed in connection with, or in contemplation of, such other Person becoming a Subsidiary; PROVIDED FURTHER, HOWEVER, that any such Lien may not extend to any other property owned by the Company or any Restricted Subsidiary; (n) Liens on property at the time the Company or a Subsidiary acquired the property, including any acquisition by means of a merger or consolidation with or into the Company or any Restricted Subsidiary; PROVIDED, HOWEVER, that such Liens are not created, Incurred or assumed in connection with, or in contemplation of, such acquisition; PROVIDED FURTHER, however, that such Liens may not extend to any other property owned by the Company or any Restricted Subsidiary; (o) Liens securing Indebtedness or other obligations of a Subsidiary owing to the Company or a Wholly Owned Subsidiary; (p) Liens securing Indebtedness under, or Subsidiary Guarantors relating to, the Senior Credit Agreement; and (q) Liens securing Refinancing Indebtedness Incurred to refinance Indebtedness that was previously so secured, provided that any such Lien is limited to all or part of the same property or assets (plus improvements, accessions, proceeds or dividends or distributions in respect thereof) that secured (or, under the written arrangements under which the original Lien arose, could secure) the obligations to which such Liens relate. "Person" means any individual, corporation, partnership, limited liability company, joint venture, association, joint-stock company, trust, unincorporated organization, government or any agency or political subdivision hereof or any other entity. "Preferred Stock", as applied to the Capital Stock of any corporation, means Capital Stock of any class or classes (however designated) which is preferred as to the payment of dividends, or as to the distribution of assets upon any voluntary or involuntary liquidation or dissolution of such corporation, over shares of Capital Stock of any other class of such corporation. "Private Exchange Securities" shall have the meaning set forth in the Registration Rights Agreement. A "Public Market" exists at any time with respect to the common stock of the Company if (i) the common stock of the Company is then registered with SEC pursuant to Section 12(b) or 12(g) of the Exchange Act and traded either on a national securities exchange or in the National Association of Securities Dealers Automated Quotation System and (ii) at least 15% of the total issued and outstanding common stock of the Company has been distributed prior to such time by means of an effective registration statement under the Securities Act. "QIB" means any "qualified institutional buyer" (as defined in Rule 144A under the Securities Act). "Refinancing Indebtedness" means Indebtedness that is Incurred to refund, refinance, replace, renew, repay or extend (including pursuant to any defeasance or discharge mechanism) (collectively, "refinance", "refinances," and "refinanced" shall have a correlative meaning) any Indebtedness existing on the date of this Indenture or Incurred in compliance with this Indenture (including Indebtedness of the Company that refinances Indebtedness of any Restricted Subsidiary and Indebtedness of any Restricted Subsidiary that refinances Indebtedness of another Restricted Subsidiary) including Indebtedness that refinances Refinancing Indebtedness, PROVIDED, HOWEVER, that (i) (x) if the Stated Maturity of the Indebtedness being refinanced is earlier than the Stated Maturity of the Securities, the Refinancing Indebtedness has a Stated Maturity no earlier than the Stated Maturity of the Indebtedness being refinanced or (y) if the Stated Maturity of the Indebtedness being refinanced is later than the Stated Maturity of the Securities, the Refinancing Indebtedness has a Stated Maturity later than the Securities, (ii) the Refinancing Indebtedness has an Average Life at the time such Refinancing Indebtedness is Incurred that is equal to or greater than the Average Life of the Indebtedness being refinanced, and (iii) such Refinancing Indebtedness is Incurred in an aggregate principal amount (or if issued with original issue discount, an aggregate issue price) that is equal to or less than the sum of the aggregate principal amount (or if issued with original issue discount, the aggregate accreted value) then outstanding (plus fees and expenses, including any premium and defeasance costs) of the Indebtedness being refinanced (except to the extent such increase is a result of a concurrent Incurrence of Indebtedness permitted to be Incurred under this Indenture). "Registered Exchange Offer" shall have the meaning set forth in the Registration Rights Agreement. "Registration Rights Agreement" means the Exchange and Registration Rights Agreement, dated July 20, 1998, among the Company, Chase Securities Inc. and BancBoston Securities Inc. "Related Business" means the business conducted by the Company and the Restricted Subsidiaries on the Issue Date and any business related, ancillary or complementary thereto, in each case as determined by the Company in good faith. "Restaurant Property" means, with respect to any restaurant location, the real property, land, buildings, improvements, machinery and equipment, and structures comprising such restaurant or in which such restaurant is located. "Restricted Period" means the 40 consecutive days beginning on and including the later of (A) the day on which the Initial Securities are offered to Persons other than distributors (as defined in Regulation S under the Securities Act) and (B) the Issue Date. "Restricted Securities Legend" means the Private Placement Legend set forth in clause (A) of SECTION 2.1(C) or the Regulation S Legend set forth in clause (B) of SECTION 2.1(C), as applicable. "Restricted Subsidiary" means any Subsidiary of the Company other than an Unrestricted Subsidiary. "Sale/Leaseback Transaction" means an arrangement relating to property now owned or hereafter acquired whereby the Company or a Restricted Subsidiary transfers such property to a Person (other than the Company or a Restricted Subsidiary) and the Company or a Subsidiary leases it from such Person. "SEC" means the Securities and Exchange Commission. "Secured Indebtedness" means any Indebtedness of the Company secured by a Lien. "Securities" means the Initial Securities and any Private Exchange Securities or the Exchange Securities issued under this Indenture. "Securities Act" means the Securities Act of 1933, as amended. "Securities Custodian" means the custodian with respect to the Global Security (as appointed by the Depositary), or any successor Person thereto and shall initially be the Trustee. "Senior Credit Agreement" means (i) the credit agreement to be entered into on the Acquisition Closing Date among the Company, the lenders parties thereto from time to time and BankBoston, N.A., as administrative agent, and Chase Bank of Texas, N.A., as documentation agent, and any guarantees issued thereunder, as the same may be amended, supplemented or otherwise modified from time to time, and (ii) any renewal, extension, refunding, restructuring, replacement, restatement or refinancing thereof. "Significant Subsidiary" means any Subsidiary that would be a "Significant Subsidiary" of the Company within the meaning of Rule 1-02 under Regulation S-X promulgated by the SEC. "Special Purpose Transaction" means a transaction between the Company or any Restricted Subsidiary, on the one hand ("TRANSFEROR"), and a Restricted Subsidiary, on the other ("TRANSFEREE"), in which (i) Transferor shall sell, assign and transfer to Transferee Transferor's interests in one or more Restaurant Properties, which interest may be in the form of fee interests, leasehold interests or a combination thereof, (ii) the purchase price for such interest shall consist solely of cash which shall be (x) paid by Transferee concurrently with such transfer and (y) applied by Transferor promptly after such transfer in repayment of outstanding Indebtedness of the Transferor and (iii) concurrently with such transfer, Transferee, as lessor, and Transferor, as lessee, shall enter into a lease (or sublease, if appropriate) with respect to each transferred Restaurant Property which shall provide for rental payments at least equal to the sum of all interest and principal due in respect of Transferee's Indebtedness incurred by the Transferee in connection with such Special Purpose Transaction, all lease payments, utility payments, property taxes and other similar costs, and all other payments due in respect of the Restaurant Property. "Stated Maturity" means, with respect to any security, the date specified in such security as the fixed date on which the payment of principal of such security is due and payable, including pursuant to any mandatory redemption provision. "Subordinated Obligation" means any Indebtedness of the Company (whether outstanding on the Issue Date or thereafter Incurred) which is subordinate or junior in right of payment to the Securities pursuant to a written agreement. "Subsidiary" of any Person means any corporation, association, partnership or other business entity of which more than 50% of the total voting power of shares of Capital Stock or other interests (including partnership interests) entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by (i) such Person, (ii) such Person and one or more Subsidiaries of such Person or (iii) one or more Subsidiaries of such Person. Unless otherwise specified herein, each reference to a Subsidiary will refer to a Subsidiary of the Company. "Subsidiary Guarantee" means, individually, any Guarantee of payment of the Securities by a Subsidiary Guarantor pursuant to the terms of this Indenture, and, collectively, all such Guarantees. Each such Subsidiary Guarantee will be in the form prescribed in this Indenture. "Subsidiary Guarantor" means each Subsidiary of the Company (other than (i) a Foreign Subsidiary or (ii) NERC Limited Partnership, NERC SPE Inc., NERC Limited Partnership II and NERC SPE II Inc.) in existence on the Issue Date and any Restricted Subsidiary (other than (i) a Foreign Subsidiary or (ii) a special purpose entity and/or limited partnership created solely to Incur Indebtedness of the type specified in clause (vii) of paragraph (b) under SECTION 3.3 of this Indenture in connection with a Special Purpose Transaction or any special purpose corporate general partner thereof) created or acquired by the Company after the Issue Date. "Subsidiary Guarantor Subordinated Obligation" means, with respect to a Subsidiary Guarantor, any Indebtedness of such Subsidiary Guarantor (whether outstanding on the Issue Date or thereafter Incurred) which is expressly subordinate in right of payment to the obligations of such Subsidiary Guarantor under its Subsidiary Guarantee pursuant to a written agreement. "Transactions" means: (i) the Acquisition; (ii) issuance of the Initial Securities, (iii) repayment of all amounts outstanding as of the date of the Acquisition under the Company's revolving credit facility with BankBoston, N.A.; (iv) repayment of all amounts outstanding as of the date of the Acquisition under Bertucci's, Inc.'s revolving credit facility with BankBoston, N.A., after such amounts have been reduced by all cash of Bertucci's, Inc. on hand immediately prior to the Acquisition; and (v) execution of the Senior Credit Agreement. "TIA" or "Trust Indenture Act" means the Trust Indenture Act of 1939 (15 U.S.C. ss.ss. 77aaa-77bbbb), as in effect on the date of this Indenture. "Trustee" means the party named as such in this Indenture until a successor replaces it and, thereafter, means the successor. "Trust Officer" shall mean, when used with respect to the Trustee, any officer within the corporate trust department of the Trustee with direct responsibility for the administration of this Indenture or any other officer of the Trustee to whom any corporate trust matter is referred because of such person's knowledge of and familiarity with the particular subject. "Unrestricted Subsidiary" means (i) any Subsidiary of the Company that at the time of determination shall be designated an Unrestricted Subsidiary by the Board of Directors in the manner provided below and (ii) any Subsidiary of an Unrestricted Subsidiary. The Board of Directors may designate any Subsidiary of the Company (including any newly acquired or newly formed Subsidiary of the Company) to be an Unrestricted Subsidiary unless such Subsidiary or any of its Subsidiaries owns any Capital Stock or Indebtedness of, or owns or holds any Lien on any property of, the Company or any Restricted Subsidiary of the Company that is not a Subsidiary of the Subsidiary to be so designated; PROVIDED, HOWEVER, that either (A) the Subsidiary to be so designated has total consolidated assets of $10,000 or less or (B) if such Subsidiary has consolidated assets greater than $10,000, then such designation would be permitted under SECTION 3.4 of this Indenture. The Board of Directors may designate any Unrestricted Subsidiary to be a Restricted Subsidiary; PROVIDED, HOWEVER, that immediately after giving effect to such designation (x) the Company could Incur $1.00 of additional Indebtedness pursuant to paragraph (a) of SECTION 3.3 of this Indenture and (y) no Default or Event of Default shall have occurred and be continuing. Any such designation by the Board of Directors shall be evidenced to the Trustee by promptly filing with the Trustee a copy of the Board Resolution giving effect to such designation and an Officers' Certificate certifying that such designation complied with the foregoing provisions. "U.S. Government Obligations" means direct obligations (or certificates representing an ownership interest in such obligations) of the United States of America (including any agency or instrumentality thereof) for the payment of which the full faith and credit of the United States of America is pledged and which are not callable or redeemable at the issuer's option. "Voting Stock" of a corporation means all classes of Capital Stock of such corporation then outstanding and normally entitled to vote in the election of directors. "Wholly-Owned Subsidiary" means a Restricted Subsidiary of the Company, all of the Capital Stock of which (other than directors' qualifying shares or any shares required to be held by Persons other than the Company or a Restricted Subsidiary in connection with the maintenance of liquor licenses) is owned by the Company or another Wholly-Owned Subsidiary. SECTION 1.2. OTHER DEFINITIONS. DEFINED IN TERM SECTION "Asset Sale Offer"............................... 3.6 "Acquisition Closing Date"....................... 5.2 "Affiliate Transaction".......................... 3.8 "Agent Member"................................... 2.1(d) "Authenticating Agent"........................... 2.2 "Bankruptcy Law"................................. 6.1 "Change of Control".............................. 3.9 "Change of Control Offer"........................ 3.9 "Change of Control Payment"...................... 3.9 "Change of Control Payment Date"................. 3.9 "Company Order".................................. 2.2 "Corporate Trust Office"......................... 3.13 "covenant defeasance option"..................... 8.1(b) "Custodian"...................................... 6.1 "Defaulted Interest"............................. 2.13 "Definitive Securities".......................... 2.1(e) "Escrow Account"................................. 5.2 "Escrow Collateral".............................. 5.2 "Escrow Payment Instructions".................... 5.2 "Event of Default"............................... 6.1 "Excess Proceeds"................................ 3.6 "Exchange Global Note"........................... 2.1 "Global Securities".............................. 2.1(a) "Institutional Accredited Investor Global Note".. 2.1 "Institutional Accredited Investor Note"......... 2.1 "legal defeasance option"........................ 8.1(b) "Note Register".................................. 2.3 "Obligations".................................... 10.1 "Paying Agent"................................... 2.3 "Private Placement Legend"....................... 2.1(c) "Registrar"...................................... 2.3 "Regulation S"................................... 2.1(a) "Regulation S Certificate"....................... 2.1 "Regulation S Global Note"....................... 2.1 "Regulation S Legend"............................ 2.1(c) "Regulation S Note".............................. 2.1 "Regulation S Permanent Global Note"............. 2.1 "Regulation S Temporary Global Note"............. 2.1 "Release Date"................................... 2.1 "Resale Restriction Termination Date"............ 2.6 "Restricted Payment"............................. 3.4(a) "Rule 144A"...................................... 2.1(a) "Rule 144A Global Note".......................... 2.1 "Rule 144A Note"................................. 2.1 "Special Interest Payment Date".................. 2.13 "Special Record Date"............................ 2.13 "Special Redemption Date"........................ 5.2 "Special Redemption Event"....................... 5.2 "Special Redemption Price"....................... 5.2 "Successor Company".............................. 4.1 SECTION 1.3. INCORPORATION BY REFERENCE OF TRUST INDENTURE ACT. This Indenture is subject to the mandatory provisions of the TIA which are incorporated by reference in and made a part of this Indenture. The following TIA terms have the following meanings: "Commission" means the SEC. "indenture securities" means the Securities. "indenture security holder" means a Securityholder. "indenture to be qualified" means this Indenture. "indenture trustee" or "institutional trustee" means the Trustee. "obligor" on the indenture securities means the Company and any other obligor on the indenture securities. All other TIA terms used in this Indenture that are defined by the TIA, defined in the TIA by reference to another statute or defined by SEC rule have the meanings assigned to them by such definitions. SECTION 1.4. RULES OF CONSTRUCTION. Unless the context otherwise requires: (1) a term has the meaning assigned to it; (2) an accounting term not otherwise defined has the meaning assigned to it in accordance with GAAP; (3) "or" is not exclusive; (4) "including" means including without limitation; (5) words in the singular include the plural and words in the plural include the singular; (6) unsecured Indebtedness shall not be deemed to be subordinate or junior to Secured Indebtedness merely by virtue of its nature as unsecured Indebtedness; (7) the principal amount of any non-interest bearing or other discount security at any date shall be the principal amount thereof that would be shown on a balance sheet of the issuer dated such date prepared in accordance with GAAP; and (8) the principal amount of any Preferred Stock shall be (i) the maximum liquidation value of such Preferred Stock or (ii) the maximum mandatory redemption or mandatory repurchase price with respect to such Preferred Stock, whichever is greater. ARTICLE II THE SECURITIES SECTION 2.1. FORM, DATING AND TERMS. (a) The Initial Securities are being offered and sold by the Company pursuant to a Purchase Agreement, dated July 13, 1998, among the Company, Chase Securities Inc. and BancBoston Securities Inc. Initial Securities offered and sold to the qualified institutional buyers (as defined in Rule 144A under the Securities Act ("RULE 144A")) in the United States of America (the "RULE 144A Note") will be issued on the Issue Date in the form of a permanent global Security substantially in the form of EXHIBIT A, which is hereby incorporated by reference and made a part of this Indenture, together with appropriate legends as set forth in SECTION 2.1(C) (the "RULE 144A GLOBAL NOTE"), deposited with the Trustee, as custodian for the Depositary, duly executed by the Company and authenticated by the Trustee as hereinafter provided. The Rule 144A Global Note may be represented by more than one certificate, if so required by the Depositary's rules regarding the maximum principal amount to be represented by a single certificate. The aggregate principal amount of the Rule 144A Global Note may from time to time be increased or decreased by adjustments made on the records of the Trustee, as custodian for the Depositary or its nominee, as hereinafter provided. Initial Securities offered and sold outside the United States of America ("REGULATION S NOTE") in reliance on Regulation S under the Securities Act ("REGULATION S") will be issued on the Issue Date in the form of a temporary global Security, without interest coupons, substantially in the form set forth in EXHIBIT A, which are hereby incorporated by reference and made a part of this Indenture, together with appropriate legends as set forth in SECTION 2.1(C) (a "REGULATION S TEMPORARY GLOBAL NOTE"). Beneficial interests in a Regulation S Temporary Global Note will be exchangeable for beneficial interests in a single permanent global security (the "REGULATION S PERMANENT GLOBAL NOTE", together with the Regulation S Temporary Global Note, the "REGULATION S GLOBAL NOTE") on or after the expiration of the Restricted Period (the "RELEASE DATE") upon the receipt by the Trustee or its agent of a certificate certifying that the Holder of the beneficial interest in the Regulation S Temporary Global Note is a Non-U.S. Person (a "REGULATION S CERTIFICATE"), substantially in the form set forth in SECTION 2.8. Upon receipt by the Trustee or Paying Agent of a Regulation S Certificate, (i) with respect to the first such Regulation S Certificate, the Company shall execute and upon receipt of a Company Order for authentication, the Trustee or an Authenticating Agent (as defined in SECTION 2.2) shall authenticate and deliver to the custodian, the applicable Regulation S Permanent Global Note and (ii) with respect to the first and all subsequent Regulation S Certificates, the custodian shall exchange on behalf of the applicable beneficial owners the portion of the applicable Regulation S Temporary Global Note covered by such Regulation S Certificates for a comparable portion of the applicable Regulation S Permanent Global Note. Upon any exchange of a portion of a Regulation S Temporary Global Note for a comparable portion of a Regulation S Permanent Global Note, the custodian shall endorse on the schedules affixed to each of such Regulation S Global Note (or on continuations of such schedules affixed to each of such Regulation S Global Note and made parts thereof) appropriate notations evidencing the date of transfer and (x) with respect to the applicable Regulation S Temporary Global Note, a decrease in the principal amount thereof equal to the amount covered by the applicable certification and (y) with respect to the applicable Regulation S Permanent Global Note, an increase in the principal amount thereof equal to the principal amount of the decrease in the applicable Regulation S Temporary Global Note pursuant to clause (x) above. The Regulation S Global Note will be deposited with the Trustee, as custodian for the Depositary, duly executed by the Company and authenticated by the Trustee as hereinafter provided. The Regulation S Global Note may be represented by more than one certificate, if so required by the Depositary's rules regarding the maximum principal amount to be represented by a single certificate. The aggregate principal amount of the Regulation S Global Note may from time to time be increased or decreased by adjustments made on the records of the Trustee, as custodian for the Depositary or its nominee, as hereinafter provided. Initial Securities resold to institutional "accredited investors" (as defined in Rules 501(a)(1), (2), (3) and (7) under the Securities Act) in the United States of America (the "INSTITUTIONAL ACCREDITED INVESTOR NOTE") will be issued in the form of a permanent global Security substantially in the form of EXHIBIT A, which is hereby incorporated by reference and made a part of this Indenture, together with appropriate legends as set forth in SECTION 2.1(C) (the "INSTITUTIONAL ACCREDITED INVESTOR GLOBAL NOTE") deposited with the Trustee, as custodian for the Depositary, duly executed by the Company and authenticated by the Trustee as hereinafter provided. The Institutional Accredited Investor Global Note may be represented by more than one certificate, if so required by the Depositary's rules regarding the maximum principal amount to be represented by a single certificate. The aggregate principal amount of the Institutional Accredited Investor Global Note may from time to time be increased or decreased by adjustments made on the records of the Trustee, as custodian for the Depositary or its nominee, as hereinafter provided. Exchange Securities exchanged for interests in the Rule 144A Note, the Regulation S Note and the Institutional Accredited Investor Note will be issued in the form of a permanent global Security substantially in the form of EXHIBIT B, which is hereby incorporated by reference and made a part of this Indenture, deposited with the Trustee as hereinafter provided, with the appropriate legend set forth in SECTION 2.1(C) (the "EXCHANGE GLOBAL NOTE"). The Exchange Global Note may be represented by more than one certificate, if so required by the Depositary's rules regarding the maximum principal amount to be represented by a single certificate. The Rule 144A Global Note, the Regulation S Global Note, the Exchange Global Note and the Institutional Accredited Investor Global Note are sometimes collectively herein referred to as the "GLOBAL SECURITIES." The principal of (and premium, if any) and interest on the Securities shall be payable at the office or agency of the Company maintained for such purpose in The City of New York, or at such other office or agency of the Company as may be maintained for such purpose pursuant to SECTION 2.3; PROVIDED, HOWEVER, that, at the option of the Company, each installment of interest may be paid by (i) check mailed to addresses of the Persons entitled thereto as such addresses shall appear on the Note Register or (ii) wire transfer to an account located in the United States maintained by the payee. The Private Exchange Securities shall be in the form of EXHIBIT A. The Securities may have notations, legends or endorsements required by law, stock exchange rule or usage, in addition to those set forth on EXHIBITS A AND B and in SECTION 2.1(C). The Company and the Trustee shall approve the forms of the Securities and any notation, endorsement or legend on them. Each Security shall be dated the date of its authentication. The terms of the Securities set forth in EXHIBIT A and EXHIBIT B are part of the terms of this Indenture and, to the extent applicable, the Company and the Trustee, by their execution and delivery of this Indenture, expressly agree to be bound by such terms. (b) DENOMINATIONS. The Securities shall be issuable only in fully registered form, without coupons, and only in denominations of $1,000 and any integral multiple thereof. (c) RESTRICTIVE LEGENDS. Unless and until (i) an Initial Security is sold under an effective registration statement or (ii) an Initial Security is exchanged for an Exchange Security in connection with an effective registration statement, in each case pursuant to the Registration Rights Agreement, (A) in the case of the Rule 144A Global Note and the Institutional Accredited Investor Global Note, such Initial Security shall bear the following legend (the "PRIVATE PLACEMENT LEGEND") on the face thereof: "THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR THE SECURITIES LAWS OF ANY STATE OR OTHER JURISDICTION. NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, SUCH REGISTRATION. THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF AGREES, ON ITS OWN BEHALF AND ON BEHALF OF ANY INVESTOR ACCOUNT FOR WHICH IT HAS PURCHASED SECURITIES, TO OFFER, SELL OR OTHERWISE TRANSFER SUCH SECURITY, PRIOR TO THE DATE (THE "RESALE RESTRICTION TERMINATION DATE") WHICH IS TWO YEARS AFTER THE LATER OF THE ORIGINAL ISSUE DATE HEREOF AND THE LAST DATE ON WHICH THE COMPANY OR ANY AFFILIATE OF THE COMPANY WAS THE OWNER OF THIS SECURITY (OR ANY PREDECESSOR OF SUCH SECURITY), ONLY (A) TO THE COMPANY, (B) PURSUANT TO A REGISTRATION STATEMENT THAT HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C) FOR SO LONG AS THE SECURITIES ARE ELIGIBLE FOR RESALE PURSUANT TO RULE 144A UNDER THE SECURITIES ACT, TO A PERSON IT REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (D) PURSUANT TO OFFERS AND SALES THAT OCCUR OUTSIDE THE UNITED STATES WITHIN THE MEANING OF REGULATION S UNDER THE SECURITIES ACT, (E) TO AN "ACCREDITED INVESTOR" WITHIN THE MEANING OF RULE 501(a)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT THAT IS AN INSTITUTIONAL INVESTOR ACQUIRING THE SECURITY FOR ITS OWN ACCOUNT, OR FOR THE ACCOUNT OF SUCH AN INSTITUTIONAL ACCREDITED INVESTOR, IN EACH CASE IN A TRANSACTION INVOLVING A MINIMUM PRINCIPAL AMOUNT OF $250,000 OF SECURITIES, FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TO OR FOR OFFER OR SALE IN CONNECTION WITH ANY DISTRIBUTION IN VIOLATION OF THE SECURITIES ACT, OR (F) PURSUANT TO ANY OTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, SUBJECT TO THE COMPANY'S AND THE TRUSTEE'S RIGHT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER PURSUANT TO CLAUSES (D), (E) AND (F) TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO EACH OF THEM. THIS LEGEND WILL BE REMOVED UPON THE REQUEST OF THE HOLDER AFTER THE RESALE RESTRICTION TERMINATION DATE."; and (B) in the case of the Regulation S Global Note, such Initial Security shall bear the following legend (the "REGULATION S LEGEND") on the face thereof: "THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES OR TO OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE. BY ITS ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS THAT IT IS NOT A U.S. PERSON NOR IS IT PURCHASING FOR THE ACCOUNT OF A U.S. PERSON AND IS ACQUIRING THIS SECURITY IN AN OFFSHORE TRANSACTION IN ACCORDANCE WITH REGULATION S UNDER THE SECURITIES ACT ("REGULATION S"), (2) BY ITS ACCEPTANCE HEREOF AGREES TO OFFER, SELL OR OTHERWISE TRANSFER SUCH SECURITY, PRIOR TO THE DATE (THE "RESALE RESTRICTION TERMINATION DATE") WHICH IS TWO YEARS AFTER THE LATER OF THE ORIGINAL ISSUE DATE HEREOF AND THE LAST DATE ON WHICH THE COMPANY OR ANY AFFILIATE OF THE COMPANY WAS THE OWNER OF THIS SECURITY (OR ANY PREDECESSOR OF SUCH SECURITY), ONLY (A) TO THE COMPANY, (B) PURSUANT TO A REGISTRATION STATEMENT THAT HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C) FOR SO LONG AS THE SECURITIES ARE ELIGIBLE FOR RESALE PURSUANT TO RULE 144A UNDER THE SECURITIES ACT, TO A PERSON IT REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (D) PURSUANT TO OFFERS AND SALES THAT OCCUR OUTSIDE THE UNITED STATES WITHIN THE MEANING OF REGULATION S, (E) TO AN "ACCREDITED INVESTOR" WITHIN THE MEANING OF RULE 501(a)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT THAT IS AN INSTITUTIONAL INVESTOR ACQUIRING THE SECURITY FOR ITS OWN ACCOUNT, OR FOR THE ACCOUNT OF SUCH AN INSTITUTIONAL ACCREDITED INVESTOR, IN EACH CASE IN A TRANSACTION INVOLVING A MINIMUM PRINCIPAL AMOUNT OF SECURITIES OF $250,000, FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TO OR FOR OFFER OR SALE IN CONNECTION WITH ANY DISTRIBUTION IN VIOLATION OF THE SECURITIES ACT, OR (F) PURSUANT TO ANY OTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, SUBJECT TO THE COMPANY'S AND THE TRUSTEE'S RIGHT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER PURSUANT TO CLAUSES (D), (E) OR (F) TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO EACH OF THEM AND IN THE CASE OF THE FOREGOING CLAUSE (E), A CERTIFICATE OF TRANSFER IN THE FORM APPEARING ON THE OTHER SIDE OF THIS SECURITY IS COMPLETED AND DELIVERED BY THE TRANSFEROR TO THE COMPANY AND THE TRUSTEE. THIS LEGEND WILL BE REMOVED AFTER 40 CONSECUTIVE DAYS BEGINNING ON AND INCLUDING THE LATER OF (A) THE DAY ON WHICH THE SECURITIES ARE OFFERED TO PERSONS OTHER THAN DISTRIBUTORS (AS DEFINED IN REGULATION S) AND (B) THE DATE OF THE CLOSING OF THE ORIGINAL OFFERING. AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION", "UNITED STATES" AND "U.S. PERSON" HAVE THE MEANINGS GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES ACT." The Global Securities, whether or not an Initial Security, shall bear the following legend on the face thereof: "UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), NEW YORK, NEW YORK, TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS IN WHOLE, BUT NOT IN PART, TO NOMINEES OF DTC OR TO A SUCCESSOR THEREOF OR SUCH SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN THE INDENTURE REFERRED TO ON THE REVERSE HEREOF." The Regulation S Temporary Global Note shall also bear the following legend on the face thereof: THIS GLOBAL NOTE IS A TEMPORARY GLOBAL NOTE FOR PURPOSES OF REGULATION S UNDER THE SECURITIES ACT. NEITHER THIS TEMPORARY GLOBAL NOTE NOR ANY INTEREST HEREIN MAY BE OFFERED, SOLD OR DELIVERED, EXCEPT AS PERMITTED UNDER THE INDENTURE REFERRED TO BELOW. NO BENEFICIAL OWNERS OF THIS TEMPORARY GLOBAL NOTE SHALL BE ENTITLED TO RECEIVE PAYMENT OF PRINCIPAL OR INTEREST HEREON UNLESS THE REQUIRED CERTIFICATIONS HAVE BEEN DELIVERED PURSUANT TO THE TERMS OF THE INDENTURE. (d) BOOK-ENTRY PROVISIONS. (i) This SECTION 2.1(D) shall apply only to Global Securities deposited with the Trustee, as custodian for the Depositary. (ii) Each Global Security initially shall (x) be registered in the name of the Depositary for such Global Security or the nominee of such Depositary, (y) be delivered to the Trustee as custodian for such Depositary and (z) bear legends as set forth in SECTION 2.1(C). (iii) Members of, or participants in, the Depositary ("AGENT MEMBERS") shall have no rights under this Indenture with respect to any Global Security held on their behalf by the Depositary or by the Trustee as the custodian of the Depositary or under such Global Security, and the Depositary may be treated by the Company, the Trustee and any agent of the Company or the Trustee as the absolute owner of such Global Security for all purposes whatsoever. Notwithstanding the foregoing, nothing herein shall prevent the Company, the Trustee or any agent of the Company or the Trustee from giving effect to any written certification, proxy or other authorization furnished by the Depositary or impair, as between the Depositary and its Agent Members, the operation of customary practices of the Depositary governing the exercise of the rights of a holder of a beneficial interest in any Global Security. (iv) In connection with any transfer of a portion of the beneficial interest in a Global Security pursuant to subsection (e) of this Section to beneficial owners who are required to hold Definitive Securities, the Trustee shall reflect on its books and records the date and a decrease in the principal amount of such Global Security in an amount equal to the principal amount of the beneficial interest in the Global Security to be transferred, and the Company shall execute, and the Trustee shall authenticate and deliver, one or more Definitive Securities of like tenor and amount. (v) In connection with the transfer of an entire Global Security to beneficial owners pursuant to subsection (e) of this Section, such Global Security shall be deemed to be surrendered to the Trustee for cancellation, and the Company shall execute, and the Trustee shall authenticate and deliver, to each beneficial owner identified by the Depositary in exchange for its beneficial interest in such Global Security, an equal aggregate principal amount of Definitive Securities of authorized denominations. (e) DEFINITIVE SECURITIES. Except as provided below, owners of beneficial interests in Global Securities will not be entitled to receive certificated Securities ("DEFINITIVE SECURITIES"). If required to do so pursuant to any applicable law or regulation, beneficial owners may obtain Definitive Securities in exchange for their beneficial interests in a Global Security upon written request in accordance with the Depositary's and the Registrar's procedures. In addition, Definitive Securities shall be transferred to all beneficial owners in exchange for their beneficial interests in a Global Security if (i) the Depositary notifies the Company that it is unwilling or unable to continue as Depositary for such Global Security or the Depositary ceases to be a clearing agency registered under the Exchange Act, at a time when the Depositary is required to be so registered in order to act as Depositary, and in each case a successor depositary is not appointed by the Company within 90 days of such notice or, (ii) the Company executes and delivers to the Trustee and Registrar an Officers' Certificate stating that such Global Security shall be so exchangeable or (iii) an Event of Default has occurred and is continuing and the Registrar has received a request from the Depositary or the Trustee. (f) Any Definitive Security delivered in exchange for an interest in a Global Security pursuant to SECTION 2.1(D)(IV) OR (V) shall, except as otherwise provided by SECTION 2.6(C), bear the applicable legend regarding transfer restrictions applicable to the Definitive Security set forth in SECTION 2.1(C). (g) The registered holder of a Global Security may grant proxies and otherwise authorize any Person, including Agent Members and Persons that may hold interests through Agent Members, to take any action which a Holder is entitled to take under this Indenture or the Securities. SECTION 2.2. EXECUTION AND AUTHENTICATION. One Officer shall sign the Securities for the Company by manual or facsimile signature. If an Officer whose signature is on a Security no longer holds that office at the time the Trustee authenticates the Security, the Security shall be valid nevertheless. A Security shall not be valid until an authorized signatory of the Trustee manually authenticates the Security. The signature of the Trustee on a Security shall be conclusive evidence that such Security has been duly and validly authenticated and issued under this Indenture. At any time and from time to time after the execution and delivery of this Indenture, the Trustee shall authenticate and make available for delivery: (1) Initial Securities for original issue on the Issue Date in an aggregate principal amount of $100.0 million and (2) Exchange Securities for issue only in a Registered Exchange Offer pursuant to the Registration Rights Agreement, and only in exchange for Initial Securities of an equal principal amount, in each case upon a written order of the Company signed by two Officers or by an Officer and either an Assistant Treasurer or an Assistant Secretary of the Company (the "COMPANY ORDER"). Such Company Order shall specify the amount of the Securities to be authenticated and the date on which the original issue of Securities is to be authenticated and whether the Securities are to be Initial Securities or Exchange Securities. The aggregate principal amount of Securities which may be authenticated and delivered under this Indenture is limited to $100.0 million outstanding except as provided in SECTION 2.9. All Securities issued on the Issue Date shall be identical in all respects. Notwithstanding anything to the contrary contained in this Indenture, all Securities issued under this Indenture shall vote and consent together on all matters as one class and no Securities will have the right to vote or consent as a separate class on any matter. The Trustee may appoint an agent (the "AUTHENTICATING AGENT") reasonably acceptable to the Company to authenticate the Securities. Unless limited by the terms of such appointment, any such Authenticating Agent may authenticate Securities whenever the Trustee may do so. Each reference in this Indenture to authentication by the Trustee includes authentication by the Authenticating Agent. In case the Company, pursuant to ARTICLE IV, shall be consolidated or merged with or into any other Person or shall convey, transfer, lease or otherwise dispose of its properties and assets substantially as an entirety to any Person, and the successor Person resulting from such consolidation, or surviving such merger, or into which the Company shall have been merged, or the Person which shall have received a conveyance, transfer, lease or other disposition as aforesaid, shall have executed an indenture supplemental hereto with the Trustee pursuant to ARTICLE IV, any of the Securities authenticated or delivered prior to such consolidation, merger, conveyance, transfer, lease or other disposition may, from time to time, at the request of the successor Person, be exchanged for other Securities executed in the name of the successor Person with such changes in phraseology and form as may be appropriate, but otherwise in substance of like tenor as the Securities surrendered for such exchange and of like principal amount; and the Trustee, upon Company Order of the successor Person, shall authenticate and deliver Securities as specified in such order for the purpose of such exchange. If Securities shall at any time be authenticated and delivered in any new name of a successor Person pursuant to this SECTION 2.2 in exchange or substitution for or upon registration of transfer of any Securities, such successor Person, at the option of the Holders but without expense to them, shall provide for the exchange of all Securities at the time outstanding for Securities authenticated and delivered in such new name. SECTION 2.3. REGISTRAR AND PAYING AGENT. The Company shall maintain an office or agency where Securities may be presented for registration of transfer or for exchange (the "REGISTRAR") and an office or agency where Securities may be presented for payment (the "PAYING AGENT"). The Company shall cause each of the Registrar and the Paying Agent to maintain an office or agency in the Borough of Manhattan, The City of New York. The Registrar shall keep a register of the Securities and of their transfer and exchange (the "NOTE REGISTER"). The Company may have one or more co-registrars and one or more additional paying agents. The term "Paying Agent" includes any additional paying agent. The Company shall enter into an appropriate agency agreement with any Registrar, Paying Agent or co-registrar not a party to this Indenture, which shall incorporate the terms of the TIA. The agreement shall implement the provisions of this Indenture that relate to such agent. The Company shall notify the Trustee of the name and address of each such agent. If the Company fails to maintain a Registrar or Paying Agent, the Trustee shall act as such and shall be entitled to appropriate compensation therefor pursuant to SECTION 7.7. The Company or any of its domestically incorporated Wholly-Owned Subsidiaries may act as Paying Agent, Registrar, co-registrar or transfer agent. The Company initially appoints the Trustee as Registrar and Paying Agent for the Securities. SECTION 2.4. PAYING AGENT TO HOLD MONEY IN TRUST. By at least 10:00 a.m (New York City time) on the date on which any principal of or interest on any Security is due and payable, the Company shall deposit with the Paying Agent a sum sufficient to pay such principal or interest when due. The Company shall require each Paying Agent (other than the Trustee) to agree in writing that such Paying Agent shall hold in trust for the benefit of Securityholders or the Trustee all money held by such Paying Agent for the payment of principal of or interest on the Securities and shall notify the Trustee in writing of any default by the Company or any Guarantor in making any such payment. If the Company or a Subsidiary acts as Paying Agent, it shall segregate the money held by it as Paying Agent and hold it as a separate trust fund. The Company at any time may require a Paying Agent (other than the Trustee) to pay all money held by it to the Trustee and to account for any funds disbursed by such Paying Agent. Upon complying with this Section, the Paying Agent (if other than the Company or a Subsidiary) shall have no further liability for the money delivered to the Trustee. Upon any bankruptcy, reorganization or similar proceeding with respect to the Company, the Trustee shall serve as Paying Agent for the Securities. SECTION 2.5. SECURITYHOLDER LISTS. The Trustee shall preserve in as current a form as is reasonably practicable the most recent list available to it of the names and addresses of Securityholders. If the Trustee is not the Registrar, or to the extent otherwise required under the TIA, the Company shall furnish to the Trustee, in writing at least seven Business Days before each interest payment date and at such other times as the Trustee may request in writing, a list in such form and as of such date as the Trustee may reasonably require of the names and addresses of Securityholders. SECTION 2.6. TRANSFER AND EXCHANGE. (a) The following provisions shall apply with respect to any proposed transfer of a Rule 144A Note or an Institutional Accredited Investor Note prior to the date which is two years after the later of the date of original issue and the last date on which the Company or any Affiliate of the Company was the owner of such Securities (or any predecessor thereto) (the "RESALE RESTRICTION TERMINATION DATE"): (i) a transfer of an Institutional Accredited Investor Note or a beneficial interest therein to a QIB shall be made upon the representation of the transferee in the form of an assignment on the reverse of the certificate that it is purchasing the Security for its own account or an account with respect to which it exercises sole investment discretion and that it and any such account is a "qualified institutional buyer" within the meaning of Rule 144A, and is aware that the sale to it is being made in reliance on Rule 144A and acknowledges that it has received such information regarding the Company as the undersigned has requested pursuant to Rule 144A or has determined not to request such information and that it is aware that the transferor is relying upon its foregoing representations in order to claim the exemption from registration provided by Rule 144A; (ii) a transfer of a Rule 144A Note or a beneficial interest therein to an institutional accredited investor shall be made upon receipt by the Trustee or its agent of a certificate substantially in the form set forth in SECTION 2.7 from the proposed transferee and, if requested by the Company or the Trustee, the delivery of an Opinion of Counsel, certification and/or other information satisfactory to each of them; and (iii) a transfer of a Rule 144A Note or an Institutional Accredited Investor Note or a beneficial interest therein to a Non-U.S. Person shall be made upon receipt by the Trustee or its agent of a certificate substantially in the form set forth in SECTION 2.8 from the proposed transferee and, if requested by the Company or the Trustee, the delivery of an Opinion of Counsel, certification and/or other information satisfactory to each of them. (b) The following provisions shall apply with respect to any proposed transfer of a Regulation S Note prior to the expiration of the Restricted Period: (i) a transfer of a Regulation S Note or a beneficial interest therein to a QIB shall be made upon the representation of the transferee, in the form of assignment on the reverse of the certificate, that it is purchasing the Security for its own account or an account with respect to which it exercises sole investment discretion and that it and any such account is a "qualified institutional buyer" within the meaning of Rule 144A, and is aware that the sale to it is being made in reliance on Rule 144A and acknowledges that it has received such information regarding the Company as the undersigned has requested pursuant to Rule 144A or has determined not to request such information and that it is aware that the transferor is relying upon its foregoing representations in order to claim the exemption from registration provided by Rule 144A; and (ii) a transfer of a Regulation S Note or a beneficial interest therein to an institutional accredited investor shall be made upon receipt by the Trustee or its agent of a certificate substantially in the form set forth in SECTION 2.7 from the proposed transferee and, if requested by the Company or the Trustee, the delivery of an Opinion of Counsel, certification and/or other information satisfactory to each of them. After the expiration of the Restricted Period, interests in the Regulation S Note shall be freely transferable. (c) RESTRICTED SECURITIES LEGEND. Upon the registration of transfer, exchange or replacement of Securities not bearing a Restricted Securities Legend, the Registrar shall deliver Securities that do not bear a Restricted Securities Legend. Upon the registration of transfer, exchange or replacement of Securities bearing a Restricted Securities Legend, the Registrar shall deliver only Securities that bear a Restricted Securities Legend unless there is delivered to the Registrar an Opinion of Counsel to the effect that neither such legend nor the related restrictions on transfer are required in order to maintain compliance with the provisions of the Securities Act. (d) On the Issue Date, the Company shall deliver to the Trustee an Officer's Certificate setting forth the Resale Restriction Termination Date and the Restricted Period. The Registrar shall retain copies of all letters, notices and other written communications received pursuant to SECTION 2.1 or this SECTION 2.6. The Company shall have the right to inspect and make copies of all such letters, notices or other written communications at any reasonable time upon the giving of reasonable written notice to the Registrar. (e) OBLIGATIONS WITH RESPECT TO TRANSFERS AND EXCHANGES OF SECURITIES. (i) To permit registrations of transfers and exchanges, the Company shall, subject to the other terms and conditions of this ARTICLE II, execute and the Trustee shall authenticate Definitive Securities and Global Securities at the Registrar's or co-registrar's request. (ii) No service charge shall be made to a Holder for any registration of transfer or exchange, but the Company may require payment of a sum sufficient to cover any transfer tax, assessments, or similar governmental charge payable in connection therewith (other than any such transfer taxes, assessments or similar governmental charges payable upon exchange or transfer pursuant to SECTIONS 3.7, 3.9 or 9.5). (iii) The Registrar or co-registrar shall not be required to register the transfer of or exchange of any Security for a period beginning (1) 15 days before the mailing of a notice to redeem Securities and ending at the close of business on the day of such mailing or (2) 15 days before an interest payment date and ending on such interest payment date. (iv) Prior to the due presentation for registration of transfer of any Security, the Company, the Trustee, the Paying Agent, the Registrar or any co-registrar may deem and treat the person in whose name a Security is registered as the absolute owner of such Security for the purpose of receiving payment of principal of and interest on such Security and for all other purposes whatsoever, whether or not such Security is overdue, and none of the Company, the Trustee, the Paying Agent, the Registrar or any co-registrar shall be affected by notice to the contrary. (v) Any Definitive Security delivered in exchange for an interest in a Global Security pursuant to SECTION 2.1(D) shall, except as otherwise provided by SECTION 2.6(C), bear the applicable legend regarding transfer restrictions applicable to the Definitive Security set forth in SECTION 2.1(C). (vi) All Securities issued upon any registration of transfer or exchange pursuant to the terms of this Indenture shall evidence the same debt and shall be entitled to the same benefits under this Indenture as the Securities surrendered upon such registration of transfer or exchange. (f) NO OBLIGATION OF THE TRUSTEE. (i) The Trustee shall have no responsibility or obligation to any beneficial owner of a Global Security, a member of, or a participant in, the Depositary or other Person with respect to the accuracy of the records of the Depositary or its nominee or of any participant or member thereof, with respect to any ownership interest in the Securities or with respect to the delivery to any participant, member, beneficial owner or other Person (other than the Depositary) of any notice (including any notice of redemption) or the payment of any amount or delivery of any Securities (or other security or property) under or with respect to such Securities. All notices and communications to be given to the Holders and all payments to be made to Holders in respect of the Securities shall be given or made only to or upon the order of the registered Holders (which shall be the Depositary or its nominee in the case of a Global Security). The rights of beneficial owners in any Global Security shall be exercised only through the Depositary subject to the applicable rules and procedures of the Depositary. The Trustee may rely and shall be fully protected in relying upon information furnished by the Depositary with respect to its members, participants and any beneficial owners. (ii) The Trustee shall have no obligation or duty to monitor, determine or inquire as to compliance with any restrictions on transfer imposed under this Indenture or under applicable law with respect to any transfer of any interest in any Security (including any transfers between or among Depositary participants, members or beneficial owners in any Global Security) other than to require delivery of such certificates and other documentation or evidence as are expressly required by, and to do so if and when expressly required by, the terms of this Indenture, and to examine the same to determine substantial compliance as to form with the express requirements hereof. SECTION 2.7. FORM OF CERTIFICATE TO BE DELIVERED IN CONNECTION WITH TRANSFERS TO INSTITUTIONAL ACCREDITED INVESTORS. [Date] United States Trust Company of New York 114 West 47th Street New York, New York 10036-1532 Attention: Corporate Trust Department Ladies and Gentlemen: This certificate is delivered to request a transfer of $ principal amount of the 10 3/4% Senior Notes due 2008 (the "Securities") of NE Restaurant Company, Inc. (the "Company"). The undersigned represents and warrants to you that: 1. We are an institutional "accredited investor" (as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act of 1933, as amended (the "Securities Act")) purchasing for our own account or for the account of such an institutional "accredited investor" at least $250,000 principal amount of the Securities, and we are acquiring the Securities not with a view to, or for offer or sale in connection with, any distribution in violation of the Securities Act. We have such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risk of our investment in the Securities and we invest in or purchase securities similar to the Securities in the normal course of our business. We and any accounts for which we are acting are each able to bear the economic risk of our or its investment. 2. We understand that the Securities have not been registered under the Securities Act and, unless so registered, may not be sold except as permitted in the following sentence. We agree on our own behalf and on behalf of any investor account for which we are purchasing Securities to offer, sell or otherwise transfer such Securities prior to the date which is two years after the later of the date of original issue and the last date on which the Company or any affiliate of the Company was the owner of such Securities (or any predecessor thereto) (the "Resale Restriction Termination Date") only (a) to the Company, (b) pursuant to a registration statement which has been declared effective under the Securities Act, (c) in a transaction complying with the requirements of Rule 144A under the Securities Act, to a person we reasonably believe is a qualified institutional buyer under Rule 144A (a "QIB") that purchases for its own account or for the account of a QIB and to whom notice is given that the transfer is being made in reliance on Rule 144A, (d) pursuant to offers and sales that occur outside the United States within the meaning of Regulation S under the Securities Act, (e) to an institutional "accredited investor" within the meaning of Rule 501(a)(1), (2), (3) or (7) under the Securities Act that is purchasing for its own account or for the account of such an institutional "accredited investor," in each case in a minimum principal amount of Securities of $250,000 or (f) pursuant to any other available exemption from the registration requirements of the Securities Act, subject in each of the foregoing cases to any requirement of law that the disposition of our property or the property of such investor account or accounts be at all times within our or their control and in compliance with any applicable state securities laws. The foregoing restrictions on resale will not apply subsequent to the Resale Restriction Termination Date. If any resale or other transfer of the Securities is proposed to be made pursuant to clause (e) above prior to the Resale Restriction Termination Date, the transferor shall deliver a letter from the transferee substantially in the form of this letter to the Company and the Trustee, which shall provide, among other things, that the transferee is an institutional "accredited investor" (within the meaning of Rule 501(a)(1), (2), (3) or (7) under the Securities Act) and that it is acquiring such Securities for investment purposes and not for distribution in violation of the Securities Act. Each purchaser acknowledges that the Company and the Trustee reserve the right prior to any offer, sale or other transfer prior to the Resale Termination Date of the Securities pursuant to clauses (d), (e) or (f) above to require the delivery of an Opinion of Counsel, certifications and/or other information satisfactory to the Company and the Trustee. TRANSFEREE:_____________________ BY______________________________ Signature Medallion Guaranteed SECTION 2.8. FORM OF CERTIFICATE TO BE DELIVERED IN CONNECTION WITH TRANSFERS PURSUANT TO REGULATION S. [Date] United States Trust Company of New York 114 West 47th Street New York, New York 10036-1532 Attention: Corporate Trust Department Re: NE Restaurant Company, Inc. 10 3/4% SENIOR NOTES DUE 2008 (THE "SECURITIES") Ladies and Gentlemen: In connection with our proposed sale of $________ aggregate principal amount of the Securities, we confirm that such sale has been effected pursuant to and in accordance with Regulation S under the United States Securities Act of 1933, as amended (the "Securities Act"), and, accordingly, we represent that: (a) the offer of the Securities was not made to a Person in the United States; (b) either (i) at the time the buy order was originated, the transferee was outside the United States or we and any person acting on our behalf reasonably believed that the transferee was outside the United States or (ii) the transaction was executed in, on or through the facilities of a designated off-shore securities market and neither we nor any person acting on our behalf knows that the transaction has been pre-arranged with a buyer in the United States; (c) no directed selling efforts have been made in the United States in contravention of the requirements of Rule 903(b) or Rule 904(b) of Regulation S, as applicable; and (d) the transaction is not part of a plan or scheme to evade the registration requirements of the Securities Act. In addition, if the sale is made during a restricted period and the provisions of Rule 903(c)(3) or Rule 904(c)(1) of Regulation S are applicable thereto, we confirm that such sale has been made in accordance with the applicable provisions of Rule 903(c)(3) or Rule 904(c)(1), as the case may be. You and the Company are entitled to rely upon this letter and are irrevocably authorized to produce this letter or a copy hereof to any interested party in any administrative or legal proceedings or official inquiry with respect to the matters covered hereby. Terms used in this certificate have the meanings set forth in Regulation S. Very truly yours, [Name of Transferor] By:____________________________ _____________________________ Authorized Signature Signature Medallion Guaranteed SECTION 2.9. MUTILATED, DESTROYED, LOST OR STOLEN SECURITIES. If a mutilated Security is surrendered to the Registrar or if the Holder of a Security claims that the Security has been lost, destroyed or wrongfully taken, the Company shall issue and the Trustee shall authenticate a replacement Security if the requirements of Section 8-405 of the New York Uniform Commercial Code are met and the Holder satisfies any other reasonable requirements of the Trustee. If required by the Trustee or the Company, such Holder shall furnish an indemnity bond sufficient in the judgment of the Company and the Trustee to protect the Company, the Trustee, the Paying Agent, the Registrar and any co-registrar from any loss which any of them may suffer if a Security is replaced, and, in the absence of notice to the Company, any Subsidiary Guarantor or the Trustee that such Security has been acquired by a bona fide purchaser, the Company shall execute and upon Company Order the Trustee shall authenticate and make available for delivery, in exchange for any such mutilated Security or in lieu of any such destroyed, lost or stolen Security, a new Security of like tenor and principal amount, bearing a number not contemporaneously outstanding. In case any such mutilated, destroyed, lost or stolen Security has become or is about to become due and payable, the Company in its discretion may, instead of issuing a new Security, pay such Security. Upon the issuance of any new Security under this Section, the Company may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other expenses (including the fees and expenses of the Trustee) in connection therewith. Every new Security issued pursuant to this Section in lieu of any mutilated, destroyed, lost or stolen Security shall constitute an original additional contractual obligation of the Company, any Subsidiary Guarantor (if applicable) and any other obligor upon the Securities, whether or not the mutilated, destroyed, lost or stolen Security shall be at any time enforceable by anyone, and shall be entitled to all benefits of this Indenture equally and proportionately with any and all other Securities duly issued hereunder. The provisions of this Section are exclusive and shall preclude (to the extent lawful) all other rights and remedies with respect to the replacement or payment of mutilated, destroyed, lost or stolen Securities. SECTION 2.10. OUTSTANDING SECURITIES. Securities outstanding at any time are all Securities authenticated by the Trustee except for those canceled by it, those delivered to it for cancellation and those described in this Section as not outstanding. A Security ceases to be outstanding in the event the Company or an Affiliate of the Company holds the Security provided, however, that in determining whether the Trustee shall be protected in making a determination whether the holders of the requisite principal amount of outstanding Securities are present at a meeting of holders of Securities for quorum purposes or have consented to or voted in favor of any request, demand, authorization, direction, notice, consent, waiver, amendment or modification hereunder, or relying upon any such quorum, consent or vote, only Securities which the Trustee actually knows to be held by the Company or an Affiliate of the Company shall not be considered outstanding. If a Security is replaced pursuant to SECTION 2.9, it ceases to be outstanding unless the Trustee and the Company receive proof satisfactory to them that the replaced Security is held by a bona fide purchaser. If the Paying Agent segregates and holds in trust, in accordance with this Indenture, on a redemption date or maturity date money sufficient to pay all principal and interest payable on that date with respect to the Securities (or portions thereof) to be redeemed or maturing, as the case may be, and the Paying Agent is not prohibited from paying such money to the Securityholders on that date pursuant to the terms of this Indenture, then on and after that date such Securities (or portions thereof) cease to be outstanding and interest on them ceases to accrue. SECTION 2.11. TEMPORARY SECURITIES. Until definitive Securities are ready for delivery, the Company may prepare and the Trustee shall authenticate temporary Securities. Temporary Securities shall be substantially in the form of Definitive Securities but may have variations that the Company considers appropriate for temporary Securities. Without unreasonable delay, the Company shall prepare and the Trustee shall authenticate Definitive Securities. After the preparation of Definitive Securities, the temporary Securities shall be exchangeable for Definitive Securities upon surrender of the temporary Securities at any office or agency maintained by the Company for that purpose and such exchange shall be without charge to the Holder. Upon surrender for cancellation of any one or more temporary Securities, the Company shall execute, and the Trustee shall authenticate and make available for delivery in exchange therefor, one or more Definitive Securities representing an equal principal amount of Securities. Until so exchanged, the Holder of temporary Securities shall in all respects be entitled to the same benefits under this Indenture as a holder of Definitive Securities. SECTION 2.12. CANCELLATION. The Company at any time may deliver Securities to the Trustee for cancellation. The Registrar and the Paying Agent shall forward to the Trustee any Securities surrendered to them for registration of transfer, exchange or payment. The Trustee and no one else shall cancel all Securities surrendered for registration of transfer, exchange, payment or cancellation and shall destroy such Securities in accordance with its customary procedures. The Company may not issue new Securities to replace Securities it has paid or delivered to the Trustee for cancellation for any reason other than in connection with a registration of transfer or exchange. SECTION 2.13. PAYMENT OF INTEREST; DEFAULTED INTEREST. Interest on any Security which is payable, and is punctually paid or duly provided for, on any interest payment date shall be paid to the Person in whose name such Security (or one or more predecessor Securities) is registered at the close of business on the regular record date for such interest at the office or agency of the Company maintained for such purpose pursuant to SECTION 2.3. Any interest on any Security which is payable, but is not paid when the same becomes due and payable and such nonpayment continues for a period of 30 days shall forthwith cease to be payable to the Holder on the regular record date by virtue of having been such Holder, and such defaulted interest and (to the extent lawful) interest on such defaulted interest at the rate borne by the Securities (such defaulted interest and interest thereon herein collectively called "DEFAULTED INTEREST") shall be paid by the Company, at its election in each case, as provided in clause (a) or (b) below: (a) The Company may elect to make payment of any Defaulted Interest to the Persons in whose names the Securities (or their respective predecessor Securities) are registered at the close of business on a Special Record Date (as defined below) for the payment of such Defaulted Interest, which shall be fixed in the following manner. The Company shall notify the Trustee in writing of the amount of Defaulted Interest proposed to be paid on each Security and the date (not less than 30 days after such notice) of the proposed payment (the "SPECIAL INTEREST PAYMENT DATE"), and at the same time the Company shall deposit with the Trustee an amount of money equal to the aggregate amount proposed to be paid in respect of such Defaulted Interest or shall make arrangements satisfactory to the Trustee for such deposit prior to the date of the proposed payment, such money when deposited to be held in trust for the benefit of the Persons entitled to such Defaulted Interest as in this clause provided. Thereupon the Trustee shall fix a record date (the "SPECIAL RECORD DATE") for the payment of such Defaulted Interest which shall be not more than 15 days and not less than 10 days prior to the Special Interest Payment Date and not less than 10 days after the receipt by the Trustee of the notice of the proposed payment. The Trustee shall promptly notify the Company of such Special Record Date, and in the name and at the expense of the Company, shall cause notice of the proposed payment of such Defaulted Interest and the Special Record Date and Special Interest Payment Date therefor to be given in the manner provided for in SECTION 11.2, not less than 10 days prior to such Special Record Date. Notice of the proposed payment of such Defaulted Interest and the Special Record Date and Special Interest Payment Date therefor having been so given, such Defaulted Interest shall be paid on the Special Interest Payment Date to the Persons in whose names the Securities (or their respective Predecessor Securities) are registered at the close of business on such Special Record Date and shall no longer be payable pursuant to the following clause (b). (b) The Company may make payment of any Defaulted Interest in any other lawful manner not inconsistent with the requirements of any securities exchange on which the Securities may be listed, and upon such notice as may be required by such exchange, if, after notice given by the Company to the Trustee of the proposed payment pursuant to this clause, such manner of payment shall be deemed practicable by the Trustee. Subject to the foregoing provisions of this Section, each Security delivered under this Indenture upon registration of transfer of or in exchange for or in lieu of any other Security shall carry the rights to interest accrued and unpaid, and to accrue, which were carried by such other Security. SECTION 2.14. COMPUTATION OF INTEREST. Interest on the Securities shall be computed on the basis of a 360-day year of twelve 30-day months. SECTION 2.15. CUSIP NUMBERS. The Company in issuing the Securities may use "CUSIP" numbers (if then generally in use) and, if so, the Trustee shall use "CUSIP" numbers in notices of redemption as a convenience to Holders; PROVIDED, HOWEVER, that any such notice may state that no representation is made as to the correctness of such numbers either as printed on the Securities or as contained in any notice of a redemption and that reliance may be placed only on the other identification numbers printed on the Securities, and any such redemption shall not be affected by any defect in or omission of such CUSIP numbers. ARTICLE III COVENANTS SECTION 3.1. PAYMENT OF SECURITIES. The Company shall promptly pay the principal of and interest on the Securities on the dates and in the manner provided in the Securities and in this Indenture. Principal and interest shall be considered paid on the date due if on such date the Trustee or the Paying Agent holds in accordance with this Indenture money sufficient to pay all principal and interest then due and the Trustee or the Paying Agent, as the case may be, is not prohibited from paying such money to the Securityholders on that date pursuant to the terms of this Indenture. The Company shall pay interest on overdue principal at the rate specified therefor in the Securities, and it shall pay interest on overdue installments of interest at the same rate to the extent lawful. Notwithstanding anything to the contrary contained in this Indenture, the Company may, to the extent it is required to do so by law, deduct or withhold income or other similar taxes imposed by the United States of America from principal or interest payments hereunder. SECTION 3.2. SEC REPORTS AND AVAILABLE INFORMATION. Notwithstanding that the Company may not be subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act, to the extent permitted by the Exchange Act, the Company will file with the Commission, and provide, within 15 days after the Company is required to file the same with the Commission, the Trustee and the Holders of the Securities with the annual reports and the information, documents and other reports (or 16 copies of such portions of any of the foregoing as the Commission may by rules and regulations prescribe) that are specified in Sections 13 and 15(d) of the Exchange Act. In the event that the Company is not permitted to file such reports, documents and information with the Commission pursuant to the Exchange Act, the Company will nevertheless deliver such Exchange Act information to the Trustee and the Holders of the Securities as if the Company were subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act. In addition, for so long as any of the Securities remain outstanding the Company shall make such information available to any prospective purchaser of the Securities or beneficial owner of the Securities in connection with any sale thereof. The Company shall also comply with the other provisions of TIA ss. 314(a). Delivery of such reports, information and documents to the Trustee is for informational purposes only and the Trustee's receipt of such shall not constitute constructive notice of any information contained therein or determinable from information contained therein, including the Company's compliance with any of its covenants hereunder (as to which the Trustee is entitled to rely exclusively on Officers' Certificates). SECTION 3.3. LIMITATION ON INDEBTEDNESS. (a) The Company will not, and will not permit any of its Restricted Subsidiaries to, Incur any Indebtedness; PROVIDED, HOWEVER, that the Company and its Restricted Subsidiaries which are Subsidiary Guarantors may Incur Indebtedness if on the date thereof, after giving pro forma effect to the incurrence of such Indebtedness and the intended application of the proceeds thereof, the Interest Coverage Ratio for the Company and its Restricted Subsidiaries is at least 2.5 to 1.0. (b) Notwithstanding the foregoing paragraph (a), the Company and its Restricted Subsidiaries may Incur the following Indebtedness: (i) Indebtedness Incurred pursuant to the Senior Credit Agreement; PROVIDED that the aggregate principal amount of all Indebtedness (with letters of credit being deemed to have a principal amount equal to the maximum potential liability of the Company and its Restricted Subsidiaries thereunder) outstanding at any time under the Senior Credit Agreement after giving effect to such Incurrence, including all Refinancing Indebtedness Incurred to refund, refinance or replace any other Indebtedness Incurred pursuant to this clause (i), does not exceed an amount equal to $20.0 million; (ii) the Subsidiary Guarantees and Guarantees of Indebtedness Incurred pursuant to paragraph (a) or clause (i) of this paragraph (b); (iii) Indebtedness of the Company owing to and held by any Wholly-Owned Subsidiary or Indebtedness of a Restricted Subsidiary owing to and held by the Company or any Wholly-Owned Subsidiary; PROVIDED, HOWEVER, that any subsequent issuance or transfer of any Capital Stock or any other event which results in any such Wholly-Owned Subsidiary ceasing to be a Wholly-Owned Subsidiary or any subsequent transfer of any such Indebtedness (except to the Company or a Wholly-Owned Subsidiary) will be deemed, in each case, to constitute the Incurrence of such Indebtedness by the issuer thereof; (iv) Indebtedness represented by (x) the Securities and (y) any Indebtedness (other than the Indebtedness described in clauses (i), (ii) and (iii)) outstanding on the Issue Date; (v) Indebtedness of a Restricted Subsidiary Incurred and outstanding on the date on which such Restricted Subsidiary was acquired by the Company; PROVIDED, HOWEVER, that at the time such Restricted Subsidiary is acquired by the Company, the Company would have been able to Incur $1.00 of additional Indebtedness pursuant to paragraph (a) above after giving effect to the Incurrence of such Indebtedness pursuant to this clause (v); (vi) Indebtedness under Interest Rate Agreements; PROVIDED, HOWEVER, that such Interest Rate Agreements are entered into for bona fide hedging purposes of the Company or its Restricted Subsidiaries (as determined in good faith by the Board of Directors or senior management of the Company) and correspond in terms of notional amount, duration, currencies and interest rates, as applicable, to Indebtedness of the Company or its Restricted Subsidiaries Incurred without violation of this Indenture or to business transactions of the Company or its Restricted Subsidiaries on customary terms entered into in the ordinary course of business; (vii) Indebtedness incurred to finance or refinance the purchase price or cost of construction or improvement of property used in the Company's business, and Capitalized Lease Obligations, in each case secured by Liens described in clause (i) of the definition of "Permitted Liens," provided, that the aggregate principal amount thereof incurred in any fiscal year, shall not exceed $15.0 million; (viii) Indebtedness in respect of performance bonds, bankers' acceptances, workers' compensation claims, surety or appeal bonds, payment obligations in connection with self-insurance or similar obligations, and bank overdrafts (and letters of credit in respect thereof) provided by the Company or any Restricted Subsidiary in the ordinary course of its business and which do not secure other Indebtedness; (ix) Indebtedness represented by Guarantees by the Company of Indebtedness otherwise permitted to be Incurred pursuant to this covenant and Indebtedness represented by Guarantees by a Subsidiary Guarantor of Indebtedness of the Company or of another Restricted Subsidiary otherwise permitted to be Incurred pursuant to this covenant; (x) Indebtedness incurred by the Company or any Subsidiary Guarantor and arising from agreements providing for indemnification, adjustment of purchase price or similar obligations, from guarantees or letters of credit, surety bonds or performance bonds securing any obligations of the Company or any Restricted Subsidiary pursuant to such agreements, in each case incurred in connection with the purchase or sale of a business or assets otherwise permitted by this Indenture; (xi) the Incurrence by the Company or any Subsidiary Guarantor of Refinancing Indebtedness in exchange for, or the net proceeds which are used to refund, refinance or replace, Indebtedness that was permitted by this Indenture to be Incurred (other than Indebtedness incurred pursuant to clause (xii) of this paragraph (b)); and (xii) Indebtedness (other than Indebtedness described in clauses (i)-(xi)) in a principal amount which, when taken together with the principal amount of all other Indebtedness Incurred pursuant to this clause (xii) and then outstanding, will not exceed $10.0 million. (c) Neither the Company nor any Restricted Subsidiary will Incur any Indebtedness under paragraph (b) above if the proceeds thereof are used, directly or indirectly, to refinance any Subordinated Obligations of the Company unless such Indebtedness will be subordinated to the Securities to at least the same extent as such Subordinated Obligations. No Subsidiary Guarantor will Incur any Indebtedness under paragraph (b) above if the proceeds thereof are used, directly or indirectly, to refinance any Subsidiary Guarantor Subordinated Obligations of such Subsidiary Guarantor unless such Indebtedness will be subordinated to the obligations of such Subsidiary Guarantor under its Subsidiary Guarantee to at least the same extent as such Subsidiary Guarantor Subordinated Obligations. (d) For purposes of determining compliance with, and the outstanding principal amount of any particular Indebtedness Incurred pursuant to and in compliance with, this covenant, in the event that Indebtedness meets the criteria of more than one of the types of Indebtedness described in paragraph (b) above, (i) the Company, in its sole discretion, will classify such item of Indebtedness and only be required to include the amount and type of such Indebtedness in one of such clauses and (ii) such item of Indebtedness may be divided and classified in more than one of such clauses. (e) The Company will not permit any Unrestricted Subsidiary to Incur any Indebtedness other than Non-Recourse Debt. SECTION 3.4. LIMITATION ON RESTRICTED PAYMENTS. (a) The Company will not, and will not permit any of its Restricted Subsidiaries, directly or indirectly, to (i) declare or pay any dividend or make any distribution on or in respect of its Capital Stock (including any payment in connection with any merger or consolidation involving the Company or any of its Restricted Subsidiaries) except (A) dividends or distributions payable in its Capital Stock (other than Disqualified Stock) or in options, warrants or other rights to purchase such Capital Stock and (B) dividends or distributions payable to the Company or a Restricted Subsidiary of the Company (and if such Restricted Subsidiary is not a Wholly-Owned Subsidiary, to its other holders of Capital Stock on a pro rata basis), (ii) purchase, redeem, retire or otherwise acquire for value any Capital Stock of the Company held by Persons other than a Restricted Subsidiary of the Company or any Capital Stock of a Restricted Subsidiary of the Company held by any Affiliate of the Company, other than another Restricted Subsidiary (in either case, other than in exchange for its Capital Stock (other than Disqualified Stock)), (iii) purchase, repurchase, redeem, defease or otherwise acquire or retire for value, prior to scheduled maturity, scheduled repayment or scheduled sinking fund payment, any Subordinated Obligations (other than the purchase, repurchase or other acquisition of Subordinated Obligations purchased in anticipation of satisfying a sinking fund obligation, principal installment or final maturity, in each case due within one year of the date of purchase, repurchase or acquisition) or (iv) make any Investment (other than a Permitted Investment) in any Person (any such dividend, distribution, purchase, redemption, repurchase, defeasance, other acquisition, retirement or Investment being herein referred to in clauses (i) through (iv) as a "RESTRICTED PAYMENT"), if at the time the Company or such Restricted Subsidiary makes such Restricted Payment: (1) a Default or Event of Default shall have occurred and be continuing (or would result therefrom); or (2) the Company and its Restricted Subsidiaries could not Incur an additional $1.00 of Indebtedness pursuant to paragraph (a) under SECTION 3.3; or (3) the aggregate amount of such Restricted Payment and all other Restricted Payments declared or made subsequent to the Issue Date would exceed the sum of: (A) 50% of Consolidated Net Income accrued during the period (treated as one accounting period) from the Issue Date to the end of the most recent fiscal quarter ending prior to the date of such Restricted Payment as to which financial results are available (or, in case such Consolidated Net Income is a deficit, minus 100% of such deficit); (B) the aggregate Net Cash Proceeds received by the Company from the issue or sale of its Capital Stock (other than Disqualified Stock) or other capital contributions subsequent to the Issue Date (other than net proceeds to the extent (x) used to redeem Securities or (y) received from an issuance or sale of such Capital Stock to a Subsidiary of the Company or an employee stock ownership plan or similar trust to the extent such sale to an employee stock ownership plan or similar trust is financed by loans from or guaranteed by the Company or any Restricted Subsidiary unless such loans have been repaid with cash on or prior to the date of determination); (C) the amount by which Indebtedness of the Company is reduced on the Company's balance sheet upon the conversion or exchange (other than by a Subsidiary of the Company) subsequent to the Issue Date of any Indebtedness of the Company convertible or exchangeable for Capital Stock of the Company (less the amount of any cash, or other property, distributed by the Company upon such conversion or exchange); and (D) the amount equal to the net reduction in Investments (other than Permitted Investments) made by the Company or any of its Restricted Subsidiaries in any Person resulting from (i) repurchases or redemptions of such Investments by such Person, proceeds realized upon the sale of such Investment to an unaffiliated purchaser, repayments of loans or advances or other transfers of assets as a return of capital or similar payment (excluding by way of dividend or distribution) by such Person to the Company or any Restricted Subsidiary of the Company or (ii) the redesignation of Unrestricted Subsidiaries as Restricted Subsidiaries (valued in each case as provided in the definition of "Investment") not to exceed, in the case of any Unrestricted Subsidiary, the amount of Investments (excluding Permitted Investments) previously made by the Company or any Restricted Subsidiary in such Unrestricted Subsidiary, which amount was included in the calculation of the amount of Restricted Payments; PROVIDED, HOWEVER, that no amount will be included under this clause (D) to the extent it is already included in Consolidated Net Income. (b) The provisions of paragraph (a) will not prohibit: (i) any purchase, redemption, defeasance or other acquisition of Capital Stock or Subordinated Obligations of the Company made by exchange for, or out of the proceeds of the substantially concurrent sale of, Capital Stock of the Company (other than Disqualified Stock and other than Capital Stock issued or sold to a Subsidiary or an employee stock ownership plan or similar trust to the extent such sale to an employee stock ownership plan or similar trust is financed by loans from or guaranteed by the Company or any Restricted Subsidiary unless such loans have been repaid with cash on or prior to the date of determination); PROVIDED, HOWEVER, that (A) such purchase, redemption, defeasance or other acquisition will be excluded in subsequent calculations of the amount of Restricted Payments and (B) the Net Cash Proceeds from such sale will be excluded from clause (3) (B) of paragraph (a); (ii) any purchase, redemption, defeasance or other acquisition of Subordinated Obligations of the Company made by exchange for, or out of the proceeds of the substantially concurrent sale of, Subordinated Obligations of the Company; PROVIDED, HOWEVER, that such purchase, redemption, defeasance or other acquisition will be excluded in subsequent calculations of the amount of Restricted Payments; (iii) dividends paid within 60 days after the date of declaration if at such date of declaration such dividend would have complied with this provision; PROVIDED, HOWEVER, that such dividends will be included in subsequent calculations of the amount of Restricted Payments; (iv) any redemptions, repurchases, defeasances or other acquisitions of Management Equity Interests, in each case in connection with the repurchase provisions under employee stock option agreement or plan, stock purchase agreements, subscription agreements, employment agreements, employee benefit plan or arrangement, stockholder agreement or other agreements to compensate management employees; PROVIDED, HOWEVER, that such redemptions, repurchases or other acquisitions will be included in subsequent calculations of the amount of Restricted Payments; AND PROVIDED FURTHER, HOWEVER, that the aggregate amount of Restricted Payments made pursuant to this clause (iv) shall not exceed $5.0 million in the aggregate; and (v) repurchases of Capital Stock deemed to occur upon the exercise of stock options if such Capital Stock represents a portion of the exercise price hereof; PROVIDED, HOWEVER, that such repurchases will be excluded from subsequent calculations of the amount of Restricted Payments. SECTION 3.5. LIMITATION ON RESTRICTIONS ON DISTRIBUTIONS FROM RESTRICTED SUBSIDIARIES. The Company will not, and will not permit any Restricted Subsidiary to, create or otherwise cause or permit to exist or become effective any consensual encumbrance or consensual restriction on the ability of any Restricted Subsidiary to (i) pay dividends or make any other distributions on its Capital Stock or pay any Indebtedness or other obligations owed to the Company, (ii) make any loans or advances to the Company or (iii) transfer any of its property or assets to the Company, except (a) any encumbrance or restriction pursuant to an agreement in effect at or entered into on the date of this Indenture (including, without limitation, the Senior Credit Agreement); (b) any encumbrance or restriction with respect to a Restricted Subsidiary pursuant to an agreement relating to any Indebtedness Incurred by a Restricted Subsidiary on or prior to the date on which such Restricted Subsidiary was acquired by the Company (other than Indebtedness Incurred as consideration in, or to provide all or any portion of the funds utilized to consummate, the transaction or series of related transactions pursuant to which such Restricted Subsidiary became a Restricted Subsidiary or was acquired by the Company) and outstanding on such date; (c) any encumbrance or restriction with respect to a Restricted Subsidiary pursuant to an agreement effecting a refinancing of Indebtedness Incurred pursuant to an agreement referred to in clause (a) or (b) of this covenant or this clause (c) or contained in any amendment to an agreement referred to in clause (a) or (b) of this covenant or this clause (c); PROVIDED, HOWEVER, that the encumbrances and restrictions with respect to such Restricted Subsidiary contained in any such agreement or amendment are no less favorable to the Holders of the Securities than encumbrances and restrictions contained in such agreements; (d) in the case of clause (iii) above, any encumbrance or restriction (A) that restricts in a customary manner the subletting, assignment or transfer of any property or asset that is subject to a lease, license or similar contract, or the assignment or transfer of any such lease, license or other contract, (B) by virtue of any transfer of, agreement to transfer, option or right with respect to, or Lien on, any property or assets of the Company or any Restricted Subsidiary not otherwise prohibited by this Indenture, (C) contained in mortgages, pledges or other security agreements securing Indebtedness of a Restricted Subsidiary to the extent such encumbrance or restrictions restrict the transfer of the property subject to such mortgages, pledges or other security agreements or (D) pursuant to customary provisions restricting dispositions of real property interests set forth in any reciprocal easement agreements of the Company or any Restricted Subsidiary; (e) any restriction with respect to a Restricted Subsidiary (or any of its property or assets) imposed pursuant to an agreement entered into for the direct or indirect sale or disposition of all or substantially all the Capital Stock or assets of such Restricted Subsidiary (or the property or assets that are subject to such restriction) pending the closing of such sale or disposition; (f) encumbrances or restrictions arising or existing by reason of applicable law and (g) encumbrances or restrictions contained in agreements relating to Indebtedness Incurred by Restricted Subsidiaries in connection with Special Purpose Transactions. SECTION 3.6. LIMITATION ON SALES OF ASSETS AND SUBSIDIARY STOCK. (a) The Company will not, and will not permit any of its Restricted Subsidiaries to, make any Asset 17 Disposition unless (i) the Company or such Restricted Subsidiary receives consideration at the time of such Asset Disposition at least equal to the fair market value, as determined in good faith by the Board of Directors (including as to the value of all non-cash consideration), of the shares and assets subject to such Asset Disposition and (ii) at least 80% of the consideration thereof received by the Company or such Restricted Subsidiary is in the form of cash or Cash Equivalents. With respect to any Asset Disposition occurring on or after the Issue Date from which the Company or any Restricted Subsidiary receives Net Available Cash, the Company or such Restricted Subsidiary shall apply an amount equal to 100% of the Net Available Cash from such Asset Disposition at its election, to either (i) prepay, repay or purchase Indebtedness (other than any Subordinated Obligations or Preferred Stock) of the Company or a Wholly-Owned Subsidiary (in each case other than Indebtedness owed to the Company or an Affiliate of the Company) within 365 days from the later of the date of such Asset Disposition or the receipt of such Net Available Cash; (ii) invest in Additional Assets within 365 days from the later of the date of such Asset Disposition or the receipt of such Net Available Cash; or (iii) make an offer to purchase the Securities at 100% of the principal amount thereof plus accrued and unpaid interest, if any, to the date of purchase; PROVIDED, HOWEVER, that, in connection with any prepayment, repayment or purchase of Indebtedness pursuant to clause (i) above, the Company or such Restricted Subsidiary will retire such Indebtedness and will cause the related loan commitment (if any) to be permanently reduced to the extent required by the Senior Credit Agreement. Notwithstanding the foregoing provisions, the Company and its Restricted Subsidiaries will not be required to apply any Net Available Cash in accordance herewith except to the extent that the aggregate Net Available Cash from all Asset Dispositions which are not applied in accordance with this covenant exceed $1.0 million. Any Net Available Cash from an Asset Disposition that is not invested or applied as provided and within the time period set forth in the first sentence of this paragraph (a) will be deemed to constitute "Excess Proceeds." For the purposes of this SECTION 3.6 and for no other purpose, the following will be deemed to be cash: (x) the assumption by the transferee of Indebtedness (other than Subordinated Obligations) of the Company or Indebtedness of any Restricted Subsidiary of the Company and the release of the Company or such Restricted Subsidiary from all liability on such Indebtedness or Indebtedness in connection with such Asset Disposition (in which case the Company will, without further action, be deemed to have applied such deemed cash amount in accordance with clause (i) of the preceding paragraph) and (y) securities received by the Company or any Restricted Subsidiary of the Company from the transferee that are promptly converted by the Company or such Restricted Subsidiary into cash. (b) When the aggregate amount of Excess Proceeds exceeds $5.0 million (with lesser amounts to be carried forward for purposes of determining whether an Asset Sale Offer (as defined) is required with respect to the Excess Proceeds from any subsequent Asset Disposition), the Company will be required to make an offer to purchase (an "ASSET SALE OFFER") within ten days of such time from all Holders of the Securities in accordance with the procedures set forth in SECTION 5.10 the maximum principal amount (expressed as a multiple of $1,000) of Securities that may be purchased with such Excess Proceeds. If the aggregate purchase price of the Securities tendered pursuant to the Asset Sale Offer is less than the Excess Proceeds, the remaining Excess Proceeds will be available to the Company to fund other corporate purposes not otherwise prohibited by this Indenture. (c) The Company will comply, to the extent applicable, with the requirements of Section 14(e) of the Exchange Act and any other securities laws or regulations in connection with the repurchase of Securities pursuant to an Asset Sale Offer made pursuant to this SECTION 3.6 and SECTION 5.10. To the extent that the provisions of any securities laws or regulations conflict with provisions of this covenant, the Company will comply with the applicable securities laws and regulations and will not be deemed to have breached its obligations under this Indenture by virtue thereof. SECTION 3.7. LIMITATION ON SALE/LEASEBACK TRANSACTIONS. The Company will not, and will not permit any Restricted Subsidiary to, enter into any Sale/Leaseback Transaction with respect to any property unless: (i) the Company or such Restricted Subsidiary would be entitled to Incur Indebtedness in an amount equal to the Attributable Indebtedness with respect to such Sale/Leaseback Transaction pursuant to SECTION 3.3; (ii) the net proceeds received by the Company or any Restricted Subsidiary in connection with such Sale/Leaseback Transaction are at least equal to the fair value (as determined by the Board of Directors) of such property; and (iii) the transfer of such property is permitted by, and the Company applies the proceeds of such transaction in compliance with, SECTION 3.6. SECTION 3.8. LIMITATION ON AFFILIATE TRANSACTIONS. (a) The Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, enter into or conduct any transaction (including the purchase, sale, lease or exchange of any property or the rendering of any service) with any Affiliate of the Company (an "AFFILIATE TRANSACTION") unless: (i) the terms of such Affiliate Transaction are no less favorable to the Company or such Restricted Subsidiary, as the case may be, than those that could be obtained at the time of such transaction in arm's-length dealings with a Person who is not such an Affiliate; (ii) in the event such Affiliate Transaction involves an aggregate amount in excess of $1.0 million, the terms of such transaction have been approved by a majority of the members of the Board of Directors of the Company and by a majority of the members of such Board having no personal stake in such transaction, if any (and such majority or majorities, as the case may be, determines, or determine, that such Affiliate Transaction satisfies the criteria in (i) above); and (iii) in the event such Affiliate Transaction involves an aggregate amount in excess of $10.0 million, the Company has received a written opinion from an independent investment banking firm of nationally recognized standing that such Affiliate Transaction is not materially less favorable than those that might reasonably have been obtained in a comparable transaction at such time on an arms-length basis from a Person that is not an Affiliate. (b) The foregoing paragraph (a) will not apply to (i) any Restricted Payment permitted to be made pursuant to the covenant described under SECTION 3.4 of this Indenture, (ii) any issuance of (A) securities to any of the Permitted Holders or (B) securities, or other payments, awards or grants in cash, securities or otherwise pursuant to, or the funding of, employment arrangements, stock options and stock ownership plans approved by the Board of Directors of the Company, (iii) loans or advances to employees in the ordinary course of business of the Company or any of its Restricted Subsidiaries, (iv) any transaction between the Company and a Wholly-Owned Subsidiary or between Wholly-Owned Subsidiaries, (v) any fees, indemnities, loans or advances to employees in the ordinary course of business and consistent with past practices and (vi) payments under the Management Agreement as in effect on the Issue Date. SECTION 3.9. CHANGE OF CONTROL. Upon the occurrence of any of the following events (each a "CHANGE OF CONTROL"), unless the Company shall have exercised its right to redeem the Securities as described in SECTION 5.1, each Holder will have the right to require the Company to repurchase all or any part of such Holder's Securities at a purchase price in cash equal to 101% of the principal amount thereof plus accrued and unpaid interest, if any, to the date of purchase (subject to the right of holders of record on the relevant record date to receive interest due on the relevant interest payment date) (the "CHANGE OF CONTROL PAYMENT"): (i) (A) any "person" (as such term is used in Sections 13(d) and 14(d) of the Exchange Act), other than one or more Permitted Holders, is or becomes the beneficial owner (as defined in Rules 13d-3 and 13d-5 under the Exchange Act, except that such person shall be deemed to have "beneficial ownership" of all shares that any such person has the right to acquire, whether such right is exercisable immediately or only after the passage of time), directly or indirectly, of more than 35% (or if there is a Public Market at the time such person is or is deemed to have beneficial ownership, more than 50%) of the total voting power of the Voting Stock of the Company (or its successor by merger, consolidation or other business combination) (for the purposes of this clause, such person shall be deemed to beneficially own any Voting Stock of the Company held by a parent corporation, if such person "beneficially owns" (as defined above), directly or indirectly, more than 35% of the voting power of the Voting Stock of such parent corporation); and (B) if there is no Public Market, the Permitted Holders "beneficially own" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act), directly or indirectly, in the aggregate a lesser percentage of the total voting power of the Voting Stock of the Company (or its successor by merger, consolidation or purchase of all or substantially all of its assets) than such other person and do not have the right or ability by voting power, contract or otherwise to elect or designate for election a majority of the board of directors of the Company or such successor (for the purposes of this clause, such other person shall be deemed to beneficially own any Voting Stock of a specified corporation held by a parent corporation, if such other person "beneficially owns" (as defined in clause (A) above), directly or indirectly, more than 35% of the voting power of the Voting Stock of such parent corporation and the Permitted Holders "beneficially own" (as defined in this clause (B)), directly or indirectly, in the aggregate a lesser percentage of the voting power of the Voting Stock of such parent corporation and do not have the right or ability by voting power, contract or otherwise to elect or designate for election a majority of the board of directors of such parent corporation); or (ii) during any period of two consecutive years, individuals who at the beginning of such period constituted the Board of Directors of the Company (together with any new directors whose election by such Board of Directors or whose nomination for election by the shareholders of the Company, as the case may be, was approved by a vote of at least a majority of the directors of the Company then still in office who were either directors at the beginning of such period or whose election or nomination for election was previously so approved or is a designee of the Permitted Holders or was nominated or elected by such Permitted Holders or any of their designees) cease for any reason to constitute a majority of the Board of Directors of the Company; or (iii) the sale, lease, transfer, conveyance or other disposition (other than by way of merger or consolidation), in one or a series of related transactions, of all or substantially all of the assets of the Company and its Restricted Subsidiaries taken as a whole to any "person" (as such term is used in Sections 13(d) and 14(d) of the Exchange Act) other than a Permitted Holder; or (iv) the adoption by the stockholders of a plan for the liquidation or dissolution of the Company. Within 30 days following any Change of Control, unless the Company has mailed a redemption notice with respect to all the outstanding Securities in connection with such Change of Control as described in SECTION 5.6, the Company shall mail a notice to each Holder with a copy to the Trustee stating: (i) that a Change of Control has occurred and that such Holder has the right to require the Company pursuant to this SECTION 3.9 to purchase such Holder's Securities (the "CHANGE OF CONTROL OFFER") at a purchase price in cash equal to 101% of the principal amount thereof plus accrued and unpaid interest, if any, to the date of purchase (subject to the right of Holders of record on a record date to receive interest on the relevant interest payment date); (ii) the Change of Control Payment Date (which shall be no earlier than 30 days nor later than 60 days from the date such notice is mailed); (iii) that any Security not tendered shall continue to accrue interest, if any; (iv) that, unless the Company defaults in the payment of principal or interest, all Securities accepted for payment pursuant to the Change of Control Offer shall cease to accrue interest, if any, after the Change of Control Payment Date; (v) that Holders electing to have any Securities purchased pursuant to a Change of Control Offer shall be required to surrender the Securities to the Paying Agent at the address specified in the notice prior to the close of business on the third Business Day preceding the Change of Control Payment Date; (vi) that holders shall be entitled to withdraw their election if the Paying Agent receives, not later than the close of business on the second Business Day preceding the Change of Control Payment Date, a facsimile transmission or letter setting forth the name of the Holder, the principal amount of Securities delivered for purchase, and a statement that such Holder is withdrawing his election to have the Securities purchased; and (vii) that Holders whose Securities are being purchased only in part shall be issued new Securities equal in principal amount to the unpurchased portion of the Securities surrendered, which unpurchased portion must be equal to $1,000 in principal amount or an integral multiple thereof. On a Business Day that is no earlier than 30 days nor later than 60 days after the date that the Company mails or causes to be mailed notice of the Change of Control to the holders (the "CHANGE OF CONTROL PAYMENT DATE"), the Company shall, to the extent lawful, (i) accept for payment all Securities or portions thereof properly tendered pursuant to the Change of Control Offer, (ii) deposit with the Paying Agent an amount equal to the Change of Control Payment in respect of all the Securities or portions thereof so tendered and (iii) deliver or cause to be delivered to the Trustee the Securities so accepted together with an Officers' Certificate stating the aggregate principal amount of such Securities or portions thereof being purchased by the Company. The Paying Agent shall promptly mail to each Holder of the Securities so tendered the Change of Control Payment for such Securities, and the Trustee shall promptly authenticate and mail (or cause to be transferred by book-entry) to each Holder a new Security equal in principal amount to any unpurchased portion of the Securities surrendered, if any; PROVIDED that each such new Security shall be in a principal amount of $1,000 or an integral multiple thereof. The Company shall publicly announce the results of the Change of Control Offer on or as soon as practicable after the Change of Control Payment Date. The Company will comply, to the extent applicable, with the requirements of Section 14(e) of the Exchange Act and any other securities laws or regulations in connection with the repurchase of Securities pursuant to this SECTION 3.9. To the extent that the provisions of any securities laws or regulations conflict with provisions of this Indenture, the Company will comply with the applicable securities laws and regulations and shall not be deemed to have breached its obligations described in this Indenture by virtue thereof. SECTION 3.10. LIMITATION ON DISPOSITIONS OF CAPITAL STOCK OF RESTRICTED SUBSIDIARIES. The Company (i) will not, and will not permit any Restricted Subsidiary of the Company to, transfer, convey, sell, lease or otherwise dispose of any Capital Stock of any Restricted Subsidiary to any Person (other than the Company or a Wholly Owned Subsidiary), unless (A) such transfer, conveyance, sale, lease or other disposition is a sale of the common stock of such Restricted Subsidiary and, after giving effect to the consummation thereof, the Company owns none or more than 50% of the outstanding common stock of such Restricted Subsidiary and (B) the Net Cash Proceeds from such transfer, conveyance, sale, lease or other disposition are applied in accordance with the covenant described above under "Limitation on Sales of Assets and Subsidiary Stock;" and (ii) will not permit any Restricted Subsidiary to issue any of its Capital Stock (other than, if necessary, shares of its Capital Stock constituting directors' qualifying shares or any shares required to be held by Persons other than the Company or a Restricted Subsidiary in connection with the maintenance of liquor licenses) to any Person other than to the Company or a Wholly-Owned Subsidiary, unless such issuance is an issuance of the common stock of such Restricted Subsidiary and, after giving effect to the consummation thereof, the Company and/or one or more Wholly-Owned Subsidiaries owns more than 50% of the outstanding common stock of such Restricted Subsidiary; PROVIDED, HOWEVER, that this provision shall not prohibit any pledge or collateral assignment of the Capital Stock of any Restricted Subsidiary that is permitted under "Limitation on Liens" or the exercise of any right or remedy by the holder of any such pledge or assignment. SECTION 3.11. LIMITATION ON LIENS. The Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, create, Incur or suffer to exist any Lien (other than Permitted Liens) upon any of its property or assets (including Capital Stock), whether owned on the date of this Indenture or thereafter acquired, securing any Indebtedness, unless contemporaneously therewith effective provision is made to secure the Indebtedness due under this Indenture and the Securities or, in respect of Liens on any Restricted Subsidiary's property or assets, any Subsidiary Guarantee of such Restricted Subsidiary, equally and ratably with (or prior to in the case of Liens with respect to Subordinated Obligations or Subsidiary Guarantor Subordinated Obligations) the Indebtedness secured by such Lien for so long as such Indebtedness is so secured. SECTION 3.12. FUTURE SUBSIDIARY GUARANTORS. After the Issue Date, the Company will cause each Restricted Subsidiary (other than (i) a Foreign Subsidiary or (ii) a special purpose entity and/or limited partnership created solely to Incur Indebtedness of the type specified in clause (b)(vii) under SECTION 3.3 in connection with a Special Purpose Transaction or any special purpose corporate general partner thereof) created or acquired by the Company, including but not limited to Bertucci's, Inc. and its subsidiaries, to execute and deliver to the Trustee a Subsidiary Guarantee pursuant to which such Subsidiary Guarantor will unconditionally Guarantee, on a joint and several basis, the full and prompt payment of the principal of, premium, if any and interest on the Securities on a senior unsecured basis. SECTION 3.13. MAINTENANCE OF OFFICE OR AGENCY. The Company will maintain in The City of New York, an office or agency where the Securities may be presented or surrendered for payment, where, if applicable, the Securities may be surrendered for registration of transfer or exchange and where notices and demands to or upon the Company in respect of the Securities and this Indenture may be served. The principal corporate trust office (the "CORPORATE TRUST OFFICE") of the Trustee shall be such office or agency of the Company, unless the Company shall designate and maintain some other office or agency for one or more of such purposes. The Company will give prompt written notice to the Trustee of any change in the location of any such office or agency. If at any time the Company shall fail to maintain any such required office or agency or shall fail to furnish the Trustee with the address thereof, such presentations, surrenders, notices and demands may be made or served at the Corporate Trust Office of the Trustee, and the Company hereby appoints the Trustee as its agent to receive all such presentations, surrenders, notices and demands. The Company may also from time to time designate one or more other offices or agencies (in or outside of The City of New York) where the Securities may be presented or surrendered for any or all such purposes and may from time to time rescind any such designation; PROVIDED, HOWEVER, that no such designation or rescission shall in any manner relieve the Company of its obligation to maintain an office or agency in The City of New York for such purposes. The Company will give prompt written notice to the Trustee of any such designation or rescission and any change in the location of any such other office or agency. SECTION 3.14. CORPORATE EXISTENCE. Subject to ARTICLE IV and SECTION 10.2, the Company will do or cause to be done all things necessary to preserve and keep in full force and effect the corporate existence and that of each Restricted Subsidiary and the corporate rights (charter and statutory) licenses and franchises of the Company and each Restricted Subsidiary; PROVIDED, HOWEVER, that the Company shall not be required to preserve any such existence (except of the Company), right, license or franchise if the Board of Directors of the Company shall determine that the preservation thereof is no longer desirable in the conduct of the business of the Company and each of its Restricted Subsidiaries, taken as a whole, and that the loss thereof is not, and will not be, disadvantageous in any material respect to the Holders. SECTION 3.15. PAYMENT OF TAXES AND OTHER CLAIMS. The Company will pay or discharge or cause to be paid or discharged, before the same shall become delinquent, (i) all material taxes, assessments and governmental charges levied or imposed upon the Company or any Subsidiary or upon the income, profits or property of the Company or any Subsidiary and (ii) all lawful claims for labor, materials and supplies, which, if unpaid, might by law become a material liability or lien upon the property of the Company or any Restricted Subsidiary; PROVIDED, HOWEVER, that the Company shall not be required to pay or discharge or cause to be paid or discharged any such tax, assessment, charge or claim whose amount, applicability or validity is being contested in good faith by appropriate proceedings and for which appropriate reserves, if necessary (in the good faith judgment of management of the Company), are being maintained in accordance with GAAP or where the failure to effect such payment will not be disadvantageous to the Holders. SECTION 3.16. COMPLIANCE CERTIFICATE. The Company shall deliver to the Trustee within 120 days after the end of each fiscal year of the Company an Officers' Certificate stating that in the course of the performance by the signers of their duties as Officers of the Company they would normally have knowledge of any Default or Event of Default and whether or not the signers know of any Default or Event of Default that occurred during such period. If they do, the certificate shall describe the Default or Event of Default, its status and what action the Company is taking or proposes to take with respect thereto. The Company also shall comply with TIA ss. 314(a)(4). SECTION 3.17. FURTHER INSTRUMENTS AND ACTS. Upon request of the Trustee, the Company will execute and deliver such further instruments and do such further acts as may be reasonably necessary or proper to carry out more effectively the purpose of this Indenture. ARTICLE IV SUCCESSOR COMPANY SECTION 4.1. MERGER AND CONSOLIDATION. The Company will not consolidate with or merge with or into, or convey, transfer or lease all or substantially all its assets to, any Person, unless: (i) (A) the resulting, surviving or transferee Person (the "SUCCESSOR COMPANY") will be a corporation, partnership, trust, limited liability company or other similar entity organized and existing under the laws of the United States of America, any State thereof or the District of Columbia, (B) the Successor Company (if not the Company) will expressly assume, by supplemental indenture, executed and delivered to the Trustee, in form satisfactory to the Trustee, all the obligations of the Company under the Securities and this Indenture, and (C) the Subsidiary Guarantees will remain in effect after any such merger or consolidation; (ii) immediately after giving effect to such transaction (and treating any Indebtedness that becomes an obligation of the Successor Company or any Subsidiary of the Successor Company as a result of such transaction as having been Incurred by the Successor Company or such Subsidiary at the time of such transaction), no Default or Event of Default shall have occurred and be continuing; (iii) immediately after giving effect to such transaction, the Successor Company would be able to Incur at least an additional $1.00 of Indebtedness pursuant to paragraph (a) of SECTION 3.3 of this Indenture; and (iv) the Company has delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that such consolidation, merger or transfer and such supplemental indenture (if any) comply with this Indenture. The Successor Company will succeed to, and be substituted for, and may exercise every right and power of, the Company under this Indenture, but, in the case of a lease of all or substantially all its assets, the Company will not be released from the obligation to pay the principal of and interest on the Securities. Notwithstanding the foregoing clauses (ii) and (iii) of this SECTION 4.1: (x) any Restricted Subsidiary of the Company may consolidate with, merge into or transfer all or part of its properties and assets to the Company and (y) the Company may merge with an Affiliate incorporated solely for the purpose of reincorporating the Company in another jurisdiction to realize tax or other benefits. ARTICLE V REDEMPTION OF SECURITIES SECTION 5.1. OPTIONAL REDEMPTION. The Securities may or shall, as the case may be, be redeemed, as a whole or from time to time in part, subject to the conditions and at the Redemption Prices specified in the form of Securities set forth in EXHIBITS A AND B hereto, which are hereby incorporated by reference and made a part of this Indenture, together with accrued and unpaid interest to the redemption date. SECTION 5.2. ESCROW ACCOUNT; SPECIAL MANDATORY REDEMPTION. (a) On or before the Issue Date, the Trustee will establish a non-interest bearing escrow account (the "ESCROW ACCOUNT") which shall be maintained in accordance with the terms and conditions of this SECTION 5.2. (b) The Company will cause the net proceeds from the issuance of the Initial Securities to be deposited in the Escrow Account on the Issue Date. Such net proceeds shall be disbursed from the Escrow Account only in accordance with the terms and conditions of this SECTION 5.2. (c) If a Special Redemption Event shall occur, then: (i) The Company shall promptly notify the Trustee in writing that such Special Redemption Event has occurred and, in such notice, shall specify a Business Day occurring no less than 5 and no more than 15 Business Days after the date such notice is given as the "SPECIAL REDEMPTION DATE"; (ii) The Trustee, in the Company's name and at the Company's expense, shall thereafter promptly give notice to the Holders indicating (1) that a Special Redemption Event has occurred, (2) the date fixed as the Special Redemption Date, (3) that all of the Initial Securities are to be redeemed, (4) that the redemption price for the Initial Securities shall equal the principal amount thereof, plus accrued and unpaid interest, if any, to the Special Redemption Date (collectively, the "SPECIAL REDEMPTION PRICE"), (5) that on the Special Redemption Date, the Special Redemption Price will become due and payable upon each Initial Security and, unless the Company defaults in paying or providing for the Special Redemption Price, interest on the Initial Securities will cease to accrue on and after said date, (6) the place or places where the Initial Securities are to be surrendered for payment of the Special Redemption Price, (7) the name and address of the Paying Agent, (8) that the Initial Securities must be surrendered to the Paying Agent to collect the Special Redemption Price, (9) the CUSIP number, and that no representation is made as to the accuracy or correctness of the CUSIP number, if any, listed in such notice or printed on the Initial Securities, and (10) the paragraph of the Initial Securities pursuant to which such Initial Securities are to be redeemed; (iii) Prior to the Special Redemption Date, the Company shall deposit into the Escrow Account additional funds so that, after giving effect to such deposit, the total amount of funds in the Escrow Account on the Special Redemption Date shall be equal at least to the Special Redemption Price for the Initial Securities; and (iv) If the total amount in the Escrow Account on or after the Special Redemption Date exceeds the amount of the Special Redemption Price, such excess amounts shall be paid to the Company in accordance with its written instructions. (d) If the closing of the Acquisition occurs on or before July 31, 1998, then: (i) the Company will give the Trustee, on the date of such closing (the "ACQUISITION CLOSING DATE"), an Officers' Certificate stating that all conditions to the consummation of the Acquisition have been satisfied or waived and that the Acquisition is to be consummated on such Acquisition Closing Date, subject only to the release of the funds from the Escrow Account in accordance with SECTION 5.2(D)(III); (ii) the Company will give written payment instructions to the Trustee (the "ESCROW PAYMENT INSTRUCTIONS"), indicating that the funds in the Escrow Account are to be released concurrently with such closing and indicating the Person or Persons to which such funds should be disbursed, together with any wire transfer or other information necessary to effect such disbursement; and (iii) on the Acquisition Closing Date, the Trustee shall disburse the funds from the Escrow Account in accordance with the Escrow Payment Instructions. (e) To secure the Company's obligation to pay the Special Redemption Price in connection with the occurrence of a Special Redemption Event, the Company hereby grants to the Trustee, for the benefit of the Holders of the Initial Securities, a security interest in, Lien on and pledge of all the funds from time to time held in the Escrow Account, all rights of the Company in and to such funds and the Escrow Account and all proceeds of the foregoing (collectively, the "ESCROW COLLATERAL"). The Company acknowledges that the Trustee, on behalf of the Holders of the Initial Securities, shall, with respect to the Escrow Collateral, have all of the rights of a secured party under the New York Uniform Commercial Code. (f) Immediately following disbursement of all funds from the Escrow Account pursuant to either SECTION 5.02(C) or 5.02(D), the Escrow Account shall be closed and cease to exist. (g) As used herein, the term "SPECIAL REDEMPTION EVENT" means either (i) the Merger Agreement has been terminated or (ii) the Acquisition has not been consummated on or before July 31, 1998. SECTION 5.3. APPLICABILITY OF ARTICLE. Redemption of Securities at the election of the Company or otherwise, as permitted or required by any provision of this Indenture, shall be made in accordance with such provision and this Article. SECTION 5.4. ELECTION TO REDEEM; NOTICE TO TRUSTEE. The election of the Company to redeem any Securities pursuant to SECTION 5.1 shall be evidenced by a Board Resolution. In case of any redemption at the election of the Company, the Company shall, upon not less than 45 and not more than 60 days prior to the Redemption Date fixed by the Company (unless a shorter notice shall be satisfactory to the Trustee), notify the Trustee of such Redemption Date and of the principal amount of Securities to be redeemed and shall deliver to the Trustee such documentation and records as shall enable the Trustee to select the Securities to be redeemed pursuant to SECTION 5.4. SECTION 5.5. SELECTION BY TRUSTEE OF SECURITIES TO BE REDEEMED. If less than all the Securities are to be redeemed at any time pursuant to an optional redemption, the particular Securities to be redeemed shall be selected not more than 60 days prior to the Redemption Date by the Trustee, from the outstanding Securities not previously called for redemption, in compliance with the requirements of the principal securities exchange, if any, on which such Securities are listed, or, if such Securities are not so listed, on a PRO RATA basis, by lot or by such other method as the Trustee shall deem fair and appropriate (and in such manner as complies with applicable legal requirements) and which may provide for the selection for redemption of portions of the principal of the Securities; PROVIDED, HOWEVER, that no such partial redemption shall reduce the portion of the principal amount of a Security not redeemed to less than $1,000. The Trustee shall promptly notify the Company in writing of the Securities selected for redemption and, in the case of any Securities selected for partial redemption, the principal amount thereof to be redeemed. For all purposes of this Indenture, unless the context otherwise requires, all provisions relating to redemption of Securities shall relate, in the case of any Security redeemed or to be redeemed only in part, to the portion of the principal amount of such Security which has been or is to be redeemed. SECTION 5.6. NOTICE OF REDEMPTION. Except in the case of a Special Mandatory Redemption (which is governed by the terms and conditions of SECTION 5.2), notice of redemption shall be given in the manner provided for in SECTION 11.2 not less than 30 nor more than 60 days prior to the Redemption Date, to each Holder of Securities to be redeemed. The Trustee shall give notice of redemption in the Company's name and at the Company's expense; PROVIDED, HOWEVER, that the Company shall deliver to the Trustee (except in the case of a Special Mandatory Redemption), at least 45 days prior to the Redemption Date, an Officers' Certificate requesting that the Trustee give such notice and setting forth the information to be stated in such notice as provided in the following items. All notices of redemption (except for a notice delivered pursuant to SECTION 5.2) shall state: (1) the Redemption Date, (2) the Redemption Price and the amount of accrued interest to the Redemption Date payable as provided in SECTION 5.7, if any, (3) if less than all outstanding Securities are to be redeemed, the identification of the particular Securities (or portion thereof) to be redeemed, as well as the aggregate principal amount of Securities to be redeemed and the aggregate principal amount of Securities to be Outstanding after such partial redemption, (4) in case any Security is to be redeemed in part only, the notice which relates to such Security shall state that on and after the Redemption Date, upon surrender of such Security, the Holder will receive, without charge, a new Security or Securities of authorized denominations for the principal amount thereof remaining unredeemed, (5) that on the Redemption Date the Redemption Price (and accrued interest, if any, to the Redemption Date payable as provided in SECTION 5.7) will become due and payable upon each such Security, or the portion thereof, to be redeemed, and, unless the Company defaults in making the redemption payment, that interest on Securities called for redemption (or the portion thereof) will cease to accrue on and after said date, (6) the place or places where such Securities are to be surrendered for payment of the Redemption Price and accrued interest, if any, (7) the name and address of the Paying Agent, (8) that Securities called for redemption must be surrendered to the Paying Agent to collect the Redemption Price, (9) the CUSIP number, and that no representation is made as to the accuracy or correctness of the CUSIP number, if any, listed in such notice or printed on the Securities, and (10) the paragraph of the Securities pursuant to which the Securities are to be redeemed. SECTION 5.7. DEPOSIT OF REDEMPTION PRICE. Except in the case of a Special Mandatory Redemption (which is governed by the terms and conditions of SECTION 5.2), prior to 10:00 a.m., New York City time on any Redemption Date, the Company shall deposit with the Trustee or with a Paying Agent (or, if the Company is acting as its own Paying Agent, segregate and hold in trust as provided in SECTION 2.4) an amount of money sufficient to pay the Redemption Price of, and accrued interest on, all the Securities which are to be redeemed on that date. SECTION 5.8. SECURITIES PAYABLE ON REDEMPTION DATE. Notice of redemption having been given as aforesaid, the Securities so to be redeemed shall, on the Redemption Date, become due and payable at the Redemption Price therein specified (together with accrued interest, if any, to the Redemption Date), and from and after such date (unless the Company shall default in the payment of the Redemption Price and accrued interest) such Securities shall cease to bear interest. Upon surrender of any such Security for redemption in accordance with said notice, such Security shall be paid by the Company at the Redemption Price, together with accrued interest, if any, to the Redemption Date; PROVIDED, HOWEVER, that installments of interest whose Stated Maturity is on or prior to the Redemption Date shall be payable to the Holders of such Securities, or one or more Predecessor Securities, registered as such at the close of business on the relevant Regular Record Date or Special Record Date, as the case may be, according to their terms and the provisions of SECTION 2.13. If any Security called for redemption shall not be so paid upon surrender thereof for redemption, the principal (and premium, if any) shall, until paid, bear interest from the Redemption Date at the rate borne by the Securities. SECTION 5.9. SECURITIES REDEEMED IN PART. Any Security which is to be redeemed only in part (pursuant to the provisions of this Article) shall be surrendered at the office or agency of the Company maintained for such purpose pursuant to SECTION 3.13 (with, if the Company or the Trustee so requires, due endorsement by, or a written instrument of transfer in form satisfactory to the Company and the Trustee duly executed by, the Holder thereof or such Holder's attorney duly authorized in writing), and the Company shall execute, and the Trustee shall authenticate and make available for delivery to the Holder of such Security at the expense of the Company, a new Security or Securities, of any authorized denomination as requested by such Holder, in an aggregate principal amount equal to and in exchange for the unredeemed portion of the principal of the Security so surrendered, PROVIDED, that each such new Security will be in a principal amount of $1,000 or integral multiple thereof. SECTION 5.10. OFFER TO PURCHASE BY APPLICATION OF EXCESS PROCEEDS. In the event that, pursuant to Section 3.6 hereof, the Company shall be required to commence an Asset Sale Offer, it shall follow the procedures specified below. The Asset Sale Offer shall remain open for a period of 20 Business Days following its commencement and no longer, except to the extent that a longer period is required by applicable law (the "ASSET SALE OFFER PERIOD"). No later than five Business Days after the termination of the Asset Sale Offer Period (the "ASSET SALE OFFER PURCHASE DATE"), the Company shall purchase the principal amount of Securities required to be purchased pursuant to Section 3.6 hereof (the "ASSET SALE OFFER AMOUNT") or, if less than the Asset Sale Offer Amount has been tendered, all Securities tendered in response to the Asset Sale Offer. Payment for any Securities so purchased shall be made in the same manner as interest payments are made. If the Asset Sale Offer Purchase Date is on or after an interest record date and on or before the related interest payment date, any accrued and unpaid interest shall be paid to the Person in whose name a Security is registered at the close of business on such record date, and no additional interest shall be payable to Holders who tender Securities pursuant to the Asset Sale Offer. Upon the commencement of an Asset Sale Offer, the Company shall send, by first class mail, a notice to the Trustee and each of the Holders. The notice shall contain all instructions and materials necessary to enable such Holders to tender Securities pursuant to the Asset Sale Offer. The Asset Sale Offer shall be made to all Holders. The notice, which shall govern the terms of the Asset Sale Offer, shall state: (a) that the Asset Sale Offer is being made pursuant to this Section 5.10 and Section 3.6 hereof and the length of time the Asset Sale Offer shall remain open; (b) the Asset Sale Offer Amount, the purchase price and the Asset Sale Offer Purchase Date; (c) that any Security not tendered or accepted for payment shall continue to accrete or accrue interest; (d) that, unless the Company defaults in making such payment, any Security accepted for payment pursuant to the Asset Sale Offer shall cease to accrete or accrue interest after the Asset Sale Offer Purchase Date; (e) that Holders electing to have any Securities held by them purchased pursuant to an Asset Sale Offer may only elect to have all of such Securities purchased and may not elect to have only a portion of such Security purchased; (f) that Holders electing to have a Security purchased pursuant to any Asset Sale Offer shall be required to surrender the Security, with the form entitled "Option of Holder to Elect Purchase" on the reverse of the Security completed, or transfer by book-entry transfer, to the Company, a depositary, if appointed by the Company, or a Paying Agent at the address specified in the notice at least three days before the Asset Sale Offer Purchase Date; (g) that Holders shall be entitled to withdraw their election if the Company, the Depositary or the Paying Agent, as the case may be, receives, not later than the expiration of the Asset Sale Offer Period, a telegram, telex, facsimile transmission or letter setting forth the name of the Holder, the principal amount of the Security the Holder delivered for purchase and a statement that such Holder is withdrawing its election to have such Security purchased; (h) that, if the aggregate principal amount of Securities surrendered by Holders exceeds the Asset Sale Offer Amount, the Company shall select the Securities to be purchased on a PRO RATA basis (with such adjustments as may be deemed appropriate by the Company so that only Securities in denominations of $1,000, or integral multiples thereof, shall be purchased); and (i) that Holders whose Securities were purchased only in part pursuant to paragraph (h) above shall be issued new Securities equal in principal amount to the unpurchased portion of the Securities surrendered (or transferred by book-entry transfer). On or before the Asset Sale Offer Purchase Date, the Company shall, to the extent lawful, accept for payment, on a PRO RATA basis to the extent necessary, the Asset Sale Offer Amount of Securities or portions thereof tendered pursuant to the Asset Sale Offer, or if less than the Asset Sale Offer Amount has been tendered, all Securities tendered, and shall deliver to the Trustee an Officer's Certificate stating that such Securities or portions thereof were accepted for payment by the Company in accordance with the terms of this Section 5.10. The Company, the Depositary or the Paying Agent, as the case may be, shall promptly (but in any case not later than five days after the Asset Sale Offer Purchase Date) mail or deliver to each tendering Holder an amount equal to the purchase price of the Securities tendered by such Holder and accepted by the Company for purchase, and the Company shall promptly issue a new Security, and the Trustee, upon written request from the Company shall authenticate and mail or deliver such new Security to such Holder, in a principal amount equal to any unpurchased portion of the Security surrendered. Any Security not so accepted shall be promptly mailed or delivered by the Company to the Holder thereof. The Company shall publicly announce the results of the Asset Sale Offer on the Asset Sale Offer Purchase Date. Other than as specifically provided in this Section 5.10, any purchase pursuant to this Section 5.10 shall be made pursuant to the provisions of Sections 5.1 and 5.3 through 5.9 hereof. ARTICLE VI DEFAULTS AND REMEDIES SECTION 6.1. EVENTS OF DEFAULT. An "Event of Default" occurs if: (1) the Company defaults in any payment of interest on any Security when the same becomes due and payable and such default continues for a period of 30 days; (2) the Company defaults in the payment of the principal or premium, if any, of any Security when the same becomes due and payable at its Stated Maturity, upon optional redemption, upon Special Mandatory Redemption, upon required repurchase, upon declaration or otherwise; (3) the Company fails to comply with ARTICLE IV of this Indenture; (4) the Company fails to comply with any of SECTIONS 3.2, 3.3, 3.4, 3.5, 3.6, 3.7, 3.8, 3.9, 3.10, 3.11, 3.12, 3.13, 3.14 and 3.15 (in each case other than a failure to repurchase Securities when required pursuant to SECTIONS 3.6 or 3.9, which failure shall constitute an Event of Default under SECTION 6.1(2)) and such failure continues for 30 days after the notice specified below; (5) the Company defaults in the performance of or breaches any covenant or agreement in this Indenture or under the Securities (other than those referred to in (1), (2), (3) or (4) above) and such default continues for 60 days after the notice specified below; (6) Indebtedness of the Company or any Restricted Subsidiary is not paid within any applicable grace period after final maturity or is accelerated by the holders thereof and the total amount of such unpaid or accelerated Indebtedness exceeds $5.0 million or its foreign currency equivalent at the time; (7) the Company or a Significant Subsidiary pursuant to or within the meaning of any Bankruptcy Law (as defined below): (A) commences a voluntary case; (B) consents to the entry of an order for relief against it in an involuntary case; (C) consents to the appointment of a Custodian (as defined below) of it or for any substantial part of its property; or (D) makes a general assignment for the benefit of its creditors; or takes any comparable action under any foreign laws relating to insolvency; (8) a court of competent jurisdiction enters an order or decree under any Bankruptcy Law that: (A) is for relief against the Company or any Significant Subsidiary in an involuntary case; (B) appoints a Custodian of the Company or any Significant Subsidiary or for any substantial part of its property; or (C) orders the winding up or liquidation of the Company or any Significant Subsidiary; or any similar relief is granted under any foreign laws and the order, decree or relief remains unstayed and in effect for 60 days; (9) any judgment or decree for the payment of money in excess of $5.0 million or its foreign currency equivalent at the time is rendered against the Company or a Significant Subsidiary and such judgment or decree remains undischarged or unstayed for a period of 60 days following such judgment or decree becomes final and non-appealable; or (10) the failure of any Subsidiary Guarantee by a Subsidiary Guarantor (if any) to be in full force and effect (except as contemplated by the terms of this Indenture) or the denial or disaffirmation by any such Subsidiary Guarantor of its obligations under any Subsidiary Guarantee (except as contemplated by the terms of this Indenture). The foregoing will constitute Events of Default whatever the reason for any such Event of Default and whether it is voluntary or involuntary or is effected by operation of law or pursuant to any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body. The term "BANKRUPTCY LAW" means Title 11, UNITED STATES CODE, or any similar Federal or state law for the relief of debtors. The term "CUSTODIAN" means any receiver, trustee, assignee, liquidator, custodian or similar official under any Bankruptcy Law. Notwithstanding the foregoing, a Default under clause (4) or (5) of this SECTION 6.1 will not constitute an Event of Default until the Trustee notifies the Company or the Holders of more than 25% in principal amount of the then outstanding Securities notify the Company and the Trustee of the Default and the Company does not cure such Default within the time specified in said clause (4) or (5) after receipt of such notice. Such notice must specify the Default, demand that it be remedied and state that such notice is a "Notice of Default". The Company shall deliver to the Trustee, within 30 days after the occurrence thereof, written notice in the form of an Officers' Certificate of any Default or Event of Default. SECTION 6.2. ACCELERATION. If an Event of Default (other than an Event of Default specified in SECTION 6.1(7) or (8) with respect to the Company) occurs and is continuing, the Trustee by notice to the Company, or the Holders of at least 25% in outstanding principal amount of the Securities by notice to the Company and the Trustee, may, and the Trustee at the request of such Holders shall, declare the principal of, premium, if any, and accrued but unpaid interest on all the Securities to be due and payable. Upon such a declaration, such principal, premium and interest shall be immediately due and payable. In the event of a declaration of acceleration because an Event of Default set forth in SECTION 6.1(6) above has occurred and is continuing, such declaration of acceleration shall be automatically rescinded and annulled if the event of default or payment default triggering such Event of Default pursuant to SECTION 6.1(6) shall be remedied or cured by the Company and/or the relevant Restricted Subsidiaries or waived by the holders of the relevant Indebtedness within 60 days after the declaration of acceleration with respect thereto and the Company has paid all amounts due to the Trustee pursuant to SECTION 7.7. If an Event of Default specified in SECTION 6.1(7) or (8) with respect to the Company occurs, the principal of, premium and accrued and unpaid interest on all the Securities will become and be immediately due and payable without any declaration or other act on the part of the Trustee or any Holders. The Holders of a majority in principal amount of the Securities by notice to the Trustee may waive all past defaults (except with respect to nonpayment of principal, premium or interest) and rescind an acceleration with respect to the Securities and its consequences if (i) the rescission would not conflict with any judgment or decree of a court of competent jurisdiction, (ii) all existing Events of Default, other than the nonpayment of principal or interest that has become due solely because of such acceleration, have been cured or waived and (iii) the Company has paid all amounts due to the Trustee pursuant to SECTION 7.7. No such rescission shall affect any subsequent Default or Event of Default or impair any right consequent thereto. SECTION 6.3. OTHER REMEDIES. If an Event of Default occurs and is continuing, the Trustee may pursue any available remedy to collect the payment of principal of or interest on the Securities or to enforce the performance of any provision of the Securities or this Indenture. The Trustee may maintain a proceeding even if it does not possess any of the Securities or does not produce any of them in the proceeding. A delay or omission by the Trustee or any Securityholder in exercising any right or remedy accruing upon an Event of Default shall not impair the right or remedy or constitute a waiver of or acquiescence in the Event of Default. No remedy is exclusive of any other remedy. All available remedies are cumulative. SECTION 6.4. WAIVER OF PAST DEFAULTS. Subject to SECTION 6.2, the Holders of a majority in principal amount of the Securities by notice to the Trustee may waive an existing Default or Event of Default and its consequences except (i) a Default or Event of Default in the payment of the principal of or interest on a Security or (ii) a Default or Event of Default in respect of a provision that under SECTION 9.2 cannot be amended without the consent of each Securityholder affected. When a Default or Event of Default is waived, it is deemed cured, but no such waiver shall extend to any subsequent or other Default or Event of Default or impair any consequent right. SECTION 6.5. CONTROL BY MAJORITY. The Holders of a majority in principal amount of the Securities may direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or of exercising any trust or power conferred on the Trustee. However, the Trustee may refuse to follow any direction that conflicts with law or this Indenture or, subject to SECTIONS 7.1 AND 7.2, that the Trustee determines is unduly prejudicial to the rights of other Securityholders or would involve the Trustee in personal liability; PROVIDED, HOWEVER, that the Trustee may take any other action deemed proper by the Trustee that is not inconsistent with such direction. Prior to taking any action hereunder, the Trustee shall be entitled to indemnification satisfactory to it in its sole discretion against all losses and expenses caused by taking or not taking such action. SECTION 6.6. LIMITATION ON SUITS. A Securityholder may not pursue any remedy with respect to this Indenture or the Securities unless: (1) the Holder gives to the Trustee written notice stating that an Event of Default is continuing; (2) the Holders of at least 25% in outstanding principal amount of the Securities make a request to the Trustee to pursue the remedy; (3) such Holder or Holders offer to the Trustee reasonable security or indemnity against any loss, liability or expense (including reasonable attorneys' fees and expenses); (4) the Trustee does not comply with the request within 60 days after receipt of the request and the offer of security or indemnity; and (5) the Holders of a majority in principal amount of the Securities do not give the Trustee a direction inconsistent with the request during such 60-day period. SECTION 6.7. RIGHTS OF HOLDERS TO RECEIVE PAYMENT. Notwithstanding any other provision of this Indenture, the right of any Holder to receive payment of principal of, premium (if any) or interest on the Securities held by such Holder, on or after the respective due dates expressed in the Securities, or to bring suit for the enforcement of any such payment on or after such respective dates, shall not be impaired or affected without the consent of such Holder. SECTION 6.8. COLLECTION SUIT BY TRUSTEE. If an Event of Default specified in SECTION 6.1(1) or (2) occurs and is continuing, the Trustee may recover judgment in its own name and as trustee of an express trust against the Company for the whole amount then due and owing (together with interest on any unpaid interest to the extent lawful) and the amounts provided for in SECTION 7.7. SECTION 6.9. TRUSTEE MAY FILE PROOFS OF CLAIM. The Trustee may file such proofs of claim and other papers or documents as may be necessary or advisable in order to have the claims of the Trustee and the Securityholders allowed in any judicial proceedings relative to the Company, its Subsidiaries or its or their respective creditors or properties and, unless prohibited by law or applicable regulations, may vote on behalf of the Holders in any election of a trustee in bankruptcy or other Person performing similar functions, and any Custodian in any such judicial proceeding is hereby authorized by each Holder to make payments to the Trustee and, in the event that the Trustee shall consent to the making of such payments directly to the Holders, to pay to the Trustee any amount due it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and its counsel, and any other amounts due the Trustee under SECTION 7.7. Nothing herein shall be deemed to empower the Trustee to authorize or consent to, or accept or adopt on behalf of any Holder, any plan of reorganization, arrangement, adjustment or composition affecting the Securities or the rights of any Holder, or to authorize the Trustee to vote in respect of the claim of any Holder in any such proceedings. SECTION 6.10. PRIORITIES. If the Trustee collects any money or property pursuant to this ARTICLE VI, it shall pay out the money or property in the following order: FIRST: to the Trustee for amounts due under SECTION 7.7; SECOND: to Securityholders for amounts due and unpaid on the Securities for principal and interest, ratably, without preference or priority of any kind, according to the amounts due and payable on the Securities for principal and interest, respectively; and THIRD: to the Company. The Trustee may fix a record date and payment date for any payment to Securityholders pursuant to this Section. At least 15 days before such record date, the Company shall mail to each Securityholder and the Trustee a notice that states the record date, the payment date and amount to be paid. SECTION 6.11. UNDERTAKING FOR COSTS. In any suit for the enforcement of any right or remedy under this Indenture or in any suit against the Trustee for any action taken or omitted by it as Trustee, a court in its discretion may require the filing by any party litigant in the suit of an undertaking to pay the costs of the suit, and the court in its discretion may assess reasonable costs, including reasonable attorneys' fees, against any party litigant in the suit, having due regard to the merits and good faith of the claims or defenses made by the party litigant. This Section does not apply to a suit by the Trustee, a suit by the Company, a suit by a Holder pursuant to SECTION 6.7 or a suit by Holders of more than 10% in outstanding principal amount of the Securities. ARTICLE VII TRUSTEE SECTION 7.1. DUTIES OF TRUSTEE. (a) If an Event of Default has occurred and is continuing, the Trustee shall exercise the rights and powers vested in it by this Indenture and use the same degree of care and skill in their exercise as a prudent Person would exercise or use under the circumstances in the conduct of such Person's own affairs. (b) Except during the continuance of an Event of Default: (1) the Trustee undertakes to perform such duties and only such duties as are specifically set forth in this Indenture and no implied covenants or obligations shall be read into this Indenture against the Trustee; and (2) in the absence of bad faith on its part, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the Trustee and conforming to the requirements of this Indenture. However, in the case of any such certificates or opinions which by any provisions hereof are specifically required to be furnished to the Trustee, the Trustee shall examine such certificates and opinions to determine whether or not they conform to the requirements of this Indenture (but need not confirm or investigate the accuracy of mathematical calculations or other facts stated therein). (c) The Trustee may not be relieved from liability for its own negligent action, its own negligent failure to act or its own wilful misconduct, except that: (1) this paragraph does not limit the effect of paragraph (b) of this Section; (2) the Trustee shall not be liable for any error of judgment made in good faith by a Trust Officer unless it is proved that the Trustee was negligent in ascertaining the pertinent facts; and (3) the Trustee shall not be liable with respect to any action it takes or omits to take in good faith in accordance with a direction received by it pursuant to SECTION 6.5. (d) Every provision of this Indenture that in any way relates to the Trustee is subject to paragraphs (a), (b) and (c) of this Section. (e) The Trustee shall not be liable for interest on any money received by it except as the Trustee may agree in writing with the Company. (f) Money held in trust by the Trustee need not be segregated from other funds except to the extent required by law. (g) No provision of this Indenture shall require the Trustee to expend or risk its own funds or otherwise incur financial liability in the performance of any of its duties hereunder or in the exercise of any of its rights or powers, if it shall have reasonable grounds to believe that repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to it. (h) Every provision of this Indenture relating to the conduct or affecting the liability of or affording protection to the Trustee shall be subject to the provisions of this Section and to the provisions of the TIA. (i) Unless otherwise specifically provided in this Indenture, any demand, request, direction or notice from the Company shall be sufficient if signed by an Officer of the Company. (j) The Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture at the request or direction of any of the Holders unless such Holders shall have offered to the Trustee reasonable security or indemnity against the costs, expenses (including reasonable attorneys' fees and expenses) and liabilities that might be incurred by it in compliance with such request or direction. SECTION 7.2. RIGHTS OF TRUSTEE. Subject to SECTION 7.1, (a) The Trustee may rely on any document believed by it to be genuine and to have been signed or presented by the proper person. The Trustee need not investigate any fact or matter stated in the document. (b) Before the Trustee acts or refrains from acting, it may require an Officers' Certificate or an Opinion of Counsel. The Trustee shall not be liable for any action it takes or omits to take in good faith in reliance on an Officers' Certificate or Opinion of Counsel. (c) The Trustee may act through its attorneys and agents and shall not be responsible for the misconduct or negligence of any agent appointed with due care. (d) The Trustee shall not be liable for any action it takes or omits to take in good faith which it believes to be authorized or within its rights or powers; PROVIDED, however, that the Trustee's conduct does not constitute wilful misconduct or negligence. (e) The Trustee may consult with counsel of its selection, and the advice or opinion of counsel with respect to legal matters relating to this Indenture and the Securities shall be full and complete authorization and protection from liability in respect to any action taken, omitted or suffered by it hereunder in good faith and in accordance with the advice or opinion of such counsel. (f) The Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture at the request, order or direction of any of the Holders pursuant to the provisions of this Indenture, unless such Holders shall have offered to the Trustee reasonable security or indemnity against the costs, expenses and liabilities which may be incurred therein or thereby. (g) The Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate (including any Officers' Certificate), statement, instrument, opinion (including any Opinion of Counsel), notice, request, direction, consent, order, bond, debenture, or other paper or document, but the Trustee, in its discretion, may make such further inquiry or investigation into such facts or matters as it may see fit and, if the Trustee shall determine to make such further inquiry or investigation, it shall be entitled, upon reasonable notice to the Company, to examine the books, records, and premises of the Company, personally or by agent or attorney. (h) The Trustee shall not be required to give any bond or surety in respect of the performance of its powers and duties hereunder. (i) The permissive rights of the Trustee to do things enumerated in this Indenture shall not be construed as duties. (j) The Trustee shall not be charged with knowledge of any Default or Event of Default, of the identity of any Restricted Subsidiary or the existence of any Change of Control or Asset Disposition unless either (i) a Trust Officer shall have actual knowledge thereof or (ii) the Trustee shall have received written notice thereof from the Company or any Holder. SECTION 7.3. INDIVIDUAL RIGHTS OF TRUSTEE. The Trustee in its individual or any other capacity may become the owner or pledgee of Securities and may otherwise deal with the Company or its Affiliates with the same rights it would have if it were not Trustee. Any Paying Agent, Registrar, co-registrar or co-paying agent may do the same with like rights. However, the Trustee must comply with SECTIONS 7.10 and 7.11. SECTION 7.4. TRUSTEE'S DISCLAIMER. The Trustee shall not be responsible for and makes no representation as to the validity or adequacy of this Indenture, any Subsidiary Guarantee or the Securities, it shall not be accountable for the Company's use of the proceeds from the Securities, and it shall not be responsible for any statement of the Company in this Indenture or in any document issued in connection with the sale of the Securities or in the Securities other than the Trustee's certificate of authentication. SECTION 7.5. NOTICE OF DEFAULTS. If a Default or Event of Default occurs and is continuing and if a Trust Officer has actual knowledge thereof, the Trustee shall mail to each Securityholder notice of the Default or Event of Default within 90 days after it occurs. Except in the case of a Default or Event of Default in payment of principal of, premium (if any), or interest on any Security (including payments pursuant to the optional redemption or required repurchase provisions of such Security, if any), the Trustee may withhold the notice if and so long as its board of directors, a committee of its board of directors or a committee of its Trust Officers in good faith determines that withholding the notice is in the interests of Securityholders. SECTION 7.6. REPORTS BY TRUSTEE TO HOLDERS. As promptly as practicable after each April 15 beginning with the April 15 following the date of this Indenture, and in any event prior to June 15 in each year, the Trustee shall mail to each Securityholder a brief report dated as of such April 15 that complies with TIA ss. 313(a). The Trustee also shall comply with TIA ss. 313(b). The Trustee shall also transmit by mail all reports required by TIA ss. 313(c). A copy of each report at the time of its mailing to Securityholders shall be filed with the SEC and each stock exchange (if any) on which the Securities are listed. The Company agrees to notify promptly the Trustee whenever the Securities become listed on any stock exchange and of any delisting thereof. SECTION 7.7. COMPENSATION AND INDEMNITY. The Company shall pay to the Trustee from time to time reasonable compensation for its acceptance of this Indenture and services hereunder as the Company and the Trustee shall from time to time agree in writing. The Trustee's compensation shall not be limited by any law on compensation of a trustee of an express trust. The Company shall reimburse the Trustee upon request for all reasonable out-of-- pocket expenses incurred or made by it, including costs of collection, costs of preparing and reviewing reports, certificates and other documents, costs of preparation and mailing of notices to Securityholders and reasonable costs of counsel retained by the Trustee in connection with the delivery of an Opinion of Counsel or otherwise, in addition to the compensation for its services. Such expenses shall include the reasonable compensation and expenses, disbursements and advances of the Trustee's agents, counsel, accountants and experts. The Company shall indemnify the Trustee against any and all loss, liability or expense (including reasonable attorneys' fees and expenses) incurred by it without negligence or bad faith on its part in connection with the administration of this trust and the performance of its duties hereunder, including the costs and expenses of enforcing this Indenture (including this SECTION 7.7) and of defending itself against any claims (whether asserted by any Securityholder, the Company or otherwise). The Trustee shall notify the Company promptly of any claim for which it may seek indemnity. Failure by the Trustee to so notify the Company shall not relieve the Company of its obligations hereunder. The Company shall defend the claim and the Trustee may have separate counsel and the Company shall pay the fees and expenses of such counsel provided that the Company shall not be required to pay such fees and expenses if it assumes the Trustee's defense, and, in the reasonable judgement of outside counsel to the Trustee, there is no conflict of interest between the Company and the Trustee in connection with such defense. The Company need not reimburse any expense or indemnify against any loss, liability or expense incurred by the Trustee through the Trustee's own wilful misconduct, negligence or bad faith. To secure the Company's payment obligations in this Section, the Trustee shall have a lien prior to the Securities on all money or property held or collected by the Trustee other than money or property held in trust to pay principal of and interest on particular Securities. The Trustee's right to receive payment of any amounts due under this SECTION 7.7 shall not be subordinate to any other liability or indebtedness of the Company. The Company's payment obligations pursuant to this Section shall survive the resignation or removal of the Trustee and the discharge of this Indenture. When the Trustee incurs expenses after the occurrence of a Default specified in SECTION 6.1(7) or (8) with respect to the Company, the expenses are intended to constitute expenses of administration under any Bankruptcy Law. SECTION 7.8. REPLACEMENT OF TRUSTEE. The Trustee may resign at any time by so notifying the Company. The Holders of a majority in principal amount of the Securities may remove the Trustee by so notifying the Trustee and may appoint a successor Trustee. The Company shall remove the Trustee if: (1) the Trustee fails to comply with SECTION 7.10; (2) the Trustee is adjudged bankrupt or insolvent; (3) a receiver or other public officer takes charge of the Trustee or its property; or (4) the Trustee otherwise becomes incapable of acting. If the Trustee resigns or is removed by the Company or by the Holders of a majority in principal amount of the Securities and such Holders do not reasonably promptly appoint a successor Trustee, or if a vacancy exists in the office of the Trustee for any reason (the Trustee in such event being referred to herein as the retiring Trustee), the Company shall promptly appoint a successor Trustee. A successor Trustee shall deliver a written acceptance of its appointment to the retiring Trustee and to the Company. Thereupon the resignation or removal of the retiring Trustee shall become effective, and the successor Trustee shall have all the rights, powers and duties of the Trustee under this Indenture. The successor Trustee shall mail a notice of its succession to Securityholders. The retiring Trustee shall promptly transfer all property held by it as Trustee to the successor Trustee, subject to the lien provided for in SECTION 7.7. If a successor Trustee does not take office within 60 days after the retiring Trustee resigns or is removed, the retiring Trustee or the Holders of 10% in principal amount of the Securities may petition, at the Company's expense, any court of competent jurisdiction for the appointment of a successor Trustee. If the Trustee fails to comply with SECTION 7.10, any Securityholder may petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee. Notwithstanding the replacement of the Trustee pursuant to this Section, the Company's obligations under SECTION 7.7 shall continue for the benefit of the retiring Trustee. SECTION 7.9. SUCCESSOR TRUSTEE BY MERGER. If the Trustee consolidates with, merges or converts into, or transfers all or substantially all its corporate trust business or assets to, another corporation or banking association, the resulting, surviving or transferee corporation without any further act shall be the successor Trustee. In case at the time such successor or successors by merger, conversion or consolidation to the Trustee shall succeed to the trusts created by this Indenture, any of the Securities shall have been authenticated but not delivered, any such successor to the Trustee may adopt the certificate of authentication of any predecessor trustee, and deliver such Securities so authenticated; and in case at that time any of the Securities shall not have been authenticated, any successor to the Trustee may authenticate such Securities either in the name of any predecessor hereunder or in the name of the successor to the Trustee; and in all such cases such certificates shall have the full force which it is anywhere in the Securities or in this Indenture provided that the certificate of the Trustee shall have. SECTION 7.10. ELIGIBILITY; DISQUALIFICATION. The Trustee shall at all times satisfy the requirements of TIA ss. 310(a). The Trustee shall have a combined capital and surplus of at least $100 million as set forth in its most recent published annual report of condition. The Trustee shall comply with TIA ss. 310(b); PROVIDED, HOWEVER, that there shall be excluded from the operation of TIA ss. 310(b)(1) any indenture or indentures under which other securities or certificates of interest or participation in other securities of the Company are outstanding if the requirements for such exclusion set forth in TIA ss. 310(b)(1) are met. SECTION 7.11. PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY. The Trustee shall comply with TIA ss. 311(a), excluding any creditor relationship listed in TIA ss. 311(b). A Trustee who has resigned or been removed shall be subject to TIA ss. 311(a) to the extent indicated. ARTICLE VIII DISCHARGE OF INDENTURE; DEFEASANCE SECTION 8.1. DISCHARGE OF LIABILITY ON SECURITIES; DEFEASANCE. (a) When (i) the Company delivers to the Trustee all outstanding Securities (other than Securities replaced pursuant to SECTION 2.9) for cancellation or (ii) all outstanding Securities have become due and payable, whether at maturity or upon redemption and the Company irrevocably deposits with the Trustee funds sufficient to pay at maturity or upon redemption all outstanding Securities (other than Securities replaced pursuant to SECTION 2.9), including interest thereon to maturity or such Redemption Date, and if in either case the Company pays all other sums payable hereunder by the Company, then this Indenture shall, subject to SECTION 8.1(C), cease to be of further effect. The Trustee shall acknowledge satisfaction and discharge of this Indenture on demand of the Company (accompanied by an Officers' Certificate and an Opinion of Counsel stating that all conditions precedent specified herein relating to the satisfaction and discharge of this Indenture have been complied with) and at the cost and expense of the Company. (b) Subject to SECTIONS 8.1(C) and 8.2, the Company at any time may terminate (i) all its obligations under the Securities and this Indenture ("LEGAL DEFEASANCE OPTION"), and after giving effect to such legal defeasance, any omission to comply with such obligations shall no longer constitute a Default or Event of Default or (ii) its obligations under SECTIONS 3.2, 3.3, 3.4, 3.5, 3.6, 3.7, 3.8, 3.9, 3.10, 3.11, 3.12, 3.13, 3.14, 3.15 and 4.1(III) and the Company may omit to comply with and shall have no liability in respect of any term, condition or limitation set forth in any such covenant, whether directly or indirectly, by reason of any reference elsewhere herein to any such covenant or by reason of any reference in any such covenant to any other provision herein or in any other document and such omission to comply shall no longer constitute a Default or an Event of Default under SECTION 6.1(3) and 6.1(4) ("COVENANT DEFEASANCE OPTION"), but except as specified above, the remainder of this Indenture and the Securities shall be unaffected thereby. The Company may exercise its legal defeasance option notwithstanding its prior exercise of its covenant defeasance option. If the Company exercises its covenant defeasance option, the Company may, by written notice to the Trustee prior to the delivery of the Opinion of Counsel referred to in SECTION 8.2(8), elect to have any Subsidiary Guarantees in effect at such time terminate. If the Company exercises its legal defeasance option, payment of the Securities may not be accelerated because of any event that, in the absence of such legal defeasance, would have constituted an Event of Default, and the Subsidiary Guarantees in effect at such time shall terminate. If the Company exercises its covenant defeasance option, the events specified in SECTIONS 6.1(4), 6.1(6), 6.1(7) (but only with respect to a Significant Subsidiary), 6.1(8) (but only with respect to a Significant Subsidiary), 6.1(9) and 6.1(10) will no longer constitute an Event of Default, and payment of the Securities may not be accelerated because of the occurrence of any such event or because of the failure of the Company to comply with SECTIONS 4.1(III). Upon satisfaction of the conditions set forth herein and upon request of the Company, the Trustee shall acknowledge in writing the discharge of those obligations that the Company terminates. (c) Notwithstanding the provisions of SECTIONS 8.1(A) and (B), the Company's obligations in SECTIONS 2.3, 2.4, 2.5, 2.6, 2.7, 2.9, 7.7, 7.8, 8.4, 8.5 and 8.6 shall survive until the Securities have been paid in full. Thereafter, the Company's obligations in SECTIONS 7.7, 8.4 and 8.5 shall survive. SECTION 8.2. CONDITIONS TO DEFEASANCE. The Company may exercise its legal defeasance option or its covenant defeasance option only if: (1) the Company irrevocably deposits in trust with the Trustee for the benefit of the Holders money in U.S. dollars or U.S. Government Obligations or a combination thereof for the payment of principal of and interest on the Securities to maturity or redemption, as the case may be; (2) the Company delivers to the Trustee a certificate from a nationally recognized firm of independent accountants expressing their opinion that the payments of principal and interest when due and without reinvestment on the deposited U.S. Government Obligations plus any deposited money without investment will provide cash at such times and in such amounts as will be sufficient to pay principal and interest when due on all the Securities to maturity; (3) no Default or Event of Default shall have occurred and be continuing on the date of such deposit (other than a Default or Event of Default with respect to this Indenture resulting from the incurrence of Indebtedness, all or a portion of which will be used to defease the Securities concurrently with such incurrence); (4) such legal defeasance or covenant defeasance shall not result in a breach or violation of, or constitute a Default under, this Indenture or any other material agreement or instrument to which the Company or any of its Subsidiaries is a party or by which the Company or any of its Subsidiaries is bound; (5) the Company shall have delivered to the Trustee an Opinion of Counsel to the effect that (A) the Securities and (B) assuming no intervening bankruptcy of the Company between the date of deposit and the 91st day following the deposit and that no Holder of the Securities is an insider of the Company, after 91st day following the deposit, the trust funds will not be subject to the effect of any applicable bankruptcy, insolvency, reorganization or similar laws affecting creditors' right generally; (6) the deposit does not constitute a default under any other agreement binding on the Company; (7) the Company delivers to the Trustee an Opinion of Counsel to the effect that the trust resulting from the deposit does not constitute, or is qualified as, a regulated investment company under the Investment Company Act of 1940; (8) in the case of the legal defeasance option, the Company shall have delivered to the Trustee an Opinion of Counsel stating that (i) the Company has received from, or there has been published by, the Internal Revenue Service a ruling, or (ii) since the date of this Indenture there has been a change in the applicable federal income tax law, in either case to the effect that, and based thereon such Opinion of Counsel shall confirm that, the Securityholders will not recognize income, gain or loss for federal income tax purposes as a result of such defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such legal defeasance had not occurred; (9) in the case of the covenant defeasance option, the Company shall have delivered to the Trustee an Opinion of Counsel in the United States to the effect that the Securityholders will not recognize income, gain or loss for federal income tax purposes as a result of such covenant defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such covenant defeasance had not occurred; and (10) the Company delivers to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that all conditions precedent to the defeasance and discharge of the Securities and this Indenture as contemplated by this ARTICLE VIII have been complied with. SECTION 8.3. APPLICATION OF TRUST MONEY. The Trustee shall hold in trust money or U.S. Government Obligations deposited with it pursuant to this ARTICLE VIII. It shall apply the deposited money and the money from U.S. Government Obligations through the Paying Agent and in accordance with this Indenture to the payment of principal of and interest on the Securities. SECTION 8.4. REPAYMENT TO COMPANY. The Trustee and the Paying Agent shall promptly turn over to the Company upon request any excess money or securities held by them upon payment of all the obligations under this Indenture. Subject to any applicable abandoned property law, the Trustee and the Paying Agent shall pay to the Company upon request any money held by them for the payment of principal of or interest on the Securities that remains unclaimed for two years, and, thereafter, Securityholders entitled to the money must look to the Company for payment as general creditors. SECTION 8.5. INDEMNITY FOR U.S. GOVERNMENT OBLIGATIONS. The Company shall pay and shall indemnify the Trustee against any tax, fee or other charge imposed on or assessed against deposited U.S. Government Obligations or the principal and interest received on such U.S. Government Obligations. SECTION 8.6. REINSTATEMENT. If the Trustee or Paying Agent is unable to apply any money or U.S. Government Obligations in accordance with this ARTICLE VIII by reason of any legal proceeding or by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, the obligations of the Company under this Indenture and the Securities, and the obligations of the Subsidiary Guarantors under the Subsidiary Guarantees, shall be revived and reinstated as though no deposit had occurred pursuant to this ARTICLE VIII until such time as the Trustee or Paying Agent is permitted to apply all such money or U.S. Government Obligations in accordance with this ARTICLE VIII; PROVIDED, HOWEVER, that, if the Company has made any payment of interest on or principal of any Securities because of the reinstatement of its obligations, the Company shall be subrogated to the rights of the Holders of such Securities to receive such payment from the money or U.S. Government Obligations held by the Trustee or Paying Agent. ARTICLE IX AMENDMENTS SECTION 9.1. WITHOUT CONSENT OF HOLDERS. The Company, the Subsidiary Guarantors and the Trustee may amend this Indenture, the Subsidiary Guarantees or the Securities without notice to or consent of any Securityholder: (1) to cure any ambiguity, omission, defect or inconsistency; (2) to comply with ARTICLE IV in respect of the assumption by a Successor Company of an obligation of the Company under this Indenture; (3) to provide for uncertificated Securities in addition to or in place of certificated Securities; PROVIDED, HOWEVER, that the uncertificated Securities are issued in registered form for purposes of Section 163(f) of the Code or in a manner such that the uncertificated Securities are described in Section 163(f)(2)(B) of the Code; (4) to add guarantees with respect to the Securities or to secure the Securities; (5) to add to the covenants of the Company for the benefit of the Holders or to surrender any right or power herein conferred upon the Company; (6) to comply with any requirements of the SEC in connection with qualifying this Indenture under the TIA; (7) to make any change that does not adversely affect the rights of any Securityholder; or (8) to provide for the issuance of the Exchange Securities, which will have terms substantially identical in all material respects to the Initial Securities (except that the transfer restrictions contained in the Initial Securities will be modified or eliminated, as appropriate), and which will be treated, together with any outstanding Initial Securities, as a single issue of securities. After an amendment under this Section becomes effective, the Company shall mail to Securityholders a notice briefly describing such amendment. The failure to give such notice to all Securityholders, or any defect therein, shall not impair or affect the validity of an amendment under this Section. SECTION 9.2. WITH CONSENT OF HOLDERS. The Company, the Subsidiary Guarantors and the Trustee may amend this Indenture, the Subsidiary Guarantees or the Securities without notice to any Securityholder but with the written consent of the Holders of at least a majority in principal amount of the Securities. However, without the consent of each Securityholder affected, an amendment may not: (1) reduce the amount of Securities whose Holders must consent to an amendment; (2) reduce the rate of or extend the time for payment of interest on any Security; (3) reduce the principal of or extend the Stated Maturity of any Security; (4) reduce the premium payable upon the redemption or repurchase of any Security or change the time at which any Security may or shall be redeemed or repurchased in accordance with this Indenture; (5) make any Security payable in money other than that stated in the Security; (6) impair the right of any Holder to receive payment of principal of and interest on such Holder's Securities on or after the due dates therefor or to institute suit for the enforcement of any payment on or with respect to such Holder's Securities; (7) make any change to the amendment provisions which require each Holder's consent or to the waiver provisions. It shall not be necessary for the consent of the Holders under this Section to approve the particular form of any proposed amendment, but it shall be sufficient if such consent approves the substance thereof. After an amendment under this Section becomes effective, the Company shall mail to Securityholders a notice briefly describing such amendment. The failure to give such notice to all Securityholders, or any defect therein, shall not impair or affect the validity of an amendment under this Section. SECTION 9.3. COMPLIANCE WITH TRUST INDENTURE ACT. Every amendment to this Indenture or the Securities shall comply with the TIA as then in effect. SECTION 9.4. REVOCATION AND EFFECT OF CONSENTS AND WAIVERS. A consent to an amendment or a waiver by a Holder of a Security shall bind the Holder and every subsequent Holder of that Security or portion of the Security that evidences the same debt as the consenting Holder's Security, even if notation of the consent or waiver is not made on the Security. However, any such Holder or subsequent Holder may revoke the consent or waiver as to such Holder's Security or portion of the Security if the Trustee receives the notice of revocation before the date the amendment or waiver becomes effective. After an amendment or waiver becomes effective, it shall bind every Securityholder. An amendment or waiver shall become effective upon receipt by the Trustee of the requisite number of written consents under SECTION 9.1 or 9.2 as applicable. The Company may, but shall not be obligated to, fix a record date for the purpose of determining the Securityholders entitled to give their consent or take any other action described above or required or permitted to be taken pursuant to this Indenture. If a record date is fixed, then notwithstanding the immediately preceding paragraph, those Persons who were Securityholders at such record date (or their duly designated proxies), and only those Persons, shall be entitled to give such consent or to revoke any consent previously given or to take any such action, whether or not such Persons continue to be Holders after such record date. No such consent shall become valid or effective more than 120 days after such record date. SECTION 9.5. NOTATION ON OR EXCHANGE OF SECURITIES. If an amendment changes the terms of a Security, the Trustee may require the Holder of the Security to deliver it to the Trustee. The Trustee may place an appropriate notation on the Security regarding the changed terms and return it to the Holder. Alternatively, if the Company or the Trustee so determines, the Company in exchange for the Security shall issue and the Trustee shall authenticate a new Security that reflects the changed terms. Failure to make the appropriate notation or to issue a new Security shall not affect the validity of such amendment. SECTION 9.6. TRUSTEE TO SIGN AMENDMENTS. The Trustee shall sign any amendment authorized pursuant to this ARTICLE IX if the amendment does not adversely affect the rights, duties, liabilities or immunities of the Trustee. If it does, the Trustee may but need not sign it. In signing such amendment the Trustee shall be entitled to receive indemnity reasonably satisfactory to it and to receive, and (subject to SECTIONS 7.1 AND 7.2) shall be fully protected in relying upon, an Officers' Certificate and an Opinion of Counsel complying with SECTION 11.5 and stating that such amendment is authorized or permitted by this Indenture. ARTICLE X GUARANTEE SECTION 10.1. GUARANTEE. Each Subsidiary Guarantor hereby fully, unconditionally and irrevocably guarantees, as primary obligor and not merely as surety, jointly and severally with each other Subsidiary Guarantor, to each Holder of the Securities and to the Trustee the full and punctual payment when due, whether at maturity, by acceleration, by redemption or otherwise, of the principal of, premium, if any, and interest on the Securities and all other amounts payable under the Indenture (all the foregoing being hereinafter collectively called the "OBLIGATIONS"). Each Subsidiary Guarantor further agrees (to the extent permitted by law) that the Obligations may be extended or renewed, in whole or in part, without notice or further assent from it, and that it will remain bound under this ARTICLE X notwithstanding any extension or renewal of any Obligation. Each Subsidiary Guarantor waives presentation to, demand of payment from and protest to the Company of any of the Obligations and also waives notice of protest for nonpayment. Each Subsidiary Guarantor waives notice of any default under the Securities or the Obligations. The obligations of each Subsidiary Guarantor hereunder shall not be affected by (a) the failure of any Holder to assert any claim or demand or to enforce any right or remedy against the Company or any other Person under this Indenture, the Securities or any other agreement or otherwise; (b) any extension or renewal of any thereof; (c) any rescission, waiver, amendment or modification of any of the terms or provisions of this Indenture, the Securities or any other agreement; (d) the release of any security held by any Holder or the Trustee for the Obligations or any of them; (e) the failure of any Holder to exercise any right or remedy against any other Subsidiary Guarantor; or (f) any change in the ownership of the Company. Each Subsidiary Guarantor further agrees that its Subsidiary Guarantee herein constitutes a Guarantee of payment when due (and not a Guarantee of collection) and waives any right to require that any resort be had by any Holder to any security held for payment of the Obligations. The obligations of each Subsidiary Guarantor hereunder shall not be subject to any reduction, limitation, impairment or termination for any reason (other than payment of the Obligations in full), including any claim of waiver, release, surrender, alteration or compromise, and shall not be subject to any defense of setoff, counterclaim, recoupment or termination whatsoever or by reason of the invalidity, illegality or unenforceability of the Obligations or otherwise. Without limiting the generality of the foregoing, the obligations of each Subsidiary Guarantor herein shall not be discharged or impaired or otherwise affected by the failure of any Holder to assert any claim or demand or to enforce any remedy under this Indenture, the Securities or any other agreement, by any waiver or modification of any thereof, by any default, failure or delay, willful or otherwise, in the performance of the Obligations, or by any other act or thing or omission or delay to do any other act or thing which may or might in any manner or to any extent vary the risk of any Subsidiary Guarantor or would otherwise operate as a discharge of such Subsidiary Guarantor as a matter of law or equity. Each Subsidiary Guarantor further agrees that its Subsidiary Guarantee shall continue to be effective or be reinstated, as the case may be, if at any time payment, or any part thereof, of principal of or interest on any of the Obligations is rescinded or must otherwise be restored by any Holder upon the bankruptcy or reorganization of the Company or otherwise. In furtherance of the foregoing and not in limitation of any other right which any Holder has at law or in equity against any Subsidiary Guarantor by virtue hereof, upon the failure of the Company to pay any of the Obligations when and as the same shall become due, whether at maturity, by acceleration, by redemption or otherwise, each Subsidiary Guarantor hereby promises to and will, upon receipt of written demand by the Trustee, forthwith pay, or cause to be paid, in cash, to the Holders an amount equal to the sum of (i) the unpaid amount of such Obligations then due and owing and (ii) accrued and unpaid interest on such Obligations then due and owing (but only to the extent not prohibited by law). Each Subsidiary Guarantor further agrees that, as between such Subsidiary Guarantor, on the one hand, and the Holders, on the other hand, (x) the maturity of the Obligations guaranteed hereby may be accelerated as provided in this Indenture for the purposes of its Subsidiary Guarantee, notwithstanding any stay, injunction or other prohibition preventing such acceleration in respect of the Obligations guaranteed hereby and (y) in the event of any such declaration of acceleration of such Obligations, such Obligations (whether or not due and payable) shall forthwith become due and payable by the Subsidiary Guarantor for the purposes of its Subsidiary Guarantee. Each Subsidiary Guarantor also agrees to pay any and all reasonable costs and expenses (including reasonable attorneys' fees) incurred by the Trustee or the Holders in enforcing any rights under this Section. SECTION 10.2. LIMITATION ON LIABILITY; TERMINATION, RELEASE AND Discharge. The obligations of each Subsidiary Guarantor hereunder will be limited to the maximum amount as will, after giving effect to all other contingent and fixed liabilities of such Subsidiary Guarantor (including, without limitation, any Guarantees under the Senior Credit Agreement) and after giving effect to any collections from or payments made by or on behalf of any other Subsidiary Guarantor in respect of the obligations of such other Subsidiary Guarantor under its Subsidiary Guarantee or pursuant to its contribution obligations under this Indenture or as set forth below, result in the obligations of the Subsidiary Guarantor under its Subsidiary Guarantee not constituting a fraudulent conveyance or fraudulent transfer under federal or state law. Each Subsidiary Guarantor may consolidate with or merge into or sell its assets to the Company or another Wholly-Owned Subsidiary Guarantor without limitation. Each Subsidiary Guarantor may consolidate with or merge into or sell all or substantially all its assets to a corporation, partnership, trust, limited partnership, limited liability company or other similar entity other than the Company or a Wholly-Owned Subsidiary Guarantor (whether or not affiliated with the Subsidiary Guarantor), except that if the surviving corporation of any such merger or consolidation is a Subsidiary of the Company, such Subsidiary shall not be a Foreign Subsidiary. Upon the sale or disposition of a Subsidiary Guarantor (by merger, consolidation, the sale of its Capital Stock or the sale of all or substantially all of its assets) to a Person (whether or not an Affiliate of the Subsidiary Guarantor) which is not a Subsidiary of the Company, which sale or disposition is otherwise in compliance with this Indenture (including SECTION 3.6), such Subsidiary Guarantor shall be deemed released from all its obligations under this Indenture and its Subsidiary Guarantee and such Subsidiary Guarantee shall terminate; PROVIDED, HOWEVER, that any such termination shall occur only to the extent that all obligations of such Subsidiary Guarantor under the Senior Credit Agreement and all of its Guarantees of, and under all of its pledges of assets or other security interests which secure, any other Indebtedness of the Company shall also terminate upon such release, sale or transfer. SECTION 10.3. RIGHT OF CONTRIBUTION. Each Subsidiary Guarantor hereby agrees that to the extent that any Subsidiary Guarantor shall have paid more than its proportionate share of any payment made on the obligations under the Subsidiary Guarantees, such Subsidiary Guarantor shall be entitled to seek and receive contribution from and against the Company or any other Subsidiary Guarantor who has not paid its proportionate share of such payment. Each Subsidiary Guarantor's right of contribution shall be subject to the terms and conditions of SECTION 3.5. The provisions of this SECTION 10.3 shall in no respect limit the obligations and liabilities of each Subsidiary Guarantor to the Trustee and the Holders and each Subsidiary Guarantor shall remain liable to the Trustee and the Holders for the full amount guaranteed by such Subsidiary Guarantor hereunder. SECTION 10.4. NO SUBROGATION. Notwithstanding any payment or payments made by each Subsidiary Guarantor hereunder, no Subsidiary Guarantor shall be entitled to be subrogated to any of the rights of the Trustee or any Holder against the Company or any other Subsidiary Guarantor or any collateral security or guarantee or right of offset held by the Trustee or any Holder for the payment of the Obligations, nor shall any Subsidiary Guarantor seek or be entitled to seek any contribution or reimbursement from the Company or any other Subsidiary Guarantor in respect of payments made by such Subsidiary Guarantor hereunder, until all amounts owing to the Trustee and the Holders by the Company on account of the Obligations are paid in full. If any amount shall be paid to any Subsidiary Guarantor on account of such subrogation rights at any time when all of the Obligations shall not have been paid in full, such amount shall be held by such Subsidiary Guarantor in trust for the Trustee and the Holders, segregated from other funds of such Subsidiary Guarantor, and shall, forthwith upon receipt by such Subsidiary Guarantor, be turned over to the Trustee in the exact form received by such Subsidiary Guarantor (duly indorsed by such Subsidiary Guarantor to the Trustee, if required), to be applied against the Obligations. SECTION 10.5. EXECUTION AND DELIVERY OF SUBSIDIARY GUARANTEE. To further evidence the Subsidiary Guarantees set forth in Section 10.1, each Subsidiary Guarantor hereby agrees that a notation of its Subsidiary Guarantee, substantially in the form of Exhibit D hereto, shall be endorsed on each Security authenticated and delivered by the Trustee. The Subsidiary Guarantee of any Subsidiary Guarantor shall be executed on behalf of such Subsidiary Guarantor by either manual or facsimile signature of an Officer of such Subsidiary Guarantor, each of whom, in each case, shall have been duly authorized to so execute by all requisite corporate action. The validity and enforceability of any Subsidiary Guarantee shall not be affected by the fact that it is not affixed to any particular Security. Each of the Subsidiary Guarantors hereby agrees that its Subsidiary Guarantee set forth in Section 10.1 shall remain in full force and effect notwithstanding any failure to endorse on each Security a notation of such Subsidiary Guarantee. If the Officer of a Subsidiary Guarantor whose signature is on a Subsidiary Guarantee no longer holds that office at the time the Trustee authenticates the Security on which such Subsidiary Guarantee is endorsed or at any time thereafter, such Subsidiary Guarantor's Subsidiary Guarantee of such Security shall nevertheless be valid. The delivery of any Security by the Trustee, after the authentication thereof hereunder, shall constitute due delivery of any Subsidiary Guarantee set forth in this Indenture on behalf of each Subsidiary Guarantor. ARTICLE XI MISCELLANEOUS SECTION 11.1. TRUST INDENTURE ACT CONTROLS. If any provision of this Indenture limits, qualifies or conflicts with another provision which is required to be included in this Indenture by the TIA, the provision required by the TIA shall control. Each Subsidiary Guarantor in addition to performing its obligations under its Subsidiary Guarantee shall perform such other obligations as may be imposed upon it with respect to this Indenture under the TIA. SECTION 11.2. NOTICES. Any notice or communication shall be in writing and delivered in person or mailed, certified or registered mail with postage prepaid, addressed as follows: if to the Company or any Subsidiary Guarantor: NE Restaurant Company, Inc. 80A Turnpike Road Westborough, Massachusetts 01581 Attention: President With a copy, in the case of any notice under Article VI, to: Stroock & Stroock & Lavan LLP 180 Maiden Lane New York, New York 10038-4982 Attention: David H. Kaufman, Esq. if to the Trustee: United States Trust Company of New York 114 West 47th Street New York, New York 10036-1532 Attention: Corporate Trust Department The Company or the Trustee by notice to the other may designate additional or different addresses for subsequent notices or communications. Any notice or communication mailed to a Securityholder shall be mailed to the Securityholder at the Securityholder's address as it appears on the registration books of the Registrar and shall be sufficiently given if so mailed within the time prescribed. Failure to mail a notice or communication to a Securityholder or any defect in it shall not affect its sufficiency with respect to other Securityholders. If a notice or communication is mailed in the manner provided above, it is duly given, whether or not the addressee receives it. SECTION 11.3. COMMUNICATION BY HOLDERS WITH OTHER HOLDERS. Securityholders may communicate pursuant to TIA ss. 312(b) with other Securityholders with respect to their rights under this Indenture or the Securities. The Trustee shall comply with TIA ss. 312(b) with respect to any such communication. The Company, the Trustee, the Registrar and anyone else shall have the protection of TIA ss. 312(c). SECTION 11.4. CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT. Upon any request or application by the Company to the Trustee to take or refrain from taking any action under this Indenture, the Company shall furnish to the Trustee: (1) an Officers' Certificate in form and substance reasonably satisfactory to the Trustee stating that, in the opinion of the signers, all conditions precedent, if any, provided for in this Indenture relating to the proposed action have been complied with; and (2) an Opinion of Counsel in form and substance reasonably satisfactory to the Trustee stating that, in the opinion of such counsel, all such conditions precedent have been complied with. SECTION 11.5. STATEMENTS REQUIRED IN CERTIFICATE OR OPINION. Each certificate or opinion with respect to compliance with a covenant or condition provided for in this Indenture shall include: (1) a statement that the individual making such certificate or opinion has read such covenant or condition; (2) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based; (3) a statement that, in the opinion of such individual, he has made such examination or investigation as is necessary to enable him to express an informed opinion as to whether or not such covenant or condition has been complied with; and (4) a statement as to whether or not, in the opinion of such individual, such covenant or condition has been complied with. In giving such Opinion of Counsel, counsel may rely as to factual matters on an Officer's Certificate or on certificates of public officials. SECTION 11.6. WHEN SECURITIES DISREGARDED. In determining whether the Holders of the required principal amount of Securities have concurred in any direction, waiver or consent, Securities owned by the Company or by any Person directly or indirectly controlling or controlled by or under direct or indirect common control with the Company shall be disregarded and deemed not to be outstanding, except that, for the purpose of determining whether the Trustee shall be protected in relying on any such direction, waiver or consent, only Securities which the Trustee knows are so owned shall be so disregarded. Also, subject to the foregoing, only Securities outstanding at the time shall be considered in any such determination. SECTION 11.7. RULES BY TRUSTEE, PAYING AGENT AND REGISTRAR. The Trustee may make reasonable rules for action by, or a meeting of, Securityholders. The Registrar and the Paying Agent may make reasonable rules for their functions. SECTION 11.8. LEGAL HOLIDAYS. A "LEGAL HOLIDAY" is a Saturday, a Sunday or other day on which commercial banking institutions are authorized or required to be closed in New York City. If a payment date is a Legal Holiday, payment shall be made on the next succeeding day that is not a Legal Holiday, and no interest shall accrue with respect to such payment for the intervening period. If a regular record date is a Legal Holiday, the record date shall not be affected. SECTION 11.9. GOVERNING LAW. THIS INDENTURE AND THE SECURITIES SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK BUT WITHOUT GIVING EFFECT TO APPLICABLE PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY. SECTION 11.10. NO RECOURSE AGAINST OTHERS. An incorporator, director, officer, employee, stockholder or controlling person, as such, of the Company shall not have any liability for any obligations of the Company under the Securities or this Indenture or for any claim based on, in respect of or by reason of such obligations or their creation. By accepting a Security, each Securityholder shall waive and release all such liability. The waiver and release shall be part of the consideration for the issue of the Securities. SECTION 11.11. SUCCESSORS. All agreements of the Company and the Subsidiary Guarantors in this Indenture and the Securities shall bind their respective successors. All agreements of the Trustee in this Indenture shall bind its successors. SECTION 11.12. MULTIPLE ORIGINALS. The parties may sign any number of copies of this Indenture. Each signed copy shall be an original, but all of them together represent the same agreement. One signed copy is enough to prove this Indenture. SECTION 11.13. VARIABLE PROVISIONS. The Company initially appoints the Trustee as Paying Agent and Registrar and custodian with respect to any Global Securities. SECTION 11.14. QUALIFICATION OF INDENTURE. The Company shall qualify this Indenture under the TIA in accordance with the terms and conditions of the Registration Rights Agreement and shall pay all reasonable costs and expenses (including attorneys' fees and expenses for the Company, the Trustee and the Holders) incurred in connection therewith, including, but not limited to, costs and expenses of qualification of this Indenture and the Securities and printing this Indenture and the Securities. The Trustee shall be entitled to receive from the Company any such Officers' Certificates, Opinions of Counsel or other documentation as it may reasonably request in connection with any such qualification of this Indenture under the TIA. SECTION 11.15. TABLE OF CONTENTS; HEADINGS. The table of contents, cross- reference sheet and headings of the Articles and Sections of this Indenture have been inserted for convenience of reference only, are not intended to be considered a part hereof and shall not modify or restrict any of the terms or provisions hereof. IN WITNESS WHEREOF, the parties have caused this Indenture to be duly executed as of the date first written above. NE RESTAURANT COMPANY, INC. By:/s/ DENNIS D. PEDRA ---------------------------- Name: Dennis D. Pedra Title: President UNITED STATES TRUST COMPANY OF NEW YORK, as Trustee By: /s/ PATRICIA STERMER --------------------------- Name: Patricia Stermer Title: Assistant Vice President EXHIBIT A [FORM OF FACE OF INITIAL SECURITY] No. [___] Principal Amount $[______________] CUSIP NO. ____________ 10 3/4% Senior Notes due 2008 NE Restaurant Company, Inc., a Delaware corporation, promises to pay to [___________], or registered assigns, the principal sum of [__________________] Dollars on July 15, 2008. Interest Payment Dates: January 15 and July 15 Record Dates: January 1 and July 1 Additional provisions of this Security are set forth on the other side of this Security. NE RESTAURANT COMPANY, INC. Date: _____________ By:___________________________ Name: Title: TRUSTEE'S CERTIFICATE OF AUTHENTICATION UNITED STATES TRUST COMPANY OF NEW YORK as Trustee, certifies that this is one of the Securities referred to in the Indenture. By Authorized Signatory [FORM OF REVERSE SIDE OF INITIAL SECURITY] 10 3/4% Senior Note due 2008 1. INTEREST NE Restaurant Company, Inc., a Delaware corporation (such corporation, and its successors and assigns under the Indenture hereinafter referred to, being herein called the "Company"), promises to pay interest on the principal amount of this Security at the rate per annum shown above. The Company will pay interest semiannually on January 15 and July 15 of each year commencing January 15, 1999. Interest on the Securities will accrue from the most recent date to which interest has been paid on the Securities or, if no interest has been paid, from July 20, 1998. The Company shall pay interest on overdue principal or premium, if any (plus interest on such interest to the extent lawful), at the rate borne by the Securities to the extent lawful. Interest will be computed on the basis of a 360-day year of twelve 30-day months. 2. METHOD OF PAYMENT By at least 10:00 a.m. (New York City time) on the date on which any principal of or interest on any Security is due and payable, the Company shall irrevocably deposit with the Trustee or the Paying Agent money sufficient to pay such principal, premium, if any, and/or interest. The Company will pay interest (except Defaulted Interest) to the Persons who are registered Holders of Securities at the close of business on the January 1 or July 1 next preceding the interest payment date even if Securities are cancelled, repurchased or redeemed after the record date and on or before the interest payment date. Holders must surrender Securities to a Paying Agent to collect principal payments. The Company will pay principal and interest in money of the United States that at the time of payment is legal tender for payment of public and private debts. However, the Company may pay principal and interest by check payable in such money. It may mail an interest check to a Holder's registered address. 3. PAYING AGENT AND REGISTRAR Initially, United States Trust Company of New York, a banking corporation duly organized and existing under the laws of the State of New York (the "Trustee"), will act as Trustee, Paying Agent and Registrar. The Company may appoint and change any Paying Agent, Registrar or co-registrar without notice to any Securityholder. The Company or any of its domestically incorporated Wholly- Owned Subsidiaries may act as Paying Agent, Registrar or co-registrar. 4. INDENTURE The Company issued the Securities under an Indenture dated as of July 20, 1998 (as it may be amended or supplemented from time to time in accordance with the terms thereof, the "Indenture"), between the Company and the Trustee. The terms of the Securities include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939 (15 U.S.C. ss.ss. 77aaa-77bbbb) as in effect on the date of the Indenture (the "Act"). Capitalized terms used herein and not defined herein have the meanings ascribed thereto in the Indenture. The Securities are subject to all such terms, and Securityholders are referred to the Indenture and the Act for a statement of those terms. The Securities are general unsecured senior obligations of the Company limited to $100.0 million aggregate principal amount (subject to SECTION 2.9 of the Indenture). The aggregate principal amount of notes which may be authenticated and delivered under the Indenture, including the Securities, is limited to $100.0 million (subject to SECTION 2.9 of the Indenture). This Security is one of the Initial Securities referred to in the Indenture. The Securities include the Initial Securities and any Exchange Securities issued in exchange for the Initial Securities pursuant to the Indenture and the Registration Rights Agreement. The Initial Securities and the Exchange Securities are treated as a single class of securities under the Indenture. The Indenture imposes certain limitations on: the Incurrence of Indebtedness by the Company and its Restricted Subsidiaries, the payment of dividends and other distributions on the Capital Stock of the Company and its Restricted Subsidiaries, the purchase or redemption of Capital Stock of the Company and Capital Stock of such Restricted Subsidiaries, certain purchases or redemptions of Subordinated Indebtedness, the Incurrence of Liens by the Company or its Restricted Subsidiaries, the sale or transfer of assets and Capital Stock of Restricted Subsidiaries, the issuance or sale of Capital Stock of Restricted Subsidiaries, the business activities and investments of the Company and its Restricted Subsidiaries and, transactions with Affiliates. In addition, the Indenture limits the ability of the Company and its Restricted Subsidiaries to restrict distributions and dividends from Restricted Subsidiaries. To guarantee the due and punctual payment of the principal, premium, if any, and interest on the Securities and all other amounts payable by the Company under the Indenture and the Securities when and as the same shall be due and payable, whether at maturity, by acceleration or otherwise, according to the terms of the Securities and the Indenture, the Subsidiary Guarantors have unconditionally guaranteed (and future Subsidiary Guarantors, together with the Subsidiary Guarantors, will unconditionally guarantee), jointly and severally, such obligations on a senior unsecured basis pursuant to the terms of the Indenture. 5. REDEMPTION Except as set forth below, the Securities will not be redeemable at the option of the Company prior to July 15, 2003. On and after such date, the Securities will be redeemable, at the Company's option, in whole or in part, at any time upon not less than 30 nor more than 60 days prior notice mailed by first-class mail to each holder's registered address, at the following redemption prices (expressed in percentages of principal amount), plus accrued and unpaid interest to the redemption date (subject to the right of holders of record on the relevant record date to receive interest due on the relevant interest payment date): If redeemed during the 12-month period commencing on July 15 of the years set forth below: PERIOD REDEMPTION PRICE 2003 105.375% 2004 103.583% 2005 101.792% 2006 and thereafter 100.000% In addition, at any time and from time to time prior to July 15, 2001, the Company may redeem in the aggregate up to 35% of the original principal amount of the Securities with the proceeds of one or more Equity Offerings received by, or invested in, the Company so long as there is a Public Market at the time of such redemption, at a Redemption Price (expressed as a percentage of principal amount) of 110.75% plus accrued and unpaid interest, if any, to the Redemption Date (subject to the right of holders of record on the relevant record date to receive interest due on the relevant interest payment date); PROVIDED, HOWEVER, that at least 65% of the original principal amount of the Securities must remain outstanding after each such redemption; PROVIDED FURTHER, however, that each such redemption occurs within 90 days of the date of closing of such Equity Offering. Upon the occurrence of a CHANGE OF CONTROL, unless the Company shall have exercised its right to redeem the Securities as described in SECTION 5.1 of the Indenture, each Holder will have the right to require the Company to repurchase all or any part of such Holder's Securities at a purchase price in cash equal to 101% of the principal amount thereof plus accrued and unpaid interest, if any, to the CHANGE OF CONTROL PAYMENT DATE. In the case of any partial redemption, selection of the Securities for redemption will be made by the Trustee on a pro rata basis, by lot or by such other method as the Trustee in its sole discretion shall deem to be fair and appropriate, although no Securities of $1,000 in original principal amount or less will be redeemed in part. If any Security is to be redeemed in part only, the notice of redemption relating to such Security shall state the portion of the principal amount thereof to be redeemed. A new Security in principal amount equal to the unredeemed portion thereof will be issued in the name of the holder thereof upon cancellation of the original Security. 6. REPURCHASE PROVISIONS (a) Upon a Change of Control, unless the Company has exercised its right to redeem the Securities as described under SECTION 5 hereof, any Holder of Securities will have the right to cause the Company to repurchase all or any part of the Securities of such Holder at a purchase price in cash equal to 101% of the principal amount thereof, plus accrued and unpaid interest, if any, to the date of repurchase (subject to the right of Holders of record on the relevant record date to receive interest due on the relevant interest payment date) as provided in, and subject to the terms of, the Indenture. (b) If the Company or a Restricted Subsidiary consummates any Asset Disposition permitted by the Indenture, when the aggregate amount of Excess Proceeds equals or exceeds $5.0 million, the Company shall make an Offer for all outstanding Securities pro rata up to a maximum principal amount (expressed as a multiple of $1,000) of Securities equal to such Excess Proceeds, at a purchase price in cash equal to 100% of the principal amount thereof, plus accrued and unpaid interest thereon, if any, to the date of purchase in accordance with the procedures set forth in SECTION 3.6 of the Indenture. 7. SPECIAL MANDATORY REDEMPTION In the event that the Acquisition does not take place prior to July 31, 1998 or the Merger Agreement is terminated, the Company shall redeem the Securities at a redemption price equal to 100% of the principal amount thereof, plus accrued and unpaid interest, if any, to the date of redemption, in accordance with the procedures set forth in SECTION 5.2 of the Indenture. 8. DENOMINATIONS; TRANSFER; EXCHANGE The Securities are in registered form without coupons in denominations of principal amount of $1,000 and whole multiples of $1,000. A Holder may register the transfer of or exchange Securities in accordance with the Indenture. The Registrar may require a Holder, among other things, to furnish appropriate endorsements or transfer documents and to pay any taxes and fees required by law or permitted by the Indenture. The Registrar need not register the transfer of or exchange (i) any Securities selected for redemption (except, in the case of a Security to be redeemed in part, the portion of the Security not to be redeemed) for a period beginning 15 days before the mailing of a notice of Securities to be redeemed and ending on the date of such mailing or (ii) any Securities for a period beginning 15 days before an interest payment date and ending on such interest payment date. 9. PERSONS DEEMED OWNERS The registered holder of this Security may be treated as the owner of it for all purposes. 10. UNCLAIMED MONEY If money for the payment of principal or interest remains unclaimed for two years, the Trustee or Paying Agent shall pay the money back to the Company at its request unless an abandoned property law designates another Person. After any such payment, Holders entitled to the money must look only to the Company and not to the Trustee for payment. 11. DEFEASANCE Subject to certain conditions set forth in the Indenture, the Company at any time may terminate some or all of its obligations under the Securities and the Indenture if the Company deposits with the Trustee money or U.S. Government Obligations for the payment of principal and interest on the Securities to redemption or maturity, as the case may be. 12. AMENDMENT, WAIVER Subject to certain exceptions set forth in the Indenture, (i) the Indenture or the Securities may be amended with the written consent of the Holders of at least a majority in principal amount of the then outstanding Securities and (ii) any default (other than with respect to nonpayment) or noncompliance with any provision may be waived with the written consent of the Holders of a majority in principal amount of the then outstanding Securities. Subject to certain exceptions set forth in the Indenture, without the consent of any Securityholder, the Company and the Trustee may amend the Indenture or the Securities to cure any ambiguity, omission, defect or inconsistency, or to comply with ARTICLE IV of the Indenture, or to provide for uncertificated Securities in addition to or in place of certificated Securities, or to add guarantees with respect to the Securities or to secure the Securities, or to add additional covenants or surrender rights and powers conferred on the Company, or to comply with any request of the SEC in connection with qualifying the Indenture under the Act, or to make any change that does not adversely affect the rights of any Securityholder, or to provide for the issuance of Exchange Securities. 13. DEFAULTS AND REMEDIES Under the Indenture, Events of Default include (i) default for 30 days in payment of interest when due on the Securities; (ii) default in payment of principal on the Securities at maturity, upon required repurchase, upon required repurchase or upon redemption pursuant to paragraphs 5 and 6 of the Securities, upon declaration or otherwise; (iii) the failure by the Company to comply with its obligations under ARTICLE IV of the Indenture, (iv) failure by the Company to comply for 30 days after notice with any of its obligations under the covenants described under SECTION 3.9 of the Indenture or under other covenants specified in the Indenture (in each case, other than a failure to purchase Securities, which shall constitute an Event of Default under clause (ii) above), (v) the failure by the Company to comply for 60 days after notice with its other agreements contained in the Indenture, (vi) Indebtedness of the Company or any Restricted Subsidiary if not paid within any applicable grace period after final maturity or is accelerated by the holders thereof because of a default and the total amount of such Indebtedness unpaid or accelerated exceeds $5.0 million (the "cross acceleration provision"), (vii) certain events of bankruptcy, insolvency or reorganization of the Company or a Significant Subsidiary (the "bankruptcy provisions"), (viii) any judgment or decree for the payment of money in excess of $5.0 million is rendered against the Company or a Significant Subsidiary and such judgment or decree shall remain undischarged or unstayed for a period of 60 days after such judgment becomes final and non-appealable (the "judgment default provision") or (ix) any Subsidiary Guarantee ceases to be in full force and effect (except as contemplated by the terms of the Indenture) or any Subsidiary Guarantor denies or disaffirms its obligations under the Indenture or its Subsidiary Guarantee. However, a default under clauses (iv) and (v) will not constitute an Event of Default until the Trustee or the holders of more than 25% in principal amount of the then outstanding Securities notify the Company of the default and the Company does not cure such default within the time specified in clauses (iv) and (v) hereof after receipt of such notice. If an Event of Default occurs and is continuing, the Trustee or the Holders of at least 25% in principal amount of the Securities may declare all the Securities to be due and payable immediately. Certain events of bankruptcy or insolvency are Events of Default which will result in the Securities being due and payable immediately upon the occurrence of such Events of Default. Securityholders may not enforce the Indenture or the Securities except as provided in the Indenture. The Trustee may refuse to enforce the Indenture or the Securities unless it receives reasonable indemnity or security. Subject to certain limitations, Holders of a majority in principal amount of the Securities may direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Securityholders notice of any continuing Default or Event of Default (except a Default or Event of Default in payment of principal or interest) if it determines that withholding notice is in their interest. 14. TRUSTEE DEALINGS WITH THE COMPANY Subject to certain limitations set forth in the Indenture, the Trustee under the Indenture, in its individual or any other capacity, may become the owner or pledgee of Securities and may otherwise deal with and collect obligations owed to it by the Company or its Affiliates and may otherwise deal with the Company or its Affiliates with the same rights it would have if it were not Trustee. 15. NO RECOURSE AGAINST OTHERS An incorporator, director, officer, employee, stockholder or controlling person, as such, of the Company shall not have any liability for any obligations of the Company under the Securities or the Indenture or for any claim based on, in respect of or by reason of such obligations or their creation. By accepting a Security, each Securityholder waives and releases all such liability. The waiver and release are part of the consideration for the issue of the Securities. 16. AUTHENTICATION This Security shall not be valid until an authorized signatory of the Trustee (or an authenticating agent acting on its behalf) manually signs the certificate of authentication on the other side of this Security. 17. ABBREVIATIONS Customary abbreviations may be used in the name of a Securityholder or an assignee, such as TEN COM (=tenants in common), TEN ENT (=tenants by the entirety), JT TEN (=joint tenants with rights of survivorship and not as tenants in common), CUST (=custodian) and U/G/M/A (=Uniform Gift to Minors Act). 18. CUSIP NUMBERS Pursuant to a recommendation promulgated by the Committee on Uniform Security Identification Procedures the Company has caused CUSIP numbers to be printed on the Securities and has directed the Trustee to use CUSIP numbers in notices of redemption as a convenience to Securityholders. No representation is made as to the accuracy of such numbers either as printed on the Securities or as contained in any notice of redemption and reliance may be placed only on the other identification numbers placed thereon. 19. GOVERNING LAW This Security shall be governed by, and construed in accordance with, the laws of the State of New York but without giving effect to applicable principles of conflicts of law to the extent that the application of the laws of another jurisdiction would be required thereby. ASSIGNMENT FORM To assign this Security, fill in the form below: I or we assign and transfer this Security to (Print or type assignee's name, address and zip code) (Insert assignee's soc. sec. or tax I.D. No.) and irrevocably appoint ______________ agent to transfer this Security on the books of the Company. The agent may substitute another to act for him. _______________________________________________________________________________ Date:____________________ Your Signature:___________________ Signature Guarantee:______________________________ (Signature must be guaranteed) _______________________________________________________________________________ Sign exactly as your name appears on the other side of this Security. The signature(s) should be guaranteed by an eligible guarantor institution (banks, stockbrokers, savings and loan associations and credit unions with membership in an approved signature guarantee medallion program), pursuant to S.E.C. Rule 17Ad-15. In connection with any transfer or exchange of any of the Securities evidenced by this certificate occurring prior to the date that is two years after the later of the date of original issuance of such Securities and the last date, if any, on which such Securities were owned by the Company or any Affiliate of the Company, the undersigned confirms that such Securities are being: CHECK ONE BOX BELOW: 1 / / acquired for the undersigned's own account, without transfer; or 2 / / transferred to the Company; or 3 / / transferred pursuant to and in compliance with Rule 144A under the Securities Act of 1933, as amended (the "Securities Act"); or 4 / / transferred pursuant to an effective registration statement under the Securities Act; or 5 / / transferred pursuant to and in compliance with Regulation S under the Securities Act; or 6 / / transferred to an institutional "accredited investor" (as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act), that has furnished to the Trustee a signed letter containing certain representations and agreements (the form of which letter appears as SECTION 2.7 of the Indenture); or 7 / / transferred pursuant to another available exemption from the registration requirements of the Securities Act of 1933. Unless one of the boxes is checked, the Trustee will refuse to register any of the Securities evidenced by this certificate in the name of any person other than the registered holder thereof; PROVIDED, HOWEVER, that if box (5), (6) or (7) is checked, the Trustee or the Company may require, prior to registering any such transfer of the Securities, in their sole discretion, such legal opinions, certifications and other information as the Trustee or the Company may reasonably request to confirm that such transfer is being made pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act of 1933, such as the exemption provided by Rule 144 under such Act. ------------------------------ Signature Signature Guarantee: - ----------------------------- ------------------------------ (Signature must be guaranteed) Signature - ------------------------------------------------------------ The signature(s) should be guaranteed by an eligible guarantor institution (banks, stockbrokers, savings and loan associations and credit unions with membership in an approved signature guarantee medallion program), pursuant to S.E.C. Rule 17Ad-15. TO BE COMPLETED BY PURCHASER IF (1) ABOVE IS CHECKED. The undersigned represents and warrants that it is purchasing this Security for its own account or an account with respect to which it exercises sole investment discretion and that it and any such account is a "qualified institutional buyer" within the meaning of Rule 144A under the Securities Act of 1933, as amended, and is aware that the sale to it is being made in reliance on Rule 144A and acknowledges that it has received such information regarding the Company as the undersigned has requested pursuant to Rule 144A or has determined not to request such information and that it is aware that the transferor is relying upon the undersigned's foregoing representations in order to claim the exemption from registration provided by Rule 144A. Dated: [TO BE ATTACHED TO GLOBAL SECURITIES] SCHEDULE OF INCREASES OR DECREASES IN GLOBAL SECURITY The following increases or decreases in this Global Security have been made:
Date of Amount of decrease in Principal Principal Amount of this Signature of authorized Exchange Amount of this Global Security Global Security following signatory of Trustee or such decrease or increase Securities Custodian ________ ______________________________ ________________________ _______________________
OPTION OF HOLDER TO ELECT PURCHASE If you want to elect to have this Security purchased by the Company pursuant to SECTION 3.6 or 3.9 of the Indenture, check either box: / / / / 3.6 3.9 If you want to elect to have only part of this Security purchased by the Company pursuant to SECTION 3.6 or 3.9 of the Indenture, state the amount in principal amount (must be integral multiple of $1,000): $ Date: __________ Your Signature ____________________________ Sign exactly as your name appears on the other side of the Security) Signature Guarantee: _______________________________________ (Signature must be guaranteed) The signature(s) should be guaranteed by an eligible guarantor institution (banks, stockbrokers, savings and loan associations and credit unions with membership in an approved signature guarantee medallion program), pursuant to S.E.C. Rule 17Ad-15. EXHIBIT B [FORM OF FACE OF EXCHANGE SECURITY] No. [_____] Principal Amount $[____________] CUSIP NO. _____________ 10 3/4% Senior Notes due 2008 NE Restaurant Company Inc., a Delaware corporation, promises to pay to [______________], or registered assigns, the principal sum of [_______________] Dollars on July 15, 2008. Interest Payment Dates: January 15 and July 15 Record Dates: January 1 and July 1 Additional provisions of this Security are set forth on the other side of this Security. Dated: __________ NE RESTAURANT COMPANY, INC. By:________________________________ Name: Title: TRUSTEE'S CERTIFICATE OF AUTHENTICATION United States Trust Company of New York as Trustee, certifies that this is one of the Securities referred to in the Indenture. By: Authorized Signatory [FORM OF REVERSE SIDE OF EXCHANGE SECURITY] 10 3/4% Senior Note due 2008 1. INTEREST NE Restaurant Company, Inc., a Delaware corporation (such corporation, and its successors and assigns under the Indenture hereinafter referred to, being herein called the "Company"), promises to pay interest on the principal amount of this Security at the rate per annum shown above. The Company will pay interest semiannually on January 15 and July 15 of each year commencing January 15, 1999. Interest on the Securities will accrue from the most recent date to which interest has been paid on the Securities or, if no interest has been paid, from July 20, 1998. The Company shall pay interest on overdue principal or premium, if any (plus interest on such interest to the extent lawful), at the rate borne by the Securities to the extent lawful. Interest will be computed on the basis of a 360-day year of twelve 30-day months. 2. METHOD OF PAYMENT By at least 10:00 a.m. (New York City time) on the date on which any principal of or interest on any Security is due and payable, the Company shall irrevocably deposit with the Trustee or the Paying Agent money sufficient to pay such principal, premium, if any, and/or interest. The Company will pay interest (except Defaulted Interest) to the Persons who are registered Holders of the Securities at the close of business on the January 1 or July 1 next preceding the interest payment date even if Securities are cancelled, repurchased or redeemed after the record date and on or before the interest payment date. Holders must surrender Securities to a Paying Agent to collect principal payments. The Company will pay principal and interest in money of `the United States that at the time of payment is legal tender for payment of public and private debts. However, the Company may pay principal and interest by check payable in such money. It may mail an interest check to a Holder's registered address. 3. PAYING AGENT AND REGISTRAR Initially, United States Trust Company of New York, a banking corporation duly organized and existing under the laws of the State of New York (the "Trustee"), will act as Trustee, Paying Agent and Registrar. The Company may appoint and change any Paying Agent, Registrar or co-registrar without notice to any Securityholder. The Company or any of its domestically incorporated Wholly- Owned Subsidiaries may act as Paying Agent, Registrar or co-registrar. 4. INDENTURE The Company issued the Securities under an Indenture dated as of July 20, 1998 (as it may be amended or supplemented from time to time in accordance with the terms thereof, the "Indenture"), between the Company and the Trustee. The terms of the Securities include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939 (15 U.S.C. ss.ss. 77aaa-77bbbb) as in effect on the date of the Indenture (the "Act"). Capitalized terms used herein and not defined herein have the meanings ascribed thereto in the Indenture. The Securities are subject to all such terms, and Securityholders are referred to the Indenture and the Act for a statement of those terms. The Securities are general unsecured senior obligations of the Company limited to $100.0 million aggregate principal amount (subject to SECTION 2.9 of the Indenture). The aggregate principal amount of notes which may be authenticated and delivered under the Indenture, including the Securities, is limited to $100.0 million (subject to SECTION 2.9 of the Indenture). This Security is one of the Exchange Securities referred to in the Indenture. The Securities include the Initial Securities and any Exchange Securities issued in exchange for the Initial Securities pursuant to the Indenture and the Registration Rights Agreement. The Initial Securities and the Exchange Securities are treated as a single class of securities under the Indenture. The Indenture imposes certain limitations on: the Incurrence of Indebtedness by the Company and its Restricted Subsidiaries, the payment of dividends and other distributions on the Capital Stock of the Company and its Restricted Subsidiaries, the purchase or redemption of Capital Stock of the Company and Capital Stock of such Restricted Subsidiaries, certain purchases or redemptions of Subordinated Indebtedness, the Incurrence of Liens by the Company or its Restricted Subsidiaries, the sale or transfer of assets and Capital Stock of Restricted Subsidiaries, the issuance or sale of Capital Stock of Restricted Subsidiaries, the business activities and investments of the Company and its Restricted Subsidiaries, and transactions with Affiliates. In addition, the Indenture limits the ability of the Company and its Subsidiaries to restrict distributions and dividends from Restricted Subsidiaries. To guarantee the due and punctual payment of the principal, premium, if any, and interest on the Securities and all other amounts payable by the Company under the Indenture and the Securities when and as the same shall be due and payable, whether at maturity, by acceleration or otherwise, according to the terms of the Securities and the Indenture, the Subsidiary Guarantors have unconditionally guaranteed (and future Subsidiary Guarantors, together with the Subsidiary Guarantors, will unconditionally guarantee), jointly and severally, such obligations on a senior unsecured basis pursuant to the terms of the Indenture. 5. OPTIONAL REDEMPTION Except as set forth below, the Securities will not be redeemable at the option of the Company prior to July 15, 2003. On and after such date, the Securities will be redeemable, at the Company's option, in whole or in part, at any time upon not less than 30 nor more than 60 days prior notice mailed by first-class mail to each holder's registered address, at the following redemption prices (expressed in percentages of principal amount), plus accrued and unpaid interest to the redemption date (subject to the right of holders of record on the relevant record date to receive interest due on the relevant interest payment date): If redeemed during the 12-month period commencing on July 15 of the years set forth below: PERIOD REDEMPTION PRICE 2003 105.375% 2004 103.583% 2005 101.792% 2006 and thereafter 100.000% In addition, at any time and from time to time prior to July 15, 2001, the Company may redeem in the aggregate up to 35% of the original principal amount of the Securities with the proceeds of one or more Equity Offerings received by, or invested in, the Company so long as there is a Public Market at the time of such redemption, at a redemption price (expressed as a percentage of principal amount) of 110.75% plus accrued and unpaid interest, if any, to the redemption date (subject to the right of holders of record on the relevant record date to receive interest due on the relevant interest payment date); PROVIDED, HOWEVER, that at least 65% of the original principal amount of the Securities must remain outstanding after each such redemption; PROVIDED FURTHER, that each such redemption occurs within 90 days of the date of closing of such Equity Offering. Upon the occurrence of a CHANGE OF CONTROL, unless the Company shall have exercised its right to redeem the Securities as described in SECTION 5.1 of the Indenture, each Holder will have the right to require the Company to repurchase all or any part of such Holder's Securities at a purchase price in cash equal to 101% of the principal amount thereof plus accrued and unpaid interest, if any, to the CHANGE OF CONTROL PAYMENT DATE. In the case of any partial redemption, selection of the Securities for redemption will be made by the Trustee on a pro rata basis, by lot or by such other method as the Trustee in its sole discretion shall deem to be fair and appropriate, although no Securities of $1,000 in original principal amount or less will be redeemed in part. If any Security is to be redeemed in part only, the notice of redemption relating to such Security shall state the portion of the principal amount thereof to be redeemed. A new Security in principal amount equal to the unredeemed portion thereof will be issued in the name of the holder thereof upon cancellation of the original Security. 6. REPURCHASE PROVISIONS (a) Upon a Change of Control, unless the Company has exercised its right to redeem the Securities as described under SECTION 5 hereof, any Holder of Securities will have the right to cause the Company to repurchase all or any part of the Securities of such Holder at a purchase price in cash equal to 101% of the principal amount thereof, plus accrued and unpaid interest, if any, to the date of repurchase (subject to the right of Holders of record on the relevant record date to receive interest due on the relevant interest payment date) as provided in, and subject to the terms of, the Indenture. (b) If the Company or a Restricted Subsidiary consummates any Asset Disposition permitted by the Indenture, when the aggregate amount of Excess Proceeds equals or exceeds $5.0 million, the Company shall make an Offer for all outstanding Securities pro rata up to a maximum principal amount (expressed as a multiple of $1,000) of Securities equal to such Excess Proceeds, at a purchase price in cash equal to 100% of the principal amount thereof, plus accrued and unpaid interest thereon, if any, to the date of purchase in accordance with the procedures set forth in SECTION 3.7 of the Indenture. 7. DENOMINATIONS; TRANSFER; EXCHANGE The Securities are in registered form without coupons in denominations of principal amount of $1,000 and whole multiples of $1,000. A Holder may transfer or exchange Securities in accordance with the Indenture. The Registrar may require a Holder, among other things, to furnish appropriate endorsements or transfer documents and to pay any taxes and fees required by law or permitted by the Indenture. The Registrar need not register the transfer of or exchange (i) any Securities selected for redemption (except, in the case of a Security to be redeemed in part, the portion of the Security not to be redeemed) or for a period beginning 15 days before the mailing of a notice of Securities to be redeemed and ending on the date of such mailing or (ii) any Securities for a period beginning 15 days before an interest payment date and ending on such interest payment date. 8. PERSONS DEEMED OWNERS The registered holder of this Security may be treated as the owner of it for all purposes. 9. UNCLAIMED MONEY If money for the payment of principal or interest remains unclaimed for two years, the Trustee or Paying Agent shall pay the money back to the Company at its request unless an abandoned property law designates another person. After any such payment, Holders entitled to the money must look only to the Company and not to the Trustee for payment. 10. DEFEASANCE Subject to certain conditions set forth in the Indenture, the Company at any time may terminate some or all of its obligations under the Securities and the Indenture if the Company deposits with the Trustee money or U.S. Government Obligations for the payment of principal and interest on the Securities to redemption or maturity, as the case may be. 11. AMENDMENT, WAIVER Subject to certain exceptions set forth in the Indenture, (i) the Indenture or the Securities may be amended with the written consent of the Holders of at least a majority in principal amount of the then outstanding Securities and (ii) any default (other than with respect to nonpayment) or noncompliance with any provision may be waived with the written consent of the Holders of a majority in principal amount of the then outstanding Securities. Subject to certain exceptions set forth in the Indenture, without the consent of any Securityholder, the Company and the Trustee may amend the Indenture or the Securities to cure any ambiguity, omission, defect or inconsistency, or to comply with ARTICLE IV of the Indenture, or to provide for uncertificated Securities in addition to or in place of certificated Securities, or to add guarantees with respect to the Securities or to secure the Securities, or to add additional covenants or surrender rights and powers conferred on the Company or Communications or to comply with any request of the SEC in connection with qualifying the Indenture under the Act, or to make any change that does not adversely affect the rights of any Securityholder, or to provide for the issuance of Exchange Securities. 12. DEFAULTS AND REMEDIES Under the Indenture, Events of Default include (i) default for 30 days in payment of interest when due on the Securities; (ii) default in payment of principal on the Securities at maturity, upon required repurchase or upon redemption pursuant to paragraphs 5 and 6 of the Securities, upon declaration or otherwise; (iii) the failure by the Company to comply with its obligations under ARTICLE IV of the Indenture (iv) failure by the Company to comply for 30 days after notice with any of its obligations under the covenants described under SECTION 3.9 of the Indenture or under other covenants specified in the Indenture (in each case, other than a failure to purchase Securities, which shall constitute an Event of Default under clause (ii) above), (v) the failure by the Company to comply for 60 days after notice with its other agreements contained in the Indenture, (vi) Indebtedness of the Company or any Restricted Subsidiary if not paid within any applicable grace period after final maturity or is accelerated by the holders thereof because of a default and the total amount of such Indebtedness unpaid or accelerated exceeds $5.0 million (the "cross acceleration provision"), (vii) certain events of bankruptcy, insolvency or reorganization of the Company or a Significant Subsidiary (the "bankruptcy provisions"), (viii) any judgment or decree for the payment of money in excess of $5.0 million is rendered against the Company or a Significant Subsidiary and such judgment or decree shall remain undischarged or unstayed for a period of 60 days after such judgment becomes final and non-appealable (the "judgment default provision") or (ix) any Subsidiary Guarantee ceases to be in full force and effect (except as contemplated by the terms of the Indenture) or any Subsidiary Guarantor denies or disaffirms its obligations under the Indenture or its Subsidiary Guarantee. However, a default under clauses (iv) and (v) will not constitute an Event of Default until the Trustee or the holders of more than 25% in principal amount of the then outstanding Securities notify the Company of the default and the Company does not cure such default within the time specified in clauses (iv) and (v) hereof after receipt of such notice. If an Event of Default occurs and is continuing, the Trustee or the Holders of at least 25% in principal amount of the Securities may declare all the Securities to be due and payable immediately. Certain events of bankruptcy or insolvency are Events of Default which will result in the Securities being due and payable immediately upon the occurrence of such Events of Default. Securityholders may not enforce the Indenture or the Securities except as provided in the Indenture. The Trustee may refuse to enforce the Indenture or the Securities unless it receives reasonable indemnity or security. Subject to certain limitations, Holders of a majority in principal amount of the Securities may direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Securityholders notice of any continuing Default or Event of Default (except a Default or Event of Default in payment of principal or interest) if it determines that withholding notice is in their interest. 13. TRUSTEE DEALINGS WITH THE COMPANY Subject to certain limitations set forth in the Indenture, the Trustee under the Indenture, in its individual or any other capacity, may become the owner or pledgee of Securities and may otherwise deal with and collect obligations owed to it by the Company or its Affiliates and may otherwise deal with the Company or its affiliates with the same rights it would have if it were not Trustee. 14. NO RECOURSE AGAINST OTHERS An incorporator, director, officer, employee, stockholder or controlling person, as such, of the Company shall not have any liability for any obligations of the Company under the Securities or the Indenture or for any claim based on, in respect of or by reason of such obligations or their creation. By accepting a Security, each Securityholder waives and releases all such liability. The waiver and release are part of the consideration for the issue of the Securities. 15. AUTHENTICATION This Security shall not be valid until an authorized signatory of the Trustee (or an authenticating agent acting on its behalf) manually signs the certificate of authentication on the other side of this Security. 16. ABBREVIATIONS Customary abbreviations may be used in the name of a Securityholder or an assignee, such as TEN COM (=tenants in common), TEN ENT (=tenants by the entirety), JT TEN (=joint tenants with rights of survivorship and not as tenants in common), CUST (=custodian) and U/G/M/A (=Uniform Gift to Minors Act). 17. CUSIP NUMBERS Pursuant to a recommendation promulgated by the Committee on Uniform Security Identification Procedures the Company has caused CUSIP numbers to be printed on the Securities and has directed the Trustee to use CUSIP numbers in notices of redemption as a convenience to Securityholders. No representation is made as to the accuracy of such numbers either as printed on the Securities or as contained in any notice of redemption and reliance may be placed only on the other identification numbers placed thereon. 18. GOVERNING LAW This Security shall be governed by, and construed in accordance with, the laws of the State of New York but without giving effect to applicable principles of conflicts of law to the extent that the application of the laws of another jurisdiction would be required thereby. ASSIGNMENT FORM To assign this Security, fill in the form below: I or we assign and transfer this Security to (Print or type assignee's name, address and zip code) (Insert assignee's soc. sec. or tax I.D. No.) and irrevocably appoint agent to transfer this Security on the books of the Company. The agent may substitute another to act for him. _______________________________________________________________________________ Date: _______________ Your Signature ____________________ Signature Guarantee: ____________________________________ (Signature must be guaranteed) _______________________________________________________________________________ Sign exactly as your name appears on the other side of this Security. The signature(s) should be guaranteed by an eligible guarantor institution (banks, stockbrokers, savings and loan associations and credit unions with membership in an approved signature guarantee medallion program), pursuant to S.E.C. Rule 17Ad-15. OPTION OF HOLDER TO ELECT PURCHASE If you want to elect to have this Security purchased by the Company pursuant to SECTION 3.6 or 3.9 of the Indenture, check either box: / / / / 3.6 3.9 If you want to elect to have only part of this Security purchased by the Company pursuant to SECTION 3.6 or 3.9 of the Indenture, state the amount in principal amount (must be integral multiple of $1,000): $ Date: _______________ Your Signature: _________________________ (Sign exactly as your name appears on the other side of the Security) Signature Guarantee: _______________________________________ (Signature must be guaranteed) The signature(s) should be guaranteed by an eligible guarantor institution (banks, stockbrokers, savings and loan associations and credit unions with membership in an approved signature guarantee medallion program), pursuant to S.E.C. Rule 17Ad-15. EXHIBIT C FORM OF SUPPLEMENTAL INDENTURE This Supplemental Indenture, dated as of [__________] (this "Supplemental Indenture" or "Subsidiary Guarantee"), among [name of Subsidiary Guarantor] (the "Subsidiary Guarantor"), NE Restaurant Company (together with its successors and assigns, the "Company"), [each other then existing Subsidiary Guarantor under the Indenture referred to below,] and United States Trust Company of New York, as Trustee under the Indenture referred to below (the "Trustee"). W I T N E S S E T H: WHEREAS, the Company and the Trustee have heretofore executed and delivered an Indenture, dated as of July 20, 1998 (as amended, supplemented, waived or otherwise modified, the "Indenture"), providing for the issuance of an aggregate principal amount of $100.0 million of 10 3/4% Senior Notes due 2008 of the Company (the "Securities"); WHEREAS, SECTION 3.12 of the Indenture provides that the Company is required to cause each Restricted Subsidiary created or acquired by the Company to execute and deliver to the Trustee a Subsidiary Guarantee pursuant to which such Subsidiary Guarantor will unconditionally Guarantee, on a joint and several basis, the full and prompt payment of the principal of, premium, if any and interest on the Securities and all other payment obligations under the Indenture on a senior unsecured basis; and WHEREAS, pursuant to SECTION 9.1 of the Indenture, the Trustee and the Company are authorized to execute and deliver this Supplemental Indenture to amend the Indenture, without the consent of any Securityholder; NOW, THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt of which is hereby acknowledged, the Subsidiary Guarantor, the Company[, the other Subsidiary Guarantors] and the Trustee mutually covenant and agree for the equal and ratable benefit of the holders of the Securities as follows: ARTICLE I DEFINITIONS SECTION 1.1 DEFINED TERMS. As used in this Supplemental Indenture, terms defined in the Indenture or in the preamble or recital hereto are used herein as therein defined, except that the term "Holders" in this Supplemental Indenture shall refer to the term "Holders" as defined in the Indenture and the Trustee acting on behalf or for the benefit of such holders. The words "herein," "hereof" and "hereby" and other words of similar import used in this Supplemental Indenture refer to this Supplemental Indenture as a whole and not to any particular section hereof. ARTICLE II GUARANTEE SECTION 2.1 GUARANTEE. The Subsidiary Guarantor hereby fully, unconditionally and irrevocably guarantees, as primary obligor and not merely as surety, jointly and severally with each other Subsidiary Guarantor, to each Holder of the Securities and to the Trustee the full and punctual payment when due, whether at maturity, by acceleration, by redemption or otherwise, of the principal of, premium, if any, and interest on the Securities and all other amounts payable under the Indenture (all the foregoing being hereinafter collectively called the "Obligations"). The Subsidiary Guarantor further agrees (to the extent permitted by law) that the Obligations may be extended or renewed, in whole or in part, without notice or further assent from it, and that it will remain bound under this ARTICLE II notwithstanding any extension or renewal of any Obligation. The Subsidiary Guarantor waives presentation to, demand of payment from and protest to the Company of any of the Obligations and also waives notice of protest for nonpayment. The Subsidiary Guarantor waives notice of any default under the Securities or the Obligations. The obligations of the Subsidiary Guarantor hereunder shall not be affected by (a) the failure of any Holder to assert any claim or demand or to enforce any right or remedy against the Company or any other person under the Indenture, the Securities or any other agreement or otherwise; (b) any extension or renewal of any thereof; (c) any rescission, waiver, amendment or modification of any of the terms or provisions of the Indenture, the Securities or any other agreement; (d) the release of any security held by any Holder or the Trustee for the Obligations or any of them; (e) the failure of any Holder to exercise any right or remedy against any other Subsidiary Guarantor; or (f) any change in the ownership of the Company. The Subsidiary Guarantor further agrees that its Subsidiary Guarantee constitutes a guarantee of payment when due (and not a guarantee of collection) and waives any right to require that any resort be had by any Holder to any security held for payment of the Obligations. The obligations of the Subsidiary Guarantor hereunder shall not be subject to any reduction, limitation, impairment or termination for any reason (other than payment of the Obligations in full), including any claim of waiver, release, surrender, alteration or compromise, and shall not be subject to any defense of setoff, counterclaim, recoupment or termination whatsoever or by reason of the invalidity, illegality or unenforceability of the Obligations or otherwise. Without limiting the generality of the foregoing, the obligations of the Subsidiary Guarantor herein shall not be discharged or impaired or otherwise affected by the failure of any Holder to assert any claim or demand or to enforce any remedy under the Indenture, the Securities or any other agreement, by any waiver or modification of any thereof, by any default, failure or delay, willful or otherwise, in the performance of the Obligations, or by any other act or thing or omission or delay to do any other act or thing which may or might in any manner or to any extent vary the risk of the Subsidiary Guarantor or would otherwise operate as a discharge of the Subsidiary Guarantor as a matter of law or equity. The Subsidiary Guarantor further agrees that its Subsidiary Guarantee shall continue to be effective or be reinstated, as the case may be, if at any time payment, or any part thereof, of principal of or interest on any of the Obligations is rescinded or must otherwise be restored by any Holder upon the bankruptcy or reorganization of the Company or otherwise. In furtherance of the foregoing and not in limitation of any other right which any Holder has at law or in equity against the Subsidiary Guarantor by virtue hereof, upon the failure of the Company to pay any of the Obligations when and as the same shall become due, whether at maturity, by acceleration, by redemption or otherwise, the Subsidiary Guarantor hereby promises to and will, upon receipt of written demand by the Trustee, forthwith pay, or cause to be paid, in cash, to the Holders an amount equal to the sum of (i) the unpaid amount of such Obligations then due and owing and (ii) accrued and unpaid interest on such Obligations then due and owing (but only to the extent not prohibited by law). The Subsidiary Guarantor further agrees that, as between the Subsidiary Guarantor, on the one hand, and the Holders, on the other hand, (x) the maturity of the Obligations guaranteed hereby may be accelerated as provided in the Indenture for the purposes of its Subsidiary Guarantee, notwithstanding any stay, injunction or other prohibition preventing such acceleration in respect of the Obligations guaranteed hereby and (y) in the event of any such declaration of acceleration of such Obligations, such Obligations (whether or not due and payable) shall forthwith become due and payable by the Subsidiary Guarantor for the purposes of its Subsidiary Guarantee. The Subsidiary Guarantor also agrees to pay any and all reasonable costs and expenses (including reasonable attorneys' fees) incurred by the Trustee or the Holders in enforcing any rights under this Section. SECTION 2.2 LIMITATION ON LIABILITY; TERMINATION, RELEASE AND DISCHARGE. The obligations of the Subsidiary Guarantor hereunder will be limited to the maximum amount as will, after giving effect to all other contingent and fixed liabilities of the Subsidiary Guarantor (including, without limitation, any guarantees under the Senior Credit Agreement) and after giving effect to any collections from or payments made by or on behalf of any other Subsidiary Guarantor in respect of the obligations of such other Subsidiary Guarantor under its Subsidiary Guarantee or pursuant to its contribution obligations under the Indenture or as set forth below, result in the obligations of the Subsidiary Guarantor under its Subsidiary Guarantee not constituting a fraudulent conveyance or fraudulent transfer under federal or state law. The Subsidiary Guarantor may consolidate with or merge into or sell its assets to the Company or another Subsidiary Guarantor without limitation. The Subsidiary Guarantor may consolidate with or merge into or sell all or substantially all its assets to a corporation, partnership or trust other than the Company or another Subsidiary Guarantor (whether or not affiliated with the Subsidiary Guarantor). Upon the sale or disposition of the Subsidiary Guarantor (by merger, consolidation, the sale of all or substantially all of its assets) to a Person (whether or not an Affiliate of the Subsidiary Guarantor) which is not a Subsidiary of the Company, which sale or disposition is otherwise in compliance with the Indenture (including SECTION 3.7), the Subsidiary Guarantor shall be deemed released from all its obligations under the Indenture and its Subsidiary Guarantee and this Subsidiary Guarantee shall terminate; PROVIDED, HOWEVER, that any such termination shall occur only to the extent that all obligations of the Subsidiary Guarantor under all of its guarantees of, and under all of its pledges of assets or other security interests which secure, any other Indebtedness of the Company shall also terminate upon such release, sale or transfer. SECTION 2.3 RIGHT OF CONTRIBUTION. The Subsidiary Guarantor hereby agrees that to the extent that any Subsidiary Guarantor shall have paid more than its proportionate share of any payment made on the obligations under the Subsidiary Guarantees, such Subsidiary Guarantor shall be entitled to seek and receive contribution from and against the Company or any other Subsidiary Guarantor who has not paid its proportionate share of such payment. Each Subsidiary Guarantor's right of contribution shall be subject to the terms and conditions of SECTION 3.5 of the Indenture. The provisions of this SECTION 2.3 shall in no respect limit the obligations and liabilities of the Subsidiary Guarantor to the Trustee and the Holders and the Subsidiary Guarantor shall remain liable to the Trustee and the Holders for the full amount guaranteed by the Subsidiary Guarantor hereunder. SECTION 2.4 NO SUBROGATION. Notwithstanding any payment or payments made by the Subsidiary Guarantor hereunder, the Subsidiary Guarantor shall not be entitled to be subrogated to any of the rights of the Trustee or any Holder against the Company or any other Subsidiary Guarantor or any collateral security or guarantee or right of offset held by the Trustee or any Holder for the payment of the Obligations, nor shall the Subsidiary Guarantor seek or be entitled to seek any contribution or reimbursement from the Company or any other Subsidiary Guarantor in respect of payments made by the Subsidiary Guarantor hereunder, until all amounts owing to the Trustee and the Holders by the Company on account of the Obligations are paid in full. If any amount shall be paid to the Subsidiary Guarantor on account of such subrogation rights at any time when all of the Obligations shall not have been paid in full, such amount shall be held by the Subsidiary Guarantor in trust for the Trustee and the Holders, segregated from other funds of the Subsidiary Guarantor, and shall, forthwith upon receipt by the Subsidiary Guarantor, be turned over to the Trustee in the exact form received by the Subsidiary Guarantor (duly indorsed by the Subsidiary Guarantor to the Trustee, if required), to be applied against the Obligations. SECTION 2.5 EXECUTION AND DELIVERY OF SUBSIDIARY GUARANTEE. To further evidence the Subsidiary Guarantees set forth in Section 2.1, each Subsidiary Guarantor hereby agrees that a notation of its Subsidiary Guarantee, substantially in the form of Exhibit D to the Indenture, shall be endorsed on each Security authenticated and delivered by the Trustee. The Subsidiary Guarantee of any Subsidiary Guarantor shall be executed on behalf of such Subsidiary Guarantor by either manual or facsimile signature of an Officer of such Subsidiary Guarantor who shall have been duly authorized to so execute by all requisite corporate action. The validity and enforceability of any Subsidiary Guarantee shall not be affected by the fact that it is not affixed to any particular Security. Each of the Subsidiary Guarantors hereby agrees that its Subsidiary Guarantee set forth in Section 2.1 shall remain in full force and effect notwithstanding any failure to endorse on each Security a notation of such Subsidiary Guarantee. If the Officer of a Subsidiary Guarantor whose signature is on this Supplemental Indenture or a Subsidiary Guarantee no longer holds that office at the time the Trustee authenticates the Security on which such Subsidiary Guarantee is endorsed or at any time thereafter, such Subsidiary Guarantor's Subsidiary Guarantee of such Security shall nevertheless be valid. The delivery of any Security by the Trustee, after the authentication thereof under the Indenture, shall constitute due delivery of any Subsidiary Guarantee set forth in this Supplemental Indenture on behalf of each Subsidiary Guarantor. ARTICLE III MISCELLANEOUS SECTION 3.1 NOTICES. All notices and other communications pertaining to this Guarantee or any Security shall be in writing and shall be deemed to have been duly given upon the receipt thereof. Such notices shall be delivered by hand, or mailed, certified or registered mail with postage prepaid (a) if to the Subsidiary Guarantor, at its address set forth below, with a copy to the Company as provided in the Indenture for notices to the Company, and (b) if to the Holders or the Trustee, as provided in the Indenture. The Subsidiary Guarantor by notice to the Trustee may designate additional or different addresses for subsequent notices to or communications with the Subsidiary Guarantor. SECTION 3.2 PARTIES. Nothing expressed or mentioned in this Guarantee is intended or shall be construed to give any Person, firm or corporation, other than the Holders and the Trustee and the holders of any Subsidiary Guarantor Senior Indebtedness, any legal or equitable right, remedy or claim under or in respect of this Guarantee or any provision herein contained. SECTION 3.3 GOVERNING LAW. THIS SUPPLEMENTAL INDENTURE AND THE SUBSIDIARY GUARANTEES SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK BUT WITHOUT GIVING EFFECT TO APPLICABLE PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY. SECTION 3.4 SEVERABILITY CLAUSE. In case any provision in this Guarantee shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby and such provision shall be ineffective only to the extent of such invalidity, illegality or unenforceability. SECTION 3.5 WAIVERS AND REMEDIES. Neither a failure nor a delay on the part of the Holders or the Trustee in exercising any right, power or privilege under this Guarantee shall operate as a waiver thereof, nor shall a single or partial exercise thereof preclude any other or further exercise of any right, power or privilege. The rights, remedies and benefits of the Holders and the Trustee herein expressly specified are cumulative and not exclusive of any other rights, remedies or benefits which either may have under this Guarantee or at law, in equity, by statute or otherwise. SECTION 3.6 SUCCESSORS AND ASSIGNS. Subject to SECTION 2.2 hereof, (a) this Guarantee shall be binding upon and inure to the benefit of the Subsidiary Guarantor, the Trustee, any other parties hereto, the Holders and their respective successors and assigns and (b) in the event of any transfer or assignment of rights by any Holder, the rights and privileges conferred upon that party in this Guarantee and in the Securities shall automatically extend to and be vested in such transferee or assignee, all subject to the terms and conditions of this Guarantee and the Indenture. SECTION 3.7 MODIFICATION, ETC. Subject to the provisions of, and except as otherwise provided in, ARTICLE IX of the Indenture (including without limitation SECTIONS 9.1 and 9.2 thereof), no modification, amendment or waiver of any provision of this Guarantee, nor the consent to any departure by the Subsidiary Guarantor therefrom, shall in any event be effective unless the same shall be in writing and consented to by the Trustee (with the consent of the Holders of at least a majority of the then outstanding Securities if required by SECTION 9.2 of the Indenture) and then such waiver or consent shall be effective only in the specific instance and for the purpose for which it was given. No notice to or demand on the Subsidiary Guarantor in any case shall entitle such Subsidiary Guarantor or any other guarantor to any other or further notice or demand in the same, similar or other circumstances. SECTION 3.8 ENTIRE AGREEMENT. This Guarantee is intended by the parties to be a final expression of their agreement in respect of the subject matter contained herein and, together with the Indenture, supersedes all prior agreements and understandings between the parties with respect to such subject matter. SECTION 3.9 RATIFICATION OF INDENTURE; SUPPLEMENTAL INDENTURES PART OF INDENTURE. Except as expressly amended hereby, the Indenture is in all respects ratified and confirmed and all the terms, conditions and provisions thereof shall remain in full force and effect. This Supplemental Indenture shall form a part of the Indenture for all purposes, and every holder of Securities heretofore or hereafter authenticated and delivered shall be bound hereby. The Trustee makes no representation or warranty as to the validity or sufficiency of this Supplemental Indenture. Furthermore, each Subsidiary Guarantor that is a party hereto hereby assumes any and all obligations of a Subsidiary Guarantor set forth in the Indenture, whether or not such obligations are expressly specified in this Supplemental Indenture. SECTION 3.10 COUNTERPARTS. The parties hereto may sign one or more copies of this Supplemental Indenture in counterparts, all of which together shall constitute one and the same agreement. SECTION 3.11 HEADINGS. The headings of the Articles and the sections in this Guarantee are for convenience of reference only and shall not be deemed to alter or affect the meaning or interpretation of any provisions hereof. SECTION 3.12 THE TRUSTEE. The Trustee shall not be responsible in any manner whatsoever for or in respect of the validity or sufficiency of this Guarantee or for or in respect of the recitals contained herein, all of which recitals are made solely by the Company and the Subsidiary Guarantor. IN WITNESS WHEREOF, the parties hereto have caused this Supplemental Indenture to be duly executed as of the date first above written. NE RESTAURANT COMPANY, INC. By: ______________________________ Name: Title: [NAME OF SUBSIDIARY GUARANTOR], By: _________________________________ Name: Title: Address: By: __________________________________ Name: Title: UNITED STATES TRUST COMPANY OF NEW YORK, as Trustee By: _____________________________________ Name: Title: EXHIBIT D FORM OF NOTATION OF SUBSIDIARY GUARANTEE ____________, __________ and __________ (collectively, the "SUBSIDIARY GUARANTORS"), have each jointly and severally unconditionally guaranteed on a senior unsecured basis (such guarantee by each Subsidiary Guarantor being referred to herein as the "SUBSIDIARY GUARANTEE") (i) the due and punctual payment of the principal of and interest on the Securities, subject to any applicable grace period, whether at maturity, by acceleration or otherwise, the due and punctual payment of interest on the overdue principal and interest, if any, on the Securities, to the extent lawful, and the due and punctual performance of all other obligations of the Company to the Holders or the Trustee all in accordance with the terms set forth in Article X of the Indenture dated as of July 20, 1998 between the Company and the Trustee (as supplemented, the "Indenture"), and (ii) in case of any extension of time of payment or renewal of any Securities or any of such other obligations, that the same will be promptly paid in full when due or performed in accordance with the terms of the extension or renewal, whether at stated maturity, by acceleration or otherwise. The obligations of each Subsidiary Guarantor to the Holders of Securities and to the Trustee pursuant to the Subsidiary Guarantee and the Indenture are expressly set forth and are senior unsecured obligations of each Subsidiary Guarantor, to the extent and in the manner provided, in Article X of the Indenture, and reference is hereby made to such Indenture for the precise terms of the Subsidiary Guarantee therein made. No stockholder, officer, director or incorporator, as such, past, present or future, of each Subsidiary Guarantor shall have any liability under the Subsidiary Guarantee by reason of his or its status as such stockholder, officer, director or incorporator. The Subsidiary Guarantee shall not be valid or obligatory for any purpose until the certificate of authentication on the Securities upon which the Subsidiary Guarantee is noted shall have been executed by the Trustee under the Indenture by the manual signature of one of its authorized officers. Terms used herein and not otherwise defined have the meanings assigned to them in the Indenture. [Guarantor] By:______________________________ Name: Title: [Guarantor] By:______________________________ Name: Title: [Guarantor] By:______________________________ Name: Title: EX-4.2 8 SUPP INDENTURE, DATED 7/21/1998 BY & AMONG BERTUCC EXHIBIT 4.2 SUPPLEMENTAL INDENTURE ---------------------- This Supplemental Indenture, dated as of July 21, 1998 (this "Supplemental Indenture" or "Guarantee"), among Bertucci's, Inc., Bertucci's Restaurant Corp., Bertucci's of Ann Arundel County, Inc., Bertucci's of Columbia, Inc., Bertucci's of Baltimore County, Inc., Bertucci's of Bel Air, Inc., Bertucci's of White Marsh, Inc., Berestco, Inc., Bertucci's Securities Corp. and Sal & Vinnie's Sicilian Steakhouse, Inc. (the "Subsidiary Guarantors"), NE Restaurant Company (together with its successors and assigns, the "Company") and United States Trust Company of New York, as Trustee under the Indenture referred to below (the "Trustee"). W I T N E S S E T H: WHEREAS, the Company and the Trustee have heretofore executed and delivered an Indenture, dated as of July 20, 1998 (as amended, supplemented, waived or otherwise modified, the "Indenture"), providing for the issuance of an aggregate principal amount of $100.0 million of 10 3/4% Senior Notes due 2008 of the Company (the "Securities"); WHEREAS, Section 3.12 of the Indenture provides that the Company is ------------ required to cause each Restricted Subsidiary created or acquired by the Company to execute and deliver to the Trustee a Subsidiary Guarantee pursuant to which such Subsidiary Guarantor will unconditionally Guarantee, on a joint and several basis, the full and prompt payment of the principal of, premium, if any and interest on the Securities and all other payment obligations under the Indenture on a senior unsecured basis; and WHEREAS, pursuant to Section 9.1 of the Indenture, the Trustee and the ----------- Company are authorized to execute and deliver this Supplemental Indenture to amend the Indenture, without the consent of any Securityholder; NOW, THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt of which is hereby acknowledged, each Subsidiary Guarantor, the Company and the Trustee mutually covenant and agree for the equal and ratable benefit of the holders of the Securities as follows: ARTICLE I Definitions ----------- SECTION 1.1 Defined Terms. As used in this Supplemental Indenture, ------------- terms defined in the Indenture or in the preamble or recital hereto are used herein as therein defined, except that the term "Holders" in this Guarantee shall refer to the term "Holders" as defined in the Indenture and the Trustee acting on behalf or for the benefit of such holders. The words "herein," "hereof" and "hereby" and other words of similar import used in this Supplemental Indenture refer to this Supplemental Indenture as a whole and not to any particular section hereof. 2 ARTICLE II Guarantee --------- SECTION 2.1 Guarantee. Each Subsidiary Guarantor hereby fully, --------- unconditionally and irrevocably guarantees, as primary obligor and not merely as surety, jointly and severally with each other Subsidiary Guarantor, to each Holder of the Securities and to the Trustee the full and punctual payment when due, whether at maturity, by acceleration, by redemption or otherwise, of the principal of, premium, if any, and interest on the Securities and all other amounts payable under the Indenture (all the foregoing being hereinafter collectively called the "Obligations"). Each Subsidiary Guarantor further agrees (to the extent permitted by law) that the Obligations may be extended or renewed, in whole or in part, without notice or further assent from it, and that it will remain bound under this Article II notwithstanding any extension or ---------- renewal of any Obligation. Each Subsidiary Guarantor waives presentation to, demand of payment from and protest to the Company of any of the Obligations and also waives notice of protest for nonpayment. Each Subsidiary Guarantor waives notice of any default under the Securities or the Obligations. The obligations of each Subsidiary Guarantor hereunder shall not be affected by (a) the failure of any Holder to assert any claim or demand or to enforce any right or remedy against the Company or any other person under the Indenture, the Securities or any other agreement or otherwise; (b) any extension or renewal of any thereof; (c) any rescission, waiver, amendment or modification of any of the terms or provisions of the Indenture, the Securities or any other agreement; (d) the release of any security held by any Holder or the Trustee for the Obligations or any of them; (e) the failure of any Holder to exercise any right or remedy against any other Subsidiary Guarantor; or (f) any change in the ownership of the Company. Each Subsidiary Guarantor further agrees that its Subsidiary Guarantee herein constitutes a guarantee of payment when due (and not a guarantee of collection) and waives any right to require that any resort be had by any Holder to any security held for payment of the Obligations. The obligations of each Subsidiary Guarantor hereunder shall not be subject to any reduction, limitation, impairment or termination for any reason (other than payment of the Obligations in full), including any claim of waiver, release, surrender, alteration or compromise, and shall not be subject to any defense of setoff, counterclaim, recoupment or termination whatsoever or by reason of the invalidity, illegality or unenforceability of the Obligations or otherwise. Without limiting the generality of the foregoing, the obligations of each Subsidiary Guarantor herein shall not be discharged or impaired or otherwise affected by the failure of any Holder to assert any claim or demand or to enforce any remedy under the Indenture, the Securities or any other agreement, by any waiver or modification of any thereof, by any default, failure or delay, willful or otherwise, in the performance of the Obligations, or by any other act or thing or omission or delay to do any other act or thing which may or might in any manner or to any extent vary the risk of each Subsidiary Guarantor or would otherwise operate as a discharge of each Subsidiary Guarantor as a matter of law or equity. 3 Each Subsidiary Guarantor further agrees that its Subsidiary Guarantee herein shall continue to be effective or be reinstated, as the case may be, if at any time payment, or any part thereof, of principal of or interest on any of the Obligations is rescinded or must otherwise be restored by any Holder upon the bankruptcy or reorganization of the Company or otherwise. In furtherance of the foregoing and not in limitation of any other right which any Holder has at law or in equity against each Subsidiary Guarantor by virtue hereof, upon the failure of the Company to pay any of the Obligations when and as the same shall become due, whether at maturity, by acceleration, by redemption or otherwise, each Subsidiary Guarantor hereby promises to and will, upon receipt of written demand by the Trustee, forthwith pay, or cause to be paid, in cash, to the Holders an amount equal to the sum of (i) the unpaid amount of such Obligations then due and owing and (ii) accrued and unpaid interest on such Obligations then due and owing (but only to the extent not prohibited by law). Each Subsidiary Guarantor further agrees that, as between each Subsidiary Guarantor, on the one hand, and the Holders, on the other hand, (x) the maturity of the Obligations guaranteed hereby may be accelerated as provided in the Indenture for the purposes of its Subsidiary Guarantee herein, notwithstanding any stay, injunction or other prohibition preventing such acceleration in respect of the Obligations guaranteed hereby and (y) in the event of any such declaration of acceleration of such Obligations, such Obligations (whether or not due and payable) shall forthwith become due and payable by each Subsidiary Guarantor for the purposes of its Subsidiary Guarantee. Each Subsidiary Guarantor also agrees to pay any and all reasonable costs and expenses (including reasonable attorneys' fees) incurred by the Trustee or the Holders in enforcing any rights under this Section. SECTION 2.2 Limitation on Liability; Termination, Release and ------------------------------------------------- Discharge. The obligations of each Subsidiary Guarantor hereunder will be - --------- limited to the maximum amount as will, after giving effect to all other contingent and fixed liabilities of each Subsidiary Guarantor (including, without limitation, any guarantees under the Senior Credit Agreement) and after giving effect to any collections from or payments made by or on behalf of any other Subsidiary Guarantor in respect of the obligations of such other Subsidiary Guarantor under its Subsidiary Guarantee or pursuant to its contribution obligations under the Indenture or as set forth below, result in the obligations of each Subsidiary Guarantor under its Subsidiary Guarantee not constituting a fraudulent conveyance or fraudulent transfer under federal or state law. Each Subsidiary Guarantor may consolidate with or merge into or sell its assets to the Company or another Subsidiary Guarantor without limitation. Each Subsidiary Guarantor may consolidate with or merge into or sell all or substantially all its assets to a corporation, partnership or trust other than the Company or another Subsidiary Guarantor (whether or not affiliated with each Subsidiary Guarantor). Upon the sale or disposition of each Subsidiary Guarantor (by merger, consolidation, the sale of all or substantially all of its assets) to a Person (whether or not an Affiliate of each Subsidiary Guarantor) which is not a Subsidiary of the Company, which sale or disposition is otherwise in compliance with the Indenture (including 4 Section 3.7), each Subsidiary Guarantor shall be deemed released from all its - ----------- obligations under the Indenture and this Subsidiary Guarantee and this Subsidiary Guarantee shall terminate; provided, however, that any such termination shall occur only to the extent that all obligations of each Subsidiary Guarantor under all of its guarantees of, and under all of its pledges of assets or other security interests which secure, any other Indebtedness of the Company shall also terminate upon such release, sale or transfer. SECTION 2.3 Right of Contribution. Each Subsidiary Guarantor hereby ---------------------- agrees that to the extent that any Subsidiary Guarantor shall have paid more than its proportionate share of any payment made on the obligations under the Subsidiary Guarantees, such Subsidiary Guarantor shall be entitled to seek and receive contribution from and against the Company or any other Subsidiary Guarantor who has not paid its proportionate share of such payment. Each Subsidiary Guarantor's right of contribution shall be subject to the terms and conditions of Section 3.5 of the Indenture. The provisions of this Section 2.3 ----------- ----------- shall in no respect limit the obligations and liabilities of each Subsidiary Guarantor to the Trustee and the Holders and each Subsidiary Guarantor shall remain liable to the Trustee and the Holders for the full amount guaranteed by each Subsidiary Guarantor hereunder. SECTION 2.4 No Subrogation. Notwithstanding any payment or payments -------------- made by each Subsidiary Guarantor hereunder, each Subsidiary Guarantor shall not be entitled to be subrogated to any of the rights of the Trustee or any Holder against the Company or any other Subsidiary Guarantor or any collateral security or guarantee or right of offset held by the Trustee or any Holder for the payment of the Obligations, nor shall each Subsidiary Guarantor seek or be entitled to seek any contribution or reimbursement from the Company or any other Subsidiary Guarantor in respect of payments made by each Subsidiary Guarantor hereunder, until all amounts owing to the Trustee and the Holders by the Company on account of the Obligations are paid in full. If any amount shall be paid to each Subsidiary Guarantor on account of such subrogation rights at any time when all of the Obligations shall not have been paid in full, such amount shall be held by each Subsidiary Guarantor in trust for the Trustee and the Holders, segregated from other funds of each Subsidiary Guarantor, and shall, forthwith upon receipt by each Subsidiary Guarantor, be turned over to the Trustee in the exact form received by each Subsidiary Guarantor (duly indorsed by each Subsidiary Guarantor to the Trustee, if required), to be applied against the Obligations. SECTION 2.5 Execution and Delivery of Subsidiary Guarantee. To ---------------------------------------------- further evidence the Subsidiary Guarantees set forth in Section 2.1, each ----------- Subsidiary Guarantor hereby agrees that a notation of its Subsidiary Guarantee, substantially in the form of Exhibit D to the Indenture, shall be endorsed on each Security authenticated and delivered by the Trustee. The Subsidiary Guarantee of any Subsidiary Guarantor shall be executed on behalf of such Subsidiary Guarantor by either manual or facsimile signature of an Officer of such Subsidiary Guarantor, each of whom, in each case, shall have been duly authorized to so execute by all requisite corporate action. The validity and enforceability of any Subsidiary Guarantee shall not be affected by the fact that it is not affixed to any particular Security. 5 Each of the Subsidiary Guarantors hereby agrees that its Subsidiary Guarantee set forth in Section 2.1 shall remain in full force and effect ----------- notwithstanding any failure to endorse on each Security a notation of such Subsidiary Guarantee. If an Officer of a Subsidiary Guarantor whose signature is on this Supplemental Indenture or a Subsidiary Guarantee no longer holds that office at the time the Trustee authenticates the Security on which such Subsidiary Guarantee is endorsed or at any time thereafter, such Subsidiary Guarantor's Subsidiary Guarantee of such Security shall nevertheless be valid. The delivery of any Security by the Trustee, after the authentication thereof under the Indenture, shall constitute due delivery of any Subsidiary Guarantee set forth in this Supplemental Indenture on behalf of each Subsidiary Guarantor. ARTICLE III Miscellaneous ------------- SECTION 3.1 Notices. All notices and other communications pertaining ------- to this Guarantee or any Security shall be in writing and shall be deemed to have been duly given upon the receipt thereof. Such notices shall be delivered by hand, or mailed, certified or registered mail with postage prepaid (a) if to each Subsidiary Guarantor, at its address set forth below, with a copy to the Company as provided in the Indenture for notices to the Company, and (b) if to the Holders or the Trustee, as provided in the Indenture. Each Subsidiary Guarantor by notice to the Trustee may designate additional or different addresses for subsequent notices to or communications with each Subsidiary Guarantor. SECTION 3.2 Parties. Nothing expressed or mentioned in this ------- Guarantee is intended or shall be construed to give any Person, firm or corporation, other than the Holders and the Trustee and the holders of any Subsidiary Guarantor Senior Indebtedness, any legal or equitable right, remedy or claim under or in respect of this Guarantee or any provision herein contained. SECTION 3.3 GOVERNING LAW. THIS SUPPLEMENTAL INDENTURE AND THE ------------- SUBSIDIARY GUARANTEES SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK BUT WITHOUT GIVING EFFECT TO APPLICABLE PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY. SECTION 3.4 Severability Clause. In case any provision in this ------------------- Guarantee shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining 6 provisions shall not in any way be affected or impaired thereby and such provision shall be ineffective only to the extent of such invalidity, illegality or unenforceability. SECTION 3.5 Waivers and Remedies. Neither a failure nor a delay on -------------------- the part of the Holders or the Trustee in exercising any right, power or privilege under this Guarantee shall operate as a waiver thereof, nor shall a single or partial exercise thereof preclude any other or further exercise of any right, power or privilege. The rights, remedies and benefits of the Holders and the Trustee herein expressly specified are cumulative and not exclusive of any other rights, remedies or benefits which either may have under this Guarantee or at law, in equity, by statute or otherwise. SECTION 3.6 Successors and Assigns. Subject to Section 2.2 hereof, ---------------------- ----------- (a) this Guarantee shall be binding upon and inure to the benefit of each Subsidiary Guarantor, the Trustee, any other parties hereto, the Holders and their respective successors and assigns and (b) in the event of any transfer or assignment of rights by any Holder, the rights and privileges conferred upon that party in this Guarantee and in the Securities shall automatically extend to and be vested in such transferee or assignee, all subject to the terms and conditions of this Guarantee and the Indenture. SECTION 3.7 Modification, etc. Subject to the provisions of, and ------------------ except as otherwise provided in, Article IX of the Indenture (including without ---------- limitation Sections 9.1 and 9.2 thereof), no modification, amendment or waiver ------------ --- of any provision of this Guarantee, nor the consent to any departure by each Subsidiary Guarantor therefrom, shall in any event be effective unless the same shall be in writing and consented to by the Trustee (with the consent of the Holders of at least a majority of the then outstanding Securities if required by Section 9.2 of the Indenture) and then such waiver or consent shall be effective - ----------- only in the specific instance and for the purpose for which it was given. No notice to or demand on each Subsidiary Guarantor in any case shall entitle such Subsidiary Guarantor or any other guarantor to any other or further notice or demand in the same, similar or other circumstances. SECTION 3.8 Entire Agreement. This Guarantee is intended by the ---------------- parties to be a final expression of their agreement in respect of the subject matter contained herein and, together with the Indenture, supersedes all prior agreements and understandings between the parties with respect to such subject matter. SECTION 3.9 Ratification of Indenture; Supplemental Indentures Part ------------------------------------------------------- of Indenture. Except as expressly amended hereby, the Indenture is in all - ------------ respects ratified and confirmed and all the terms, conditions and provisions thereof shall remain in full force and effect. This Supplemental Indenture shall form a part of the Indenture for all purposes, and every holder of Securities heretofore or hereafter authenticated and delivered shall be bound hereby. The Trustee makes no representation or warranty as to the validity or sufficiency of this Supplemental Indenture. Furthermore, each Subsidiary Guarantor that is a party hereto hereby assumes any and all obligations of a Subsidiary Guarantor set forth in the Indenture, whether or not such obligations are expressly specified in this Supplemental Indenture. 7 SECTION 3.10 Counterparts. The parties hereto may sign one or more ------------ copies of this Supplemental Indenture in counterparts, all of which together shall constitute one and the same agreement. SECTION 3.11 Headings. The headings of the Articles and the sections -------- in this Guarantee are for convenience of reference only and shall not be deemed to alter or affect the meaning or interpretation of any provisions hereof. SECTION 3.12 The Trustee. The Trustee shall not be responsible in ----------- any manner whatsoever for or in respect of the validity or sufficiency of this Guarantee or for or in respect of the recitals contained herein, all of which recitals are made solely by the Company and each Subsidiary Guarantor. 8 IN WITNESS WHEREOF, the parties hereto have caused this Supplemental Indenture to be duly executed as of the date first above written. NE RESTAURANT COMPANY, INC. By /s/ Dennis D. Pedra ----------------------------- Name: Dennis D. Pedra Title: President BERTUCCI'S, INC. By /s/ Dennis D. Pedra ----------------------------- Name: Dennis D. Pedra Title: President BERTUCCI'S RESTAURANT CORP. By /s/ Dennis D. Pedra ----------------------------- Name: Dennis D. Pedra Title: President BERTUCCI'S OF ANN ARUNDEL COUNTY, INC. By /s/ Dennis D. Pedra ----------------------------- Name: Dennis D. Pedra Title: President 9 BERTUCCI'S OF COLUMBIA, INC. By /s/ Dennis D. Pedra ----------------------------- Name: Dennis D. Pedra Title: President BERTUCCI'S OF BALTIMORE COUNTY, INC. By /s/ Dennis D. Pedra ----------------------------- Name: Dennis D. Pedra Title: President BERTUCCI'S OF BEL AIR, INC. By /s/ Dennis D. Pedra ----------------------------- Name: Dennis D. Pedra Title: President BERTUCCI'S OF WHITE MARSH, INC. By /s/ Dennis D. Pedra ----------------------------- Name: Dennis D. Pedra Title: President BERESTCO, INC. By /s/ Dennis D. Pedra ----------------------------- Name: Dennis D. Pedra Title: President 10 BERTUCCI'S SECURITIES CORP. By /s/ Dennis D. Pedra ----------------------------- Name: Dennis D. Pedra Title: President SAL & VINNIE'S SICILIAN STEAKHOUSE, INC. By /s/ Dennis D. Pedra ----------------------------- Name: Dennis D. Pedra Title: President UNITED STATES TRUST COMPANY OF NEW YORK, as Trustee By /s/ James Nesci ----------------------------- Name: James Nesci Title: Assistant Vice President EX-4.3 9 PURCHASE AGMT DATED 7/13/1998 BY & AMONG NERCO Exhibit 4.3 EXECUTION COPY NE RESTAURANT COMPANY, INC. $100,000,000 10 3/4% Senior Notes due 2008 PURCHASE AGREEMENT July 13, 1998 CHASE SECURITIES INC. BANCBOSTON SECURITIES INC. c/o Chase Securities Inc. 270 Park Avenue, 4th Floor New York, New York 10017 Ladies and Gentlemen: NE Restaurant Company, Inc., a Delaware corporation (the "COMPANY"), proposes to issue and sell $100,000,000 aggregate principal amount of its 10 3/4% Senior Notes due 2008 (the "SECURITIES"), which Securities will be unconditionally guaranteed (the "GUARANTEES"), on a senior unsecured basis, by each Guarantor (as defined below), including, without limitation, Bertucci's Inc. ("BERTUCCI'S" and, together with its subsidiaries, the "BERTUCCI'S GUARANTORS"). The Securities will be issued pursuant to an Indenture to be dated as of July 20, 1998 (the "INDENTURE") among the Company and United States Trust Company of New York, as trustee (the "TRUSTEE"). The Company hereby confirms its agreement with Chase Securities Inc. ("CSI") and BancBoston Securities Inc. (together with CSI, the "INITIAL PURCHASERS") concerning the purchase of the Securities from the Company by the Initial Purchasers. "GUARANTOR" means each subsidiary of the Company (other than (i) a foreign subsidiary, (ii) NERC Limited Partnership or NERC SPE Inc., (iii) NERC SPE II Inc. or (iv) NERC Limited Partnership II) in existence on the date of issuance of the securities and any Restricted Subsidiary (other than (i) a Foreign Subsidiary or (ii) a special purpose entity and/or limited partnership created solely to incur certain indebtedness) created or acquired by the Company after the date of issuance of the Securities. On May 13, 1998, the Company, NERC Acquisition Corp. ("ACQUISITION SUB"), a wholly-owned subsidiary of the Company, and Bertucci's entered into an Agreement and Plan of Merger (the "MERGER AGREEMENT") in order to acquire substantially all of the outstanding capital stock of Bertucci's. Pursuant to the Merger Agreement, Acquisition Sub has offered to purchase (the "TENDER OFFER") all outstanding shares of common stock of Bertucci's (determined on a fully diluted basis and excluding the 430,000 shares currently owned by the Company). Under the Merger Agreement, the Company's purchase of the tendered shares (the "ACQUISITION") is conditioned upon the tender of 90% of Bertucci's common stock (determined on a fully diluted basis and including the Company's 430,000 shares) (the "MINIMUM Condition"). In anticipation of the Acquisition, the Company will establish an escrow account (the "ESCROW Account") to hold the proceeds of the sale of the Securities to the Initial Purchasers, with the release of the proceeds from the Escrow Account to the Company conditioned upon satisfaction of the Minimum Condition. In the event that the Acquisition is not consummated by July 31, 1998, or if the Merger Agreement is terminated prior to such date, the Company will redeem the Securities with the escrowed proceeds plus additional funds. The Securities will be offered and sold to the Initial Purchasers without being registered under the Securities Act of 1933, as amended (the "SECURITIES ACT"), in reliance upon an exemption therefrom. The Company has prepared a preliminary offering memorandum dated June 24, 1998 (the "PRELIMINARY OFFERING MEMORANDUM") and will prepare an offering memorandum dated the date hereof (the "OFFERING MEMORANDUM") setting forth information concerning the Company and the Securities. Copies of the Preliminary Offering Memorandum have been, and copies of the Offering Memorandum will be, delivered by the Company to the Initial Purchasers pursuant to the terms of this Agreement. Any references herein to the Preliminary Offering Memorandum and the Offering Memorandum shall be deemed to include all amendments and supplements thereto, unless otherwise noted. The Company hereby confirms that it has authorized the use of the Preliminary Offering Memorandum and the Offering Memorandum in connection with the offering and resale of the Securities by the Initial Purchasers in accordance with Section 2. Holders of the Securities (including the Initial Purchasers and their direct and indirect transferees) will be entitled to the benefits of an Exchange and Registration Rights Agreement, substantially in the form attached hereto as Annex A (the "REGISTRATION RIGHTS AGREEMENT"), pursuant to which the Company and the Guarantors will agree to file with the Securities and Exchange Commission (the "COMMISSION") (i) a registration statement under the Securities Act (the "EXCHANGE OFFER REGISTRATION STATEMENT") registering an issue of senior notes of the Company which are unconditionally guaranteed on a senior unsecured basis by the Guarantors (the "EXCHANGE SECURITIES") and which are identical in all material respects to the Securities (except that the Exchange Securities will not contain terms with respect to transfer restrictions) and (ii) under certain circumstances, a shelf registration statement pursuant to Rule 415 under the Securities Act (the "SHELF REGISTRATION STATEMENT"). Capitalized terms used but not defined herein shall have the meanings given to such terms in the Offering Memorandum. 1. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF THE COMPANY. The Company represents and warrants to, and agrees with, the Initial Purchasers on and as of the date hereof and the Closing Date (as defined in Section 3) that: (a) Each of the Preliminary Offering Memorandum and the Offering Memorandum, as of its respective date, did not, and on the Closing Date the Offering Memorandum will not, contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; PROVIDED that the Company makes no representation or warranty as to information contained in or omitted from the Preliminary Offering Memorandum or the Offering Memorandum in reliance upon and in conformity with written information relating to the Initial Purchasers furnished to the Company by or on behalf of any Initial Purchaser specifically for use therein (the "INITIAL PURCHASERS' INFORMATION"). (b) Each of the Preliminary Offering Memorandum and the Offering Memorandum, as of its respective date, contains all of the information that, if requested by a prospective purchaser of the Securities, would be required to be provided to such prospective purchaser pursuant to Rule 144A(d)(4) under the Securities Act. (c) Assuming the accuracy of the representations and warranties of the Initial Purchasers contained in Section 2 and their compliance with the agreements set forth therein, it is not necessary, in connection with the issuance and sale of the Securities to the Initial Purchasers and the offer, resale and delivery of the Securities by the Initial Purchasers in the manner contemplated by this Agreement and the Offering Memorandum, to register the Securities under the Securities Act or to qualify the Indenture under the Trust Indenture Act of 1939, as amended (the "TRUST INDENTURE ACT"). (d) Each of the Company and each of its subsidiaries has been duly incorporated and is validly existing as a corporation in good standing under the laws of its jurisdiction of incorporation, is duly qualified to do business and is in good standing as a foreign corporation in each jurisdiction in which its ownership or lease of property or the conduct of its businesses requires such qualification, and has all power and authority necessary to own or hold its respective properties and to conduct the businesses in which it is engaged, except where the failure to so qualify or have such power or authority would not, singularly or in the aggregate, have a material adverse effect on the condition (financial or otherwise), results of operations, business or prospects of the Company and its subsidiaries taken as a whole (a "MATERIAL ADVERSE EFFECT"). (e) The Company has an authorized capitalization as set forth in the Offering Memorandum under the heading "Capitalization"; and all of the outstanding shares of capital stock of the Company have been duly and validly authorized and issued and are fully paid and non- assessable. (f) The Company has full right, power and authority to execute and deliver this Agreement, the Indenture, the Registration Rights Agreement, and the Merger Agreement (collectively, the "TRANSACTION DOCUMENTS") and to perform its obligations hereunder and thereunder; and all corporate action required to be taken for the due and proper authorization, execution and delivery of each of the Transaction Documents and the consummation of the transactions contemplated thereby have been duly and validly taken. (g) This Agreement has been duly authorized, executed and delivered by the Company and constitutes a valid and legally binding agreement of the Company enforceable against the Company in accordance with its terms, except to the extent that such enforceability may be limited by applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws affecting creditors' rights generally, by rights of acceleration, if applicable, and by general equitable principles (whether considered in a proceeding in equity or at law) and except to the extent that the indemnification and contribution provisions thereof may be limited by federal or state securities laws or the public policy underlying such laws or otherwise unenforceable. (h) The Registration Rights Agreement has been duly authorized by the Company and, when duly executed and delivered in accordance with its terms by each of the parties thereto, will constitute a valid and legally binding agreement of the Company enforceable against the Company in accordance with its terms, except to the extent that such enforceability may be limited by applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws affecting creditors' rights generally, by rights of acceleration, if applicable, and by general equitable principles (whether considered in a proceeding in equity or at law) and except to the extent that the indemnification and contribution provisions thereof may be limited by federal or state securities laws or the public policy underlying such laws or otherwise unenforceable. (i) The Indenture has been duly authorized by the Company and, when duly executed and delivered in accordance with its terms by each of the parties thereto, will constitute a valid and legally binding agreement of the Company enforceable against the Company in accordance with its terms, except to the extent that such enforceability may be limited by applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws affecting creditors' rights generally, by rights of acceleration, if applicable, and by general equitable principles (whether considered in a proceeding in equity or at law) and except to the extent that the indemnification and contribution provisions thereof may be limited by federal or state securities laws or the public policy underlying such laws or otherwise unenforceable. On the Closing Date, the Indenture will conform in all material respects to the requirements of the Trust Indenture Act and the rules and regulations of the Commission applicable to an indenture which is qualified thereunder. (j) The Securities have been duly authorized by the Company and, when duly executed, authenticated, issued and delivered as provided in the Indenture and paid for as provided herein, will be duly and validly issued and outstanding and will constitute valid and legally binding obligations of the Company entitled to the benefits of the Indenture and enforceable against the Company in accordance with their terms, except to the extent that such enforceability may be limited by applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws affecting creditors' rights generally, by rights of acceleration, if applicable, and by general equitable principles (whether considered in a proceeding in equity or at law). (k) The Merger Agreement has been duly authorized, executed and delivered by the Company and Acquisition Sub and constitutes a valid and legally binding agreement of the Company and Acquisition Sub enforceable against the Company and Acquisition Sub in accordance with its terms, except to the extent that such enforceability may be limited by applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws affecting creditors' rights generally, by rights of acceleration, if applicable, and by general equitable principles (whether considered in a proceeding in equity or at law) and except to the extent that the indemnification and contribution provisions thereof may be limited by federal or state securities laws or the public policy underlying such laws or otherwise unenforceable. (l) Each Transaction Document conforms in all material respects to the description thereof contained in the Offering Memorandum. (m) The execution, delivery and performance by the Company of each of the Transaction Documents, the issuance, authentication, sale and delivery of the Securities and compliance by the Company with the terms thereof and the consummation by the Company of the transactions contemplated by the Transaction Documents will not conflict with or result in a breach or violation of any of the terms or provisions of, or constitute a default under, or result in the creation or imposition of any lien, charge or encumbrance upon any property or assets of the Company or any of its subsidiaries pursuant to, any material indenture, mortgage, deed of trust, loan agreement or other material agreement or instrument to which the Company or any of its subsidiaries is a party or by which the Company or any of its subsidiaries is bound or to which any of the property or assets of the Company or any of its subsidiaries is subject, nor will such actions result in any violation of the provisions of the charter or by-laws of the Company or any of its subsidiaries or any statute or any judgment, order, decree, rule or regulation of any court or arbitrator or governmental agency or body having jurisdiction over the Company or any of its subsidiaries or any of their properties or assets; and no consent, approval, authorization or order of, or filing or registration with, any such court or arbitrator or governmental agency or body under any such statute, judgment, order, decree, rule or regulation is required for the execution, delivery and performance by the Company of each of the Transaction Documents, the issuance, authentication, sale and delivery of the Securities and compliance by the Company with the terms thereof and the consummation of the transactions contemplated by the Transaction Documents, except for (A) such consents, approvals, authorizations, filings, registrations or qualifications (i) which shall have been obtained or made prior to the Closing Date and (ii) as may be required to be obtained or made under the Securities Act and applicable state securities laws as provided in the Registration Rights Agreement or (B) where the failure to obtain or make any such consent, approval, authorization, order, filing or registration would not be reasonably expected to result in a Material Adverse Effect or any material adverse effect on the ability of the Company to perform its obligations under the Transaction Documents. (n) Arthur Andersen LLP are independent certified public accountants with respect to the Company and its subsidiaries within the meaning of Rule 101 of the Code of Professional Conduct of the American Institute of Certified Public Accountants ("AICPA") and its interpretations and rulings thereunder. The historical financial statements (including the related notes) of the Company contained in the Offering Memorandum comply in all material respects with the requirements applicable to a registration statement on Form S-1 under the Securities Act (except that certain supporting schedules are omitted); such financial statements have been prepared in accordance with generally accepted accounting principles consistently applied throughout the periods covered thereby and fairly present the financial position of the entities purported to be covered thereby at the respective dates indicated and the results of their operations and their cash flows for the respective periods indicated; and the financial information contained in the Offering Memorandum under the headings "Summary--Summary Financial Data of the Company", "Capitalization", "Selected Financial Data of the Company", "Management's Discussion and Analysis of Financial Condition and Results of Operations--of the Company" and "Management of the Company--Executive Compensation" are derived from the accounting records of the Company and its subsidiaries and fairly present the information purported to be shown thereby. The PRO FORMA financial information contained in the Offering Memorandum has been prepared on a basis consistent with the historical financial statements contained in the Offering Memorandum (except for the PRO FORMA adjustments specified therein), includes all material adjustments to the historical financial information required by Rule 11-02 of Regulation S-X under the Securities Act and the Exchange Act to reflect the transactions described in the Offering Memorandum, gives effect to assumptions made on a reasonable basis and fairly presents the historical and proposed transactions contemplated by the Offering Memorandum and the Transaction Documents. The other historical financial and statistical information and data of the Company included in the Offering Memo- randum are, in all material respects, fairly presented. (o) Except as described in the Offering Memorandum there are no legal or governmental proceedings pending to which the Company or any of its subsidiaries is a party or of which any property or assets of the Company or any of its subsidiaries is the subject which, singularly or in the aggregate, if determined adversely to the Company or any of its subsidiaries, would reasonably be expected to have a Material Adverse Effect; and to the best knowledge of the Company, no such proceedings are threatened or contemplated by governmental authorities or threatened by others. (p) No action has been taken and no statute, rule, regulation or order has been enacted, adopted or issued by any governmental agency or body which prevents the issuance of the Securi- ties or suspends the sale of the Securities in any jurisdiction; no injunction, restraining order or order of any nature by any federal or state court of competent jurisdiction has been issued with respect to the Company or any of its subsidiaries which would prevent or suspend the issuance or sale of the Securities or the use of the Preliminary Offering Memorandum or the Offering Memorandum in any jurisdiction; no action, suit or proceeding is pending against or, to the best knowledge of the Company, threatened against or affecting the Company or any of its subsidiaries before any court or arbitrator or any governmental agency, body or official, domestic or foreign, which would reasonably be expected to interfere with or adversely affect the issuance of the Securities or in any manner draw into question the validity or enforceability of any of the Transaction Documents or any action taken or to be taken pursuant thereto; and the Company has complied with any and all requests by any securities authority in any jurisdiction for additional information to be included in the Preliminary Offering Memorandum and the Offering Memorandum. (q) None of the Company or any of its subsidiaries is (i) in violation of its charter or by-laws, (ii) in default, and no event has occurred which, with notice or lapse of time or both, would constitute such a default, in the due performance or observance of any term, covenant or condition contained in any material indenture, mortgage, deed of trust, loan agreement or other material agreement or instrument to which it is a party or by which it is bound or to which any of its property or assets is subject or (iii) in violation of any law, ordinance, governmental rule, regulation or court decree to which it or its property or assets may be subject, other than in the case of clauses (ii) and (iii), any default or violation that would not reasonably be expected to have a Material Adverse Effect. (r) The Company and each of its subsidiaries will possess as of the Closing Date all material licenses, certificates, authorizations and permits issued by, and have made all declarations and filings with, the appropriate federal, state or foreign regulatory agencies or bodies which are necessary or desirable for the ownership of their respective properties or the conduct of their respective businesses as described in the Offering Memorandum, except where the failure to possess or make the same would not, singularly or in the aggregate, have a Material Adverse Effect, and none of the Company or any of its subsidiaries has received notification of any revocation or modification of any such license, certificate, authorization or permit or has any reason to believe that any such license, certificate, authorization or permit will not be renewed in the ordinary course. (s) The Company and each of its subsidiaries have filed all federal, state, local and foreign income and franchise tax returns required to be filed through the date hereof and have paid all taxes due thereon, and no tax deficiency has been determined adversely to the Company or any of its subsidiaries which has had (nor does the Company or any of its subsidiaries have any knowledge of any tax deficiency which, if determined adversely to the Company or any of its subsidiaries, would reasonably be expected to have) a Material Adverse Effect. (t) None of the Company or any of its subsidiaries is (i) an "investment company" or a company "controlled by" an investment company within the meaning of the Investment Company Act of 1940, as amended (the "INVESTMENT COMPANY ACT"), and the rules and regulations of the Commission thereunder or (ii) a "holding company" or a "subsidiary company" of a holding company or an "affiliate" thereof within the meaning of the Public Utility Holding Company Act of 1935, as amended. (u) The Company and each of its subsidiaries maintain a system of internal accounting controls sufficient to provide reasonable assurance that (i) transactions are executed in accordance with management's general or specific authorizations; (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting princi- ples and to maintain asset accountability; (iii) access to assets is permitted only in accordance with management's general or specific authorization; and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with re- spect to any differences. (v) The Company and each of its subsidiaries have insurance covering their respective properties, operations, personnel and businesses, which insurance is in amounts and insures against such losses and risks as are customary in the businesses in which the Company and its subsidiaries are engaged. None of the Company or any of its subsidiaries has received notice from any insurer or agent of such insurer that capital improvements or other expenditures are required or necessary to be made in order to continue such insurance. (w) The Company and each of its subsidiaries own or possess adequate rights to use all material patents, patent applications, trademarks, service marks, trade names, trademark registrations, service mark registrations, copyrights, licenses and know-how (including trade secrets and other unpatented and/or unpatentable proprietary or confidential information, systems or procedures) necessary for the conduct of their respective businesses; and the conduct of their respective businesses will not conflict in any material respect with, and the Company and its subsidiaries have not received any notice of any claim of conflict with, any such rights of others. (x) The Company and each of its subsidiaries have good and marketable title in fee simple to, or have valid rights to lease or otherwise use, all items of real and personal property which are material to the business of the Company and its subsidiaries, in each case free and clear of all liens, encumbrances, claims and defects and imperfections of title except such as (i) do not materially interfere with the use made and proposed to be made of such property by the Company and its subsidiaries or (ii) would not reasonably be expected to have a Material Adverse Effect. (y) No labor disturbance by or dispute with the employees of the Company or any of its subsidiaries exists or, to the best knowledge of the Company, is contemplated or threatened, except for disputes with individual employees, which in the aggregate would not reasonably be expected to have a Material Adverse Effect. (z) No "prohibited transaction" (as defined in Section 406 of the Employee Retirement Income Security Act of 1974, as amended, including the regulations and published interpretations thereunder ("ERISA"), or Section 4975 of the Internal Revenue Code of 1986, as amended from time to time (the "CODE")) or "accumulated funding deficiency" (as defined in Section 302 of ERISA) or any of the events set forth in Section 4043(b) of ERISA (other than events with respect to which the 30-day notice requirement under Section 4043 of ERISA has been waived) has occurred with respect to any employee benefit plan of the Company or any of its subsidiaries which could reasonably be expected to have a Material Adverse Effect; each such employee benefit plan is in compliance in all material respects with applicable law, including ERISA and the Code; the Company and each of its subsidiaries have not incurred and do not expect to incur liability under Title IV of ERISA with respect to the termination of, or withdrawal from, any pension plan for which the Company or any of its subsidiaries would have any liability; and each such pension plan that is intended to be qualified under Section 401(a) of the Code is so qualified in all material respects and nothing has occurred, whether by action or by failure to act, which would reasonably be expected to cause the loss of such qualification. (aa) There has been no storage, generation, transportation, handling, treatment, disposal, discharge, emission or other release of any kind of toxic or other wastes or other hazardous substances by, due to or caused by the Company or any of its subsidiaries (or, to the best knowledge of the Company, any other entity (including any predecessor) for whose acts or omissions the Company or any of its subsidiaries is or could reasonably be expected to be liable) upon any of the property now or previously owned or leased by the Company or any of its subsidiaries, or upon any other property, in violation of any statute or any ordinance, rule, regulation, order, judgment, decree or permit or which would, under any statute or any ordinance, rule (including rule of common law), regulation, order, judgment, decree or permit, give rise to any liability, except for any violation or liability which would not reasonably be expected to have, singularly or in the aggregate with all such violations and liabilities, a Material Adverse Effect; and there has been no disposal, discharge, emission or other release of any kind onto such property or into the environment surrounding such property of any toxic or other wastes or other hazardous substances with respect to which the Company has knowledge, except for any such disposal, discharge, emission or other release of any kind which could not reasonably be expected to have, singularly or in the aggregate with all such discharges and other releases, a Material Adverse Effect. (bb) None of the Company or, to the best knowledge of the Company, any director, officer, agent, employee or other person associated with or acting on behalf of the Company has (i) used any corporate funds for any unlawful contribution, gift, entertainment or other unlawful expense relating to political activity; (ii) made any direct or indirect unlawful payment to any foreign or domestic government official or employee from corporate funds; (iii) violated or is in violation of any provision of the Foreign Corrupt Practices Act of 1977; or (iv) made any bribe, rebate, payoff, influence payment, kickback or other unlawful payment. (cc) On and immediately after the Closing Date, the Company (after giving effect to the issuance of the Securities and to the other transactions related thereto as described in the Offering Memorandum) will be Solvent. As used in this paragraph, the term "Solvent" with respect to any Person means, with respect to a particular date, that on such date (i) the present fair market value (or present fair saleable value) of the assets of such Person is not less than the total amount required to pay the probable liabilities of such Person on its total existing debts and liabilities (including contingent liabilities) as they become absolute and matured, (ii) such Person is able to realize upon its assets and pay its debts and other liabilities, contingent obligations and commitments as they mature and become due in the normal course of business, (iii) assuming the sale of the Securities as contemplated by this Agreement and the Offering Memorandum, such Person is not incurring debts or liabilities beyond its ability to pay as such debts and liabilities mature and (iv) such Person is not engaged in any business or transaction, and is not about to engage in any business or transaction, for which its property would constitute unreasonably small capital after giving due consideration to the prevailing practice in the industry in which such Person is engaged. In computing the amount of such contingent liabilities at any time, it is intended that such liabilities will be computed at the amount that, in the light of all the facts and circumstances existing at such time, represents the amount that can reasonably be expected to become an actual or matured liability. (dd) Except as described in the Offering Memorandum, there are no outstanding subscriptions, rights, warrants, calls or options to acquire, or instruments convertible into or exchangeable for, or agreements or understandings with respect to the sale or issuance of, any shares of capital stock of or other equity or other ownership interest in the Company or any of its subsidiaries. (ee) None of the Company or any of its subsidiaries owns any "margin securities" as that term is defined in Regulations U of the Board of Governors of the Federal Reserve System (the "FEDERAL RESERVE BOARD"), and none of the proceeds of the sale of the Securities will be used, di- rectly or indirectly, for the purpose of purchasing or carrying any margin security, for the purpose of reducing or retiring any indebtedness which was originally incurred to purchase or carry any margin security or for any other purpose which might cause any of the Securities to be considered a "purpose credit" within the meanings of Regulation T, U or X of the Federal Reserve Board. (ff) Except as described in the Offering Memorandum, none of the Company or any of its subsidiaries is a party to any contract, agreement or understanding with any person that would give rise to a valid claim against the Company, or the Initial Purchasers for a brokerage commission, finder's fee or like payment in connection with the offering and sale of the Securities. (gg) The Securities satisfy the eligibility requirements of Rule 144A(d)(3) under the Securities Act. (hh) None of the Company, any of its affiliates or any person acting on its or their behalf has engaged or will engage in any directed selling efforts (as such term is defined in Regulation S under the Securities Act ("REGULATION S")), and all such persons have complied and will comply with the offering restrictions requirement of Regulation S to the extent applicable. (ii) Neither the Company nor any of its affiliates has, directly or through any agent, sold, offered for sale, solicited offers to buy or otherwise negotiated in respect of, any security (as such term is defined in the Securities Act), which is or will be integrated with the sale of the Securities in a manner that would require registration of the Securities under the Securities Act. (jj) None of the Company or any of its affiliates or any other person acting on its or their behalf has engaged, in connection with the offering of the Securities, in any form of general solicitation or general advertising within the meaning of Rule 502(c) under the Securities Act. (kk) There are no securities of the Company registered under the Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT"), or listed on a national securities exchange or quoted in a U.S. automated inter-dealer quotation system. (ll) The Company has not taken and will not take, directly or indirectly, any action prohibited by Regulation M under the Exchange Act in connection with the offering of the Securities. (mm) No forward-looking statement (within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act) contained in the Preliminary Offering Memorandum or the Offering Memorandum has been made or reaffirmed without a reasonable basis or has been disclosed other than in good faith. (nn) None of the Company or any of its subsidiaries does business with the government of Cuba or with any person or affiliate located in Cuba within the meaning of Florida Statutes Section 517.075. (oo) Since the date as of which information is given in the Offering Memorandum, except as otherwise stated therein, (i) there has been no material adverse change or any development involving a prospective material adverse change in the condition, financial or otherwise, or in the earnings, business affairs, management or business prospects of the Company, whether or not arising in the ordinary course of business, (ii) the Company has not incurred any material liability or obligation, direct or contingent, other than in the ordinary course of business, (iii) the Company has not entered into any material transaction other than in the ordinary course of business and (iv) there has not been any change in the capital stock or long-term debt of the Company, or any dividend or distribution of any kind declared, paid or made by the Company on any class of its capital stock. 2. PURCHASE AND RESALE OF THE SECURITIES. (a) On the basis of the representations, warranties and agreements contained herein, and subject to the terms and conditions set forth herein, the Company agrees to issue and sell to each of the Initial Purchasers, severally and not jointly, and each of the Initial Purchasers, severally and not jointly, agrees to purchase from the Company, the principal amount of Securities set forth opposite the name of such Initial Purchaser on Schedule 1 hereto at a purchase price equal to 97% of the principal amount thereof. The Company shall not be obligated to deliver any of the Securities except upon payment for all of the Securities to be purchased as provided herein. (b) The Initial Purchasers have advised the Company that they propose to offer the Securities for resale upon the terms and subject to the conditions set forth herein and in the Offering Memorandum. Each Initial Purchaser, severally and not jointly, represents and warrants to, and agrees with, the Company that (i) it is purchasing the Securities pursuant to a private sale exempt from registration under the Securities Act, (ii) it is not acquiring the Securities with a view to any distribution thereof that would violate the Securities Act or the securities laws of any state of the United States or any other applicable jurisdiction, (iii) it has not solicited offers for, or offered or sold, and will not solicit offers for, or offer or sell, the Securities by means of any form of general solicitation or general advertising within the meaning of Rule 502(c) of Regulation D under the Securities Act ("REGULATION D") or in any manner involving a public offering within the meaning of Section 4(2) of the Securities Act and (iv) it has solicited and will solicit offers for the Securities only from, and has offered or sold and will offer, sell or deliver the Securities, as part of their initial offering, only (A) within the United States to persons whom it reasonably believes to be qualified institutional buyers ("QUALIFIED INSTITUTIONAL BUYERS"), as defined in Rule 144A under the Securities Act ("RULE 144A"), or if any such person is buying for one or more institutional accounts for which such person is acting as fiduciary or agent, only when such person has represented to it that each such account is a Qualified Institutional Buyer to whom notice has been given that such sale or delivery is being made in reliance on Rule 144A and, in each case, in transactions in accordance with Rule 144A and (B) outside the United States to persons other than U.S. persons in reliance on Regulation S. (c) It is understood and acknowledged that upon original issuance thereof, and until such time as the same is no longer required under the applicable requirements of the Act, (1) each of the Securities (and each security issued in exchange therefor or in substitution thereof) issued pursuant to Rule 144A shall bear the following private placement legend on the face thereof: "THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR THE SECURITIES LAWS OF ANY STATE OR OTHER JURISDICTION. NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, SUCH REGISTRATION. THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF AGREES, ON ITS OWN BEHALF AND ON BEHALF OF ANY INVESTOR ACCOUNT FOR WHICH IT HAS PURCHASED SECURITIES, TO OFFER, SELL OR OTHERWISE TRANSFER SUCH SECURITY, PRIOR TO THE DATE (THE "RESALE RESTRICTION TERMINATION DATE") WHICH IS TWO YEARS AFTER THE LATER OF THE ORIGINAL ISSUE DATE HEREOF AND THE LAST DATE ON WHICH THE COMPANY OR ANY AFFILIATE OF THE COMPANY WAS THE OWNER OF THIS SECURITY (OR ANY PREDECESSOR OF SUCH SECURITY), ONLY (A) TO THE COMPANY, (B) PURSUANT TO A REGISTRATION STATEMENT THAT HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C) FOR SO LONG AS THE SECURITIES ARE ELIGIBLE FOR RESALE PURSUANT TO RULE 144A UNDER THE SECURITIES ACT, TO A PERSON IT REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (D) PURSUANT TO OFFERS AND SALES THAT OCCUR OUTSIDE THE UNITED STATES WITHIN THE MEANING OF REGULATION S UNDER THE SECURITIES ACT, (E) TO AN INSTITUTIONAL ACCREDITED INVESTOR WITHIN THE MEANING OF RULE 501(a)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT THAT IS ACQUIRING THE SECURITY FOR ITS OWN ACCOUNT, OR FOR THE ACCOUNT OF SUCH AN INSTITUTIONAL ACCREDITED INVESTOR, IN EACH CASE IN A TRANSACTION INVOLVING A MINIMUM PRINCIPAL AMOUNT OF $250,000 OF SECURITIES, FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TO OR FOR OFFER OR SALE IN CONNECTION WITH ANY DISTRIBUTION IN VIOLATION OF THE SECURITIES ACT, OR (F) PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, SUBJECT TO THE COMPANY'S AND THE TRUSTEE'S RIGHT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER PURSUANT TO CLAUSES (D), (E) AND (F) TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO EACH OF THEM. THIS LEGEND WILL BE REMOVED UPON THE REQUEST OF THE HOLDER AFTER THE RESALE RESTRICTION TERMINATION DATE."; and (2) each of the Securities (and each security issued in exchange therefor or in substitution thereof) issued pursuant to Regulation S shall bear the following private placement legend on the face thereof: "THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES OR TO OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE. BY ITS ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS THAT IT IS NOT A U.S. PERSON NOR IS IT PURCHASING FOR THE ACCOUNT OF A U.S. PERSON AND IS ACQUIRING THIS SECURITY IN AN OFFSHORE TRANSACTION IN ACCORDANCE WITH REGULATION S UNDER THE SECURITIES ACT ("REGULATION S"), (2) BY ITS ACCEPTANCE HEREOF AGREES TO OFFER, SELL OR OTHERWISE TRANSFER SUCH SECURITY, PRIOR TO THE DATE (THE "RESALE RESTRICTION TERMINATION DATE") WHICH IS TWO YEARS AFTER THE LATER OF THE ORIGINAL ISSUE DATE HEREOF AND THE LAST DATE ON WHICH THE COMPANY OR ANY AFFILIATE OF THE COMPANY WAS THE OWNER OF THIS SECURITY (OR ANY PREDECESSOR OF SUCH SECURITY), ONLY (A) TO THE COMPANY, (B) PURSUANT TO A REGISTRATION STATEMENT THAT HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C) FOR SO LONG AS THE SECURITIES ARE ELIGIBLE FOR RESALE PURSUANT TO RULE 144A UNDER THE SECURITIES ACT, TO A PERSON IT REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (D) PURSUANT TO OFFERS AND SALES THAT OCCUR OUTSIDE THE UNITED STATES WITHIN THE MEANING OF REGULATION S, (E) TO AN INSTITUTIONAL ACCREDITED INVESTOR WITHIN THE MEANING OF RULE 501(a)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT THAT IS ACQUIRING THE SECURITY FOR ITS OWN ACCOUNT, OR FOR THE ACCOUNT OF SUCH AN INSTITUTIONAL ACCREDITED INVESTOR, IN EACH CASE IN TRANSACTION INVOLVING A MINIMUM PRINCIPAL AMOUNT OF THE SECURITIES OF $250,000, FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TO OR FOR OFFER OR SALE IN CONNECTION WITH ANY DISTRIBUTION IN VIOLATION OF THE SECURITIES ACT, OR (F) PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, SUBJECT TO THE COMPANY'S AND THE TRUSTEE'S RIGHT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER PURSUANT TO CLAUSES (D), (E) OR (F) TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO EACH OF THEM AND IN THE CASE OF THE FOREGOING CLAUSE (E), A CERTIFICATE OF TRANSFER IN THE FORM APPEARING ON THE OTHER SIDE OF THIS SECURITY IS COMPLETED AND DELIVERED BY THE TRANSFEROR TO THE COMPANY AND THE TRUSTEE. THIS LEGEND WILL BE REMOVED AFTER 40 CONSECUTIVE DAYS BEGINNING ON AND INCLUDING THE LATER OF (A) THE DAY ON WHICH THE SECURITIES ARE OFFERED TO PERSONS OTHER THAN DISTRIBUTORS (AS DEFINED IN REGULATION S) AND (B) THE DATE OF THE CLOSING OF THE ORIGINAL OFFERING. AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION", "UNITED STATES" AND "U.S. PERSON" HAVE THE MEANINGS GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES ACT." (d) In connection with the offer and sale of Securities in reliance on Regulation S, each Initial Purchaser, severally and not jointly, represents, warrants and agrees that: (i) the Securities have not been registered under the Securities Act and may not be offered or sold within the United States or to, or for the account or benefit of, U.S. persons except pursuant to an exemption from, or in transactions not subject to, the registration requirements of the Securities Act; (ii) such Initial Purchaser has offered and sold the Securities, and will offer and sell the Securities, (A) as part of their distribution at any time and (B) otherwise until 40 days after the later of the commencement of the offering of the Securities and the Closing Date, only in accordance with Regulation S or Rule 144A or any other available exemption from registration under the Securities Act; (iii) None of such Initial Purchaser or any of its affiliates or any other person acting on its or their behalf has engaged or will engage in any directed selling efforts as such term is defined in Regulation S with respect to the Securities, and all such persons have complied and will comply with the offering restrictions requirement of Regulation S; (iv) at or prior to the confirmation of sale of any Securities sold in reliance on Regulation S, it will have sent to each distributor, dealer or other person receiving a selling concession, fee or other remuneration that purchase Securities from it during the distribution compliance period a confirmation or notice to substantially the following effect: "The Securities covered hereby have not been registered under the U.S. Securities Act of 1933, as amended (the "Securities Act"), and may not be offered or sold within the United States or to, or for the account or benefit of, U.S. persons (i) as part of their distribution at any time or (ii) otherwise until 40 days after the later of the commencement of the offering of the Securities and the date of original issuance of the Securities, except in accordance with Regulation S or Rule 144A or any other available exemption from registration under the Securities Act. Terms used above have the meanings given to them by Regulation S."; and (v) it has not and will not enter into any contractual arrangement with any distributor with respect to the distribution of the Securities, except with its affiliates or with the prior written consent of the Company. Terms used in this Section 2(d) have the meanings given to them by Regulation S. (e) Each Initial Purchaser, severally and not jointly, represents, warrants and agrees that (i) it has not offered or sold and prior to the date six months after the Closing Date will not offer or sell any Securities to persons in the United Kingdom except to persons whose ordinary activities involve them in acquiring, holding, managing or disposing of investments (as principal or agent) for the purposes of their businesses or otherwise in circumstances which have not resulted and will not result in an offer to the public in the United Kingdom within the meaning of the Public Offers of Securities Regulations 1995; (ii) it has complied and will comply with all applicable provisions of the Financial Services Act 1986 and the Public Offers of Securities Regulations 1995 with respect to anything done by them in relation to the Securities in, from or otherwise involving the United Kingdom; and (iii) it has only issued or passed on and will only issue or pass on in the United Kingdom any document received by it in connection with the issue of the Securities to a person who is of a kind described in Article 11(3) of the Financial Services Act 1986 (Investment Advertisements) (Exemptions) Order 1996 or is a person to whom such document may otherwise lawfully be issued or passed on. (f) Each Initial Purchaser, severally and not jointly, agrees that, prior to or simultaneously with the confirmation of sale by such Initial Purchaser to any purchaser of any of the Securities purchased by such Initial Purchaser from the Company pursuant hereto, such Initial Purchaser shall furnish to that purchaser a copy of the Offering Memorandum (and any amendment or supplement thereto that the Company shall have furnished to such Initial Purchaser prior to the date of such confirmation of sale). In addition to the foregoing, each Initial Purchaser acknowledges and agrees that the Company and, for purposes of the opinions to be delivered to the Initial Purchasers pursuant to Sections 5(d) and (e), counsel for the Company and for the Initial Purchasers, respectively, may rely upon the accuracy of the representations and warranties of the Initial Purchasers and their compliance with their agreements contained in this Section 2, and the Initial Purchasers hereby consent to such reliance. (g) The Company acknowledges and agrees that the Initial Purchasers may sell, subject to the other requirements of this Section 2, Securities to any affiliate of an Initial Purchaser and that any such affiliate may sell Securities purchased by it to an Initial Purchaser. 3. DELIVERY OF AND PAYMENT FOR THE SECURITIES. (a) Delivery of and payment for the Securities shall be made at the offices of Simpson Thacher & Bartlett, New York, New York, or at such other place as shall be agreed upon by the Initial Purchasers and the Company, at 10:00 A.M., New York City time, on July 20, 1998, or at such other time or date, not later than seven full business days thereafter, as shall be agreed upon by the Initial Purchasers and the Company (such date and time of payment and delivery being referred to herein as the "CLOSING DATE"). (b) On the Closing Date, payment of the purchase price for the Securities shall be made to the Company by wire or book-entry transfer of same-day funds to such account or accounts as the Company shall specify prior to the Closing Date or by such other means as the parties hereto shall agree prior to the Closing Date against delivery to the Initial Purchasers of the certificates evidencing the Securities. Time shall be of the essence, and delivery at the time and place specified pursuant to this Agreement is a further condition of the obligations of the Initial Purchasers hereunder. Upon delivery, the Securities shall be in global form, registered in such names and in such denominations as CSI on behalf of the Initial Purchasers shall have requested in writing not less than two full business days prior to the Closing Date. The Company agrees to make one or more global certificates evidencing the Securities available for inspection by CSI on behalf of the Initial Purchasers in New York, New York at least 24 hours prior to the Closing Date. 4. FURTHER AGREEMENTS OF THE COMPANY AND THE GUARANTORS. The Company agrees with each of the Initial Purchasers: (a) to advise the Initial Purchasers promptly and, if requested, confirm such advice in writing, of the happening of any event which makes any statement of a material fact made in the Offering Memorandum untrue or which requires the making of any additions to or changes in the Offering Memorandum (as amended or supplemented from time to time) in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; to advise the Initial Purchasers promptly after the Company obtains knowledge of any order preventing or suspending the use of the Preliminary Offering Memorandum or the Offering Memorandum, of any suspension of the qualification of the Securities for offering or sale in any jurisdiction and of the initiation or threatening of any proceeding for any such purpose; and to use its reasonable best efforts to prevent the issuance of any such order preventing or suspending the use of the Preliminary Offering Memorandum or the Offering Memorandum or suspending any such qualification and, if any such suspension is issued, to obtain the lifting thereof at the earliest possible time; (b) to furnish promptly to each of the Initial Purchasers and counsel for the Initial Purchasers, without charge, as many copies of the Preliminary Offering Memorandum and the Offering Memorandum (and any amendments or supplements thereto) as may be reasonably requested; (c) prior to making any amendment or supplement to the Offering Memorandum, to furnish a copy thereof to each of the Initial Purchasers and counsel for the Initial Purchasers and not to effect any such amendment or supplement to which the Initial Purchasers shall reasonably object by notice to the Company after a reasonable period to review; (d) if, at any time prior to completion of the resale of the Securities by the Initial Purchasers, any event shall occur or condition exist as a result of which it is necessary, in the opinion of counsel for the Initial Purchasers or counsel for the Company, to amend or supplement the Offering Memorandum in order that the Offering Memorandum will not include an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances existing at the time it is delivered to a purchaser, not misleading, or if it is necessary to amend or supplement the Offering Memorandum to comply applicable law, to promptly prepare such amendment or supplement as may be necessary to correct such untrue statement or omission or so that the Offering Memorandum, as so amended or supplemented, will comply with applicable law; (e) for so long as the Securities are outstanding and are "restricted securities" within the meaning of Rule 144(a)(3) under the Securities Act, during any such period in which the Company is not subject to Section 13 or 15(d) of the Exchange Act, to furnish to holders of the Securities and prospective purchasers of the Securities designated by such holders, upon request of such holders or such prospective purchasers, the information that would be required to be delivered if the Company were subject to Section 13 or 15(d) of the Exchange Act (the foregoing agreement being for the benefit of the holders from time to time of the Securities and prospective purchasers of the Securities designated by such holders); (f) for so long as the Securities are outstanding, to furnish to the Initial Purchasers copies of any annual reports, quarterly reports and current reports filed by the Company with the Commission on Forms 10-K, 10-Q and 8-K, or such other similar forms as may be designated by the Commission, and such other documents, reports and information as shall be furnished by the Company to the Trustee or to the holders of the Securities pursuant to the Indenture or the Exchange Act or any rule or regulation of the Commission thereunder; (g) to promptly take from time to time such actions as the Initial Purchasers may reasonably request to qualify the Securities for offering and sale under the securities or Blue Sky laws of such jurisdictions as the Initial Purchasers may designate and to continue such qualifications in effect for so long as required for the resale of the Securities; and to arrange for the determination of the eligibility for investment of the Securities under the laws of such jurisdictions as the Initial Purchasers may reasonably request; PROVIDED that the Company and its subsidiaries shall not be obligated to qualify as foreign corporations in any jurisdiction in which they are not so qualified or to file a general consent to service of process in any jurisdiction; (h) to assist the Initial Purchasers in arranging for the Securities to be designated Private Offerings, Resales and Trading through Automated Linkages ("PORTAL") Market securities in accordance with the rules and regulations adopted by the National Association of Securities Dealers, Inc. ("NASD") relating to trading in the PORTAL Market and for the Securities to be eligible for clearance and settlement through The Depository Trust Company ("DTC"); (i) not to, and to cause its affiliates not to, sell, offer for sale or solicit offers to buy or otherwise negotiate in respect of any security (as such term is defined in the Securities Act) which could be integrated with the sale of the Securities in a manner which would require registration of the Securities under the Securities Act; (j) except following the effectiveness of the Exchange Offer Registration Statement or the Shelf Registration Statement, as the case may be, not to, and to cause its affiliates not to, and not to authorize or knowingly permit any person acting on their behalf to, solicit any offer to buy or offer to sell the Securities by means of any form of general solicitation or general advertising within the meaning of Regulation D or in any manner involving a public offering within the meaning of Section 4(2) of the Securities Act; and not to offer, sell, contract to sell or otherwise dispose of, directly or indirectly, any securities under circumstances where such offer, sale, contract or disposition would cause the exemption afforded by Section 4(2) of the Securities Act to cease to be applicable to the offering and sale of the Securities as contemplated by this Agreement and the Offering Memorandum; (k) for a period of 180 days from the date of the Offering Memorandum, not to offer for sale, sell, contract to sell or otherwise dispose of, directly or indirectly, or file a registration statement for, or announce any offer, sale, contract for sale of or other disposition of any debt securities issued or guaranteed by the Company or any of its subsidiaries (other than the Securities) without the prior written consent of the Initial Purchasers; (l) during the period from the Closing Date until two years after the Closing Date, without the prior written consent of the Initial Purchasers, not to, and not permit any of its affiliates (as defined in Rule 144 under the Securities Act) to, resell any of the Securities that have been reacquired by them, except for Securities purchased by the Company or any of its affiliates and resold in a transaction registered under the Securities Act; (m) not to, for so long as the Securities are outstanding, be or become, or be or become owned by, an open-end investment company, unit investment trust or face-amount certificate company that is or is required to be registered under Section 8 of the Investment Company Act, and to not be or become, or be or become owned by, a closed-end investment company required to be registered, but not registered thereunder; (n) in connection with the offering of the Securities, until CSI on behalf of the Initial Purchasers shall have notified the Company of the completion of the resale of the Securities, not to, and to cause its affiliated purchasers (as defined in Regulation M under the Exchange Act) not to, either alone or with one or more other persons, bid for or purchase, for any account in which it or any of its affiliated purchasers has a beneficial interest, any Securities, or attempt to induce any person to purchase any Securities; and not to, and to cause its affiliated purchasers not to, make bids or purchase for the purpose of creating actual, or apparent, active trading in or of raising the price of the Securities; (o) in connection with the offering of the Securities, to make its officers, employees, independent accountants and legal counsel reasonably available upon request by the Initial Purchasers; (p) to furnish to each of the Initial Purchasers on the date hereof a copy of the independent accountants' report included in the Offering Memorandum signed by the accountants rendering such report; (q) to do and perform all things required to be done and performed by it under this Agreement that are within its control prior to or after the Closing Date, and to use its best efforts to satisfy all conditions precedent on its part to the delivery of the Securities; (r) to not take any action prior to the execution and delivery of the Indenture which, if taken after such execution and delivery, would have violated any of the covenants contained in the Indenture; (s) to not take any action prior to the Closing Date which would require the Offering Memorandum to be amended or supplemented pursuant to Section 4(d); (t) prior to the Closing Date, not to issue any press release or other communication directly or indirectly or hold any press conference with respect to the Company or any Guarantor, its condition, financial or otherwise, or earnings, business affairs or business prospects (except for routine oral marketing communications in the ordinary course of business and consistent with the past practices of the Company and the Guarantors and of which the Initial Purchasers are notified), without the prior written consent of the Initial Purchasers, unless in the judgment of the Company and its counsel, and after notification to the Initial Purchasers, such press release or communication is required by law; and (u) to apply the net proceeds from the sale of the Securities as set forth in the Offering Memorandum under the heading "Use of Proceeds". 5. CONDITIONS OF INITIAL PURCHASERS' OBLIGATIONS. The respective obligations of the Initial Purchasers hereunder are subject to the accuracy, on and as of the date hereof and the Closing Date, of the representations and warranties of the Company contained herein, to the accuracy of the statements of the Company and its officers made in any certificates delivered pursuant hereto, to the performance by the Company of its obligations hereunder, and to each of the following additional terms and conditions: (a) The Offering Memorandum (and any amendments or supplements thereto) shall have been printed and copies distributed to the Initial Purchasers as promptly as practicable on or following the date of this Agreement or at such other date and time as to which the Initial Purchasers may agree; and no stop order suspending the sale of the Securities in any jurisdiction shall have been issued and no proceeding for that purpose shall have been commenced or shall be pending or threatened. (b) None of the Initial Purchasers shall have discovered and disclosed to the Company on or prior to the Closing Date that the Offering Memorandum or any amendment or supplement thereto contains an untrue statement of a fact which, in the opinion of counsel for the Initial Purchasers, is material or omits to state any fact which, in the opinion of such counsel, is material and is required to be stated therein or is necessary to make the statements therein not misleading. (c) All corporate proceedings and other legal matters incident to the authorization, form and validity of each of the Transaction Documents and the Offering Memorandum, and all other legal matters relating to the Transaction Documents and the transactions contemplated thereby, shall be satisfactory in all material respects to the Initial Purchasers, and the Company shall have furnished to the Initial Purchasers all documents and information that they or their counsel may reasonably request to enable them to pass upon such matters. (d) Stroock & Stroock & Lavan LLP, as special counsel to the Company and its subsidiaries, and/or Brown Rudnick Freed & Gesmer, as counsel to the Company and its subsidiaries, shall have furnished to the Initial Purchasers their written opinion(s), as such counsel to the Company, addressed to the Initial Purchasers and dated the Closing Date, in form and substance reasonably satisfactory to the Initial Purchasers, substantially to the effect set forth in Annex B hereto. (e) The Initial Purchasers shall have received from Simpson Thacher & Bartlett, counsel for the Initial Purchasers, such opinion or opinions, dated the Closing Date, with respect to such matters as the Initial Purchasers may reasonably require, and the Company and each Guarantor shall have furnished to such counsel such documents and information as they reasonably request for the purpose of enabling them to pass upon such matters. (f) The Company shall have furnished to the Initial Purchasers a letter (the "INITIAL LETTER") of Arthur Andersen LLP, addressed to the Initial Purchasers and dated the date hereof, in form and substance satisfactory to the Initial Purchasers, substantially to the effect set forth in Annex C hereto. (g) The Company shall have furnished to the Initial Purchasers a letter (the "BRING-DOWN LETTER") of Arthur Andersen LLP, addressed to the Initial Purchasers and dated the Closing Date (i) confirming that they are independent public accountants with respect to the Company and its subsidiaries within the meaning of Rule 101 of the Code of Professional Conduct of the AICPA and its interpretations and rulings thereunder, (ii) stating, as of the date of the Bring-Down Letter (or, with respect to matters involving changes or developments since the respective dates as of which specified financial information is given in the Offering Memorandum, as of a date not more than three business days prior to the date of the Bring-Down Letter), that the conclusions and findings of such accountants with respect to the financial information and other matters covered by the Initial Letter are accurate and (iii) confirming in all material respects the conclusions and findings set forth in the Initial Letter. (h) The Company shall have furnished to the Initial Purchasers a certificate, dated the Closing Date, of its chief executive officer and its chief financial officer stating that (A) such officers have carefully examined the Offering Memorandum, (B) in their opinion, the Offering Memorandum, as of its date, did not include any untrue statement of a material fact and did not omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading, and since the date of the Offering Memorandum, no event has occurred which should have been set forth in a supplement or amendment to the Offering Memorandum so that the Offering Memorandum (as so amended or supplemented) would not include any untrue statement of a material fact and would not omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading and (C) as of the Closing Date, the representations and warranties of the Company in this Agreement are true and correct in all material respects, the Company has complied with all agreements and satisfied all conditions on its part to be performed or satisfied hereunder on or prior to the Closing Date, and subsequent to the date of the most recent financial statements contained in the Offering Memorandum, there has been no material adverse change in the financial position or results of operation of the Company or any of its subsidiaries, or any change, or any development including a prospective change, in or affecting the condition (financial or otherwise), results of operations, business or prospects of the Company and its subsidiaries taken as a whole, except as set forth in the Offering Memorandum. (i) The Initial Purchasers shall have received a counterpart of the Registration Rights Agreement which shall have been executed and delivered by a duly authorized officer of the Company. (j) The Indenture shall have been duly executed and delivered by the Company and the Trustee, and the Securities shall have been duly executed and delivered by the Company and duly authenticated by the Trustee. (k) On or prior to the Closing Date, the Company shall have established the Escrow Account, which shall provide that the proceeds from the sale of the Securities may only be released to the Company if the Minimum Condition has been satisfied, and that in the event that the Merger Agreement is terminated or the Acquisition is not consummated by July 31, 1998, the proceeds from the Escrow Account shall be released to the Trustee for the purpose of redeeming the Securities. (l) The Securities shall have been approved by the NASD for trading in the PORTAL Market. (m) If any event shall have occurred that requires the Company under Section 4(d) to prepare an amendment or supplement to the Offering Memorandum, such amendment or supplement shall have been prepared, the Initial Purchasers shall have been given a reasonable opportunity to comment thereon, and copies thereof shall have been delivered to the Initial Purchasers reasonably in advance of the Closing Date. (n) There shall not have occurred any invalidation of Rule 144A under the Securities Act by any court or any withdrawal or proposed withdrawal of any rule or regulation under the Securities Act or the Exchange Act by the Commission or any amendment or proposed amendment thereof by the Commission which in the judgment of the Initial Purchasers would materially impair the ability of the Initial Purchasers to purchase, hold or effect resales of the Securities as contemplated hereby. (o) Subsequent to the execution and delivery of this Agreement or, if earlier, the dates as of which information is given in the Offering Memorandum (exclusive of any amendment or supplement thereto) and except as set forth in the Offering Memorandum, there shall not have been any change in the capital stock or long-term debt or any change, or any development involving a prospective change, in or affecting the condition (financial or otherwise), results of operations, business or prospects of the Company and its subsidiaries taken as a whole, the effect of which, in any such case described above, is, in the reasonable judgment of the Initial Purchasers, so material and adverse as to make it impracticable or inadvisable to proceed with the sale or delivery of the Securities on the terms and in the manner contemplated by this Agreement and the Offering Memorandum (exclusive of any amendment or supplement thereto). (p) No action shall have been taken and no statute, rule, regulation or order shall have been enacted, adopted or issued by any governmental agency or body which would, as of the Closing Date, prevent the issuance or sale of the Securities; and no injunction, restraining order or order of any other nature by any federal or state court of competent jurisdiction shall have been is- sued as of the Closing Date which would prevent the issuance or sale of the Securities. (q) Subsequent to the execution and delivery of this Agreement (i) no downgrading shall have occurred in the rating accorded the Securities or any of the Company's other debt securities or preferred stock by any "nationally recognized statistical rating organization", as such term is defined by the Commission for purposes of Rule 436(g)(2) of the rules and regulations of the Commission under the Securities Act and (ii) no such organization shall have publicly announced that it has under surveillance or review (other than an announcement with positive implications of a possible upgrading), its rating of the Securities or any of the Company's other debt securities or preferred stock. (r) Subsequent to the execution and delivery of this Agreement there shall not have occurred any of the following: (i) trading in securities generally on the New York Stock Exchange, the American Stock Exchange or the over-the-counter market shall have been suspended or limited, or minimum prices shall have been established on any such exchange or market by the Commission, by any such exchange or by any other regulatory body or governmental authority having jurisdiction, or trading in any securities of the Company on any exchange or in the over-the-counter market shall have been suspended or (ii) any moratorium on commercial banking activities shall have been declared by federal or New York state authorities or (iii) an outbreak or escalation of hostilities or a declaration by the United States of a national emergency or war or (iv) a material adverse change in general economic, political or financial conditions (or the effect of international conditions on the financial markets in the United States shall be such) the effect of which, in the case of this clause (iv), is, in the judgment of the Initial Purchasers, so material and adverse as to make it impracticable or inadvisable to proceed with the sale or the delivery of the Securities on the terms and in the manner contemplated by this Agreement and in the Offering Memorandum (exclusive of any amendment or supplement thereto). All opinions, letters, evidence and certificates mentioned above or elsewhere in this Agreement shall be deemed to be in compliance with the provisions hereof only if they are in form and substance reasonably satisfactory to counsel for the Initial Purchasers. 6. TERMINATION. The obligations of the Initial Purchasers hereunder may be terminated by the Initial Purchasers, in their absolute discretion, by notice given to and received by the Company prior to delivery of and payment for the Securities if, prior to that time, any of the events described in Section 5(m), (n), (o), (p) or (q) shall have occurred and be continuing. 7. DEFAULTING INITIAL PURCHASERS. (a) If, on the Closing Date, any Initial Purchaser defaults in the performance of its obligations under this Agreement, the non-defaulting Initial Purchasers may make arrangements for the purchase of the Securities which such defaulting Initial Purchaser agreed but failed to purchase by other persons satisfactory to the Company and the non-defaulting Initial Purchasers, but if no such arrangements are made within 36 hours after such default, this Agreement shall terminate without liability on the part of the non-defaulting Initial Purchasers, the Company or the Guarantors, except that the Company and the Guarantors will continue to be liable for the payment of expenses to the extent set forth in Sections 8 and 12 and except that the provisions of Sections 8 and 9 shall not terminate and shall remain in effect. As used in this Agreement, the term "Initial Purchasers" includes, for all purposes of this Agreement unless the context otherwise requires, any party not listed in Schedule 1 hereto that, pursuant to this Section 7, purchases Securities which a defaulting Initial Purchaser agreed but failed to purchase. (b) Nothing contained herein shall relieve a defaulting Initial Purchaser of any liability it may have to the Company, the Guarantors or any non-defaulting Initial Purchaser for damages caused by its default. If other persons are obligated or agree to purchase the Securities of a defaulting Initial Purchaser, either the non-defaulting Initial Purchasers or the Company may postpone the Closing Date for up to seven full business days in order to effect any changes that in the opinion of counsel for the Company or counsel for the Initial Purchasers may be necessary in the Offering Memorandum or in any other document or arrangement, and the Company agrees to promptly prepare any amendment or supplement to the Offering Memorandum that effects any such changes. 8. REIMBURSEMENT OF INITIAL PURCHASERS' EXPENSES. If (a) this Agreement shall have been terminated pursuant to Section 6 or 7, (b) the Company shall fail to tender the Securities for delivery to the Initial Purchasers for any reason permitted under this Agreement or (c) the Initial Purchasers shall decline to purchase the Securities for any reason permitted under this Agreement, the Company shall reimburse the Initial Purchasers for such out-of-pocket expenses (including reasonable fees and disbursements of counsel) as shall have been reasonably incurred by the Initial Purchasers in connection with this Agreement and the proposed purchase and resale of the Securities. If this Agreement is terminated pursuant to Section 7 by reason of the default of one or more of the Initial Purchasers, the Company shall not be obligated to reimburse any defaulting Initial Purchaser on account of such expenses. 9. INDEMNIFICATION. (a) The Company and each Guarantor, jointly and severally, shall indemnify and hold harmless each Initial Purchaser, its affiliates, their respective officers, directors, employees, representatives and agents, and each person, if any, who controls any Initial Purchaser within the meaning of the Securities Act or the Exchange Act (collectively referred to for purposes of this Section 9(a) and Section 10 as an Initial Purchaser), from and against any loss, claim, damage or liability, joint or several, or any action in respect thereof (including, without limitation, any loss, claim, damage, liability or action relating to purchases and sales of the Securities), to which that Initial Purchaser may become subject, whether commenced or threatened, under the Securities Act, the Exchange Act, any other federal or state statutory law or regulation, at common law or otherwise, insofar as such loss, claim, damage, liability or action arises out of, or is based upon, (i) any untrue statement or alleged untrue statement of a material fact contained in the Preliminary Offering Memorandum or the Offering Memorandum or in any amendment or supplement thereto or in any information provided by the Company or any Guarantor pursuant to Section 4(e) or (ii) the omission or alleged omission to state therein a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading, and shall reimburse each Initial Purchaser promptly upon demand for any legal or other expenses reasonably incurred by that Initial Purchaser in connection with investigating or defending or preparing to defend against or appearing as a third party witness in connection with any such loss, claim, damage, liability or action as such expenses are incurred; PROVIDED, HOWEVER, that the Company and the Guarantors shall not be liable in any such case to the extent that any such loss, claim, damage, liability or action arises out of, or is based upon, an untrue statement or alleged untrue statement in or omission or alleged omission from any of such documents in reliance upon and in conformity with any Initial Purchasers' Information; and PROVIDED, FURTHER, that with respect to any such untrue statement in or omission from the Preliminary Offering Memorandum, the indemnity agreement contained in this Section 9(a) shall not inure to the benefit of any such Initial Purchaser to the extent that the sale to the person asserting any such loss, claim, damage, liability or action was an initial resale by such Initial Purchaser and any such loss, claim, damage, liability or action of or with respect to such Initial Purchaser results from the fact that both (A) to the extent required by applicable law, a copy of the Offering Memorandum (as then amended or supplemented) was not sent or given to such person at or prior to the written confirmation of the sale of such Securities to such person and (B) the untrue statement in or omission from the Preliminary Offering Memorandum was corrected in the Offering Memorandum unless, in either case, such failure to deliver the Offering Memorandum was a result of non-compliance by the Company or any Guarantor with Section 4(b). (b) Each Initial Purchaser, severally and not jointly, shall indemnify and hold harmless the Company, its affiliates (including the Guarantors), their respective officers, directors, employees, representatives and agents, and each person, if any, who controls the Company within the meaning of the Securities Act or the Exchange Act (collectively referred to for purposes of this Section 9(b) and Section 10 as the Company), from and against any loss, claim, damage or liability, joint or several, or any action in respect thereof, to which the Company or a Guarantor may become subject, whether commenced or threatened, under the Securities Act, the Exchange Act, any other federal or state statutory law or regulation, at common law or otherwise, insofar as such loss, claim, damage, liability or action arises out of, or is based upon, (i) any untrue statement or alleged untrue statement of a material fact contained in the Preliminary Offering Memorandum or the Offering Memorandum or in any amendment or supplement thereto or (ii) the omission or alleged omission to state therein a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading, but in each case only to the extent that the untrue statement or alleged untrue statement or omission or alleged omission was made in reliance upon and in conformity with any Initial Purchasers' Information, and shall reimburse the Company and the Guarantors for any legal or other expenses reasonably incurred by the Company or the Guarantors in connection with investigating or defending or preparing to defend against or appearing as a third party witness in connection with any such loss, claim, damage, liability or action as such expenses are incurred. (c) Promptly after receipt by an indemnified party under this Section 9 of notice of any claim or the commencement of any action, the indemnified party shall, if a claim in respect thereof is to be made against the indemnifying party pursuant to Section 9(a) or 9(b), notify the indemnifying party in writing of the claim or the commencement of that action; PROVIDED, HOWEVER, that the failure to notify the indemnifying party shall not relieve it from any liability which it may have under this Section 9 except to the extent that it has been prejudiced (through the forfeiture of substantive rights or defenses) by such failure; and, PROVIDED, FURTHER, that the failure to notify the indemnifying party shall not relieve it from any liability which it may have to an indemnified party otherwise than under this Section 9. If any such claim or action shall be brought against an indemnified party, and it shall notify the indemnifying party thereof, the indemnifying party shall be entitled to participate therein and, to the extent that it wishes, jointly with any other similarly notified indemnifying party, to assume the defense thereof with counsel reasonably satisfactory to the indemnified party. After notice from the indemnifying party to the indemnified party of its election to assume the defense of such claim or action, the indemnifying party shall not be liable to the indemnified party under this Section 9 for any legal or other expenses subsequently incurred by the indemnified party in connection with the defense thereof other than reasonable costs of investigation; provided, HOWEVER, that an indemnified party shall have the right to employ its own counsel in any such action, but the fees, expenses and other charges of such counsel for the indemnified party will be at the expense of such indemnified party unless (1) the employment of counsel by the indemnified party has been authorized in writing by the indemnifying party, (2) the indemnified party has reasonably concluded (based upon advice of counsel to the indemnified party) that there may be legal defenses available to it or other indemnified parties that are different from or in addition to those available to the indemnifying party, (3) a conflict or potential conflict exists (based upon advice of counsel to the indemnified party) between the indemnified party and the indemnifying party (in which case the indemnifying party will not have the right to direct the defense of such action on behalf of the indemnified party) or (4) the indemnifying party has not in fact employed counsel reasonably satisfactory to the indemnified party to assume the defense of such action within a reasonable time after receiving notice of the commencement of the action, in each of which cases the reasonable fees, disbursements and other charges of counsel will be at the expense of the indemnifying party or parties. It is understood that the indemnifying party or parties shall not, in connection with any proceeding or related proceedings in the same jurisdiction, be liable for the reasonable fees, disbursements and other charges of more than one separate firm of attorneys (in addition to any local counsel) at any one time for all such indemnified party or parties. Each indemnified party, as a condition of the indemnity agreements contained in Sections 9(a) and 9(b), shall use all reasonable efforts to cooperate with the indemnifying party in the defense of any such action or claim. No indemnifying party shall be liable for any settlement of any such action effected without its written consent (which consent shall not be unreasonably withheld), but if settled with its written consent or if there be a final judgment for the plaintiff in any such action, the indemnifying party agrees to indemnify and hold harmless any indemnified party from and against any loss or liability by reason of such settlement or judgment. No indemnifying party shall, without the prior written consent of the indemnified party (which consent shall not be unreasonably withheld), effect any settlement of any pending or threatened proceeding in respect of which any indemnified party is or could have been a party and indemnity could have been sought hereunder by such indemnified party unless such settlement includes an unconditional release of such indemnified party from all liability on claims that are the subject matter of such proceeding. The obligations of the Company, each Guarantor and the Initial Purchasers in this Section 9 and in Section 10 are in addition to any other liability that the Company, any Guarantor or the Initial Purchasers, as the case may be, may otherwise have, including in respect of any breaches of representations, warranties and agreements made herein by any such party. 10. CONTRIBUTION. If the indemnification provided for in Section 9 is unavailable or insufficient to hold harmless an indemnified party under Section 9(a) or 9(b), then each indemnifying party shall, in lieu of indemnifying such indemnified party, contribute to the amount paid or payable by such indemnified party as a result of such loss, claim, damage or liability, or action in respect thereof, (i) in such proportion as shall be appropriate to reflect the relative benefits received by the Company and the Guarantors on the one hand and the Initial Purchasers on the other from the offering of the Securities or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Company and the Guarantors on the one hand and the Initial Purchasers on the other with respect to the statements or omissions that resulted in such loss, claim, damage or liability, or action in respect thereof, as well as any other relevant equitable considerations. The relative benefits received by the Company and the Guarantors on the one hand and the Initial Purchasers on the other with respect to such offering shall be deemed to be in the same proportion as the total net proceeds from the offering of the Securities purchased under this Agreement (before deducting expenses) received by or on behalf of the Company and the Guarantors, on the one hand, and the total discounts and commissions received by the Initial Purchasers with respect to the Securities purchased under this Agreement, on the other, bear to the total gross proceeds from the sale of the Securities under this Agreement, in each case as set forth in the table on the cover page of the Offering Memorandum. The relative fault shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to the Company or a Guarantor or information supplied by the Company or a Guarantor on the one hand or to any Initial Purchasers' Information on the other, the intent of the parties and their relative knowledge, access to information and opportunity to correct or prevent such untrue statement or omission. The Company, the Guarantors and the Initial Purchasers agree that it would not be just and equitable if contributions pursuant to this Section 10 were to be determined by PRO RATA allocation (even if the Initial Purchasers were treated as one entity for such purpose) or by any other method of allocation that does not take into account the equitable considerations referred to herein. The amount paid or payable by an indemnified party as a result of the loss, claim, damage or liability, or action in respect thereof, referred to above in this Section 10 shall be deemed to include, for purposes of this Section 10, any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending or preparing to defend any such action or claim. Notwithstanding the provisions of this Section 10, no Initial Purchaser shall be required to contribute any amount in excess of the amount by which the total discounts and commissions received by such Initial Purchaser with respect to the Securities purchased by it under this Agreement exceeds the amount of any damages which such Initial Purchaser has otherwise paid or become liable to pay by reason of any untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The Initial Purchasers' obligations to contribute as provided in this Section 10 are several in proportion to their respective purchase obligations and not joint. No Party shall be liable for contribution with respect to any action or claim settled without its written consent; PROVIDED, HOWEVER, that such written consent was not unreasonably withheld. 11. PERSONS ENTITLED TO BENEFIT OF AGREEMENT. This Agreement shall inure to the benefit of and be binding upon the Initial Purchasers, the Company and the Guarantors and their respective successors and permitted assigns. This Agreement and the terms and provisions hereof are for the sole benefit of only those persons, except as provided in Sections 9 and 10 with respect to affiliates, officers, directors, employees, representatives, agents and controlling persons of the Company, the Guarantors and the Initial Purchasers and in Section 4(e) with respect to holders and prospective purchasers of the Securities. Nothing in this Agreement is intended or shall be construed to give any person, other than the persons referred to in this Section 11, any legal or equitable right, remedy or claim under or in respect of this Agreement or any provision contained herein. 12. EXPENSES. The Company and the Guarantors agree with the Initial Purchasers to pay (a) the costs incident to the authorization, issuance, sale, preparation and delivery of the Securities and any taxes payable in that connection; (b) the costs incident to the preparation, printing and distribution of the Preliminary Offering Memorandum, the Offering Memorandum and any amendments or supplements thereto; (c) the costs of reproducing and distributing each of the Transaction Documents; (d) the costs incident to the preparation, printing and delivery of the certificates evidencing the Securities, including stamp duties and transfer taxes, if any, payable upon issuance of the Securities; (e) the fees and expenses of the Company's counsel and independent accountants; (f) the fees and expenses of qualifying the Securities under the securities laws of the several jurisdictions as provided in Section 4(g) and of preparing, printing and distributing Blue Sky Memoranda (including related fees and expenses of counsel for the Initial Purchasers); (g) any fees charged by rating agencies for rating the Securities; (h) the fees and expenses of the Trustee and any paying agent (including related fees and expenses of any counsel to such parties); (i) all expenses and application fees incurred in connection with the application for the inclusion of the Securities on the PORTAL Market and the approval of the Securities for book-entry transfer by DTC; and (j) all other costs and expenses incident to the performance of the obligations of the Company and the Guarantors under this Agreement which are not otherwise specifically provided for in this Section 12; PROVIDED, HOWEVER, that except as provided in this Section 12 and Section 8, the Initial Purchasers shall pay their own costs and expenses. 13. SURVIVAL. The respective indemnities, rights of contribution, representations, warranties and agreements of the Company, the Guarantors and the Initial Purchasers contained in this Agreement or made by or on behalf of the Company, the Guarantors or the Initial Purchasers pursuant to this Agreement or any certificate delivered pursuant hereto shall survive the delivery of and payment for the Securities and shall remain in full force and effect, regardless of any termination or cancellation of this Agreement or any investigation made by or on behalf of any of them or any of their respective affiliates, officers, directors, employees, representatives, agents or controlling persons. 14. NOTICES, ETC.. All statements, requests, notices and agreements hereunder shall be in writing, and: (a) if to the Initial Purchasers, shall be delivered or sent by mail or telecopy transmission to Chase Securities Inc., 270 Park Avenue, New York, New York 10017, Attention: Jeffrey Blumin (telecopier no.: (212) 270-0994); or (b) if to the Company, shall be delivered or sent by mail or telecopy transmission to the address of the Company set forth in the Offering Memorandum, Attention: President (telecopier no.: (508) 870-9201); PROVIDED that any notice to an Initial Purchaser pursuant to Section 9(c) shall also be delivered or sent by mail to such Initial Purchaser at its address set forth on the signature page hereof. Any such statements, requests, notices or agreements shall take effect at the time of receipt thereof. The Company and the Guarantors shall be entitled to act and rely upon any request, consent, notice or agreement given or made on behalf of the Initial Purchasers by CSI. 15. DEFINITION OF TERMS. For purposes of this Agreement, (a) the term "business day" means any day on which the New York Stock Exchange, Inc. is open for trading, (b) the term "subsidiary" has the meaning set forth in Rule 405 under the Securities Act and (c) except where otherwise expressly provided, the term "affiliate" has the meaning set forth in Rule 405 under the Securities Act. 16. INITIAL PURCHASERS' INFORMATION. The parties hereto acknowledge and agree that, for all purposes of this Agreement, the Initial Purchasers' Information consists solely of the following information in the Preliminary Offering Memorandum and the Offering Memorandum: (i) the last paragraph on the front cover page concerning the terms of the offering by the Initial Purchasers; (ii) the legend on the inside front cover page concerning over-allotment and trading activities by the Initial Purchasers; and (iii) the statements concerning the Initial Purchasers contained in the second sentence of the ninth paragraph, and in the last two paragraphs under the heading "Plan of Distribution". 17. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. 18. COUNTERPARTS. This Agreement may be executed in one or more counterparts (which may include counterparts delivered by telecopier) and, if executed in more than one counterpart, the executed counterparts shall each be deemed to be an original, but all such counterparts shall together constitute one and the same instrument. 19. AMENDMENTS. No amendment or waiver of any provision of this Agreement, nor any consent or approval to any departure therefrom, shall in any event be effective unless the same shall be in writing and signed by the parties hereto. As soon as practicable after the acquisition by the Company of at least 90% of the outstanding common stock of Bertucci's (determined on a fully diluted basis and including the 430,000 shares currently owned by the Company), this Agreement shall be amended to cause Bertucci's and its subsidiaries to become parties hereto. 20. HEADINGS. The headings herein are inserted for convenience of reference only and are not intended to be part of, or to affect the meaning or interpretation of, this Agreement. If the foregoing is in accordance with your understanding of our agreement, kindly sign and return to us a counterpart hereof, whereupon this instrument will become a binding agreement among the Company and the Initial Purchasers in accordance with its terms. Very truly yours, NE RESTAURANT COMPANY, INC. By /s/ PAUL V. HOAGLAND --------------------------- Name: Paul V. Hoagland Title: Executive Vice President Accepted: CHASE SECURITIES INC. By /s/ THOMAS WALKER ------------------------ Authorized Signatory Address for notices pursuant to Section 9(c): 270 Park Avenue, 40th Floor New York, New York 10017 Attention: Legal Department BANCBOSTON SECURITIES INC. By /s/ STEVE DEMENNA ------------------------ Authorized Signatory Address for notices pursuant to Section 9(c): 100 Federal Street Boston Massachusetts 02110 Attention: Leveraged Finance Department SCHEDULE 1 PRINCIPAL AMOUNT INITIAL PURCHASERS OF SECURITIES Chase Securities Inc. $ 90,000,000 BancBoston Securities Inc. $ 10,000,000 ------------ Total $100,000,000 EX-4.4 10 AMEND #1 TO PURCHASE AGMT DATED 7/21/1998 EXHIBIT 4.4 NE RESTAURANT COMPANY, INC. $100,000,000 10 3/4% Senior Notes due 2008 AMENDMENT NO.1 TO ----------------- PURCHASE AGREEMENT ------------------ July 21, 1998 CHASE SECURITIES INC. BANCBOSTON SECURITIES INC. c/o Chase Securities Inc. 270 Park Avenue, 4th Floor New York, New York 10017 Ladies and Gentlemen: Reference is made to the Purchase Agreement (the "Purchase -------- Agreement"), dated as of July 13, 1998, among NE Restaurant Company, Inc., a - --------- Delaware corporation (the "Company"), Chase Securities Inc. ("CSI") and ------- --- BancBoston Securities Inc. (together with CSI, the "Initial Purchasers"). On ------------------ July 20, 1998, pursuant to the terms of the Purchase Agreement, the Company issued and sold $100,000,000 aggregate principal amount of its 10 3/4% Senior Notes due 2008 (the "Securities"), which Securities are to be unconditionally ---------- guaranteed (the "Guarantees") on a senior unsecured basis by each Guarantor (as ---------- defined below), including, without limitation, Bertucci's Inc. ("Bertucci's" ---------- and, together with its subsidiaries, the "Bertucci's Guarantors"). On July 21, --------------------- 1998, the Company used the proceeds from the sale of the Securities, along with additional funds, to acquire Bertucci's, Inc. ("Bertucci's"), which, along with all of its subsidiaries, shall provide Guarantees for the Notes. The Securities were issued pursuant to an Indenture to be dated as of July 20, 1998 (the "Indenture") among the Company and United States Trust Company of New York, as - ---------- trustee (the "Trustee"), which is being amended pursuant to a Supplemental ------- Indenture, dated the date hereof, among the Company, the Bertucci's Guarantors and the Trustee, for the purpose of adding the Bertucci's Guarantors as parties to the Indenture. "Guarantor" means each subsidiary of the Company (other than --------- (i) a foreign subsidiary, (ii) NERC Limited Partnership or NERC SPE Inc., (iii) NERC SPE II Inc. or (iv) NERC Limited Partnership II) in existence on the date of issuance of the securities and any Restricted Subsidiary (other that (i) a Foreign Subsidiary or (ii) a special purpose entity and/or limited partnership created solely to incur certain indebtedness) created or acquired by the Company after the date of issuance of the securities. Pursuant to Section 19 of the Purchase Agreement, the Company and the Initial Purchasers agreed to amend the Purchase Agreement for the purpose of adding Bertucci's and its subsidiaries as parties thereto and subject to the obligations arising thereunder, including but not limited to Section 9, and entitled to the benefits therefrom. Accordingly, in consideration of the foregoing and for other good and valuable consideration, the receipt of which is hereby acknowledged, the parties hereto agree to amend the Purchase Agreement as follows: 1. Defined Terms. Unless otherwise defined herein, terms which are defined -------------- in the Purchase Agreement and used herein are so used and so defined. 2 2. Addition of Section 2A. The Purchase Agreement is hereby amended to add Section 2A, which reads as follows: 2A. Representations, Warranties and Agreements of the Bertucci's Guarantors. ------------------------------------------------------------------------ The Bertucci's Guarantors represent and warrant to, and agree with, the Initial Purchasers on and as of the date hereof and the Closing Date (as defined in Section 3 of the Purchase Agreement) that: (a) Each of the Preliminary Offering Memorandum and the Offering Memorandum, as of its respective date, did not contain any untrue statement of a material fact with respect to Bertucci's or omit to state a material fact with respect to Bertucci's required to be stated therein or necessary in order to make the statements with respect to Bertucci's therein, in the light of the circumstances under which they were made, not misleading; provided that the Bertucci's Guarantors make no -------- representation or warranty as to information contained in or omitted from the Preliminary Offering Memorandum or the Offering Memorandum in reliance upon and in conformity with written information relating to the Initial Purchasers furnished to the Company by or on behalf of any Initial Purchaser specifically for use therein (the "Initial Purchasers' ------------------ Information"). ----------- (b) Each of the Preliminary Offering Memorandum and the Offering Memorandum, as of its respective date, contains all of the information that, if requested by a prospective purchaser of the Securities, would be required to be provided to such prospective purchaser pursuant to Rule 144A(d)(4) under the Securities Act. (c) Assuming the accuracy of the representations and warranties of the Initial Purchasers contained in Section 2 and their compliance with the agreements set forth therein, it is not necessary, in connection with the issuance and sale of the Securities to the Initial Purchasers and the offer, resale and delivery of the Securities by the Initial Purchasers in the manner contemplated by this Agreement and the Offering Memorandum, to register the Securities under the Securities Act or to qualify the Indenture under the Trust Indenture Act of 1939, as amended (the "Trust Indenture Act"). ------------------- (d) Bertucci's and each of its subsidiaries have been duly incorporated and are validly existing as corporations in good standing under the laws of their respective jurisdictions of incorporation, are duly qualified to do business and are in good standing as foreign corporations in each jurisdiction in which their ownership or lease of property or the conduct of their businesses require such qualification, and have all power and authority necessary to own or hold their properties and to conduct the businesses in which they are engaged, except where the failure to so qualify or have such power or authority would not, singularly or in the aggregate, have a material adverse effect on the condition (financial or otherwise), results of operations, business or prospects of the Company and its subsidiaries taken as a whole (a "Material Adverse Effect"). ----------------------- (e) All of the outstanding shares of capital stock of Bertucci's and its subsidiaries have been duly and validly authorized and issued and are fully paid and non-assessable. (f) Bertucci's has full right, power and authority to execute and deliver this Agreement, the Indenture (as supplemented on the date hereof), the Registration Rights 3 Agreement (as supplemented on the date hereof) and the Merger Agreement (collectively, the "Transaction Documents") and to perform its --------------------- obligations hereunder and thereunder; and all corporate action required to be taken for the due and proper authorization, execution and delivery of each of the Transaction Documents and the consummation of the transactions contemplated thereby have been duly and validly taken. (g) This Agreement has been duly authorized, executed and delivered by Bertucci's and constitutes a valid and legally binding agreement of Bertucci's enforceable against Bertucci's in accordance with its terms, except to the extent that such enforceability may be limited by applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws affecting creditors' rights generally, by rights of acceleration, if applicable, and by general equitable principles (whether considered in a proceeding in equity or at law) and except to the extent that the indemnification and contribution provisions thereof may be limited by federal or state securities laws or the public policy underlying such laws or otherwise unenforceable. (h) The Registration Rights Agreement has been duly authorized by Bertucci's and, when duly executed and delivered in accordance with its terms by each of the parties thereto, will constitute a valid and legally binding agreement of Bertucci's enforceable against Bertucci's in accordance with its terms, except to the extent that such enforceability may be limited by applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws affecting creditors' rights generally, by rights of acceleration, if applicable, and by general equitable principles (whether considered in a proceeding in equity or at law) and except to the extent that the indemnification and contribution provisions thereof may be limited by federal or state securities laws or the public policy underlying such laws or otherwise unenforceable. (i) The Indenture has been duly authorized by Bertucci's and, when duly executed and delivered in accordance with its terms by each of the parties thereto, will constitute a valid and legally binding agreement of Bertucci's enforceable against Bertucci's in accordance with its terms, except to the extent that such enforceability may be limited by applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws affecting creditors' rights generally, by rights of acceleration, if applicable, and by general equitable principles (whether considered in a proceeding in equity or at law) and except to the extent that the indemnification and contribution provisions thereof may be limited by federal or state securities laws or the public policy underlying such laws or otherwise unenforceable. On the date Bertucci's and its subsidiaries become Guarantors, the Indenture will conform in all material respects to the requirements of the Trust Indenture Act and the rules and regulations of the Commission applicable to an indenture which is qualified thereunder. (j) The Guarantees, when provided by Bertucci's and its subsidiaries pursuant to a supplement to the Indenture, will have been duly authorized by Bertucci's and its subsidiaries and will constitute a valid and legally binding obligation of Bertucci's enforceable against Bertucci's in accordance with its terms, except to the extent that such enforceability may be limited by bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws affecting creditors' rights generally, by rights of acceleration, if applicable, and by general equitable principles (whether considered in a proceeding in equity or at law). 4 (k) The Merger Agreement has been duly authorized, executed and delivered by Bertucci's and constitutes a valid and legally binding agreement of Bertucci's enforceable against Bertucci's in accordance with its terms, except to the extent that such enforceability may be limited by applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws affecting creditors' rights generally, by rights of acceleration, if applicable, and by general equitable principles (whether considered in a proceeding in equity or at law) and except to the extent that the indemnification and contribution provisions thereof may be limited by federal or state securities laws or the public policy underlying such laws or otherwise unenforceable. (l) Each Transaction Document conforms in all material respects to the description thereof contained in the Offering Memorandum. (m) The execution, delivery and performance by Bertucci's and its subsidiaries of each of the Transaction Documents to which it is a party, the issuance, authentication, sale and delivery of the Securities and compliance by the Company with the terms thereof and the consummation of the transactions contemplated by the Transaction Documents will not conflict with or result in a breach or violation of any of the terms or provisions of, or constitute a default under, or result in the creation or imposition of any lien, charge or encumbrance upon any property or assets of Bertucci's or its subsidiaries pursuant to, any material indenture, mortgage, deed of trust, loan agreement or other material agreement or instrument to which Bertucci's or its subsidiaries are a party or by which Bertucci's or its subsidiaries are bound or to which any of the property or assets of Bertucci's or its subsidiaries are subject, nor will such actions result in any violation of the provisions of the charter or by-laws of Bertucci's or its subsidiaries or any statute or any judgment, order, decree, rule or regulation of any court or arbitrator or governmental agency or body having jurisdiction over Bertucci's or its subsidiaries or any of their properties or assets; and no consent, approval, authorization or order of, or filing or registration with, any such court or arbitrator or governmental agency or body under any such statute, judgment, order, decree, rule or regulation is required for the execution, delivery and performance by Bertucci's or its subsidiaries of each of the Transaction Documents, the issuance, authentication, sale and delivery of the Securities and compliance by Bertucci's or its subsidiaries with the terms thereof and the consummation of the transactions contemplated by the Transaction Documents, except for (A) if applicable, such consents, approvals, authorizations, filings, registrations or qualifications (i) which shall have been obtained or made prior to the Closing Date and (ii) as may be required to be obtained or made under the Securities Act and applicable state securities laws as provided in the Registration Rights Agreement or (B) where the failure to obtain or make any such consent, approval, authorization, order, filing or registration would not be reasonably expected to result in a Material Adverse Effect or any material adverse effect on the ability of the Company to perform its obligations under the Transaction Documents. (n) Arthur Andersen LLP are independent certified public accountants with respect to Bertucci's and its subsidiaries within the meaning of Rule 101 of the Code of Professional Conduct of the American Institute of Certified Public Accountants ("AICPA") and its ----- interpretations and rulings thereunder. The historical financial statements (including the related notes) of Bertucci's contained in the Offering Memorandum comply in all material respects with the requirements applicable to a registration statement on Form S-1 under the Securities Act (except that certain supporting schedules are omitted); 5 such financial statements have been prepared in accordance with generally accepted accounting principles consistently applied throughout the periods covered thereby and fairly present the financial position of the entities purported to be covered thereby at the respective dates indicated and the results of their operations and their cash flows for the respective periods indicated; and the financial information contained in the Offering Memorandum under the headings "Summary-- Summary Financial Data of Bertucci's", "Selected Financial Data of Bertucci's" and "Management's Discussion and Analysis of Financial Condition and Results of Operations--Bertucci's" are derived from the accounting records of Bertucci's and its subsidiaries and fairly present the information purported to be shown thereby. The other historical financial and statistical information and data included in the Offering Memorandum, and pertaining to Bertucci's are, in all material respects, fairly presented. (o) Except as set forth in the Offering Memorandum there are no legal or governmental proceedings pending to which Bertucci's or any of its subsidiaries is a party or of which any property or assets of Bertucci's or its subsidiaries is the subject which, singularly or in the aggregate, if determined adversely to Bertucci's or its subsidiary, would reasonably be expected to have a Material Adverse Effect; and to the best knowledge of Bertucci's, no such proceedings are threatened or contemplated by governmental authorities or threatened by others. (p) No action has been taken and no statute, rule, regulation or order has been enacted, adopted or issued by any governmental agency or body which prevents the issuance of the Securities or suspends the sale of the Securities in any jurisdiction; no injunction, restraining order or order of any nature by any federal or state court of competent jurisdiction has been issued with respect to Bertucci's or its subsidiaries which would prevent or suspend the issuance or sale of the Securities or the use of the Preliminary Offering Memorandum or the Offering Memorandum in any jurisdiction; no action, suit or proceeding is pending against or, to the best knowledge of Bertucci's, threatened against or affecting Bertucci's or its subsidiaries before any court or arbitrator or any governmental agency, body or official, domestic or foreign, which would reasonably be expected to interfere with or adversely affect the issuance of the Securities or in any manner draw into question the validity or enforceability of any of the Transaction Documents or any action taken or to be taken pursuant thereto; and Bertucci's has complied with any and all requests by any securities authority in any jurisdiction for additional information to be included in the Preliminary Offering Memorandum and the Offering Memorandum. (q) Neither Bertucci's nor any of its subsidiaries is (i) in violation of its charter or by-laws, (ii) in default, and no event has occurred which, with notice or lapse of time or both, would constitute such a default, in the due performance or observance of any term, covenant or condition contained in any material indenture, mortgage, deed of trust, loan agreement or other material agreement or instrument to which it is a party or by which it is bound or to which any of its property or assets is subject or (iii) in violation of any law, ordinance, governmental rule, regulation or court decree to which it or its property or assets may be subject other than in the case of clauses (ii) and (iii), any default or violation that would not reasonably by expected to have a Material Adverse Effect. 6 (r) Bertucci's and its subsidiaries possess all material licenses, certificates, authorizations and permits issued by, and have made all declarations and filings with, the appropriate federal, state or foreign regulatory agencies or bodies which are necessary or desirable for the ownership of their properties or the conduct of their businesses as described in the Offering Memorandum, except where the failure to possess or make the same would not, singularly or in the aggregate, have a Material Adverse Effect, and neither Bertucci's nor any of its subsidiaries have received notification of any revocation or modification of any such license, certificate, authorization or permit or has any reason to believe that any such license, certificate, authorization or permit will not be renewed in the ordinary course. (s) Bertucci's and its subsidiaries have filed all federal, state, local and foreign income and franchise tax returns required to be filed through the date hereof and have paid all taxes due thereon, and no tax deficiency has been determined adversely to Bertucci's or any of its subsidiaries which has had (nor does Bertucci's nor any of its subsidiaries have any knowledge of any tax deficiency which, if determined adversely to Bertucci's or any of its subsidiaries, would reasonably be expected to have) a Material Adverse Effect. (t) Neither Bertucci's nor its subsidiaries is (i) an "investment company" or a company "controlled by" an investment company within the meaning of the Investment Company Act of 1940, as amended (the "Investment Company Act"), and the rules and regulations of the ---------------------- Commission thereunder or (ii) a "holding company" or a "subsidiary company" of a holding company or an "affiliate" thereof within the meaning of the Public Utility Holding Company Act of 1935, as amended. (u) The Company and its subsidiaries each maintain a system of internal accounting controls sufficient to provide reasonable assurance that (i) transactions are executed in accordance with management's general or specific authorizations; (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles and to maintain asset accountability; (iii) access to assets is permitted only in accordance with management's general or specific authorization; and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences. (v) The Company and its subsidiaries each have insurance covering its properties, operations, personnel and businesses, which insurance is in amounts and insures against such losses and risks as are customary in the businesses in which the Company and its subsidiaries are engaged. Neither Bertucci's nor its subsidiaries have received notice from any insurer or agent of such insurer that capital improvements or other expenditures are required or necessary to be made in order to continue such insurance. (w) The Company and its subsidiaries each own or possess adequate rights to use all material patents, patent applications, trademarks, service marks, trade names, trademark registrations, service mark registrations, copyrights, licenses and know-how (including trade secrets and other unpatented and/or unpatentable proprietary or confidential information, systems or procedures) necessary for the conduct of their respective businesses; and the conduct of their respective businesses will not conflict in any material 7 respect with, and Bertucci's and its subsidiaries have not received any notice of any claim of conflict with, any such rights of others. (x) The Company and its subsidiaries each have good and marketable title in fee simple to, or have valid rights to lease or otherwise use, all items of real and personal property which are material to the business of Bertucci's and its subsidiaries, in each case free and clear of all liens, encumbrances, claims and defects and imperfections of title except such as (i) do not materially interfere with the use made and proposed to be made of such property by Bertucci's and its subsidiaries or (ii) would not reasonably be expected to have a Material Adverse Effect. (y) No labor disturbance by or dispute with the employees of the Company or its subsidiaries exists or, to the best knowledge of Bertucci's, is contemplated or threatened, in each case that would be reasonably expected to have a Material Adverse Effect. (z) No "prohibited transaction" (as defined in Section 406 of the Employee Retirement Income Security Act of 1974, as amended, including the regulations and published interpretations thereunder ("ERISA"), or Section 4975 of the Internal Revenue Code of 1986, as ----- amended from time to time (the "Code")) or "accumulated funding ---- deficiency" (as defined in Section 302 of ERISA) or any of the events set forth in Section 4043(b) of ERISA (other than events with respect to which the 30-day notice requirement under Section 4043 of ERISA has been waived) has occurred with respect to any employee benefit plan of Bertucci's or its subsidiaries which would reasonably be expected to have a Material Adverse Effect; each such employee benefit plan is in compliance in all material respects with applicable law, including ERISA and the Code; Bertucci's and its subsidiary have not incurred and do not expect to incur liability under Title IV of ERISA with respect to the termination of, or withdrawal from, any pension plan for which Bertucci's or its subsidiary would have any liability; and each such pension plan that is intended to be qualified under Section 401(a) of the Code is so qualified in all material respects and nothing has occurred, whether by action or by failure to act, which would reasonably be expected to cause the loss of such qualification. (aa) There has been no storage, generation, transportation, handling, treatment, disposal, discharge, emission or other release of any kind of toxic or other wastes or other hazardous substances by, due to or caused by Bertucci's or its subsidiaries (or, to the best knowledge of Bertucci's, any other entity (including any predecessor) for whose acts or omissions Bertucci's or its subsidiary is or could reasonably be expected to be liable) upon any of the property now or previously owned or leased by Bertucci's or any of its subsidiaries, or upon any other property, in violation of any statute or any ordinance, rule, regulation, order, judgment, decree or permit or which would, under any statute or any ordinance, rule (including rule of common law), regulation, order, judgment, decree or permit, give rise to any liability, except for any violation or liability which would not reasonably be expected to have, singularly or in the aggregate with all such violations and liabilities, a Material Adverse Effect; and there has been no disposal, discharge, emission or other release of any kind onto such property or into the environment surrounding such property of any toxic or other wastes or other hazardous substances with respect to which Bertucci's has knowledge, except for any such disposal, discharge, emission or other release of any kind which could not reasonably be expected to have, singularly or in the aggregate with all such discharges and other releases, a Material Adverse Effect. 8 (bb) Neither Bertucci's nor, to the best knowledge of Bertucci's, any director, officer, agent, employee or other person associated with or acting on behalf of Bertucci's has (i) used any corporate funds for any unlawful contribution, gift, entertainment or other unlawful expense relating to political activity; (ii) made any direct or indirect unlawful payment to any foreign or domestic government official or employee from corporate funds; (iii) violated or is in violation of any provision of the Foreign Corrupt Practices Act of 1977; or (iv) made any bribe, rebate, payoff, influence payment, kickback or other unlawful payment. (cc) On and immediately after the closing of the Acquisition, Bertucci's and each of its subsidiaries (after giving effect to the issuance of the Securities and to the other transactions related thereto as described in the Offering Memorandum) will be Solvent. As used in this paragraph, the term "Solvent" means, with respect to a particular date, that on such date (i) the present fair market value (or present fair saleable value) of the assets of Bertucci's or its respective subsidiaries is not less than the total amount required to pay the probable liabilities of Bertucci's and its subsidiaries on their total existing debts and liabilities (including contingent liabilities) as they become absolute and matured, (ii) Bertucci's and its respective subsidiaries are able to realize upon their assets and pay their debts and other liabilities, contingent obligations and commitments as they mature and become due in the normal course of business and (iii) Bertucci's and its subsidiaries are not engaged in any business or transaction, and is not about to engage in any business or transaction, for which its property would constitute unreasonably small capital after giving due consideration to the prevailing practice in the industry in which Bertucci's is engaged. In computing the amount of such contingent liabilities at any time, it is intended that such liabilities will be computed at the amount that, in the light of all the facts and circumstances existing at such time, represents the amount that can reasonably be expected to become an actual or matured liability. (dd) Except as described in the Offering Memorandum, there are no outstanding subscriptions, rights, warrants, calls or options to acquire, or instruments convertible into or exchangeable for, or agreements or understandings with respect to the sale or issuance of, any shares of capital stock of or other equity or other ownership interest in Bertucci's or its subsidiaries. (ee) Neither Bertucci's nor its subsidiaries own any "margin securities" as that term is defined in Regulation U of the Board of Governors of the Federal Reserve System (the "Federal Reserve Board"), --------------------- and none of the proceeds of the sale of the Securities will be used, directly or indirectly, for the purpose of purchasing or carrying any margin security, for the purpose of reducing or retiring any indebtedness which was originally incurred to purchase or carry any margin security or for any other purpose which might cause any of the Securities to be considered a "purpose credit" within the meanings of Regulation T, U or X of the Federal Reserve Board. (ff) Except as described in the Offering Memorandum, neither Bertucci's nor its subsidiaries is a party to any contract, agreement or understanding with any person that would give rise to a valid claim against Bertucci's, its subsidiaries or the Initial Purchasers for a brokerage commission, finder's fee or like payment in connection with the offering and sale of the Securities. 9 (gg) No forward-looking statement (within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act) contained in the Preliminary Offering Memorandum or the Offering Memorandum with respect to Bertucci's has been made or reaffirmed without a reasonable basis or has been disclosed other than in good faith. (hh) Neither Bertucci's nor its subsidiaries do business with the government of Cuba or with any person or affiliate located in Cuba within the meaning of Florida Statutes Section 517.075. (ii) Except as described in the Offering Memorandum, since the date as of which information is given in the Offering Memorandum, except as otherwise stated therein, (i) there has been no material adverse change or any development involving a prospective material adverse change in the condition, financial or otherwise, or in the earnings, business affairs, management or business prospects of Bertucci's, whether or not arising in the ordinary course of business, (ii) Bertucci's and its subsidiaries have not incurred any material liability or obligation, direct or contingent, other than in the ordinary course of business, (iii) Bertucci's and its subsidiaries have not entered into any material transaction other than in the ordinary course of business and (iv) there has not been any change in the capital stock or long-term debt of Bertucci's and its subsidiaries, or any dividend or distribution of any kind declared, paid or made by Bertucci's on any class of its capital stock. 3. Amendment to Section 4. The introductory language of Section 4 is hereby ---------------------- amended to read as follows: "The Company and the Bertucci's Guarantors agree with each of the Initial Purchasers:". 3. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ------------- ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. 4. Counterparts. This Amendment may be executed in one or more counterparts ------------- (which may include counterparts delivered by telecopier) and, if executed in more than one counterpart, the executed counterparts shall each be deemed to be an original, but all such counterparts shall together constitute one and the same instrument. 10 If the foregoing is in accordance with your understanding of our agreement, kindly sign and return to us a counterpart hereof, whereupon this instrument will become a binding agreement among the Company, the Bertucci's Guarantors and the Initial Purchasers in accordance with its terms. Very truly yours, NE RESTAURANT COMPANY, INC. By /s/ Dennis D. Pedra ----------------------------- Name: Dennis D. Pedra Title: President BERTUCCI'S, INC. By /s/ Dennis D. Pedra ----------------------------- Name: Dennis D. Pedra Title: President BERTUCCI'S RESTAURANT CORP. By /s/ Dennis D. Pedra ----------------------------- Name: Dennis D. Pedra Title: President BERTUCCI'S OF ANN ARUNDEL COUNTY, INC. By /s/ Dennis D. Pedra ----------------------------- Name: Dennis D. Pedra Title: President BERTUCCI'S OF COLUMBIA, INC. By /s/ Dennis D. Pedra ----------------------------- Name: Dennis D. Pedra Title: President 11 BERTUCCI'S OF BALTIMORE COUNTY, INC. By /s/ Dennis D. Pedra ----------------------------- Name: Dennis D. Pedra Title: President BERTUCCI'S OF BEL AIR, INC. By /s/ Dennis D. Pedra ----------------------------- Name: Dennis D. Pedra Title: President BERTUCCI'S OF WHITE MARSH, INC. By /s/ Dennis D. Pedra ----------------------------- Name: Dennis D. Pedra Title: President BERESTCO, INC. By /s/ Dennis D. Pedra ----------------------------- Name: Dennis D. Pedra Title: President BERTUCCI'S SECURITIES CORP. By /s/ Dennis D. Pedra ----------------------------- Name: Dennis D. Pedra Title: President SAL & VINNIE'S SICILIAN STEAKHOUSE, INC. By /s/ Dennis D. Pedra ----------------------------- Name: Dennis D. Pedra Title: President 12 Accepted: CHASE SECURITIES INC. By /s/ Jeffrey Blumin ---------------------------- Authorized Signatory BANCBOSTON SECURITIES INC. By /s/ Steve DeMenna ---------------------------- Authorized Signatory EX-4.5 11 EXCHANGE & REG RIGHTS AGMT DATED 7/20/1998 EXHIBIT 4.5 NE RESTAURANT COMPANY, INC. $100,000,000 10 3/4% Senior Notes due 2008 EXCHANGE AND REGISTRATION RIGHTS AGREEMENT ------------------------------------------ July 20, 1998 CHASE SECURITIES INC. BANCBOSTON SECURITIES INC. c/o Chase Securities Inc. 270 Park Avenue, 4th Floor New York, New York 10017 Ladies and Gentlemen: NE Restaurant Company, Inc., a Delaware corporation (the "Company"), ------- proposes to issue and sell to Chase Securities Inc. ("CSI") and BancBoston --- Securities, Inc. (together with CSI, the "Initial Purchasers"), upon the terms ------------------ and subject to the conditions set forth in a purchase agreement dated July 13, 1998 (the "Purchase Agreement"), $100,000,000 aggregate principal ------------------ amount of its 10 3/4% Senior Notes due 2008 (the "Notes"), which Notes will be ----- unconditionally guaranteed (the "Guarantees", and, together with the Notes, the ---------- "Securities"), on a senior unsecured basis, by each Guarantor. The Company ---------- expects to use the proceeds from the sale of the Securities, along with additional proceeds, to fund the acquisition of Bertucci's, Inc. ("Bertucci's"), which, along with all of its subsidiaries, will become parties to this Agreement as soon as practicable after such acquisition. Capitalized terms used but not defined herein shall have the meanings given to such terms in the Purchase Agreement. As an inducement to the Initial Purchasers to enter into the Purchase Agreement and in satisfaction of a condition to the obligations of the Initial Purchasers thereunder, the Company and each Guarantor agrees with the Initial Purchasers, for the benefit of the holders (including the Initial Purchasers) of the Securities, the Exchange Securities (as defined herein) and the Private Exchange Securities (as defined herein) (collectively, the "Holders"), as ------- follows: 1. Registered Exchange Offer. To the extent not prohibited by ------------------------- applicable law or applicable interpretation of the staff the Commission, the Company and the Guarantors shall use their reasonable best efforts to (i) prepare and, not later than 60 days following the date of original issuance of the Securities (the "Issue Date"), file with the Commission a registration ---------- statement (the "Exchange Offer Registration Statement") on an appropriate form ------------------------------------- under the Securities Act with respect to a proposed offer to the Holders of the Securities (the "Registered Exchange Offer") to issue and deliver to such ------------------------- Holders, in exchange for the Securities, a like aggregate principal amount of debt securities of the Company unconditionally guaranteed, on a senior unsecured basis, by the Guarantors (the "Exchange Securities") that are identical in all ------------------- material respects to the Securities, except for the transfer restrictions relating to the Securities, (ii) cause the Exchange Offer Registration Statement to become effective under the Securities 2 Act no later than 135 days after the Issue Date and the Registered Exchange Offer to be consummated no later than 165 days after the Issue Date and (iii) keep the Exchange Offer Registration Statement effective for not less than 20 business days (or longer, if required by applicable law) after the date on which notice of the Registered Exchange Offer is mailed to the Holders (such period being called the "Exchange Offer Registration Period"). The Exchange Securities ---------------------------------- will be issued under the Indenture or an indenture (the "Exchange Securities ------------------- Indenture") among the Company, the Guarantors and the Trustee or such other bank - --------- or trust company that is reasonably satisfactory to the Initial Purchasers, as trustee (the "Exchange Securities Trustee"), such indenture to be identical in --------------------------- all material respects to the Indenture, except for the transfer restrictions relating to the Securities (as described above). Upon the effectiveness of the Exchange Offer Registration Statement, the Company shall as promptly as practicable commence the Registered Exchange Offer, it being the objective of such Registered Exchange Offer to enable each Holder electing to exchange Securities for Exchange Securities (assuming that such Holder (a) is not an affiliate of the Company or an Exchanging Dealer (as defined herein) not complying with the requirements of the next sentence, (b) acquires the Exchange Securities in the ordinary course of such Holder's business and (c) has no arrangements or understandings with any person to participate in the distribution of the Exchange Securities) and to trade such Exchange Securities from and after their receipt without any limitations or restrictions under the Securities Act and without material restrictions under the securities laws of the several states of the United States. The Company, the Guarantors, the Initial Purchasers and each Exchanging Dealer acknowledge that, pursuant to current interpretations by the Commission's staff of Section 5 of the Securities Act, each Holder that is a broker-dealer electing to exchange Securities, acquired for its own account as a result of market-making activities or other trading activities, for Exchange Securities (an "Exchanging Dealer"), ----------------- may be deemed to be an "underwriter" within the meaning of the Securities Act and is required to deliver a prospectus containing substantially the information set forth in Annex A hereto on the cover, in Annex B hereto in the "Exchange Offer Procedures" section and the "Purpose of the Exchange Offer" section and in Annex C hereto in the "Plan of Distribution" section of such prospectus in connection with a sale of any such Exchange Securities received by such Exchanging Dealer pursuant to the Registered Exchange Offer. If, prior to the consummation of the Registered Exchange Offer, any Holder holds any Securities acquired by it that have, or that are reasonably likely to be determined to have, the status of an unsold allotment in an initial distribution, or any Holder is not entitled to participate in the Registered Exchange Offer, the Company shall, upon the request of any such Holder, simultaneously with the delivery of the Exchange Securities in the Registered Exchange Offer, issue and deliver to any such Holder, in exchange for the Securities held by such Holder (the "Private Exchange"), a like aggregate ---------------- principal amount of debt securities of the Company guaranteed by the Guarantors (the "Private Exchange Securities") that are identical in all material respects --------------------------- to the Exchange Securities, except for the transfer restrictions relating to such Private Exchange Securities. The Private Exchange Securities will be issued under the same indenture as the Exchange Securities, and the Company shall use its reasonable best efforts to cause the Private Exchange Securities to bear the same CUSIP number as the Exchange Securities. In connection with the Registered Exchange Offer, the Company and the Guarantors shall: (a) mail to each Holder a copy of the prospectus forming part of the Exchange Offer Registration Statement, together with an appropriate letter of transmittal and related documents; (b) keep the Registered Exchange Offer open for not less than 20 business days (or longer, if required by applicable law) after the date on which notice of the Registered Exchange Offer is mailed to the Holders; 3 (c) utilize the services of a depositary for the Registered Exchange Offer with an address in the Borough of Manhattan, The City of New York; (d) permit Holders to withdraw tendered Securities at any time prior to the close of business, New York City time, on the last business day on which the Registered Exchange Offer shall remain open; and (e) otherwise comply in all respects with all laws that are applicable to the Registered Exchange Offer. As soon as practicable after the close of the Registered Exchange Offer and any Private Exchange, as the case may be, the Company and the Guarantors shall: (a) accept for exchange all Securities tendered and not validly withdrawn pursuant to the Registered Exchange Offer and the Private Exchange; (b) deliver to the Trustee for cancellation all Securities so accepted for exchange; and (c) cause the Trustee or the Exchange Securities Trustee, as the case may be, promptly to authenticate and deliver to each Holder, Exchange Securities or Private Exchange Securities, as the case may be, equal in principal amount to the Securities of such Holder so accepted for exchange. The Company and the Guarantors shall use their reasonable best efforts to keep the Exchange Offer Registration Statement effective and to amend and supplement the prospectus contained therein in order to permit such prospectus to be used by all persons subject to the prospectus delivery requirements of the Securities Act for such period of time as such persons must comply with such requirements in order to resell the Exchange Securities; provided that (i) in -------- the case where such prospectus and any amendment or supplement thereto must be delivered by an Exchanging Dealer, such period shall be the lesser of 180 days and the date on which all Exchanging Dealers have sold all Exchange Securities held by them and (ii) the Company and the Guarantors shall make such prospectus and any amendment or supplement thereto available to any broker-dealer for use in connection with any resale of any Exchange Securities for a period of not less than 180 days after the consummation of the Registered Exchange Offer. The Indenture or the Exchange Securities Indenture (which may be the same document), as the case may be, shall provide that the Securities, the Exchange Securities and the Private Exchange Securities shall vote and consent together on all matters as one class and that none of the Securities, the Exchange Securities or the Private Exchange Securities will have the right to vote or consent as a separate class on any matter. Interest on each Exchange Security and Private Exchange Security issued pursuant to the Registered Exchange Offer and in the Private Exchange will accrue from the last interest payment date on which interest was paid on the Securities surrendered in exchange therefor or, if no interest has been paid on the Securities, from the Issue Date. Each Holder participating in the Registered Exchange Offer shall be required to represent to the Company that at the time of the consummation of the Registered Exchange Offer (i) any Exchange Securities received by such Holder will be acquired in the ordinary course of business, (ii) such Holder will have no arrangements or understanding with any person to participate in the distribution of the Securities or the Exchange Securities within the meaning of the Securities Act and (iii) such Holder is not an affiliate of the Company or, if it is such an affiliate, such Holder will comply with the registration and prospectus delivery requirements of the Securities Act to the extent applicable. 4 Notwithstanding any other provisions hereof, the Company and the Guarantors will ensure that (i) any Exchange Offer Registration Statement and any amendment thereto and any prospectus forming part thereof and any supplement thereto complies in all material respects with the Securities Act and the rules and regulations of the Commission thereunder, (ii) any Exchange Offer Registration Statement and any amendment thereto does not, when it becomes effective, contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading and (iii) any prospectus forming part of any Exchange Offer Registration Statement, and any supplement to such prospectus, does not, as of the consummation of the Registered Exchange Offer, include an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. 2. Shelf Registration. If (i) because of any change in law or ------------------ applicable interpretations thereof by the Commission's staff the Company and the Guarantors are not permitted to effect the Registered Exchange Offer as contemplated by Section 1 hereof, or (ii) for any other reason the Registered Exchange Offer is not consummated within 165 days after the Issue Date, or (iii) any Initial Purchaser so requests with respect to Securities or Private Exchange Securities not eligible to be exchanged for Exchange Securities in the Registered Exchange Offer and held by it following the consummation of the Registered Exchange Offer, or (iv) any Holder so requests because any applicable law or interpretations do not permit such Holder to participate in the Registered Exchange Offer, or (v) any Holder so requests because such Holder participated in the Registered Exchange Offer and did not receive freely transferable Exchange Securities in exchange for tendered Securities, or (vi) the Company so elects, then the following provisions shall apply: (a) The Company and the Guarantors shall use their reasonable best efforts to file as promptly as practicable (but in no event more than 45 days after so required or requested pursuant to this Section 2 unless such 45th day shall be earlier than the 60th day after the Issue Date, in which case, no more than 60 days after the Issue Date) with the Commission, and thereafter shall use their reasonable best efforts to cause to be declared effective, a shelf registration statement on an appropriate form under the Securities Act relating to the offer and sale of the Transfer Restricted Securities by the Holders thereof from time to time in accordance with the methods of distribution set forth in such registration statement (hereafter, a "Shelf Registration ------------------ Statement" and, together with any Exchange Offer Registration Statement, a "Registration Statement"). - ----------------------- (b) The Company and the Guarantors shall use their reasonable best efforts to keep the Shelf Registration Statement continuously effective in order to permit the prospectus forming part thereof to be used by Holders of Transfer Restricted Securities for a period of two years from the Issue Date or such shorter period that will terminate when all the Transfer Restricted Securities covered by the Shelf Registration Statement have been sold pursuant thereto (in any such case, such period being called the "Shelf Registration Period"). The ------------------------- Company and the Guarantors shall be deemed not to have used their reasonable best efforts to keep the Shelf Registration Statement effective during the requisite period if any of them voluntarily takes any action (other than any action permitted by this Agreement in connection with any Suspension (as defined)) that would result in Holders of Transfer Restricted Securities covered thereby not being able to offer and sell such Transfer Restricted Securities during that period, unless such action is required by applicable law. (c) Notwithstanding any other provisions hereof, the Company will ensure that (i) any Shelf Registration Statement and any amendment thereto and any prospectus forming part thereof and any supplement thereto complies in all material respects with the Securities Act and the rules and regulations of the Commission thereunder, (ii) any Shelf Registration Statement and any amendment thereto (in either case, other than with respect to information included therein in reliance upon or in conformity with written information furnished to the Company and the Guarantors by or on behalf of any Holder specifically for use therein (the "Holders' Information")) does not, when it becomes effective, -------------------- contain an untrue statement 5 of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading and (iii) any prospectus forming part of any Shelf Registration Statement, and any supplement to such prospectus (in either case, other than with respect to Holders' Information), does not include an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. 3. Liquidated Damages. (a) The parties hereto agree that the ------------------ Holders of Transfer Restricted Securities will suffer damages if the Company and the Guarantors fail to fulfill its obligations under Section 1 or Section 2, as applicable, and that it would not be feasible to ascertain the extent of such damages. Accordingly, if (i) the applicable Registration Statement is not filed with the Commission on or prior to 60 days after the Issue Date, (ii) the Exchange Offer Registration Statement or the Shelf Registration Statement, as the case may be, is not declared effective within 135 days after the Issue Date (or in the case of a Shelf Registration Statement required to be filed (A) in response to a change in law or the applicable interpretations of Commission's staff, if later, within 45 days after publication of the change in law or interpretation or (B) in the case of clauses (iii), (iv) and (v) of the first paragraph of Article 2, within 45 days of the receipt of such request for such Shelf Registration Statement; provided, however, in each such case under clauses (A) and (B), only to the extent such 45 day period extends such 135 day period), (iii) the Registered Exchange Offer is not consummated on or prior to 165 days after the Issue Date, or (iv) the Shelf Registration Statement is filed and declared effective within 135 days after the Issue Date (or in the case of a Shelf Registration Statement required to be filed (A) in response to a change in law or the applicable interpretations of Commission's staff, if later, within 45 days after publication of the change in law or interpretation or (B) in the case of clauses (iii), (iv) and (v) of the first paragraph of Article 2, within 45 days of the receipt of such request for such Shelf Registration Statement; provided, however, in each such case under clauses (A) and (B), only to the extent such 45 day period extends such 135 day period) but shall thereafter cease to be effective (at any time that the Company and the Guarantors are obligated to maintain the effectiveness thereof) without being succeeded within 45 days by an additional Registration Statement filed and declared effective (each such event referred to in clauses (i) through (iv), a "Registration ------------ Default"; provided, that a Suspension shall not in any event constitute a - ------- Registration Default), the Company will be obligated to pay liquidated damages to each Holder of Transfer Restricted Securities, during the period of one or more such Registration Defaults, in an amount equal to $ 0.192 per week per $1,000 principal amount of Transfer Restricted Securities held by such Holder until (i) the applicable Registration Statement is filed, (ii) the Exchange Offer Registration Statement is declared effective and the Registered Exchange Offer is consummated, (iii) the Shelf Registration Statement is declared effective or (iv) the Shelf Registration Statement again becomes effective, as the case may be. Following the cure of all Registration Defaults, the accrual of liquidated damages will cease. As used herein, the term "Transfer Restricted ------------------- Securities" means (i) each Security until the date on which such Security has - ---------- been exchanged for a freely transferable Exchange Security in the Registered Exchange Offer, (ii) each Security or Private Exchange Security until the date on which it has been effectively registered under the Securities Act and disposed of in accordance with the Shelf Registration Statement or (iii) each Security or Private Exchange Security until the date on which it is distributed to the public pursuant to Rule 144 under the Securities Act or is saleable pursuant to Rule 144(k) under the Securities Act. Notwithstanding anything to the contrary in this Section 3(a), the Company shall not be required to pay liquidated damages to a Holder of Transfer Restricted Securities if such Holder failed to comply with its obligations to make the representations set forth in the second to last paragraph of Section 1 or failed to provide the information required to be provided by it, if any, pursuant to Section 4(n). (b) The Company and the Guarantors shall notify the Trustee and the Paying Agent under the Indenture promptly after the happening of each and every Registration Default. The Company shall pay the liquidated damages due on the Transfer Restricted Securities by depositing with the Paying Agent (which may not be the Company or a Guarantor for these purposes), in trust, for the benefit of the Holders thereof, prior to 10:00 a.m., New York City time, on the next interest payment date specified by the Indenture and the Securities, sums sufficient to pay the liquidated damages then due. The liquidated 6 damages due shall be payable on each interest payment date specified by the Indenture and the Securities to the record holder entitled to receive the interest payment to be made on such date. Each obligation to pay liquidated damages shall be deemed to accrue from and including the date of the applicable Registration Default. (c) The parties hereto agree that the liquidated damages provided for in this Section 3 constitute a reasonable estimate of and are intended to constitute the sole damages that will be suffered by Holders of Transfer Restricted Securities by reason of the failure of (i) the Shelf Registration Statement or the Exchange Offer Registration Statement to be filed, (ii) the Shelf Registration Statement to remain effective or (iii) the Exchange Offer Registration Statement to be declared effective and the Registered Exchange Offer to be consummated, in each case to the extent required by this Agreement. 4. Registration Procedures. In connection with any Registration ----------------------- Statement, the following provisions shall apply: (a) The Company and the Guarantors shall (i) furnish to each Initial Purchaser, prior to the filing thereof with the Commission, a copy of the Registration Statement and each amendment thereof and each supplement, if any, to the prospectus included therein and shall use its reasonable best efforts to reflect in each such document, when so filed with the Commission, such comments as any Initial Purchaser may reasonably propose; (ii) include the information set forth in Annex A hereto on the cover, in Annex B hereto in the "Exchange Offer Procedures" section and the "Purpose of the Exchange Offer" section and in Annex C hereto in the "Plan of Distribution" section of the prospectus forming a part of the Exchange Offer Registration Statement, and include the information set forth in Annex D hereto in the Letter of Transmittal delivered pursuant to the Registered Exchange Offer; and (iii) if requested by any Initial Purchaser, include the information required by Items 507 or 508 of Regulation S-K, as applicable, in the prospectus forming a part of the Exchange Offer Registration Statement. (b) The Company and the Guarantors shall advise each Initial Purchaser, each Exchanging Dealer and the Holders (if applicable) and, if requested by any such person, confirm such advice in writing (which advice pursuant to clauses (ii)-(v) hereof shall be accompanied by an instruction to suspend the use of the prospectus until the requisite changes have been made): (i) when any Registration Statement and any amendment thereto has been filed with the Commission and when such Registration Statement or any post- effective amendment thereto has become effective; (ii) of any request by the Commission for amendments or supplements to any Registration Statement or the prospectus included therein or for additional information; (iii) of the issuance by the Commission of any stop order suspending the effectiveness of any Registration Statement or the initiation of any proceedings for that purpose; (iv) of the receipt by the Company of any notification with respect to the suspension of the qualification of the Securities, the Exchange Securities or the Private Exchange Securities for sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose; and (v) of the happening of any event that requires the making of any changes in any Registration Statement or the prospectus included therein in order that the statements therein are not misleading and do not omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading. 7 (c) The Company and the Guarantors will make every reasonable effort to obtain the withdrawal at the earliest possible time of any order suspending the effectiveness of any Registration Statement. (d) The Company and the Guarantors will furnish to each Holder of Transfer Restricted Securities included within the coverage of any Shelf Registration Statement, without charge, at least one conformed copy of such Shelf Registration Statement and any post-effective amendment thereto, including financial statements and schedules and, if any such Holder so requests in writing, all exhibits thereto (including those, if any, incorporated by reference). (e) The Company and the Guarantors will, during the Shelf Registration Period, promptly deliver to each Holder of Transfer Restricted Securities included within the coverage of any Shelf Registration Statement, without charge, as many copies of the prospectus (including each preliminary prospectus) included in such Shelf Registration Statement and any amendment or supplement thereto as such Holder may reasonably request; and the Company consents to the use of such prospectus or any amendment or supplement thereto by each of the selling Holders of Transfer Restricted Securities in connection with the offer and sale of the Transfer Restricted Securities covered by such prospectus or any amendment or supplement thereto. (f) The Company and the Guarantors will furnish to each Initial Purchaser and each Exchanging Dealer, and to any other Holder who so requests, without charge, at least one conformed copy of the Exchange Offer Registration Statement and any post-effective amendment thereto, including financial statements and schedules and, if any Initial Purchaser or Exchanging Dealer or any such Holder so requests in writing, all exhibits thereto (including those, if any, incorporated by reference). (g) The Company and the Guarantors will, during the Exchange Offer Registration Period or the Shelf Registration Period, as applicable, promptly deliver to each Initial Purchaser, each Exchanging Dealer and such other persons that are required to deliver a prospectus following the Registered Exchange Offer, without charge, as many copies of the final prospectus included in the Exchange Offer Registration Statement or the Shelf Registration Statement and any amendment or supplement thereto as such Initial Purchaser, Exchanging Dealer or other persons may reasonably request; and the Company and each Guarantor consents to the use of such prospectus or any amendment or supplement thereto by any such Initial Purchaser, Exchanging Dealer or other persons, as applicable, as aforesaid. (h) Prior to the effective date of any Registration Statement, the Company and the Guarantors will use their reasonable best efforts to register or qualify, or cooperate with the Holders of Securities, Exchange Securities or Private Exchange Securities included therein and their respective counsel in connection with the registration or qualification of, such Securities, Exchange Securities or Private Exchange Securities for offer and sale under the securities or blue sky laws of such United States jurisdictions as any such Holder reasonably requests in writing and do any and all other acts or things necessary or advisable to enable the offer and sale in such jurisdictions of the Securities, Exchange Securities or Private Exchange Securities covered by such Registration Statement; provided that the Company and each Guarantor will not be -------- required to qualify generally to do business in any jurisdiction where it is not then so qualified or to take any action which would subject it to general service of process or to taxation in any such jurisdiction where it is not then so subject. (i) The Company and the Guarantors will cooperate with the Holders of Securities, Exchange Securities or Private Exchange Securities to facilitate the timely preparation and delivery of certificates representing Securities, Exchange Securities or Private Exchange Securities to be sold pursuant to any Registration Statement free of any restrictive legends and in such denominations and registered in 8 such names as the Holders thereof may request in writing at least two business days prior to any sales of Securities, Exchange Securities or Private Exchange Securities pursuant to such Registration Statement. (j) If any event contemplated by Section 4(b)(ii) through (v) occurs during the period for which the Company and the Guarantors are required to maintain an effective Registration Statement, the Company and the Guarantors will promptly prepare and file with the Commission a post-effective amendment to the Registration Statement or a supplement to the related prospectus or file any other required document so that, as thereafter delivered to purchasers of the Securities, Exchange Securities or Private Exchange Securities from a Holder, the prospectus will not include an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. Notwithstanding anything to the contrary contained in this Agreement, the Company may issue a notice (a "Suspension Notice") to the Holders stating that a Shelf Registration Statement may not be used; a Suspension Notice may be given by the Company pending the announcement of material information by the Company which the Board of Directors of the Company has determined, based upon an opinion of counsel, would be required to be disclosed in such Registration Statement in order to make the statements therein not misleading, and may issue any Suspension Notice suspending use of the Shelf Registration Statement required under applicable securities laws to be issued (a "Suspension"). In the ---------- event and to the extent that the aggregate number of days in any consecutive twelve-month period for which all such Suspension Notices are issued and effective exceeds 45 days in the aggregate, then the Company will be obligated to pay liquidated damages to each Holder of Transfer Restricted Securities, during such period of one or more such Suspensions, in an amount equal to $0.192 per week per $1,000 principal amount of Transfer Restricted Securities held by such Holder. (k) Not later than the effective date of the applicable Registration Statement, the Company and the Guarantors will provide a CUSIP number for the Securities, the Exchange Securities and the Private Exchange Securities, as the case may be, and provide the applicable trustee with printed certificates for the Securities, the Exchange Securities or the Private Exchange Securities, as the case may be, in a form eligible for deposit with The Depository Trust Company. (l) The Company and the Guarantors will comply with all applicable rules and regulations of the Commission and will make generally available to its security holders as soon as practicable after the effective date of the applicable Registration Statement an earning statement satisfying the provisions of Section 11(a) of the Securities Act; provided that in no event shall such -------- earning statement be delivered later than 45 days after the end of a 12-month period (or 90 days, if such period is a fiscal year) beginning with the first month of the Company's first fiscal quarter commencing after the effective date of the applicable Registration Statement, which statement shall cover such 12- month period. (m) The Company and the Guarantors will cause the Indenture or the Exchange Securities Indenture, as the case may be, to be qualified under the Trust Indenture Act as required by applicable law in a timely manner. (n) The Company and the Guarantors may require each Holder of Transfer Restricted Securities to be registered pursuant to any Shelf Registration Statement to furnish to the Company and the Guarantors such information concerning the Holder and the distribution of such Transfer Restricted Securities as the Company and the Guarantors may from time to time reasonably require for inclusion in such Shelf Registration Statement, and the Company and the Guarantors may exclude from such registration the Transfer Restricted Securities of any Holder that fails to furnish such information within a reasonable time after receiving such request. Each Holder of Transfer Restricted Securities as to which any Shelf Registration Statement is being effected agrees by acquisition of such Transfer Restricted Securities to furnish promptly to the Company all information required to be disclosed in order to make the information previously furnished to the Company by such Holder not materially misleading. 9 (o) In the case of a Shelf Registration Statement, each Holder of Transfer Restricted Securities to be registered pursuant thereto agrees by acquisition of such Transfer Restricted Securities that, upon receipt of any notice from the Company pursuant to Section 4(b)(ii) through (v) or upon receipt of a Suspension Notice, such Holder will discontinue disposition of such Transfer Restricted Securities until such Holder's receipt of copies of the supplemental or amended prospectus contemplated by Section 4(j) or until advised in writing (the "Advice") by the Company and the Guarantors that the use of the ------ applicable prospectus may be resumed. If the Company and the Guarantors shall give any notice under Section 4(b)(ii) through (v) or give any Suspension Notice during the period that the Company is required to maintain an effective Registration Statement (the "Effectiveness Period"), such Effectiveness Period -------------------- shall be extended by the number of days during such period from and including the date of the giving of such notice or Suspension Notice, as the case may be, to and including the date when each seller of Transfer Restricted Securities covered by such Registration Statement shall have received (x) the copies of the supplemental or amended prospectus contemplated by Section 4(j) (if an amended or supplemental prospectus is required) or (y) the Advice (if no amended or supplemental prospectus is required). (p) In the case of a Shelf Registration Statement, the Company and the Guarantors shall enter into such customary agreements (including, if requested, an underwriting agreement in customary form) and take all such other action, if any, as Holders of a majority in aggregate principal amount of the Securities, Exchange Securities and Private Exchange Securities being sold or the managing underwriters (if any) shall reasonably request in order to facilitate any disposition of Securities, Exchange Securities or Private Exchange Securities pursuant to such Shelf Registration Statement. (q) In the case of a Shelf Registration Statement, the Company and the Guarantors shall (i) make reasonably available for inspection by a representative of, and Special Counsel (as defined below) acting for, Holders of a majority in aggregate principal amount of the Securities, Exchange Securities and Private Exchange Securities being sold and any underwriter participating in any disposition of Securities, Exchange Securities or Private Exchange Securities pursuant to such Shelf Registration Statement, all relevant financial and other records, pertinent corporate documents and properties of the Company and their subsidiaries and (ii) use their reasonable best efforts to have their officers, directors, employees, accountants and counsel supply all relevant information reasonably requested by such representative, Special Counsel or any such underwriter (an "Inspector") in connection with such Shelf Registration --------- Statement. (r) In the case of a Shelf Registration Statement, the Company and the Guarantors shall, if requested by Holders of a majority in aggregate principal amount of the Securities, Exchange Securities and Private Exchange Securities being sold, their Special Counsel or the managing underwriters (if any) in connection with such Shelf Registration Statement, use their reasonable best efforts to cause (i) their counsel to deliver an opinion relating to the Shelf Registration Statement and the Securities, Exchange Securities or Private Exchange Securities, as applicable, in customary form, (ii) their officers to execute and deliver all customary documents and certificates requested by Holders of a majority in aggregate principal amount of the Securities, Exchange Securities and Private Exchange Securities being sold, their Special Counsel or the managing underwriters (if any) and (iii) their independent public accountants to provide a comfort letter in customary form, subject to receipt of appropriate documentation as contemplated, and only if permitted, by Statement of Auditing Standards No. 72. 5. Registration Expenses. The Company and the Guarantors will bear --------------------- all expenses incurred in connection with the performance of their obligations under Sections 1, 2, 3 and 4 and the Company and the Guarantors will reimburse the Initial Purchasers and the Holders for the reasonable fees and disbursements of one firm of attorneys (in addition to any local counsel) chosen by the Holders of a majority in aggregate principal amount of the Securities, the Exchange Securities and the Private Exchange Securities to be sold pursuant to each Registration Statement (the "Special Counsel") acting for the Initial --------------- Purchasers or Holders in connection therewith. 10 6. Indemnification. (a) In the event of a Shelf Registration --------------- Statement or in connection with any prospectus delivery pursuant to an Exchange Offer Registration Statement by an Initial Purchaser or Exchanging Dealer, as applicable, the Company and the Guarantors shall indemnify and hold harmless each Holder (including, without limitation, any such Initial Purchaser or Exchanging Dealer), their affiliates, their respective officers, directors, employees, representatives and agents, and each person, if any, who controls such Holder within the meaning of the Securities Act or the Exchange Act (collectively referred to for purposes of this Section 6 and Section 7 as a Holder) from and against any loss, claim, damage or liability, joint or several, or any action in respect thereof (including, without limitation, any loss, claim, damage, liability or action relating to purchases and sales of Securities, Exchange Securities or Private Exchange Securities), to which that Holder may become subject, whether commenced or threatened, under the Securities Act, the Exchange Act, any other federal or state statutory law or regulation, at common law or otherwise, insofar as such loss, claim, damage, liability or action arises out of, or is based upon, (i) any untrue statement or alleged untrue statement of a material fact contained in any such Registration Statement or any prospectus forming part thereof or in any amendment or supplement thereto or (ii) the omission or alleged omission to state therein a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading, and shall reimburse each Holder promptly upon demand for any legal or other expenses reasonably incurred by that Holder in connection with investigating or defending or preparing to defend against or appearing as a third party witness in connection with any such loss, claim, damage, liability or action as such expenses are incurred; provided, however, that the Company and -------- ------- the Guarantors shall not be liable in any such case to the extent that any such loss, claim, damage, liability or action arises out of, or is based upon, an untrue statement or alleged untrue statement in or omission or alleged omission from any of such documents in reliance upon and in conformity with any Holders' Information; and provided, further, that with respect to any such untrue -------- ------- statement in or omission from any related preliminary prospectus, the indemnity agreement contained in this Section 6(a) shall not inure to the benefit of any Holder from whom the person asserting any such loss, claim, damage, liability or action received Securities, Exchange Securities or Private Exchange Securities to the extent that such loss, claim, damage, liability or action of or with respect to such Holder results from the fact that both (A) a copy of the final prospectus (as then amended or supplemented) was not sent or given to such person at or prior to the written confirmation of the sale of such Securities, Exchange Securities or Private Exchange Securities to such person and (B) the untrue statement in or omission from the related preliminary prospectus was corrected in the final prospectus unless, in either case, such failure to deliver the final prospectus was a result of non-compliance by the Company or a Guarantor with Section 4(d), 4(e), 4(f) or 4(g). (b) In the event of a Shelf Registration Statement, each Holder shall indemnify and hold harmless the Company, its affiliates (including the Guarantors), their respective officers, directors, employees, representatives and agents, and each person, if any, who controls the Company within the meaning of the Securities Act or the Exchange Act (collectively referred to for purposes of this Section 6(b) and Section 7 as the Company), from and against any loss, claim, damage or liability, joint or several, or any action in respect thereof, to which the Company or a Guarantor may become subject, whether commenced or threatened, under the Securities Act, the Exchange Act, any other federal or state statutory law or regulation, at common law or otherwise, insofar as such loss, claim, damage, liability or action arises out of, or is based upon, (i) any untrue statement or alleged untrue statement of a material fact contained in any such Registration Statement or any prospectus forming part thereof or in any amendment or supplement thereto or (ii) the omission or alleged omission to state therein a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading, but in each case only to the extent that the untrue statement or alleged untrue statement or omission or alleged omission was made in reliance upon and in conformity with any Holders' Information furnished to the Company and the Guarantors by such Holder, and shall reimburse the Company and the Guarantors for any legal or other expenses reasonably incurred by the Company and the Guarantors in connection with investigating or defending or preparing to defend against or appearing as a third party witness in connection with any such loss, claim, damage, liability or action as 11 such expenses are incurred; provided, however, that no such Holder shall be -------- ------- liable for any indemnity claims hereunder in excess of the amount of net proceeds received by such Holder from the sale of Securities, Exchange Securities or Private Exchange Securities pursuant to such Shelf Registration Statement. (c) Promptly after receipt by an indemnified party under this Section 6 of notice of any claim or the commencement of any action, the indemnified party shall, if a claim in respect thereof is to be made against the indemnifying party pursuant to Section 6(a) or 6(b), notify the indemnifying party in writing of the claim or the commencement of that action; provided, -------- however, that the failure to notify the indemnifying party shall not relieve it - ------- from any liability which it may have under this Section 6 except to the extent that it has been prejudiced (through the forfeiture of substantive rights or defenses) by such failure; and provided, further, that the failure to notify the -------- ------- indemnifying party shall not relieve it from any liability which it may have to an indemnified party otherwise than under this Section 6. If any such claim or action shall be brought against an indemnified party, and it shall notify the indemnifying party thereof, the indemnifying party shall be entitled to participate therein and, to the extent that it wishes, jointly with any other similarly notified indemnifying party, to assume the defense thereof with counsel reasonably satisfactory to the indemnified party. After notice from the indemnifying party to the indemnified party of its election to assume the defense of such claim or action, the indemnifying party shall not be liable to the indemnified party under this Section 6 for any legal or other expenses subsequently incurred by the indemnified party in connection with the defense thereof other than the reasonable costs of investigation; provided, however, -------- ------- that an indemnified party shall have the right to employ its own counsel in any such action, but the fees, expenses and other charges of such counsel for the indemnified party will be at the expense of such indemnified party unless (1) the employment of counsel by the indemnified party has been authorized in writing by the indemnifying party, (2) the indemnified party has reasonably concluded (based upon advice of counsel to the indemnified party) that there may be legal defenses available to it or other indemnified parties that are different from or in addition to those available to the indemnifying party, (3) a conflict or potential conflict exists (based upon advice of counsel to the indemnified party) between the indemnified party and the indemnifying party (in which case the indemnifying party will not have the right to direct the defense of such action on behalf of the indemnified party) or (4) the indemnifying party has not in fact employed counsel reasonably satisfactory to the indemnified party to assume the defense of such action within a reasonable time after receiving notice of the commencement of the action, in each of which cases the reasonable fees, disbursements and other charges of counsel will be at the expense of the indemnifying party or parties. It is understood that the indemnifying party or parties shall not, in connection with any proceeding or related proceedings in the same jurisdiction, be liable for the reasonable fees, disbursements and other charges of more than one separate firm of attorneys (in addition to any local counsel) at any one time for all such indemnified party or parties. Each indemnified party, as a condition of the indemnity agreements contained in Sections 6(a) and 6(b), shall use all reasonable efforts to cooperate with the indemnifying party in the defense of any such action or claim. No indemnifying party shall be liable for any settlement of any such action effected without its written consent (which consent shall not be unreasonably withheld), but if settled with its written consent or if there be a final judgment for the plaintiff in any such action, the indemnifying party agrees to indemnify and hold harmless any indemnified party from and against any loss or liability by reason of such settlement or judgment. No indemnifying party shall, without the prior written consent of the indemnified party (which consent shall not be unreasonably withheld), effect any settlement of any pending or threatened proceeding in respect of which any indemnified party is or could have been a party and indemnity could have been sought hereunder by such indemnified party, unless such settlement includes an unconditional release of such indemnified party from all liability on claims that are the subject matter of such proceeding. 7. Contribution. If the indemnification provided for in Section 6 is ------------ unavailable or insufficient to hold harmless an indemnified party under Section 6(a) or 6(b), then each indemnifying party shall, in lieu of indemnifying such indemnified party, contribute to the amount paid or payable by such indemnified party as a result of such loss, claim, damage or liability, or action in respect thereof, (i) in such proportion 12 as shall be appropriate to reflect the relative benefits received by the Company and the Guarantors from the offering and sale of the Securities, on the one hand, and a Holder with respect to the sale by such Holder of Securities, Exchange Securities or Private Exchange Securities, on the other, or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Company and the Guarantors on the one hand and such Holder on the other with respect to the statements or omissions that resulted in such loss, claim, damage or liability, or action in respect thereof, as well as any other relevant equitable considerations. The relative benefits received by the Company and the Guarantors on the one hand and a Holder on the other with respect to such offering and such sale shall be deemed to be in the same proportion as the total net proceeds from the offering of the Securities (before deducting expenses) received by or on behalf of the Company and the Guarantors as set forth in the table on the cover of the Offering Memorandum, on the one hand, bear to the total proceeds received by such Holder with respect to its sale of Securities, Exchange Securities or Private Exchange Securities, on the other. The relative fault shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to the Company or a Guarantor or information supplied by the Company or a Guarantor on the one hand, or to any Holders' Information supplied by such Holder on the other, the intent of the parties and their relative knowledge, access to information and opportunity to correct or prevent such untrue statement or omission. The parties hereto agree that it would not be just and equitable if contributions pursuant to this Section 7 were to be determined by pro rata allocation or by any other method of allocation that does not take into account the equitable considerations referred to herein. The amount paid or payable by an indemnified party as a result of the loss, claim, damage or liability, or action in respect thereof, referred to above in this Section 7 shall be deemed to include, for purposes of this Section 7, any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending or preparing to defend any such action or claim. Notwithstanding the provisions of this Section 7, an indemnifying party that is a Holder of Securities, Exchange Securities or Private Exchange Securities shall not be required to contribute any amount in excess of the amount by which the total price at which the Securities, Exchange Securities or Private Exchange Securities sold by such indemnifying party to any purchaser exceeds the amount of any damages which such indemnifying party has otherwise paid or become liable to pay by reason of any untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. No Party shall be liable for contribution with respect to any action or claim settled without its written consent; provided, -------- however, that such written consent was not unreasonably withheld. - ------- 8. Rules 144 and 144A. The Company shall use its reasonable best efforts ------------------ to file the reports required to be filed by it under the Securities Act and the Exchange Act in a timely manner and, if at any time the Company is not required to file such reports, it will, upon the written request of any Holder of Transfer Restricted Securities, make publicly available other information as required by, and so long as necessary to permit sales of such Holder's securities pursuant to, Rules 144 and 144A. The Company and each Guarantor covenants that it will take such further action as any Holder of Transfer Restricted Securities may reasonably request, all to the extent required from time to time to enable such Holder to sell Transfer Restricted Securities without registration under the Securities Act within the limitation of the exemptions provided by Rules 144 and 144A (including, without limitation, the requirements of Rule 144A(d)(4)). Upon the written request of any Holder of Transfer Restricted Securities, the Company and the Guarantors shall deliver to such Holder a written statement as to whether they have complied with such requirements. Notwithstanding the foregoing, nothing in this Section 8 shall be deemed to require the Company or a Guarantor to register any of its securities pursuant to the Exchange Act. 9. Underwritten Registrations. If any of the Transfer Restricted -------------------------- Securities covered by any Shelf Registration Statement are to be sold in an underwritten offering, the investment banker or investment bankers and manager or managers that will administer the offering will be selected by the Holders of a 13 majority in aggregate principal amount of such Transfer Restricted Securities included in such offering, subject to the consent of the Company and the Guarantors (which shall not be unreasonably withheld or delayed), and, notwithstanding anything else herein to the contrary, such Holders shall be responsible for all underwriting commissions and discounts in connection therewith. No person may participate in any underwritten registration hereunder unless such person (i) agrees to sell such person's Transfer Restricted Securities on the basis reasonably provided in any underwriting arrangements approved by the persons entitled hereunder to approve such arrangements and (ii) completes and executes all questionnaires, powers of attorney, indemnities, underwriting agreements and other documents reasonably required under the terms of such underwriting arrangements and (iii) fulfills its other applicable obligations hereunder, including, without limitation, those set forth under Section 4(n). 10. Miscellaneous. (a) Amendments and Waivers. The provisions of this ------------- ---------------------- Agreement may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given, unless the Company and the Guarantors have obtained the written consent of Holders of a majority in aggregate principal amount of the Securities, the Exchange Securities and the Private Exchange Securities, taken as a single class; provided, however, that no such consent shall be required to amend this Agreement as described in the following sentence. As soon as practicable after the acquisition by the Company of at least 90% of the outstanding common stock of Bertucci's (determined on a fully diluted basis and including the 430,000 shares currently owned by the Company), this Agreement shall be amended solely to cause Bertucci's and its subsidiaries to become parties hereto. Notwithstanding the foregoing, a waiver or consent to depart from the provisions hereof with respect to a matter that relates exclusively to the rights of Holders whose Securities, Exchange Securities or Private Exchange Securities are being sold pursuant to a Registration Statement and that does not directly or indirectly affect the rights of other Holders may be given by Holders of a majority in aggregate principal amount of the Securities, the Exchange Securities and the Private Exchange Securities being sold by such Holders pursuant to such Registration Statement. Notwithstanding the foregoing, no amendment, modification, supplement, waiver or consent with respect to Section 6 shall be made or given without the consent of each indemnified person affected thereby. (b) Notices. All notices and other communications provided for or ------- permitted hereunder shall be made in writing by hand-delivery, first-class mail, telecopier or air courier guaranteeing next-day delivery: (i) if to a Holder, at the most current address given by such Holder to the Company in accordance with the provisions of this Section 10(b), which address initially is, with respect to each Holder, the address of such Holder maintained by the Registrar under the Indenture, with a copy in like manner to Chase Securities Inc. and BancBoston Securities Inc.; (ii) if to an Initial Purchaser, initially at its address set forth in the Purchase Agreement as the same may be modified from time to time pursuant to the notification provisions of such Purchase Agreement; and (iii) if to the Company or a Guarantor, initially at the address of the Company set forth in the Purchase Agreement as the same be modified from time to time pursuant to the notification provisions of such Purchase Agreement. All such notices and communications shall be deemed to have been duly given: when delivered by hand, if personally delivered; one business day after being delivered to a next-day air courier; five business days after being deposited in the mail; and when receipt is acknowledged by the recipient's telecopier machine, if sent by telecopier. 14 (c) Successors and Assigns. This Agreement shall be binding upon the ---------------------- Company, the Guarantors and their respective successors and permitted assigns. (d) Counterparts. This Agreement may be executed in any number of ------------ counterparts (which may be delivered in original form or by telecopier) and by the parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. (e) Definition of Terms. For purposes of this Agreement, (i) the term ------------------- "business day" means any day on which the New York Stock Exchange, Inc. is open for trading, (ii) the term "subsidiary" has the meaning set forth in Rule 405 under the Securities Act and (iii) except where otherwise expressly provided, the term "affiliate" has the meaning set forth in Rule 405 under the Securities Act. (f) Headings. The headings in this Agreement are for convenience of -------- reference only and shall not limit or otherwise affect the meaning hereof. (g) Governing Law. This Agreement shall be governed by and construed ------------- in accordance with the laws of the State of New York. (h) Remedies. In the event of a breach by the Company, a Guarantor or -------- by any Holder of any of their obligations under this Agreement, each Holder or the Company and the Guarantors, as the case may be, in addition to being entitled to exercise all rights granted by law, including recovery of damages (other than the recovery of damages for a breach by the Company or a Guarantor of its obligations under Sections 1 or 2 hereof for which liquidated damages have been paid pursuant to Section 3 hereof), will be entitled to specific performance of its rights under this Agreement. The Company, the Guarantors and each Holder agree that monetary damages would not be adequate compensation for any loss incurred by reason of a breach by it of any of the provisions of this Agreement and hereby further agree that, in the event of any action for specific performance in respect of such breach, it shall waive the defense that a remedy at law would be adequate. (i) No Inconsistent Agreements. The Company and each Guarantor -------------------------- represents, warrants and agrees that (i) it has not entered into, shall not, on or after the date of this Agreement, enter into any agreement that is inconsistent with the rights granted to the Holders in this Agreement or otherwise conflicts with the provisions hereof, (ii) it has not previously entered into any agreement which remains in effect granting any registration rights with respect to any of its debt securities to any person and (iii) without limiting the generality of the foregoing, without the written consent of the Holders of a majority in aggregate principal amount of the then outstanding Transfer Restricted Securities, it shall not grant to any person the right to request the Company or any Guarantor to register any debt securities of the Company or any Guarantor (or any guarantees of such debt securities) under the Securities Act unless the rights so granted are not in conflict or inconsistent with the provisions of this Agreement. (j) No Piggyback on Registrations. The Company, the Guarantor and ----------------------------- their respective security holders (other than the Holders of Transfer Restricted Securities in such capacity) shall not have the right to include any securities of the Company in any Shelf Registration or Registered Exchange Offer other than Transfer Restricted Securities. (k) Severability. The remedies provided herein are cumulative and not ------------ exclusive of any remedies provided by law. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, illegal, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in full force and effect and shall in no way be affected, impaired or invalidated, and the parties hereto shall use their reasonable best efforts to find and employ an alternative means to achieve the same or substantially the same result as that 15 contemplated by such term, provision, covenant or restriction. It is hereby stipulated and declared to be the intention of the parties that they would have executed the remaining terms, provisions, covenants and restrictions without including any of such that may be hereafter declared invalid, illegal, void or unenforceable. (l) No Foreign Registration. Nothing in this Agreement shall be ----------------------- construed to require the Company or any Guarantor to offer any Exchange Securities in any non-U.S. jurisdiction where such offer would be unlawful or require registration or qualification. Securities are "freely transferable" for purposes of this Agreement if they are freely transferable in the United States, regardless of whether they may transferred within any foreign jurisdiction. 16 Please confirm that the foregoing correctly sets forth the agreement among the Company and the Initial Purchasers. Very truly yours, NE RESTAURANT COMPANY, INC. By /s/ Dennis D. Pedra -------------------------------- Name: Dennis D. Pedra Title: President Accepted: CHASE SECURITIES INC. By /s/ Jeffrey Blumin ---------------------------- Authorized Signatory BANCBOSTON SECURITIES INC. By /s/ Steve DeMenna ---------------------------- Authorized Signatory ANNEX A Each broker-dealer that receives Exchange Securities for its own account pursuant to the Registered Exchange Offer must acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Securities. The Letter of Transmittal states that by so acknowledging and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. This Prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with resales of Exchange Securities received in exchange for Securities where such Securities were acquired by such broker-dealer as a result of market-making activities or other trading activities. The Company has agreed that, for a period of 180 days after the Expiration Date (as defined herein), it will make this Prospectus available to any broker-dealer for use in connection with any such resale. See "Plan of Distribution." A-1 ANNEX B Each broker-dealer that receives Exchange Securities for its own account in exchange for Securities, where such Securities were acquired by such broker-dealer as a result of market-making activities or other trading activities, must acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Securities. See "Plan of Distribution." B-1 ANNEX C PLAN OF DISTRIBUTION Each broker-dealer that receives Exchange Securities for its own account pursuant to the Registered Exchange Offer must acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Securities. This Prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with resales of Exchange Securities received in exchange for Securities where such Securities were acquired as a result of market-making activities or other trading activities. The Company has agreed that, for a period of 180 days after the Expiration Date, it will make this prospectus, as amended or supplemented, available to any broker-dealer for use in connection with any such resale. In addition, until _______________, 199_, all dealers effecting transactions in the Exchange Securities may be required to deliver a prospectus./1/ The Company will not receive any proceeds from any sale of Exchange Securities by broker-dealers. Exchange Securities received by broker-dealers for their own account pursuant to the Registered Exchange Offer may be sold from time to time in one or more transactions in the over-the-counter market, in negotiated transactions, through the writing of options on the Exchange Securities or a combination of such methods of resale, at market prices prevailing at the time of resale, at prices related to such prevailing market prices or at negotiated prices. Any such resale may be made directly to purchasers or to or through brokers or dealers who may receive compensation in the form of commissions or concessions from any such broker-dealer or the purchasers of any such Exchange Securities. Any broker-dealer that resells Exchange Securities that were received by it for its own account pursuant to the Registered Exchange Offer and any broker or dealer that participates in a distribution of such Exchange Securities may be deemed to be an "underwriter" within the meaning of the Securities Act and any profit on any such resale of Exchange Securities and any commission or concessions received by any such persons may be deemed to be underwriting compensation under the Securities Act. The Letter of Transmittal states that, by acknowledging that it will deliver and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. For a period of 180 days after the Expiration Date the Company will promptly send additional copies of this Prospectus and any amendment or supplement to this Prospectus to any broker-dealer that requests such documents in the Letter of Transmittal. The Company has agreed to pay all expenses incident to the Registered Exchange Offer (including the expenses of one counsel for the Holders of the Securities) other than commissions or concessions of any broker-dealers and will indemnify the Holders of the Securities (including any broker-dealers) against certain liabilities, including liabilities under the Securities Act. - -------------------- /1/In addition, the legend required by Item 502(e) of Regulation S-K will appear on the back cover page of the Registered Exchange Offer prospectus. C-1 ANNEX D __ CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS THERETO. Name: -------------------------------------------- Address: ----------------------------------------- If the undersigned is not a broker-dealer, the undersigned represents that it is not engaged in, and does not intend to engage in, a distribution of Exchange Securities. If the undersigned is a broker-dealer that will receive Exchange Securities for its own account in exchange for Securities that were acquired as a result of market-making activities or other trading activities, it acknowledges that it will deliver a prospectus in connection with any resale of such Exchange Securities; however, by so acknowledging and by delivering a prospectus, the undersigned will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. D-1 EX-4.6 12 AMEND #1 TO EXCHANGE & REG RIGHTS AGMT DATED 7/21 EXHIBIT 4.6 NE RESTAURANT COMPANY, INC. $100,000,000 10 3/4% Senior Notes due 2008 AMENDMENT NO. 1 TO ------------------ EXCHANGE AND REGISTRATION RIGHTS AGREEMENT ------------------------------------------ July 21, 1998 CHASE SECURITIES INC. BANCBOSTON SECURITIES INC. c/o Chase Securities Inc. 270 Park Avenue, 4th Floor New York, New York 10017 Ladies and Gentlemen: On July 20, 1998, NE Restaurant Company, Inc., a Delaware corporation (the "Company"), issued and sold to Chase Securities Inc. ("CSI") and ------- --- BancBoston Securities, Inc. (together with CSI, the "Initial Purchasers"), upon ------------------ the terms and subject to the conditions set forth in a purchase agreement dated July 13, 1998 (the "Purchase Agreement"), $100,000,000 aggregate principal ------------------ amount of its 10 3/4% Senior Notes due 2008 (the "Notes"), which Notes are to ----- be unconditionally guaranteed (the "Guarantees", and, together with the Notes, ---------- the "Securities"), on a senior unsecured basis, by each Guarantor. On July 21, ---------- 1998, the Company used the proceeds from the sale of the Securities, along with additional funds, to acquire Bertucci's, Inc. ("Bertucci's"), which, along with all of its subsidiaries, shall provide Guarantees for the Notes. Capitalized terms used but not deemed herein shall have the meanings given to such terms in the Purchase Agreement. Pursuant to Section 10(a) of the Exchange and Registration Rights Agreement (the "Agreement"), dated as of July 20, 1998, the Company and the Initial Purchasers agreed to amend the Agreement for the purpose of adding Bertucci's and its subsidiaries as parties thereto. Accordingly, in consideration of the foregoing and for other good and valuable consideration, the receipt of which is hereby acknowledged, the parties hereto agree to amend the Agreement for the purpose of making Bertucci's, Bertucci's Restaurant Corp., Bertucci's of Ann Arundel County, Inc., Bertucci's of Columbia, Inc., Bertucci's of Baltimore County, Inc., Bertucci's of Bel Air, Inc., Bertucci's of White Marsh, Inc., Berestco, Inc., Bertucci's Securities Corp. and Sal & Vinnie's Sicilian Steakhouse, Inc. parties thereto. THIS AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. This Amendment may be executed in one or more counterparts (which may include counterparts delivered by telecopier) and, if executed in more than one counterpart, the executed counterparts shall each be deemed to be an original, but all such counterparts shall together constitute one and the same instrument. 2 Please confirm that the foregoing correctly sets forth the agreement among the Company, the Guarantors and the Initial Purchasers. Very truly yours, NE RESTAURANT COMPANY, INC. By /s/ Dennis D. Pedra ----------------------------- Name: Dennis D. Pedra Title: President BERTUCCI'S, INC. By /s/ Dennis D. Pedra ----------------------------- Name: Dennis D. Pedra Title: President BERTUCCI'S RESTAURANT CORP. By /s/ Dennis D. Pedra ----------------------------- Name: Dennis D. Pedra Title: President BERTUCCI'S OF ANN ARUNDEL COUNTY, INC. By /s/ Dennis D. Pedra ----------------------------- Name: Dennis D. Pedra Title: President BERTUCCI'S OF COLUMBIA, INC. By /s/ Dennis D. Pedra ----------------------------- Name: Dennis D. Pedra Title: President BERTUCCI'S OF BALTIMORE COUNTY, INC. By /s/ Dennis D. Pedra ----------------------------- Name: Dennis D. Pedra Title: President 3 BERTUCCI'S OF BEL AIR, INC. By /s/ Dennis D. Pedra ----------------------------- Name: Dennis D. Pedra Title: President BERTUCCI'S OF WHITE MARSH, INC. By /s/ Dennis D. Pedra ----------------------------- Name: Dennis D. Pedra Title: President BERESTCO, INC. By /s/ Dennis D. Pedra ----------------------------- Name: Dennis D. Pedra Title: President BERTUCCI'S SECURITIES CORP. By /s/ Dennis D. Pedra ----------------------------- Name: Dennis D. Pedra Title: President SAL & VINNIE'S SICILIAN STEAKHOUSE, INC. By /s/ Dennis D. Pedra ----------------------------- Name: Dennis D. Pedra Title: President 4 Accepted: CHASE SECURITIES INC. By /s/ Jeffrey Blumin ---------------------------- Authorized Signatory BANCBOSTON SECURITIES INC. By /s/ Steve DeMenna ---------------------------- Authorized Signatory EX-4.7 13 FORM OF STOCKHOLDERS AGREEMENT, DATED AS OF 12/31/93 Exhibit 4.7 FORM OF STOCKHOLDER AGREEMENT AGREEMENT made as of the 31st day of December, 1993, by and among the persons whose names are set forth on Schedule A attached hereto (collectively referred to herein as the "Managers"), the persons whose names are set forth on Schedule B attached hereto (collectively referred to as the "Investors") (the Managers and the Investors being individually referred to herein as a "Stockholder" and collectively as the "Stockholders") and NE Restaurant Company, Inc., a Massachusetts corporation (hereinafter referred to as the "Corporation"), with its principal executive office at 300 Pond Street, Randolph, Massachusetts 02368. WITNESSETH: WHEREAS, the Corporation is authorized to issue a total of four million (4,000,000) shares, having $.01 par value, all of which are of one class (hereinafter referred to as "Common Stock"); WHEREAS, there are two million (2,000,000) shares of Common Stock presently issued and outstanding to the Stockholders; WHEREAS, the Stockholders desire to promote their mutual interests and the interest of the Corporation by making certain arrangements with respect to the management of the Corporation, the issuance of additional shares of stock of the Corporation and the transfer or other disposition of the shares of stock of the Corporation upon the terms and conditions hereinafter set forth and certain other matters. NOW, THEREFORE, in consideration of the foregoing and the mutual covenants hereinafter contained, the parties hereto agree as follows: ARTICLE I Transfer Restrictions --------------------- 1.1. Restrictions on Transfer. ------------------------ (a) Each Stockholder severally agrees with each other Stockholder and with the Corporation that he will not directly or indirectly sell, assign, transfer, pledge, hypothecate, or in any manner whatsoever, whether voluntarily or by operation of law, dispose of or encumber ("transfer") any shares of Common Stock now owned by him or which he may at any time hereafter own, acquire or be entitled to, except as hereinafter expressly provided, and subject further to the limitations set forth in Sections 1.1(b) through (d) below and the right of first refusal of the Corporation set forth in Article IV. (b) No transfer may be made without the consent of the Corporation if the transfer would require filing of a registration statement under the Securities Act of 1933 or -1- registration or notice subject to review under any state securities or blue sky laws or regulations or violate any applicable federal or state securities or blue sky laws (including any investment suitability standards) or regulations applicable to the Corporation or the Common Stock. The Corporation may rely upon the advice of counsel in making any determination under this paragraph (b). (c) The Stockholders further understand and agree that, notwithstanding any other provision of this Agreement, a proposed transfer may be subject to (i) the prior approval of applicable liquor licensing authorities, one or more of the Corporation's landlords, and/or the Corporation's franchisor, Brinker International, Inc., and (ii) the right of first refusal of Brinker International, Inc. as may be set forth in the Franchise Agreements or the Development Agreement between the Corporation and Brinker International, Inc. as such Agreements may be amended from time to time, as if such right of first refusal were set forth herein. The Corporation may rely upon the advice of counsel in making any determination under this paragraph (c). If approval or consent of any such entities is required prior to a transfer, such transfer shall not be effective until all such approvals and consents are obtained. (d) The Corporation may require as a condition of any transfer that the assigning Stockholder assume all costs incurred by the Corporation in connection therewith, including, but not limited to, legal fees and accounting fees and any filings or other actions required to be taken with respect to the Corporation's liquor licenses or any action take in connection with obtaining approvals or consents as described in (c) above. As a further condition of a transfer, the Corporation may require that the assigning Stockholder furnish an opinion of counsel satisfactory to the Corporation that the proposed transfer does not violate the provisions of paragraphs (b) and (c) above. Any transfer in contravention of any of the provisions of this Section 1.1 shall be void and ineffectual for all purposes and shall not bind, or be recognized by, the Corporation. 1.2. Gifts of Common Stock. Notwithstanding anything contained in this --------------------- Agreement to the contrary, any individual Stockholder may make a gift or gifts to his spouse or children, or to a trust for the benefit of his spouse or children, of up to an aggregate of twenty-five percent (25%) of the shares of Common Stock owned by such Stockholder on the date hereof, subject to the provisions of Section 1.1(b) through (d) of this Agreement, provided, however, that if a Stockholder desires to transfer by way of gift his shares of Common Stock to one or more of his children who are then minors, such shares shall be placed in trust for the benefit of said child or children for the duration of such minority, and provided further that no such gift of any such shares shall be deemed to be effective for purposes of transferring ownership of such shares unless and until such spouse, child or trustee agrees in writing to hold such shares subject to and otherwise to be bound by the terms of this Agreement, as fully as if he were a signatory hereto, and any such shares shall be deemed for all purposes under this Agreement to be still owned by the Stockholder and be subject to the terms of this Agreement. The rights granted by this Section 1.2 shall be personal to the individual Stockholders originally a party to this Agreement and not available to any transferee who was not an original Stockholder. 1.3. Certain Transfers. Notwithstanding anything contained in this ----------------- Agreement to the contrary, but subject to the provisions of Section 1.1(b) through (d), any partnership that is a 2 Stockholder may assign any or all of its Common Stock in the Corporation to its partners as a distribution to its partners not for consideration. 1.4. Corporate Acts. The Corporation shall not transfer on its books any -------------- certificates for shares of Common Stock owned by any Stockholder, nor issue any certificate in lieu of such shares, nor issue any new shares of Common Stock unless it has been satisfied of compliance with each and every condition hereof affecting such shares or certificates. ARTICLE II Departing Managers ------------------ 2.1. Corporation's Option. If any Manager (the "Departing Manager") shall -------------------- cease to be employed by the Corporation or any of its subsidiaries on a full time basis for any reason, including , without limitation death or Disability (as defined in Section 2.2 hereof), the Corporation shall have an option for a period of ninety (90) days commencing on the date of cessation of full time employment to purchase all of the shares of Common Stock then owned by the Departing Manager which were acquired by such Manager pursuant to such Manager's employment by the Corporation as bonus stock, as set forth on Schedule A hereto (as such Schedule may be amended from time to time), provided that such specified number of shares of Common Stock shall be deemed to be amended from time to time to give effect to adjustments made in the number of outstanding shares of Common Stock of the Corporation through merger, consolidation, recapitalization, combination, stock dividend, stock split or other relevant changes (the "Incentive Shares"). Upon written demand by the Corporation to the Departing Manager or his Legal Representative (as defined in Section 3.1 hereof), he or his estate shall sell and the Corporation shall purchase all of the Incentive Shares. In the event cessation of full time employment occurs by voluntary act of the Departing Manager prior to October 7, 1996, or at the request of the Corporation for Cause (as defined in Section 2.2 hereof), the purchase price of the Incentive Shares shall be the Book Value thereof (as defined in Section 5.2 hereof). In the event cessation of full time employment occurs at the request of the Corporation without Cause or, by voluntary act of the Departing Manager subsequent to October 7, 1996 or by death or by reason of the Disability of the Departing Manager, the purchase price of the Incentive Shares shall be the Fair Market Value thereof (as defined in Section 5.3 hereof). 2.2. Definitions. (a) "Cause" as used herein shall mean any of the ----------- following committed by the Manager, directly or indirectly: (i) Commission by the Manager of an act of dishonesty involving the Corporation; (ii) Failure by the Manager to perform a material portion of his duties (not otherwise excused by the Disability of the Manager), or material breach by the Manager of any representation, warranty or agreement of the Manager made in any Employment Agreement between the Manager and the Corporation, which continues for a period of thirty (30) days after written notice from the Corporation to the Manager to that effect; 3 (iii) Commission by the Manager of an act of gross incompetence in the course of his employment with the Corporation; (iv) The Manager's use of drugs or alcohol which interferes with the Manager's performance of his duties or responsibilities to the Corporation; or (v) If the Manager is found guilty or pleads nolo contendere to the --------------- commission of a felony or serious misdemeanor offense. (b) "Disability" as used herein shall mean one hundred and eighty (180) consecutive days or two hundred ten (210) days out of twelve (12) consecutive months of inability, due to physical or mental cause, of the Manager to perform his usual and regular duties for the Corporation. 2.3. Stockholders' Option. In the event that the Corporation fails to -------------------- exercise its option within the ninety (90) day period referred to in Section 2.1 above, the remaining Stockholders shall have an option for thirty (30) days thereafter to purchase the Departing Manager's Incentive Shares on the same terms and conditions as the Corporation could have so purchased the Incentive Shares of the Departing Manager. Such option shall be exercised in accordance with the provisions of Section 4.4 below. 2.4. Expiration of Options. If at the end of the specified option periods --------------------- neither the Corporation nor the remaining Stockholders shall have exercised their respective options, the Departing Manager shall remain subject to the terms and conditions of this Agreement. 2.5. Option of Manager Terminated Without Cause. If, prior to October 7, ------------------------------------------ 1996, the full-time employment of any Manager shall be terminated without Cause by the Corporation or any of its subsidiaries, such Manager shall have the option for a period of one hundred twenty (120) days after the expiration of the option set forth in Section 2.3 hereof to require the Corporation to purchase all or any part of the Departing Manager's Incentive Shares at the Book Value thereof. Such option shall be exercised only by a written notice sent to the Corporation within such option period. Notwithstanding the above, the obligation of the Corporation to purchase such Incentive Shares shall be subject at all times to a determination by the Board of Directors of the Corporation, acting within its discretion reasonably exercised, that no legal or contractual impediment exists to such purchase by the Corporation (with respect to which the Board may rely on advice of counsel) and that such purchase and the payment of the purchase price therefor shall not constitute an inadvisable application of available corporate funds. ARTICLE III Death; Insolvency ----------------- 3.1. Death. In the event of the death of a Stockholder, the deceased ----- Stockholder's estate, personal representatives, heirs or legatees (hereinafter collectively referred to as the "Legal Representative") may retain such shares of Common Stock; provided that the holder or holders thereof agree in writing delivered to the Corporation to hold such shares subject to and otherwise to be bound by the terms of this Agreement, as fully as if he were a signatory hereto; and further 4 provided that the right to retain shares shall be personal to the heirs and legatees of the individual Stockholders originally party to this Agreement and shall not be available to any other heirs or legatees. In addition, the Legal Representative shall have the option for a period of ninety (90) days after the appointment of such Legal Representative to require the Corporation to purchase, and the Corporation shall be required to purchase, all or any part of the deceased Stockholder's Common Stock at the Fair Market Value thereof. Notwithstanding the above, the obligation of the Corporation to purchase such Common Stock shall be subject at all times to a determination by the Board of Directors of the Corporation, acting within its discretion reasonably exercised, that no legal or contractual impediment exists to such purchase by the Corporation with respect to which the Board may rely on advice of counsel) and that such purchase and the payment of the purchase price therefor shall not constitute an inadvisable application of available corporate funds. Such option shall be exercised only be a written notice sent to the Corporation within such ninety (90) day period. 3.2. Insolvency. If at any time a Stockholder becomes insolvent (as ---------- hereinafter defined), the Corporation shall have the option to purchase all or any part of the Common Stock of such insolvent Stockholder at the Book Value thereof for a period of ninety (90) days following such insolvency. Upon written demand by the Corporation to such insolvent Stockholder such Stockholder shall sell and the Corporation shall purchase all of the shares of Common Stock owned by such Stockholder. In the event that the Corporation fails to exercise such option, the remaining Stockholders shall have an option for thirty (30) days thereafter to purchase such Stockholder's Common Stock on the same terms and conditions. Such option shall be exercised in accordance with Section 4.4 below. In addition, an insolvent Stockholder shall have the option for a period of ninety (90) days after the insolvency to require the Corporation to purchase, and the Corporation shall be required to purchase, all or any part of the insolvent Stockholder's Common Stock at the Book Value thereof. Notwithstanding the above, the obligation of the Corporation to purchase such Common Stock shall be subject at all times to a determination by the Board of Directors of the Corporation, acting within its discretion reasonably exercised, that no legal or contractual impediment exists to such purchase by the Corporation (with respect to which the Board may rely on advice of counsel) and that such purchase and the payment of the purchase price therefor shall not constitute an inadvisable application of available corporate funds. Such option shall be exercised only by a written notice sent to the Corporation within such ninety (90) day period. As used herein, a Stockholder shall be deemed "insolvent" upon the occurrence of any of the following: admission by a Stockholder in writing of his inability to pay his debts as they become due; or the making of an assignment for the benefit of Stockholder's creditors; or the filing by a Stockholder of a voluntary petition in bankruptcy or of any answer or petition seeking any reorganization, arrangement, composition or other insolvency relief under the present or any future bankruptcy act or any other applicable Federal, state or other insolvency statute, law or regulation; or the suffering of an adjudication as a bankruptcy; or the commencement of any proceeding against a Stockholder under any such act or statute, law or regulation which proceeding shall remain unstayed for a period of thirty (30) days after the commencement thereof; or the appointment of a receiver, trustee or liquidator in respect of all or any part of the assets of a Stockholder; or the attachment of, or appointment of a receiver or trustee for or in respect of, any property of a Stockholder, which attachment or appointment remains unstayed for a period of thirty (30) days. 5 ARTICLE IV Right of First Refusal ---------------------- 4.1. No Limitation on Restrictions of Transfer. The provisions of this ----------------------------------------- Article IV shall in no way limit the Restrictions on Transfer set forth in Article I, including, without limitation, the approval rights or rights of first refusal of Brinker International, Inc. referenced in Section 1.1(c). No transfer shall be permitted under this Article IV if it does not otherwise comply with Section 1.1(b) through (d). 4.2. Corporation's Option. If any Stockholder (the "Selling Stockholder") -------------------- shall for any reason whatsoever (except a transfer pursuant to Sections 1.2, 1.3 or 3.1 above) wish to sell or transfer any shares of Common Stock and shall have a bona fide purchaser or transferee for such Common Stock, he shall notify the Corporation and all Stockholders of all terms and conditions of such proposed sale or transfer, including the identity of the bona fide buyer or transferee and a copy of the offer and the Corporation shall have an option for a period of thirty (30) days commencing on the date of its receipt of such notice to purchase all or any part of the shares of Common Stock which the Selling Stockholder proposes to sell or transfer on the same terms as are provided for in the notice. The Corporation shall send a written notice to the Selling Stockholder and the remaining Stockholders of its decision to exercise or not exercise the option, as the case may be, prior to the expiration of said thirty (30) day option period. If the sales price for such stock is other than cash or securities having a readily determinable value, then the Board of Directors of the Corporation shall determine the cash equivalent thereof. 4.3. Stockholder's Option. In the event that the Corporation fails to -------------------- exercise its option to purchase all shares of Common Stock which the Selling Stockholder proposes to sell or transfer within the thirty (30) day period referred to in Section 4.2 above, the non-Selling Stockholders shall have an option for ten (10) days from the expiration of the Corporation's option to purchase all or any part of the remaining shares of Common Stock which the Selling Stockholder proposes to transfer on the same terms and conditions as the Corporation could have so purchased the Common Stock of the Selling Stockholder. Such option shall be exercised in accordance with the provisions of Section 4.4 below, and written notice of the exercise of such option shall be sent to the Corporation, the Selling Stockholder and the other Stockholders. 4.4. Exercise of Stockholder's Option. Whenever a Stockholder shall have -------------------------------- an option to acquire shares of Common Stock as provided in this Agreement, an appropriate officer of the Corporation shall notify each such Stockholder after the expiration of the Corporation's option and such option shall be exercised as follows: (a) Upon the failure by the Corporation to exercise the option to purchase all shares of Common Stock subject to the option within the respective periods provided for in the applicable Section hereof, each of the non-Selling Stockholders (the "Remaining Stockholders") shall have the right to subscribe for a portion of such Common Stock not purchased by the Corporation (the "Pro Rata Share") which shall be in the same proportion as such Remaining 6 Stockholder's number of shares of Common Stock is to the number of shares of Common Stock owned by all of the Remaining Stockholders. No Remaining Stockholder may elect to subscribe for less than his Pro Rata Share but each Remaining Stockholder shall have an over-subscription privilege to subscribe for more than his Pro Rata Share. (b) Within five (5) days from the commencement of the Remaining Stockholder's option, each Remaining Stockholder electing to subscribe for his Pro Rata Share (or more) shall give notice to the Corporation and to all the other Remaining Stockholders of the number of shares of Common Stock for which he wishes to subscribe. (c) In the event that each of the Remaining Stockholders elects to subscribe for at least his respective Pro Rata Share, each of them shall purchase his Pro Rata Share. (d) In the event that not all of the Remaining Stockholders elect to subscribe for at least their respective Pro Rata Shares, subject to sub-section (e) hereof, the Remaining Stockholders who have elected to subscribe for their respective Pro Rata Shares shall purchase such Pro Rata Shares. In addition, each over-subscriber (a person who has exercised his over-subscription privilege) shall purchase a portion of the balance of the Common Stock being sold equal to the lesser of (i) a number of shares which is in the same ratio to the total number of shares comprising the Common Stock owned by each oversubscriber to the number of shares of Common Stock owned by all over- subscribers (in each case including their Pro Rata Shares), or (ii) the actual over-subscription exercised by such oversubscriber. (e) If the offered Common Stock is not fully subscribed for by the Remaining Stockholders in accordance with sub-sections (c) or (d) at the end of the five (5) day period provided for in subsection (b), the Remaining Stockholders shall have an additional period of five (5) days to agree among themselves to purchase such balance on the terms and conditions set forth herein. 4.5. Selling Stockholder's Sale to Third Party. If the options in Section ----------------------------------------- 4.2 or 4.3 are not exercised with respect to all shares of the Common Stock which the Selling Stockholder proposes to sell or transfer, then, in such event, the Selling Stockholder shall be entitled, for a period of ninety (90) days from the date on which the option provided in Section 4.3 herein terminated, to sell the unsubscribed Common Stock for which he provided notice in the manner specified in the Selling Stockholder's notice on the terms and conditions specified therein. If the Selling Stockholder does not sell such Common Stock within such ninety (90) day period and in the manner and on the terms and conditions and to the purchaser named therein, the Selling Stockholder's Common Stock shall remain fully subject to the restrictions contained in this Agreement. ARTICLE V Value ----- 7 5.1. Value Date. The Book Value or the Fair Market Value per share of the ---------- Common Stock shall be determined as set forth herein as of the last day of the quarter immediately preceding the event giving rise to the valuation requirement in this Agreement. 5.2. Book Value. As used herein, the term Book Value shall mean the net ---------- asset value of the Corporation per share of Common Stock as determined in accordance with generally accepted accounting principles applied on a basis consistent with the past practices of the Corporation. If Book Value is determined at the end of a fiscal year it shall be determined by the then acting independent public accountants of the Corporation and if Book Value is determined at the end of any quarterly period, it shall be determined by the Chief Financial or Chief Accounting Officer of the Corporation. The Book Value shall be set forth in a report (hereinafter called the "Book Value Report") prepared by such accountants or officer and delivered to the Corporation and all Stockholders or their Legal Representatives as promptly as practicable after the date as of which Book Value is determined, and shall be binding and conclusive on the parties hereto. 5.3. Fair Market Value. The Fair Market Value shall be determined by ----------------- agreement of the disposing Stockholder or his Legal Representative and the Corporation within fifteen (15) days after written request therefor from one to the other. In the event such Fair Market Value cannot be so determined within such time period, each party shall select an experienced investment banking firm by notice to the other within ten (10) days after written request by either. In the event both parties do not select the same firm, the two (2) firms selected shall select a third experienced investment banking firm which shall, within thirty (30) days after selection, determine the Fair Market Value of the Common Stock. Fair Market Value shall be the amount which the selected firm determines would be paid per share by a third party to acquire the stock of the Corporation proposed to be sold, assuming the payment of the purchase price in cash at closing, pursuant to open and competitive bidding conducted by a knowledgeable and experienced investment banking firm, assuming complete cooperation by management, with appropriate reduction for the fact that the Common Stock being valued constitutes a minority interest and that there is no public market for such stock. In the event the investment banking firm selected provides a range of values as opposed to a single value, the Fair Market Value shall be the median of the range of values. The report of Fair Market Value shall be deemed the Fair Market Value Report. The cost of any determination of Fair Market Value shall be borne equally by the Corporation and the disposing party. ARTICLE VI Closing ------- The closing of any purchase of Common Stock pursuant to this Agreement (a "Closing"), shall be made as follows: (a) Unless otherwise agreed upon in writing by the Stockholder (or his Legal Representatives, as the case may be) and the Corporation or Remaining Stockholders which are parties to any purchase and sale of Common Stock provided for herein, a Closing shall take place in the principal executive offices of 8 the Corporation at eleven o'clock in the morning on the fifteenth (15th) business day after the later of (i) the full exercise of their respective options, or (ii) receipt by the Corporation of the Book Value or Fair Market Value Report, if required; provided, however that this period of time may be changed if approved by the Corporation in order to provide reasonable time in which to obtain the approval or consent, if any, required from third parties as set forth in Section 1.1(c) or for other reasons. (b) The Stockholder shall deliver to each purchaser at the Closing the certificates representing his shares of Common Stock, free and clear of any and all liens and encumbrances whatsoever (and shall deliver a written warranty and representation to such effect), and duly endorsed for transfer to each purchaser or accompanied by stock powers duly endorsed for transfer to such purchaser, together with all applicable stock transfer tax stamps affixed or payment provided therefor and such other documents as may be necessary to effectuate the transfer, against delivery of a check drawn in an amount equal to the Book Value or Fair Market Value or the terms and conditions of a third party offer, as the case may be. In the event that Common Stock is to be sold by Legal Representatives of a deceased Stockholder, the estate shall obtain or cause to be obtained state tax waivers, if necessary, and shall execute any and all necessary documents required to carry out the terms of this Agreement. (c) In the event that a Stockholder sells his Common Stock to a purchaser who would not otherwise be bound by this Agreement, such purchaser, as a condition to his purchase, shall agree to be bound by the terms of this Agreement. The Corporation and the Stockholders agree that upon the request of such purchaser, the Corporation and the Stockholders shall cause the issuance to such purchaser of certificates of Common Stock equal to the number of shares of Common Stock so purchased. Prior to any sale to a purchaser who is not a Stockholder of the Corporation, the Selling Stockholder, purchaser or transferee Stockholder, as the case may be, must satisfy counsel to the Corporation that the proposed sale of his Common Stock will not violate (i) the Securities Act (or any similar federal statute then in effect) or any of the rules and regulations promulgated thereunder; and (ii) any applicable state securities laws. ARTICLE VII Legend on Certificates ---------------------- The Stockholders and the Corporation agree to cause a legend in the form set forth below, to be conspicuously noted on the face or reverse of all certificates representing Common Stock presently owned by the Stockholders or which may hereafter be issued during the term of this Agreement: This Certificate and all rights thereby represented are subject to all of the terms, provisions and conditions of a certain Stockholders Agreement made and entered 9 into the 31st day of December, 1993, and any amendments thereto, by and among this Corporation and its Stockholders, and may not be sold, assigned, transferred, pledged, hypothecated or in any manner whatsoever disposed of or encumbered except in accordance with the terms and provisions of said agreement, a copy of which is on file and available for inspection at the office of the Corporation. The Corporation and the Stockholders will use their best efforts to prevent the issuance by the Corporation of any Common Stock, unless the foregoing legend shall be conspicuously noted on the certificate. Any person who in the future owns shares of Common Stock, as a condition to the receipt of such stock, must agree to be bound by and to execute this Agreement. A copy of this Agreement shall at all times be kept in the principal office of the Corporation. ARTICLE VIII Term of Agreement ----------------- This Agreement and all restrictions on the shares of Common Stock created hereby shall commence on the date hereof and shall terminate on the occurrence of any of the following events: (a) A single Stockholder becoming the owner of all of the outstanding Common Stock which is then subject to this Agreement; (b) A public offering of the Common Stock of the Corporation pursuant to a registration statement declared effective under the Securities Act; (c) The execution of a written instrument by the Corporation and all persons who then own shares subject to this Agreement which terminates the same; (d) The liquidation and dissolution of the Corporation. ARTICLE IX Specific Performance -------------------- Due to the fact that the Common Stock cannot be readily purchased or sold in the open market, and for other reasons, the parties will be irreparably damaged in the event that this Agreement is not specifically enforced. In the event of a breach or threatened breach of the terms, covenants and/or conditions of this Agreement by any of the parties hereto, the other parties shall, in addition to all other remedies, be entitled to a temporary or permanent injunction, without showing any actual damage, and/or a decree for specific performance in accordance with the provisions hereof. ARTICLE X Miscellaneous ------------- 10 10.1. Further Executions. The parties hereto shall each execute and ------------------ deliver or cause to be executed and delivered to the others such further instruments and documents and shall take such other action as may be reasonably required to more effectively carry out the intent and purposes of this Agreement and the transactions contemplated hereby. 10.2. Binding on Successors. This Agreement shall be binding upon and --------------------- inure to the benefit of the Corporation and its successors and the Stockholders and their Legal Representatives and successors. The Corporation may assign all of its rights hereunder. The Stockholders, by the signing hereof, direct their Legal Representatives, where applicable, to open their estates promptly in the courts of proper jurisdiction and to execute, procure and deliver all documents including, but not limited to, appropriate court orders, letters testamentary or letters of administration and estate and inheritance tax waivers, as shall be required to effectuate the purposes of this Agreement. Except as otherwise expressly provided herein, nothing contained herein shall confer or is intended to confer on and, third party or entity which is not a party to this Agreement any rights under this Agreement. 10.3. Additional Shares. Except as otherwise provided, this Agreement ----------------- shall apply to all stock of any class issued by the Corporation to Stockholders hereafter and the Corporation and each Stockholder agree that all such stock shall contain the appropriate legend reflecting same. 10.4. Entire Agreement. This Agreement constitutes the entire agreement ---------------- between the parties relating to the subject master hereof. This Agreement cannot be changed or terminated orally. This Agreement may be amended, the parties may take any action herein prohibited or omit to take action herein required to be performed by them, and any breach of or compliance with any covenant, agreement, warranty or representation may be waived, only if the written consent or waiver is obtained of Stockholders holding not less than two- thirds of the outstanding shares of Common Stock of the Corporation; provided, however, if any such amendment or waiver adversely affects only the Managers (and not all Stockholders equally), the holders of a majority of the shares of Common Stock owned by the Managers must approve such amendment or waiver. The descriptive headings of the several sections of this Agreement are inserted for convenience only and do not constitute a part of this Agreement. 10.5. Governing Law. This Agreement shall be governed by and construed in ------------- accordance with the internal laws of the Commonwealth of Massachusetts without giving effect to principles of conflicts of law. The parties hereto agree and intend that the proper and exclusive forum for the litigation of any disputes or controversies arising out of, or related to, this Agreement shall be the courts of the Commonwealth of Massachusetts and of any Federal Court located in such state. The Corporation and the Stockholders agree that they will not commence or move to transfer any action or proceeding, arising out of or relating to this Agreement, in or to any court other than one located in such state. The Corporation and the Stockholders irrevocably consent to the service of process of any of the aforesaid courts in any such action or proceeding by the mailing of copies thereof by registered or certified mail, postage prepaid, to the parties at the addresses provided herein, such service to become effective thirty (30) days after such mailing. Nothing contained in this Section shall affect the right of the Corporation to serve process in any other manner permitted by law or commence legal proceedings or otherwise 11 proceed against the other parties in any other jurisdiction. In the event that any Stockholder should commence or maintain any action arising out of or related to this Agreement in a forum other than the courts of the Commonwealth of Massachusetts, the Corporation shall be entitled to request the dismissal of such action, and the Corporation and the Stockholders stipulate that such action shall be dismissed. 10.6. Severability. In the event that any one or more of the provisions ------------ of this Agreement shall for any reason be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provisions of this Agreement and this Agreement shall be construed as if such invalid, illegal or unenforceable provisions had never been contained herein. 10.7. Notices. All notices, statements and other communications provided ------- for by this Agreement shall be in writing and shall be deemed to have been given when actually delivered to the party to which notice is given when hand deliver, when received if sent by telecopier or by same day or overnight recognized commercial courier service or when mailed postage paid by registered or certified mail, return receipt requested, addressed to the party to which notice is given at its address on file with the Corporation or at its address set forth in a notice given by such party in accordance with the provisions hereof; provided, however, that any notice of change of address shall be effective only upon receipt. 10.8. Waivers. A waiver on the part of any of the parties hereto of any ------- term, provision or condition of this Agreement or breach thereof shall not constitute a precedent, nor bind any party hereto to a waiver of any other term, provision or condition of this Agreement or any other or succeeding breach of the same or any other term, provision or condition hereof. 10.9. Pronouns. Whenever the context requires, the use in this Agreement -------- of a pronoun of any gender shall be deemed to refer also to any other gender, and the use of the singular shall be deemed to refer also to the plural. 10.10. Counterparts. This Agreement may be executed in one or more ------------ counterparts, each of which shall be an original but all of which shall be deemed one and the same instrument. 12 EX-4.8 14 FORM OF STOCKHOLDERS AGMT DATED 9/15/1997 BY & AMONG NERCO EXHIBIT 4.8 FORM OF STOCKHOLDER AGREEMENT AGREEMENT made as of the 15th day of September, 1997, by and among the persons whose names are set forth on Schedule A attached hereto (collectively referred to herein as the "Stockholders") and NE Restaurant Company, Inc., a Delaware corporation (hereinafter referred to as the "Corporation"), with its principal executive office at 300 Pond Street, Randolph, Massachusetts 02368. WITNESSETH: WHEREAS, the Corporation has entered into a Stockholder Agreement, as amended, dated as of December 31, 1993, with the stockholders of the Corporation as of such date (the "Existing Agreement"); WHEREAS, the Stockholders wish to acquire certain shares of the Common Stock, $.01 par value (the "Common Stock"), of the Corporation as of the date hereof; WHEREAS, the Stockholders have agreed to be bound by the provisions of the Existing Agreement and the Corporation wishes to bind the Stockholders to substantially such provisions; NOW, THEREFORE, in consideration of the foregoing and the mutual covenants hereinafter contained, the parties hereto agree as follows: ARTICLE I Transfer Restrictions --------------------- 1.1. Restrictions on Transfer. ------------------------ (a) Each Stockholder severally agrees with each other Stockholder and with the Corporation that he will not directly or indirectly sell, assign, transfer, pledge, hypothecate, or in any manner whatsoever, whether voluntarily or by operation of law, dispose of or encumber ("transfer") any shares of Common Stock now owned by him or which he may at any time hereafter own, acquire or be entitled to, except as hereinafter expressly provided, and subject further to the limitations set forth in Sections 1.1 (b) through (d) below and the right of first refusal of the Corporation set forth in Article IV. (b) No transfer may be made without the consent of the Corporation if the transfer would require filing of a registration statement under the Securities Act of 1933 or registration or notice subject to review under any state securities or blue sky laws or regulations or violate any applicable federal or state securities or blue sky laws (including any investment suitability standards) or regulations applicable to the Corporation or the Common Stock. The Corporation may rely upon the advice of counsel in making any determination under this paragraph (b). (c) The Stockholders further understand and agree that, notwithstanding any other provision of this Agreement, a proposed transfer may be subject to (i) the prior approval of applicable liquor licensing authorities, one or more of the Corporation's landlords, and/or the Corporation's franchisor, Brinker International, Inc., and (ii) the right of first refusal of Brinker International, Inc. as may be set forth in the Franchise Agreements or the Development Agreement between the Corporation and Brinker International, Inc. as such Agreements may be amended from time to time, as if such right of first refusal were set forth herein. The Corporation may rely upon the advice of counsel in making any determination under this paragraph (c). If approval or consent of any such entities is required prior to a transfer, such transfer shall not be effective until all such approvals and consents are obtained. (d) The Corporation may require as a condition of any transfer that the assigning Stockholder assume all costs incurred by the Corporation in connection therewith, including, but not limited to, legal fees and accounting fees and any filings or other actions required to be taken with respect to the Corporation's liquor licenses or any action take in connection with obtaining approvals or consents as described in (c) above. As a further condition of a transfer, the Corporation may require that the assigning Stockholder furnish an opinion of counsel satisfactory to the Corporation that the proposed transfer does not violate the provisions of paragraphs (b) and (c) above. Any transfer in contravention of any of the provisions of this Section 1.1 shall be void and ineffectual for all purposes and shall not bind, or be recognized by, the Corporation. 1.2. Gifts of Common Stock. Notwithstanding anything contained in this ---------------------- Agreement to the contrary, any individual Stockholder may make a gift or gifts to his spouse or children, or to a trust for the benefit of his spouse or children, of up to an aggregate of twenty-five percent (25%) of the shares of Common Stock owned by such Stockholder on the date hereof, subject to the provisions of Section 1.1 (b) through (d) of this Agreement, provided, however, that if a Stockholder desires to transfer by way of gift his shares of Common Stock to one or more of his children who are then minors, such shares shall be placed in trust for the benefit of said child or children for the duration of such minority, and provided further that no such gift of any such shares shall be deemed to be effective for purposes of transferring ownership of such shares unless and until such spouse, child or trustee agrees in writing to hold such shares subject to and otherwise to be bound by the terms of this Agreement, as fully as if he were a signatory hereto, and any such shares shall be deemed for all purposes under this Agreement to be still owned by the Stockholder and be subject to the terms of this Agreement. The rights granted by this Section 1.2 shall be personal to the individual Stockholders originally a party to this Agreement and not available to any transferee who was not an original Stockholder. 1.3. Certain Transfers. Notwithstanding anything contained in this Agreement ----------------- to the contrary, but subject to the provisions of Section l.l(b) through (d), any partnership that is a Stockholder may assign any or all of its Common Stock in the Corporation to its partners as a distribution to its partners not for consideration. 1.4. Corporate Acts. The Corporation shall not transfer on its books any --------------- certificates for shares of Common Stock owned by any Stockholder, nor issue any certificate in lieu of such shares, nor issue any new shares of Common Stock unless it has been satisfied of compliance with each and every condition hereof affecting such shares or certificates. ARTICLE II Departing Stockholders ---------------------- 2.1. Corporation's Option. If any Stockholder (the "Departing Stockholder") --------------------- shall cease to be employed by the Corporation or any of its subsidiaries on a full time basis for any reason, including without limitation death or Disability (as defined in Section 2.2 hereof), the Corporation shall have an option for a period of ninety (90) days commencing on the date of cessation of full time employment to purchase all of the shares of Common Stock then owned by the Departing Stockholder (the "Subject Shares"). Upon written demand by the Corporation to -2- the Departing Stockholder or his Legal Representative (as defined in Section 3.1 hereof), he or his estate shall sell and the Corporation shall purchase all of the Subject Shares. In the event cessation of full time employment occurs at the request of the Corporation for Cause (as defined in Section 2.2 hereof), the purchase price of the Subject Shares shall be the greater of (a) the purchase price originally paid for the Subject Shares by the Departing Stockholder or (b) the Book Value thereof (as defined in Section 5.2 hereof). In the event cessation of full time employment occurs at the request of the Corporation without Cause, by voluntary act of, or by death or by reason of the Disability of the Departing Stockholder, the purchase price of the Subject Shares shall be the Fair Market Value thereof (as defined in Section 5.3 hereof). 2.2. Definitions. (a) "Cause" as used herein shall mean any of the following ----------- committed by the Stockholder, directly or indirectly: (i) Commission by the Stockholder of an act of dishonesty involving the Corporation; (ii) Failure by the Stockholder to perform a material portion of his or her duties (not otherwise excused by the Disability of the Stockholder), or material breach by the Stockholder of any representation, warranty or agreement of the Stockholder made in any Employment Agreement between the Stockholder and the Corporation, which continues for a period of thirty (30) days after written notice from the Corporation to the Stockholder to that effect; (iii) Commission by the Stockholder of an act of gross incompetence in the course of his or her employment with the Corporation; (iv) The Stockholder's use of drugs or alcohol which interferes with the Stockholder's performance of his or her duties or responsibilities to the Corporation; or (v) If the Stockholder is found guilty or pleads nolo contendere --------------- to the commission of a felony or serious misdemeanor offense. (b) "Disability" as used herein shall mean one hundred and eighty (180) consecutive days or two hundred ten (210) days out of twelve (12) consecutive months of inability, due to physical or mental cause, of the Stockholder to perform his usual and regular duties for the Corporation. 2.3. Expiration of Options. If at the end of the specified option periods ---------------------- the Corporation has not exercised its option, the Departing Stockholder shall remain subject to the terms and conditions of this Agreement. ARTICLE III Death; Insolvency ----------------- 3.1. Death. In the event of the death of a Stockholder, the deceased ------ Stockholder's estate, personal representatives, heirs or legatees (hereinafter collectively referred to as the "Legal Representative") may retain such shares of Common Stock; provided that the holder or holders thereof agree in writing delivered to the Corporation to hold such shares subject to and otherwise to be bound by the terms of this Agreement, as fully as if he were a signatory hereto; and further provided that the right to retain shares shall be personal to the heirs and legatees of the individual Stockholders originally party to this Agreement and shall not be available to any other heirs or -3- legatees. In addition, the Legal Representative shall have the option for a period of ninety (90) days after the appointment of such Legal Representative to require the Corporation to purchase, and the Corporation shall be required to purchase, all or any part of the deceased Stockholder's Common Stock at the Fair Market Value thereof. Notwithstanding the above, the obligation of the Corporation to purchase such Common Stock shall be subject at all times to a determination by the Board of Directors of the Corporation, acting within its discretion reasonably exercised, that no legal or contractual impediment exists to such purchase by the Corporation with respect to which the Board may rely on advice of counsel) and that such purchase and the payment of the purchase price therefor shall not constitute an inadvisable application of available corporate funds. Such option shall be exercised only be a written notice sent to the Corporation within such ninety (90) day period. 3.2. Insolvency. If at any time a Stockholder becomes insolvent (as ---------- hereinafter defined), the Corporation shall have the option to purchase all or any part of the Common Stock of such insolvent Stockholder at the greater of (a) the purchase price originally paid for the Subject Shares by the Departing Stockholder or (b) the Book Value thereof (as defined in Section 5.2 hereof) for a period of ninety (90) days following such insolvency. Upon written demand by the Corporation to such insolvent Stockholder such Stockholder shall sell and the Corporation shall purchase all of the shares of Common Stock owned by such Stockholder. In addition, an insolvent Stockholder shall have the option for a period of ninety (90) days after the insolvency to require the Corporation to purchase, and the Corporation shall be required to purchase, all or any part of the insolvent Stockholder's Common Stock at the greater of (a) the purchase price originally paid for the Subject Shares by the Departing Stockholder or (b) the Book Value thereof. Notwithstanding the above, the obligation of the Corporation to purchase such Common Stock shall be subject at all times to a determination by the Board of Directors of the Corporation, acting within its discretion reasonably exercised, that no legal or contractual impediment exists to such purchase by the Corporation (with respect to which the Board may rely on advice of counsel) and that such purchase and the payment of the purchase price therefor shall not constitute an inadvisable application of available corporate funds. Such option shall be exercised only by a written notice sent to the Corporation within such ninety (90) day period. As used herein, a Stockholder shall be deemed "insolvent" upon the occurrence of any of the following: admission by a Stockholder in writing of his inability to pay his debts as they become due; or the making of an assignment for the benefit of Stockholder's creditors; or the filing by a Stockholder of a voluntary petition in bankruptcy or of any answer or petition seeking any reorganization, arrangement, composition or other insolvency relief under the present or any future bankruptcy act or any other applicable Federal, state or other insolvency statute, law or regulation; or the suffering of an adjudication as a bankruptcy; or the commencement of any proceeding against a Stockholder under any such act or statute, law or regulation which proceeding shall remain unstayed for a period of thirty (30) days after the commencement thereof; or the appointment of a receiver, trustee or liquidator in respect of all or any part of the assets of a Stockholder; or the attachment of, or appointment of a receiver or trustee for or in respect of, any property of a Stockholder, which attachment or appointment remains unstayed for a period of thirty (30) days. ARTICLE IV Right of First Refusal ---------------------- 4.1 No Limitation on Restrictions of Transfer. The provisions of this ----------------------------------------- Article IV shall in no way limit the Restrictions on Transfer set forth in Article I, including, without limitation, the approval rights or rights of first refusal of Brinker International, Inc. referenced in Section -4- 1.1(c). No transfer shall be permitted under this Article IV if it does not otherwise comply with Section 1.1(b) through (d). 4.2. Corporation's Option. If any Stockholder (the "Selling Stockholder") --------------------- shall for any reason whatsoever (except a transfer pursuant to Sections 1.2, 1.3 or 3.1 above) wish to sell or transfer any shares of Common Stock and shall have a bona fide purchaser or transferee for such Common Stock, he shall notify the Corporation of all terms and conditions of such proposed sale or transfer, including the identity of the bona fide buyer or transferee and a copy of the offer and the Corporation shall have an option for a period of thirty (30) days commencing on the date of its receipt of such notice to purchase all or any part of the shares of Common Stock which the Selling Stockholder proposes to sell or transfer on the same terms as are provided for in the notice. The Corporation shall send a written notice to the Selling Stockholder of its decision to exercise or not exercise the option, as the case may be, prior to the expiration of said thirty (30) day option period. If the sales price for such stock is other than cash or securities having a readily determinable value, then the Board of Directors of the Corporation shall determine the cash equivalent thereof. 4.3. Selling Stockholder's Sale to Third Party. If the option in Section 4.2 ------------------------------------------ is not exercised with respect to all shares of the Common Stock which the Selling Stockholder proposes to sell or transfer, then, in such event, the Selling Stockholder shall be entitled, for a period of ninety (90) days from the date on which the option provided in Section 4.2 herein terminated, to sell the unsubscribed Common Stock for which he provided notice in the manner specified in the Selling Stockholder's notice on the terms and conditions specified therein. If the Selling Stockholder does not sell such Common Stock within such ninety (90) day period and in the manner and on the terms and conditions and to the purchaser named therein, the Selling Stockholder's Common Stock shall remain fully subject to the restrictions contained in this Agreement. ARTICLE V Value ----- 5.1. Value Date. The Book Value or the Fair Market Value per share of the ----------- Common Stock shall be determined as set forth herein as of the last day of the quarter immediately preceding the event giving rise to the valuation requirement in this Agreement. 5.2. Book Value. As used herein, the term Book Value shall mean the net ----------- asset value of the Corporation per share of Common Stock as determined in accordance with generally accepted accounting principles applied on a basis consistent with the past practices of the Corporation. If Book Value is determined at the end of a fiscal year it shall be determined by the then acting independent public accountants of the Corporation and if Book Value is determined at the end of any quarterly period, it shall be determined by the Chief Financial or Chief Accounting Officer of the Corporation. The Book Value shall be set forth in a report (hereinafter called the "Book Value Report") prepared by such accountants or officer and delivered to the Corporation and all Stockholders or their Legal Representatives as promptly as practicable after the date as of which Book Value is determined, and shall be binding and conclusive on the parties hereto. 5.3. Fair Market Value. The Fair Market Value shall be determined by ------------------ agreement of the disposing Stockholder or his Legal Representative and the Corporation within fifteen (15) days after written request therefor from one to the other. In the event such Fair Market Value cannot be so determined within such time period, each party shall select an experienced investment banking firm by notice to the other within ten (10) days after written request by either. In the -5- event both parties do not select the same firm, the two (2) firms selected shall select a third experienced investment banking firm which shall, within thirty (30) days after selection, determine the Fair Market Value of the Common Stock. Fair Market Value shall be the amount which the selected firm determines would be paid per share by a third party to acquire the stock of the Corporation proposed to be sold, assuming the payment of the purchase price in cash at closing, pursuant to open and competitive bidding conducted by a knowledgeable and experienced investment banking firm, assuming complete cooperation by management, with appropriate reduction for the fact that the Common Stock being valued constitutes a minority interest and that there is no public market for such stock. In the event the investment banking firm selected provides a range of values as opposed to a single value, the Fair Market Value shall be the median of the range of values. The report of Fair Market Value shall be deemed the Fair Market Value Report. The cost of any determination of Fair Market Value shall be borne equally by the Corporation and the disposing party. ARTICLE VI Closing ------- The closing of any purchase of Common Stock pursuant to this Agreement (a "Closing"), shall be made as follows: (a) Unless otherwise agreed upon in writing by the Stockholder (or his Legal Representatives, as the case may be) and the Corporation, a Closing shall take place in the principal executive offices of the Corporation at eleven o'clock in the morning on the fifteenth (15th) business day after the later of (i) the full exercise of their respective options, or ii) receipt by the Corporation of the Book Value or Fair Market Value Report, if required; provided, however that this period of time may be changed if approved by the Corporation in order to provide reasonable time in which to obtain the approval or consent, if any, required from third parties as set forth in Section 1.1(c) or for other reasons. (b) The Stockholder shall deliver to the purchaser at the Closing the certificates representing his shares of Common Stock, free and clear of any and all liens and encumbrances whatsoever (and shall deliver a written warranty and representation to such effect), and duly endorsed for transfer to each purchaser or accompanied by stock powers duly endorsed for transfer to such purchaser, together with all applicable stock transfer tax stamps affixed or payment provided therefor and such other documents as may be necessary to effectuate the transfer, against delivery of a check drawn in an amount equal to the applicable purchase price or the terms and conditions of a third party offer, as the case may be. In the event that Common Stock is to be sold by Legal Representatives of a deceased Stockholder, the estate shall obtain or cause to be obtained state tax waivers, if necessary, and shall execute any and all necessary documents required to carry out the terms of this Agreement. (c) In the event that a Stockholder sells his Common Stock to a purchaser who would not otherwise be bound by this Agreement, such purchaser, as a condition to his purchase, shall agree to be bound by the terms of this Agreement. The Corporation and the Stockholders agree that upon the request of such purchaser, the Corporation and the Stockholders shall cause the issuance to such purchaser of certificates of Common Stock equal to the number of shares of Common Stock so purchased. Prior to any sale to a purchaser who is not a Stockholder of the -6- Corporation, the Selling Stockholder, purchaser or transferee Stockholder, as the case may be, must satisfy counsel to the Corporation that the proposed sale of his Common Stock will not violate (i) the Securities Act (or any similar federal statute then in effect) or any of the rules and regulations promulgated thereunder; and (ii) any applicable state securities laws. ARTICLE VII Legend on Certificates ---------------------- The Stockholders and the Corporation agree to cause a legend in the form set forth below, to be conspicuously noted on the face or reverse of all certificates representing Common Stock presently owned by the Stockholders or which may hereafter be issued during the term of this Agreement: This Certificate and all rights thereby represented are subject to all of the terms, provisions and conditions of a certain Stockholder Agreement made and entered into the 15th day of September, 1997, and any amendments thereto, by and among this Corporation and certain of its Stockholders, and may not be sold, assigned, transferred, pledged, hypothecated or in any manner whatsoever disposed of or encumbered except in accordance with the terms and provisions of said agreement, a copy of which is on file and available for inspection at the office of the Corporation. The Corporation and the Stockholders will use their best efforts to prevent the issuance by the Corporation of any Common Stock, unless the foregoing legend shall be conspicuously noted on the certificate. Any person who in the future owns shares of Common Stock, as a condition to the receipt of such stock, must agree to be bound by and to execute this Agreement. A copy of this Agreement shall at all times be kept in the principal office of the Corporation. ARTICLE VIII Term of Agreement ----------------- This Agreement and all restrictions on the shares of Common Stock created hereby shall commence on the date hereof and shall terminate on the occurrence of any of the following events: (a) A single Stockholder becoming the owner of all of the outstanding Common Stock which is then subject to this Agreement; (b) A public offering of the Common Stock of the Corporation pursuant to a registration statement declared effective under the Securities Act; (c) The execution of a written instrument by the Corporation and all persons who then own shares subject to this Agreement which terminates the same; (d) The liquidation and dissolution of the Corporation. -7- ARTICLE IX Specific Performance -------------------- Due to the fact that the Common Stock cannot be readily purchased or sold in the open market, and for other reasons, the parties will be irreparably damaged in the event that this Agreement is not specifically enforced. In the event of a breach or threatened breach of the terms, covenants and/or conditions of this Agreement by any of the parties hereto, the other parties shall, in addition to all other remedies, be entitled to a temporary or permanent injunction, without showing any actual damage, and/or a decree for specific performance in accordance with the provisions hereof. ARTICLE X Miscellaneous ------------- 10.1 Further Executions. The parties hereto shall each execute and deliver ------------------ or cause to be executed and delivered to the others such further instruments and documents and shall take such other action as may be reasonably required to more effectively carry out the intent and purposes of this Agreement and the transactions contemplated hereby. Notwithstanding the foregoing, the Stockholders agree to enter into the Existing Agreement if requested to do so by the Corporation. 10.2. Binding on Successors. This Agreement shall be binding upon and inure ---------------------- to the benefit of the Corporation and its successors and the Stockholders and their Legal Representatives and successors. The Corporation may assign all of its rights hereunder. The Stockholders, by the signing hereof, direct their Legal Representatives, where applicable, to open their estates promptly in the courts of proper jurisdiction and to execute, procure and deliver all documents including, but not limited to, appropriate court orders, letters testamentary or letters of administration and estate and inheritance tax waivers, as shall be required to effectuate the purposes of this Agreement. Except as otherwise expressly provided herein, nothing contained herein shall confer or is intended to confer on and, third party or entity which is not a party to this Agreement any rights under this Agreement. 10.3. Additional Shares. Except as otherwise provided, this Agreement shall ------------------ apply to all stock of any class issued by the Corporation to Stockholders hereafter and the Corporation and each Stockholder agree that all such stock shall contain the appropriate legend reflecting same. 10.4. Entire Agreement. This Agreement constitutes the entire agreement ---------------- between the parties relating to the subject master hereof. This Agreement cannot be changed or terminated orally. This Agreement may be amended, the parties may take any action herein prohibited or omit to take action herein required to be performed by them, and any breach of or compliance with any covenant, agreement, warranty or representation may be waived, only if the written consent or waiver is obtained of Stockholders holding not less than two-thirds of the outstanding shares of Common Stock of the Corporation; provided, however, if any such amendment or waiver adversely affects only the Stockholders (and not all Stockholders equally), the holders of a majority of the shares of Common Stock owned by the Stockholders must approve such amendment or waiver. The descriptive headings of the several sections of this Agreement are inserted for convenience only and do not constitute a part of this Agreement. 10.5. Governing Law. This Agreement shall be governed by and construed in ------------- accordance with the internal laws of the Commonwealth of Massachusetts without giving effect to principles of conflicts of law. The parties hereto agree and intend that the proper and exclusive forum for -8- the litigation of any disputes or controversies arising out of, or related to, this Agreement shall be the courts of the Commonwealth of Massachusetts and of any Federal Court located in such state. The Corporation and the Stockholders agree that they will not commence or move to transfer any action or proceeding, arising out of or relating to this Agreement, in or to any court other than one located in such state. The Corporation and the Stockholders irrevocably consent to the service of process of any of the aforesaid courts in any such action or proceeding by the mailing of copies thereof by registered or certified mail, postage prepaid, to the parties at the addresses provided herein, such service to become effective thirty (30) days after such mailing. Nothing contained in this Section shall affect the right of the Corporation to serve process in any other manner permitted by law or commence legal proceedings or otherwise proceed against the other parties in any other jurisdiction. In the event that any Stockholder should commence or maintain any action arising out of or related to this Agreement in a forum other than the courts of the Commonwealth of Massachusetts, the Corporation shall be entitled to request the dismissal of such action, and the Corporation and the Stockholders stipulate that such action shall be dismissed. 10.6. Severability. In the event that any one or more of the provisions of ------------- this Agreement shall for any reason be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provisions of this Agreement and this Agreement shall be construed as if such invalid, illegal or unenforceable provisions had never been contained herein. 10.7. Notices. All notices, statements and other communications provided for -------- by this Agreement shall be in writing and shall be deemed to have been given when actually delivered to the party to which notice is given when hand deliver, when received if sent by telecopier or by same day or overnight recognized commercial courier service or when mailed postage paid by registered or certified mail, return receipt requested, addressed to the party to which notice is given at its address on file with the Corporation or at its address set forth in a notice given by such party in accordance with the provisions hereof; provided, however, that any notice of change of address shall be effective only upon receipt. 10.8. Waivers. A waiver on the part of any of the parties hereto of any ------- term, provision or condition of this Agreement or breach thereof shall not constitute a precedent, nor bind any party hereto to a waiver of any other term, provision or condition of this Agreement or any other or succeeding breach of the same or any other term, provision or condition hereof. 10.9. Pronouns. Whenever the context requires, the use in this Agreement of -------- a pronoun of any gender shall be deemed to refer also to any other gender, and the use of the singular shall be deemed to refer also to the plural. 10.10. Counterparts. This Agreement may be executed in one or more ------------ counterparts, each of which shall be an original but all of which shall be deemed one and the same instrument. 10.11 Certain Votes. Each Stockholder hereby agrees to cast his or her vote -------------- as Benjamin R. Jacobson or such other individual who shall become the Operating Principal for the Corporation (as defined in any and all Franchise Agreements and Development Agreements between Brinker International, Inc., the Corporation and certain other parties, as such Agreements may be amended from time to time) shall direct, in the event (and only in the event) that the Stockholders are entitled to cast votes on a matter relating to action which the Corporation is required to take or omit to take under the express terms of any such Agreement. -9- Stockholder Agreement --------------------- Signature Page -------------- IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the day and year first above written. NE RESTAURANT COMPANY, INC. By: ---------------------------------- Benjamin R. Jacobson Chairman and Treasurer Corporate Seal ATTEST: - ----------------------------- Carl Axelrod, Clerk NAME AND ADDRESS OF STOCKHOLDER --------------------------------- Address (please print): --------------------------------- --------------------------------- --------------------------------- --------------------------------- -10- EX-10.1 15 1997 EQUITY INCENTIVE PLAN OF NERCO DATED 9/15/97 EXHIBIT 10.1 NE RESTAURANT COMPANY, INC. 1997 EQUITY INCENTIVE PLAN SECTION 1. PURPOSE ------- The purpose of the NE Restaurant Company, Inc. 1997 Equity Incentive Plan (the "Plan") is to attract and retain key employees, directors, stockholders, advisors and consultants, to provide an incentive for them to assist NE Restaurant Company, Inc. (the "Corporation") to achieve long-range performance goals, and to enable them to participate in the long-term growth of the Corporation. SECTION 2. DEFINITIONS ----------- (a) "Affiliate" means any business entity in which the Corporation owns directly or indirectly 50% or more of the total combined voting power or has a significant financial interest as determined by the Board. (b) "Annual Meeting" means the annual meeting of shareholders or special meeting in lieu of annual meeting of shareholders at which one or more directors are elected. (c) "Award" means any Option, Stock Appreciation Right, Performance or Award Share, or Restricted Stock awarded under the Plan. (d) "Award Share" means a share of Common Stock awarded to an employee, director, advisor or consultant without payment therefor. (e) "Board" means the Board of Directors of the Corporation. (f) "Code" means the Internal Revenue Code of 1986, as amended from time to time. (g) "Committee" means a committee of not less than three members of the Board which may be appointed by the Board from time to time to administer the Plan. (h) "Common Stock" or "Stock" means the Common Stock, par value $.01 per share, of the Corporation. (i) "Corporation" means NE Restaurant Company, Inc. (j) "Designated Beneficiary" means the beneficiary designated by a Participant, in a manner determined by the Board, to receive amounts due or exercise rights of the Participant in the event of the Participant's death. In the absence of an effective designation by a Participant, Designated Beneficiary shall mean the Participant's estate. (k) "Fair Market Value" means, with respect to Common Stock or any other property, the fair market value of such property as determined by the Board in good faith or in the manner established by the Board from time to time. (l) "Nonqualified Stock Option" means an option to purchase shares of Common Stock, awarded to a Participant under Section 6, which is not intended to meet the requirements of Section 422 of the Code or any successor provision. (m) "Option" means a Nonqualified Stock Option. (n) "Participant" means a person selected by the Board to receive an Award under the Plan. (o) "Performance Cycle" or "Cycle" means the period of time selected by the Board during which performance is measured for the purpose of determining the extent to which an award of Performance Shares has been earned. (p) "Performance Shares" mean shares of Common Stock which may be earned by the achievement of performance goals, awarded to a Participant under Section 8. (q) "Restricted Period" means the period of time selected by the Board during which an award of Restricted Stock may be forfeited to the Corporation. (r) "Restricted Stock" means shares of Common Stock subject to forfeiture, awarded to a Participant under Section 9. (s) "Stock Appreciation Right" or "SAR" means a right to receive any excess in value of shares of Common Stock over the reference price, awarded to a Participant under Section 7. (t) "Stock Unit" means an award of Common Stock and/or other rights granted as units that are valued in whole or in part by reference to, or otherwise based on, the value of Common Stock, awarded to a Participant under Section 10. SECTION 3. ADMINISTRATION -------------- The Board shall have authority to adopt, alter and repeal such administrative rules, guidelines and practices governing the operation of the Plan as it shall from time to time consider advisable, and to interpret the provisions of the Plan. The Board's decisions shall be final and binding. The Board, in its discretion at any time, may appoint a Committee to administer the Plan. To the extent permitted by applicable law, the Board may delegate to the Committee the power to make Awards to Participants and all determinations under the Plan with respect thereto. SECTION 4. ELIGIBILITY ----------- All employees, directors, stockholders, advisors and consultants of the Corporation or any Affiliate capable of contributing significantly to the successful performance of the Corporation, other than a person who has irrevocably elected not to be eligible, are eligible to be Participants in the Plan. SECTION 5. STOCK AVAILABLE FOR AWARDS -------------------------- (a) Subject to adjustment under subsection (b), Awards may be made under the Plan, of Options to acquire not in excess of 500,000 shares of Common Stock. Other Awards may be made as the Board may determine, provided that a maximum of 500,000 shares of Common Stock may be issued under this Plan. If any Award in respect of shares of Common Stock expires or is terminated unexercised or is forfeited for any reason or settled in a manner that results in fewer shares outstanding than were initially awarded, including without limitation the surrender of shares in payment for the Award or any tax obligation thereon, the shares subject to such Award or so surrendered, as the case may be, to the extent of such expiration, termination, 2 forfeiture or decrease, shall again be available for award under the Plan. Common Stock issued through the assumption or substitution of outstanding grants from an acquired corporation shall not reduce the shares available for Awards under the Plan. Shares issued under the Plan may consist in whole or in part of authorized but unissued shares or treasury shares. (b) In the event that the Board determines that any stock dividend, extraordinary cash dividend, creation of a class of equity securities, recapitalization, reorganization, merger, consolidation, split-up, spin-off, combination, exchange of shares, warrants or rights offering to purchase Common Stock at a price substantially below fair market value, or other similar transaction affects the Common Stock such that an adjustment is required in order to preserve the benefits or potential benefits intended to be made available under the Plan, then the Board shall equitably adjust any or all of (i) the number and kind of shares in respect of which Awards may be made under the Plan, (ii) the number and kind of shares subject to outstanding Awards, and (iii) the award, exercise or conversion price with respect to any of the foregoing, and if considered appropriate, the Board may make provision for a cash payment with respect to an outstanding Award, provided that the number of shares subject to any Award shall always be a whole number. SECTION 6. STOCK OPTIONS ------------- (a) Subject to the provisions of the Plan, the Board may award Nonqualified Stock Options and determine the number of shares to be covered by each Option, the option price therefor and the conditions and limitations applicable to the exercise of the Option. (b) The Board shall establish the option price at the time each Option is awarded. (c) Each Option shall be exercisable at such times and subject to such terms and conditions as the Board may specify in the applicable Award or thereafter. The Board may impose such conditions with respect to the exercise of Options, including conditions relating to applicable federal or state securities laws, as it considers necessary or advisable. (d) No shares shall be delivered pursuant to any exercise of an Option until payment in full of the option price therefor is received by the Corporation. Such payment may be made in whole or in part in cash or, to the extent permitted by the Board at or after the award of the Option, by delivery of a note or shares of Common Stock owned by the optionholder, including Restricted Stock, valued at their Fair Market Value on the date of delivery, by the reduction of the shares of Common Stock that the optionholder would be entitled to receive upon exercise of the Option, such shares to be valued at their Fair Market Value on the date of exercise, less their option price (a so-called "cashless exercise"), or such other lawful consideration as the Board may determine. In addition, an optionholder may engage in a successive exchange (or series of exchanges) in which the shares of Common Stock that such optionholder is entitled to receive upon the exercise of an Option may be simultaneously utilized as payment for the exercise of an additional Option or Options. (e) The Board may provide for the automatic award of an Option upon the delivery of shares to the Corporation in payment of an Option for up to the number of shares so delivered. 3 SECTION 7. STOCK APPRECIATION RIGHTS ------------------------- Subject to the provisions of the Plan, the Board may award SARs in tandem with an Option (at or after the award of the Option), or alone and unrelated to an Option. SARs in tandem with an Option shall terminate to the extent that the related Option is exercised, and the related Option shall terminate to the extent that the tandem SARs are exercised. SECTION 8. Performance Shares ------------------ (a) Subject to the provisions of the Plan, the Board may award Performance Shares and determine the number of such shares for each Performance Cycle and the duration of each Performance Cycle. There may be more than one Performance Cycle in existence at any one time, and the duration of Performance Cycles may differ from each other. The payment value of Performance Shares shall be equal to the Fair Market Value of the Common Stock on the date the Performance Shares are earned or, in the discretion of the Board, on the date the Board determines that the Performance Shares have been earned. (b) The Board shall establish performance goals for each Cycle, for the purpose of determining the extent to which Performance Shares awarded for such Cycle are earned, on the basis of such criteria and to accomplish such objectives as the Board may from time to time select. During any Cycle, the Board may adjust the performance goals for such Cycle as it deems equitable in recognition of unusual or non-recurring events affecting the Corporation, changes in applicable tax laws or accounting principles, or such other factors as the Board may determine. (c) As soon as practicable after the end of a Performance Cycle, the Board shall determine the number of Performance Shares which have been earned on the basis of performance in relation to the established performance goals. The payment values of earned Performance Shares shall be distributed to the Participant or, if the Participant has died, to the Participant's Designated Beneficiary, as soon as practicable thereafter. The Board shall determine, at or after the time of award, whether payment values will be settled in whole or in part in cash or other property, including Common Stock or Awards. SECTION 9. RESTRICTED STOCK ---------------- (a) Subject to the provisions of the Plan, the Board may award shares of Restricted Stock and determine the duration of the Restricted Period during which, and the conditions under which, the shares may be forfeited to the Corporation and the other terms and conditions of such Awards. Shares of Restricted Stock may be issued for no cash consideration or such minimum consideration as may be required by applicable law or such other consideration as may be determined by the Board. (b) Shares of Restricted Stock may not be sold, assigned, transferred, pledged or otherwise encumbered, except as permitted by the Board, during the Restricted Period. Shares of Restricted Stock shall be evidenced in such manner as the Board may determine. Any certificates issued in respect of shares of Restricted Stock shall be registered in the name of the Participant and unless otherwise determined by the Board, deposited by the Participant, together with a stock power endorsed in blank, with the Corporation. At the expiration of the Restricted Period, the Corporation shall deliver such certificates to the Participant or if the Participant has died, to the Participant's Designated Beneficiary. 4 SECTION 10. STOCK UNITS ----------- (a) Subject to the provisions of the Plan, the Board may award Stock Units subject to such terms, restrictions, conditions, performance criteria, vesting requirements and payment rules as the Board shall determine. (b) Shares of Common Stock awarded in connection with a Stock Unit Award shall be issued for no cash consideration or such minimum consideration as may be required by applicable law. Such shares of Common Stock may be designated as Award Shares by the Board. SECTION 11. GENERAL PROVISIONS APPLICABLE TO AWARDS --------------------------------------- (a) Documentation. Each Award under the Plan shall be evidenced by a written ------------- document delivered to the Participant specifying the terms and conditions thereof and containing such other terms and conditions not inconsistent with the provisions of the Plan as the Board considers necessary or advisable to achieve the purposes of the Plan or comply with applicable tax and regulatory laws and accounting principles. (b) Board Discretion. Each type of Award may be made alone, in addition to or in ----------------- relation to any other type of Award. The terms of each type of Award need not be identical, and the Board need not treat Participants uniformly. Except as otherwise provided by the Plan or a particular Award, any determination with respect to an Award may be made by the Board at the time of award or at any time thereafter. Without limiting the foregoing, an Award may be made by the Board, in its discretion, to any 401(k), savings, pension, profit sharing or other similar plan of the Corporation in lieu of or in addition to any cash or other property contributed or to be contributed to such plan. (c) Settlement. The Board shall determine whether Awards are settled in whole or ----------- in part in cash, Common Stock, other securities of the Corporation, Awards or other property. The Board may permit a Participant to defer all or any portion of a payment under the Plan, including the crediting of interest on deferred amounts denominated in cash and dividend equivalents on amounts denominated in Common Stock. (d) Dividends and Cash Awards. In the discretion of the Board, any Award under ------------------------- the Plan may provide the Participant with (i) dividends or dividend equivalents payable currently or deferred with or without interest, and (ii) cash payments in lieu of or in addition to an Award. (e) Termination of Employment. The Board shall determine the effect on an Award ------------------------- of the disability, death, retirement or other termination of employment of a Participant and the extent to which, and the period during which, the Participant's legal representative, guardian or Designated Beneficiary may receive payment of an Award or exercise rights thereunder. (f) Change in Control. In order to preserve a Participant's rights under an ------------------ Award in the event of a change in control of the Corporation, the Board in its discretion may, at the time an Award is made or at any time thereafter, take one or more of the following actions: (i) provide for the acceleration of any time period relating to the exercise or realization of the Award, (ii) provide for the purchase of the Award upon the Participant's request for an amount of cash or other property that could have been received upon the exercise or realization of the Award had the Award been currently 5 exercisable or payable, (iii) adjust the terms of the Award in a manner determined by the Board to reflect the change in control, (iv) cause the Award to be assumed, or new rights substituted therefor, by another entity, or (v) make such other provision as the Board may consider equitable and in the best interests of the Corporation. (g) Withholding. The Participant shall pay to the Corporation, or make provision ----------- satisfactory to the Board for payment of, any taxes required by law to be withheld in respect of Awards under the Plan no later than the date of the event creating the tax liability. In the Board's discretion, such tax obligations may be paid in whole or in part in shares of Common Stock, including shares retained from the Award creating the tax obligation, valued at their Fair Market Value on the date of delivery. The Corporation and its Affiliates may, to the extent permitted by law, deduct any such tax obligations from any payment of any kind otherwise due to the Participant. (h) Amendment of Award. The Board may amend, modify or terminate any outstanding ------------------ Award, including substituting therefor another Award of the same or a different type and changing the date of exercise or realization, provided that the Participant's consent to such action shall be required unless the Board determines that the action, taking into account any related action, would not materially and adversely affect the Participant. SECTION 12. MISCELLANEOUS ------------- (a) No Right To Employment. No person shall have any claim or right to be ---------------------- granted an Award, and the grant of an Award shall not be construed as giving a Participant the right to continued employment. The Corporation expressly reserves the right at any time to dismiss a Participant free from any liability or claim under the Plan, except as expressly provided in the applicable Award. (b) No Rights As Shareholder. Subject to the provisions of the applicable Award, ------------------------ no Participant or Designated Beneficiary shall have any rights as a shareholder with respect to any shares of Common Stock to be distributed under the Plan until he or she becomes the holder thereof. A Participant to whom Common Stock is awarded shall be considered the holder of the Stock at the time of the Award except as otherwise provided in the applicable Award. (c) Effective Date. The Plan shall be effective on September 12, 1997. --------------- (d) Amendment of Plan. The Board may amend, suspend or terminate the Plan or any ----------------- portion thereof at any time. (e) Governing Law. The provisions of the Plan shall be governed by and -------------- interpreted in accordance with the laws of the State of Delaware. (f) Indemnity. Neither the Board nor the Committee, nor any members of either, ---------- nor any employees of the Corporation or any parent, subsidiary, or other affiliate, shall be liable for any act, omission, interpretation, construction or determination made in good faith in connection with their responsibilities with respect to this Plan, and the Corporation hereby agrees to indemnify the members of the Board, the members of the Committee, and the employees of the Corporation and its parent or subsidiaries in respect of any claim, loss, damage, or expense (including reasonable counsel fees) arising from any such act, omission, interpretation, construction or determination to the full extent permitted by law. 6 EX-10.4 16 EMPLOYMENT AGREEMENT Exhibit 10.4 EMPLOYMENT AGREEMENT -------------------- Agreement entered into as of this 30th day of September, 1991, by and between NE Restaurant Company Limited Partnership, NE Restaurant (Glastonbury) Limited Partnership and NE Restaurant (Cambridge) Limited Partnership (collectively, the "Partnerships"); the respective general partners of the Partnerships, NE Restaurant Company, Inc., NE Restaurant (Connecticut), Inc. and NE Restaurant (Cambridge), Inc. (collectively, the "General Partners"); and Dennis Pedra (the "Employee"). The Partnerships and the General Partners shall hereinafter be collectively referred to as the "Employers." W I T N E S S E T H: ------------------- WHEREAS, the Employers are desirous of assuring to themselves for a minimum two year period the benefits to be obtained from the special abilities and talents of the Employee relative to the operation of the Employers' business and the Employee is desirous of working for the Employers. NOW, THEREFORE, in consideration of the mutual covenants and agreements of the parties hereto, it is hereby agreed by and between the Employers and the Employee as follows: 1. Employment and Compensation. --------------------------- (a) General. The Employers agree to employ the Employee during the term ------- set forth herein, and the Employee agrees to be employed by the Employers for the performance of the duties hereinafter set forth (i) at a base salary (the "Base Salary") of One Hundred Sixty Thousand Dollars ($160,000) per year (pro rated for any partial year), or such greater amount as the General Partners may authorize from time to time, in their sole discretion, and (ii) for the Incentive Compensation described below. The Base Salary shall be payable bi- weekly or on such other basis, not less frequently than monthly, as the Employers may generally pay their salaried employees. The Employee is not entitled to additional compensation for services as an officer or director of the Employers unless such additional compensation is approved by the General Partners. (b) Incentive Compensation. The Employee shall be eligible to receive ---------------------- an annual performance bonus in an amount of up to fifty (50%) percent of the Base Salary which will be based upon a bonus plan tied to the combined operating results of the Partnerships to be established and revised from time to time by the General Partners. 2. Duties and Responsibilities. The Employee shall be employed as --------------------------- President and Chief Operating Officer of each of the General Partners and shall be Chief Operating Officer of each of the Partnerships. He shall also have such other duties of similar responsibility and authority as may from time to time be assigned to him by the General Partners. The Employee shall devote to the performance of his duties on behalf of the Employers all of his time, energy and experience. The Employee shall at all times be subject to the supervision of the General Partners and their respective Boards of Directors. 3. Expenses. -------- (a) General. Each Employer agrees to reimburse the Employee for all ------- reasonable expenses incurred by him in connection with the business of that Employer. (b) Automobile. Without limiting the foregoing, the Employers agree to ---------- pay the Employee an automobile allowance of $709.00 per month and to reimburse the Employee for reasonable expenses (subject to appropriate documentation), including insurance and repair, incurred by the Employee in connection with the use of his automobile for Employer business purposes. 4. Employee Benefits. In addition to his salary, the Employee shall ----------------- receive such additional benefits, if any, by way of insurance, participation in pension, profit sharing or thrift plans, hospitalization and similar employee benefits as may from time to time be afforded or made available to employees by the Employers generally. 5. Equity Participation. -------------------- (a) If the Employee is then a full-time employee of the Partnerships, the Employers agree to grant to the Employee a 6% Limited Partnership interest (the "Incentive Interest") in each of the Partnerships upon receipt by the Investor Limited Partners of the Partnerships of aggregate distributions from the Partnerships equal to the amount of their combined capital contributions to the Partnerships plus an annual priority return of 15% compounded annually (the "Cumulative Priority Return"). In addition, if the Employee is then a full-time employee of the Partnerships, commencing at the end of the Partnerships' third full fiscal year through the end of the Partnerships' sixth full fiscal year, the Employee may earn up to one-half of said Limited Partnership interest (3%) if the Partnerships meet certain performance goals as set forth in the vesting schedule set forth below. The Employee shall not be deemed to be a full-time employee (for purposes of this Section 5 and Section 6) if either the Employee or an Employer has given the other notice of the termination of the Employee's full-time employment.
Cumulative Total Cumulative Fiscal Year (1) EBITDA (1)(2) Percentage Interest Vested (3) - ---------------------------------------- --------------------------- ------------------------------- End of 3rd full Fiscal Year......................... $ 6,503,000 1% End of 4th full Fiscal Year......................... $ 9,703,000 2% End of 5th full Fiscal Year......................... $13,416,000 3% End of 6th full Fiscal Year......................... $17,544,000 3%
___________________ (1) If the Partnerships' fiscal years change, appropriate equitable adjustments will be made to this vesting schedule as agreed to by the General Partners and the Employee. (2) The combined cumulative Partnership earnings before interest, taxes, amortization and transactions outside of the ordinary course of business, from the beginning of the Partnerships' first full fiscal year through the end of the fiscal year indicated in column 1. EBITDA shall be calculated in accordance with generally accepted accounting principles. The EBITDA reported in the Partnerships' audited financial statements shall be binding and conclusive on all parties. (3) The Limited Partnership interest indicated shall be deemed to be vested as of the first day of the immediately following fiscal year. (b) Notwithstanding the vesting of the Incentive Interests in the Partnerships hereunder, the Employee shall not be entitled to any distributions from the Partnerships with respect to such Interests in connection with (i) a capital transaction, (ii) a financing or refinancing of the business or assets of the Partnership, or (iii) the liquidation or dissolution of the Partnership, until the Investor Limited Partners have received aggregate distributions from the Partnerships equal to the amount of their combined capital contributions to the Partnerships plus the Cumulative Preferred Return. (c) As a condition to receiving the Incentive Interests set forth above, the Employee shall be required to execute such documents as may be reasonably required by the applicable Partnerships to effect the issuance of the Incentive Interest to the Employee and the Employee's agreement to be bound by the terms and conditions of the applicable partnership agreement with respect to that interest, including without limitation, the restrictions on transfer set forth therein. (d) At the end of the third fiscal year and each fiscal year thereafter, the General Partners will review the terms of the Incentive Interest and make such changes, if any, that shall increase the vesting of the Incentive Interest as they deem appropriate, in their sole discretion, subject to the limitations set forth under the partnership agreements of the Partnerships. 6. Right of Repurchase. ------------------- (a) If the Employee shall cease to be employed by the Employers on a full time basis by the voluntary act of the Employee within the period ending five (5) years from the Acquisition Date (as defined in Section 9) or at the request of the Employers for Cause (as defined in Section 10), the Employers shall have an option for a period of ninety (90) days commencing on the date of cessation of full time employment to purchase all of the Incentive Interests then owned by the Employee that were granted under Section 5 of this Agreement (the "Vested Interests''). Upon written demand by one or more of the Employers to the Employee he or his estate shall sell and the electing Employers (or their designees) shall purchase all of such Vested Interests. The purchase price of the Interests shall be the Fair Market Value thereof. (b) The Fair Market Value shall be determined by agreement of the Employee and the General Partners within fifteen (15) days after written request therefor from one to the other. In the event such Fair Market Value cannot be so determined within such time period, each party shall select an experienced investment banking firm by notice to the other within ten (10) days after written request by either. In the event both parties do not select the same firm, the two (2) firms selected shall select a third experienced investment banking firm which shall, within thirty (30) days after selection, determine the Fair Market Value of the Vested Interests. Fair Market Value shall be the amount which the selected firm determines would be paid by a third party to acquire all of the Vested Interests, assuming the payment of the purchase price in cash at closing, pursuant to open and competitive bidding conducted by a knowledgeable and experienced investment banking firm, assuming complete cooperation by management, with no reduction for the fact that the Vested Interests being valued constitutes a minority interest or that there is no public market for such Interests. In the event the investment banking firm selected provides a range of values as opposed to a single value, the Fair Market Value shall be the median of the range of values. The report of Fair Market Value shall be deemed the Fair Market Value Report. The cost of any determination of Fair Market Value shall be borne equally by the Partnerships as a group and the Employee on the other hand. (c) The closing of the purchase of the Vested Interests pursuant to this Agreement shall be made as follows: (i) Unless otherwise agreed upon in writing by the Employee and the Partnerships (or their designees), the closing shall take place in the principal executive offices of NE Restaurant Company, Inc. at eleven o'clock in the morning on the sixtieth (60th) business day after the later of (i) the full exercise of their respective options, or (ii) receipt by the Employers of the Fair Market Value Report. (ii) The Employee shall deliver to each purchaser at the closing such instruments of assignment as they shall reasonably request transferring the Vested Interests, free and clear of any and all liens and encumbrances whatsoever (and shall deliver a written warranty and representation to such effect), against delivery of a check drawn in an amount equal to the Fair Market Value. (d) Notwithstanding anything to the contrary in the limited partnership agreements of the Partnerships, during the term of the Employee's full-time employment, and for a period of ninety (90) days thereafter, the Employee may not sell, assign, transfer, pledge, hypothecate or otherwise dispose of his Vested Interest without the consent of the General Partner of the applicable Partnership, which may be withheld by the General Partner in its sole discretion. (e) The Employee further agrees that his Incentive Interests shall be subject to the right of first purchase and other restrictions on transfer set forth by Brinker International, Inc. (or its successors or assigns, collectively "Brinker") under the Development Agreement and Franchise Agreements entered into by the Partnerships with Brinker, as such agreements may be amended from time to time. 7. Non-Competition. --------------- (a) During the term of his employment with the Employers hereunder, the Employee will be a full-time employee of the Employers and will not work as a consultant, employee, owner or part-owner of any other business. (b) For so long as the Employee is employed by an Employer and for a period of one (1) year thereafter (the "Non-Competition Period"), the Employee will not, without the express written consent of the Employer: (i) directly or indirectly, engage in, participate in, or assist, as owner, part-owner, partner, director, officer, trustee, employee, agent or consultant, or in any other capacity, any business organization engaged in the restaurant business whose menu, method of operation or 0000clientele, is the same or is similar to that of restaurants owned, operated or under development by an Employer (the "Company Restaurants"), and which are, or are intended to be located, within a ten (10) mile radius of the locations of any such Company Restaurants; (ii) impair or attempt to impair the relationship, contractual or otherwise, between an Employer and any person who is a supplier, customer or client of the Employer; or (iii) hire or attempt to hire away from an Employer any director, officer, employee or agent of the Employer, assist in such hiring by any other person, or otherwise encourage any person to terminate his or her employment with the Employer. (c) Nothing in paragraphs (a) - (b) hereof shall preclude the Employee from making passive investments of not more than 10% of a class of securities of any business enterprise registered under the Securities Exchange Act of 1934 or from remaining as an investor in and serving as a member of the board of directors of Uno Concepts, Inc. 8. Employee Proprietary Information and Invention Agreement. -------------------------------------------------------- (a) The Employee will keep in confidence, and will not disclose or transfer, any trade secrets or trade secret materials of an Employer to anyone. In addition, the Employee similarly will keep in confidence and will not disclose or transfer any information which is not technically a trade secret but which is identified to him as being confidential information of an Employer. The Employee will not appropriate such trade secrets or confidential information for the benefit of himself or any other person. (b) The Employee will not remove from an Employer's premises, or make any copies of, trade secret material or material containing confidential information, except for use in an Employer's business. The Employee will return to an Employer all such materials, including all copies of it, in his possession or under his control, (i) at any time upon the request of the Employer, and (ii) without such a request at the termination of any employment by the Employer. (c) The Employee understands that the Employers will own and operate restaurants under the name and mark "Chili's Grill & Bar" as a franchisee of Brinker, and, in connection therewith, the Employee agrees to enter into an Agreement for Protection of Brinker's Trade Secrets Regarding the Development and/or Operation of a Restaurant Using the Chili's System as may be required by Brinker. The Employee further agrees to enter into a limited guaranty, together with the other executive 0officers of the General Partners, of the Employers obligations under their Franchise Agreements and Development Agreement with Brinker, in substantially the form presented to the Employee. 9. Term. Unless sooner terminated as provided in Section 10 below, ---- the term of the Employee's employment hereunder shall be for an initial term of two (2) years, commencing if and when the Employers acquire substantially all the assets of Dunkin' Ventures Corporation (the "Acquisition Date") pursuant to that certain Asset Purchase Agreement, dated as of November 21, 1990, as amended by the Second Amendment to Asset Purchase Agreement dated as of August 22, 1991 as it may be further amended from time to time, and thereafter shall continue for an indefinite period unless terminated by either party upon six months' prior written notice. The Employers may, during the period following notice of termination, appoint another President and Chief Operating Officer, provided that the Employee continues to receive the benefits set forth elsewhere in this Agreement. 10. Termination. The Employee's employment hereunder may be ----------- terminated at any time as follows: (a) By the Employee, upon a material breach by the Employers of any of their obligations hereunder which continues for a period of fifteen (15) days after written notice from the Employee to that effect. (b) By the Employers, for "cause," effective upon giving written notice to the Employee. "Cause" as used herein shall mean any of the following committed by the Employee, directly or indirectly: (i) Commission by the Employee of an act of dishonesty involving any Employer; (ii) Failure by the Employee to perform a material portion of his duties (not otherwise excused by the disability of the Employee), or material breach by the Employee of any representation, warranty or agreement of the Employee hereunder, which continues for a period of thirty (30) days after written notice from the a General Partner to the Employee to that effect; (iii) Commission by the Employee of an act of gross incompetence in the course of his employment hereunder; (iv) The Employee's use of drugs or alcohol which interferes with the Employee's performance of his duties or responsibilities under this Agreement; or (v) It the Employee is found guilty or pleads nolo contendere ---- ---------- to the commission of a felony or serious misdemeanor offense. (c) upon the death of the Employee; or (d) By either party, by giving written notice to the other, upon the "disability" of the Employee. "Disability" as used herein shall mean one hundred and eighty (180) consecutive days or two hundred ten (210) days out of twelve (12) consecutive months of inability, due to physical or mental cause, of the Employee to perform his usual and regular duties for the Employers. For purposes herein, the Employee shall be deemed to have ceased employment hereunder at the end of such period. Nothing in this Agreement shall impair the power of the Board of Directors of a General Partner to designate temporarily another Chief Operating Officer during any period while the Employee is so disabled, but such action shall not otherwise impair the Employee's rights under this Agreement. The Employers may, at any time during the period in which the Employee is unable to perform his usual and regular duties for the Employers, reasonably require the Employee to submit to the examination of a physician appointed by the Employers for the purpose of verifying the Employee's inability to perform his usual and regular duties. If the Employee shall disagree with the determination of the physician appointed by the Employers, he may request an examination to be conducted by a physician of his choice. If the two physicians shall disagree, the two physicians shall jointly appoint an independent physician, whose determination shall be final and binding upon the parties. 11. Prior Agreements. The Employee hereby represents and warrants to ---------------- the Employers that he is not now under any obligation to any person, firm or corporation which is inconsistent with or in conflict with this Agreement or which would prevent, limit or impair in any way the performance by him of his obligations hereunder. 12. Remedies. In the event of any breach or threatened breach by the -------- Employee of the provisions of this Agreement, the Employers shall be entitled to an injunction restraining such breach. Nothing herein shall be construed as prohibiting an Employer from pursuing any other remedies available to the Employer for such breach or threatened breach, including the recovery of damages from the Employee. The Employee acknowledges that his employment by the Employers imposes on him a duty to act solely for the benefit of the Employers in all matters connected with or related to his employment. The Employee agrees that in the event that he violates his duty of loyalty to an Employer, in addition to any and all other remedies which an Employer may have 0available to it, the Employer will be entitled, at its election, to recover from the Employee (i) the value of anything belonging to the Employer which the Employee uses in breach of such duty or (ii) any benefit which the Employee receives as a result of violating his duty of loyalty, or its proceeds, and the Employer shall also be entitled to recover from the Employee the amount of damages thereby caused. 13. Miscellaneous. ------------- (a) In case it is determined by a court of competent jurisdiction that any provision herein contained is illegal or unenforceable, such determination shall solely affect such provision and shall not impair the remaining provisions of this Agreement. (b) This Agreement contains the whole agreement between the parties hereto and the parties expressly acknowledge that there are no inducements, promises, terms, conditions or obligations made or entered into by an Employer or the Employee other than contained herein. This Agreement may not be amended except by a writing signed by the party against whom enforcement thereof is sought. (c) This Agreement shall be governed by the Laws or Commonwealth of Massachusetts. IN WITNESS WHEREOF, the parties hereto or their duly authorized representatives have signed, sealed and delivered this Agreement effective as of the day and year first above written. THE EMPLOYERS: NE RESTAURANT COMPANY LIMITED PARTNERSHIP By: NE Restaurant Company, Inc. By: /s/ Benjamin Jacobson --------------------- Benjamin Jacobson Chairman of the Board NE RESTAURANT (GLASTONBURY ) LIMITED PARTNERSHIP By: NE Restaurant (Connecticut), Inc. By: /s/ Benjamin Jacobson --------------------- Benjamin Jacobson Chairman of the Board NE RESTAURANT (CAMBRIDGE) LIMITED PARTNERSHIP By: NE Restaurant (Cambridge), Inc. By: /s/ Benjamin Jacobson --------------------- Benjamin Jacobson Chairman of the Board NE RESTAURANT COMPANY, INC. By: /s/ Benjamin Jacobson --------------------- Benjamin Jacobson Chairman of the Board NE RESTAURANT (CONNECTICUT), INC. By: /s/ Benjamin Jacobson --------------------- Benjamin Jacobson Chairman of the Board NE RESTAURANT (CAMBRIDGE), INC. By: /s/ Benjamin Jacobson --------------------- Benjamin Jacobson Chairman of the Board THE EMPLOYEE: /s/ Dennis Pedra -------------------------------- Dennis Pedra EX-10.5 17 EMPLOYMENT AGREEMENT EXHIBIT 10.5 EMPLOYMENT AGREEMENT -------------------- Agreement entered into as of this 30th day of September, 1991, by and between NE Restaurant Company Limited Partnership, NE Restaurant (Glastonbury) Limited Partnership and NE Restaurant (Cambridge) Limited Partnership (collectively, the "Partnerships"); the respective general partners of the Partnerships, NE Restaurant Company, Inc., NE Restaurant (Connecticut), Inc. and NE Restaurant (Cambridge), Inc. (collectively, the "General Partners"); and Paul Hoagland (the "Employee"). The Partnerships and the General Partners shall hereinafter be collectively referred to as the "Employers." W I T N E S S E T H: ------------------- WHEREAS, the Employers are desirous of assuring to themselves for a minimum one year period the benefits to be obtained from the special abilities and talents of the Employee relative to the operation of the Employers' business and the Employee is desirous of working for the Employers. NOW, THEREFORE, in consideration of the mutual covenants and agreements of the parties hereto, it is hereby agreed by and between the Employers and the Employee as follows: 1. Employment and Compensation. --------------------------- (a) General. The Employers agree to employ the Employee during the ------- term set forth herein, and the Employee agrees to be employed by the Employers for the performance of the duties hereinafter set forth (i) at a base salary (the "Base Salary") of One Hundred Twenty Thousand Dollars ($120,000) per year (pro rated for any partial year), or such greater amount as the General Partners may authorize from time to time, in their sole discretion, and (ii) for the Incentive Compensation described below. The Base Salary shall be payable bi- weekly or on such other basis, not less frequently than monthly, as the Employers may generally pay their salaried employees. The Employee is not entitled to additional compensation for services as an officer or director of the Employers unless such additional compensation is approved by the General Partners. (b) Incentive Compensation. The Employee shall be eligible to receive ---------------------- an annual performance bonus in an amount of up to fifty (50%) percent of the Base Salary which will be based upon a bonus plan tied to the combined operating results of the Partnerships to be established and revised from time to time by the General Partners. 2. Duties and Responsibilities. The Employee shall be employed as Vice --------------------------- President of each of the General Partners and Chief Financial Officer of each of the Partnerships, subject to the approval of the applicable liquor licensing authorities. He shall also have such other duties of similar responsibility and authority as may from time to time be assigned to him by the General Partners. The Employee shall devote to the performance of his duties on behalf of the Employers all of his time, energy and experience. The Employee shall at all times be subject to the supervision of the General Partners and their respective Boards of Directors. 3. Expenses. -------- (a) General. Each Employer agrees to reimburse the Employee for all ------- reasonable expenses incurred by him in connection with the business of that Employer. (b) Automobile. Without limiting the foregoing, the Employers agree ---------- to pay the Employee an automobile allowance of $650.00 per month and to reimburse the Employee for reasonable expenses (subject to appropriate documentation), including insurance and repair, incurred by the Employee in connection with the use of his automobile for Employer business purposes. 4. Employee Benefits. In addition to his salary, the Employee shall ----------------- receive such additional benefits, if any, by way of insurance, participation in pension, profit sharing or thrift plans, hospitalization and similar employee benefits as may from time to time be afforded or made available to employees by the Employers generally. 5. Equity Participation. -------------------- (a) If the Employee is then a full-time employee of the Partnerships, the Employers agree to grant to the Employee a 4.5% Limited Partnership interest (the "Incentive Interest") in each of the Partnerships upon receipt by the Investor Limited Partners of the Partnerships of aggregate distributions from the Partnerships equal to the amount of their combined capital contributions to the Partnerships plus an annual priority return of 15% compounded annually (the "Cumulative Priority Return"). In addition, if the Employee is then a full-time employee of the Partnerships, commencing at the end of the Partnerships' third full fiscal year through the end of the Partnerships' sixth full fiscal year, the Employee may earn up to one-half of said Limited Partnership interest (2.25%) if the Partnership's meet certain performance goals as set forth in the vesting schedule set forth below. The Employee shall not be deemed to be a full- time employee (for purposes of this Section 5 and Section 6) if either the Employee or an Employer has given the other notice of the termination of the Employee's full-time employment. 2
Cumulative Total Cumulative Fiscal Year (1) EBITDA (1)(2) Percentage Interest Vested (3) ----------- ------------- ------------------------------ End of 3rd full Fiscal Year......................... $ 6,503,000 .75% End of 4th full Fiscal Year......................... $ 9,703,000 1.50% End of 5th full Fiscal Year......................... $13,416,000 2.25% End of 6th full Fiscal Year......................... $17,544,000 2.25%
___________________ (1) If the Partnerships' fiscal years change, appropriate equitable adjustments will be made to this vesting schedule as agreed to by the General Partners and the Employee. (2) The combined cumulative Partnership earnings before interest, taxes, amortization and transactions outside of the ordinary course of business, from the beginning of the Partnerships' first full fiscal year through the end of the fiscal year indicated in column 1. EBITDA shall be calculated in accordance with generally accepted accounting principles. The EBITDA reported in the Partnerships' audited financial statements shall be binding and conclusive on all parties. (3) The Limited Partnership interest indicated shall be deemed to be vested as of the first day of the immediately following fiscal year. (b) Notwithstanding the vesting of the Incentive Interests in the Partnerships hereunder, the Employee shall not be entitled to any distributions from the Partnerships with respect to such Interests in connection with (i) a capital transaction, (ii) a financing or refinancing of the business or assets of the Partnership, or (iii) the liquidation or dissolution of the Partnership, until the Investor Limited Partners have received aggregate distributions from the Partnerships equal to the amount of their combined capital contributions to the Partnerships plus the Cumulative Preferred Return. (c) As a condition to receiving the Incentive Interests set forth above, the Employee shall be required to execute such documents as may be reasonably required by the applicable Partnerships to effect the issuance of the Incentive Interest to the Employee and the Employee's agreement to be bound by the terms and conditions of the applicable partnership agreement with respect to that interest, including without limitation, the restrictions on transfer set forth therein. 3 (d) At the end of the third fiscal year and each fiscal year thereafter, the General Partners will review the terms of the Incentive Interest and make such changes, if any, that shall increase the vesting of the Incentive Interest as they deem appropriate, in their sole discretion, subject to the limitations set forth under the partnership agreements of the Partnerships. 6. Right of Repurchase. ------------------- (a) If the Employee shall cease to be employed by the Employers on a full time basis by the voluntary act of the Employee within the period ending five (5) years from the Acquisition Date (as defined in Section 9) or at the request of the Employers for Cause (as defined in Section 10), the Employers shall have an option for a period of ninety (90) days commencing on the date of cessation of full time employment to purchase all of the Incentive Interests then owned by the Employee that were granted under Section 5 of this Agreement (the "Vested Interests''). Upon written demand by one or more of the Employers to the Employee he or his estate shall sell and the electing Employers (or their designees) shall purchase all of such Vested Interests. The purchase price of the Interests shall be the Fair Market Value thereof. (b) The Fair Market Value shall be determined by agreement of the Employee and the General Partners within fifteen (15) days after written request therefor from one to the other. In the event such Fair Market Value cannot be so determined within such time period, each party shall select an experienced investment banking firm by notice to the other within ten (10) days after written request by either. In the event both parties do not select the same firm, the two (2) firms selected shall select a third experienced investment banking firm which shall, within thirty (30) days after selection, determine the Fair Market Value of the Vested Interests. Fair Market Value shall be the amount which the selected firm determines would be paid by a third party to acquire all of the Vested Interests, assuming the payment of the purchase price in cash at closing, pursuant to open and competitive bidding conducted by a knowledgeable and experienced investment banking firm, assuming complete cooperation by management, with no reduction for the fact that the Vested Interests being valued constitutes a minority interest or that there is no public market for such Interests. In the event the investment banking firm selected provides a range of values as opposed to a single value, the Fair Market Value shall be the median of the range of values. The report of Fair Market Value shall be deemed the Fair Market Value Report. The cost of any determination of Fair Market Value shall be borne equally by the Partnerships as a group and the Employee on the other hand. (c) The closing of the purchase of the Vested Interests pursuant to this Agreement shall be made as follows: (i) Unless otherwise agreed upon in writing by the Employee and the Partnerships (or their designees), the closing shall take place in the principal executive offices of NE Restaurant Company, Inc. at eleven o'clock in the morning on the sixtieth (60th) business day after the later of 4 (i) the full exercise of their respective options, or (ii) receipt by the Employers of the Fair Market Value Report. (ii) The Employee shall deliver to each purchaser at the closing such instruments of assignment as they shall reasonably request transferring the Vested Interests, free and clear of any and all liens and encumbrances whatsoever (and shall deliver a written warranty and representation to such effect), against delivery of a check drawn in an amount equal to the Fair Market Value. (d) Notwithstanding anything to the contrary in the limited partnership agreements of the Partnerships, during the term of the Employee's full-time employment, and for a period of ninety (90) days thereafter, the Employee may not sell, assign, transfer, pledge, hypothecate or otherwise dispose of his Vested Interest without the consent of the General Partner of the applicable Partnership, which may be withheld by the General Partner in its sole discretion. (e) The Employee further agrees that his Incentive Interests shall be subject to the right of first purchase and other restrictions on transfer set forth by Brinker International, Inc. (or its successors or assigns, collectively "Brinker") under the Development Agreement and Franchise Agreements entered into by the Partnerships with Brinker, as such agreements may be amended from time to time. 7. Non-Competition. --------------- (a) During the term of his employment with the Employers hereunder, the Employee will be a full-time employee of the Employers and will not work as a consultant, employee, owner or part-owner of any other business. (b) For so long as the Employee is employed by an Employer and for a period of one (1) year thereafter (the "Non-Competition Period"), the Employee will not, without the express written consent of the Employer: (i) directly or indirectly, engage in, participate in, or assist, as owner, part-owner, partner, director, officer, trustee, employee, agent or consultant, or in any other capacity, any business organization engaged in the restaurant business whose menu, method of operation or 0000clientele, is the same or is similar to that of restaurants owned, operated or under development by an Employer (the "Company Restaurants"), and which are, or are intended to be located, within a ten (10) mile radius of the locations of any such Company Restaurants; (ii) impair or attempt to impair the relationship, contractual or otherwise, between an Employer and any person who is a supplier, customer or client of the Employer; or 5 (iii) hire or attempt to hire away from an Employer any director, officer, employee or agent of the Employer, assist in such hiring by any other person, or otherwise encourage any person to terminate his or her employment with the Employer. (c) Nothing in paragraphs (a) - (b) hereof shall preclude the Employee from making passive investments of not more than 10% of a class of securities of any business enterprise registered under the Securities Exchange Act of 1934. 8. Employee Proprietary Information and Invention Agreement. -------------------------------------------------------- (a) The Employee will keep in confidence, and will not disclose or transfer, any trade secrets or trade secret materials of an Employer to anyone. In addition, the Employee similarly will keep in confidence and will not disclose or transfer any information which is not technically a trade secret but which is identified to him as being confidential information of an Employer. The Employee will not appropriate such trade secrets or confidential information for the benefit of himself or any other person. (b) The Employee will not remove from an Employer's premises, or make any copies of, trade secret material or material containing confidential information, except for use in an Employer's business. The Employee will return to an Employer all such materials, including all copies of it, in his possession or under his control, (i) at any time upon the request of the Employer, and (ii) without such a request at the termination of any employment by the Employer. (c) The Employee understands that the Employers will own and operate restaurants under the name and mark "Chili's Grill & Bar" as a franchisee of Brinker, and, in connection therewith, the Employee agrees to enter into an Agreement for Protection of Brinker's Trade Secrets Regarding the Development and/or Operation of a Restaurant Using the Chili's System as may be required by Brinker. The Employee further agrees to enter into a limited guaranty, together with the other executive officers of the General Partners, of the Employers obligations under their Franchise Agreements and Development Agreement with Brinker, in substantially the form presented to the Employee. 9. Term. Unless sooner terminated as provided in Section 10 below, ---- the term of the Employee's employment hereunder shall be for an initial term of one (1) year, commencing if and when the Employers acquire substantially all the assets of Dunkin' Ventures Corporation (the "Acquisition Date") pursuant to that certain Asset Purchase Agreement, dated as of November 21, 1990, as amended by the Second Amendment to Asset Purchase Agreement dated as of August 22, 1991 as it may be further amended from time to time, and thereafter shall continue for an indefinite period unless terminated by either party upon six months' prior written notice. The Employers may, during the period following notice of termination, appoint another President and Chief Operating Officer, provided that the Employee continues to receive the benefits set forth elsewhere in this Agreement. 6 10. Termination. The Employee's employment hereunder may be ----------- terminated at any time as follows: (a) By the Employee, upon a material breach by the Employers of any of their obligations hereunder which continues for a period of fifteen (15) days after written notice from the Employee to that effect. (b) By the Employers, for "cause," effective upon giving written notice to the Employee. "Cause" as used herein shall mean any of the following committed by the Employee, directly or indirectly: (i) Commission by the Employee of an act of dishonesty involving any Employer; (ii) Failure by the Employee to perform a material portion of his duties (not otherwise excused by the disability of the Employee), or material breach by the Employee of any representation, warranty or agreement of the Employee hereunder, which continues for a period of thirty (30) days after written notice from the a General Partner to the Employee to that effect; (iii) Commission by the Employee of an act of gross incompetence in the course of his employment hereunder; (iv) The Employee's use of drugs or alcohol which interferes with the Employee's performance of his duties or responsibilities under this Agreement; or (v) It the Employee is found guilty or pleads nolo contendere ---- ---------- to the commission of a felony or serious misdemeanor offense. (c) upon the death of the Employee; or (d) By either party, by giving written notice to the other, upon the "disability" of the Employee. "Disability" as used herein shall mean one hundred and eighty (180) consecutive days or two hundred ten (210) days out of twelve (12) consecutive months of inability, due to physical or mental cause, of the Employee to perform his usual and regular duties for the Employers. For purposes herein, the Employee shall be deemed to have ceased employment hereunder at the end of such period. Nothing in this Agreement shall impair the power of the Board of Directors of a General Partner to designate temporarily another Chief Operating Officer during any period while the Employee is so disabled, but such action shall not otherwise impair the Employee's rights under this Agreement. The Employers may, at any time during the period in which the Employee is unable to perform his usual and regular duties for the Employers, reasonably require the Employee to submit to the examination of a physician 7 appointed by the Employers for the purpose of verifying the Employee's inability to perform his usual and regular duties. If the Employee shall disagree with the determination of the physician appointed by the Employers, he may request an examination to be conducted by a physician of his choice. If the two physicians shall disagree, the two physicians shall jointly appoint an independent physician, whose determination shall be final and binding upon the parties. (e) By the Employers, effective upon giving written notice to the Employee, if the Employee is rejected as an officer of the Employers by any applicable liquor licensing authority. 11. Prior Agreements. The Employee hereby represents and warrants to ---------------- the Employers that he is not now under any obligation to any person, firm or corporation which is inconsistent with or in conflict with this Agreement or which would prevent, limit or impair in any way the performance by him of his obligations hereunder. 12. Remedies. In the event of any breach or threatened breach by the -------- Employee of the provisions of this Agreement, the Employers shall be entitled to an injunction restraining such breach. Nothing herein shall be construed as prohibiting an Employer from pursuing any other remedies available to the Employer for such breach or threatened breach, including the recovery of damages from the Employee. The Employee acknowledges that his employment by the Employers imposes on him a duty to act solely for the benefit of the Employers in all matters connected with or related to his employment. The Employee agrees that in the event that he violates his duty of loyalty to an Employer, in addition to any and all other remedies which an Employer may have available to it, the Employer will be entitled, at its election, to recover from the Employee (i) the value of anything belonging to the Employer which the Employee uses in breach of such duty or (ii) any benefit which the Employee receives as a result of violating his duty of loyalty, or its proceeds, and the Employer shall also be entitled to recover from the Employee the amount of damages thereby caused. 13. Miscellaneous. ------------- (a) In case it is determined by a court of competent jurisdiction that any provision herein contained is illegal or unenforceable, such determination shall solely affect such provision and shall not impair the remaining provisions of this Agreement. (b) This Agreement contains the whole agreement between the parties hereto and the parties expressly acknowledge that there are no inducements, promises, terms, conditions or obligations made or entered into by an Employer or the Employee other than contained herein. This Agreement may not be amended except by a writing signed by the party against whom enforcement thereof is sought. (c) This Agreement shall be governed by the Laws or Commonwealth of Massachusetts. 8 IN WITNESS WHEREOF, the parties hereto or their duly authorized representatives have signed, sealed and delivered this Agreement effective as of the day and year first above written. THE EMPLOYERS: NE RESTAURANT COMPANY LIMITED PARTNERSHIP By: NE Restaurant Company, Inc. By: /s/ Benjamin Jacobson --------------------- Benjamin Jacobson Chairman of the Board NE RESTAURANT (GLASTONBURY) LIMITED PARTNERSHIP By: NE Restaurant (Connecticut), Inc. By: /s/ Benjamin Jacobson --------------------- Benjamin Jacobson Chairman of the Board NE RESTAURANT (CAMBRIDGE) LIMITED PARTNERSHIP By: NE Restaurant (Cambridge), Inc. By: /s/ Benjamin Jacobson --------------------- Benjamin Jacobson Chairman of the Board NE RESTAURANT COMPANY, INC. By: /s/ Benjamin Jacobson --------------------- Benjamin Jacobson Chairman of the Board NE RESTAURANT (CONNECTICUT), INC. By: /s/ Benjamin Jacobson --------------------- Benjamin Jacobson Chairman of the Board 9 NE RESTAURANT (CAMBRIDGE), INC. By: /s/ Benjamin Jacobson --------------------- Benjamin Jacobson Chairman of the Board THE EMPLOYEE: /s/ Paul Hoagland -------------------------- Paul Hoagland 10 EX-10.6 18 AMEND. TO THE PEDRA EMPLOYMENT AGREEMENT Exhibit 10.6 AMENDMENT TO EMPLOYMENT AGREEMENT --------------------------------- This Amendment entered into as of this 31st day of December, 1993 by and between NE Restaurant Company Limited Partnership, NE Restaurant (Glastonbury) Limited Partnership and NE Restaurant (Cambridge) Limited Partnership (collectively, the "Partnerships"); the respective general partners of the Partnerships, NE Restaurant Company, Inc. ("NERC"), NE Restaurant (Connecticut), Inc. and NE Restaurant (Cambridge), Inc. (collectively, the "General Partners"); and Dennis Pedra (the "Employee"). WHEREAS, the Partnerships, the General Partners and the Employee have entered into an Employment Agreement, dated as of September 30, 1991 (the "Employment Agreement"); WHEREAS, the Partnerships have been reorganized, effective as of the date hereof, such that NERC owns all of the partnership interests in the Partnerships and the business of the Partnerships will hereinafter be conducted by NERC; and WHEREAS, the Partnerships, the General Partners and the Employee wish to amend the Employment Agreement such that NERC is the Employer as defined therein and otherwise as hereinafter set forth; NOW THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto hereby agree as follows: 1. The Employment Agreement is hereby amended to substitute NERC for the Partnerships and the General Partners as parties to the Employment Agreement and, in connection therewith, to change the term "Employers" throughout the Employment Agreement to "Employer" and such term shall hereinafter be defined to mean "NE Restaurant Company, Inc., its successors and assigns." 2. The Partnerships and the General Partners (other than NERC) are hereby released from all obligations and liabilities under the Employment Agreement and NERC hereby assumes all obligations and liabilities of each of the Partnerships and the General Partners under the Employment Agreement. 3. The Employee hereby acknowledges and agrees that, in consideration of the 7.34% interest in the Partnerships issued to him by the Partnerships which has been converted into 7.34% of the issued and outstanding common stock of NERC in connection with the reorganization, he is not entitled to any further Incentive Interest or other interest in the Partnerships as provided in Section 5 of the Employment Agreement and, therefore, Section 5 of the Employment Agreement is hereby deleted in its entirety. 4. Section 6 of the Employment Agreement is hereby deleted in its entirety and the rights of repurchase with respect to the common stock of NERC held by the Employee shall be -1- governed by the Stockholder Agreement, dated as of the date hereof, among the stockholders of NERC, including the Employee. 5. Except as provided herein, all terms and provisions of the Employment Agreement shall remain in full force and effect. IN WITNESS WHEREOF, the undersigned have hereunto set their hands as of the date first above written. NE RESTAURANT COMPANY, INC. on its own behalf and, as general partner, on behalf of NE Restaurant Company Limited Partnership By: /s/ Paul Hoagland ----------------- Paul Hoagland, Vice President NE RESTAURANT(CAMBRIDGE), INC. on its own behalf and, as general partner, on behalf of NE Restaurant (Cambridge) Limited Partners By: /s/ Paul Hoagland ----------------- Paul Hoagland, Vice President NE RESTAURANT (CONNECTICUT), INC. on its own behalf and, as general partner, on behalf of NE Restaurant (Glastonbury) Limited Partnership By: /s/ Paul Hoagland ----------------- Paul Hoagland, Vice President /s/ Dennis Pedra ---------------- Dennis Pedra -2- EX-10.7 19 AMEND. TO THE HOAGLAND EMPLOYMENT AGREEMENT Exhibit 10.7 AMENDMENT TO EMPLOYMENT AGREEMENT --------------------------------- This Amendment entered into as of this 31st day of December, 1993 by and between NE Restaurant Company Limited Partnership, NE Restaurant (Glastonbury) Limited Partnership and NE Restaurant (Cambridge) Limited Partnership (collectively, the "Partnerships") ; the respective general partners of the Partnerships, NE Restaurant Company, Inc. ("NERC") , NE Restaurant (Connecticut), Inc. and NE Restaurant (Cambridge), Inc. (collectively, the General Partners"); and Paul Hoagland (the "Employee"). WHEREAS, the Partnerships, the General Partners and the Employee have entered into an Employment Agreement, dated as of September 30, 1991 (the "Employment Agreement"); WHEREAS, the Partnerships have been reorganized, effective as of the date hereof, such that NERC owns all of the partnership interests in the Partnerships and the business of the Partnerships will hereinafter be conducted by NERC; and WHEREAS, the Partnerships, the General Partners and the Employee wish to amend the Employment Agreement such that NERC is the Employer as defined therein and otherwise as hereinafter set forth; NOW THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto hereby agree as follows: 1. The Employment Agreement is hereby amended to substitute NERC for the Partnerships and the General Partners as parties to the Employment Agreement and, in connection therewith, to change the term "Employers" throughout the Employment Agreement to "Employer" and such term shall hereinafter be defined to mean "NE Restaurant Company, Inc., its successors and assigns." 2. The Partnerships and the General Partners (other than NERC) are hereby released from all obligations and liabilities under the Employment Agreement and NERC hereby assumes all obligations and liabilities of each of the Partnerships and the General Partners under the Employment Agreement. 3. The Employee hereby acknowledges and agrees that, in consideration of the 5.50% interest in the Partnerships issued to him by the Partnerships which has been converted into 5.50% of the issued and outstanding common stock of NERC in connection with the reorganization, he is not entitled to any further Incentive Interest or other interest in the Partnerships as provided in Section 5 of the Employment Agreement and, therefore, Section 5 of the Employment Agreement is hereby deleted in its entirety. 4. Section 6 of the Employment Agreement is hereby deleted in its entirety and the rights of repurchase with respect to the common stock of NERC held by the Employee shall be -1- governed by the Stockholder Agreement, dated as of the date hereof, among the stockholders of NERC, including the Employee. 5. Except as provided herein, all terms and provisions of the Employment Agreement shall remain in full force and effect. IN WITNESS WHEREOF, the undersigned have hereunto set their hands as of the date first above written. NE RESTAURANT COMPANY, INC. on its own behalf and, as general partner, on behalf of NE Restaurant Company Limited Partnership By: /s/ Dennis Pedra ---------------- Dennis Pedra, President NE RESTAURANT(CAMBRIDGE), INC. on its own behalf and, as general partner, on behalf of NE Restaurant (Cambridge) Limited Partners By: /s/ Dennis Pedra ---------------- Dennis Pedra, President NE RESTAURANT (CONNECTICUT), INC. on its own behalf and, as general partner, on behalf of NE Restaurant (Glastonbury) Limited Partnership By: /s/ Dennis Pedra ---------------- Dennis Pedra, President /s/ Paul Hoagland ----------------- Paul Hoagland -2- EX-10.11 20 FORM OF CREDIT AGMT AMONG BANK BOSTON, N.A., CHASE BANK OF EXHIBIT 10.11 FORM OF CREDIT AGREEMENT AMONG BANKBOSTON, N.A., AS ADMINISTRATIVE AGENT CHASE BANK OF TEXAS, N.A., AS DOCUMENTATION AGENT THE BANKS WHO ARE PARTIES HERETO AND NE RESTAURANT COMPANY, INC. AND BERTUCCI'S, INC. BERTUCCI'S RESTAURANT CORP. BERTUCCI'S SECURITIES CORPORATION BERESTCO, INC. SAL & VINNIE'S STEAKHOUSE INC. BERTUCCI'S OF ANNE ARUNDEL COUNTY, INC. BERTUCCI'S OF COLUMBIA, INC. BERTUCCI'S OF MONTGOMERY COUNTY, INC. BERTUCCI'S OF BEL AIR, INC. BERTUCCI'S OF WHITE MARSH, INC. BERTUCCI'S OF BALTIMORE COUNTY, INC. Dated as of July 21, 1998 TABLE OF CONTENTS ----------------- SECTION 1. DEFINITIONS AND RULES OF INTERPRETATION................. 2 SECTION 2. REVOLVING CREDIT FACILITY...............................15 SECTION 3. LETTER OF CREDIT FACILITY...............................17 SECTION 3.1 LETTER OF CREDIT COMMITMENT.............................17 SECTION 3.2 REIMBURSEMENT OBLIGATION OF THE BORROWER................18 SECTION 3.3. LETTER OF CREDIT PAYMENTS...............................19 SECTION 3.4. OBLIGATIONS ABSOLUTE....................................19 SECTION 3.5. RELIANCE BY ISSUER......................................20 SECTION 3.6. LETTER OF CREDIT FEE....................................20 SECTION 4. INTEREST; LATE FEE......................................20 SECTION 5. REPAYMENT AND PREPAYMENTS...............................22 SECTION 6. GENERAL PROVISIONS......................................24 SECTION 7. FEES AND PAYMENTS.......................................26 SECTION 8. GUARANTIES; JOINT AND SEVERAL OBLIGATIONS...............27 SECTION 9. REPRESENTATIONS AND WARRANTIES..........................30 SECTION 10. CONDITIONS PRECEDENT....................................33 SECTION 11. COVENANTS...............................................38 SECTION 12. EVENTS OF DEFAULT; ACCELERATION.........................47 SECTION 13. SET OFF.................................................50 SECTION 14. THE BANK AGENTS.........................................50 SECTION 15. ASSIGNMENT AND PARTICIPATIONS...........................54 SECTION 16. CONSENTS, AMENDMENTS, WAIVERS, ETC. ....................57 SECTION 17. MISCELLANEOUS...........................................58 CREDIT AGREEMENT ---------------- This CREDIT AGREEMENT (this "Agreement") is made as of July 21, 1998, among --------- (a) NE RESTAURANT COMPANY, INC. (the "Borrower"); (b) each of the Guarantors (as -------- hereinafter defined) of the Borrower appearing on the signature page hereto as a "Guarantor"; (c) BANKBOSTON, N.A., a national banking association, CHASE BANK OF TEXAS, N.A., a national banking association, and such other financial institutions which, in accordance with (S)15 hereafter become parties hereto as Banks (individually, a "Bank" and collectively, the "Banks"); (d) BANKBOSTON, ---- ----- N.A., as administrative agent for the Banks (the "Administrative Agent"); and -------------------- (e) CHASE BANK OF TEXAS, N.A., as documentation agent for the Banks (the "Documentation Agent"). - -------------------- W I T N E S S E T H: -------------------- WHEREAS, the Borrower and BankBoston, N.A. ("BKB") are parties to that --- certain Amended and Restated Revolving Credit and Term Loan Agreement dated as of October 20, 1994, as amended (the "Original Agreement") pursuant to which the ------------------ Borrower issued its Amended and Restated Note, as amended, in the principal amount of $22,000,000 payable to BKB (the "Original Note"); ------------- WHEREAS, the Borrower and NERC Acquisition Corp., a wholly-owned subsidiary of the Borrower, are parties with Bertucci's, Inc., a Massachusetts corporation ("Bertucci's"), to a Merger Agreement dated as of May 13, 1998 (the "Merger ---------- ------ Agreement") providing for the acquisition (the "Acquisition") by the Borrower or - --------- ----------- NERC Acquisition Corp. of all of the issued and outstanding shares of capital stock of Bertucci's; WHEREAS, contemporaneously with the execution of this Agreement, the Borrower has issued its unsecured 10 3/4% Senior Notes due July 20, 2008 (the "Senior Unsecured Notes"). The net proceeds from the offering of the Senior - ----------------------- Unsecured Notes will be used by the Borrower, together with the proceeds of a private placement of common stock of the Borrower pursuant to the Equity Purchase Agreements (as defined below) to fund the Acquisition, to repay the Original Note and all other obligations of the Borrower to BKB under the Original Agreement, to repay certain obligations of Bertucci's to BKB and to pay fees and expenses related to the Acquisition; WHEREAS, in order to provide a portion of the funds needed to consummate the Acquisition and to provide funds for working capital, expansion and general corporate purposes, the Borrower has requested the Banks to provide the Borrower with a senior secured revolving credit facility in the principal amount of up to $20,000,000; WHEREAS, the Bank Agents (as defined below) and the Banks are willing, subject to the terms and conditions set forth herein, to provide such credit facility to the Borrower; NOW THEREFORE, the parties hereto hereby agree as follows: SECTION 1. DEFINITIONS AND RULES OF INTERPRETATION: --------------------------------------- (a) Except for certain capitalized terms whose definitions are incorporated herein by reference in accordance with the following sentence, all capitalized terms used herein shall have the meanings assigned to them below. Except as otherwise defined herein, terms defined in the Indenture (as defined below) and incorporated herein by reference shall have the meanings set forth in the Indenture as if the same had been set forth herein in full; provided, however, -------- ------- all such terms shall survive the termination, expiration or other defeasance of the Indenture for purposes of this Agreement. Acquisition: As defined in the Preamble. ----------- Administrative Agent: As defined in the Preamble. -------------------- Affected Bank: As defined in (S)6(e). ------------- Agreement: As defined in the preamble. --------- Applicable Margin: For any calendar quarter, the applicable percentage set ----------------- forth below opposite the Funded Debt Leverage Ratio as of the end of the Most Recent Reference Period: - -------------------------------------------------------------------------------- APPLICABLE MARGINS ------------------ - -------------------------------------------------------------------------------- Funded Debt Applicable Margin for Applicable Margin Leverage Ratio Base Rate Loans for LIBOR Loans -------------- --------------- ----------------- - -------------------------------------------------------------------------------- Greater than or 0.75% 2.50% equal to 4.50:1.0 - -------------------------------------------------------------------------------- Less than 4.50:1.00 0.50% 2.25% but greater than or equal to 3.50:1.00 - -------------------------------------------------------------------------------- Less than 3.50:1.0 0.25% 2.00% but greater than or equal to 3.0:1.0 - -------------------------------------------------------------------------------- Less than 3.0:1.0 0.00% 1.75% but greater than or equal to 2.50:1.0 - -------------------------------------------------------------------------------- -2- - -------------------------------------------------------------------------------- Less than 2.50:1.0 0.00% 1.50% but greater than or equal to 2.0:1.0 - -------------------------------------------------------------------------------- Less than 2.0:1.0 0.00% 1.25% - -------------------------------------------------------------------------------- Notwithstanding the foregoing, in the event that the Banks shall not have received the financial statements and certificates required to be delivered to them pursuant to Section 11 with respect to such Most Recent Reference Period prior to the first day of the calendar quarter for which such Applicable Margins are to be determined, the Applicable Margins for such calendar quarter shall (until all of such financial statements and certificates are delivered to the Banks) be the highest of the Applicable Margins specified above. Approval: The approval of the Borrower of one or more Eligible Assignees -------- pursuant to (S)15(a), in writing and signed by a representative of the Borrower. The Borrower shall be deemed to have granted such Approval with respect to any such assignee(s) submitted by a Bank if it fails to approve or disapprove of a proposed assignee submitted in writing by a Bank within two (2) Business Days after receipt of such submission. Assignment and Acceptance: As defined in (S)15. ------------------------- Bank Agents: Collectively, the Administrative Agent and the Documentation ----------- Agent. Base Rate: The higher of (a) the annual rate of interest announced from --------- time to time by BKB at its head office in Boston, Massachusetts, as its "base rate" or (b) one-half of one percent (1/2%) 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 Bank from three funds brokers of recognized standing selected by the Bank. Base Rate Loan: A Loan for which interest is calculated with reference to -------------- the Base Rate pursuant to (S)4(a)(i). Borrower: As defined in the Preamble. -------- Business Day: (a) For all purposes other than as provided in clause (b) ------------ below, any day other than a Saturday, Sunday or legal holiday on which banks in Boston, Massachusetts are opened for the conduct of a substantial part of their commercial banking business; and (b) with respect to all notices and determinations in connection with, payments of principal and interest -3- on, LIBOR Loans, any day that is a Business Day described in clause (a) above and that is also a day for trading by and between banks in U.S. Dollars in the London interbank market. 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 any entity -------------------- in connection with the purchase or lease by such entity of Capital Assets that would be required to be capitalized and shown on the balance sheet of such entity in accordance with GAAP. Capitalized Leases: Leases under which an entity is the lessee or obligor, ------------------ the discounted future rental payment obligations under which are required to be capitalized on the balance sheet of such entity in accordance with GAAP. Change of Control: As defined in the Indenture, such definition being ----------------- hereby incorporated by reference. Charter Documents: The Certificate of Incorporation and By-laws (or similar ----------------- documents) of the Borrower and its Subsidiaries. Closing Date: The date hereof. ------------ Commitment: With respect to each Bank, the amount set forth on Exhibit A ---------- --------- hereto as the amount of such Bank'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 Borrower, as the same may be reduced from time to time in accordance with the provisions hereof; or if such commitment is terminated in accordance with the provisions hereof, zero. Commitment Percentage: With respect to each Bank, the percentage set forth --------------------- on Exhibit A hereto as such Bank's percentage of the aggregate Commitments of --------- all of the Banks. Consent: In respect of any person or entity, any permit, license or ------- exemption from, approval, consent of, registration or filing with any local, state or federal governmental or regulatory agency or authority, required under applicable law. Consolidated or consolidated: With reference to the Financials, the ---------------------------- financial statements of the Borrower and Subsidiaries consolidated in accordance with GAAP. Conversion Request: A notice, in the form of Exhibit D hereto, given by the ------------------ --------- Borrower to the Administrative Agent of the Borrower's election to convert or continue a Loan in accordance with (S)4(d) of the Agreement. -4- Date-Sensitive Data: Any data of any type that includes date information ------------------- or which is otherwise derived from or dependent on date information. Date-Sensitive System: Any software or hardware system or component, --------------------- including any electronic or electronically controlled system, that processes any Date-Sensitive Data and that is installed, in development or on order. Default: An event or act which with the giving of notice and/or the lapse ------- of time would become an Event of Default. Development Agreement(s): (i) the Development Agreement dated as of May ------------------------ 17, 1994 between the Franchisor and the Borrower, as successor to NE Restaurant Company Limited Partnership, as amended by Amendment of Development Agreement, as of June 1, 1997, (ii) the Development Agreement dated as June 23, 1997 between the Franchisor and the Borrower, as amended by First Amendment to On the Border Development Agreement dated as of March 9, 1998, as the same may be further amended and in effect from time to time (the "On the Border Development Agreement"). Discretionary Capital Expenditures: All Capital Expenditures which are not ---------------------------------- Non-Discretionary Capital Expenditures. Dollars or $: Dollars in lawful currency of the United States of America. ------------ Drawdown Date: In respect of any Revolving Credit Loan, the date on which ------------- the Revolving Credit Loan is made to the Borrower, and the date on which the Revolving Credit Loan is converted or continued in accordance with (S)4(d) of this Agreement. EBITDA: For any period, the Borrower's Consolidated EBITDA (as defined in ------ the Indenture, such definition being hereby incorporated by reference). Eligible Assignee: Any of (a) a commercial bank or finance company ----------------- organized under the laws of the United States, or any State thereof or the District of Columbia, and having total assets in excess of $1,000,000,000; (b) a savings and loan association or savings bank organized under the laws of the United States, or any State thereof or the District of Columbia, and having a net worth of at least $250,000,000 calculated in accordance with GAAP; (c) a commercial bank organized under the laws of any other country which is a member of the Organization for Economic Cooperation and Development (the "OECD"), or a political subdivision of any such country, and having total assets in excess of $1,000,000,000, provided that such bank is acting through a branch or agency -------- located in the country in which it is organized or another country which is also a member of the OECD and, provided, further, so long as no Event of Default has -------- ------- occurred and is continuing, the Borrower shall have given its consent, in writing, to the identity of such bank, which consent shall not be unreasonably withheld or delayed; and (d) if, but only if, any Event of Default has occurred and is continuing, any other bank, insurance company, -5- commercial finance company or other financial institution or other person approved by the Administrative Agent, such approval not to be unreasonably withheld. Environmental Laws: All laws pertaining to environmental matters, including ------------------ without limitation, the Resource Conservation and Recovery Act, the Comprehensive Environmental Response Compensation and Liability Act of 1980, the Superfund Amendments and Reauthorization Act of 1986, the Federal Clean Water Act, the Federal Clean Air Act, the Toxic Substances Control Act, in each case as amended, and all rules, regulations, judgments, decrees, orders and licenses arising under all such laws. Equity Offering: As defined in the Indenture, such definition being hereby --------------- incorporated by reference. Equity Purchase Agreements: The Stock Subscription Agreements dated as of -------------------------- April 15, 1998 and as of May 26, 1998 between the Borrower and the Investors (defined therein), and all documents executed in connection therewith. ERISA: The Employee Retirement Income Security Act of 1974, as amended, and ----- all rules, regulations, judgments, decrees, and orders arising thereunder. Event of Default: Any of the events listed in (S)12 hereof. ---------------- Fee Letters: The letter agreements between the Borrower and the ----------- Administrative Agent dated as of July 21, 1998 and between the Borrower and the Documentation Agent dated as of July 21, 1998. Financials: In respect of any period, the consolidated balance sheet of the ---------- Borrower as at the end of such period, and the related consolidated statement of income and statement of cash flow for such period, each setting forth in comparative form the figures for the previous comparable fiscal period and the figures of the budget for the Borrower for such fiscal period (to the extent available), all in reasonable detail and prepared in accordance with GAAP. Fixed Obligations: For any Reference Period, an amount equal to the sum of ----------------- (a) all payments of principal on Funded Debt that become due and payable or that are to become due and payable during such Reference Period, plus (b) the ---- aggregate liability of the Borrower and its Subsidiaries for interest on Indebtedness and payments by the Borrower for commitment fees under this Agreement during such Reference Period, plus (c) Rent that became due and ---- payable or that is to become due and payable during such Reference Period. Forward Commitment: Collectively, the commitment letters dated May 28, ------------------ 1997 and April 30, 1998 between FFCA Acquisition Corporation and the Borrower for up to an aggregate of sixteen (16) new restaurant loans, as amended or restated from time to time solely for the purposes of (i) reflecting the identity of the applicable Site Lessor or Site Lessors to act -6- as borrower thereunder and (ii) conforming the terms thereof with the terms of the FFCA Loan Documents. Forward Commitment Documents: Collectively, the documents executed ---------------------------- pursuant to the Forward Commitment between the applicable Site Lessor, as borrower, and FFCA Acquisition Corporation (or an affiliate), as Bank (as amended, restated, modified or supplemented and in effect from time to time). Forward Commitment Transactions: The transactions evidenced by the Forward ------------------------------- Commitment Documents. FFCA Loan Documents: Collectively, (i) the Loan Agreement dated as of ------------------- August 6, 1997 between NERC Limited Partnership, as borrower, and FFCA Acquisition Corporation, as Bank, (ii) the Loan Agreement dated as of June 30, 1998 between NERC Limited Partnership II, as borrower, and FFCA Acquisition Corporation, as Bank and (iii) the related promissory notes, mortgages and other documents executed in connection thereof (as amended, restated, modified or supplemented and in effect from time to time). FFCA-Related Lease: A lease executed by the Borrower, as lessee, and a ------------------ Site Lessor, as lessor, for the lease or sublease, as the case may be, of Real Estate and related restaurant equipment whether or not resulting from a sale/leaseback transaction (but not liquor licenses and rights under Franchise Agreements or Development Agreements). Funded Debt: As at any date of determination, an amount equal to the ----------- aggregate amount of consolidated Indebtedness of the Borrower and its Subsidiaries (including the Loans, the Maximum Drawing Amount and any Unpaid Reimbursement Obligations) relating to the borrowing of money or the obtaining of credit or in respect of Capitalized Leases. Funded Debt Leverage Ratio: In relation to any Reference Period, the ratio -------------------------- of (i) Funded Debt at the end of such Reference Period to (ii) EBITDA for such Reference Period; provided, however, for the Reference Period ended December 31, -------- ------- 1998, the Funded Debt Leverage Ratio shall be calculated solely by reference to the period from October 1, 1998 through December 31, 1998, with EBITDA for such period being multiplied by 4; for the Reference Period ended March 31, 1999, the Funded Debt Leverage Ratio shall be calculated solely by reference to the period from October 1, 1998 through March 31, 1999, with EBITDA for such period being multiplied by 2; for the Reference Period ended June 30, 1999, the Funded Debt Leverage Ratio shall be calculated solely by reference to the period from October 1, 1998 through June 30, 1999, with EBITDA for such period being multiplied by 4/3. Franchise Agreement(s). Collectively, all of and, individually, each of the ---------------------- restaurant franchise agreements with respect to which the Borrower is a franchisee, and all documents and instruments required to be delivered pursuant to such franchise agreements, as such agreements may be amended and in effect from time to time. -7- Franchisor: Brinker International, Inc., a Delaware corporation. ---------- GAAP: Generally accepted accounting principles consistent with those ---- adopted by the Financial Accounting Standards Board and its predecessor, as in effect from time to time, consistently applied. Guarantor: As defined in (S)6(f). --------- Indebtedness: In respect of any entity, all obligations, contingent and ------------ otherwise, that in accordance with GAAP should be classified as liabilities, including without limitation (a) all debt obligations, (b) all liabilities secured by Liens, (c) all guarantees and (d) all liabilities in respect of bankers' acceptances or letters of credit. Indenture: The Indenture dated as of July 20, 1998 among the Borrower, the --------- Guarantors and the Trustee, pursuant to which the Senior Unsecured Notes have been issued. Interest Payment Date: (a) In the event a Loan is maintained at the Base --------------------- Rate, the last day of each calendar quarter; and (b) in the event a Loan is maintained at the LIBOR Rate 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, each date that is 3 months and/or 6 months from the first day of such Interest Period and, in addition, the last day of the Interest Period. Interest Period: With respect to any Loan (a) initially, the period ---------------- commencing on the Drawdown Date of the Loan and ending on the last day of one of the periods set forth below, as selected by the Borrower in a Loan Request: (i) if a Loan is to be maintained at the Base Rate, the last Business Day of the calendar quarter and (ii) if a Loan is to be maintained at the LIBOR Rate, one (1) month, two (2) months, three (3) months, six (6) months or nine (9) months; and (b) thereafter, each period commencing on the last day of the next preceding Interest Period applicable to the Loan and ending on the last day of one of the periods set forth above, as selected by the Borrower 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 during which a Loan is maintained at the LIBOR Rate would otherwise end on a day that is not a Business Day, that Interest Period shall be extended to the next succeeding 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 Business Day; (B) if any Interest Period during which a Loan is maintained at the Base Rate would end on a day that is not a Business Day, that Interest Period shall end on the next succeeding Business Day; (C) any Interest Period during which a Loan is maintained at the LIBOR Rate that begins on the last Business Day of a calendar month (or on a day for which there is no -8- numerically corresponding day in the calendar month at the end of such Interest Period) shall end on the last Business Day of a calendar month; and (D) in no event may the Borrower select an Interest Period which would extend beyond the Maturity Date. Lease(s): Collectively, all of and, individually, each of the leases and -------- subleases of real property with respect to which the Borrower is the lessee or sublessee, and all documents and instruments delivered pursuant to such agreements, as such agreements may be amended and in effect from time to time. Letter of Credit: As defined in (S)3.1(a). ---------------- Letter of Credit Application: As defined in (S)3.1(a). ---------------------------- Letter of Credit Fee: As defined in (S)3.6. -------------------- Letter of Credit Participation: As defined in (S)3.1(d). ------------------------------ LIBOR Base Rate. With respect to each day during each Interest Period --------------- pertaining to any LIBOR Loan, the rate per annum determined by the Administrative Agent to be the arithmetic mean of the offered rates for deposits in Dollars with a term comparable to such Interest Period that appears on the Telerate British Bankers Assoc. Interest Settlement Rates Page (as defined below) at approximately 11:00 A.M., London time, on the second full Business Day preceding the first day of such Interest Period; provided, however, that if -------- ------- there shall at any time no longer exist a Telerate British Bankers Assoc. Interest Settlement Rates Page, the term "LIBOR Base Rate" shall mean, with respect to each day during each Interest Period pertaining to any LIBOR Loan, the rate per annum equal to the rate at which the Administrative Agent is offered Dollar deposits at or about 10:00 A.M., Boston time, two (2) Business Days prior to the beginning of such Interest Period in the London interbank deposit market where the eurodollar and foreign currency and exchange operations in respect of its LIBOR Loans are then being 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 its LIBOR Loan to be outstanding during such Interest Period. As used herein, the "Telerate British Bankers Assoc. Interest ---------------------------------------- Settlement Rates Page" means the display designated as Page 3750 on the Telerate - --------------------- System Incorporated Service (or such other page as may replace such page on such service for the purpose of displaying the rates at which Dollar deposits are offered by leading banks in the London interbank deposit market). LIBOR Loan. A Loan for which interest is calculated with reference to the ---------- LIBOR Rate pursuant to (S)4(a)(ii). LIBOR Rate. With respect to each day during each Interest Period ---------- pertaining to a LIBOR Loan, a rate per annum determined for such day in accordance with the following formula (rounded upward, if necessary, to the nearest 1/16th of 1%): -9- LIBOR Base Rate --------------------------------- 1.00 - LIBOR Reserve Requirements LIBOR Reserve Requirements. For any day as applied to a LIBOR Loan, the -------------------------- aggregate (without duplication) of the rates (expressed as a decimal fraction) of reserve requirements in effect on such day (including without limitation basic, supplemental, marginal and emergency reserves under any regulations of the Board of Governors of the Federal Reserve System or other governmental authority having jurisdiction with respect thereto) prescribed for eurocurrency funding (currently referred to as "Eurocurrency Liabilities" in Regulation D of such Board) maintained by a member Bank of the Federal Reserve System. Liens: Any encumbrance, mortgage, pledge, hypothecation, charge, ----- restriction or other security interest of any kind securing any obligation of any entity or person. Loans: The Revolving Credit Loans. ----- Loan Documents: Collectively, (i) this Agreement, (ii) the Notes, (iii) -------------- the Letter of Credit Applications, (iv) the Security Documents, (v) the Fee Letters, and (vi) any and all other agreements, instruments, certificates or reports executed by the Borrower or any of its Subsidiaries in connection with this Agreement, in each case as from time to time amended or supplemented. Loan Request: As defined in (S)2(b) of the Agreement. ------------ Majority Banks: As of any date, the Banks holding at least sixty-six and -------------- two-thirds percent (66 2/3%) of the outstanding principal amount of the Notes on such date; and if no such principal amount is outstanding, the Banks whose aggregate Commitments constitute at least sixty-six and two-thirds percent of the Total Commitment. Materially Adverse Effect: Any materially adverse effect on the financial ------------------------- condition or business operations of the Borrower and its Subsidiaries taken as a whole or material impairment of the ability of the Borrower or any Guarantor to perform its obligations hereunder or under any of the other Loan Documents. Maturity Date: July 21, 2001; provided, that the Borrower may request that ------------- -------- the Maturity Date be extended for an additional year, ninety (90) days prior to July 21, 2001; provided, further, that if the Banks, in their sole discretion -------- ------- shall so agree in writing, the Maturity Date shall be such later date. Maximum Drawing Amount: The maximum aggregate amount from time to time that ---------------------- beneficiaries may 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. Maximum Unused Commitment: With respect to any Bank at any time, (a) such ------------------------- Bank's Commitment at such time minus (b) the sum of (i) the aggregate principal ----- amount of all -10- Revolving Credit Loans made by such Bank which are outstanding at such time and Unpaid Reimbursement Obligations owing to such Bank, plus (ii) without ---- duplication, such Bank's pro rata share of the Maximum Drawing Amount of all --- ---- Letters of Credit issued and outstanding at such time. Mortgages: Collectively, the mortgages or deeds of trust, delivered by the --------- Borrower or a Guarantor, as the case may be, to the Administrative Agent on behalf of the Banks with respect to the fee interests of such Person in the Restaurant Sites, on or after the date hereof, in form and substance satisfactory to the Administrative Agent. Most Recent Reference Period: As to any calendar quarter, the Reference ---------------------------- Period ended three (3) months prior to the first day of such calendar quarter. Net Asset Sale Proceeds: The cash proceeds of the sale or disposition of ----------------------- assets (including by way of merger), and the cash proceeds of any insurance payments on account of the destruction or loss of property, by the Borrower or any Guarantor after the Closing Date, net of payment of (a) any Funded Debt permitted by (S)11(i)(E) (purchase money indebtedness and Capitalized Leases) secured by assets being sold in such transaction (or, in the case of insurance proceeds, the assets that are the subject of the relevant damage or loss) required to be paid from such proceeds, (b) income, capital gains or other taxes that, as estimated by the Borrower in good faith, will be required to be paid by the Borrower in cash as a result of, and within 9 months after, such sale or disposition, (c) all reasonable reserves for liabilities resulting from the sale of assets and (d) all reasonable expenses of the Borrower or any Guarantor payable in connection with the sale or disposition. Net Worth: The result of (a) the consolidated assets of the Borrower --------- determined in accordance with GAAP, minus (b) the consolidated liabilities of ----- the Borrower determined in accordance with GAAP, minus (c) any write-up in the ------ book value of the consolidated assets of the Borrower since December 31, 1997. Non-Affected Banks: As defined in (S)6(e). ------------------ Non-Discretionary Capital Expenditures: All Capital Expenditures made by -------------------------------------- the Borrower or any Subsidiary with respect to the Borrower's or any Subsidiary's restaurants or offices other than Capital Expenditures made in connection with newly opened restaurants and offices. Notes: As defined in (S)2(c). ----- Obligations: All indebtedness, obligations and liabilities of the Borrower ----------- and the Guarantors to the Banks and the Bank Agents existing on the date of this 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 Agreement or any other Loan Document or in respect of -11- any of the Loans or Letters of Credit or the Notes or other instruments at any time evidencing any thereof. Operating Cash Flow: For any Reference Period, an amount to equal EBITDA ------------------- for such Reference Period, plus Rent for such Reference Period, minus (i) Non- ---- ----- Discretionary Capital Expenditures made by the Borrower and its Subsidiaries during such Reference Period, and (ii) the aggregate amount of all Federal, state and local income taxes paid in cash by the Borrower and its Subsidiaries during such Reference Period. Permitted Asset Disposition: Any disposition of assets by the Borrower or --------------------------- any Guarantor in the ordinary course of business, including without limitation, the closing of any restaurants determined by the Borrower to not be sufficiently profitable. Permitted Investments: Investments by the Borrower or any Guarantor in (i) --------------------- the Borrower or in any Guarantor or any Site Lessor; (ii) another Person if as a result of such investment such other Person is merged or consolidated with or into, or transfers or conveys all or substantially all its assets to, the Borrower or any Guarantor; provided, however, that such Person's primary business is a similar business; (iii) payroll, travel, relocation and similar advances to cover matters that are expected at the time of such advances ultimately to be treated as expenses for accounting purposes and that are made in the ordinary course of business; (iv) loans or advances to employees made in the ordinary course of business not exceeding in the aggregate $1,000,000 at any time; (v) stock, obligations or securities received in settlement of debts created in the ordinary course of business and owing to the Borrower or any Guarantor or in satisfaction of judgments; (vi) investments in a similar business in the form of joint ventures, operating agreements, partnership agreements or other similar or customary agreements, interests or arrangements with unaffiliated third parties, the aggregate outstanding amount of which does not exceed $1,000,000 at any time; (vii) investments acquired by the Borrower or any Guarantor in connection with or as a result a bankruptcy, insolvency, workout, reorganization, recapitalization or similar arrangement with respect to the obligor under or issuer of any accounts receivable or investment held by the Borrower or any Guarantor; (viii) investments made solely in exchange for the issuance of capital stock of the Borrower; and (ix) any investment existing on the date of this agreement as set forth on Schedule 11(b)(iii). ------------------- Permitted Liens: As defined in (S)11(b)(ii). --------------- Permitted Special Purpose Transaction: As defined in (S)11(b)(xiii). ------------------------------------- Person: Any individual, corporation, partnership, trust, limited liability ------ company, unincorporated association, business, or other legal entity, or any government or any governmental agency or political subdivision thereof. Real Estate: All real property at any time owned or leased (as lessee or ----------- sublessee) by the Borrower or any Guarantor. Reference Period: Each period of four consecutive fiscal quarters of the ---------------- Borrower. -12- Reimbursement Obligations: The Borrower's obligation to reimburse the Banks ------------------------- on account of any drawing under any Letter of Credit as provided in Section 3.2. Rent: The aggregate amount of cash payments with respect to rent and ---- related payments made by the Borrower and its Subsidiaries, determined in accordance with GAAP. Requirement of Law: In respect of any person or entity, any law, treaty, ------------------ rule, regulation or determination of an arbitrator, court, or other governmental authority, in each case applicable to or binding upon such person or entity or affecting any of its property. Restaurant Sites: The (i) real property and improvements thereon at the ---------------- five (5) locations set forth on Schedule 1 hereto owned in fee and (ii) nine (9) ---------- months after the restaurant is opened at a new location acquired after the date hereof, whether leasehold or owned in fee, real property and improvements thereon, but only if the Borrower or Guarantor, as the case may be, has not entered into a Special Purpose Transaction with respect to such location. Restricted Asset Disposition: As defined in (S)5(c). ---------------------------- Revolving Credit Loans: Revolving credit loans made or to be made to the ---------------------- Borrower pursuant to (S)2 hereof. Security Documents: As defined in (S)6(g). ------------------ Senior Unsecured Notes: As defined in the Preamble. ---------------------- Site Lessor: NERC Limited Partnership, a Delaware limited partnership, and ----------- its corporate general partner NERC SPE, Inc., a Delaware corporation, NERC Limited Partnership II, a Delaware limited partnership, and its corporate general partner NERC SPE II, Inc., a Delaware corporation or other entity or entities formed by the Borrower to act as a lessor or sublessor of Real Estate in connection with the Forward Commitment Transactions or similar Special Purpose Transactions otherwise permitted by this Agreement. Special Purpose Transaction: As defined in the Indenture, such definition --------------------------- being hereby incorporated by reference. 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. Total Commitment: The sum of the Commitments of the Banks, as in effect ---------------- from time to time. Total Interest Expense: For any period, the aggregate liability of the ---------------------- Borrower and its Subsidiaries for interest on Funded Debt, whether expensed or capitalized, including payments -13- consisting of interest in respect of Capitalized Leases, and cash payments by the Borrower and its Subsidiaries for commitment fees in connection with the borrowing of money or obtaining of credit, determined in accordance with GAAP. Total Liabilities: All consolidated liabilities of the Borrower and its ----------------- Subsidiaries that in accordance with GAAP are properly classified as liabilities. Trustee: United States Trust Company of New York, as Trustee under the ------- Indenture. Type: As to any Loan, its nature as a loan maintained at the Base Rate or ---- at the LIBOR Rate. Uniform Customs: With respect to any Letter of Credit, 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. Unpaid Reimbursement Obligation: Any Reimbursement Obligation for which the ------------------------------- Borrower does not reimburse the Administrative Agent on the date specified in, and in accordance with, (S)3.2(a). 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. Year 2000 Compliant: (i) With respect to Date-Sensitive Data, that such ------------------- data is in all material respects proper format and accurate for all dates in the twentieth and twenty-first centuries and (ii) with respect to a Date-Sensitive System, that such Date-Sensitive System accurately processes in all material respects all Date-Sensitive Data, including for the twentieth and twenty-first centuries, including but not limited to calculating, comparing, sequencing and storing such Date-Sensitive Data (including all leap year considerations), when used as a stand-alone system or in combination with other software or hardware. (b) (i) Terms not specifically defined herein or not incorporated herein by reference or defined by GAAP, which terms are defined in the Uniform Commercial Code as in effect in Commonwealth of Massachusetts, have the meanings assigned to them therein. (ii) Reference to a particular "(S)" refers to that section of this Agreement unless otherwise indicated. -14- (iii) When used herein as a reference to the end date of any fiscal period of the Borrower and its Subsidiaries, notwithstanding that the Borrower or any Subsidiary's fiscal year and fiscal quarters may not in any year fall on such dates, all references to December 31 (or 12/31), March 31 (or 3/31), June 30 (or 6/30) and September 30 (or 9/30) of any year shall be deemed to mean and refer to the actual end date of the Borrower's or such Subsidiary's fiscal year, first fiscal quarter, second fiscal quarter and third fiscal quarter, respectively. SECTION 2. REVOLVING CREDIT FACILITY. ------------------------- (a) Subject to the terms and conditions set forth in this Agreement, each of the Banks severally agrees to lend to the Borrower and the Borrower may borrow, repay, and reborrow from time to time between the date hereof and the Maturity Date upon notice by the Borrower to the Administrative Agent given in accordance with (S)2(b), such sums as are requested by the Borrower up to a maximum aggregate amount outstanding (after giving effect to all amounts requested) at any one time equal to such Bank's Commitment minus such Bank's ----- Commitment Percentage of the sum of the Maximum Drawing Amount and all Unpaid Reimbursement Obligations; provided, however, 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 shall not at any time exceed the Total Commitment. The Revolving Credit Loans shall be made pro rata in accordance with each Bank's Commitment --- ---- Percentage. Each request for a Revolving Credit Loan hereunder shall constitute a representation and warranty by the Borrower that the conditions set forth in (S)9(a) and (b), in the case of Revolving Loans to be made on the date hereof, and (S)9(b), in the case of all other Revolving Credit Loans, have been satisfied on the date of such request. (b) The Borrower shall give to the Administrative Agent telephonic notice (immediately confirmed in writing) (a "Loan Request") of each Revolving Credit ------------ Loan requested hereunder not later than (i) 12:00 noon (Boston time) on the proposed Drawdown Date (which must be a Business Day) if the Revolving Credit Loan is to be at the Base Rate or (ii) 12:00 noon three (3) Business Days prior to the proposed Drawdown Date if the Revolving Credit Loan is to be at the LIBOR Rate. Such notice shall be in the form of Exhibit C hereto and shall specify --------- (i) the proposed Drawdown Date of the Revolving Credit Loan and the amount requested ($200,000 minimum (or larger integral multiples thereof) in the case of a Base Rate Loan and $500,000 minimum (or larger integral multiples thereof) in the case of a LIBOR Loan), (ii) the Interest Period for such Revolving Credit Loan and (iii) the Type of the Revolving Credit Loan and shall include the Borrower's certification as to satisfaction of the conditions set forth in (S)9(b) hereof and that, after giving effect to the proposed Revolving Credit Loan, the Borrower shall be in compliance with the covenants set forth in (S)11(c). In no event shall more than ten (10) LIBOR Loans be outstanding at any one time. Each request will irrevocably obligate the Borrower to borrow the requested Revolving Credit Loan, and will be valid if given by an officer or agent of the Borrower authorized to make such requests in a certificate of the Borrower delivered to the Administrative Agent. -15- (c) The obligation of the Borrower to repay to the Banks the principal of the Revolving Credit Loans and interest accrued thereon shall be evidenced by separate promissory notes in the aggregate principal amount of the Total Commitment executed and delivered by the Borrower and payable to the order of each Bank in the principal amount equal to such Bank's Commitment, substantially in the form of Exhibit B attached hereto (each, a "Note" and collectively the --------- ---- "Notes"). (d) Unless terminated earlier pursuant to the terms of this Agreement, the Total Commitment shall be in effect from the date hereof through the Maturity Date. Upon the occurrence of the Maturity Date, the Total Commitment shall be reduced to zero. (e) Notwithstanding the notice requirements set forth in clause (b) of this Section 2, so long as the Total Commitment is then in effect and the conditions set forth in Section 9(a) hereof have been met, the Banks shall make Revolving Credit Loans to the Borrower sufficient to pay to the Administrative Agent any Unpaid Reimbursement Obligations on the date on which such Reimbursement Obligations become Unpaid Reimbursement Obligations. The Borrower hereby requests and authorizes the Banks to make from time to time such Revolving Credit Loans by means of paying Unpaid Reimbursement Obligations. The Borrower acknowledges and agrees that the making of such Revolving Credit Loans shall, in each case, be subject to the provisions of this Agreement as if they were Revolving Credit Loans requested pursuant to clause (b) of this Section 2, including, without limitation, the conditions set forth in clause (a) of this Section 2 and the conditions set forth in Section 9 hereof. All Revolving Credit Loans made pursuant to this Section 2(e) shall be made as Base Rate Loans. All actions taken by the Administrative Agent and the Banks pursuant to the provisions of this Section 2(e) shall be conclusive and binding on the Borrower. (f) Not later than 2:00 p.m. (Boston time) on the proposed Drawdown Date of any Revolving Credit Loans, each of the Banks will make available to the Administrative Agent, at the Administrative Agent's head office, in immediately available funds, the amount of such Bank's Commitment Percentage of the amount of the requested Revolving Credit Loans. Upon receipt from each Bank of such amount, and upon receipt of the documents required by (S)9(a) and (b) and the satisfaction of the other conditions set forth therein, to the extent applicable, the Administrative Agent will make available to the Borrower the aggregate amount of such Revolving Credit Loans made available to the Administrative Agent by the Banks. The failure or refusal of any Bank to make available to the Administrative Agent at the aforesaid time and place on any Drawdown Date the amount of its Commitment Percentage of the requested Revolving Credit Loans shall not relieve any other Bank from its several obligation hereunder to make available to the Administrative Agent the amount of such other Bank's Commitment Percentage of any requested Revolving Credit Loans. (g) The Administrative Agent may, unless notified to the contrary by any Bank prior to a Drawdown Date, assume that such Bank has made available to the Administrative Agent on such Drawdown Date the amount of such Bank's Commitment Percentage of the Revolving Credit Loans to be made on such Drawdown Date, and the Administrative Agent may (but it -16- shall not be required to), in reliance upon such assumption, make available to the Borrower a corresponding amount. If any Bank makes available to the Administrative Agent such amount on a date after such Drawdown Date, such Bank shall pay to the Administrative Agent on demand an amount equal to the product of (i) the average computed for the period referred to in clause (iii) 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 (ii) the amount of such Bank's Commitment Percentage of such ----- Revolving Credit Loans, times (iii) 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 Bank's Commitment Percentage of such Revolving Credit Loans shall become immediately available to the Administrative Agent, and the denominator of which is 365. A statement of the Administrative Agent submitted to such Bank 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 Bank. If the amount of such Bank's Commitment Percentage of such Revolving Credit Loans is not made available to the Administrative Agent by such Bank within three (3) Business Days following such Drawdown Date, the Administrative Agent shall be entitled to recover such amount from the Borrower on demand, with interest thereon at the rate per annum applicable to the Revolving Credit Loans made on such Drawdown Date. SECTION 3. LETTER OF CREDIT FACILITY. ------------------------- Section 3.1 LETTER OF CREDIT COMMITMENT. --------------------------- (a) Subject to the terms and conditions hereof and the execution and delivery by the Borrower of a letter of credit application on the Administrative Agent's customary form (a "Letter of Credit Application"), so long as the ---------------------------- conditions set forth in Section 9 hereof have been met, the Administrative Agent, on behalf of the Banks and in reliance upon the agreement of the Banks set forth in (S)3.1(d), agrees, in its individual capacity, to issue, extend and renew at any time prior to the date which is ninety (90) days prior to the Maturity Date, for the account of the Borrower, standby letters of credit (each a "Letter of Credit"), in such form as may be requested by the Borrower and ---------------- agreed to by the Bank; provided, however, that, after giving effect to such -------- ------- request, (i) the sum of the Maximum Drawing Amount and all Unpaid Reimbursement Obligations shall not exceed $4,000,000 at any one time, and (ii) the sum of the outstanding principal amount of the Revolving Credit Loans plus the Maximum ---- Drawing Amount and all Unpaid Reimbursement Obligations shall not exceed the Total Commitment. No Letter of Credit shall be issued, extended or renewed with an expiration date occurring after the Maturity Date. (b) 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 Agreement, then the provisions of this Agreement shall, to the extent of any such inconsistency, govern. (c) Each Letter of Credit issued, extended or renewed hereunder shall, among other things, provide for the payment of sight drafts for honor thereunder when presented in -17- accordance with the terms thereof and when accompanied by the documents described therein. Each Letter of Credit so issued, extended or renewed shall be subject to the Uniform Customs. (d) Each Bank 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 Bank's 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 Borrower pursuant to (S)3.2 (such agreement for a Bank being called herein the "Letter of Credit ---------------- Participation" of such Bank). Each such payment made by a Bank shall be treated - ------------- as the purchase by such Bank of a participating interest in the Borrower's Reimbursement Obligation under (S)3.2 in an amount equal to such payment. Each Bank shall share in accordance with its participating interest in any interest which accrues pursuant to (S)3.2. (e) The Borrower, the Guarantors , the Banks and the Bank Agents acknowledge and agree that the letters of credit listed on Schedule 3.1(e) --------------- attached hereto were issued by BKB on behalf of the Borrower or the Guarantors pursuant to the terms of the Original Agreement and on behalf of various Guarantors pursuant to the terms of such Guarantor's loan arrangements with BKB. Upon the effectiveness of this Agreement, all such letters of credit shall be deemed to be Letters of Credit issued by the Administrative Agent on behalf of the Banks for the account of the Borrower in accordance with this (S)3.1(a). SECTION 3.2 REIMBURSEMENT OBLIGATION OF THE BORROWER. In order to induce ---------------------------------------- the Administrative Agent to issue, extend and renew each Letter of Credit, the Borrower hereby agrees to reimburse the Administrative Agent for or to pay the Administrative Agent with respect to each Letter of Credit issued, extended or renewed by the Administrative Agent hereunder, (a) except as otherwise expressly provided in Section 3.2(b) and (c), 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 Bank in connection with any payment made by the Administrative Agent or any Bank under, or with respect to, such Letter of Credit; (b) upon the reduction (but not termination) of the Total Commitment in accordance with the provisions hereof to an amount less than the Maximum Drawing Amount, an amount equal to the difference between the maximum Drawing Amount and such reduced Total Commitment, which amount shall be held by the Administrative Agent for the benefit of the Banks and the Administrative Agent as cash collateral for all Reimbursement Obligations; and (c) upon the termination of the Total Commitment in accordance with the provisions hereof, or the acceleration of the Reimbursement Obligations with respect to all Letters of Credit in accordance with Section 12, an amount equal to the Maximum Drawing Amount, which -18- amount shall be held by the Administrative Agent for the benefit of the Banks and the Administrative Agent as cash collateral for all Reimbursement Obligations. Unless funded by a Revolving Credit Loan pursuant to Section 2(e), each such payment shall be made to the Administrative Agent at the Administrative Agent's head office at 100 Federal Street, Boston, Massachusetts 02110 in immediately available funds. Interest on any and all amounts remaining unpaid by the Borrower under this Section 3.2 and not funded by a Revolving Credit Loan pursuant to Section 2(e) shall accrue from the date such amounts become due and payable (whether as stated in this Section 3.2, by acceleration or otherwise) until paid in full (whether before or after judgment) (i) for the first two days after such amounts have become due and payable, at the rate specified in Section 4(a)(i) as if such amounts were Base Rate Loans and (ii) thereafter at the rate specified in Section 4(d), and shall in each case be payable to the Administrative Agent on demand. SECTION 3.3. 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 Borrower of the date and the 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. The responsibility of the Administrative Agent to the Borrower and the Banks 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. If either (x) the Borrower has not met the conditions set forth in (S)2(e) for a Revolving Credit Loan to be made sufficient to pay the Unpaid Reimbursement Obligation or (y) the Borrower fails to reimburse the Administrative Agent as provided in (S)3.2 on or before the date that such draft is paid or other payment is made by the Administrative Agent, the Administrative Agent may at any time thereafter notify the Banks of the amount of any such Unpaid Reimbursement Obligation. No later than 3:00 p.m. (Boston time) on the Business Day next following the receipt of such notice, each Bank shall make available to the Administrative Agent, at the Administrative Agent's head office, in immediately available funds, such Bank's 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 ----- Bank's 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 Bank's Commitment Percentage of such Unpaid Reimbursement obligation shall become immediately available to the Administrative Agent, and the denominator of which is 360. SECTION 3.4. OBLIGATIONS ABSOLUTE. The Borrower's obligations under this -------------------- Section 3 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 the Borrower may have or have had against the Bank Agents, any Bank or any beneficiary of a Letter of Credit. The Borrower further agrees -19- with the Administrative Agent and the Banks that the Administrative Agent and the Banks shall not be responsible for, and the Reimbursement Obligations 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 respect invalid, fraudulent or forged, or any dispute between or among the 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 the Borrower against the beneficiary of any Letter of Credit or any such transferee. The Administrative Agent and the Banks 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. The Borrower agrees that any action taken or omitted by the Administrative Agent or any Bank under or in connection with each Letter of Credit and the related drafts and documents, if done in good faith and in accordance with commercially reasonable banking practices, shall be binding upon the Borrower and shall not result in any liability on the part of the Administrative Agent or any Bank to the Borrower. SECTION 3.5. RELIANCE BY ISSUER. To the extent not inconsistent with ------------------ Section 3.4, 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 entity and upon advice and statements of legal counsel, independent accountants and other experts selected by the Administrative Agent. SECTION 3.6. LETTER OF CREDIT FEE. The Borrower shall, on the date of -------------------- issuance or any extension or renewal of any Letter of Credit and at such other time or times as such charges are customarily made by the Administrative Agent, pay a fee (in each case, a "Letter of Credit Fee") to the Administrative Agent -------------------- in respect of each Letter of Credit calculated at the per annum rate equal to the greater of (x) one and one-half percent (1.50%) or (y) the rate of the Applicable Margin for LIBOR Loans of the face amount of such Letter of Credit plus the Administrative Agent's issuance fee equal to one-eighth of one percent - ---- (0.125%) of the face amount of such Letter of Credit. The Borrower shall also pay all amendment, negotiation or handling charges relating to such Letters of Credit to the Administrative Agent at such times as such charges are customarily made by the Administrative Agent. The Letter of Credit Fee (but not such issuance, amendment, negotiation or handling fees) shall be for the accounts of the Banks in accordance with their respective Commitment Percentages. SECTION 4. INTEREST; LATE FEE. ------------------ (a) Prior to the Maturity Date, so long as no Default or Event of Default is continuing: (i) If a Loan is a Base Rate Loan, it 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 a rate per annum which is -20- equal to the Base Rate, plus the Applicable Margin for Base Rate ---- Loans then in effect. (ii) If a Loan is a LIBOR Loan, it 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 a rate per annum which is equal to the LIBOR Rate plus the Applicable Margin ---- for LIBOR Loans in effect on the first day of such Interest Period. (b) The Borrower promises to pay interest on Base Rate Loans and LIBOR Loans in arrears on each Interest Payment Date. (c) While an Event of Default is continuing, amounts payable under any of the Loan Documents shall bear interest (compounded monthly and payable on demand in respect of overdue amounts) at a rate per annum which is equal to the sum of (i) the rate of interest then applicable to such Loan plus (ii) two and one-half ---- percent (2.5%) until such amount is paid in full or (as the case may be) such Event of Default has been cured or waived in writing by the Majority Banks (after as well as before judgment). A late fee in an amount equal to five percent (5%) of the amount of any principal or interest not paid within ten (10) days of its due date shall be payable by the Borrower upon demand by the Administrative Agent on behalf of the Banks. (d) (i) The Borrower 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 Revolving Credit Loan to a Base Rate Loan, the Borrower 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 LIBOR Loan, the Borrower shall give the Administrative Agent at least three (3) Business Days prior written notice of such election; (C) with respect to any such conversion of a LIBOR 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 Loan may be converted into a LIBOR Loan when any Default or Event of Default has occurred and is continuing. 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 $200,000 or a whole multiple of $100,000 in excess thereof for Base Rate Loans and $500,000 or a whole multiple of $100,000 in excess thereof for LIBOR Loans. Each Conversion Request relating to the conversion of a Revolving Credit Loan to a LIBOR Loan shall be irrevocable by the Borrower. -21- (ii) 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 Borrower with the notice provisions contained in Section 4(d)(i); provided that no LIBOR 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 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 Borrower's account have actual knowledge. In the event that the Borrower fails to provide any such notice with respect to the continuation of any LIBOR Loan as such, then such LIBOR Loan shall be automatically converted to a Base Rate Loan on the last day of the Interest Period relating thereto. (iii) Any conversion to or from LIBOR 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 LIBOR Loans having the same Interest Period shall not be less than $500,000 or a whole multiple of $100,000 in excess thereof. SECTION 5. REPAYMENTS AND PREPAYMENTS. -------------------------- (a) The Borrower hereby promises to pay the Administrative Agent for the account of the Banks the entire unpaid principal of and interest on all Revolving Credit Loans on the Maturity Date. (b) The Borrower shall have the right, at its 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 LIBOR Loans pursuant to this (S)5(b) which is made on a day other than a last day of the Interest Period relating thereto shall be subject to the payment by the Borrower of any breakage cost as set forth in (S)5(d) hereof. The Borrower shall give the Administrative Agent, not later than 12:00 noon, Boston time, on the same day, written notice of any proposed prepayment pursuant to this (S)5(b) of Base Rate Loans, and three (3) Business Days notice of any proposed prepayment pursuant to (S)5(b) of LIBOR 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 $200,000, and shall be applied, in the absence of instruction by the Borrower, first to the principal of Base Rate Loans and then to the principal of LIBOR Loans. Each partial prepayment of Revolving Credit Loans shall be allocated among the Banks, in proportion, as nearly as practicable, to the respective unpaid principal amount of Revolving Credit Loans under each Bank's Note, with adjustments to the extent practicable to equalize any prior repayments not exactly in proportion. -22- (c) Without limiting the obligations of the Borrower and the Guarantors under (S)11(b)(v) to obtain prior consent of the Majority Banks to any sale or other disposition of assets which is not a Permitted Asset Disposition (a "Restricted Asset Disposition"), not less than five (5) days prior to any ---------------------------- Restricted Asset Disposition that would result in Net Asset Sale Proceeds, the Borrowers shall provide written notice to the Banks of the estimated closing date for such Restricted Asset Disposition and the reasonably anticipated amount of the Net Asset Sale Proceeds. To the extent that Net Asset Sales Proceeds received by any Borrower or any Subsidiary from such Restricted Asset Disposition have not been reinvested in the business or assets of the Borrower or any Guarantor within ninety (90) days after the receipt thereof, the Borrower, within one Business Day thereafter, shall prepay the Loans in an aggregate principal amount equal to the lesser of (i) the amount of such Net Asset Sale Proceeds or (ii) the aggregate principal amount of the Loans. (d) The Borrower shall be entitled to reborrow as Revolving Credit Loans at any time before the Maturity Date such amounts prepaid, upon the terms and subject to the conditions of this Agreement. (e) The Borrower agrees to indemnify each Bank and to hold each Bank harmless from and against any loss, cost or expense (including loss of anticipated profits) that the Bank may sustain or incur as a consequence of (i) default by the Borrower in payment of the principal amount of or any interest on any LIBOR Loans as and when due and payable, including any such loss or expense arising from interest or fees payable by such Bank to lenders of funds obtained by it in order to maintain the LIBOR Loans, (ii) default by the Borrower in making a borrowing or conversion after the Borrower has given (or is deemed to have given) a Loan Request or a Conversion Request relating thereto in accordance with Section 2(a) or Section 2(c), or (iii) the making of any payment of a LIBOR Loan or the making of any conversion of any LIBOR 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 the Bank to lenders of funds obtained by it in order to maintain any LIBOR Loans. (f) If at any time prior to the Maturity Date the sum of the aggregate outstanding principal amount of the Revolving Credit Loans plus the Maximum ---- Drawing Amount and all Unpaid Reimbursement Obligations shall exceed the Total Commitment, then the Borrower shall immediately pay the amount of such excess to the Administrative Agent for the account of the Banks for application: first, to any Unpaid Reimbursement Obligations; second, to the Revolving Credit Loans; and third, to provide to the Administrative Agent cash collateral for Reimbursement Obligations as contemplated by (S)3.2(b) and (c). Each payment of any Unpaid Reimbursement Obligations or prepayment of Revolving Credit Loans shall be allocated among the Banks, in proportion, as nearly as practicable, to each Reimbursement Obligation or (as the case may be) the respective unpaid principal amount of each Bank's Note, with adjustments to the extent practicable to equalize any prior payments or repayments not exactly in proportion. (g) The Borrower may elect to reduce or terminate the Total Commitment by a minimum principal amount of $1,000,000 or an integral multiple thereof, upon written notice to -23- the Administrative Agent given by 10:00 a.m. Boston time at least two (2) Business Days prior to the date of such reduction or termination, whereupon the Commitments of the Banks shall be reduced pro rata in accordance with their --- ---- respective Commitment Percentages of the amount specified in such notice or, as the case may be, terminated. Promptly after receiving any notice of the Borrower delivered pursuant to this (S)5(g), the Administrative Agent will notify the Banks of the substance thereof. Upon the effective date of any such reduction or termination, the Borrower shall pay to the Administrative Agent for the accounts of the Banks the full amount of any commitment fee then accrued on the amount of the reduction. The Borrower shall not be entitled to reinstate the Total Commitment following such reduction or termination. SECTION 6. GENERAL PROVISIONS. ------------------ (a) The Borrower agrees to pay to the Administrative Agent for the Administrative Agent's own account a closing fee in an amount and at the time set forth in its Fee Letter. The Borrower further agrees to pay to the Documentation Agent for the Documentation Agent's own account a closing fee in the amount and at the times set forth in its Fee Letter. The Borrower further shall pay to the Administrative Agent for the Administrative Agent's own account the Administrative Agent's annual agency fee as provided in its Fee Letter. (b) If any change in banking law or regulation or the administration thereof (whether or not having the force of law) affects the amount of capital required or expected to be maintained by any Bank or Bank Agent or any entity controlling it, and such amount is increased by reason of such Bank's or Bank Agent's Commitment or the Loans or any Letter of Credit, then such Bank or Bank Agent may notify the Borrower thereof. The Borrower and such Bank shall negotiate an adjustment payable to such Bank to compensate for such increase. If no agreement is reached within thirty (30) days, such Bank may increase the fees payable hereunder to it by the amount reasonably determined by such Bank to be necessary to provide such compensation. (c) In the event, prior to the commencement of any Interest Period, the Administrative Agent shall determine or be notified by the Majority Banks that adequate and reasonable methods do not exist for ascertaining the LIBOR Rate that would otherwise determine the rate of interest to be applicable to a Loan at the LIBOR Rate during that Interest Period, the Administrative Agent shall forthwith give notice of such determination (which shall be conclusive and binding on the Borrower) to the Borrower. In such event (i) any Loan Request or Conversion Request with respect to the Loan at the LIBOR Rate shall be automatically withdrawn and shall be deemed a request to have the Loan accrue interest at the Base Rate, (ii) if the Loan is at the LIBOR Rate, it will automatically, on the last day of the then current Interest Period relating thereto, bear interest based on the Base Rate and (iii) the obligations of the Banks to make LIBOR Loans shall be suspended until the Administrative Agent or the Majority Banks reasonably 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 Majority Banks, shall so notify the Borrower and the Banks. -24- (d) 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 Bank to make or maintain LIBOR Loans, such Bank shall forthwith give notice of such circumstances to the Borrower and the other Banks and thereupon (i) the commitment of such Bank to make LIBOR Loans or convert Loans of another Type to LIBOR Loans shall forthwith be suspended and (ii) the Loans then outstanding as LIBOR Loans, if any, shall be converted automatically to Base Rate Loans on the last day of each Interest Period applicable to such LIBOR Loans or within such earlier period as may be required by law. The Borrower shall not be liable to any Bank for costs incurred by such Bank in connection with any such conversion prior to the last day of an Interest Period as may be required by law. (e) Within thirty (30) days after (i) any Bank has demanded compensation from the Borrower pursuant to (S)6(b) hereof, or (ii) there shall have occurred a change in law with respect to any Bank as a consequence of which it shall have become unlawful for such Bank to make a LIBOR Loan on any Drawdown Date, as described in (S)6(d) hereof (any such Bank described in the foregoing clauses (i) or (ii) is hereinafter referred to as an "Affected Bank"), the Borrower may ------------- request that the other Banks (collectively, the "Non-Affected Banks") acquire ------------------ all, but not less than all of the Affected Bank's outstanding Loans and assume all, but not less than all of the Affected Bank's Commitment. If the Borrower so requests, each Non-Affected Bank may elect to acquire all or any portion of the Affected Bank's Commitment. If the Non-Affected Banks do not elect to acquire and assume all of the Affected Bank's outstanding Loans and Commitment, the Borrower may designate a replacement bank or banks, which must be an Eligible Assignee and must be satisfactory to the Administrative Agent, to acquire and assume that portion of the outstanding Loans and Commitment of the Affected Bank not being acquired and assumed by the Non-Affected Banks. The provisions of (S)15 hereof shall apply to all reallocations pursuant to this (S)6(e), and the Affected Bank and any Non-Affected Banks and/or replacement banks which are to acquire the Loans and Commitment of the Affected Bank shall execute and deliver to the Administrative Agent, in accordance with the provisions of (S)15 hereof, such Assignment and Acceptances and other instruments, including, without limitation, Notes, as are required pursuant to (S)15 hereof to give effect to such reallocations. On the effective date of the applicable Assignments and Acceptances, the Borrower shall pay to the Affected Bank all interest accrued on its Loans up to but excluding such date, along with any fees payable to such Affected Bank hereunder up to but excluding such date. (f) Except as specified in Schedule 6(f) hereto, the Obligations shall be ------------- secured at all times by: (i) a first priority perfected Lien upon all presently owned and hereafter acquired tangible and intangible personal property (excluding all liquor licenses) and fixtures of the Borrower and each Guarantor, subject only to Permitted Liens; (ii) a pledge of the stock of the Subsidiaries other than Bertucci's Restaurant Corp., the Site Lessors and the Subsidiaries that hold liquor licenses in the State of Maryland; -25- (iii) a first priority mortgage lien on existing and hereafter acquired Restaurant Sites subject to Permitted Liens provided, -------- however, the Administrative Agent agrees to release its Mortgage ------- with respect to any Restaurant Site covered by clause (ii) of the definition of "Restaurant Sites" in connection with any Special ---------------- Purpose Transaction otherwise permitted by this Agreement; and (iv) the guaranties of each Subsidiary of the Borrower other than a Site Lessor (each, a "Guarantor"). --------- Notwithstanding the foregoing: (i) in connection with any Permitted Asset Disposition, the Administrative Agent agrees to release any Liens in its favor in any personal property and fixtures disposed of in any such Permitted Asset Disposition; (ii) the Borrower or any Guarantor may substitute a fee-owned restaurant location of equal or greater value for any Restaurant Site and, upon the perfection of a first priority mortgage lien in favor of the Administrative Agent, on behalf of the Banks, as to such substitute restaurant location, (A) the substitute restaurant location shall be deemed a "Restaurant Site" and (B) the Administrative Agent shall release its Mortgage on the existing Restaurant Site which is being replaced by such substitute restaurant location; and (iii) in connection with any Permitted Special Purpose Transaction, the Administrative Agent agrees to release any Liens in its favor in any real property, personal property and fixtures transferred in any such Permitted Special Purpose Transaction. (g) All agreements and instruments described or contemplated in (S)6(f), above, together with any and all other agreements and instruments heretofore or hereafter securing the Obligations are sometimes referred to collectively as the "Security Documents" and each a "Security Document". The Borrower and the ------------------ ----------------- Guarantors agree to execute and deliver any and all Security Documents, in form and substance satisfactory to the Administrative Agent and to take such action as the Administrative Agent may reasonably request from time to time in order to cause the Administrative Agent, on behalf of the Banks, to be secured at all times as described in (S)6(f). SECTION 7. FEES AND PAYMENTS. ----------------- (a) The Borrower shall pay to the Administrative Agent for the accounts of the Banks, on the last Business Day of each calendar quarter hereafter, and upon the Maturity Date or the date upon which the Commitments are no longer in effect, a commitment fee calculated at a rate per annum which is equal to three- eighths of one percent (0.375%) of the average daily amount of the Maximum Unused Commitment of each Bank during the preceding calendar quarter or portion thereof. (b) All payments to be made by the Borrower hereunder or under any of the other Loan Documents shall be made in Dollars in immediately available funds to the Administrative Agent, for the accounts of the Banks and the Bank Agents, at the Administrative Agent's head office at 100 Federal Street, Boston, Massachusetts, without set-off or counterclaim and free and -26- 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 Borrower is compelled by law to make such deduction or withholding. If any such obligation is imposed upon the Borrower with respect to any amount payable by it hereunder or under any of the other Loan Documents, the Borrower will pay to the Administrative Agent on the date on which such amount is due and payable hereunder, such additional amount in Dollars as shall be necessary to enable the Banks or the Administrative Agent to receive the same net amount which the Banks or the Administrative Agent would have received on such due date had no such obligation been imposed upon the Borrower. The Borrower 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 Borrower hereunder or under such other Loan Document. (c) The Bank Agents and the Banks shall be entitled to charge any account of the Borrower with such Bank for any sum due and payable by the Borrower to the Banks hereunder or under any of the other Loan Documents. (d) Except with respect to the payment of interest on LIBOR Loans, if any payment hereunder is required to be made on a day which is not a Business Day, it shall be paid on the next succeeding Business Day, and interest and commitment fees shall accrue during such extension. (e) All computations of interest or of the commitment fee or any Letter of Credit Fees payable hereunder shall be made by the Bank on the basis of actual days elapsed and on a 360-day year. Any change in the interest rate resulting from a change in the Base Rate is to be effective at the beginning of the day of such change. The Administrative Agent will inform the Borrower in writing of any change in the Base Rate but the failure of the Administrative Agent to so inform the Borrower shall not affect the Borrower's obligations hereunder or under the Notes to make payments of principal of and interest on the Notes when due. The aggregate unpaid amount of Loans set forth on each Bank's internal records shall be prima facie evidence of the principal amount thereof owing and unpaid to such ----------- Bank, but the failure to record, or any error in so recording, any such amount on such Bank's records shall not affect the obligations of the Borrower hereunder or under any Note to make payments of principal of and interest on any Note when due. SECTION 8. GUARANTIES; JOINT AND SEVERAL OBLIGATIONS. ----------------------------------------- (a) The Guarantors hereby acknowledge that the Guarantors are members of a group of related corporations, the success of any one of which is dependent in part on the success of the other members of such group, and each Guarantor expects to receive substantial direct and indirect benefits from the extensions of credit to the Borrower by the Banks pursuant to this Agreement (which benefits are hereby acknowledged). Each of the Guarantors hereby jointly and severally guarantees to the Banks and the Administrative Agent the full and punctual payment when due (whether at stated maturity, by required pre-payment, by acceleration or otherwise), as -27- well as the performance, of all of the Obligations including all such which would become due but for the operation of the automatic stay pursuant to (S)362(a) of the Federal Bankruptcy Code and the operation of (S)(S)502(b) and 506(b) of the Federal Bankruptcy Code. This guaranty is an absolute, unconditional and continuing guaranty of the full and punctual payment and performance of all of the Obligations and not of their collectability only and is in no way conditioned upon any requirement that the Administrative Agent or any Bank first attempt to collect any of the Obligations from the Borrower or any other Guarantor or resort to any collateral security or other means of obtaining payment. Should the Borrower default in the payment or performance of any of the Obligations, the obligations of each of the Guarantors hereunder with respect to such Obligations in default shall, upon demand by the Administrative Agent, become immediately due and payable to the Administrative Agent, for the benefit of the Banks and the Bank Agents, without demand or notice of any nature, all of which are expressly waived by each of the Guarantors. Payments by any of the Guarantors hereunder may be required by the Administrative Agent on any number of occasions. All payments by the Guarantors hereunder shall be made to the Administrative Agent, in the manner and at the place of payment specified in this Agreement, for the account of the Banks and the Administrative Agent. (b) Each of the Guarantors further agrees, as the principal obligor and not as a guarantor only, to pay to the Administrative Agent, on demand, all costs and expenses (including court costs and legal expenses) incurred or expended by the Administrative Agent or any Bank in connection with the Obligations, this guaranty and the enforcement thereof, together with interest on amounts recoverable under this (S)8 from the time when such amounts become due until payment, whether before or after judgment, at the rate of interest for overdue principal set forth in this Agreement, provided that if such interest exceeds the maximum amount permitted to be paid under applicable law, then such interest shall be reduced to such maximum permitted amount. (c) Each of the Guarantors agrees that the Obligations will be paid and performed strictly in accordance with their respective terms, regardless of any law, regulation or order now or hereafter in effect in any jurisdiction affecting any of such terms or the rights of the Administrative Agent or any Bank with respect thereto. Each of the Guarantors waives promptness, diligences, presentment, demand, protest, notice of acceptance, notice of any Obligations incurred and all other notices of any kind, 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 Borrower or any other entity or other person primarily or secondarily liable with respect to any of the Obligations, and all suretyship defenses generally. Without limiting the generality of the foregoing, each of the Guarantors agrees to the provisions of any instrument evidencing, securing or otherwise executed in connection with any Obligation and agrees that the obligations of such Guarantor hereunder shall not be released or discharged, in whole or in part, or otherwise affected by (i) the failure of the Administrative Agent or any Bank to assert any claim or demand or to enforce any right or remedy against the Borrower or any other entity or other person primarily or secondarily liable with respect to any of the Obligations; (ii) any extensions, compromise, refinancing, consolidation or renewals of any Obligations; (iii) any change in the time, place or manner of payment of any of the Obligations or any recissions, waivers, compromise, refinancing, consolidation or other amendments or -28- modifications of any of the terms or provisions of this Agreement, any Note, the other Loan Documents or any other agreement evidencing, securing or otherwise executed in connection with any of the Obligations; (iv) the addition, substitution or release of any entity or other person primarily or secondarily liable for any Obligations; (v) the adequacy of any rights which the Administrative Agent or any Bank may have against any collateral security or other means of obtaining repayment of any of the Obligations; (vi) the impairment of any collateral securing any of the Obligations, including, without limitation, the failure to perfect or preserve any rights which the Administrative Agent or any Bank might have in such collateral security or the substitution, exchange, surrender, release, loss or destruction of any such collateral security; or (vii) any other act or omission which might in any manner or to any extent vary the risk of such Guarantor or otherwise operate as a release or discharge of such Guarantor, all of which may be done without notice to such Guarantor. (d) If for any reason the Borrower 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 the Borrower by reason of the Borrower's insolvency, bankruptcy or reorganization or by other operation of law or for any other reason, the guaranty set forth in this (S)8 shall nevertheless be binding on each of the Guarantors to the same extent as if such Guarantor at all times had been the principal obligor on all such Obligations. In the event that acceleration of the time for payment of any of the Obligations is stayed upon the insolvency, bankruptcy or reorganization of the Borrower, or for any other reason, all such amounts otherwise subject to acceleration under the terms of the Agreement, the Notes, the other Loan Documents or any other agreement evidencing, securing or otherwise executed in connection with any Obligation shall be immediately due and payable by each of the Guarantors. (e) Until the final payment and performance in full of all of the Obligations, (i) each of the Guarantors shall not exercise and hereby waives any rights against the Borrower arising as a result of payment by such Guarantor hereunder, by way of subrogation, reimbursement, restitution, contribution or otherwise, and will not prove any claim in competition with the Administrative Agent or any Bank in respect of any payment hereunder in any bankruptcy, insolvency or reorganization case or proceedings of any nature; such Guarantor will not claim any setoff, recoupment or counterclaim against the Borrower in respect of any liability of such Guarantor to the Borrower; and such Guarantor waives any benefit of and any right to participate in any collateral security which may be held by the Administrative Agent or any Bank; and (ii) the payment of any amounts due with respect to any indebtedness of the Borrower for money borrowed or credit received now or hereafter owed to any of the Guarantors is hereby subordinated to the prior payment in full of all of the Obligations. Each of the Guarantors agrees that, after the occurrence of any default in the payment or performance of any of the Obligations, such Guarantor will not demand, sue for or otherwise attempt to collect any such indebtedness of the Borrower to such Guarantor until all of the Obligations shall have been paid in full. If, notwithstanding the foregoing sentence, such Guarantor shall collect, enforce or receive any amounts in respect of such indebtedness while any Obligations are still outstanding, such amounts shall be collected, enforced and received by such Guarantor as trustee for the Banks and the Administrative Agent and be paid over to the Administrative Agent, for the benefit of the Banks and the Administrative Agent, on account of the Obligations without affecting in any -29- manner the liability of such Guarantor under the other provisions of this (S)8. The provisions of this (S)8(e) shall be supplemental to and not in derogation of any rights and remedies of the Banks and the Administrative Agent under any separate subordination agreement which the Administrative Agent may at any time and from time to time enter into with any of the Guarantors for the benefit of the Banks and the Administrative Agent. (f) Each of such Guarantors agrees that it will from time to time, at the request of the Administrative Agent, do all such things and execute all such documents as the Administrative Agent may consider necessary or desirable to give full effect to this guaranty and to perfect and preserve the rights and powers of the Banks and the Administrative Agent hereunder. Each of the Guarantors acknowledges and confirms that such Guarantor itself has established its own adequate means of obtaining from the Borrower on a continuing basis all information desired by such Guarantor concerning the financial condition of the Borrower and that such Guarantor will look to the Borrower and not to the Administrative Agent or any Bank in order for such Guarantor to keep adequately informed of changes in the Borrower's financial condition. (g) The guaranty set forth in this (S)8 shall remain in full force and effect until the Administrative Agent is given written notice of the Guarantors' intention to discontinue this guaranty, notwithstanding any intermediate or temporary payment or settlement of the whole or any part of the Obligations. No such notice shall be effective unless received and acknowledged by an officer of the Administrative Agent at the address of the Administrative Agent for notices set forth in (S)17(c) of this Agreement. No such notice shall affect any rights of the Administrative Agent or any Bank hereunder with respect to any Obligations incurred or accrued prior to the receipt of such notice or any Obligations incurred or accrued pursuant to any contract or commitment in existence prior to such receipt. The guaranty set forth in this (S)8 shall continue to be effective or be reinstated, notwithstanding any such notice, if at any time any payment made or value received with respect to any Obligation is rescinded or must otherwise be returned by the Administrative Agent or any Bank upon the insolvency, bankruptcy or reorganization of the Borrower, or otherwise, all as though such payment had not been made or value received. SECTION 9. REPRESENTATIONS AND WARRANTIES. The Borrower and the Guarantors ------------------------------ represent and warrant to the Banks and the Bank Agents on the date hereof, on the date of any Loan Request, on the date of each request for a Letter of Credit, on each Drawdown Date, on each date on which each Letter of Credit is issued, extended or renewed, and on the Maturity Date that: (a) (i) the Borrower, each Guarantor and each of their Subsidiaries is a corporation duly organized, validly existing, and in good standing under the laws of the state of its incorporation and is duly qualified and in good standing in every other jurisdiction where it is doing business, (ii) the execution and delivery by the Borrower and the Guarantors of the Loan Documents and the performance by the Borrower and the Guarantors of the Loan Documents (A) are within the corporate authority of each such Person, (B) have been duly authorized by all necessary corporate action and (C) do not conflict with or contravene such Person's Charter Documents and (iii) all Subsidiaries of the Borrower and the Guarantors are listed on Schedule 9(a) hereto; ------------- -30- (b) upon execution and delivery thereof, this Agreement and the other Loan Documents to which the Borrower or any Guarantor is or is to become a party will result in the legal, valid and binding obligation of the Borrower or such Guarantor, respectively, enforceable in accordance with its respective terms; (c) except as set forth in Schedule 9(c) hereto, the Borrower and the ------------- Guarantors have good and marketable title to all of their respective material properties, subject only to Permitted Liens permitted and possess all assets, including intellectual properties, franchises and Consents, adequate for the conduct of its business as now conducted, without known conflict with any rights of others; (d) the Borrower has provided to the Banks (i) the audited Financials of the Borrower and its Subsidiaries as at December 31, 1997 and for the period then ended, (ii) the unaudited Financials of the Borrower and its Subsidiaries as at March 31, 1998 and for the period then ended, (iii) the audited Financials of Bertucci's and its Subsidiaries as at December 27, 1997 and for the period then ended and (iv) the unaudited Financials of Bertucci's and its Subsidiaries as at April 18, 1998 and for the period then ended. All such Financials of the Borrower are complete and correct and respectively fairly present their position as at such date and for such period consistently applied. To the best of the Borrower's knowledge, all such Financials of Bertucci's and its Subsidiaries are complete and correct and respectively fairly present their position as at such date and for such period in accordance with GAAP consistently applied. The Borrower has also provided to the Banks the projections of the pro forma balance sheet, pro forma cash flow statement and annual operating budgets of the Borrower and its Subsidiaries on a consolidated basis for the 1998 to 2002 fiscal years and has disclosed all assumptions made with respect to general economic, financial and other market conditions used in formulating such projections. To the knowledge of the Borrower or any of its Subsidiaries, no facts exist that (individually or in the aggregate) would result in any material change in any of such projections. The projections are based upon reasonable estimates and assumptions, and have been prepared on the basis of the assumptions stated therein and reflect the reasonable estimates of the Borrower and its Subsidiaries of the results of operations and information projected therein; (e) since December 31, 1997, there has been no materially adverse change of any kind in the Borrower or any Guarantor which would have a Materially Adverse Effect; (f) there are no legal or other proceedings or investigations pending or threatened against the Borrower or any Guarantor before any court, tribunal or regulatory authority which would, if adversely determined, alone or together, have a Materially Adverse Effect; Schedule 9(f) attached hereto describes all ------------- legal and other proceedings or investigations pending against the Borrower or any Guarantor; (g) the execution and delivery by the Borrower and the Guarantors of the Loan Documents and the performance by such Person of its obligations, and the exercise of its rights, under the Loan Documents including borrowing under this Agreement and the obtaining of Letters of Credit (i) do not require any Consents (except for Consents required by liquor -31- authorities or where the failure to obtain such Consent does not have a Materially Adverse Effect) that have not been obtained, and (ii) are not and will not be in conflict with or prohibited or prevented by (A) any Requirement of Law that does not have a Materially Adverse Effect, or (B) any Charter Document, corporate minute or resolution, instrument, agreement or provision thereof, in each case binding on such Person or affecting such Person's property; (h) neither the Borrower nor any Guarantor is in violation of (i) any Charter Document, corporate minute or resolution, (ii) any instrument or agreement, in each case binding on it or affecting its property, or (iii) any Requirement of Law, in a manner which could have a Materially Adverse Effect, including, without limitation, all applicable federal and state tax laws, health and safety laws, ERISA and Environmental Laws; (i) the Administrative Agent, as agent for the Banks, has a first-priority perfected security interest in the properties and assets of the Borrower and the Guarantors stated to constitute collateral under the Security Documents, subject only to Permitted Liens and entitled to priority under applicable law, with no financing statements, chattel mortgages, real estate mortgages or similar filings on record anywhere which conflict with such first-priority interest; (j) neither the Borrower nor any Guarantor is a party to any partnership or joint venture; (k) (i) attached hereto a Schedule 9(k) is a list of all Leases (other than ------------- Leases with the Site Lessors); (l) attached hereto as Schedule 9(l) is a list of all Franchise Agreements, ------------- each Franchise Agreement is in full force and effect, there exists no default under any Franchise Agreement, and the Borrower (or a Guarantor) has delivered to the Bank (i) a certified copy of each Franchise Agreement and (ii) an agreement executed by the Franchisor and satisfactory to the Administrative Agent in all respects pursuant to which the Franchisor consents to the execution and delivery by the Borrower (or a Guarantor) of the Security Documents and agrees to deliver periodic no default and estoppel certificates with respect to the Franchise Agreements and notify the Administrative Agent of all defaults under the Franchise Agreements and give the Administrative Agent a reasonable opportunity to cure such defaults as the franchisee may cure thereunder if the Administrative Agent so elects; (m) Schedule 9(m) attached hereto lists the account numbers and locations ------------- of all depository accounts of the Borrower and the Guarantors; (n) Schedule 9(n) attached hereto lists all of the restaurants operated by ------------- the Borrower and the Guarantors (the Borrower and the Guarantors may add to or delete from such Schedule from time to time as set forth in Section 11(a)(vii)); (o) The Borrower, the Guarantors and their Subsidiaries possess all patents, copyrights, trademarks, trade names, licenses and permits, in rights and respect of the foregoing, adequate for the conduct of its business substantially as now conducted without known conflict -32- with any rights of others, unless such conflict would not have a Materially Adverse Effect. Each of such patents, copyrights, trademarks, trade names, licenses and permits are listed on Schedule 9(o) hereto. ------------- (p) Schedule 9(p) attached hereto lists the accurate ownership percentages ------------- of the equityholders of record of each of the Borrower and its Subsidiaries and a statement of authorized and issued equity securities of each such entity as of the date hereof. Such Schedule 9(p) also states as of the date hereof, (i) ------------- which securities, if any, carry preemptive rights; (ii) whether there are any outstanding subscriptions, warrants or options to purchase any securities; (iii) whether the Borrower or any Subsidiary is obligated to redeem or repurchase any of its securities, and the details of any such committed redemption or repurchase; and (iv) any other agreement, arrangement or plan to which the Borrower or any Subsidiary is a party or participant or of which the Borrower has knowledge which could reasonably be expected, directly or indirectly, to affect the capital structure of the Borrower and its Subsidiaries. All such equity securities of the Subsidiaries are validly issued and fully paid and non- assessable, and owned as set forth on Schedule 9(p). Except as set forth on ------------- Schedule 9(p), all such equity securities of the Subsidiaries are owned, legally - ------------- and beneficially, by the Borrower, free of any Liens except for restrictions on transfers imposed by applicable securities laws, as indicated on the certificates evidencing such shares. (q) None of the Charter Documents of the Borrower or its Subsidiaries contain any provisions similar to those set forth in Section 102(b)(2) of Title 8 of the Delaware Code. (r) To the best of the Borrowers' knowledge, all Date-Sensitive Data and Date-Sensitive Systems owned or used by the Borrower, the Guarantors and their Subsidiaries will be Year 2000 Compliant on or before December 30, 1999, and could not reasonably be expected to have a Materially Adverse Effect not being Year 2000 Compliant by such date. SECTION 10. CONDITIONS PRECEDENT. -------------------- (a) The obligations of the Banks to make the initial Revolving Credit Loans and the Administrative Agent to issue any initial Letters of Credit shall be subject to the satisfaction of the following conditions precedent: (i) 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 Banks. Each Bank shall have received an original Note in the amount of its respective Commitment executed by the Borrower and a fully executed copy of the other Loan Documents. (ii) Each of the Banks shall have received from the Borrower and each Guarantor a copy, certified by a duly authorized officer of such Person to be true and complete on the Closing Date, of each of its Charter Documents as in effect on such date of certification. -33- (iii) All corporate action necessary for the valid execution, delivery and performance by the Borrower and each Guarantor of this Agreement and the other Loan Documents to which it is or is to become a party shall have been duly effectively taken, and evidence thereof satisfactory to the Banks shall have been provided to each of the Banks. (iv) Each of the Banks shall have received from the Borrower and each Guarantor 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 the Borrower or the Guarantor, each of the Loan Documents to which the Borrower or Guarantor is or is to become a party; (b) in the case of the Borrower, 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. (v) The Administrative Agent shall have received the results of UCC searches, indicating no liens other than Permitted Liens and otherwise in form and substance satisfactory to the Administrative Agent. (vi) The Administrative Agent shall have received 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 Agreement. (vii) Each of the Banks shall have received an officer's certificate of the Borrower dated as of the Closing Date as to the solvency of the Borrower and the Guarantors following the consummation of the transactions contemplated herein, the issuance of the Senior Unsecured Notes and the Acquisition, in form and substance satisfactory to the Banks. (viii) Each of the Banks and the Bank Agents shall have received a favorable legal opinion addressed to the Banks and the Bank Agents, dated as of the Closing Date, in form and substance satisfactory to the Banks and the Bank Agents, from Brown, Rudnick, Freed & Gesmer, counsel to the Borrower and the Guarantors. (ix) The Borrower shall have paid to the Bank Agents any fees required as of the date hereof pursuant to the Fee Letters. (x) The Administrative Agent shall have received a letter agreement executed by the Franchisor consenting to this transaction and the granting of the Liens by the Borrower covering the Borrower's rights under the Franchise Agreement and the Development Agreements. -34- (xi) The Administrative Agent shall have received an opening balance sheet of the Borrower and its Subsidiaries giving pro forma effect to the issuance of the Senior Unsecured Notes, the consummation of the Acquisition, the consummation of the transactions contemplated by the Equity Purchase Agreements and the incurrence of the initial Loans, which opening balance sheet shall demonstrate a capital structure reflecting additional cash equity invested in, and the Senior Unsecured Notes issued by, the Borrower, aggregating at least $128,800,000 (of which the Senior Unsecured Notes may not exceed $100,000,000). (xii) As of the date hereof and since March 31, 1998, no event or circumstance shall have occurred which has had, or could have, a Materially Adverse Effect. (xiii) The Administrative Agent shall have received disbursement instructions from the Borrower. (xiv) The Borrower shall have provided to the Administrative Agent a certificate, duly executed on behalf of the Borrower by an authorized officer, certifying as to the satisfaction by the Borrower and Guarantors of the conditions precedent to lending set forth in this (S)10. (xv) Other than as consented to by the Administrative Agent in writing: (A) The transactions contemplated by the Merger Agreement shall have been consummated concurrently herewith (except for the payment of that portion, if any, of the merger consideration under the Merger Agreement being paid with the proceeds of Loans) and the material provisions of the Merger Agreement shall not have been amended, modified or waived prior to the consummation of the Acquisition. (B) All material consents, authorizations, orders or approvals of any Person required in connection with the transactions contemplated by the Merger Agreement shall have been obtained and shall be in full force and effect (except for Consents required by liquor authorities). (C) Contemporaneously with the making by the Banks of the Revolving Credit Loans on the Closing Date, the Borrower shall have furnished to the Administrative Agent a certificate, signed by an authorized officer of the Borrower, to the effect that the closing has occurred under the Merger Agreement and to the effect that each of the conditions set forth in (S)9(a)(xv) have been satisfied. (D) An opinion from Stroock & Stroock & Lavan LLP regarding the consummation of the transactions contemplated by the Merger Agreement. (xvi) [Intentionally omitted.] -35- (xvii) Other than as consented to by the Administrative Agent in writing: (A) The transactions contemplated by the Equity Purchase Agreements shall have been consummated and the material provisions of the Equity Purchase Agreement shall not have been amended, modified or waived prior to the consummation of such transactions. (B) Contemporaneously with the making by the Banks of the Revolving Credit Loans on the Closing Date, the Borrower shall have furnished to the Administrative Agent a certificate, duly executed on behalf of the Borrower by the authorized officer, to the effect that the closings have occurred under the Equity Purchase Agreements or will occur simultaneously with the funding of the Revolving Credit Loans and to the effect that each of the conditions set forth in (S)9(a)(xvii) have been satisfied or waived in writing. (xviii) Other than as consented to the Administrative Agent in writing: (A) The provisions of the Indenture shall not have been amended, modified, waived or terminated on or prior to the Closing Date. (B) Contemporaneously with the making by the Banks of the Revolving Credit Loans on the Closing Date, the Borrower shall have furnished to the Administrative Agent a certificate, duly executed on behalf of the Borrower by the authorized officer, to the effect that the Borrower has received the net proceeds of the issuance of the Senior Unsecured Notes and to the effect that each of the conditions set forth in (S)9(a)(xviii) have been satisfied or waived in writing. (xix) [Intentionally Omitted.] (xx) Any documents (including UCC-1 financing statements or UCC-3 termination statements) required by the Administrative Agent to be recorded or filed in order to (i) release any Liens on any assets of the Borrower and its Subsidiaries (other than Liens permitted herein) and (ii) create, in favor of the Administrative Agent, a perfected first-priority Lien on assets of the Borrower and its Subsidiaries (other than those assets listed on Schedule 6(f) or -------- ---- excluded by the express terms of the Security Documents) with respect to which a Lien may be perfected by filing a financing statement under the Uniform Commercial Code of the applicable jurisdiction, or by recording an assignment with the U.S. Patent and Trademark Office, or by recording a mortgage or deed of trust in the real estate records of the applicable jurisdiction, shall have been properly recorded or filed in each office in each jurisdiction required. The Administrative Agent shall have received acknowledgment copies of all such recordings and filings (or in lieu thereof, the -36- Administrative Agent shall have received other evidence satisfactory to it that all such recordings and filings have been made); and the Administrative Agent shall have received evidence that all necessary recording and filing fees and all taxes or other expenses related to such filings have been paid in full. Any other action, including the taking of possession of securities or instruments by the Administrative Agent, required in order to create in favor of the Administrative Agent, for the ratable benefit of the Administrative Agent and the Banks, a perfected first-priority Lien on the respective collateral described in any of the Security Documents to the extent such Liens may be perfected by filing a financing statement under the Uniform Commercial Code of the applicable jurisdiction, or by recording an assignment with the U.S. Patent and Trademark Office, or by recording a mortgage or deed of trust in the real estate records of the applicable jurisdiction, or by taking possession of the securities or instruments, shall have been properly taken in order to create such a perfected first-priority Lien, subject only to Liens permitted by (S)11(b)(ii). (xxi) ALTA mortgagee policies of title insurance covering all Restaurant Sites which are the subject of a Mortgage shall have been issued to the Administrative Agent by a title insurance company or title insurance companies satisfactory to the Administrative Agent, with proof of full payment for all fees and premiums. The form and substance of each such title insurance policy, shall contain no Schedule B standard pre-printed exceptions (other than for taxes not yet deemed payable and matters which would be disclosed by a current survey of the property) and shall contain no exceptions to coverage other than for Liens which the Administrative Agent reasonably determines are Permitted Liens. (b) The obligations of the Banks to make any Revolving Credit Loan, including the initial Revolving Credit 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 condition precedent: (i) Each of the representations and warranties of the Borrower and the Guarantors contained in this Agreement, the other Loan Documents or in any documents or instrument delivered pursuant to or in connection with this Agreement shall be true as of the date as of which they were made and shall also be true 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 Agreement and the other Loan Documents and changes occurring in the ordinary course of business that singly or in the aggregate have not had a Materially Adverse Effect, 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. -37- (ii) No change shall have occurred in any law or regulations thereunder or interpretations thereof that in the reasonable opinion of any Bank would make it illegal for such Bank 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. (iii) Each Bank shall have received such statements in substance and form reasonably satisfactory to such Bank as such Bank shall require for the purpose of compliance with any applicable regulations of the Comptroller of the Currency or the Board of Governors of the Federal Reserve System. (iv) All proceedings in connection with the transactions contemplated by this Agreement, the other Loan Documents and all other documents incident thereto shall be reasonably satisfactory in substance and in form to the Banks and to the Administrative Agent and the Administrative Agent's counsel, and the Banks, 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. (v) Timely receipt by the Administrative Agent of a Loan Request or Letter of Credit Application as provided in (S)2(b) and (S)3.1(a), as applicable. (vi) All corporate action referred to in (S)9(a)(ii) shall remain in full force and effect or satisfactory replacements therefore shall have been delivered to the Administrative Agent. SECTION 11. COVENANTS. --------- (a) Each of the Borrower and the Guarantors agrees that so long as the Commitments are in effect and until the payment and satisfaction in full of all the Obligations, the Borrower and each Guarantor will comply with its respective obligations as set forth throughout this Agreement and will: (i) furnish each of the Banks: (A) as soon as available but in any event within 90 days after the close of each fiscal year of the Borrower, (1) the audited Financials for such fiscal year, certified by Arthur Andersen LLP or by other independent certified public accountants satisfactory to the Majority Banks, (2) the unaudited consolidating Financials of the Borrower for such year and (3) the annual consolidated and consolidating budget (on a month-by-month basis) for the Borrower for the next fiscal year of the Borrower; (B) as soon as available but in any event within 45 days after the end of each fiscal quarter of the Borrower, the unaudited consolidated and consolidating Financials for such quarter, certified by a duly authorized officer of the Borrower; (C) as soon as -38- available but in any event within 45 days after the end of each fiscal month of the Borrower, the unaudited consolidated Financials and, to the extent prepared by the Borrower, consolidating Financials for such month, certified by a duly authorized officer of the Borrower; (D) together with the quarterly and annual Financials, a certificate of a duly authorized officer of the Borrower substantially in the form of Exhibit E attached hereto setting forth --------- computations demonstrating compliance with the financial covenants set forth herein, certifying that no Default or Event of Default has occurred, or if it has, the actions taken by the Borrower with respect thereto and certifying that no default or event of default has occurred and is continuing under the Indenture, the Senior Unsecured Notes, any Lease, any FFCA-Related Lease, the FFCA Loan Agreement, the Development Agreement or any Franchise Agreement; (E) promptly upon receipt thereof, copies of all material notices, requests and demands delivered to the Borrower or any Guarantor by the Trustee, the Franchisor pursuant to any Franchise Agreement or any Development Agreement, by the Site Lessor or by any other lessor or sublessor pursuant to any Lease; (F) promptly upon their becoming available, all such operating, financial and other reports as the Borrower shall deliver to the Franchisor; (G) contemporaneously with the filing or mailing thereof, copies of all material of a financial nature filed with Securities and Exchange Commission, sent to the stockholders of the Borrower or sent to the Trustee; and (H) from time to time, such other financial data and information (including management letters) as the Administrative Agent or any Bank may reasonably request; (ii) keep true and accurate books of account in accordance with GAAP, permit the Administrative Agent or its designated representatives to inspect its premises and examine and be advised as to such or other business records by its officers and accountants upon the request of the Banks, and permit the Administrative Agent's commercial finance examiners to conduct periodic commercial finance examinations of its properties; (iii) (A) maintain its corporate existence, (B) maintain its business and assets, (C) keep its business and assets adequately insured, (D) maintain its chief executive office in the United States, (E) continue to engage in the same lines of business, (F) comply with all Requirements of Law, including health and safety, ERISA and Environmental Laws, and (G) comply with each of the respective obligations imposed upon it in each of the Indenture, the Franchise Agreements, each of the FFCA-Related Leases and each of the Development Agreements; (iv) notify the Administrative Agent and each of the Banks in writing, within the following time periods, of (A) within a reasonable period of time, but in no event later than 10 days after the occurrence thereof, any Default or Event of Default, (B) within a reasonable period of time, but in no event later than 3 days after the occurrence thereof, any material default under the Senior Unsecured Notes or the Indenture, (C) within a reasonable period of time, but in no event -39- later than 15 days after the occurrence thereof, any default under (1) any Franchise Agreement, (2) any material Lease, (3) any Development Agreement, (4) any FFCA-Related Lease or (5) any FFCA Loan Document, (D) within a reasonable period of time, but in no event later than 15 days after the occurrence thereof, any noncompliance with ERISA or any Environmental Law or proceeding in respect thereof which could have a Materially Adverse Effect, (E) within a reasonable period of time, but in no event later than 15 days after the occurrence thereof, any change of address, (F) within a reasonable period of time, but in no event later than 15 days after the occurrence thereof, any threatened or pending litigation or similar proceeding affecting the Borrower or any Subsidiary involving a claim of more than $750,000, or any material change in any litigation or proceeding previously reported and (G) within a reasonable period of time, but in no event later than 15 days after the occurrence thereof, claims against any assets or properties of the Borrower or any Guarantor encumbered in favor of the Administrative Agent; (v) use the Letters of Credit for general corporate purposes and use the proceeds of the Loans solely for general corporate purposes, including, without limitation the repayment of outstanding loans under the Original Agreement, and working capital purposes and to fund the development of new restaurant sites and not for the carrying of "margin security'' or "margin stock" within the meaning of Regulations U and X of the Board of Governors of the Federal Reserve System, 12 C.F.R. Parts 221 and 224; provided, however, the -------- ------- initial Loans to be made on the date hereof, shall not exceed $1,000,000; (vi) cooperate with the Bank Agents and the Banks, take such action, execute such documents, and provide such information as the Bank Agents and the Banks may from time to time reasonably request in order further to effect the transactions contemplated by, and the purposes of, the Loan Documents; (vii) notify the Administrative Agent of any new restaurant location which the Borrower, the Site Lessor or any Guarantor may acquire (including by way of lease or sublease) after the date hereof within 15 Business Days prior to the date of such acquisition and deliver to the Administrative Agent an updated Schedule 9(n) which reflects ------------- any new restaurants operated by the Borrower or any Guarantor after the date hereof; (viii) maintain at all times its primary operating and depository accounts with the Administrative Agent, such other depository accounts listed on Schedule 9(m) attached hereto and other depository accounts of ------------- which the Borrower or a Guarantor gives the prior written notice (provided, however, that the Borrower or such Guarantor shall not create or maintain a depository account with a financial institution other than the Administrative Agent and its affiliates unless the Borrower or such Guarantor, prior to creating such account, shall have caused any such financial institution to enter into an agency agreement with the -40- Administrative Agent substantially in the form of Exhibit F hereto); --------- use its best efforts to cause all of its debtors on accounts receivable and all lessees and conditional vendees to make all payments on accounts receivable and contracts to one of such depository accounts; promptly after its receipt thereof, deposit all gross operating revenues from its business into one of such depository accounts; and transfer on a daily basis all good funds collected in such depository accounts on such day to the accounts maintained with the Administrative Agent. If applicable, the Borrower or a Guarantor shall deliver to the Administrative Agent an updated Schedule 9(m) which reflects any new depository accounts ------------- created or existing depository accounts terminated by Borrower or a Guarantor after the date hereof; (b) Each of the Borrower and the Guarantors agrees that so long as the Commitments are in effect and until the payment and satisfaction in full of all the Obligations, the Borrower and each Guarantor will not: (i) create, incur or assume or be or remain liable for any Indebtedness other than (A) Indebtedness to the Banks and the Bank Agents arising under the Loan Documents, (B) current liabilities of the Borrower and the Guarantors not incurred through the borrowing of money or the obtaining of credit except credit on an open account customarily extended, (C) Indebtedness in respect of taxes or other governmental charges contested in good faith and by appropriate proceedings; (D) Indebtedness of the Borrower or any Guarantor not included above and listed on Schedule 11(b)(i) attached hereto; (E) ----------------- Indebtedness incurred in connection with the acquisition by the Borrower or any Guarantor after the date hereof of any personal property of the Borrower or any Guarantor, provided that the aggregate principal amount of such Indebtedness shall not exceed in the aggregate exceed $500,000 at any time; (F) Indebtedness in respect of the FFCA-Related Leases; (G) Indebtedness under that certain promissory note dated August 6, 1997 made by the Borrower payable to the order of NERC SPE, Inc. in the original principal amount of $2,500,000; and (H) Indebtedness under the Indenture and the Senior Unsecured Notes. (ii) create or incur or permit to exist any Liens on any of the property or assets of the Borrower or any Guarantor except the following ("Permitted Liens") (A) Liens securing the --------------- Obligations; (B) Liens securing taxes or other governmental charges not yet due or which are being contested in good faith by appropriate proceedings provided appropriate reserves have been taken on the books of the Borrower or Guarantor; (C) deposits or pledges made in connection with workers' compensation laws social security obligations; (D) Liens of carriers, warehousemen, mechanics and materialmen, less than 120 days old as to obligations not yet due; (E) easements, rights-of-way, zoning restrictions -41- and similar minor Liens which individually and in the aggregate do not have a Materially Adverse Effect; (F) other Liens on the property or assets of the Borrower or any Guarantor existing on the date hereof and listed on Schedule 11(b)(ii) hereto; (G) ------------------ purchase money security interests on personal property acquired by the Borrower or any Guarantor after the date hereof to secure purchase money Indebtedness of the type and amount permitted by Section 11(b)(i)(E) hereof, incurred in connection with the acquisition of such personal property, which security interests cover only the personal property so acquired; (H) Liens on any real property, personal property or fixtures in connection with FFCA Loan Documents or any Permitted Special Purpose Transaction and Liens for the purpose of securing the refinancing thereof; (I) judgment liens not giving rise to an Event of Default under Section 12(i) hereof; and (J) such other Liens that the Administrative Agent may approve in writing from time to time. (iii) make any investments in or loans, advances, capital contributions or transfers of property to, any person or entity other than Permitted Investments and investments in (A) marketable obligations of the United States maturing within one (1) year, (B) certificates of deposit, bankers' acceptances and time and demand deposits of United States banks having total assets in excess of $1,000,000,000, or (C) such other investments as the Administrative Agent may from time to time approve in writing; (iv) make any dividends or similar distributions to its shareholders; (v) except for Permitted Special Purpose Transactions, become party to a merger or effect any disposition of assets other than in the ordinary course, or purchase, lease or otherwise acquire assets other than in the ordinary course; (vi) enter into any FFCA-Related Lease unless the Borrower has delivered to the Bank an updated Schedule 9(k) which reflects ------------ such FFCA-Related Lease; (vii) enter into any Franchise Agreement unless (A) the franchisor under any such Franchise Agreement is the Franchisor; (B) such Franchise Agreement is substantially in the form of the Franchise Agreements in effect on the date hereof with only such changes as are approved by the Majority Banks, as evidenced by their written consent thereto, which consent shall not unreasonably be withheld; (C) it has delivered a certified copy of such Franchise Agreement to the Administrative Agent; (D) the Franchisor has executed and delivered to the Administrative Agent an agreement satisfactory to the Majority Banks in all respects pursuant to -42- which the Franchisor agrees to deliver to the Administrative Agent periodic no default and estoppel certificates with respect to such Franchise Agreement, to notify the Administrative Agent of all defaults under such Franchise Agreement and to give the Banks reasonable opportunity to cure such defaults if the Banks so elect; (E) the Borrower has delivered to the Administrative Agent an updated Schedule 9(l) which reflects such Franchise ------------- Agreement; and (F) the Borrower has executed and delivered to the Administrative Agent such instruments and taken such action as may be requested by the Administrative Agent in order to perfect the Administrative Agent's lien on or security interest (on behalf of the Banks) in such Franchise Agreement; (viii) effect or permit any material change in or amendment to the terms of the Indenture, any Franchise Agreement, any Development Agreement, any FFCA Loan Document, the Forward Commitment, any FFCA-Related Lease without the prior written consent of the Majority Banks, which consent shall not unreasonably be withheld, provided, however, the Borrower and Site Lessor may effect or -------- ------- permit a change in an amendment to the terms of any FFCA Loan Document, FFCA-Related Lease and Forward Commitment Document without consent of the Majority Banks so long as any such amendment or change is in compliance with the terms of clause (ii) of the second paragraph of Section 13.P of the Loan Agreement dated as of August 6, 1997 between FFCA Acquisition Corporation and NERC Limited Partnership or as contemplated by the comparable provisions of the Forward Commitment Documents; provided, further, however, the prior written consent of the -------- ------- ------- Majority Bank shall be required for any amendment or change to the FFCA Loan Documents, the FFCA-Related Leases and the Forward Commitment Documents of the nature set forth in clause (i) of the fourth paragraph of said Section 13.P or as contemplated by said comparable provisions of the Forward Commitment Documents; (ix) Enter into any agreement, contract or arrangement (other than the Agreement and the other Loan Documents) restricting the ability of any Guarantor to pay or make dividends or distributions in cash or in kind to the Borrower, to make loans, advances or other payments of whatsoever nature to the Borrower or to make, transfer or distribute all or any part of its assets to Borrower; (x) except as may be permitted under the Indenture, in connection with an Equity Offering, redeem, prior to the Maturity Date, any of the Senior Unsecured Notes; -43- (xi) Permit any Subsidiary (other than a Guarantor) to incur Indebtedness or create or permit to exist any Lien on any property or assets of any such Subsidiary other than (A) current liabilities of such Subsidiary not incurred through the borrowing of money or the obtaining of credit except credit on an open account customarily extended; (B) Indebtedness in respect of taxes or other governmental charges contested in good faith and by appropriate proceedings; (C) Indebtedness in connection with the FFCA Loan Documents; (D) Indebtedness in connection with any Permitted Special Purpose Transaction; (E) Liens securing taxes or other governmental charges not yet due or which are being contested in good faith by appropriate proceedings provided appropriate reserves have been taken on the books of the Subsidiary; (F) deposits or pledges made in connection with workers' compensation laws social security obligations; (G) Liens of carriers, warehousemen, mechanics and materialmen, less than 120 days old as to obligations not yet due; (H) easements, rights-of-way, zoning restrictions and similar minor Liens which individually and in the aggregate do not have a Materially Adverse Effect; (I) other Liens on the property or assets of the Subsidiary existing on the date hereof; (J) Liens on any real property, personal property or fixtures in connection with FFCA Loan Documents or any Permitted Special Purpose Transaction and Liens for the purpose of securing the refinancing thereof; (K) judgment liens not giving rise to an Event of Default under Section 12(i) hereof (as if the Subsidiary were the "Borrower" referred to therein); and (L) such other Liens that the Administrative Agent may approve in writing from time to time; (xii) Engage in, or permit its Subsidiaries (including, without limitation, the Guarantors) to engage in, transactions with its or their affiliates, except for transactions (A) previously closed with FFCA Loan Documents, (B) which are Permitted Special Purpose Transactions; or (C) which are on terms no less favorable to the Borrower, such Guarantor or such Subsidiary than the Borrower, such Guarantor or such Subsidiary could obtain in arms- length transactions from third parties which are not such affiliates; provided, however, except for Special Purpose -------- ------- Transactions neither the Borrower, its Subsidiaries or their affiliates shall engage in transactions with the Site Lessors; (xiii) Enter into or permit any of its Subsidiaries to enter into any arrangement, directly or indirectly, whereby the Borrower, Guarantor or any Subsidiary of the Borrower or Guarantor shall sell or transfer any property owned by it in order then or thereafter to lease such property or lease other property that the Borrower, Guarantor or any Subsidiary intends to use for substantially the same purpose as the property being sold or transferred; provided, however, this (S)9(b)(xiii) shall not -------- ------- prohibit the Forward -44- Commitment Transactions or any other Special Purpose Transactions so long as such transaction is accounted for in the Financials of the Borrower as an incurrence of Indebtedness, the Administrative Agent's Lien on the Restaurant Sites set forth on Schedule 1, or ---------- such substitute restaurant locations as permitted by Section 6(f), is maintained and, so long as after giving effect to such transaction, the Borrower shall be in compliance with all of the financial covenants set forth in (S)11(c) (collectively, "Permitted Special Purpose Transactions"); -------------------------------------- (xiv) Purchase or redeem any capital stock or other equity interests in the Borrower or its Subsidiaries; provided, however, the -------- ------- Borrower or any such Subsidiary may redeem or repurchase or otherwise acquire capital stock or other equity interests held by management employees of the Borrower and its Subsidiaries, in each case in connection with the repurchase provisions under employee stock option agreements or plans, stock purchase agreements, subscription agreements, employment agreements, employee benefit plan or arrangements, stockholder agreement or other agreements to compensate management employees, provided further, however, that the aggregate amount of payments made with respect to all such purchases or redemptions effected after the date hereof shall not exceed $100,000 in the aggregate, except such limitation shall not apply to mandatory redemptions, repurchases or acquisitions of capital stock or other equity interests of management employees of the Borrower and its Subsidiaries under stockholders agreements or employee agreements. (c) The Borrower and each of the Guarantors agrees that so long as the Commitments are in effect and until the payment and satisfaction in full of all the Obligations, the Borrower and the Guarantors will not: (i) permit the Funded Debt Leverage Ratio for any Reference Period ending during any period identified in the table below to be greater than the ratio specified below opposite such period: Period Ratio ------ ----- Closing Date - 12/30/99 5.00:1.00 12/31/99 - 12/30/00 4.75:1.00 12/31/00 and thereafter 4.25:1.00 (ii) permit the ratio of EBITDA to Interest Expense for any Reference Period ending during a period identified in the table below to be less than the ratio specified below opposite such period: -45- Period Ratio ------ ----- 12/31/98 - 6/29/99 1.9:1.00 6/30/99 - 12/30/00 2.1:1.00 12/31/00-6/29/01 2.4:1.00 6/30/01 and thereafter 2.75:1.00 provided, however, for the purposes of this (S)10(c)(ii) only, -------- ------- for the Reference Period ended December 31, 1998, both EBITDA and Interest Expense shall be calculated solely by reference to the period from September 30, 1998 through December 31, 1998; for the Reference Period ended March 31, 1999 both EBITDA and Interest Expense shall be calculated solely by reference to the period from September 30, 1998 through March 31, 1999; for the Reference Period ended June 30, 1999, both EBITDA and Interest Expense shall be calculated solely by reference to the period from September 30, 1998 through June 30, 1999. (iii) permit the ratio of Operating Cash Flow to Fixed Obligations for any Reference Period ending during any period thereafter identified in the table below to be less than the ratio specified below opposite such period: Period Ratio ------ ----- 7/1/99 - 12/30/99 1.1:1.00 12/31/99 and thereafter 1.2:1.00 (iv) permit consolidated Net Worth at any time to be less than the sum (a) an amount equal to (i) the Company's consolidated Net Worth on the Closing Date, minus (ii) $2,000,000, plus (b) on a ----- ---- cumulative basis, seventy-five percent (75%) of positive consolidated net income for each fiscal quarter beginning with the fiscal quarter ended September 30, 1998 (which consolidated net income, for the purposes of this (S)11(c)(iv), shall be calculated in accordance with the terms and provisions of the Indenture), plus (c) 100% of the net proceeds of any sale by the ---- Borrower or any Subsidiary of (i) equity securities issued by the Borrower or any Subsidiary or (ii) warrants or subscription rights for equity securities issued by the Borrower or Subsidiary, in each case, after the date hereof and other than to the Borrower or any Subsidiary. (v) permit consolidated Net Worth at any time to be less than $5,000,000. -46- (vi) permit Capital Expenditures made during any fiscal year identified in the table below to exceed the level of Capital Expenditures specified below opposite such fiscal year: Fiscal Year Ended Maximum Capital Expenditures ----------------- ---------------------------- December 31, 1998 $25,000,000 December 31, 1999 $40,000,000 and Thereafter SECTION 12. EVENTS OF DEFAULT; ACCELERATION. If any of the following ----------------- ------------ events ("Events of Default") shall occur: ----------------- (a) the Borrower shall fail to pay (i) any principal of or interest on the Loans or (ii) any Reimbursement Obligations not funded by a Revolving Credit Loan pursuant to Section 2(f), within two (2) days after when due and payable; (b) the Borrower or any Guarantor shall fail to comply with the covenant contained in (S)11(a)(i)(E), (F), (G) and (H), (S)11(a)(ii), (S)11(a)(iii)(B), (D) and (F), (S)11(a)(iv), (S)11(a)(vi), (S)11(a)(vii) or (S)11(b)(ii) hereof and such failure shall continue for twenty (20) days after the earlier of (i) written notice thereof to the Borrower by the Administrative Agent or (ii) actual knowledge thereof by the Borrower or any Guarantor; (c) the Borrower or any Guarantor shall fail to perform any term, covenant or agreement contained in this Agreement or any of the other Loan Documents (other than those specified in clauses (a) and (b) above); (d) any representation or warranty of the Borrower or any Guarantor in the Loan Documents or in any certificate or notice given in connection therewith shall have been false or misleading in any material respect at the time made or deemed to have been made; (e) the Borrower or any Guarantor shall be in default beyond any applicable grace period under any agreement or agreements evidencing Indebtedness owing to any Bank or any affiliates of any Bank or in excess of $250,000 in aggregate principal amount, or shall fail to pay such Indebtedness when due, or within any applicable period of grace; (f) any of the Loan Documents shall cease to be in full force and effect; (g) the Borrower or any Guarantor (i) shall make an assignment for the benefit of creditors, (ii) shall be adjudicated bankrupt or insolvent, (iii) shall seek the appointment of, or be the subject of an order appointing, a trustee, liquidator or receiver as to all or part of its assets, (iv) shall commence, approve or consent to, any case or proceeding under any bankruptcy, reorganization or similar law and, in the case of an involuntary case or proceeding, such case or proceeding is not dismissed within 45 days following the commencement thereof, or (v) shall be the subject of an order for relief in an involuntary case under federal bankruptcy law; -47- (h) the Borrower or any Guarantor shall be unable to pay debts as they mature; (i) there shall remain undischarged for more than 30 days any final judgment or execution action against the Borrower or any Guarantor that, together with other outstanding claims and execution actions against the Borrower and the Guarantors, exceeds $750,000 in the aggregate; (j) there shall occur a default not cured or waived within the applicable period of grace, if any, under any Franchise Agreement, any Development Agreement, the Indenture, any FFCA-Related Lease, any FFCA Loan Document or any Forward Commitment Document by any party thereto or any Franchise Agreement, any Development Agreement or any FFCA-Related Lease is canceled, terminated, revoked or rescinded, otherwise than with the express prior written consent or approval of the Majority Banks; (k) there shall occur a Change of Control of the Borrower; (l) the Borrower shall at any time, legally or beneficially, own less than 100% of the capital stock of each of the Guarantors; THEN, or at any time thereafter: (1) so long as the same may be continuing, the Administrative Agent may, and, upon the request of the Majority Banks, shall, by notice in writing to the Borrower declare all amounts owing with respect to this 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 Borrower; provided that in the event of any Event of Default specified in (g) or (h), all such amounts shall become immediately due and payable automatically and without any requirement of notice from the Administrative Agent or any Bank. (2) If any one or more of the Events of Default specified in (g) or (h) shall occur, any unused portion of the Total Commitment shall forthwith terminate and each of the Banks shall be relieved of all further obligations to make Loans to the Borrower, 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 and, upon the request of the Majority Banks, shall, by notice to the Borrower, terminate the unused portion of the Total Commitments, and upon such notice being given such unused portion of the Total Commitments, shall terminate immediately and each of the Banks 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 -48- termination of the Total Commitments, shall relieve the Borrower or the Guarantors of any of the Obligations. (3) In case any one or more of the Events of Default shall have occurred and be continuing, and whether or not the Banks shall have accelerated the maturity of the Loans, each Bank, if owed any amount with respect to the Loans or the Reimbursement Obligations, may, with the consent of the Majority Banks but not otherwise, 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 Agreement and the other Loan Documents or any instrument pursuant to which the Obligations to such Bank are evidenced, including as permitted by applicable law the obtaining of the 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 Bank. No remedy herein conferred upon any Bank 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. (4) In the event that, following the occurrence or during the continuance of any Default or Event of Default, the Administrative Agent or any Bank, as the case may be, receives any monies in connection with the enforcement of any the Loan Documents, 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 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 Majority Banks may determine; provided, however, that distributions in respect of such obligations shall be made (i) pari passu among ---- ----- Obligations with respect to the Administrative Agent's fee payable pursuant to (S)6(a) and all other Obligations and (ii) Obligations owing to the Banks with respect to each type of Obligation such as interest, principal, fees and expenses, shall be made among the Banks pro rata; and provided, further, that the Administrative Agent may in --- ---- --------- ------- its discretion make proper allowance to take into account any Obligations not then due and payable; -49- (c) Third, upon payment and satisfaction in full or other provisions for payment in full satisfactory to the Banks and the Administrative Agent of all of the Obligations, to the payment of any obligations required to be paid pursuant to (S)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 Borrower or to such other Persons as are entitled thereto. SECTION 13. SET OFF. Regardless of the adequacy of any collateral, during ------- the continuance of any Event of Default, any deposits or other sums credited by or due from any of the Banks to the Borrower or the Guarantors and any securities or other property of the Borrower or the Guarantors in the possession of such Bank may be applied to or set off by such Bank 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 the Borrower or the Guarantors, as the case may be, to such Bank. Each of the Banks agrees with each other Bank that (a) if an amount to be set off is to be applied to Indebtedness of the Borrower or the Guarantors to such Bank, other than Indebtedness evidenced by the Notes held by such Bank or constituting Reimbursement Obligations owed to such Bank, such amount shall be applied ratably to such other Indebtedness and to the Indebtedness evidenced by all such Notes held by such Bank or constituting Reimbursement Obligations owed to such Bank, and (b) if such Bank shall receive from the Borrower or a Guarantor, 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 Bank by proceedings against the Borrower or a Guarantor 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 Bank any amount in excess of its ratable portion of the payments received by all of the Banks with respect to the Notes held by, and Reimbursement Obligations owed to, all of the Banks, such Bank will make such disposition and arrangements with the other Banks with respect to such excess, either by way of distribution, pro tanto assignment of --- ----- claims, subrogation or otherwise as shall result in each Bank receiving in respect of the Notes held by it or Reimbursement obligations owed it its proportionate payment as contemplated by this Agreement; provided that if all or -------- any part of such excess payment is thereafter recovered from such Bank, such disposition and arrangements shall be rescinded and the amount restored to the extent of such recovery, but without interest. SECTION 14. THE BANK AGENTS. --------------- (a) Each of the Bank Agents is authorized to take such action on behalf of each of the Banks and to exercise all such powers as are hereunder and under any of the other Loan Documents and any related documents delegated to such Bank Agent, together with such powers as are reasonably incident thereto, provided -------- that no duties or responsibilities not expressly assumed herein or therein shall be implied to have been assumed by such Bank Agent. -50- (b) The relationship between each Bank Agent and each of the Banks is that of an independent contractor. The use of the term "Agent" is for convenience only and is used to describe, as a form of convention, the independent contractual relationship between each Bank Agent and each of the Banks. Nothing contained in this Agreement nor the other Loan Documents shall be construed to create an agency, trust or other fiduciary relationship between each Bank Agent and any of the Banks. (c) As an independent contractor empowered by the Banks to exercise certain rights and perform certain duties and responsibilities hereunder and under the other Loan Documents, each Bank Agent is nevertheless a "representative" of the Banks, as that term is defined in Article 1 of the Uniform Commercial Code, for purposes of actions for the benefit of the Banks and each Bank 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 Banks and each Bank Agent. (d) Each Bank 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 Agreement and the other Loan Documents. Each Bank Agent may utilize the services of such Persons as such Bank Agent in its sole discretion may reasonably determine, and all reasonable fees and expenses of any such Persons shall be paid by the Borrower. (e) Neither any Bank 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 to the Banks 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 each Bank Agent or such other Person, as the case may be, may be liable for losses due to its willful misconduct or gross negligence. (f) Neither of the Bank Agents shall be responsible for the execution or validity or enforceability of this 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 the Borrower or the Guarantors, 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 -51- any of the properties, books or records of the Borrower or the Guarantors. The Administrative Agent shall not be bound to ascertain whether any notice, consent, waiver or request delivered to it by the Borrower or any holder of any of the Notes shall have been duly authorized or is true, accurate and complete. Neither Bank Agent has made nor does it now make any representations or warranties, express or implied, nor does it assume any liability to the Banks, with respect to the credit worthiness or financial conditions of the Borrower or the Guarantors. Each Bank acknowledges that it has, independently and without reliance upon either Bank Agent or any other Bank, and based upon such information and documents as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement. (g) A payment by the Borrower or any Guarantor to the Administrative Agent hereunder or any of the other Loan Documents for the account of any Bank shall constitute a payment to such Bank. The Administrative Agent agrees promptly to distribute to each Bank such Bank's pro rata share of payments received by the --- ---- Administrative Agent for the account of the Banks except as otherwise expressly provided herein or in any of the other Loan Documents. (h) Between the Administrative Agent and the Banks, the Administrative Agent shall be fully justified in failing or refusing to take any action under this Agreement unless it shall first have received such advice or concurrence of the Majority Banks as it reasonably deems appropriate or it shall first be indemnified to its reasonable satisfaction by the Banks (in accordance with (S)14(i)) 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 Agreement in accordance with a request of the Majority Banks, and such request and any action taken or failure to act pursuant thereto shall be binding upon the Banks and all future holders of the Revolving Credit Notes or of a Letter of Credit Participation. 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. (i) Notwithstanding anything to the contrary contained in this Agreement or any of the other Loan Documents, any Bank 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 (S)13 with respect to making dispositions and arrangements with the other Banks, where such Bank'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 --- ---- Banks, in each case as, when and to the full extent required by the provisions of this Agreement shall be deemed delinquent (a "Delinquent Bank") and shall be --------------- deemed a Delinquent Bank until such time as such delinquency is satisfied. A Delinquent Bank shall be deemed to have assigned any and all payments due to it from the Borrower and the Guarantors, whether on account of outstanding -52- Loans, Unpaid Reimbursement Obligations, interest fees or otherwise, to the remaining nondelinquent Banks for application to, and reduction of, their respective pro rata shares of all outstanding Loans and Unpaid Reimbursement --- ---- Obligations. The Delinquent Bank hereby authorizes the Administrative Agent to distribute such payments to the nondelinquent Banks in proportion to their respective pro rata shares of all outstanding Loans and Unpaid Reimbursement --- ---- Obligations. A Delinquent Bank shall be deemed to have satisfied in full a delinquency when and it as a result of application of the assigned payments to all outstanding Loans and Unpaid Reimbursement Obligations of the nondelinquent Banks, the Banks' 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. (j) 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. (k) The Banks ratably agree hereby to indemnify and hold harmless each Bank Agent from and against any and all claims, actions and suits (whether groundless or otherwise), losses, damages, costs, expenses (including any expenses for which such Bank Agent has not been reimbursed by the Borrower and the Guarantors as required by (S)17), and liabilities of every nature and character arising out of or related to this Agreement, the Notes, or any of the other Loan Documents or the transactions contemplated or evidenced hereby or thereby, or such Bank Agent's actions taken hereunder or thereunder, except to the extent that any of the same shall be directly caused by such Bank Agent's willful misconduct or gross negligence. (l) In its individual capacity, (a) BKB shall have the same obligations and the same rights, powers and privileges in respect to its 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 and (b) Chase Bank of Texas, N.A. shall have the same obligations and the same rights, powers and privileges in respect to its 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 Documentation Agent. (m) Any Bank Agent may resign at any time by giving sixty (60) days prior written notice thereof to the Banks, the Borrower and the other Bank Agent. Upon any such resignation, the Majority Banks shall have the right to appoint a successor Bank Agent. Unless a Default or Event of Default shall have occurred and be continuing, such successor Bank Agent shall be reasonably acceptable to the Borrower. If no successor Bank Agent shall have been so appointed by the Majority Banks and shall have accepted such appointment within thirty (30) days after the retiring Banks Agent's giving of notice of resignation, then the retiring Bank Agent may, on behalf of the Banks, appoint a successor Bank Agent which shall be a financial institution having a rating of not less than A or its equivalent by Standard & Poor's Corporation. Upon the acceptance of any appointment as a Bank Agent hereunder by a successor Bank Agent such successor Bank Agent shall thereupon succeed to and become vested with all the rights, powers, -53- privileges and duties of the retiring Bank Agent and the retiring Bank Agent shall be discharged from its duties and obligations hereunder. After any retiring Bank Agent's resignation, the provisions of this 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 a Bank Agent. (n) Each Bank 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 (S)14(l) it shall promptly notify the other Banks of the existence of such Default or Event of Default. SECTION 15. ASSIGNMENT AND PARTICIPATIONS. ----------------------------- (a) Except as provided herein, each Bank may, with the Borrower's Approval (which shall not be unreasonably withheld or delayed and which Approval shall not be required for any proposed assignment made after the occurrence of an Event of Default and during the continuance thereof), assign to one or more Eligible Assignees all or a portion of its interests, rights and obligations under this Agreement (including all or a portion of its Commitment Percentage and Commitment and the same portion of the Loans at the time owing to it, the Note held by it and its participating interest in the risk relating to any Letters of Credit); provided that (i) the Administrative Agent shall have given -------- its prior written consent to such assignment, which consent will not be unreasonably withheld, (ii) each such assignment shall be of a constant, and not a varying, percentage of all the assigning Bank's rights and obligations under this Agreement, (iii) each assignment shall be in an amount that is a minimum amount of $5,000,000 and (iv) 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 G hereto (an "Assignment and Acceptance"), together with any Note - --------- ------------------------- 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, (i) the assignee thereunder shall be party hereto and, to the extent provided in such Assignment and Acceptance, have the rights and obligations of a Bank hereunder, and (ii) the assigning Bank, shall, to the extent provided in such assignment and upon payment to the Administrative Agent of the registration fee referred to in (S)15(c), be released from its obligations under this Agreement. (b) By executing and delivering an Assignment and Acceptance, the parties to the assignment hereunder confirm to and agree with each other and the other parties hereto as follows: (i) 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 Bank 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 Agreement or the execution, legality, validity, enforceability, -54- genuineness, sufficiency or value of this Agreement, the other Loan Documents or any other instrument or document furnished pursuant hereto or the attachment, perfection or priority of any security interest or mortgage, (ii) the assigning Bank makes no representation or warranty and assumes no responsibility with respect to the financial condition of the Borrower and the Guarantors or any other Person primarily or secondarily liable in respect of any of the Obligations, or the performance or observance by the Borrower and the Guarantors or any other Person primarily or secondarily liable in respect of any of the Obligations of any of their obligations under this Agreement or any of the other Loan Documents or any other instrument or document furnished pursuant hereto or thereto; (iii) such assignee confirms that it has received a copy of this Agreement, together with copies of the most recent financial statements referred to herein 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; (iv) such assignee will, independently and without reliance upon the assigning Bank, the Bank Agents or any other Bank 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 Agreement; (v) such assignee represents and warrants that it is an Eligible Assignee; (vi) such assignee appoints and authorizes each of the Bank Agents to take such action as agent on its behalf and to exercise such powers under this 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; (vii) such assignee agrees that it will perform in accordance with their terms all of the obligations that by the terms of this Agreement are required to be performed by it as a Bank; (viii) such assignee represents and warrants that it is legally authorized to enter into such Assignment and Acceptance; and (ix) such assignee acknowledges that it has made arrangements with the assigning Bank satisfactory to such assignee with respect to its -55- pro rata share of Letter of Credit Fees in respect of outstanding Letters --- ---- of Credit. (c) 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 Banks and the Commitment Percentage of, and principal amount of the Revolving Credit Loans owing to and Letter of Credit Participations purchased by, the Banks from time to time. The entries in the Register shall be conclusive, in the absence of manifest error, and the Borrower, the Administrative Agent and the Banks may treat each Person whose name is recorded in the Register as a Bank hereunder for all purposes of this Agreement. The Register shall be available for inspection by the Borrower and the Banks at any reasonable time and from time to time upon reasonable prior notice. Upon each such recordation, the assigning Bank agrees to pay to the Administrative Agent a registration fee in the sum of $3,500. (d) 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 Borrower and the Banks (other than the assigning Bank). Within five (5) Business Days after receipt such notice, the Borrower, at its own expense, shall execute and deliver to the Administrative Agent, in exchange for each surrendered Note, a new Note to the order of such Eligible Assignee in an amount equal to the amount assumed by such Eligible Assignee pursuant to such Assignment and Acceptance and, if the assigning Bank has retained some portion of its obligations hereunder, a new Note to the order of the assigning Bank 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 substantially the form of the assigned Notes. Within five (5) days of issuance of any new Notes pursuant to this (S)15(d), the Borrower shall deliver an opinion of counsel, addressed to the Banks and the Administrative Agents, 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 Administrative Agent. The surrendered Notes shall be canceled and returned to the Borrower. (e) Each Bank may sell participations to one or more banks or other entities in all or a portion of such Bank's rights and obligations under this Agreement and the other Loan Documents; provided that (a) each such -------- participation shall be in an amount of not less than $5,000,000, (b) any such sale or participation shall not affect the rights and duties of the selling Bank hereunder to the Borrower 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 Commitment of such Bank as it relates to such participant, reduce the amount of any commitment fees or Letter of Credit Fees to which such participant is entitled or extend any regularly scheduled payment date for principal or interest. -56- (f) The Borrower agrees that in addition to disclosures made in accordance with standard and customary banking practices any Bank may disclose information obtained by such Bank pursuant to this Agreement to assignees or participants and potential assignees or participants hereunder; provided that such assignees -------- or participants or potential assignees or participants shall agree (i) to treat in confidence such information unless such information otherwise becomes public knowledge, (ii) not to disclose such information to a third party, except as required by law or legal process and (iii) not to make use of such information for purposes of transactions unrelated to such contemplated assignment or participation. (g) If any assignee Bank is an Affiliate of the Borrower or Guarantor, then any such assignee Bank shall have no right to vote as a Bank 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 (S)12(1) or (2), and the determination of the Majority Banks shall for all purposes of this Agreement and the other Loan Documents be made without regard to such assignee Bank's interest in any of the Loans. If any Bank sells a participating interest in any of the Loans or Reimbursement Obligations to a participant, and such participant is the Borrower or any Guarantor or an Affiliate of the Borrower or any Guarantor, then such transferor Bank shall promptly notify the Administrative Agent of the sale of such participation. A transferor Bank shall have no right to vote as a Bank 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 (S)12(1) or (2), to the extent that such participation is beneficially owned by the Borrower or any Guarantor or any Affiliate of the Borrower or any Guarantor, and the determination of the Majority Banks shall for all purposes of this Agreement and the other Loan Documents be made without regard to the interest of such transferor Bank in the Loans to the extent of such participation. (h) Any assigning Bank shall retain its rights to be indemnified pursuant to (S)17(a) with respect to any claims or actions arising prior to the date of such assignment. If any assignee Bank is not incorporated under the laws of the United States of America or any state thereof, it shall, prior to the date on which any interest or fees are payable hereunder or under any of the other Loan Documents for its account, deliver to the Borrower and the Administrative Agent certification as to its exemption from deduction or withholding of any United States federal income taxes. Anything contained in this (S)15 to the contrary notwithstanding, any Bank may at any time pledge all or any portion of its interest and rights under this Agreement (including all or any portion of its Notes) to any of the twelve Federal Reserve Banks organized under (S)4 of the Federal Reserve Act, 12 U.S.C. (S)341. No such pledge or the enforcement thereof shall release the pledgor Bank from its obligations hereunder or under any of the other Loan Documents. SECTION 16. CONSENTS, AMENDMENTS, WAIVERS, ETC. ----------------------------------- Any consent or approval required or permitted by this Agreement to be given by the Banks may be given, and any term of this Agreement, the other Loan Documents or any other instrument related hereto or mentioned herein may be amended, and the performance or observance by the Borrower or any Guarantor of any terms of this Agreement, the other Loan -57- 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 Majority Banks. Notwithstanding the foregoing, any extension of the Maturity Date, any reduction in the rate of interest on the Notes (other than interest accruing pursuant to Section 4(c) following the effective date of any waiver by the Majority Banks of the Default or Event of Default relating thereto), any increase in the term of the Notes, any increase in the amount of the Commitments of the Banks and any reduction in the amount of commitment fees or Letter of Credit Fees hereunder may not be changed without the written consent of the Borrower and the written consent of all Banks; any increase in the rate of interest on Notes, any decrease in the term of the Notes, any decrease in the amount of the Commitments of the Banks and any increase in the amount of commitment fees or Letter of Credit Fees hereunder may not be made without the written consent of the Borrower and the written consent of the Majority Banks; and the definition of Majority Banks may not be amended without the written consent of all Banks. Except as set forth in Section 6(f), any release of Liens on personal property and real property in favor of the Administrative Agent or any release of any Guarantors under this Agreement or any Loan Document may not be obtained without the written consent of the Borrower and the written consent of all Banks. 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 Bank in exercising any right shall operate as a waiver thereof or otherwise be prejudicial thereto. No notice to or demand upon the Borrower shall entitle the Borrower to other further notice or demand in similar or other circumstances. SECTION 17. MISCELLANEOUS. ------------- (a) The Borrower agrees to indemnify and hold harmless the Bank Agents and the Banks against all claims and losses of every kind arising out of the Loan Documents, including without limitation against those in respect of the application of Environmental Laws to the Borrower, except for claims and losses which result from the gross negligence or willful misconduct of the party seeking to be indemnified. (b) The Borrower shall pay to the Administrative Agent on account of the Banks promptly on demand all costs and expenses (including any taxes and reasonable legal and other professional fees and fees of its commercial finance examiner) incurred by the Administrative Agent in connection with the preparation, negotiation, execution, amendment, administration, termination or enforcement of any of the Loan Documents. (c) Any communication to be made hereunder shall (a) be made in writing, but unless otherwise stated, may be made by telex, facsimile transmission or letter, and (b) be made or delivered to the address of the party receiving notice which is identified with its signature below (unless such party has by five (5) days' prior written notice specified another address), and shall be deemed made or delivered, when dispatched, left at that address, or five (5) days after being mailed, postage prepaid, to such address. -58- (d) This Agreement shall be binding upon and inure to the benefit of each party hereto and its successors and assigns, but the Borrower may not assign its rights or obligations hereunder. No failure or delay by the Bank Agents or the Banks to exercise any right hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any right, power or privilege preclude any other right, power or privilege. (e) The provisions of this Agreement are severable and if any one provision hereof shall be held invalid or unenforceable in whole or in part in any jurisdiction, such invalidity or unenforceability shall affect only such provision in such jurisdiction. This Agreement, together with all Exhibits and Schedules hereto, expresses the entire understanding of the parties with respect to the transactions contemplated hereby. This Agreement and any amendment hereto may be executed in several counterparts (which may include counterparts delivered by telecopier), each of which shall be an original, and all of which shall constitute one agreement. In proving this Agreement, it shall not be necessary to produce more than one such counterpart executed by the party to be charged. THIS AGREEMENT AND THE NOTES ARE CONTRACTS UNDER THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS AND SHALL BE CONSTRUED IN ACCORDANCE THEREWITH AND GOVERNED THEREBY. THE BORROWER AND EACH GUARANTOR AGREES THAT ANY SUIT FOR THE ENFORCEMENT OF ANY OF THE LOAN DOCUMENTS MAY BE BROUGHT IN THE COURTS OF THE COMMONWEALTH OF MASSACHUSETTS OR ANY FEDERAL COURT SITTING THEREIN. The Borrower and each Guarantor, as an inducement to the Bank Agents and the Banks to enter into this Agreement, hereby waives its right to a jury trial with respect to any action arising in connection with any Loan Document. ** THE NEXT PAGE IS THE SIGNATURE PAGE ** -59- IN WITNESS WHEREOF, the undersigned have duly executed this Agreement as a sealed instrument as of the date first above written. NE RESTAURANT COMPANY, INC. By:__________________________________ Name: Title: Tel: (508) 870-9200 Fax: [] GUARANTORS: BERTUCCI'S, INC. By:_________________________________ Name: Title: [ ] [ ] Tel: [ ] Fax: [ ] BERTUCCI'S RESTAURANT CORP. By:________________________________ Name: Title: [ ] [ ] Tel: [ ] Fax: [ ] -60- BERTUCCI'S SECURITIES CORPORATION By:_____________________________________ Name: Title: [ ] [ ] Tel: [ ] Fax: [ ] BERESTCO, INC. By:_____________________________________ Name: Title: [ ] [ ] Tel: [ ] Fax: [ ] SAL & VINNIE'S SICILIAN STEAKHOUSE INC. By:_____________________________________ Name: Title: [ ] [ ] Tel: [ ] Fax: [ ] -61- BANKBOSTON, N.A., INDIVIDUALLY AND AS ADMINISTRATIVE AGENT By:_____________________________________ Thomas F. Farley Managing Director 100 Federal Street, 9th Floor Boston, Massachusetts 02110 Tel: (617) 434-5812 Fax: (617) 434-0637 CHASE BANK OF TEXAS, N.A., INDIVIDUALLY AND AS DOCUMENTATION AGENT BY:_____________________________________ WILLIAM P. WALLACE VICE PRESIDENT 707 TRAVIS STREET MAIL STOP: 4CCBBN59 HOUSTON, TX 77002 TEL: (713) 216-1041 FAX: (713) 216-6710 -62- EX-10.12 21 FORM OF MANAGEMENT INCENTIVE AGREEMENT EXHIBIT 10.12 FORM OF MANAGEMENT INCENTIVE AGREEMENT -------------------------------------- THIS MANAGEMENT INCENTIVE AGREEMENT (the "Agreement"), is made and entered into this____ day of___________ by and between_________, whose address is______________________________________, and NE Restaurant Co., Inc. having its principal office at 300 Pond Street, Randolph, Massachusetts 02368 (the "Corporation"); W I T N E S S E T H: ------------------- This Agreement is made and entered into under the following circumstances: WHEREAS, the Corporation is a Delaware corporation and WHEREAS, the Corporation is engaged in the business of owning and operating, as a franchisee of___________________________, a casual restaurant to be located at___________________________(the "Restaurant"); WHEREAS, the Corporation desires, on the terms and conditions stated herein, to receive incentive from the Corporation as General Manager of the Restaurant; and WHEREAS, the Employee will perform his/her duties subject to the supervision and training of the Corporation; NOW, THEREFORE, in consideration of the foregoing recitals, and of the promises, covenants, terms, and conditions contained herein, the parties hereto agree as follows: 1. Duties. As General Manager of the Restaurant, Employee shall ------ supervise the operations of the Restaurant. Employee shall use his/her best efforts, skill and knowledge to serve the Corporation in a competent manner, shall maintain the operations of the Restaurant in accordance with the _______________________ concept, and shall diligently and faithfully perform all other functions as may be assigned to his/her in such capacity by the Corporation. Employee shall be required hereunder to devote one hundred percent (100%) of his/her full business time and effort to the business affairs of the Corporation. Employee shall: (I) devote his/her entire business time, attention, and energies to the business of the Corporation and operation of the Restaurant, and, (ii) faithfully and competently perform his/her duties hereunder; and, Employee shall not, during the Term of Employment, engage in any other business activity; provided, however, that Employee shall be permitted to --------- -------- invest his/her personal assets and manage his/her personal investment portfolio in such a form and manner as will not require any business services on his/her part to any third party or conflict with the provisions of Sections 6 or 7 hereof. 2. Compensation. Employee shall be entitled to a bi-weekly base salary ------------ of ONE THOUSAND, SEVEN HUNDRED THIRTY-ONE AND NO/100 DOLLARS ($1,731.00), payable in bi-weekly installments, or the then current exempt employee pay cycle of the Corporation. In addition, the Employee shall be entitled to receive Incentive Compensation of________ of Restaurant contribution (see attached definition) payable monthly or the then current exempt Employee Incentive Compensation pay cycle of the Corporation. 3. Fringe Benefits. Employee shall be entitled to receive those fringe ---------------- benefits, including, but not limited to, life insurance, medical benefits, etc., ---- if any, as may be approved by the Corporation based on the then current exempt employee fringe benefits. 4. Termination. Notwithstanding the provisions of Section 1 hereof, ----------- the Term of Employment shall terminate prior to the end of the period of time specified in such Section 1, upon: (a) the death of Employee; or, (b) upon Employee's "disability" during the Term of Employment (For purposes of this paragraph (b), the term "disability" shall mean the inability of Employee, arising out of any medically determinable physical or mental impairment, to perform the services required of him/her hereunder for a period of sixty (60) consecutive days during which sixty (60) day period Employee's compensation will be based on the then current Exempt Employee Disability Benefit); or, (c) immediately upon the existence of "cause" (For purposes of this Agreement, the term "cause" shall be defined as: (i) failure of Employee to perform the duties required of him/her in this Agreement in a manner satisfactory to the Corporation, in its sole discretion; provided, however, that the Term of Employment shall not be terminated pursuant to this subparagraph (i) unless the Corporation first gives Employee a written notice ("Action Plan"). The Action Plan shall specify the deficiencies in Employee's performance of his/her duties. Employee shall have a period of thirty (30) days, commencing on receipt of the Action Plan, in which to cure the deficiencies contained in the Action Plan. In the event Employee does not cure the deficiencies to the satisfaction of the Corporation, in its sole discretion, within such thirty (30) days period, the corporation shall have the right to immediately terminate the Term of Employment. The provisions of this subparagraph (i) may be invoked by the Corporation any number of times and cure of deficiencies contained in any Action Plan shall not be construed as a waiver of this subparagraph (i) nor prevent the Corporation from issuing any subsequent Action Plans; or (ii) any dishonesty by Employee in his/her dealings with the Corporation, the commission of fraud by Employee, negligence in the performance of the duties of Employee, or the conviction (or plea of guilty or nolo contendere) of Employee of any crime involving dishonesty or moral turpitude; if the Employee is found to be committed an act of fraud in the representation of the financial performance of the restaurant, its resulting impact will be deducted from outstanding monies owed to the employee; or, (iii) any violations or any covenant or restriction contained in Section 6 or Section 7 hereof; or, (d) at the election of the Corporation, upon the sale of a majority interest in the capital stock of either the Corporation or of substantially all of the assets of the Corporation; or, (e) at the election of the Corporation, upon the sale of a majority of ownership interest in the Corporation or of substantially all of the assets of the Corporation; or, (f) at the election of the Corporation, upon the determination by the Corporation to cease the Corporation business operations. For all purposes of this Agreement, termination for "cause" shall be deemed to have occurred in the event of Employee's resignation when, because of existing facts and circumstances, subsequent termination for "cause" can be reasonably foreseen. Except as otherwise provided in Section 4(b), in the event of termination of this Agreement pursuant to this Section 4, Employee or his/her estate, as appropriate, shall be entitled to receive (in addition to any fringe benefits payable upon death in the case of Employee's death) the base salary provided for herein up to and including the effective date of termination, prorated on a daily basis. 5. Investment Option on Termination. The parties acknowledge that -------------------------------- Employee is the owner of a TWENTY THOUSAND DOLLAR ($20,000.00) cash investment in the Corporation, to be entirely funded by the Employee upon the execution of this agreement. This cash investment will be recorded as a liability by the Corporation due to the Employee and will be used as normal and customary working capital by the Corporation, subject to all normal and customary creditor rights by law. If during the first three years from the date of execution of the Agreement, the Employee's Employment ceases for any cause, the principal without interest will be promptly returned to the Employee or his/her estate in the case of death. At the end of the third year, THIRTY THOUSAND DOLLARS ($30,000.00) will be returned. At the end of the fourth year, FORTY THOUSAND DOLLARS ($40,000.00) will be returned, and upon the end of this Agreement at the end of the fifth year, FIFTY THOUSAND DOLLARS ($50,000.00) will be returned. The difference between the initial cash investment and the amount repaid to the Employee shall be deemed interest income to the Employee and interest expense by the Corporation. 6. Non-Competition. During the term of Employment and for two (2) ---------------- years thereafter, regardless of any termination pursuant to Section 4 or any voluntary termination or resignation by Employee, Employee shall not, individually or jointly with others, directly or indirectly, whether for his/her own account or for that of any other person or entity, own or hold any ownership interest in any person or entity engaged in a restaurant business the same as or similar to any restaurant business of the Corporation, and which is located or intended to be located anywhere within a radius of fifteen (15) miles of any restaurant owned or operated by the Corporation, and employee shall not act as an officer, director, employee, partner, independent contractor, consultant, principal, agent, proprietor, or in any other capacity for, nor lend any assistance (financial or otherwise) or cooperation to, any such person, or entity; provided, however, -------- ------- that it shall not be a violation of this section for Employee to own a one percent (1%) or smaller interest in any corporation required to file periodic reports with the Securities and Exchange Commission. For purposes of this Section 6, restaurants owned or operated by the Corporation shall also include the restaurants operated or owned by an affiliate. 7. Non-Disclosure; Non-Solicitation. Except in the performance of --------------------------------- his/her duties hereunder, at no time during the Term of Employment, or at any time thereafter, shall Employee, individually or jointly with others, for the benefit of Employee or any third party, publish, disclose, use or authorize anyone else to publish, disclose, or use, any secret or confidential material or information relating to any aspect of the business or operations of the Corporation or the Restaurant, including, without limitation, any secret or confidential information relating to the business, customers, trade or industrial practices, trade secrets, technology, recipes or know-how of either of the Corporation or the Restaurant. Moreover, during the Term of Employment and for a period of two (2) years thereafter, Employee shall not act as an officer, director, employee, partner, independent contractor, consultant, principal, agent, proprietor, owner, or part owner, or in any other capacity, to any person or entity which employs any person or hires or contracts with, as a consultant or other independent agent or independent contractor, any person or entity (other than Employee) who was employed by or acted as an agent for, consultant to, or independent contractor of the Corporation at any time during the Term of Employment. 8. No Remedy at Law. Employee agrees that the remedy at law for any ----------------- breach by him/her of the covenants contained in Sections 6 and 7 hereof will be inadequate and would be difficult to ascertain and therefore, in the event of the breach or threatened breach of any such covenants, the Corporation, in addition to any other remedy, shall have the right to enjoin Employee from any threatened or actual activities in violation thereof; and Employee hereby consents and agrees that temporary and permanent injunctive relief may be granted in any proceedings which might be brought to enforce any such covenants without the necessity of proof of actual damages. 9. Assignability. This Agreement and the rights and duties created -------------- hereunder shall not be assignable or delegable by Employee. This Agreement and the rights and duties hereunder may be assigned or delegated by the Corporation to any successor to the Corporations interest as owner of the Restaurant. 10. Notices. All notices or other communications provided for herein ------- to be given or sent to a party by the other party shall be deemed validly given or sent if in writing and mailed, postage prepaid, by registered or certified United States mail, addressed to the parties at their addresses herein above set forth. Either party may give notice to the other party at any time, by the method specified above, of a change in the address at which, or the person to whom, notice is to be addressed. 11. Specific Performance. With respect to the covenants and agreements --------------------- of Employee set forth in Sections 6 and 7 hereof, the parties agree that a violation of such covenants and agreements will cause irreparable injury to the Corporation and that the Corporation shall be entitled, in addition to any other rights and remedies it may have, at law or in equity, to obtain an injunction to restrain Employee from violating, or continuing to violate, such covenants and agreements. In the event the Corporation shall apply for such an injunction, Employee shall not raise as a defense thereto that the Corporation have an adequate remedy at law. 12. Severability. Each section, subsection, and lesser section of this ------------ Agreement constitutes a separate and distinct undertaking, covenant, or provision hereof. In the event that any provision of this Agreement shall be determined to be invalid or unenforceable, such provision shall be deemed limited by construction in scope and effect to the minimum extent necessary to render the same valid and enforceable, and, in the event such a limiting construction is impossible, such invalid unenforceable provision shall be deemed severed from this Agreement, but every other provision of this Agreement shall remain in full force and effect. 13. Effect of Termination. The termination of this Agreement, for --------------------- whatever reason, shall not extinguish those obligations of Employee specified in Sections 6 and 7 hereof, nor shall the same extinguish the right of either party to bring an action, either in law or in equity, for breach of this Agreement by the other party. 14. Waiver. The failure of a party to enforce any term, provision, or ------- condition of this Agreement at any time or times shall not be deemed a waiver of that term, provision, or condition for the future, nor shall any specific waiver of a term, provision, or condition at one time be deemed a waiver of such term, provision, or condition for any future time or times. 15. Parties. This Agreement shall be binding upon, and shall inure to ------- the benefit of, the parties hereto and their legal representatives, and proper successors or assigns, as the case may be. The covenants contained in Sections 6 and 7 hereof shall inure to the benefit of, and be enforceable by, the Corporation and their legal representatives, successors and assigns. 16. Governing Law. The validity, interpretations, and performance of -------------- this Agreement shall be governed by the laws of the State of Massachusetts without giving effect to the principals of comity or conflicts of laws thereof. 17. Employment Dispute Resolution Arbitration Agreement. In ---------------------------------------------------- consideration of employment by N.E. Restaurant Co., Inc. and this Management Incentive Agreement, and in consideration of the company's reciprocal promise to arbitrate, the employee understands and agrees that any and all claims will be resolved by final and binding arbitration before a neutral, third-party arbitrator. 18. Captions. The captions of this Agreement have been assigned -------- thereto for convenience only, and shall not be construed to limit, define, or modify the substantive terms hereof. 19. Entire Agreement; Counterparts. This Agreement constitutes the ------------------------------ entire agreement between the parties hereto concerning the subject matter hereof, and supersedes all prior memoranda, correspondence, conversations, and negotiations. This Agreement may be executed in several counterparts that together shall constitute but one and the same agreement. 20. Costs of Enforcement. In the event it is necessary for any party -------------------- to retain the services of an attorney or to initiate legal proceedings to enforce the terms of this Agreement, the prevailing party shall be entitled to recover from the nonprevailing party, all costs of such enforcement, including reasonable attorneys fees and including trial and appellate proceedings. IN WITNESS WHEREOF, the undersigned have hereunto set their hands on the date first written above. "Employee" _____________________________ _____________________________ Witness _____________________________ Witness "Corporation" NE RESTAURANT COMPANY, INC. By: _____________________________ __________________________ Witness As its: _____________________ _____________________________ Witness EX-12.1 22 STATE. REGARDING COMPUTATION OF RATIO OF EARNINGS EXHIBIT 12.1
Statement Regarding Computation of Ratio of Earnings to Fixed Charges (Dollars in thousands) Six Months Ended NE Restaurant Company, Inc. Year Ended December 31, June 30, ------------------------------------------------------ ---------------- 1993 1994 1995 1996 1997 1997 1998 ----- ----- ----- ----- ----- ----- ----- Earnings Net Income (Loss) 1,267 1,610 1,421 1,958 2,100 986 943 Income Tax expense (Benefit) -- 1,122 699 1,047 1,084 543 473 ----- ----- ----- ----- ----- ----- ----- Earnings 1,267 2,732 2,120 3,005 3,184 1,529 1,416 ===== ===== ===== ===== ===== ===== ===== Fixed Charges Interest expense including amortization of debt costs 27 90 463 1,053 1,918 607 1,864 Interest portion of rental expense 837 922 986 997 1,187 599 726 ----- ----- ----- ----- ------ ----- ----- Fixed Charges 864 1,012 1,449 2,050 3,105 1,206 2,590 Earnings Available for Fixed Charges 2,131 3,744 3,569 5,055 6,289 2,735 4,006 Ratio of Earnings to Fixed Charges 2.5 3.7 2.5 2.5 2.0 2.3 1.5
28 Weeks Ended Fiscal Year Ended ------------------ Bertucci's December 27, July 12, July 11, Earnings 1997 1997 1998 ----------- ------- ------- Net Income (Loss) 3,508 1,767 1,822 Income tax expense (Benefit) 2,009 1,014 994 ------------------------------------------ Earnings 5,517 2,781 2,816 ========================================== Fixed Charges Interest expense including 1,037 622 482 amortization of debt costs Rent Expense 11,110 5,555 5,795 Allocation Factor (30%) 30% 30% 30% ------------------------------------------ Interest portion of rental expense 3,333 1,667 1,738 Fixed Charges 4,370 2,289 2,220 Earnings Available for Fixed Charges 9,887 5,070 5,036 Ratio of Earnings to Fixed Charges 2.3 2.2 2.3
Proforma First Six Months Last Fiscal ---------------- Twelve Earnings 1997 1997 1998 Months ------ ---- ---- ------ Net Income (Loss) (1,099) (801) (789) (1,087) Income tax expense (Benefit) (592) (419) (509) (682) ------------------------------------------- Earnings (1,691) (1,220) (1,298) (1,769) =========================================== Fixed Charges Interest expense including amortization of debt costs 12,136 6,162 7,279 13,253 Rent Expense 15,065 7,553 8,216 15,728 Allocation FaFactor (30%) 30% 30% 30% 30% ------------------------------------------- Interest portion of rental expense 4,520 2,266 2,465 4,718 Fixed Charges 16,656 8,428 9,744 17,971 Earnings Available for Fixed Charges 14,965 7,208 8,446 16,202 Ratio of Earnings to Fixed Charges 0.9 0.9 0.9 0.9 (1,691) (1,220) (1,298) (1,769)
EX-21.1 23 SUBSIDIARIES OF REGISTRANT Exhibit 21.1 SUBSIDIARIES OF REGISTRANT -------------------------- NAME OF ENTITY Jurisdiction of Information -------------- --------------------------- NERC SPE Inc. Delaware NERC Limited Partnership/1/ Delaware NERC SPE II Inc. Delaware NERC Limited Partnership II/2/ Delaware Bertucci's, Inc. Massachusetts Bertucci's Restaurant Corp./3/ Massachusetts Bertucci's Securities Corporation/3/ Massachusetts Berestco, Inc./4/ Massachusetts Sal & Vinnie's Sicilian Massachusetts Steakhouse, Inc./4/ Bertucci's of Anne Arundel Maryland County, Inc./4/ Bertucci's of Columbia, Inc./4/ Maryland Bertucci's of Baltimore County, Maryland Inc./4/ Bertucci's of Bel Air, Inc./4/ Maryland Bertucci's of White Marsh, Inc./4/ Maryland Bertrucci's of Montogomery County, Inc./4/ Maryland - ---------------------- /1/ NERC SPE Inc. is the general partner of this limited partnership and Registrant is a limited partner /2/ NERC SPE II Inc. is the general partner of this limited partnership and Registrant is a limited partner /3/ Subsidiary of Bertucci's, Inc. /4/ Subsidiary of Bertucci's Restaurant Corp. EX-23.1 24 CONSENT OF ARTHUR ANDERSEN LLP EXHIBIT 23.1 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the use of our reports included in this registration statement for the years ended December 31, 1997, for NE Restaurant Company, Inc., and December 27, 1997, for Bertucci's Inc., and to all references to our Firm included in this registration statement. /s/ Arthur Andersen LLP Boston, Massachusetts September 2, 1998 -----END PRIVACY-ENHANCED MESSAGE-----