<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the Quarterly Period Ended September 26, 1999.
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the Transition Period from ____________ to ____________.
Commission file number 0-25721.
BUCA, Inc.
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(Exact name of registrant as specified in its Charter)
Minnesota 41-180236
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1300 Nicollet Mall
Minneapolis, Minnesota 55403
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(Address of principal executive offices) (Zip Code)
(612) 288-2382
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(Registrant's telephone number, including area code)
- --------------------------------------------------------------------------------
(Former name, former address and former
fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No
Indicate the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: Common Stock, $.01 par value
10,788,550 shares as of October 28, 1999.
1
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INDEX
BUCA, INC. AND SUBSIDIARIES
Page
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets - December 27, 1998 and
September 26, 1999 3
Consolidated Statements of Operations - Thirteen and
Thirty-Nine Weeks Ended September 27, 1998 and September 26,
1999 4
Consolidated Statements of Cash Flows - Thirteen and
Thirty-Nine Weeks Ended September 27, 1998 and September 26,
1999 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 7
Item 3. Quantitative and Qualitative Disclosures about Market Risk 14
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 15
Item 2. Changes in Securities and Use of Proceeds 15
Item 3. Defaults upon Senior Securities 15
Item 4. Submission of Matters to a Vote of Security Holders 15
Item 5. Other Information 16
Item 6. Exhibits and Reports on Form 8-K 16
SIGNATURES 17
2
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PART 1. - FINANCIAL INFORMATION
Item 1. Financial Statements
BUCA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
<TABLE>
<CAPTION>
(Unaudited)
December 27, September 26,
1998 1999
--------------- --------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 6,576 $ 1,120
Marketable securities 10,308
Accounts receivable 1,160 1,720
Inventories 935 1,860
Prepaid expenses and other 585 1,767
--------------- --------------
Total current assets 9,256 16,775
PROPERTY AND EQUIPMENT, net 27,697 51,912
OTHER ASSETS 607 890
--------------- --------------
$ 37,560 $ 69,577
=============== ==============
LIABILITIES AND SHAREHOLDERS' (DEFICIT) EQUITY
CURRENT LIABILITIES
Accounts payable $ 2,638 $ 5,044
Accrued expenses 3,257 4,024
Current maturities of long-term debt 205 84
--------------- --------------
Total current liabilities 6,100 9,152
LONG-TERM DEBT, less current maturities 7,661 1,989
DEFERRED RENT 239 359
OTHER LIABILITIES 127 122
REDEEMABLE STOCK:
Undesignated stock, 617,147 shares authorized, none issued or outstanding
Preferred stock, $.01 par value, cumulative, Series A convertible -
2,396,800 shares authorized; 2,240,000 and 0 shares issued and outstanding 9,665
Preferred stock, $.01 par value, cumulative, Series B convertible -
2,100,000 shares authorized; 1,922,222 and 0 shares issued and outstanding 9,441
Preferred stock, $.01 par value, cumulative, Series C convertible -
3,679,053 shares authorized; 2,614,634 and 0 shares issued and outstanding 13,154
Common stock, $.01 par value; 601,929 shares issued and outstanding 4,713
---------------
36,973
SHAREHOLDERS' (DEFICIT) EQUITY:
Common stock, $.01 par value - 1,918,056 and 10,788,550 shares issued and
outstanding, respectively 19 108
Additional paid-in capital 68,239
Unrealized loss on marketable securities (29)
Accumulated deficit (13,266) (9,803)
--------------- --------------
(13,247) 58,515
Notes receivable from shareholders (293) (560)
--------------- --------------
Total shareholders' (deficit) equity (13,540) 57,955
--------------- --------------
$ 37,560 $ 69,577
=============== ==============
</TABLE>
See notes to consolidated financial statements.
3
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BUCA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(in thousands, except share and per share data)
(Unaudited)
<TABLE>
<CAPTION>
Thirteen Weeks Ended Thirty-Nine Weeks Ended
----------------------------------- ----------------------------------
September 27, September 26, September 27, September 26,
1998 1999 1998 1999
---------------- ----------------- ---------------- ----------------
<S> <C> <C> <C> <C>
RESTAURANT SALES $ 10,675 $ 18,641 $ 26,350 $ 48,648
RESTAURANT COSTS
Product 2,964 5,162 7,440 13,468
Labor 3,485 6,065 8,477 15,677
Direct and occupancy 2,155 3,811 5,511 9,989
Depreciation and amortization 444 841 1,123 2,174
---------------- ----------------- ---------------- ----------------
Total restaurant costs 9,048 15,879 22,551 41,308
GENERAL AND ADMINISTRATIVE EXPENSES 1,291 1,543 3,823 4,404
PREOPENING COSTS 256 1,114 991 2,735
---------------- ----------------- ---------------- ----------------
OPERATING INCOME (LOSS) 80 105 (1,015) 201
INTEREST INCOME (6) (178) (111) (458)
INTEREST EXPENSE 306 50 816 422
SUBORDINATED DEBT CONVERSION COSTS - - - 954
---------------- ----------------- ---------------- ----------------
(LOSS) INCOME BEFORE INCOME TAXES AND EXTRAORDINARY (220) 233 (1,720) (717)
(PROVISION) BENEFIT FOR INCOME TAXES (4) 1 (12) 10
---------------- ----------------- ---------------- ----------------
(LOSS) INCOME BEFORE EXTRAORDINARY (224) 234 (1,732) (707)
EXTRAORDINARY LOSS ON EXTINGUISHMENT OF DEBT - - - (1,545)
---------------- ----------------- ---------------- ----------------
NET (LOSS) INCOME $ (224) $ 234 $ (1,732) $ (2,252)
================ ================= ================ ================
CUMULATIVE PREFERRED STOCK DIVIDENDS, ACCRETION
OF PREFERRED STOCK TO REDEMPTION VALUE, AND CHANGE
IN REDEEMABLE COMMON STOCK (488) - (1,514) (708)
---------------- ----------------- ---------------- ----------------
NET (LOSS) INCOME APPLICABLE TO COMMON STOCK $ (712) $ 234 $ (3,246) $ (2,960)
================ ================= ================ ================
NET (LOSS) INCOME PER COMMON SHARE - BASIC $ (0.28) $ 0.02 $ (1.29) $ (0.41)
================ ================= ================ ================
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING - BASIC 2,517,357 10,694,138 2,509,726 7,212,339
================ ================= ================ ================
NET (LOSS) INCOME PER COMMON SHARE - DILUTED $ (0.28) $ 0.02 $ (1.29) $ (0.41)
================ ================= ================ ================
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING - DILUTED 2,517,357 11,376,219 2,509,726 7,212,339
================ ================= ================ ================
</TABLE>
See notes to consolidated financial statements.
4
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BUCA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Thirteen Weeks Ended Thirty-Nine Weeks Ended
----------------------------- -----------------------------
September 27, September 26, September 27, September 26,
1998 1999 1998 1999
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $ (224) $ 234 $ (1,732) $ (2,252)
Adjustments to reconcile net (loss) income to net cash
(used in) provided by operating activities:
Depreciation and amortization 451 841 1,118 2,174
Deferred income taxes 26 59
Gain on sale of property and equipment (59) (52)
Loss on early extinguishment of debt 2,498
Amortization of debt discount 54 162
Change in assets and liabilities:
Accounts receivable (124) (587) (444) (560)
Inventories (92) (426) (229) (925)
Prepaid expenses and other 68 (66) (332) (1,182)
Accounts payable (427) (1,716) (125) 2,406
Accrued expenses 286 3,597 (57) 767
Other (13) 54 202 136
------ ------- ------- -------
Net cash (used in) provided by operating
activities (80) 1,957 (1,489) 3,121
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of available for sale marketable securities (33,223)
Sale and maturity of available for sale marketable
securites 7,450 22,886
Purchase of property and equipment (3,719) (10,668) (9,684) (26,347)
Proceeds from sale of property and equipment 1,037 2,263
Increase in other assets (58) (324) (204) (605)
------ ------- ------- -------
Net cash used in investing activities (2,740) (3,542) (7,625) (37,289)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from line of credit borrowings 2,000
Payment on line of credit (2,000)
Proceeds from issuance of long-term debt 774 3,500 8,104
Principal payments on long-term debt (208) (33) (386) (13,651)
Loan and lease acquisition costs (183) (224)
Collection on notes receivable from shareholders 11 22 40 56
Repurchase of common stock (31)
Net proceeds from issuance of common stock 20 34,458
------ ------- ------- -------
Net cash (used in) provided by financing
activities (197) 763 2,991 28,712
NET CHANGE IN CASH AND CASH EQUIVALENTS (3,017) (822) (6,123) (5,456)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 2,993 1,942 6,099 6,576
------ ------- ------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ (24) $ 1,120 $ (24) $ 1,120
====== ======= ======= =======
</TABLE>
See notes to consolidated financial statements.
5
<PAGE>
BUCA, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
1. NATURE OF BUSINESS AND BASIS OF PRESENTATION
BUCA, Inc. and subsidiaries ("we", "us", or "our") develops and operates
family-style, immigrant Southern Italian restaurants located in Arizona,
California, Colorado, District of Columbia, Florida, Illinois, Indiana, Iowa,
Kansas, Kentucky, Michigan, Minnesota, New York, Ohio, Pennsylvania, Washington,
and Wisconsin under the name of BUCA di BEPPO.
The accompanying financial statements have been prepared by us without audit and
reflect all adjustments, consisting of normal recurring adjustments, which are,
in the opinion of management, necessary for a fair statement of financial
position and the results of operations for the interim periods. The statements
have been prepared in accordance with generally accepted accounting principles
and with the regulations of the Securities and Exchange Commission ("SEC").
Certain information and footnote disclosures, normally included in financial
statements prepared in accordance with generally accepted accounting principles,
have been condensed or omitted pursuant to such SEC rules and regulations.
Operating results for the thirteen and thirty-nine weeks ended September 26,
1999 are not necessarily indicative of the results that may be expected for the
year ended December 26, 1999.
The balance sheet at December 27, 1998 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
Certain prior year amounts have been reclassified to conform to the current
year's presentation.
For further information, refer to the financial statements and notes for the
fiscal year ended December 27, 1998 included in our Registration Statement on
Form S-1, registration no. 333-72593.
2. NET INCOME (LOSS) PER SHARE
Basic income (loss) per share is computed by dividing net income (loss) by the
weighted average number of common shares outstanding. Diluted income (loss) per
share assumes conversion of the convertible subordinated debentures and
convertible preferred stock as of the beginning of the year and exercise of
stock options and warrants using the treasury stock method, if dilutive.
Dilutive net loss per share for all of 1998 and year to date for 1999 are the
same as basic net loss per share due to the antidilutive effect of the assumed
exercise of stock options, warrants, convertible subordinated debentures, and
convertible preferred stock securities.
Diluted loss per share excludes the following due to their antidilutive effect:
<TABLE>
<CAPTION>
September 27, 1998 September 26, 1999
-------------------------------- --------------------------------
Weighted Weighted
Average Price Average Price
Number of Shares Per Share Number of Shares Per Share
---------------- ------------- ---------------- -------------
<S> <C> <C> <C> <C>
Stock warrants 331,196 $ 2.46 14,757 $ .01
Stock options 616,840 5.47 1,132,024 7.52
Convertible preferred stock 2,774,808 6.14
Convertible subordinated debentures 439,506 4.05 140,921 4.61
--------- ------ --------- ------
4,162,350 $ 5.53 1,287,702 $ 7.11
========= ====== ========= ======
</TABLE>
6
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3. SUPPLEMENTAL CASH FLOW INFORMATION
The following is supplemental cash flow information for the period ended:
<TABLE>
<CAPTION>
Thirteen Weeks Ended Thirty-Nine Weeks Ended
----------------------------- ------------------------------
September 27, September 26, September 27, September 26,
1998 1999 1998 1999
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Cash paid during year for:
Interest expense $ 254 $ 59 $ 576 $ 402
Income taxes -- 25 -- 50
Non-cash investing and financing activities:
Shareholder receivable from issuance of common
stock -- 180 60 360
Accretion of redeemable preferred stock to
redemption value 27 -- 127 150
Dividends accrued on redeemable preferred stock 298 -- 895 594
Change in value of redeemable common stock -- -- -- (37)
</TABLE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
General
At September 26, 1999 we owned and operated 30 full service, dinner-only
restaurants that offer high quality, immigrant Southern Italian cuisine served
family-style in large portions in a fun and energetic atmosphere that parodies
the decor and ambiance of post-War Italian/American restaurants. We intend to
open 15 new restaurants in fiscal 1999, of which 13 have opened through October
1999 and the remaining two are under construction. During fiscal 2000, we intend
to open 15 restaurants, of which we expect five to open in the first quarter of
2000.
We believe that the sales growth pattern of our new restaurants in the two years
after they open differs from the typical sales growth pattern for new
restaurants in other casual dining concepts. Our restaurants typically
experience lower restaurant sales during the first few periods after opening,
with gradually increasing restaurant sales during the remainder of the
restaurant's first year of operation. In the second year of operation, our
restaurants experience significant comparable restaurant sales growth. In
calculating comparable restaurant sales, we include a restaurant in the
comparable base once it has been open for 12 full calendar months. We believe we
have this "discovery" growth pattern over the first two years of operations
because we rely primarily on word-of-mouth advertising and repeat business to
generate increased restaurant sales. This new restaurant-opening trend has
contributed to our high levels of comparable restaurant sales increases of 8.9%
in fiscal 1997, 13.3% in fiscal 1998, and 10.3% over the first thirty-nine weeks
of fiscal 1999. After two years of operation, our restaurants typically
experience lower comparable restaurant sales increases than experienced in prior
periods. We expect this sales growth trend for new restaurants to generally
continue in the future; however, we also anticipate that in some markets,
particularly as we continue to develop additional restaurants in existing
markets, this discovery growth pattern could compress. In addition, as we
continue to grow, we expect that the impact of new restaurant openings on total
comparable restaurant sales will decrease as our mature restaurant base
continues to increase.
We intend to implement a price increase on December 27, 1999, the first day of
our fiscal 2000. The price increase will impact selected menu items and certain
specials. We anticipate that the net effect of this price change will be less
than 2%. This price increase is expected to cause product cost, labor, and
direct and occupancy costs to decrease as a percentage of sales in fiscal 2000.
In addition, the number of our restaurants operating in states with tip credit
is expected to continue to increase during fiscal 2000. In states with tip
credit, we are able to reduce tipped employees' wages up to a maximum of 50% of
minimum wage based upon reported tips. By the end of fiscal 2000, we expect that
60% of our restaurants will be operating in states with tip credit.
7
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Our restaurant sales are comprised almost entirely of the sales of food and
beverages. Product costs include the costs of food and beverages. Labor costs
include direct hourly and management wages, bonuses, taxes and benefits for
restaurant employees. Direct and occupancy costs include restaurant supplies,
marketing costs, rent, utilities, real estate taxes, repairs and maintenance and
other related costs. Depreciation and amortization principally includes
depreciation on capital expenditures for restaurants. General and administrative
expenses are composed of expenses associated with all corporate and
administrative functions that support existing operations, management and staff
salaries, employee benefits, travel, information systems and training and market
research. Preopening costs consist of direct costs related to hiring and
training the initial restaurant workforce and certain other direct costs
associated with opening new restaurants. Interest expense includes the net cost
of interest expense on debt and interest income on invested assets.
Results of Operations
Thirteen Weeks Ended September 26, 1999 Compared to Thirteen Weeks Ended
September 27, 1998
Restaurant Sales. Restaurant sales increased by $7.9 million, or 74.6%, to $18.6
million in the third quarter of fiscal 1999 from $10.7 million in the third
quarter of fiscal 1998. The total increase consisted of restaurant sales of
approximately $7.3 million at fifteen new restaurants opened within the last 12
months and approximately $600,000 in comparable restaurant sales increases.
Comparable restaurant sales increased by 5.6% in the third quarter of fiscal
1999, entirely due to an increase in guest visits. We expect our comparable
restaurant sales percentage increases to remain in the mid-single digits in the
fourth quarter of fiscal 1999.
Product. Product costs increased by $2.2 million to $5.2 million in the third
quarter of fiscal 1999 from $3.0 million in the third quarter of fiscal 1998.
Product costs as a percentage of restaurant sales decreased to 27.7% in the
third quarter of fiscal 1999 from 27.8% in the third quarter of fiscal 1998.
This reduction was a result of management's efforts to reduce product costs and
improve margins, particularly at new restaurants. We expect product costs to
increase slightly in the fourth quarter due to the impact of the new restaurant
openings in 1999. During the fourth quarter of 1999, over 50% of our operating
weeks will be generated by restaurants open less than one year.
Labor. Labor costs increased by $2.6 million to $6.1 million in the third
quarter of fiscal 1999 from $3.5 million in the third quarter of fiscal 1998.
Labor costs decreased as a percentage of restaurant sales to 32.5% in the third
quarter of fiscal 1999 from 32.6% in the third quarter of fiscal 1998. This
decrease resulted from management's efforts to reduce labor costs, particularly
at new restaurants. We expect labor costs to decrease as a percentage of sales
during the fourth quarter of 1999. Although the impact of the 15 new restaurants
opened during 1999 will cause labor costs to increase as a percentage of sales,
we expect this increase to be offset by the impact of the tip credit. Eleven of
the 15 restaurants opened during 1999 will be in states with tip credit. At the
end of 1998, 42% of our restaurants were in states with tip credit. At the end
of 1999, 56% of our restaurants will be in states with tip credit.
Direct and Occupancy. Direct and occupancy costs increased by $1.6 million to
$3.8 million in the third quarter of fiscal 1999 from $2.2 million in the third
quarter of fiscal 1998. Direct and occupancy costs increased as a percentage of
restaurant sales to 20.4% in the third quarter of fiscal 1999 from 20.2% in the
third quarter of fiscal 1998. This increase was a result of the impact of the
ten new restaurants opened during the last six months. Direct and occupancy
costs are expected to decrease in the fourth quarter as a percentage of sales.
The expected increase in direct and occupancy costs resulting from the 15 new
restaurants opened during fiscal 1999 are anticipated to be more than offset by
the increased sales during the fourth quarter. Seasonally, the fourth quarter is
our highest volume sales quarter, with typical average unit volumes in mature
restaurants up 4% over third quarter volumes. The impact of these higher sales
volumes lowers direct and occupancy costs as a percentage of sales as the
majority of direct and occupancy costs are fixed in nature.
Depreciation and Amortization. Depreciation and amortization expenses increased
by $397,000 to $841,000 in the third quarter of fiscal 1999 from $444,000 in the
third quarter of fiscal 1998. This increase was the result of depreciation
recognized on capital expenditures for new restaurants.
General and Administrative Expenses. General and administrative expenses
increased by $252,000 to $1,543,000 in the third quarter of fiscal 1999 from
$1,291,000 in the third quarter of fiscal 1998. General and administrative
8
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expenses decreased as a percentage of restaurant sales to 8.3% in the third
quarter of fiscal 1999 from 12.1% in the third quarter of fiscal 1998. We expect
that general and administrative expenses will continue to increase in dollar
amount in the future, but continue to decrease as a percentage of restaurant
sales because our expansion plans will require proportionately smaller
incremental increases in general and administrative expenses.
Preopening Costs. Preopening costs increased by $858,000 to $1,114,000 in the
third quarter of fiscal 1999 from $256,000 in the third quarter of fiscal 1998.
Preopening costs increased as a percentage of restaurant sales to 6.0% in the
third quarter of fiscal 1999 from 2.4% in the third quarter of fiscal 1998. The
increase was primarily a result of opening five restaurants with an additional
nine in development during the third quarter of fiscal 1999 compared to one
restaurant opened with five in development during the third quarter of fiscal
1998.
Interest (Income) Expense. We generated $128,000 in net interest income during
the third quarter of fiscal 1999 compared to $300,000 in net interest expense in
the third quarter of fiscal 1998. The interest income generated was due to the
investment of our initial public offering proceeds in April 1999 and the
repayment of $9.0 million in term loans and lines of credit we had borrowed from
our lender.
Provision / Benefit for Income Taxes. The provision for income taxes for the
third quarter of fiscal 1998 represents certain minimum state taxes based on
taxable factors other than earnings and a minor charge for federal taxes
primarily related to deferred income taxes. We did not record a tax benefit in
the third quarter of fiscal 1998 for the losses generated in previous years as
utilization of these losses in future periods was deemed uncertain. During the
third quarter of 1999, we recognized a small tax benefit due to the expectation
that we will begin to utilize our net operating loss carry-forward. At December
27, 1998, we had a net operating loss carry-forward of $3.5 million. The net
operating loss carry-forward begins to expire in fiscal 2003. The majority of
the expected income tax benefit derived by applying the statutory income tax
rate has been eliminated as a result of an increase in the deferred income tax
asset valuation allowance. We expect to continue to use the net operating loss
carry-forward in future periods to offset taxable income.
Thirty-Nine Weeks Ended September 26, 1999 Compared to Thirty-Nine Weeks Ended
September 27, 1998
Restaurant Sales. Restaurant sales increased by $22.2 million, or 84.6%, to
$48.6 million in the first three quarters of fiscal 1999 from $26.4 million in
the first three quarters of fiscal 1998. The increase was attributable to
restaurant sales increases of $19.5 million at new restaurants opened within the
last 15 months and $2.7 million in comparable restaurant sales increases over
the first three quarters of fiscal 1998. Comparable restaurant sales increased
by 10.3% in the first three quarters of fiscal 1999, primarily as a result of an
increase in guest visits.
Product. Product costs increased by $6.1 million to $13.5 million in the first
three quarters of fiscal 1999 from $7.4 million in the first three quarters of
fiscal 1998. Product costs as a percentage of restaurant sales decreased to
27.7% in the first three quarters of fiscal 1999 from 28.2% in the first three
quarters of fiscal 1998. This reduction was a result of management's efforts to
reduce the cost of food products and improve margins, particularly at our new
restaurants. We also renegotiated our agreement with a national food distributor
during the first quarter of 1999, which contributed to our reduced product costs
in the first three quarters of fiscal 1999.
Labor. Labor costs increased by $7.2 million to $15.7 million in the first three
quarters of fiscal 1999 from $8.5 million in the first three quarters of fiscal
1998. Despite the pressure on labor costs resulting from the 15 new restaurants
opened in the past 12 months, labor costs remained constant at 32.2% of sales
for the first three quarters of 1999 and 1998. At September 26, 1999, 50% of our
restaurants had been open for less than one year. At September 27, 1998, only
40% of our restaurants had been open for less than one year.
Direct and Occupancy. Direct and occupancy costs increased by $4.5 million to
$10.0 million in the first three quarters of fiscal 1999 from $5.5 million in
the first three quarters of fiscal 1998. Direct and occupancy costs decreased as
a percentage of restaurant sales to 20.5% in the first three quarters of fiscal
1999 from 20.9% in the first three quarters of fiscal 1998. This decrease was
primarily the result of the 10.3% increase in comparable restaurant sales. The
increase in comparable restaurant sales leveraged the fixed components of our
direct and occupancy costs.
9
<PAGE>
Depreciation and Amortization. Depreciation and amortization expenses increased
by $1.1 million to $2.2 million in the first three quarters of fiscal 1999 from
$1.1 million in the first three quarters of fiscal 1998. This increase was the
result of depreciation recognized on capital expenditures for new restaurants.
General and Administrative Expenses. General and administrative expenses
increased by $581,000 to $4,404,000 in the first three quarters of fiscal 1999
from $3,823,000 in the first three quarters of fiscal 1998. General and
administrative expenses decreased as a percentage of sales to 9.1% in the first
three quarters of fiscal 1999 from 14.5% in the first three quarters of fiscal
1998.
Preopening Costs. Preopening costs increased by $1.7 million to $2.7 million in
the first three quarters of fiscal 1999 from $1 million in the first three
quarters of fiscal 1998. Preopening costs increased as a percentage of
restaurant sales to 5.6% in the first three quarters of fiscal 1999 from 3.8% in
the first three quarters of fiscal 1998. The increase was a result of opening
eleven restaurants with an additional nine in development during fiscal 1999
compared to four restaurants opened with five in development during fiscal 1998.
Interest (Income) Expense. Net interest income was $36,000 for fiscal 1999
compared to $705,000 in net interest expense for fiscal 1998. The decrease in
interest expense is due to the repayment of $9.0 million in long-term debt and
line of credit borrowings with the proceeds from the initial public offering
that was completed in April 1999. Interest expense is net of investment income
on the investment of the remaining initial public offering proceeds.
Provision / Benefit for Income Taxes. The provision for income taxes for the
first three quarters of fiscal 1998 represents certain minimum state taxes based
on taxable factors other than earnings and a minor charge for federal taxes
primarily related to deferred income taxes. We did not record a tax benefit in
fiscal 1998 for the losses generated in previous years as utilization of these
losses in future periods was deemed uncertain. During the first three quarters
of fiscal 1999, we recognized a small tax benefit due to the expectation that we
will begin to utilize our net operating loss carry-forward. At December 27,
1998, we had a net operating loss carry-forward of $3.5 million. The net
operating loss carry-forward begins to expire in fiscal 2003. The majority of
the expected income tax benefit derived by applying the statutory income tax
rate has been eliminated as a result of an increase in the deferred income tax
asset valuation allowance.
Liquidity and Capital Resources
Since we were formed, we have incurred significant net losses, primarily due to
restaurant development and the costs of hiring senior management to develop and
implement our expansion strategy. We have generated income from our restaurant
operations, but have incurred aggregate net losses of $9.8 million from
inception through September 26, 1999. We have funded our capital requirements
through sales of equity securities, debt financing, and sale-leaseback
arrangements. Net cash provided by operating activities was $3,121,000 for the
first three quarters of fiscal 1999 versus net cash used by operating activities
of $1,489,000 for the first three quarters of fiscal 1998. We expect to continue
to provide cash from operating activities in future periods.
We use cash primarily to fund the development and construction of new
restaurants. Capital expenditures were $26.4 million for first three quarters of
fiscal 1999 versus $9.7 million for the first three quarters of fiscal 1998. We
intend to open 15 restaurants in fiscal 1999, of which 13 have opened through
October 1999. Total capital expenditures are expected to be approximately $30
million in fiscal 1999. Each new restaurant is expected to require, on average,
a total cash investment of between $1.0 million and $1.5 million, excluding
preopening costs expected to range from $175,000 to $210,000. To date, the
majority of our restaurants are renovations of existing facilities ranging in
size from 4,500 to 10,200 square feet. We anticipate that future restaurants
will typically range in size from 7,000 to 9,000 square feet. In 1999, we will
build at least six restaurants based on our prototype designs, four of which
have opened through October 1999. These designs are expected to require between
$1.5 million and $2.0 million in total cash investment per restaurant. This
investment represents an incremental $500,000 increase over the historical cash
investment for remodeled restaurants. In the future we may refinance any
purchases of land or buildings through sale-leaseback transactions. We cannot
predict whether this financing will be available when needed or on terms
acceptable to us.
Net cash provided by financing activities was $28.7 million for first three
quarters of 1999 versus $3.0 million for the first three quarters of 1998.
Financing activities in the first three quarters of fiscal 1998 consisted of
long-term
10
<PAGE>
debt borrowings. Upon completion of our initial public offering in April 1999,
we obtained approximately $35.5 million in net proceeds. A portion of the
proceeds was used to repay our $7.0 million term loan and $2.0 million in line
of credit borrowings. The remaining proceeds are expected to be used to fund
operations, additional restaurants, and other corporate purposes.
We have obtained a $15 million line of credit with US Bank, Bank of America, and
BankBoston. Currently we may borrow $10 million on the line of credit, with an
additional $5 million available in July 2000. The line of credit expires in
September 2001. The borrowing rate on the line of credit is the lower of US
Bank's reference rate or LIBOR plus 1.875% to 2.375% (8.0% to 8.5%), dependent
upon our meeting certain financial covenants. We are required to pay 0.25% to
0.5% on all unused line of credit funds. The credit agreement contains covenants
that place restrictions on sales of properties, transactions with affiliates,
creation of additional debt, and other customary covenants. Borrowings under the
credit agreement are collateralized by substantially all of our assets. We do
not anticipate that the above covenants and restrictions will have a significant
impact upon us.
Our capital requirements, including development costs related to the opening of
additional restaurants, have been and will continue to be significant. We will
need substantial capital to finance our expansion plans, which require funds for
capital expenditures, preopening costs and initial operating losses related to
new restaurant openings. The adequacy of available funds and our future capital
requirements will depend on many factors, including the pace of expansion, the
costs and capital expenditures for new restaurant development and the nature of
contributions, loans and other arrangements negotiated with landlords. Although
we can make no assurance, we believe that cash flow from operations together
with the net proceeds from our initial public offering and available borrowings
will be sufficient to fund our capital requirements through at least the year
2000. To fund future operations, we will need to raise additional capital
through public or private equity or debt financing to continue our growth. In
addition, we may from time to time consider acquiring the operations of other
restaurants. We may obtain additional equity or debt financing to fund such
acquisitions. The sale of additional equity or debt securities could result in
additional dilution to our shareholders. We cannot predict whether additional
capital will be available on favorable terms, if at all.
Inflation
The primary inflationary factors affecting our operations are food and labor
costs. A large number of our restaurant personnel are paid at rates based on the
applicable minimum wage, and increases in the minimum wage directly affect our
labor costs. To date, inflation has not had a material impact on our operating
results.
Year 2000 Issue
The "year 2000 issue" is a term used to describe the inability of some computer
hardware and software to operate properly as the date January 1, 2000
approaches, and beyond. Year 2000 issues can arise in unexpected areas.
Traditional computer hardware and software and information technology ("IT") is
not the only technology at risk. For example, things such as employee time
clocks, cash registers, and food ordering systems, as well as many other
technologies sometimes referred to as non-IT systems ("non-IT"), could be
impacted. Unless stated to the contrary, for purposes of this year 2000 update,
the term "system(s)" shall be interpreted as broadly as possible to include
every IT and non-IT system, including computer, hardware, software, process,
system, application or technology that has the potential of being adversely
affected by the year 2000 issue.
The year 2000 issue is centered on whether systems will properly recognize
date-sensitive information. Many systems are coded to accept only two digit date
data. As the year 2000 nears, systems processing date information will need to
accept four digit entries to distinguish years beginning with "19" from those
beginning with "20." The inability to recognize or properly treat dates may
cause systems to be unable to process financial, operational, and other
information, or may generate inaccurate results. Because of the peculiarities of
individual systems, the year 2000 issue may have an effect both before and after
January 1, 2000. A system may be impacted on other dates including, for example,
leap year day and others.
Significant negative changes in consumer buying patterns due to the year 2000
issue could materially adversely affect our business and financial results,
whether related to the year 2000 issue or otherwise. Conversely, if consumers
choose to dine away from home more frequently as a consequence of the year 2000
issue or otherwise,
11
<PAGE>
our business could be enhanced. It is presently impossible to assess how, and
when, the public will respond to the year 2000 issue or the extent, if any, that
consumer reactions will impact our business.
We have taken, and will continue to take, actions intended to minimize the
impact of the year 2000 issue, although it is impossible to eliminate these
risks entirely. Unfortunately, there is no single test that can be used to
conclusively determine whether systems are immune to the year 2000 issue. Also
complicating testing are new year 2000 risks that are still being identified.
Another factor impeding year 2000 testing is the high degree of integration
between various systems and the impracticality or impossibility of conducting
full-scale live testing. Consequently, interrelated systems believed secure in a
test environment could conceivably fail when operating together under realistic
workloads.
Preexisting System Upgrades
Our corporate information systems have been largely upgraded or replaced in the
ordinary course of business over the past two years. We upgraded the majority of
our corporate office hardware following a fire in December 1998.
Over the past two years, an upgrade program has been undertaken to improve the
processing speed and information available at both the corporate and restaurant
location levels. This program entailed the replacement of the point-of-sale
system, restaurant level computer system, central computer system and accounting
software package. These upgrades have been conducted in the ordinary course of
business and have not been included in the costs discussed below. However, the
improvements had the incidental benefit of assisting with year 2000 readiness.
Year 2000 Review
Our review of the year 2000 issue involves inventory checks, readiness
assessments, remediation testing, and contingency planning. We have completed
the majority of our review and believe that we will be year 2000 compliant
barring any year 2000 risks not within our direct control as discussed below.
During the course of remediation testing, we have manipulated and entered new
data for both the restaurant level and corporate office systems. The remediation
testing program tested many non-IT systems including restaurant point-of-sale
systems, time clocks, credit card equipment, environmental controls, security
systems, shipping, and telephone systems. Due to the number of identical
systems, three restaurants were utilized in the user test in a simulated
setting. Although we believe that the simulation yielded sufficient information
to gauge year 2000 readiness, full load testing in a real environment (which is
presently deemed impractical without materially disrupting or degrading current
operations) could reveal unexpected problems.
Since unanticipated expenses may arise during our review, we are unable to
project with accuracy the total expected costs to achieve year 2000 readiness.
However, we do not allocate the value of time expended by corporate office
personnel when considering year 2000 project costs, and no special account has
been established to track year 2000 project costs. The costs of our year 2000
project are being funded with cash flows from our existing cash balances. We
have incurred approximately $175,000 in year 2000 project costs and expect to
incur an additional $25,000 in year 2000 project costs through the remainder of
1999 and 2000.
Internal Year 2000 Risks
Risks of systems failure at the restaurant level include, but are not limited
to, the following examples. The failure of automated environmental controls at
one of our restaurants could result in inhospitable conditions requiring
temporary closure. The failure of cash register systems or credit card
processing terminals would force reversion to manual sales tracking methods that
could slow both the throughput of guests, and in the instance of credit cards,
the recognition of income. The failure of personal computers in a restaurant
could prevent the daily polling of restaurant financial information by the
corporate office to account for restaurant results, cash deposits, accounts
payable, and payroll information. Since these computers are also used to order
food from suppliers and analyze food and labor costs, restaurant management
could be forced to revert to manual methods that are less effective or efficient
and which could increase the cost of food and labor. Telecommunication failures
could result in loss of sales due to customer inability to reach the
restaurants, as well as make the communication of restaurant results impossible.
12
<PAGE>
Risks of systems failure at the corporate level include, but are not limited to,
the following examples. There may be temporary inability to conduct normal
accounting and financial functions due to incomplete or inaccurate data. The
absence of data normally utilized by management in the supervision of our
restaurants could make such oversight difficult and less effective, increasing
costs until the data is restored. Telecommunications risks would parallel those
at the restaurant level. A coordinated computer, software and telecommunication
system is used to sweep cash from local depositories into central accounts. The
failure of any element of this system could cause interruptions in the
availability of cash to meet our liabilities. Similar risks exist with respect
to an integrated payroll system consolidating restaurant and corporate data and
passing it on to a third party payroll administrator.
External Year 2000 Risks
We rely on vendors to supply the key items necessary to run our restaurants.
Unfortunately, we have little control over many of these external parties and it
is unlikely that we will be able to obtain adequate levels of assurance that
they have prepared sufficiently to be ready for the year 2000 issue.
For a restaurant to be able to generate revenue, it must be open for business
during its normal operating hours, staffed, lit, heated, and supplied with
product and other supplies necessary to serve its guests. Examples of external
factors that could prevent these things from occurring include the inability to
open due to lack of power or utilities, lack of food and other supplies due to
service interruptions involving suppliers or distributors, and the inability to
access the restaurants due to malfunctioning security systems controlled by
others or other facilities related impediments.
At a corporate level, third parties are relied upon for certain services,
particularly in the payroll and information services departments. For example, a
failure of the payroll vendor to supply payroll checks would interrupt the flow
of compensation to employees that could jeopardize staffing throughout the
organization. Our payroll processor has asserted that they are compliant.
Common external risks to both our corporate and restaurant operations include
interruptions in utilities to our facilities, whether related to electrical,
natural gas, water, sewer, waste removal, or telephone or data transmission
services.
We have sent 558 surveys to vendors of IT services, food and material vendors,
and utilities, among others, in an attempt to obtain certifications of their
readiness with respect to the year 2000 issue. To date, 233 of the surveys, or
41.8%, have been returned. All of the vendors who responded to our inquiry
stated that they are or plan to be compliant by the end of 1999, dependent upon
the reliability of their third parties' year 2000 compliance statements. The
utility and telecommunication firms have been conditional in their expressions
of year 2000 readiness, typically linking their readiness to the preparedness of
unrelated parties (for example, other contributors to the national power grid).
Our primary food distributor, SYSCO, has asserted that it will be year 2000
compliant by the end of 1999.
While we will continue to seek vendor readiness certifications relative to the
year 2000 issue, we expect that many companies will fail to provide such
documentation, whether due to liability concerns or otherwise. Consequently, we
are taking this factor into account, wherever possible, when formulating our
contingency plans.
Magnitude of the Year 2000 Problem
Any individual risk listed above, if experienced on a broad enough scale and of
lengthy duration, could have a material adverse effect on our results of
operations, liquidity, and financial condition. We anticipate that the worst
case year 2000 issue scenario would involve the closure for a material period of
time of most or all our restaurants due to national utility interruptions,
coupled with adverse changes in customer spending patterns. The most likely risk
scenario may instead be more localized closures of individual restaurants, or
groups of restaurants in a particular city, due to utility interruption or
failure to receive necessary food and other supplies. We believe that as long as
the restaurants can be kept open to the public in the manner they are
accustomed, the failure of administrative and corporate office functions should
have modest effects on revenue producing activities.
13
<PAGE>
Contingency Plans
We have developed contingency plans for the year 2000 issue. These plans were
being developed for each of our departments and address both internal and
external year 2000 risks. For example, the plan has procedures for manually
recording and reporting sales transactions, it addresses supply shortages from
key distributors, and delineates various other contingency items.
Our risk assessment of the year 2000 issue is based on our current knowledge,
and could in hindsight prove incomplete and possibly overstate or understate the
actual risks. The ability to address the year 2000 issue in the manner and
within the cost estimates described above could be adversely affected by
negative findings arising during the course of testing systems and implementing
solutions or contingency plans.
Disclosure Regarding Forward-Looking Statements
This Form 10-Q for the third quarter ended September 26, 1999 contains
forward-looking statements within the meaning of the safe harbor provisions of
Section 21E of the Securities Exchange Act of 1934. These forward-looking
statements are based on the beliefs of our management as well as on assumptions
made by and information currently available to us at the time the statements
were made. When used in this Form 10-Q, the words "anticipate", "believe",
"estimate", "expect", "intend" and similar expressions, as they relate to us,
are intended to identify the forward-looking statements. Although we believe
that these statements are reasonable, you should be aware that actual results
could differ materially from those projected by the forward-looking statements.
Because actual results may differ, readers are cautioned not to place
undue reliance on forward-looking statements. The actual number of restaurants
opened during any period could be higher or lower than the projected amount
based upon the timing and success of locating suitable sites, negotiating
acceptable leases, managing construction and recruiting qualified operating
personnel. Our comparable store sales percentage increases could moderate as a
result of competition, general economic conditions, or changes in consumer
preferences or discretionary consumer spending. The effect of a price increase
on product, labor, and direct and occupancy costs may be adversely affected by
increased products costs, changes in the labor market, or our ability to
negotiate favorable lease terms, as well as general economic conditions. Product
costs could be adversely affected by increased distribution prices by SYSCO
Corporation or a failure to perform by SYSCO, as well as adverse weather
conditions, governmental regulation and general economic conditions. Labor costs
could increase due to increases in the minimum wage as well as competition for
qualified employees and the need to pay higher wages to attract sufficient
employees. Direct and occupancy costs could be adversely affected by an
inability to negotiate favorable lease terms as well as general economic
conditions. General and administrative expenses could increase due to
competition for qualified employees and the need to pay higher wages to attract
sufficient employees as well as general economic conditions. Additional factors
that could cause actual results to differ include: risks associated with future
growth; inability to achieve and manage planned expansion; fluctuations in
operating results; the need for additional capital; risks associated with
discretionary consumer spending; inability to compete with larger, more
established competitors; potential labor shortages; our dependence on
governmental licenses; complaints or litigation from guests; and risks
associated with year 2000 issues. Certain of these risk factors are more fully
discussed in our Quarterly Report on Form 10-Q for the period ended March 28,
1999. We caution you, however, that the list of factors above may not be
exhaustive and that those or other factors, many of which are outside of our
control, could have a material adverse effect on us and our results of
operations. All forward-looking statements attributable to persons acting on our
behalf or us are expressly qualified in their entirety by the cautionary
statements set forth here. We assume no obligation to publicly release the
results of any revision or updates to these forward-looking statements to
reflect future events or unanticipated occurrences.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
We are exposed to market risk from changes in interest rates on borrowings under
our revolving line of credit that bears interest from time to time at the lower
of the lending bank's reference rate or LIBOR plus 1.875% to 2.375%. Because we
do not believe that changes in interest rates from the maximum available
borrowings under the revolving line of credit are material, we do not believe
this risk will be material. We currently do not have any borrowings on our
revolving line of credit.
We have no derivative financial instruments or derivative commodity instruments
in our cash and cash equivalents and marketable securities. We invest our cash
and cash equivalents and marketable securities in investment grade, highly
liquid investments, consisting of money market instruments, bank certificates of
deposit, overnight investments in commercial paper, and short term government
and corporate bonds. We have invested the net proceeds from our public offering
in similar investment grade and highly liquid investments.
14
<PAGE>
Many of the food products purchased by us are affected by commodity pricing and
are, therefore, subject to price volatility caused by weather, production
problems, delivery difficulties and other factors which are outside our control.
To control this risk in part, we have fixed price purchase commitments with
terms of one year or less for food and supplies from vendors who supply our
national food distributor. In addition, we believe that substantially all of our
food and supplies are available from several sources, which helps to control
food commodity risks. We believe we have the ability to increase menu prices, or
vary the menu items offered, if needed in response to a food product price
increases. To compensate for a hypothetical price increase of 10% for food and
supplies, we would need to increase menu prices by an average of 3%, which is
consistent with our average price increase of 3% in fiscal 1998 and 2% in fiscal
1997. Accordingly, we believe that a hypothetical 10% increase in food product
costs would not have a material effect on our operating results.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
We are currently subject to various legal actions arising in the normal course
of business, none of which are expected to have a material effect on our results
of operations, financial condition or cash flows.
Item 2. Changes in Securities and Use of Proceeds
Since June 27, 1999, we have sold the following securities pursuant to exemption
from registration under the Securities Act. All of the sales were made in
reliance upon the exemptions from registration provided under Section 4(2) and
Regulation D of the Securities Act for transactions not involving a public
offering. All shares were issued directly by us, no underwriters were involved
and no discount, commission or other transaction-related remuneration was paid.
1. On July 20, 1999, we issued 6,944 shares of common stock for $50,000, or
$7.20 per share, to outside investors upon conversion of certain
subordinated debentures in aggregate principal amount of $50,000 held by
the investors.
2. On July 28, 1999, we issued 12,330 shares of common stock for $184.97, or
$.01 per share, to outside investors upon exercise of warrants previously
issued to the investors.
3. On August 4, 1999, we issued 7,706 shares of common stock for $77.06, or
$.01 per share, to an outside investor upon exercise of warrants previously
issued to the investor.
4. On August 9, 1999, we issued 385 shares of common stock for $3.85, or $.01
per share, to an outside investor upon exercise of warrants previously
issued to the investor and 90,454 shares of common stock to outside
investors upon conversion and surrender of 90,509 warrants previously
issued to the investors.
5. On August 18, 1999, we issued 19,267 shares of common stock for $192.67, or
$.01 per share, to an outside investor upon exercise of warrants previously
issued to the investor and 23,160 shares of common stock to an outside
investor upon conversion and surrender of 23,174 warrants previously issued
to the investor.
6. On August 23, 1999, we issued 15,414 shares of common stock for $154.14, or
$.01 per share, to an outside investor upon exercise of warrants previously
issued to the investor.
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
15
<PAGE>
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit No. Description Method of Filing
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
3.1 Amended and Restated Articles of Incorporation of the Company (1) Incorporated By
Reference
3.2 Amended and Restated Bylaws of the Company (2) Incorporated By
Reference
4.1 Specimen Common Stock Certificate (3) Incorporated By
Reference
4.2 Securities Purchase Agreement dated as of October 13, 1998 Incorporated By
between the Company and the Purchasers (4) Reference
4.3 Non-Statutory Stock Option Agreement between the Company and Incorporated By
1204 Harmon Partnership dated as of June 1, 1998 (5) Reference
4.4 Form of stock purchase warrant dated as of October 31, 1997 (6) Incorporated By
Reference
10.1 Credit Agreement dated as of September 27, 1999 Electronic Transmission
10.2 First Amendment to Credit Agreement dated as of October 21, 1999 Electronic Transmission
27.1 Financial Data Schedule for the quarter ended September 26, 1999 Electronic Transmission
</TABLE>
(1) Incorporated by reference to Exhibit 3.4 to the Company's Registration
Statement on Form S-1 (Registration No. 333-72593).
(2) Incorporated by reference to Exhibit 3.5 to the Company's Registration
Statement on Form S-1 (Registration No. 333-72593).
(3) Incorporated by reference to the same numbered Exhibit to the Company's
Registration Statement on Form S-1 (Registration No. 333-72593).
(4) Incorporated by reference to Exhibit 10.17 to the Company's Registration
Statement on Form S-1 (Registration No. 333-72593).
(5) Incorporated by reference to Exhibit 10.15 to the Company's Registration
Statement on Form S-1 (Registration No. 333-72593).
(6) Incorporated by reference to Exhibit 10.12 to the Company's Registration
Statement on Form S-1 (Registration No. 333-72593).
(b) Valuation and Qualifying Accounts:
None
(c) Reports on Form 8-K
No reports on Form 8-K were filed during the fiscal quarter ended
September 26, 1999.
16
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BUCA, Inc.
(Registrant)
Date: November 10, 1999 By: /s/ Joseph P. Micatrotto
---------------------------------
Joseph P. Micatrotto,
Chairman, President and Chief
Executive Officer
(Principal Executive Officer)
Date: November 10, 1999 By: /s/ Greg A. Gadel
---------------------------------
Greg A. Gadel
Chief Financial Officer
17
<PAGE>
Exhibit Index
<TABLE>
<CAPTION>
Exhibit No. Description Method of Filing
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
3.2 Restated Certificate of Incorporation of the Company (1) Incorporated By
Reference
3.4 Restated Bylaws of the Company (2) Incorporated By
Reference
4.1 Specimen Common Stock Certificate (3) Incorporated By
Reference
4.2 Securities Purchase Agreement dated as of October 13, 1998 between Incorporated By
the Company and the Purchasers (4) Reference
4.3 Non-Statutory Stock Option Agreement between the Company and 1204 Incorporated By
Harmon Partnership dated as of June 1, 1998 (5) Reference
4.4 Form of stock purchase warrant dated as of October 31, 1997 (6) Incorporated By
Reference
10.1 Credit Agreement dated as of September 27, 1999 Electronic
Transmission
10.2 First Amendment to Credit Agreement dated as of October 21, 1999 Electronic
Transmission
27.1 Financial Data Schedule for the quarter ended June 27, 1999 Electronic
Transmission
</TABLE>
(1) Incorporated by reference to Exhibit 3.4 to the Company's Registration
Statement on Form S-1 (Registration No. 333-72593).
(2) Incorporated by reference to Exhibit 3.5 to the Company's Registration
Statement on Form S-1 (Registration No. 333-72593).
(3) Incorporated by reference to the same numbered Exhibit to the Company's
Registration Statement on Form S-1 (Registration No. 333-72593).
(4) Incorporated by reference to Exhibit 10.17 to the Company's Registration
Statement on Form S-1 (Registration No. 333-72593).
(5) Incorporated by reference to Exhibit 10.15 to the Company's Registration
Statement on Form S-1 (Registration No. 333-72593).
(6) Incorporated by reference to Exhibit 10.12 to the Company's Registration
Statement on Form S-1 (Registration No. 333-72593).
18
<PAGE>
EXHIBIT 10.1
CREDIT AGREEMENT
THIS CREDIT AGREEMENT, dated as of September 27, 1999, is by and
between BUCA, INC., a Minnesota corporation (the "Borrower"), the banks which
are signatories hereto (individually, a "Bank" and, collectively, the "Banks"),
BANK OF AMERICA, N.A., a national banking association, one of the Banks and as
co-agent for the Banks (in such capacity, the "Co-Agent") and U.S. BANK NATIONAL
ASSOCIATION, a national banking association, one of the Banks, as agent for the
Banks (in such capacity, the "Agent").
RECITALS
A. The Borrower and U.S. Bank National Association ("USBNA") have
entered into a Credit Agreement dated as of February 5, 1999 (as amended, the
"Existing Credit Agreement") pursuant to which U.S. Bank made loans to the
Borrower.
B. The Borrower has requested that USBNA increase the credit facility
and amend the Existing Credit Agreement in certain respects.
C. The parties desire to amend and restate the Existing Credit
Agreement in its entirety, to replace the existing promissory notes thereunder
and to make such other changes as set forth herein.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and agreements hereinafter set forth, the parties do hereby agree as
follows:
ARTICLE I
---------
DEFINITIONS AND ACCOUNTING TERMS
Section 1.1 Defined Terms. As used in this Agreement the following
-------------
terms shall have the following respective meanings (and such meanings shall be
equally applicable to both the singular and plural form of the terms defined, as
the context may require):
"Adjusted Eurodollar Rate": With respect to each Interest Period
------------------------
applicable to a Eurodollar Rate Advance, the rate (rounded upward, if necessary,
to the next one hundredth of one percent) determined by dividing the Eurodollar
Rate for such Interest Period by 1.00 minus the Eurodollar Reserve Percentage.
"Advance": Any portion of the outstanding Revolving Loans by a Bank
-------
as to which one of the available interest rate options and, if pertinent, an
Interest Period, is applicable. An Advance may be a Eurodollar Rate Advance or
a Reference Rate Advance.
"Advance Date": The date of the making of any Advance hereunder.
------------
<PAGE>
"Affiliate": When used with reference to any Person, (a) each Person
---------
that, directly or indirectly, controls, is controlled by or is under common
control with, the Person referred to, (b) each Person which beneficially owns or
holds, directly or indirectly, five percent or more of any class of voting stock
of the Person referred to (or if the Person referred to is not a corporation,
five percent or more of the equity interest), (c) each Person, five percent or
more of the voting stock (or if such Person is not a corporation, five percent
or more of the equity interest) of which is beneficially owned or held, directly
or indirectly, by the Person referred to, and (d) each of such Person's
officers, directors, joint venturers and partners. The term control (including
the terms "controlled by" and "under common control with") means the possession,
directly, of the power to direct or cause the direction of the management and
policies of the Person in question.
"Agent": As defined in the opening paragraph hereof.
-----
"Annalized EBITDA": For any date of determination, the product of (a)
----------------
EBITDA for the immediately preceding six-fiscal month period, times (b) two.
-----
"Applicable Fee Percentage": The Applicable Fee Percentage set forth
-------------------------
in the table below as in effect from time to time determined based on the Cash
Flow Leverage Ratio calculated as of the end of the most recent fiscal quarter
of the Borrower for which the Borrower has furnished the financial statements
and reports required under Section 5.1(d) (adjustments to the Applicable Fee
Percentage to become effective as of the first day of the month following
receipt of the financial statements required under Section 5.1(d)):
Cash Flow Leverage Ratio (in each case, to 1.00) Applicable
------------------------------------------------ ----------
Fee Percentage
--------------
Less than or equal to 2.00 0.25%
Greater than 2.00 to less than or equal to 3.00 0.375%
Greater than 3.00 0.50%
Notwithstanding the foregoing, if the Borrower has not furnished the financial
statements and reports required under Section 5.1(d) for any fiscal quarter by
the required date, the Applicable Fee Percentage shall be calculated as if the
Cash Flow Leverage Ratio as of the end of such fiscal quarter was greater than
3.00 to 1.00 for the period from the first day of the fiscal quarter first
occurring after such required date until the first day of the month following
the month in which such financial statements and reports are delivered.
Notwithstanding the foregoing, during the period from the Closing Date through
the date that is one Business Day following receipt by the Agent of the
financial statements and reports delivered to the Agent pursuant to Section
5.1(c) for the last month of the Borrower's Fiscal Year 1999, the Applicable Fee
Percentage for the Revolving (A) Commitment shall be 0.375%. During the period
from the Closing Date through June 30, 2000, the Applicable Fee Percentage for
the Revolving (B) Commitment shall be 0.1875%.
-2-
<PAGE>
"Applicable Lending Office": For each Bank and for each type of
-------------------------
Advance, the office of such Bank identified on the signature pages hereof or
such other domestic or foreign office of such Bank (or of an Affiliate of such
Bank) as such Bank may specify from time to time, by notice given pursuant to
Section 9.4, to the Agent and the Borrower as the office by which its Advances
of such type are to be made and maintained.
"Applicable Margin": Subject to the provisions of 2.5(a), the
-----------------
Applicable Margin set forth in the table below as in effect from time to time
determined based on the Cash Flow Leverage Ratio calculated as of the end of the
most recent fiscal quarter of the Borrower for which the Borrower has furnished
the financial statements and reports required under Section 5.1(d) (adjustments
to the Applicable Margin to become effective as of the first day of the month
following receipt of the financial statements required under Section 5.1(d)):
Reference
Rate Eurodollar
Cash Flow Leverage Ratio (in each case, to 1.00) Advances Advances
------------------------------------------------ --------- ----------
Less than or equal to 2.00 0.00% 1.875%
Greater than 2.00 to less than or equal to 3.00 0.00% 2.00%
Greater than 3.00 0.00% 2.375%
Notwithstanding the foregoing, if the Borrower has not furnished the financial
statements and reports required under Section 5.1(d) for any fiscal quarter by
the required date, the Applicable Margin shall be calculated as if the Cash Flow
Leverage Ratio as of the end of such fiscal quarter was greater than 3.00 to
1.00 for the period from the first day of the fiscal quarter first occurring
after such required date until the first day of the month following the month in
which such financial statements and reports are delivered. Notwithstanding the
foregoing, during the period from the Closing Date through the date that is one
Business Day following receipt by the Agent of the financial statements and
reports delivered to the Agent pursuant to Section 5.1(c) for the last month of
the Borrower's Fiscal Year 1999, the Applicable Margin shall be 0.00% for
Reference Rate Advances and 2.00% for Eurodollar Advances.
"Average Annual Comparable Restaurant Sales Growth": For any date of
-------------------------------------------------
determination, the percentage annual increase in Total Restaurant Sales for
Comparable Restaurants calculated by comparing (a) Total Restaurant Sales for
Comparable Restaurants for the twelve consecutive fiscal months ended on such
date of determination, to (b) Total Restaurant Sales for Comparable Restaurants
for the 12 consecutive fiscal months ended on the last day of the fiscal month
which ended 12 fiscal months prior to such date of determination, in each case
determined on a consolidated basis in accordance with GAAP.
"Average Restaurant Annual Cash Flow": For any date of determination,
-----------------------------------
(a) the sum of (i) the aggregate Restaurant Net Income of the Borrower and the
Subsidiaries for the immediately preceding twelve-fiscal month period, plus (ii)
----
Interest Expense, depreciation and amortization, and Corporate Overhead Expense
for the immediately preceding twelve-fiscal
-3-
<PAGE>
month period, plus (iii) Pre-Opening Expense, if any, charged to Restaurants
----
for the immediately preceding twelve-fiscal month period (in an amount not to
exceed the lesser of (A) $200,000 per Restaurant and (B) $3,000,000 in the
aggregate for all Restaurants for any twelve fiscal month period), divided by
-------
(b) the number of Restaurants open during the entire thirteen fiscal months
prior to such determination date, in each case determined on a consolidated
basis in accordance with GAAP.
"Bank": As defined in the opening paragraph hereof.
----
"Board": The Board of Governors of the Federal Reserve System or any
-----
successor thereto.
"Borrower": As defined in the opening paragraph hereof.
--------
"Borrowing Base": The product of (a) Annualized EBITDA times (b) 2.50;
-------------- -----
provided that solely for the purposes of calculating the Borrowing Base, up to
- --------
October 26, 1999 the Borrower's Annalized EBITDA shall be based upon pro forma
projections of the Borrower for its ninth fiscal month of Fiscal Year 1999.
"Borrowing Base Deficiency": At the time of any determination, the
-------------------------
amount, if any, by which Total Revolving Outstandings at such time exceed the
Borrowing Base as determined as of the end of the most recently completed fiscal
month for which the Borrower has furnished the financial statements and reports
required under 5.1(c).
"Business Day": Any day (other than a Saturday, Sunday or legal
------------
holiday in the State of Minnesota) on which national banks are permitted to be
open in Minneapolis, Minnesota.
"Capital Expenditures": For any period, the sum of all amounts that
--------------------
would, in accordance with GAAP, be included as additions to property, plant and
equipment on a consolidated statement of cash flows for the Borrower and the
Subsidiaries during such period, in respect of (a) the acquisition,
construction, improvement, replacement or betterment of land, buildings,
machinery, equipment or of any other fixed assets or leaseholds, (b) to the
extent related to and not included in (a) above, materials and contract labor
(excluding expenditures properly chargeable to repairs or maintenance in
accordance with GAAP), and (c) other capital expenditures and other uses
recorded as capital expenditures or similar terms having substantially the same
effect.
"Capitalized Lease": A lease of (or other agreement conveying the
-----------------
right to use) real or personal property with respect to which at least a portion
of the rent or other amounts thereon constitute Capitalized Lease Obligations.
"Capitalized Lease Obligations": As to any Person, the obligations of
-----------------------------
such Person to pay rent or other amounts under a lease of (or other agreement
conveying the right to
-4-
<PAGE>
use) real or personal property which obligations are required to be classified
and accounted for as a capital lease on a balance sheet of such Person under
GAAP (including Statement of Financial Accounting Standards No. 13 of the
Financial Accounting Standards Board), and, for purposes of this Agreement, the
amount of such obligations shall be the capitalized amount thereof, determined
in accordance with GAAP (including such Statement No. 13).
"Cash Flow Leverage Ratio": For any date of determination, the ratio
------------------------
of
(a) the sum (without duplication) of
(i) the aggregate principal amount as of that date of all outstanding
Capitalized Lease Obligations of the Borrower and the Subsidiaries and
that portion of Total Liabilities bearing interest, plus (ii) the
----
product of (A) Operating Lease Payments for the immediately preceding
six-fiscal month period, times (B) two, times (C) eight,
----- -----
to
(b) the sum of
(i) Annualized EBITDA, plus (ii) the product of (A) Operating Lease
----
Payments for the immediately preceding six-fiscal month period, times
-----
(B) two,
in each case, determined on a consolidated basis in accordance with GAAP.
"Century Bank": Century Bank, a national banking association.
------------
"Century Bank Letters of Credit": The following letters of credit
------------------------------
issued by Century Bank for the account of the Borrower:
(a) Letter of Credit No. 269, dated March 16, 1998, in the face amount of
$125,000 and naming Six Point Co., as beneficiary, with an expiration date
of March 13, 2009;
(b) Letter of Credit No. 290, dated May 20, 1998, in the face amount of
$175,000 and naming Greek Eastern Orthodox Church of Minneapolis,
Minnesota, as beneficiary, with an expiration date of July 31, 2000.
"Change of Control": The first day on which a majority of the members
----------------
of the Board of Directors of the Borrower are not Continuing Directors.
"Continuing Directors" means any member of the Board of Directors of the
Borrower who (i) was a member of such Board on the date of this Agreement, or
(ii) was nominated for election or elected or appointed to such Board by the
Board of Directors of the Borrower at a time when a majority of the Board of
Directors of the Borrower consisted of Continuing Directors.
-5-
<PAGE>
"Closing Date": September 27, 1999.
------------
"Co-Agent": As defined in the opening paragraph hereof, and any other
--------
Bank approved by the Agent in writing (a copy of which shall be delivered to the
Borrower) to act in such capacity hereunder.
"Code": The Internal Revenue Code of 1986, as amended.
----
"Commitments": The Revolving (A) Commitment and the Revolving (B)
-----------
Commitment.
"Comparable Restaurant": Each Restaurant continuously owned and
---------------------
operated by the Borrower or a Subsidiary during the 24 fiscal months of the
Borrower prior to the date of determination.
"Contingent Obligation": With respect to any Person at the time of
---------------------
any determination, without duplication, any obligation, contingent or otherwise,
of such Person guaranteeing or having the economic effect of guaranteeing any
Indebtedness of any other Person (the "primary obligor") in any manner, whether
directly or otherwise: (a) to purchase or pay (or advance or supply funds for
the purchase or payment of) such Indebtedness or to purchase (or to advance or
supply funds for the purchase of) any direct or indirect security therefor, (b)
to purchase property, securities or services for the purpose of assuring the
owner of such Indebtedness of the payment of such Indebtedness, (c) to maintain
working capital, equity capital or other financial statement condition of the
primary obligor so as to enable the primary obligor to pay such Indebtedness or
otherwise to protect the owner thereof against loss in respect thereof, or (d)
entered into for the purpose of assuring in any manner the owner of such
Indebtedness of the payment of such Indebtedness or to protect the owner against
loss in respect thereof; provided, that the term "Contingent Obligation" shall
not include endorsements for collection or deposit, in each case in the ordinary
course of business.
"Corporate Overhead Expense": For any month of the Borrower's Fiscal
--------------------------
Year, all expenses of the Borrower and the Subsidiaries during such period which
are not properly allocable to the restaurants including, but not limited to,
compensation and benefit expenses for corporate staff; rent, occupancy and
telephone expenses for corporate offices; professional fees; travel and
entertainment expense; market-wide advertising expenses; automobile expense; and
other general administrative expenses attributable to corporate functions.
Corporate Overhead Expense shall not include depreciation, amortization,
interest expense or the Revolving Commitment Fees.
"Current Liabilities": As of any date, the consolidated current
-------------------
liabilities of the Borrower and the Subsidiaries, determined in accordance with
GAAP.
"Default": Any event which, with the giving of notice (whether such
-------
notice is required under Section 7.1, or under some other provision of this
Agreement, or otherwise) or lapse of time, or both, would constitute an Event of
Default.
-6-
<PAGE>
"Defaulting Bank": At any time, any Bank that, at such time (a) has
---------------
failed to make an Advance required pursuant to the terms of this Agreement,
including the funding of any participation in accordance with the terms of this
Agreement, (b) has failed to pay to the Agent or any Bank an amount owed by such
Bank pursuant to the terms of this Agreement, or (c) has been deemed insolvent
or has become subject to a bankruptcy, receivership or insolvency proceeding, or
to a receiver, trustee or similar official.
"EBIT": For any period of determination, the consolidated net income
----
of the Borrower and the Subsidiaries before deductions, without duplication, for
(a) income taxes, and
(b) Interest Expense, and
(c) losses related to the early extinguishment and/or conversion of
debt during the Borrower's first six fiscal months of its 1999 Fiscal
Year in an amount not to exceed $1,200,000,
all as determined in accordance with GAAP.
"EBITDA": For any period of determination, the consolidated net
------
income of the Borrower and the Subsidiaries before deductions, without
duplication, for
(a) income taxes,
(b) Interest Expense,
(c) depreciation and amortization, and
(d) losses related to the early extinguishment and/or conversion of
debt during Borrower's first six fiscal months of its 1999 Fiscal Year
in an amount not to exceed $1,200,000,
all as determined in accordance with GAAP.
"ERISA": The Employee Retirement Income Security Act of 1974, as
-----
amended.
"ERISA Affiliate": Any trade or business (whether or not
---------------
incorporated) that is a member of a group of which the Borrower is a member and
which is treated as a single employer under Section 414 of the Code.
-7-
<PAGE>
"Eurodollar Business Day": A Business Day which is also a day for
-----------------------
trading by and between banks in United States dollar deposits in the interbank
Eurodollar market and a day on which banks are open for business in New York
City.
"Eurodollar Rate": With respect to each Interest Period applicable to
---------------
a Eurodollar Rate Advance, the average offered rate for deposits in United
States dollars (rounded upward, if necessary, to the nearest 1/16 of 1%) for
delivery of such deposits on the first day of such Interest Period, for the
number of days in such Interest Period, which appears on the Reuters Screen LIBO
page as of 11:00 AM, London time (or such other time as of which such rate
appears) two Eurodollar Business Days prior to the first day of such Interest
Period, or the rate for such deposits determined by the Agent at such time based
on such other published service of general application as shall be selected by
the Agent for such purpose (including without limitation the Telerate page
3750); provided, that in lieu of determining the rate in the foregoing manner,
the Agent may determine the rate based on rates at which United States dollar
deposits are offered to the Agent in the interbank Eurodollar market at such
time for delivery in Immediately Available Funds on the first day of such
Interest Period in an amount approximately equal to the Advance by the Agent to
which such Interest Period is to apply (rounded upward, if necessary, to the
nearest 1/16 of 1%). "Reuters Screen LIBO page" means the display designated as
page "LIBO" on the Reuters Monitor Money Rate Screen (or such other page as may
replace the LIBO page on such service for the purpose of displaying London
interbank offered rates of major banks for United States dollar deposits).
"Eurodollar Rate Advance": An Advance with respect to which the
-----------------------
interest rate is determined by reference to the Adjusted Eurodollar Rate.
"Eurodollar Reserve Percentage": As of any day, that percentage
-----------------------------
(expressed as a decimal) which is in effect on such day, as prescribed by the
Board for determining the maximum reserve requirement (including any basic,
supplemental or emergency reserves) for a member bank of the Federal Reserve
System, with deposits comparable in amount to those held by the Agent, in
respect of "Eurocurrency Liabilities" as such term is defined in Regulation D of
the Board. The rate of interest applicable to any outstanding Eurodollar Rate
Advances shall be adjusted automatically on and as of the effective date of any
change in the Eurodollar Reserve Percentage.
"Event of Default": Any event described in Section 7.1.
----------------
"Existing Credit Agreement": As defined in Recital A hereof.
-------------------------
"Federal Funds Effective Rate": for any day, 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 on the next
succeeding Business Day by the Federal Reserve Bank of New York, or, if such
rate is not so published for any day which is a Business Day, the average of the
quotations for the day of such transactions received by the Agent from three
Federal funds brokers of recognized standing selected by it.
-8-
<PAGE>
"Fiscal Year": The fiscal year of the Borrower, which ends on the
-----------
last Sunday of each December. The fiscal quarters and the fiscal months of the
Borrower through December 31, 2001 are set forth in Schedule 1.1-1.
"Fixed Charge Coverage Ratio": For any date of determination, the
---------------------------
ratio of
(a) the sum of (i) Annualized EBITDA, plus (ii) the product of (A)
----
Operating Lease Payments for the immediately preceding six-fiscal
month period, times (B) two,
-----
to
(b) the sum (without duplication) of (i) the product of (A) Interest
Expense for the immediately preceding six-fiscal month period, times
-----
(B) two, plus (ii) all required principal payments with respect to
----
Total Liabilities (including but not limited to all such payments with
respect to Capitalized Lease Obligations of the Borrower and the
Subsidiaries) for the immediately preceding twelve-fiscal month
period, plus (iii) the product of (A) Operating Lease Payments for the
----
immediately preceding six-fiscal month period, times (B) two, plus
----- ----
(iv) the product of (A) depreciation expense of the Borrower and the
Subsidiaries for the immediately preceding six-fiscal month period,
times (B) two, plus (v) the product of (A) income taxes of the
----- ----
Borrower and the Subsidiaries accrued for the immediately preceding
six-fiscal month period, times (B) two,
-----
in each case determined on a consolidated basis in accordance with GAAP.
"GAAP": Generally accepted accounting principles 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 may be approved by a significant segment of the accounting
profession, which are applicable to the circumstances as of any date of
determination.
"Guarantors": The Persons listed on Schedule 1.1-2 .
----------
"Guaranty": Any of the guaranties of any Guarantor in the form of
--------
Exhibit 1.1-1, as the same may be amended, supplemented, restated or otherwise
modified and in effect from time to time.
"Holding Account": A deposit account belonging to the Agent for the
---------------
benefit of the Banks into which the Borrower may be required to make deposits
pursuant to the provisions of this Agreement, such account to be under the sole
dominion and control of the Agent and not subject to withdrawal by the Borrower,
with any amounts therein to be held for application toward payment of any
outstanding Letters of Credit when drawn upon. The Holding Account shall be a
money market savings account or substantial equivalent (or other appropriate
investment medium as the Borrower may from time to time request and to which the
Agent in its sole discretion shall have consented)
-9-
<PAGE>
and shall bear interest in accordance with the terms of similar accounts held
by the Agent for its customers.
"Immediately Available Funds": Funds with good value on the day and
---------------------------
in the city in which payment is received.
"Indebtedness": With respect to any Person at the time of any
------------
determination, without duplication: (a) all obligations of such Person for
borrowed money, (b) all obligations of such Person evidenced by bonds,
debentures, notes or other similar instruments, (c) all obligations of such
Person upon which interest charges are customarily paid or accrued (other than
trade payables), (d) all obligations of such Person under conditional sale or
other title retention agreements relating to property purchased by such Person,
(e) all obligations of such Person issued or assumed as the deferred purchase
price of property or services (other than trade payables), (f) all obligations
of others secured by any Lien on property owned or acquired by such Person,
whether or not the obligations secured thereby have been assumed, (g) all
Capitalized Lease Obligations of such Person, (h) all obligations of such Person
in respect of interest rate protection agreements, (i) all obligations of such
Person, actual or contingent, as an account party in respect of letters of
credit or bankers' acceptances, (j) all Contingent Obligations of such Person,
and (k) all obligations of any partnership or joint venture of a nature
described in clauses (a) through (j) above as to which such Person is or may
become personally liable as a partner or joint venturer.
"Interest/Operating Lease Payments Coverage Ratio": For any date of
------------------------------------------------
determination, the ratio of
(a) the product of (i) the sum of the following for the immediately
preceding six-fiscal month period (A) EBIT, plus (B) Pre-Opening
----
Expense (in an amount not to exceed the lesser of (I) $200,000 per
Restaurant and (II) $3,000,000 in the aggregate for all Restaurants
for any twelve-fiscal month period), plus (C) Operating Lease
----
Payments, times (ii) two,
-----
to
(b) the product of (i) the sum of the following for the immediately
preceding six-fiscal month period (A) Interest Expense, plus (B)
----
Operating Lease Payments, times (ii) two;
-----
in each case determined on a consolidated basis in accordance with GAAP.
"Interest Expense": For any period of determination, the aggregate
----------------
consolidated amount, without duplication, of interest paid, accrued or scheduled
to be paid, in respect of any Indebtedness of the Borrower and the Subsidiaries,
including (a) all but the principal component of payments in respect of
conditional sale contracts, Capitalized Leases and other title retention
agreements, (b) commissions, discounts and other fees and charges with respect
to letters of credit
-10-
<PAGE>
and bankers' acceptance financings, and (c) net costs under interest rate
protection agreements, in each case determined in accordance with GAAP.
"Interest Period": With respect to each Eurodollar Rate Advance, the
---------------
period commencing on the date of such Advance or on the last day of the
immediately preceding Interest Period, if any, applicable to an outstanding
Advance and ending one, two or three months thereafter, as the Borrower may
elect in the applicable notice of borrowing, continuation or conversion;
provided that:
- -------------
(a) Any Interest Period that would otherwise end on a day which
is not a Eurodollar Business Day shall be extended to the next succeeding
Eurodollar Business Day unless such Eurodollar Business Day falls in
another calendar month, in which case such Interest Period shall end on the
next preceding Eurodollar Business Day;
(b) Any Interest Period that begins on the last Eurodollar
Business Day of a calendar month (or a day for which there is no
numerically corresponding day in the calendar month at the end of such
Interest Period) shall end on the last Eurodollar Business Day of a
calendar month; and
(c) Any Interest Period that would otherwise end after the
Revolving Commitment Ending Date shall end on the Revolving Commitment
Ending Date.
"Investment": The acquisition, purchase, making or holding of any
----------
stock or other security, any loan, advance, contribution to capital, extension
of credit (except for trade and customer accounts receivable for inventory sold
or services rendered in the ordinary course of business and payable in
accordance with customary trade terms), any acquisitions of real or personal
property (other than real and personal property acquired in the ordinary course
of business, including real property and Restaurant equipment acquired in
anticipation of any sale leaseback transaction involving such property) and any
purchase or commitment or option to purchase stock or other debt or equity
securities of or any interest in another Person or any integral part of any
business of another Person or all or substantially all of the assets comprising
any such business or integral part thereof. The amount of any Investment shall
be the original cost of such Investment plus the cost of all additions thereto,
without any adjustments for increases or decreases in value, or write-ups,
write-downs or write-offs with respect to such Investment.
"Letter of Credit": Any Letter of Credit issued by the Agent for the
----------------
account of the Borrower pursuant to the terms of this Agreement or under the
Existing Credit Agreement.
"Letter of Credit Commitment": $1,000,000.
---------------------------
"Letter of Credit Fee": As defined in Section 2.8(d).
--------------------
-11-
<PAGE>
"Letter of Credit Obligations": At the time of any determination, the
----------------------------
aggregate amount available to be drawn on all outstanding Letters of Credit plus
all Unpaid Drawings with respect to any Letter of Credit on such date.
"Lien": With respect to any Person, any security interest, mortgage,
----
pledge, lien, charge, encumbrance, title retention agreement or analogous
instrument or device (including the interest of each lessor under any
Capitalized Lease), in, of or on any assets or properties of such Person, now
owned or hereafter acquired, whether arising by agreement or operation of law.
"Loan": The Revolving Loan.
----
"Loan Documents": All agreements, instruments and documents
--------------
heretofore, herewith or hereafter executed and delivered by the Borrower or any
Subsidiary pursuant to, or in connection with, this Agreement, including,
without limitation, this Agreement, the Notes and each Security Document,
together with any subordination agreements, powers of attorney, consents,
assignments, contracts, notices, financing statements and any and all other
writings pursuant to or in aid of any of the foregoing.
"Material Adverse Occurrence": Any occurrence of whatsoever nature
---------------------------
(including, without limitation, any adverse determination in any litigation,
arbitration, or governmental investigation or proceeding) which (a) has
materially adversely affected the present, or which is reasonably likely to
materially adversely affect the prospective, financial condition or operations
of the Borrower and the Subsidiaries, taken as a whole, or (b) impairs the
ability of the Borrower or the Subsidiaries, taken as a whole, to perform their
respective obligations under the Loan Documents or any writing executed pursuant
thereto.
"Multiemployer Plan": A multiemployer plan, as such term is defined
------------------
in Section 4001 (a) (3) of ERISA, which is maintained (on the Closing Date,
within the five years preceding the Closing Date, or at any time after the
Closing Date) for employees of the Borrower or any ERISA Affiliate.
"Net Worth": As of any date of determination, the sum of the amounts
---------
set forth on the consolidated balance sheet of the Borrower as common stock,
preferred stock, additional paid-in capital and retained earnings of the
Borrower and the Subsidiaries (excluding treasury stock), less the book value
set forth on such balance sheet of all intangible assets of the Borrower and its
Subsidiaries, including all such items as goodwill, trademarks, trade names,
service marks, copyrights, patents, licenses, unamortized debt discount and
expenses and the excess of the purchase price of the assets of any business
acquired by the Borrower or any of its Subsidiaries over the book value of such
assets.
"Note": The Revolving (A) Note or the Revolving (B) Note.
----
"Obligations": The Borrower's obligations in respect of the due and
-----------
punctual payment of principal and interest on the Notes and Unpaid Drawings when
and as due, whether by
-12-
<PAGE>
acceleration or otherwise, and all fees (including Revolving Commitment Fees),
expenses, indemnities, reimbursements and other obligations of the Borrower
under this Agreement or any other Loan Document, in all cases whether now
existing or hereafter arising or incurred.
"Operating Lease": Any lease of real or personal property that is not
---------------
a Capitalized Lease.
"Operating Lease Payments": For any period, all payments consisting
------------------------
of monthly base rent and percentage of revenue or earnings made by the Borrower
and the Subsidiaries, on a consolidated basis, during such period under
Operating Leases.
"Partially-Owned Subsidiaries": Subsidiaries in which the Borrower,
----------------------------
directly or through its Subsidiaries, owns less than 100% of the securities or
other ownership interests having ordinary voting power for the election of the
board of directors or other Persons performing similar functions.
"PBGC": The Pension Benefit Guaranty Corporation, established
----
pursuant to Subtitle A of Title IV of ERISA, and any successor thereto or to the
functions thereof.
"Person": Any natural person, corporation, partnership, limited
------
partnership, limited liability company, joint venture, firm, association, trust,
unincorporated organization, government or governmental agency or political
subdivision or any other entity, whether acting in an individual, fiduciary or
other capacity.
"Plan": Each employee benefit plan (whether in existence on the
----
Closing Date or thereafter instituted), as such term is defined in Section 3 of
ERISA, maintained for the benefit of employees, officers or directors of the
Borrower or of any ERISA Affiliate.
"Pledge Agreement": The Pledge Agreement of the Borrower in the form
----------------
of Exhibit 1.1-2, as the same may be supplemented, amended or otherwise modified
and in effect from time to time.
"Pre-Opening Expense": Those expenses identified on the Borrower's
-------------------
consolidated financial statements as "restaurant start-up costs".
"Prohibited Transaction": The respective meanings assigned to such
----------------------
term in Section 4975 of the Code and Section 406 of ERISA, but excluding any
exempt transaction as provided thereunder.
"Public Offering": The closing of a sale by the Borrower for cash of
---------------
any class of stock of the Borrower registered in accordance with the Securities
Act of 1933, as amended.
"Reference Rate": The rate of interest from time to time publicly
--------------
announced by the Agent as its "reference rate." The Agent may lend to its
customers at rates that are at, above or below the Reference Rate. For purposes
of determining any interest rate hereunder or under any
-13-
<PAGE>
other Loan Document which is based on the Reference Rate, such interest rate
shall change as and when the Reference Rate shall change.
"Reference Rate Advance": An Advance with respect to which the
----------------------
interest rate is determined by reference to the Reference Rate.
"Regulatory Change": Any change after the Closing Date in federal,
-----------------
state or foreign laws or regulations or the adoption or making after such date
of any interpretations, directives or requests applying to a class of banks
including the Bank under any federal, state or foreign laws or regulations
(whether or not having the force of law) by any court or governmental or
monetary authority charged with the interpretation or administration thereof.
"Reportable Event": A reportable event as defined in Section 4043 of
----------------
ERISA and the regulations issued under such Section, with respect to a Plan
subject to Title IV of ERISA, excluding, however, such events as to which the
PBGC by regulation has waived the requirement of Section 4043(a) of ERISA that
it be notified within 30 days of the occurrence of such event, provided that a
--------
failure to meet the minimum funding standard of Section 412 of the Code and of
Section 302 of ERISA shall be a Reportable Event regardless of the issuance of
any waiver in accordance with Section 412(d) of the Code.
"Restaurant": A restaurant location owned or leased by the Borrower
----------
or any Subsidiary and operated by the Borrower or any Subsidiary as a
restaurant.
"Restaurant Net Income": The net income of a Restaurant determined in
---------------------
accordance with GAAP.
"Restricted Payments": With respect to the Borrower and the
-------------------
Partially-Owned Subsidiaries, collectively, all dividends or other distributions
of any nature (whether in cash, securities of the Borrower or the Partially-
Owned Subsidiaries, assets or otherwise) on or in respect of, and all payments
on, any class of equity securities (including warrants, options or rights
therefor but excluding Indebtedness which is convertible into common or
preferred stock which is itself not convertible into Indebtedness) issued by the
Borrower or the Partially-Owned Subsidiaries, whether such securities are
authorized or outstanding on the Closing Date or at any time thereafter, and any
redemption or purchase of, or distribution in respect of, any of the foregoing,
whether directly or indirectly.
"Revolving (A) Commitment": With respect to a Bank, the agreement of
-----------------------
such Bank to make Revolving Loans to the Borrower in an aggregate principal
amount outstanding at any time not to exceed such Bank's Revolving (A)
Commitment Amount upon the terms and subject to the conditions and limitations
of this Agreement.
"Revolving (A) Commitment Amount": With respect to a Bank, initially
-------------------------------
the amount set opposite such Bank's name on the signature page hereof as its
Revolving (A) Commitment Amount, but as the same may be reduced from time to
time pursuant to Section 2.7.
-14-
<PAGE>
"Revolving (A) Note": A promissory note of the Borrower in the form
------------------
of Exhibit 1.1-3, as the same may be amended, restated or otherwise modified and
in effect from time to time.
"Revolving (B) Commitment": With respect to a Bank, the agreement of
-----------------------
such Bank to make Revolving Loans to the Borrower in an aggregate principal
amount outstanding at any time not to exceed such Bank's Revolving (B)
Commitment Amount upon the terms and subject to the conditions and limitations
of this Agreement.
"Revolving (B) Commitment Amount": Initially, zero; provided that if
------------------------------- --------
Annualized EBITDA is equal to or greater than $5,500,000 at March 26, 2000,
then, with respect to a Bank, initially the amount set opposite such Bank's name
on the signature page hereof as its Revolving (B) Commitment Amount (as the same
may be reduced from time to time pursuant to Section 2.7.) shall become
available on June 30, 2000.
"Revolving (B) Note": A promissory note of the Borrower in the form
------------------
of Exhibit 1.1-4 , as the same may be amended, restated or otherwise modified
and in effect from time to time.
"Revolving Commitment Ending Date": September 27, 2001.
--------------------------------
"Revolving Commitment Fees": As defined in Section 2.8(b).
-------------------------
"Revolving Loan": As defined in Section 2.1.
--------------
"Revolving Percentage": With respect to any Bank, the percentage
--------------------
equivalent of a fraction, the numerator of which is the sum of (a) the Revolving
(A) Commitment Amount and (b) the Revolving (B) Commitment Amount of such Bank
and the denominator of which is the Total Revolving Commitment Amount.
"SBA Loan": The Indebtedness described on Schedule 6.13.
--------
"Security Agreement (Guarantor)": Any of the security agreements of
------------------------------
any Guarantor in the form of Exhibit 1.1-5, as the same may be amended,
supplemented, restated or otherwise modified and in effect from time to time,
provided that, on the Closing Date, and subject to the provisions of Section
- --------
5.15, neither BUCA (Wheeling), Inc. nor BUCA (DT Milwaukee), Inc. shall be
required to enter into a Security Agreement (Guarantor).
"Security Agreement (Borrower)": The security agreement of the
-----------------------------
Borrower in the form of Exhibit 1.1-6, as the same may be amended, supplemented,
restated or otherwise modified and in effect from time to time.
"Security Documents": The Security Agreement (Borrower), the Pledge
------------------
Agreement, the Trademark Assignment, each Guaranty, each Security Agreement
(Guarantor) and all other agreements, documents and instruments delivered
pursuant hereto or thereto or in connection
-15-
<PAGE>
herewith or therewith creating, perfecting or otherwise providing for any Lien
to secure the Obligations, in each case as amended, supplemented, restated or
otherwise modified and in effect from time to time.
"Subordinated Debentures": The Series A Convertible Subordinated
-----------------------
Debentures in the original principal amount of approximately $1,800,000 issued
by the Borrower (formerly known as BUCA Ventures, Inc.) pursuant to that certain
Purchase Agreement for Series A Convertible Subordinated Debentures dated as of
August 1, 1994.
"Subordinated Debt": The Subordinated Debentures and any other
-----------------
Indebtedness of the Borrower or any Subsidiary, now existing or hereafter
created, incurred or arising, which other Indebtedness is subordinated in right
of payment to the payment of the Obligations in a manner and to an extent (a)
that the Agent, USBNA (so long as it is a Bank) and each Co-Agent have approved
in writing prior to the creation of such other Indebtedness, or (b) as to any
such other Indebtedness existing on the date of this Agreement, that the Agent,
USBNA (so long as it is a Bank) and each Co-Agent have approved as Subordinated
Debt in a writing delivered by Agent to the Borrower on or prior to the Closing
Date.
"Subsidiary": Any corporation or other entity of which securities or
----------
other ownership interests having ordinary voting power for the election of a
majority of the board of directors or other Persons performing similar functions
are owned by the Borrower either directly or through one or more Subsidiaries.
"Termination Date": The earliest of (a) the Revolving Commitment
----------------
Ending Date, (b) the date on which the Total Revolving Commitment is terminated
pursuant to Section 7.2 or (c) the date on which the Revolving (A) Commitment
Amount and the Revolving (B) Commitment Amount are reduced to zero pursuant to
Section 2.7.
"Total Liabilities": At the time of any determination, the amount, on
-----------------
a consolidated basis, of all items of Indebtedness of the Borrower and the
Subsidiaries that would constitute "liabilities" shown on the face of a
consolidated balance sheet of the Borrower prepared in accordance with GAAP.
"Total Restaurant Sales": The net sales of the Borrower and the
----------------------
Subsidiaries arising out of the operation of Restaurants, determined on a
consolidated basis in accordance with GAAP.
"Total Revolving Commitment Amount": The sum of (a) the Revolving (A)
---------------------------------
Commitment Amounts, plus (b) the Revolving (B) Commitment Amounts.
----
"Total Revolving (A) Outstandings": As of any date of determination,
--------------------------------
the sum of (a) the aggregate unpaid principal balance of the Advances evidenced
by the Revolving (A) Notes outstanding on such date, plus (b) the product of (i)
----
the aggregate maximum amount of Letter of Credit Obligations outstanding on such
date times (ii) the result of (A) the Revolving (A) Commitment Amounts divided
----- -------
by (B) the Total Revolving Commitment Amount.
-16-
<PAGE>
"Total Revolving (B) Outstandings": As of any date of determination,
--------------------------------
the sum of (a) the aggregate unpaid principal balance of the Advances evidenced
by the Revolving (B) Notes outstanding on such date, plus (b) the product of (i)
----
the aggregate maximum amount of Letter of Credit Obligations outstanding on such
date times (ii) the result of (A) the Revolving (B) Commitment Amounts divided
----- -------
by (B) the Total Revolving Commitment Amount.
"Total Revolving Outstandings": As of any date of determination, the
----------------------------
sum of (a) Total Revolving (A) Outstandings plus (b) Total Revolving (B)
Outstandings.
"Trademark Assignment": The Collateral Assignment of Trademarks by
--------------------
the Borrower in the form of Exhibit 1.1-8, as the same may be supplemented,
amended, or otherwise in effect from time to time.
"Unpaid Drawings": As defined in Section 2.12.
---------------
"Unused Revolving (A) Commitment": As of any date of determination,
-------------------------------
the amount by which the Revolving (A) Commitment Amount exceeds the Total
Revolving (A) Outstandings on such date.
"Unused Revolving (B) Commitment": As of any date of determination,
-------------------------------
the amount by which the Revolving (B) Commitment Amount exceeds the Total
Revolving (B) Outstandings on such date.
"USBNA": U.S. Bank National Association in its capacity as one of the
-----
Banks hereunder.
"Wholly-Owned Subsidiaries": Subsidiaries in which the Borrower,
-------------------------
directly or through the Subsidiaries which are not Partially-Owned Subsidiaries,
owns 100% of the securities or other ownership interests having ordinary voting
power for the election of the board of directors or other Persons performing
similar functions.
Section 1.2 Accounting Terms and Calculations. Except as may be
---------------------------------
expressly provided to the contrary herein, all accounting terms used herein
shall be interpreted and all accounting determinations hereunder shall be made
in accordance with GAAP. To the extent any change in GAAP affects any
computation or determination required to be made pursuant to this Agreement,
such computation or determination shall be made as if such change in GAAP had
not occurred unless the Borrower and the Agent, USBNA (so long as it is a Bank)
and the Co-Agents agree in writing on an adjustment to such computation or
determination to account for such change in GAAP.
Section 1.3 Computation of Time Periods. In this Agreement, in the
---------------------------
computation of a period of time from a specified date to a later specified date,
unless otherwise stated the word "from" means "from and including" and the word
"to" or "until" each means "to but excluding".
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<PAGE>
Section 1.4 Other Definitional Terms. The words "hereof", "herein"
------------------------
and "hereunder" and words of similar import when used in this Agreement shall
refer to this Agreement as a whole and not to any particular provision of this
Agreement. References to Sections, Exhibits, schedules and like references are
to this Agreement unless otherwise expressly provided. The words "include",
"includes" and "including" shall be deemed to be followed by the phrase "without
limitation". Unless the context in which used herein otherwise clearly
requires, "or" has the inclusive meaning represented by the phrase "and/or".
All incorporation by reference of covenants, terms, definitions or other
provisions from other agreements are incorporated into this Agreement as if such
provisions were fully set forth herein, include all necessary definitions and
related provisions from such other agreements, and shall survive any termination
of such other agreements until the obligations of the Borrower under this
Agreement and the Notes are irrevocably paid in full, all Letters of Credit have
expired without renewal or been returned to the Agent, and the commitments of
the Banks to advance funds to the Borrower are terminated.
-18-
<PAGE>
ARTICLE II
----------
TERMS OF THE CREDIT FACILITIES
Part A -- Terms of Lending
--------------------------
Section 2.1 Lending Commitments.
-------------------
2.1(a) Revolving Credit. On the terms and subject to the
----------------
conditions hereof, each Bank severally agrees to make a loan (the
"Revolving Loan") to the Borrower on a revolving basis available as
Advances at any time and from time to time,
(i) with respect to the Revolving (A) Commitment of such Bank,
from the Closing Date until the Termination Date, during which period
the Borrower may borrow, repay and reborrow in accordance with the
provisions hereof, provided, that no Revolving Loan will be made by a
--------
Bank in any amount which, after giving effect thereto, would cause the
unpaid principal amount of outstanding Advances by such Bank in
respect of the Revolving (A) Commitment of such Bank to at any time
exceed the Revolving (A) Commitment Amount of such Bank, and
(ii) with respect to the Revolving (B) Commitment of such Bank,
if available, from June 30, 2000 until the Termination Date, during
which period the Borrower may borrow, repay and reborrow in accordance
with the provisions hereof, provided, that no Revolving Loan will be
--------
made by a Bank in any amount which, after giving effect thereto, would
cause the unpaid principal amount of outstanding Advances by such Bank
in respect of the Revolving (B) Commitment of such Bank to at any time
exceed the Revolving (B) Commitment Amount of such Bank;
provided further, that at no time shall the Total Revolving Outstandings
--------
exceed the Borrowing Base.
Advances hereunder shall be made by the several Banks ratably in the
proportion of their respective Revolving (A) Commitment Amounts or
Revolving (B) Commitment Amounts, as the case may be. Advances may be
obtained and maintained, at the election of the Borrower but subject to the
limitations hereof, as Reference Rate Advances or Eurodollar Rate Advances.
2.1(b) Letters of Credit. On the terms and subject to the
-----------------
conditions hereof, the Agent agrees to issue Letters of Credit to support
the Borrower's business operations.
Section 2.2 Procedure for Loans. Any request by the Borrower for an
-------------------
Advance on the Revolving Loan hereunder shall be in writing or by telephone and
must be given so as to be received by the Agent not later than 12:00 noon
(Minneapolis time) two Eurodollar Business Days prior to the requested Advance
Date if the Revolving Loans (or any portion thereof) are requested as
-19-
<PAGE>
Eurodollar Rate Advances and not later than 12:00 noon (Minneapolis time) on the
requested Advance Date if the Advances are requested as Reference Rate Advances.
Each request for an Advance hereunder shall be irrevocable and shall be deemed a
representation by the Borrower that on the requested Advance Date and after
giving effect to the requested Advance the applicable conditions specified in
Article III have been and will be satisfied. Each request for an Advance
hereunder shall specify (a) the requested Advance Date and (b) the amount of the
Advance which shall be in a minimum amount of $500,000 in the aggregate for all
Banks, (c) whether such Advances are to be funded as Reference Rate Advances or
Eurodollar Rate Advances (and, if such Advances are to be made with more than
one applicable interest rate choice, specifying the amount to which each
interest rate choice is applicable) and (d) in the case of Eurodollar Rate
Advances, the duration of the initial Interest Period applicable thereto. The
Agent may rely on any telephone request for an Advance hereunder which it
believes in good faith to be genuine; and the Borrower hereby waives the right
to dispute the Agent's record of the terms of such telephone request. The Agent
shall promptly notify each other Bank of the receipt of such request, the
matters specified therein, and of such Bank's ratable share of the requested
Advances, each Bank shall provide its share of the requested Advances to the
Agent in Immediately Available Funds not later than 2:00 p.m., (Minneapolis
time) on the requested Advance Date. Unless the Agent determines that any
applicable condition specified in Article III has not been satisfied, the Agent
will make available to the Borrower at the Agent's principal office in
Minneapolis, Minnesota in Immediately Available Funds not later than 5:00 p.m.
(Minneapolis time) on the requested Advance Date the amount of the requested
Advances. If the Agent has made an Advance to the Borrower on behalf of a Bank
but has not received the amount of such Advance from such Bank by the time
herein required, such Bank shall pay interest to the Agent on the amount so
advanced at the overnight Federal Funds rate from the date of such Advance to
the date funds are received by the Agent from such Bank, such interest to be
payable with such remittance from such Bank of the principal amount of such
Advance (provided, however, that the Agent shall not make any Advance on behalf
of a Bank if the Agent has received prior notice from such Bank that it will not
make such Advance). If the Agent does not receive payment from such Bank by the
next Business Day after the date of any Advance, the Agent shall be entitled to
recover such Advance, with interest thereon at the rate (or rates) then
applicable to the such Advance, on demand, from the Borrower, without prejudice
to the Agent's and the Borrower's rights against such Bank. If such Bank pays
the Agent the amount herein required with interest at the overnight Federal
Funds rate before the Agent has recovered from the Borrower, such Bank shall be
entitled to the interest payable by the Borrower with respect to the Advance in
question accruing from the date the Agent made such Advance.
Section 2.3 Notes. The Advances of each Bank shall be evidenced by a
-----
single Revolving (A) Note payable to the order of such Bank in a principal
amount equal to such Bank's Revolving (A) Commitment Amount originally in effect
and a Revolving (B) Note payable to the order of the Bank in a principal amount
equal to such Bank's Revolving (B) Commitment Amount originally in effect. Upon
receipt of each Bank's Notes from the Borrower, the Agent shall mail such Note
to such Bank. Each Bank shall enter in its records the amount of the various
Advances made, converted or continued and the payments made thereon, and each
Bank is authorized by the Borrower to enter into its records, a record of such
Advances and payments; provided, however that the failure by any Bank to make
any such entry or any error in making such entry shall not limit or
-20-
<PAGE>
otherwise affect the obligation of the Borrower hereunder and on the Notes, and,
in all events, the principal amounts owing by the Borrower in respect of the
Revolving (A) Note and the Revolving (B) Note payable to the order of each Bank
shall be the aggregate amount of all Advances made by such Bank with respect to
its Revolving (A) Commitment and the Revolving (B) Commitment, less all payments
of principal thereof made by the Borrower. The records of the Banks shall be
rebuttable presumptive evidence of the principal amount owing and unpaid on the
Notes and the amount available for draw under the Letter of Credit Commitment,
respectively.
Section 2.4 Conversions and Continuations. On the terms and subject
-----------------------------
to the limitations hereof, the Borrower shall have the option at any time and
from time to time to convert all or any portion of the Advances into Reference
Rate Advances or Eurodollar Rate Advances, or to continue a Eurodollar Rate
Advance as such; provided, however that a Eurodollar Rate Advance may be
converted or continued only on the last day of the Interest Period applicable
thereto and no Advance may be converted to or continued as a Eurodollar Rate
Advance if a Default or Event of Default has occurred and is continuing on the
proposed date of continuation or conversion. Advances may be converted to, or
continued as, Eurodollar Rate Advances only in integral multiples, as to the
aggregate amount of the Advances of all Banks so converted or continued, of
$500,000. The Borrower shall give the Agent written notice of any continuation
or conversion of any Advances and such notice must be given so as to be received
by the Agent not later than 12:00 noon (Minneapolis time) two Eurodollar
Business Days prior to requested date of conversion or continuation in the case
of the continuation of, or conversion to, Eurodollar Rate Advances and on the
date of the requested conversion in the case of conversion to Reference Rate
Advances. Each such notice shall specify (a) the amount to be continued or
converted, (b) the date for the continuation or conversion (which must be (i)
the last day of the preceding Interest Period for any continuation or conversion
of Eurodollar Rate Advances, and (ii) a Eurodollar Business Day in the case of
continuations as or conversions to Eurodollar Rate Advances and a Business Day
in the case of conversions to Reference Rate Advances), and (c) in the case of
conversions to or continuations as Eurodollar Rate Advances, the Interest Period
applicable thereto. Any notice given by the Borrower under this Section shall
be irrevocable. If the Borrower shall fail to notify the Agent of the
continuation of any Eurodollar Rate Advances within the time required by this
Section, such Advances shall, on the last day of the Interest Period applicable
thereto, automatically be converted into Reference Rate Advances of the same
principal amount. All conversions and continuation of Advances must be made
uniformly and ratably among the Banks. (E.g., when continuing a two-month
Eurodollar Rate Advance of one Bank to a three-month Eurodollar Rate Advance,
the Borrower must simultaneously continue all two-month Eurodollar Rate Advances
of all Banks having Interest Periods ending on the date of continuation as
three-month Eurodollar Rate Advances.)
Section 2.5 Interest Rates, Interest Payments and Default Interest.
------------------------------------------------------
Section 2.5(a) The Advances. Interest shall accrue and be
------------
payable on the Revolving Loans as follows:
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<PAGE>
(i) Subject to paragraph (iii) below, each Eurodollar Rate
Advance shall bear interest on the unpaid principal amount thereof
during the Interest Period applicable thereto at a rate per annum
equal to the sum of (A) the Adjusted Eurodollar Rate for such Interest
Period, plus (B) the Applicable Margin.
----
(ii) Subject to paragraph (iii) below, each Reference Rate
Advance shall bear interest on the unpaid principal amount thereof at
a varying rate per annum equal to the sum of (A) the Reference Rate,
plus (B) the Applicable Margin.
----
(iii) Upon the occurrence and during the continuance of any
Event of Default, each Advance shall, at the option of the Agent and
the Co-Agents, and upon written notice to the Borrower, bear interest
on the unpaid principal amount thereof at a rate per annum equal to
the sum of the rate applicable to such Advance but for the provisions
of this clause (iii), plus 2.0%.
----
(iv) Interest shall be payable (A) with respect to each
Eurodollar Rate Advance, on the last day of the Interest Period
applicable thereto; (B) with respect to any Reference Rate Advance, on
the first day of each month; (C) with respect to all Advances, upon
any permitted prepayment (on the amount prepaid), and (D) with respect
to all Advances, on the Termination Date; provided that interest under
Section 2.4 (a) (iii) shall be payable on demand.
Section 2.5(b) Lawful Interest. In no contingency or event
---------------
whatsoever shall the interest rate charged pursuant to the terms of this
Agreement exceed the highest rate permissible under any law which a court
of competent jurisdiction shall, in a final determination, deem applicable
hereto. In the event that such a court determines that the Bank has
received interest hereunder in excess of the highest applicable rate, the
Bank shall promptly refund such excess interest to the Borrower as required
by such court.
Section 2.6 Prepayments.
-----------
2.6(a) Mandatory Payments. If at any time a Borrowing Base
------------------
Deficiency exists, the Borrower shall immediately pay on the principal of
the Advances an amount equal to such Borrowing Base Deficiency. Any such
payments shall be applied first against Reference Rate Advances and then to
Eurodollar Rate Advances in order starting with the Eurodollar Rate
Advances having the shortest time to the end of the applicable Interest
Period. Amounts paid on the Advances under this paragraph (a) shall be for
the account of each Bank in proportion to its share of outstanding
Advances. If, after paying all outstanding Advances, a Borrowing Base
Deficiency still exists, the Borrower shall pay into the Holding Account an
amount equal to the amount of the remaining Borrowing Base Deficiency.
2.6(b) Other Mandatory Prepayments. If at any time Total
---------------------------
Revolving Outstandings exceed the Total Revolving Commitment Amount, the
Borrower shall immediately repay to the Agent for the account of the Banks
the amount of such excess. Any such payments shall be applied first
against Reference Rate Advances and then to Eurodollar
-22-
<PAGE>
Rate Advances in order starting with the Eurodollar Rate Advances having
the shortest time to the end of the applicable Interest Period. If, after
payment of all outstanding Advances, the Total Revolving Outstandings still
exceed the Aggregate Revolving Commitment Amounts, the remaining amount
paid by the Borrower shall be placed in the Holding Account.
2.6(c) Optional Prepayments. The Borrower may prepay the
--------------------
Reference Rate Advances, in whole or in part, at any time, without premium
or penalty. The Borrower may prepay Eurodollar Rate Advances, in whole or
in part, at any time; provided that, upon such prepayment, the Borrower
--------
shall pay to the Banks the amounts, if any, required pursuant to Section
2.24 hereof. Any such prepayment must be accompanied by accrued and unpaid
interest on the amount prepaid. Each partial prepayment shall be in an
aggregate amount for all the Banks of $100,000 or, if more, an integral
multiple thereof. Amounts paid (unless following an acceleration or upon
termination of the Revolving (A) Commitments and the Revolving (B)
Commitments in whole) on the Revolving Loans under this Section 2.6 may be
reborrowed upon the terms and subject to the conditions and limitations of
this Agreement. Amounts paid or prepaid on the Advances under this
paragraph (c) shall be for the account of each Bank in proportion to its
shares of outstanding Advances.
Section 2.7 Reduction of the Total Revolving Commitment Amount or
-----------------------------------------------------
Termination of Commitments.
- --------------------------
2.7(a) Optional Reduction of the Total Revolving Commitment
----------------------------------------------------
Amount or Termination of Commitments The Borrower may, at any time, upon
------------------------------------
not less than three (3) Business Days prior written notice to the Agent,
reduce either the Revolving (A) Commitment Amount or the Revolving (B)
Commitment Amount, with any such reduction in a minimum amount of $250,000
or, if more, in an integral multiple of $50,000; provided, however, that
-------- -------
the Borrower may not at any time reduce the Total Revolving Commitment
Amount below the then aggregate unpaid principal balance of the Revolving
Notes. The Borrower may, at any time, upon not less than three (3) Business
Days prior written notice to the Agent, terminate either the Revolving (A)
Commitment or the Revolving (B) Commitment in its entirety. Upon
termination of the Revolving (A) Commitment pursuant to this Section, the
Borrower shall pay to the Banks the full amount of all outstanding Advances
evidenced by the Revolving (A) Notes, all accrued and unpaid interest
thereon, all unpaid Revolving Commitment Fees accrued to the date of such
termination under Section 2.8(b) and all other unpaid Obligations of the
Borrower to the Banks and the Agent hereunder with respect to the Revolving
(A) Commitment. Upon termination of the Revolving (B) Commitment pursuant
to this Section, the Borrower shall pay to the Banks the full amount of all
outstanding Advances evidenced by the Revolving (B) Notes, all accrued and
unpaid interest thereon, all unpaid Revolving Commitment Fees accrued to
the date of such termination under Section 2.8(b) (ii) and all other unpaid
Obligations of the Borrower to the Banks and the Agent hereunder with
respect to the Revolving (B) Commitment. Upon the date on which both the
Revolving (A) Commitment and the Revolving (B) have been
-23-
<PAGE>
terminated, the Borrower shall have paid to the Banks all unpaid
Obligations of the Borrower to the Banks and the Agent.
2.7(b) Mandatory Reduction of Total Revolving Commitment Amount.
--------------------------------------------------------
The Revolving (A) Commitment Amounts or the Revolving (B) Commitment
Amounts, at the Agent's discretion, shall be permanently reduced on each
date of receipt by the Borrower or any Subsidiary of any cash proceeds
(including cash payments received by way of deferred payment of principal
of a note or an installment receivable and the cash realization of any non-
cash proceeds) from the sale or disposition of assets by the Borrower or
any Subsidiary not otherwise permitted by Section 6.2 hereof and sold with
the consent of the Agent by the amount of such cash proceeds (net of any
taxes arising out of such sale or disposition).
Section 2.8 Fees.
----
2.8(a) Fees. The Borrower shall pay to the Agent on the Closing
----
Date the fees set forth in a separate letter agreement between the Agent
and the Borrower.
2.8(b) Revolving Commitment Fees. The Borrower shall pay to the
-------------------------
Agent, for the ratable benefit of the Banks, fees (the "Revolving
Commitment Fees") in an amount equal to the sum of:
(i) the product of (A) the Applicable Fee Percentage times (B)
-----
the average daily Unused Revolving (A) Commitment for the period from
the Closing Date to the Termination Date, plus
----
(ii) the product of (A) the Applicable Fee Percentage times (B)
-----
the average daily Unused Revolving (B) Commitment for the period from
the Closing Date to the Termination Date.
Such Revolving Commitment Fees are payable in arrears quarterly on the
first day of each April, July, October and January and on the Termination
Date.
2.8(c) Letter of Credit Fees. For each Letter of Credit issued,
---------------------
the Borrower shall pay to the Agent, in advance on the date of issuance, a
fee at a per annum rate equal to 200 basis points on the amount available
to be drawn under such Letter of Credit. In addition to the Letter of
Credit Fees, the Borrower shall pay to the Agent, on demand, all issuance,
amendment, drawing and other fees regularly charged by the Agent to its
letter of credit customers as shown as of the Closing Date on Schedule 2.8,
as the same may change from time to time, and all reasonable out-of-pocket
expenses incurred by the Agent in connection with the issuance, amendment,
administration or payment of any Letter of Credit.
Part B -- Terms of the Letter of Credit Facility
------------------------------------------------
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<PAGE>
Section 2.9 Letters of Credit. Upon the terms and subject to the
-----------------
conditions of this Agreement, the Agent agrees to issue Letters of Credit for
the account of the Borrower from time to time between the Closing Date and the
Termination Date in such amounts as the Borrower shall request up to an
aggregate amount at any time outstanding not exceeding the Letter of Credit
Commitment; provided that no Letter of Credit will be issued in any amount
which, after giving effect to such issuance, would cause Total Revolving
Outstandings to exceed (a) the Total Revolving Commitment Amount or (b) the
Borrowing Base.
Section 2.10 Procedures for Letters of Credit. Each request for a
--------------------------------
Letter of Credit shall be made by the Borrower in writing, by telex, facsimile
transmission or electronic conveyance received by the Agent by 12:00 noon,
Minneapolis time, on a Business Day which is not less than three Business Days
preceding the requested date of issuance (which shall also be a Business Day).
Each request for a Letter of Credit shall be deemed a representation by the
Borrower that on the date of issuance of such Letter of Credit, and after giving
effect thereto, the applicable conditions specified in Article III have been and
will be satisfied. The Agent may require that such request be made on such
letter of credit application and reimbursement agreement form as the Agent may
from time to time specify, along with satisfactory evidence of the authority and
incumbency of the officials of the Borrower making such request. The Agent
shall promptly notify the other Banks of the receipt of the request and the
matters specified therein. On the date of each issuance of a Letter of Credit
the Agent shall send notice to the other Banks of such issuance, accompanied by
a copy of the Letter or Letters of Credit so issued.
Section 2.11 Terms of Letters of Credit. Letters of Credit shall be
--------------------------
issued in support of obligations of the Borrower. All Letters of Credit must
expire not later than the Business Day preceding the Revolving Commitment Ending
Date. No Letter of Credit may have a term longer than 12 months.
Section 2.12 Agreement to Repay Letter of Credit. If the Agent has
-----------------------------------
received documents purporting to draw under a Letter of Credit that the Agent
believes conform to the requirements of the Letter of Credit, or if the Agent
has decided that it will comply with the Borrower's written or oral request or
authorization to pay a drawing on any Letter of Credit, or that the Agent does
not believe that such documents conform to the requirements of the subject
Letter of Credit, it will notify the Borrower of that fact. The Borrower shall
reimburse the Agent by 10:00 a.m. (Minneapolis time) on the day on which such
drawing is to be paid in Immediately Available Funds in an amount equal to the
amount of such drawing. Any amount by which the Borrower has failed to
reimburse the Agent for the full amount of such drawing by 10:00 a.m. on the
date on which the Agent in its notice indicated that it would pay such drawing,
until reimbursed from the proceeds of an Advance pursuant to Section 2.15 or out
of funds available in the Holding Account, is an "Unpaid Drawing".
Section 2.13 Obligations Absolute. The obligation of the Borrower
--------------------
under Section 2.12 to repay the Agent for any amount drawn on any Letter of
Credit and to repay the Banks for any Advances made under Section 2.15 to cover
Unpaid Drawings shall be absolute, unconditional and
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<PAGE>
irrevocable, shall continue for so long as any Letter of Credit, as the case may
be, is outstanding notwithstanding any termination of this Agreement, and shall
be paid strictly in accordance with the terms of this Agreement, under all
circumstances whatsoever, including without limitation the following
circumstances:
(a) Any lack of validity or enforceability of any Letter of Credit;
(b) The existence of any claim, setoff, defense or other right which
the Borrower may have or claim at any time against any beneficiary,
transferee or holder of any Letter of Credit (or any Person for whom any
such beneficiary, transferee or holder may be acting), the Agent or any
Bank or any other Person, whether in connection with a Letter of Credit,
this Agreement, the transactions contemplated hereby, or any unrelated
transaction; or
(c) Any statement or any other document presented under any Letter of
Credit proving to be forged, fraudulent, invalid or insufficient in any
respect or any statement therein being untrue or inaccurate in any respect
whatsoever.
Neither the Agent nor any Bank nor the officers, directors or employees of any
thereof shall be liable or responsible for, and the obligations of the Borrower
to the Agent and the Banks shall not be impaired by:
(i) The use which may be made of any Letter of Credit, or for any
acts or omissions of any beneficiary, transferee or holder
thereof in connection therewith;
(ii) The validity, sufficiency or genuineness of documents, or of
any endorsements thereon, even if such documents or endorsements
should, in fact, prove to be in any or all respects invalid,
insufficient, fraudulent or forged;
(iii) The acceptance by the Agent of documents that appear on their
face to be in order, without responsibility for further
investigation, regardless of any notice or information to the
contrary; or
(iv) Any other action of the Agent in making or failing to make
payment under any Letter of Credit if in good faith and in
conformity with U.S. or foreign laws, regulations or customs
applicable thereto.
Notwithstanding the foregoing, the Borrower shall have a claim against the
Agent, and the Agent shall be liable to the Borrower, to the extent, but only to
the extent, of any direct, as opposed to consequential, damages suffered by the
Borrower or any Subsidiary which the Borrower proves were caused by the Agent's
willful misconduct or gross negligence in determining whether documents
presented under any Letter of Credit comply with the terms thereof.
Section 2.14 Increased Cost for Letters of Credit. If any Regulatory
------------------------------------
Change shall either (a) impose, modify or make applicable any reserve, deposit,
capital adequacy or similar
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<PAGE>
requirement against Letters of Credit issued by the Agent, or (b) shall impose
on the Agent any other conditions affecting this Agreement or any Letter of
Credit; and the result of any of the foregoing is to increase the cost to the
Agent of issuing or maintaining any Letter of Credit, or reduce the amount of
any sum received or receivable by the Agent hereunder, then, within 30 days
after written notice and demand from the Agent (which written notice and demand
shall be given by the Agent promptly after it determines such increased cost or
reduction), the Borrower shall pay to the Agent the additional amount or amounts
as will compensate the Agent for such increased cost or reduction. A certificate
submitted to the Borrower by the Agent setting forth the basis for the
determination of such additional amount or amounts necessary to compensate the
Agent as aforesaid shall be conclusive and binding on the Borrower absent error.
Section 2.15 Loans to Cover Unpaid Drawings. Whenever any Unpaid
------------------------------
Drawing exists for which there are not then funds in the Holding Account to
cover the same, the Agent shall give the other Banks notice to that effect,
specifying the amount thereof, in which event each Bank is authorized (and the
Borrower does here so authorize each Bank) to, and shall, make an Advance (as a
Reference Rate Advance) to the Borrower in an amount equal to such Bank's
Revolving Percentage of the amount of the Unpaid Drawing. The Agent shall
notify each Bank by 11:00 AM (Minneapolis time) on the date such Unpaid Drawing
occurs of the amount of the Revolving Loan to be made by such Bank. Notices
received after such time shall be deemed to have been received on the next
Business Day. Each Bank shall then make such Revolving Loan (regardless of
noncompliance with the applicable conditions precedent specified in Article III
hereof and regardless of whether an Event of Default then exists) and each Bank
shall provide the Agent with the proceeds of such Revolving Loan in Immediately
Available Funds, at the office of the Agent, not later than 2:00 PM (Minneapolis
time) on the day on which such Bank received such notice (or, in the case of
notices received after 11:00 AM, Minneapolis time, is deemed to have received
such notice). The Agent shall apply the proceeds of such Advance directly to
reimburse itself for such Unpaid Drawing. If any portion of any such amount
paid to the Agent should be recovered by or on behalf of the Borrower from the
Agent in bankruptcy, by assignment for the benefit of creditors or otherwise,
the loss of the amount so recovered shall be ratably shared between and among
the Banks in the manner contemplated by Section 8.10 hereof. If at the time the
Banks make funds available to the Agent pursuant to the provisions of this
Section, the applicable conditions precedent specified in Article III shall not
have been satisfied, the Borrower shall pay to the Agent for the account of the
Banks interest on the funds so advanced at a floating rate per annum equal to
the sum of the Reference Rate plus the Applicable Margin plus two percent
(2.00%). If for any reason any Bank is unable to make an Advance to the
Borrower to reimburse the Agent for an Unpaid Drawing, then such Bank shall
immediately purchase from the Agent a risk participation in such Unpaid Drawing,
at par, in an amount equal to such Bank's Revolving Percentage of the Unpaid
Drawing.
Section 2.16 Defaulting Bank. (a) Generally. In addition to the
--------------- ---------
rights and remedies that may be available to the Agent or the Borrower under
this Agreement or applicable law, if at any time a Bank is a Defaulting Bank
such Defaulting Bank's right to participate in the administration of the Loans,
this Agreement and the other Loan Documents, including without limitation, any
right to vote in respect of, to consent to or to direct any action or inaction
of the Agent, shall be suspended during the pendency of such failure or refusal.
If a Bank is a Defaulting Bank because it has failed to
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<PAGE>
make timely payment to the Agent of any amount required to be paid to the Agent
hereunder (without giving effect to any notice or cure periods), in addition to
other rights and remedies which the Agent or the Borrower may have under the
immediately preceding provisions or otherwise, the Agent shall be entitled (i)
to collect interest from such Defaulting Bank on such delinquent payment for the
period from the date on which the payment was due until the date on which the
payment is made at the Federal Funds Effective Rate, (ii) to withhold or setoff
and to apply in satisfaction of the defaulted payment and any related interest,
any amounts otherwise payable to such Defaulting Bank under this Agreement or
any other Loan Document until such defaulted payment and related interest has
been paid in full and such default no longer exists and (iii) to bring an action
or suit against such Defaulting Bank in a court of competent jurisdiction to
recover the defaulted amount and any related interest. Any amounts received by
the Agent in respect of a Defaulting Bank's Loans shall not be paid to such
Defaulting Bank and shall be held uninvested by the Agent and either applied
against the purchase price of such Loans under the following subsection (b) or
paid to such Defaulting Bank upon the default of such Defaulting Bank being
cured.
(b) Purchase of Defaulting Bank's Commitment. Any Bank who is not a
----------------------------------------
Defaulting Bank shall have the right, but not the obligation, in its sole
discretion, to acquire all of a Defaulting Bank's Commitment. If more than one
Bank exercises such right, each such Bank shall have the right to acquire such
proportion of such Defaulting Bank's Commitment on a pro rata basis. Upon any
such purchase, the Defaulting Bank's interest in the Loans and its rights
hereunder (but not its liability in respect thereof or under the Loan Documents
or this Agreement to the extent the same relate to the period prior to the
effective date of the purchase) shall terminate on the date of purchase, and the
Defaulting Bank shall promptly execute all documents reasonably requested to
surrender and transfer such interest to the purchaser thereof subject to and in
accordance with the requirements set forth in Section 9.6, including an
Assignment and Acceptance. The purchase price for the Commitment of a
Defaulting Bank shall be equal to the amount of the principal balance of and the
accrued and unpaid interest and fees on the Loans outstanding and owed by the
Borrower to the Defaulting Bank. The purchaser shall pay to the Defaulting Bank
in Immediately Available Funds on the date of such purchase the principal of and
accrued and unpaid interest and fees on the Loans made by such Defaulting Bank
hereunder (it being understood that such accrued and unpaid interest and fees
may be paid pro rata to the purchasing Bank and the Defaulting Bank by the Agent
at a subsequent date upon receipt of payment of such amounts from the Borrower).
Prior to payment of such purchase price to a Defaulting Bank, the Agent shall
apply against such purchase price any amounts retained by the Agent pursuant to
the last sentence of the immediately preceding subsection (a). The Defaulting
Bank shall be entitled to receive amounts owed to it by the Borrower under the
Loan Documents which accrued prior to the date of the default by the Defaulting
Bank, to the extent the same are received by the Agent from or on behalf of the
Borrower. There shall be no recourse by a Defaulting Bank against any Bank or
the Agent for the payment of such sums except to the extent of the receipt of
payments from any other party or in respect of the Loans.
Part C - General
----------------
Section 2.17 Computation. Revolving Commitment Fees and interest on
-----------
the Loans shall be computed on the basis of actual days elapsed and a year of
360 days.
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<PAGE>
Section 2.18 Payments. Payments and prepayments of principal of, and
--------
interest on, the Notes and all fees, expenses and other obligations under this
Agreement payable to the Agent or the Banks shall be made without setoff or
counterclaim in Immediately Available Funds not later than 12:00 noon
(Minneapolis time) on the dates called for under this Agreement and the Notes to
the Agent at its main office in Minneapolis, Minnesota. Funds received after
such time shall be deemed to have been received on the next Business Day. The
Agent will promptly distribute in like funds to each Bank its ratable share of
each such payment of principal, interest and fees received by the Agent for the
account of the Banks. Whenever any payment to be made hereunder or on the Notes
shall be stated to be due on a day which is not a Business Day, such payment
shall be made on the next succeeding Business Day and such extension of time, in
the case of a payment of principal, shall be included in the computation of any
interest on such principal payment. The Agent will from time to time provide to
the Borrower a statement or statements of amounts due and owing under the Notes
and under this Agreement. The Agent's failure to provide such statements shall
not, however, relieve the Borrower of its obligations to pay any amounts that
are now or hereafter become due under the Notes and under this Agreement. The
Borrower hereby further authorizes the Banks, if and to the extent payment is
not made when due under the Notes or this Agreement, to make an Advance and use
the proceeds of such Advance to make such payment, all without prior notice to
the Borrower. Each Bank shall, however, provide notice to the Borrower of any
such Advance made by it promptly after it is made.
Section 2.19 Use of Loan Proceeds. The proceeds of the Advances
--------------------
shall be used for the development of new Restaurants and the Borrower's general
business purposes in a manner not in conflict with any of the Borrower's
covenants in this Agreement.
Section 2.20 Interest Rate Not Ascertainable, Etc. If, on or prior
------------------------------------
to the date for determining the Adjusted Eurodollar Rate in respect of the
Interest Period for any Eurodollar Rate Advance, any Bank determines (which
determination shall be conclusive and binding, absent error) that:
(a) deposits in dollars (in the applicable amount) are not being made
available to such Bank in the relevant market for such Interest Period, or
(b) the Adjusted Eurodollar Rate will not adequately and fairly
reflect the cost to such Bank of funding or maintaining Eurodollar Rate
Advances for such Interest Period,
such Bank shall forthwith give notice to the Borrower and the other Banks of
such determination, whereupon the obligation of such Bank to make or continue,
or to convert any Advances to, Eurodollar Rate Advances shall be suspended until
such Bank notifies the Borrower and the Agent that the circumstances giving rise
to such suspension no longer exist. While any such suspension continues, all
further Advances by such Bank shall be made as Reference Rate Advances. No such
suspension shall affect the interest rate then in effect during the applicable
Interest Period for any Eurodollar Rate Advance outstanding at the time such
suspension is imposed.
Section 2.21 Increased Cost. If any Regulatory Change:
--------------
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<PAGE>
(a) shall subject any Bank (or its Applicable Lending Office) to
any tax, duty or other charge with respect to its Eurodollar Rate Advances,
its Notes or its obligation to make Eurodollar Rate Advances or shall
change the basis of taxation of payment to any Bank (or its Applicable
Lending Office) of the principal of or interest on its Eurodollar Rate
Advances or any other amounts due under this Agreement in respect of its
Eurodollar Rate Advances or its obligation to make Eurodollar Rate Advances
(except for changes in the rate of tax on the overall net income of such
Bank or its Applicable Lending Office imposed by the jurisdiction in which
such Bank's principal office or Applicable Lending Office is located); or
(b) shall impose, modify or deem applicable any reserve, special
deposit or similar requirement (including, without limitation, any such
requirement imposed by the Board, but excluding with respect to any
Eurodollar Rate Advance any such requirement to the extent included in
calculating the applicable Adjusted Eurodollar Rate) against assets of,
deposits with or for the account of, or credit extended by, any Bank's
Applicable Lending Office or against Letters of Credit issued by the Agent
or shall impose on any Bank (or its Applicable Lending Office) or the
interbank Eurodollar market any other condition affecting its Eurodollar
Rate Advances, its Notes or its obligation to make Eurodollar Rate Advances
or affecting any Letter of Credit;
and the result of any of the foregoing is to increase the cost to such Bank (or
its Applicable Lending Office) of making or maintaining any Eurodollar Rate
Advance or issuing or maintaining any Letter of Credit, or to reduce the amount
of any sum received or receivable by such Bank (or its Applicable Lending
Office) under this Agreement or under its Notes, then, within 30 days after
demand by such Bank (with a copy to the Agent), the Borrower shall pay to such
Bank such additional amount or amounts as will compensate such Bank for such
increased cost or reduction. Each Bank will promptly notify the Borrower and
the Agent of any event of which it has knowledge, occurring after the date
hereof, which will entitle such Bank to compensation pursuant to this Section
and will designate a different Applicable Lending Office if such designation
will avoid the need for, or reduce the amount of, such compensation and will
not, in the judgment of such Bank, be otherwise disadvantageous to such Bank.
If any Bank fails to give such notice within 45 days after it obtains knowledge
of such an event, such Bank shall, with respect to compensation payable pursuant
to this Section, only be entitled to payment under this Section for costs
incurred from and after the date 45 days prior to the date that such Bank does
give such notice. A certificate of any Bank claiming compensation under this
Section, setting forth the additional amount or amounts to be paid to it
hereunder and stating in reasonable detail the basis for the charge and the
method of computation, shall be conclusive in the absence of error. In
determining such amount, any Bank may use any reasonable averaging and
attribution methods. Failure on the part of any Bank to demand compensation
for any increased costs or reduction in amounts received or receivable with
respect to any Interest Period shall not constitute a waiver of such Bank's
rights to demand compensation for any increased costs or reduction in amounts
received or receivable in any subsequent Interest Period.
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<PAGE>
Section 2.22 Illegality. If any Regulatory Change shall make it
----------
unlawful or impossible for any Bank to make, maintain or fund any Eurodollar
Rate Advances, such Bank shall notify the Borrower and the Agent, whereupon the
obligation of such Bank to make or continue, or to convert any Advances to,
Eurodollar Rate Advances shall be suspended until such Bank notifies the
Borrower and the Agent that the circumstances giving rise to such suspension no
longer exist. Before giving any such notice, such Bank shall designate a
different Applicable Lending Office if such designation will avoid the need for
giving such notice and will not, in the judgment of such Bank, be otherwise
disadvantageous to such Bank. If such Bank determines that it may not lawfully
continue to maintain any Eurodollar Rate Advances to the end of the applicable
Interest Periods, all of the affected Advances shall be automatically converted
to Reference Rate Advances as of the date of such Bank's notice, and upon such
conversion the Borrower shall indemnify such Bank in accordance with Section
2.24.
Section 2.23 Capital Adequacy. In the event that any Regulatory
----------------
Change reduces or shall have the effect of reducing the rate of return on any
Bank's capital or the capital of its parent corporation (by an amount such Bank
deems material) as a consequence of its Revolving Commitment and/or Advances
and/or any Letters of Credit or any Bank's obligations to make Advances to cover
Letters of Credit to a level below that which such Bank or its parent
corporation could have achieved but for such Regulatory Change (taking into
account such Bank's policies and the policies of its parent corporation with
respect to capital adequacy), then the Borrower shall, within 30 days after
written notice and demand from such Bank, pay to such Bank (with a copy of the
document evidencing such payment delivered to the Agent) additional amounts
sufficient to compensate such Bank or its parent corporation for such reduction.
If any Bank fails to give such notice within 45 days after it obtains knowledge
of such an event, such Bank shall, with respect to compensation payable pursuant
to this Section, only be entitled to payment under this Section for diminished
returns as a result of such reduction for the period from and after the date 45
days prior to the date that such Bank does give such notice. Any determination
by such Bank under this Section and any certificate as to the amount of such
reduction given to the Borrower by such Bank shall be final, conclusive and
binding for all purposes, absent error.
Section 2.24 Funding Losses; Eurodollar Rate Advances. The Borrower
-------------- ------------------------
shall compensate each Bank, upon its written request, for all losses, expenses
and liabilities (including any interest paid by such Bank to lenders of funds
borrowed by it to make or carry Eurodollar Rate Advances and including loss of
anticipated profits, in each case to the extent not recovered by such Bank in
connection with the re-employment of such funds) which such Bank may sustain:
(i) if for any reason, other than a default by such Bank, a funding of a
Eurodollar Rate Advance does not occur on the date specified therefor in the
Borrower's request or notice as to such Advance under Section 2.2 or 2.4, or
(ii) if, for whatever reason (including, but not limited to, acceleration of the
maturity of Advances following an Event of Default), any repayment of a
Eurodollar Rate Advance, or a conversion pursuant to Section 2.22, occurs on any
day other than the last day of the Interest Period applicable thereto. A Bank's
request for compensation shall set forth the basis for the amount requested and
shall be final, conclusive and binding, absent error.
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<PAGE>
Section 2.25 Discretion of Banks as to Manner of Funding. Each Bank
-------------------------------------------
shall be entitled to fund and maintain its funding of Eurodollar Rate Advances
in any manner it may elect, it being understood, however, that for the purposes
of this Agreement all determinations hereunder (including, but not limited to,
determinations under Section 2.24) shall be made as if such Bank had actually
funded and maintained each Eurodollar Rate Advances during the Interest Period
for such Advance through the purchase of deposits having a maturity
corresponding to the last day of the Interest Period and bearing an interest
rate equal to the Eurodollar Rate for such Interest Period.
ARTICLE III
-----------
CONDITIONS PRECEDENT
Section 3.1 Conditions of Initial Transaction. The making of the
---------------------------------
initial Advance on the Revolving Loan shall be subject to the prior or
simultaneous fulfillment of the following conditions:
3.1(a) Documents.
(i) A Revolving (A) Note and Revolving (B) Note drawn to the
order of each Bank executed by a duly authorized officer (or officers)
of the Borrower and dated the Closing Date.
(ii) The Security Documents executed by a duly authorized
officer of the Borrower or Guarantor, as applicable, and dated the
Closing Date.
(iii) The Stock Certificate of BUCA Restaurants, Inc., together
with signed and undated stock powers with respect thereto.
(iv) A certificate of the Secretary or Assistant Secretary of
the Borrower dated as of the Closing Date and certifying as to the
following:
(A) A true and accurate copy of the corporate resolutions of
the Borrower authorizing the execution, delivery and performance
of the Loan Documents to which the Borrower is a party
contemplated hereby and thereby;
(B) The incumbency, names, titles and signatures of the
officers of the Borrower authorized to execute the Loan Documents
to which the Borrower is a party and to request Advances;
(C) A true and accurate copy of the Articles of
Incorporation of the Borrower; and
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<PAGE>
(D) A true and accurate copy of the bylaws for the Borrower.
(v) A copy of the Articles of Incorporation of the Borrower
with all amendments thereto, certified by the appropriate governmental
official of the jurisdiction of its incorporation as of a date not
more than 30 days prior to the Closing Date.
(vi) A certificate of good standing for the Borrower in the
jurisdiction of its incorporation and in each State in which the
character of the properties owned or leased by the Borrower or the
business conducted by the Borrower makes such qualification necessary,
certified by the appropriate governmental officials as of a date not
more than 30 days prior to the Closing Date.
(vii) A certificate of the Secretary or Assistant Secretary of
each Guarantor dated as of the Closing Date and certifying as to the
following:
(A) A true and accurate copy of the corporate resolutions of
such Guarantor authorizing the execution, delivery and
performance of the Loan Documents to which such Guarantor is a
party contemplated hereby and thereby;
(B) The incumbency, names, titles and signatures of the
officers of such Guarantor authorized to execute the Loan
Documents to which such Guarantor is a party;
(C) A true and accurate copy of the Articles of
Incorporation or other comparable charter of such Guarantor; and
(D) A true and accurate copy of the bylaws for such
Guarantor.
(xiii) A copy of the Articles of Incorporation of BUCA
Restaurants, Inc. with all amendments thereto, certified by the
appropriate governmental official of the jurisdiction of its
incorporation as of a date not more than 30 days prior to the Closing
Date.
(ix) A certificate of good standing for each Guarantor in the
jurisdiction of its incorporation and in each State in which the
character of the properties owned or leased by such Guarantor or the
business conducted by such Guarantor makes such qualification
necessary, certified by the appropriate governmental officials as of a
date not more than 30 days prior to the Closing Date.
(x) Such corporate and other organizational documents and
certificates as the Agent may reasonably request with respect to the
due organization, good standing,
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<PAGE>
power and authority of the Borrower or any Guarantor and incumbency of
officers or other officials thereof.
(xi) Such information relating to the Borrower and the
Subsidiaries, financial or otherwise, which the Agent may reasonably
request.
(xii) A certificate dated the Closing Date executed by the chief
executive officer or chief financial officer of the Borrower on its
behalf certifying as to the matters set forth in Sections 3.2 (a) and
3.2 (b) below.
(xiii) A Certificate of Insurance prepared in accordance with
ACORD 27 and ACORD 25, showing property, liability, automobile, and
workers compensation insurance coverages carried by the Borrower and
the Subsidiaries with insurance companies licensed to do business in
the State of Minnesota and reasonably acceptable to the Agent, in such
amounts as may be acceptable to the Agent, and otherwise providing
evidence of the Borrower's compliance with Section 5.3 concerning
insurance.
(xiv) A calculation of the initial Borrowing Base.
3.1(b) Opinion. The Borrower shall have requested Faegre &
-------
Benson, its counsel, to prepare a written opinion, addressed to the Banks
and dated the Closing Date, covering the matters set forth in Exhibit 3.1,
and such opinion shall have been delivered to the Agent in sufficient
counterparts for each Bank.
3.1(c) Compliance. The Borrower shall have performed and
----------
complied with all agreements, terms and conditions contained in this
Agreement required to be performed or complied with by the Borrower prior
to or simultaneously with the Closing Date.
3.1(d) Security Documents. All Security Documents (or financing
------------------
statements with respect thereto) shall have been appropriately filed or
recorded to the satisfaction of the Agent; any pledged collateral shall
have been duly delivered to the Agent; and the priority and perfection of
the Liens created by the Security Documents shall have been established to
the satisfaction of the Agent and its counsel.
3.1(e) Other Matters. All corporate and legal proceedings
-------------
relating to the Borrower and the Guarantors and all instruments and
agreements in connection with the transactions contemplated by this
Agreement shall be reasonably satisfactory in scope, form and substance to
the Agent, the Banks and the Agent's special counsel, and the Agent shall
have received all information and copies of all documents, including
records of corporate proceedings, as any Bank or such special counsel may
reasonably have requested in connection therewith, such documents where
appropriate to be certified by proper corporate or governmental
authorities.
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<PAGE>
3.1(f) Fees and Expenses. The Agent shall have received for
-----------------
itself and for the account of the Banks all fees and other amounts due and
payable by the Borrower on or prior to the Closing Date, including the
reasonable fees and expenses of counsel to the Agent payable pursuant to
Section 9.2.
Section 3.2 Conditions Precedent to all Advances and Letters of
---------------------------------------------------
Credit. The obligation of the Banks to make any Advances hereunder (including
- ------
the initial Advance on the Revolving Loan) and of the Agent to issue each Letter
of Credit (including the initial Letter of Credit) shall be subject to the
fulfillment of the following conditions:
3.2(a) Representations and Warranties. The representations and
------------------------------
warranties contained in Article IV shall be true and correct on and as of
the Closing Date and on the date of each Advance or the date of issuance of
each Letter of Credit, with the same force and effect as if made on such
date.
3.2(b) No Default. No Default or Event of Default, or Material
----------
Adverse Occurrence first occurring after July 25, 1999, shall have occurred
and be continuing on the Closing Date and on the date of each Advance or
the date of issuance of each Letter of Credit or will exist after giving
effect to the Loans made on such date or the Letter of Credit so issued.
3.2(c) No Merger/Acquisition. Neither the Borrower nor any of
---------------------
the Subsidiaries shall have made any commitment to (i) merge or consolidate
with any other entity or (ii) acquire all or substantially all of the
assets of any other entity, unless such merger, consolidation or
acquisition would not be prohibited by the terms of this Agreement.
3.2(d) Notices and Requests. The Agent shall have received the
--------------------
Borrower's request for such Advance or such Letter of Credit as required
under Section 2.2 or Section 2.10.
3.2(e) No Adverse Development in Litigation. No development
------------------------------------
shall have occurred in any litigation, arbitration or governmental
investigation or proceeding disclosed in writing by the Borrower to the
Agent under this Agreement, which would constitute a Material Adverse
Occurrence.
ARTICLE IV
----------
REPRESENTATIONS AND WARRANTIES
To induce the Agent and the Banks to enter into this Agreement, the
Banks to make Advances hereunder and the Agent to issue Letters of Credit, the
Borrower represents and warrants to the Agent and the Banks:
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<PAGE>
Section 4.1 Organization, Standing, Etc. The Borrower is a
---------------------------
corporation duly incorporated and validly existing and in good standing under
the laws of the jurisdiction of its incorporation and has all requisite
corporate power and authority to carry on its business as now conducted, to
enter into this Agreement and to issue the Notes and to perform its obligations
under the Loan Documents to which it is a party. Each Subsidiary is a
corporation duly incorporated and validly existing and in good standing under
the laws of the jurisdiction of its incorporation and has all requisite
corporate power and authority to carry on its business as now conducted. Each
of the Borrower and the Subsidiaries (a) holds all certificates of authority,
licenses and permits necessary to carry on its business as presently conducted
in each jurisdiction in which it is carrying on such business, except where the
failure to hold such certificates, licenses or permits would not constitute a
Material Adverse Occurrence, and (b) is duly qualified and in good standing as a
foreign corporation in each jurisdiction in which the character of the
properties owned, leased or operated by it or the business conducted by it makes
such qualification necessary and the failure so to qualify would permanently
preclude the Borrower or such Subsidiary from enforcing its rights with respect
to any material assets or expose the Borrower or any Subsidiary to any Material
Adverse Occurrence.
Section 4.2 Authorization and Validity. The execution, delivery and
--------------------------
performance by the Borrower of the Loan Documents to which it is a party have
been duly authorized by all necessary corporate action by the Borrower, and this
Agreement constitutes, and the Notes and other Loan Documents to which it is a
party when executed will constitute, the legal, valid and binding obligations of
the Borrower, enforceable against the Borrower in accordance with their
respective terms, subject to limitations as to enforceability which might result
from bankruptcy, insolvency, moratorium and other similar laws affecting
creditors' rights generally and subject to general principles of equity.
Section 4.3 No Conflict; No Default. Except as set forth on Schedule
-----------------------
4.3 , the execution, delivery and performance by the Borrower of the Loan
Documents to which it is a party will not (a) violate any provision of any law,
statute, rule or regulation or any order, writ, judgment, injunction, decree,
determination or award of any court, governmental agency or arbitrator presently
in effect having applicability to the Borrower, (b) violate or contravene any
provision of the Articles of Incorporation or bylaws of the Borrower, or (c)
result in a breach of or constitute a default under any indenture, loan or
credit agreement or any other agreement, lease or instrument to which the
Borrower is a party or by which it or any of its properties may be bound or
result in the creation of any Lien on the assets of the Borrower or the
Subsidiaries thereunder (except in the case of clause (a) or (c), above, where
the violation, breach or default or the creation of such Lien could not
adversely effect the validity or enforceability of the Loan Documents or
constitute a Material Adverse Occurrence). Except as set forth on Schedule 4.3,
neither the Borrower nor any Subsidiary is in default under or in violation of
any such law, statute, rule or regulation, order, writ, judgment, injunction,
decree, determination or award or any such indenture, loan or credit agreement
or other agreement, lease or instrument in any case in which the consequences of
such default or violation could constitute a Material Adverse Occurrence.
Section 4.4 Government Consent. No order, consent, approval,
------------------
license, authorization or validation of, or filing, recording or registration
with, or exemption by, any governmental or
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public body or authority is required on the part of the Borrower to authorize,
or is required on the part of the Borrower in connection with the execution,
delivery and performance of, or the legality, validity, binding effect or
enforceability of, the Loan Documents to which the Borrower is a party, except
for any necessary filing or recordation of or with respect to any of the
Security Documents and except as set forth on Schedule 4.3, and except where the
failure to obtain such order, consent, approval, license, authorization,
validation or exemption, or to make such filing, recording or registration,
could not adversely effect the validity or enforceability of the Loan Documents
or constitute a Material Adverse Occurrence.
Section 4.5 Financial Statements and Condition. The Borrower's
----------------------------------
audited consolidated financial statements as at, and for the Fiscal Year ended,
December 27, 1998 and its unaudited financial statements as at, and for the
seven fiscal months ended, July 25, 1999, as heretofore furnished to the Bank,
have been prepared in accordance with GAAP on a consistent basis (except for the
absence of footnotes and subject to year-end audit adjustments as to the interim
statements) and fairly present, in all material respects, the consolidated
financial condition of the Borrower and the Subsidiaries as at such dates and
the results of their consolidated operations and their consolidated cash flows
for the respective periods then ended. As of July 25, 1999, neither the
Borrower nor any Subsidiary had any material Indebtedness, Contingent Liability,
liability for taxes or long-term lease obligation, nor other material obligation
which is not reflected in the unaudited financial statements as of July 25,
1999, or in the notes thereto, and which would be required to be reflected
therein in accordance with GAAP. Since July 25, 1999, there has been no
Material Adverse Occurrence.
Section 4.6 Litigation. Except as set forth on Schedule 4.6 , there
----------
are no actions, suits or proceedings pending or, to the knowledge of the
Borrower, threatened against or adversely affecting the Borrower or any
Subsidiary or any of their properties before any court or arbitrator, or any
governmental department, board, agency or other instrumentality which, if
determined adversely to the Borrower or such Subsidiary, would constitute a
Material Adverse Occurrence.
Section 4.7 Environmental, Health and Safety Laws. Except as set
-------------------------------------
forth on Schedule 4.7, there does not exist any violation by the Borrower or any
Subsidiary of any applicable federal, state or local law, rule or regulation or
order of any government, governmental department, board, agency or other
instrumentality relating to environmental, pollution, health or safety matters
which will or threatens to impose a material liability on the Borrower or a
Subsidiary or which would require a material expenditure by the Borrower or such
Subsidiary to cure. Except as set forth on Schedule 4.7, neither the Borrower
nor any Subsidiary has received any notice to the effect that any part of its
operations or properties is not in material compliance with any such law, rule,
regulation or order or notice that it or its property is the subject of any
governmental investigation evaluating whether any remedial action is needed to
respond to any release of any toxic or hazardous waste or substance into the
environment, which non-compliance or remedial action could reasonably be
expected to constitute a Material Adverse Occurrence. Except as set forth in
Schedule 4.7, the Borrower does not have knowledge that it or its property or
any Subsidiary or the property of any Subsidiary will become subject to
environmental laws or regulations during the term of this
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Agreement, compliance with which could reasonably be expected to require Capital
Expenditures which would constitute a Material Adverse Occurrence.
Section 4.8 ERISA. Each Plan is in compliance in all material
-----
respects with all applicable requirements of ERISA and the Code and with all
material applicable rulings and regulations issued under the provisions of ERISA
and the Code setting forth those requirements. No Reportable Event has occurred
and is continuing with respect to any Plan subject to Title IV of ERISA. All of
the minimum funding standards applicable to such Plans have been satisfied and
there exists no event or condition which would reasonably be expected to result
in the institution of proceedings to terminate any Plan under Section 4042 of
ERISA. With respect to each Plan subject to Title IV of ERISA, as of the most
recent valuation date for such Plan, the present value (determined on the basis
of reasonable assumptions employed by the independent actuary for such Plan and
previously furnished in writing to the Agent) of such Plan's projected benefit
obligations did not exceed the fair market value of such Plan's assets.
Section 4.9 Federal Reserve Regulations. Neither the Borrower nor
---------------------------
any Subsidiary is engaged principally or as one of its principal activities in
the business of extending credit for the purpose of purchasing or carrying
margin stock (as defined in Regulation U of the Board). The value of all margin
stock owned by the Borrower does not constitute more than 25% of the value of
the assets of the Borrower.
Section 4.10 Title to Property; Leases; Liens; Subordination. Each of
-----------------------------------------------
the Borrower and the Subsidiaries has (a) good and marketable title to its owned
real properties and (b) good and sufficient title to, or valid, subsisting and
enforceable leasehold interest in, its other material properties, including all
real properties and other material properties and assets referred to as owned by
the Borrower and the Subsidiaries in the most recent financial statement
referred to in Section 4.5 (other than property and assets disposed of since
July 25, 1999, in the ordinary course of business or, after the date of this
Agreement, as permitted under Section 6.2. None of such properties is subject to
a Lien, except as allowed under Section 6.14. The Borrower has not subordinated
any of its material rights under any obligation owing to it to the rights of any
other person.
Section 4.11 Taxes. Except as set forth in Schedule 4.11, each of the
-----
Borrower and the Subsidiaries has filed all federal, state and local tax returns
required to be filed and has paid or made provision for the payment of all taxes
due and payable pursuant to such returns and pursuant to any assessments made
against it or any of its property and all other taxes, fees and other charges
imposed on it or any of its property by any governmental authority (other than
taxes, fees or charges the amount or validity of which is currently being
contested in good faith by appropriate proceedings and with respect to which
reserves in accordance with GAAP have been provided on the books of the
Borrower). No tax Liens have been filed and not subsequently released (other
than tax Liens permitted by Section 6.14), and no material claims are being
asserted as of the date of this Agreement with respect to any such taxes, fees
or charges (other than those being contested in good faith in accordance with
Section 5.4 hereof). Except as set forth in Schedule 4.11, the charges, accruals
and reserves on the books of the Borrower in respect of taxes and other
governmental
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<PAGE>
charges are adequate and the Borrower knows of no proposed tax assessment
against it or any Subsidiary or any basis therefor which would constitute a
Material Adverse Occurrence.
Section 4.12 Trademarks, Patents. Except as set forth on Schedule
-------------------
4.12 , each of the Borrower and the Subsidiaries possesses or has the right to
use all of the material patents, trademarks, trade names, service marks and
copyrights, and applications therefor, and all material technology, know-how,
processes, methods and designs, used in or necessary for the conduct of its
business, without known material conflict with the rights of others.
Section 4.13 Burdensome Restrictions. Neither the Borrower nor any
-----------------------
Subsidiary is a party to or otherwise bound by any indenture, loan or credit
agreement or any lease or other agreement or instrument or subject to any
charter, corporate or partnership restriction which constitutes a Material
Adverse Occurrence.
Section 4.14 Force Majeure. Since July 25, 1999, the date of the
-------------
most recent financial statement referred to in Section 5.1, the business,
properties and other assets (taken as a whole) of the Borrower and the
Subsidiaries have not been materially and adversely affected in any way as the
result of any fire or other casualty, strike, lockout, or other labor trouble,
embargo, sabotage, confiscation, condemnation, riot, civil disturbance, activity
of armed forces or act of God.
Section 4.15 Investment Company Act. Neither the Borrower nor any
----------------------
Subsidiary is an "investment company" or a company "controlled" by an investment
company within the meaning of the Investment Company Act of 1940, as amended.
Section 4.16 Public Utility Holding Company Act. Neither the
----------------------------------
Borrower nor any Subsidiary is a "holding company" or a "subsidiary company" of
a holding company or an "affiliate" of a holding company or of a subsidiary
company of a holding company within the meaning of the Public Utility Holding
Company Act of 1935, as amended.
Section 4.17 Retirement Benefits. Except as required under Section
-------------------
4980B of the Code, Section 601 of ERISA or applicable state law, neither the
Borrower nor any Subsidiary is obligated to provide post-retirement medical or
insurance benefits with respect to employees or former employees.
Section 4.18 Full Disclosure. Subject to the following sentence,
---------------
neither the financial statements referred to in Section 4.5 nor any other
certificates, written statements, exhibits or reports furnished by or on behalf
of the Borrower in connection with or pursuant to this Agreement, when taken as
a whole, contains any untrue statement of a material fact or omits to state any
material fact necessary in order to make the statements contained therein not
misleading. Certificates or statements furnished by or on behalf of the
Borrower to the Agent or the Banks consisting of projections or forecasts of
future results or events have been prepared in good faith and based on good
faith estimates and assumptions of the management of the Borrower, and the
Borrower has no reason to believe that such projections or forecasts for any
periods or portions of periods not yet completed (as modified by any updates
thereof delivered to the Bank) are not reasonable.
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<PAGE>
Section 4.19 Solvency. On the Closing Date, after giving effect to
--------
all Advances, (a) the present fair saleable value of the assets of the Borrower
and the Subsidiaries is in excess of the total amount of their liabilities
(including for purposes of the definition all liabilities, whether or not
reflected on a balance sheet prepared in accordance with GAAP, and whether
direct or indirect, fixed or contingent, secured of unsecured, disputed or
undisputed); and (b) the Borrower and the Subsidiaries will be able to pay their
obligations as they mature in the ordinary course of business as proposed to be
conducted following the Closing Date; and (c) the Borrower and the Subsidiaries
do not have unreasonably small capital to carry out the business as proposed to
be conducted following the Closing Date. For purposes of this Section 4.19,
"present fair saleable value" means the value which would be realized from an
interested purchaser aware of all relevant information relating to the assets or
group of assets being sold and who is willing to purchase under ordinary selling
conditions in an existing and not theoretical market if the assets or group of
assets are disposed of within a period of six (6) months to one year.
Section 4.20 Year 2000. The Borrower has reviewed and assessed its
---------
and the Subsidiaries' business operations and computer systems with respect to
the "year 2000 problem" (that is, that computer applications and equipment may
not be able properly to perform date-sensitive functions, including without
limitation its credit card processing capabilities, before, during and after
January 1, 2000) and, based on those reviews and inquiries and subject to the
matters set forth on Schedule 4.20, on or before October 31, 1999 the Borrower
will have taken all necessary steps to ensure that the year 2000 problem will
not result in a Material Adverse Occurrence.
Section 4.21 Capitalization of Borrower and Subsidiaries. Schedule
-------------------------------------------
4.21 sets forth, as of the date of this Agreement:
(a) for Borrower, its jurisdiction of organization,
(b) a list of all Subsidiaries of the Borrower and, as
applicable, the number and percentage of the authorized, issued and
outstanding shares of each class of capital stock owned beneficially
or of record by the Borrower or any such Subsidiary therein, and the
jurisdiction of organization of such Subsidiary.
As of the Closing Date, all of the outstanding capital stock of the Borrower
will be validly issued, fully paid and nonassessable, and all of the outstanding
capital stock of the Subsidiaries will be validly issued, fully paid and
nonassessable, and will be owned beneficially and of record directly as set
forth on Schedule 4.21, subject to no Liens other than Liens in favor of the
Agent, for itself and the benefit of the Banks, and the restrictions set forth
in Schedule 4.21. Except as reflected on Schedule 4.21, as of the Closing Date,
none of the Subsidiaries has outstanding any capital stock appreciation or
phantom capital stock, rights or plans, or is subject to any obligation
(contingent or otherwise) to repurchase or otherwise acquire or retire any of
its capital stock. Except as set forth on Schedule 4.21, there are no statutory
or contractual shareholder's preemptive rights or rights of first offer or
refusal with respect to the capital stock of any of the Subsidiaries. Neither
the Borrower nor
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<PAGE>
any of the Subsidiaries has violated any applicable securities laws in
connection with the offer, sale or issuance of any of its respective capital
stock.
Section 4.22 Obligations Senior Debt. The Obligations shall at all
-----------------------
times be considered senior in right of payment to the indebtedness evidenced by
the Subordinated Debt, including without limitation, the Subordinated
Debentures.
ARTICLE V
---------
AFFIRMATIVE COVENANTS
Until any obligation of the Banks hereunder to make Advances and of
the Agent to issue Letters of Credit shall have expired or been terminated and
all the other Obligations have been paid in full and all outstanding Letters of
Credit shall have expired or shall have been returned to the Agent, or the
liability of the Agent thereon shall have been otherwise discharged, unless the
Agent shall otherwise consent in writing:
Section 5.1 Financial Statements and Reports. The Borrower will
--------------------------------
furnish to the Agent:
5.1(a) As soon as available and in any event within 120 days
after the end of each Fiscal Year of the Borrower, the financial statements
of the Borrower and the Subsidiaries consisting of consolidated statements
of cash flow and changes in stockholders' equity for such Fiscal Year,
statements of income for each Restaurant for such Fiscal Year, and a
consolidated balance sheet as at the end of such Fiscal Year, setting forth
in each case in comparative form corresponding figures from the previous
annual audit, certified, in the case of the consolidated statements,
without qualification by Deloitte Touche or another firm of independent
certified public accountants of recognized national standing selected by
the Borrower and reasonably acceptable to the Agent, together with all
footnotes and any management letters, management reports or other
supplementary comments or reports to the Borrower or its board of directors
furnished by such accountants, provided that, as long as the Borrower is
required to file reports on Form 10-K with the Securities and Exchange
Commission pursuant to Section 13(a) or 15(d) of the Securities Exchange
Act of 1934, as amended, the Borrower shall be deemed to have fulfilled its
obligations to furnish to the Agent, by the date prescribed in this Section
5.1(a), the financial statements, management letters , management reports
or other supplementary comments or reports in respect of any Fiscal Year by
furnishing to the Agent a copy of said report for such Fiscal Year.
5.1(b) Together with the audited financial statements required
under Section 5.1(a), a statement by the accounting firm performing such
audit to the effect that it has reviewed this Agreement and that in the
course of performing its examination nothing came to its attention that
caused it to believe that any Default or Event of Default exists, or, if
such Default or Event of Default existed, specifying the nature and period
of existence thereof.
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<PAGE>
5.1(c) As soon as available and in any event within 30 days
after the end of each fiscal month, unaudited consolidated statements of
cash flow and changes in stockholders' equity for the Borrower and the
Subsidiaries for such month and for the period from the beginning of such
Fiscal Year to the end of such month, unaudited statements of income for
each Restaurant for such month and for the period from the beginning of
such Fiscal Year to the end of such month, and an unaudited consolidated
balance sheet of the Borrower and the Subsidiaries as at the end of such
month, setting forth in comparative form figures for the corresponding
period for the preceding Fiscal Year, accompanied by a certificate in the
form of Exhibit 5.1(c) hereto signed by the chief financial officer of the
Borrower setting forth in reasonable detail a calculation of the Borrowing
Base determined as of the end of such month and stating that such financial
statements present fairly, in all material respects, the consolidated
financial condition of the Borrower and the Subsidiaries and that the same
have been prepared in accordance with GAAP (except for the absence of
footnotes and subject to year-end audit adjustments).
5.1(d) As soon as available and in any event within 30 days
after the end of each fiscal quarter (or 45 days after the end of each
fiscal quarter, if the Borrower is required to file reports on Form 10-Q
with the Securities and Exchange Commission pursuant to Section 13(a) or
15(d) of the Securities Exchange Act of 1934, as amended, in respect of
such fiscal quarter), unaudited consolidated statements cash flow and
changes in stockholders' equity for the Borrower and the Subsidiaries for
such quarter and for the period from the beginning of such Fiscal Year to
the end of such quarter, an unaudited statement of income for each
Restaurant for such quarter and for the period from the beginning of such
Fiscal Year to the end of such quarter, and an unaudited consolidated
balance sheet of the Borrower and the Subsidiaries as at the end of such
quarter, setting forth in comparative form figures for the corresponding
period for the preceding Fiscal Year, accompanied by a certificate signed
by the chief financial officer of the Borrower stating that such financial
statements present fairly, in all material respects, the consolidated
financial condition of the Borrower and the Subsidiaries and that the same
have been prepared in accordance with GAAP (except for the absence of
footnotes and subject to year-end audit adjustments).
5.1(e) As soon as practicable and in any event within 45 days
after the end of each fiscal quarter, a Compliance Certificate in the form
of Exhibit 5.1(e) signed by the chief financial officer of the Borrower
demonstrating in reasonable detail compliance (or noncompliance, as the
case may be) with these Sections: 6.10, 6.16, 6.17, 6.18, 6.19, 6.20 and
6.21 as at the end of such quarter, and stating that as at the end of such
quarter there did not exist any Default or Event of Default or, if such
Default or Event of Default existed, specifying the nature and period of
existence thereof and what action the Borrower proposes to take with
respect thereto.
5.1(f) As soon as practicable and in any event at least 30 days
prior to the beginning of each Fiscal Year of the Borrower, a statement of
forecasted income for each Restaurant for each fiscal month in such
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<PAGE>
Fiscal Year, and a consolidated forecasted balance sheet of the Borrower
and the Subsidiaries, as at the end of each such fiscal month in such
Fiscal Year, together with supporting assumptions, all in reasonable detail
and reasonably satisfactory in scope to the Agent.
5.1(g) Immediately upon any officer of the Borrower becoming
aware of any Default or Event of Default, a notice describing the nature
thereof and what action the Borrower proposes to take with respect thereto.
5.1(h) Immediately upon any officer of the Borrower becoming
aware of the occurrence, with respect to any Plan, of any Reportable Event
or any Prohibited Transaction, a notice specifying the nature thereof and
what action the Borrower proposes to take with respect thereto, and, when
received, copies of any notice from PBGC of intention to terminate or have
a trustee appointed for any Plan.
5.1(i) Promptly, but in any event not later than ten Business
Days after the mailing or filing thereof, copies of all financial
statements, reports and proxy statements mailed to the Borrower's
shareholders generally, and copies of all registration statements, periodic
reports and other documents filed by the Borrower with the Securities and
Exchange Commission (or any successor thereto) or any national securities
exchange.
5.1(j) From time to time, such other information regarding the
business, operation and financial condition of the Borrower and the
Subsidiaries as the Agent may reasonably request.
Section 5.2 Corporate Existence. The Borrower will maintain, and
-------------------
cause each Subsidiary to maintain, its corporate existence in good standing
under the laws of its jurisdiction of incorporation and its qualification to
transact business in each jurisdiction where failure so to qualify would
permanently preclude the Borrower or such Subsidiary from enforcing its rights
with respect to any material asset or would expose the Borrower or such
Subsidiary to any material liability; provided, however, that nothing herein
shall prohibit the merger or liquidation and dissolution of any Subsidiary
allowed under Section 6.1.
Section 5.3 Insurance. The Borrower shall maintain, and shall cause
---------
each Subsidiary to maintain, with financially sound and reputable insurance
companies such insurance as may be required by law and such other insurance in
such amounts and against such hazards as is customary in the case of reputable
firms engaged in the same or similar business and similarly situated.
Section 5.4 Payment of Taxes and Claims. The Borrower shall file,
---------------------------
and cause each Subsidiary to file, all tax returns and reports which are
required by law to be filed by it and will pay, and cause each Subsidiary to
pay, before they become delinquent all taxes, assessments and governmental
charges and levies imposed upon it or its property and all claims or demands of
any kind (including but not limited to those of suppliers, mechanics, carriers,
warehouses, landlords and other like Persons) which, if unpaid, might result in
the creation of a Lien upon its property; provided that the foregoing items need
not be paid if they are being contested in good faith by appropriate
proceedings, and as long as the Borrower's or such Subsidiary's title to its
property is
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<PAGE>
not materially adversely affected, its use of such property in the
ordinary course of its business is not materially interfered with and adequate
reserves with respect thereto have been set aside on the Borrower's or such
Subsidiary's books in accordance with GAAP.
Section 5.5 Inspection. The Borrower shall permit any Person
----------
designated by the Agent, upon reasonable notice, to visit and inspect any of the
properties, corporate books and financial records of the Borrower and the
Subsidiaries, to examine and to make copies of the books of accounts and other
financial records of the Borrower and the Subsidiaries, and to discuss the
affairs, finances and accounts of the Borrower and the Subsidiaries with, and to
be advised as to the same by, its officers at such reasonable times and
intervals as the Agent may designate (which shall be not less than once during
each fiscal quarter of the Borrower). So long as no Event of Default exists,
the Borrower shall reimburse the Agent for the reasonable out-of-pocket cost of
not more than one audit of collateral in each Fiscal Year and any other visits,
inspections and examinations shall be at the expense of the Banks, but any such
visits, inspections and examinations made while any Event of Default is
continuing shall be at the expense of the Borrower.
Section 5.6 Maintenance of Properties. The Borrower will maintain,
-------------------------
and cause each Subsidiary to maintain, its material properties used or useful in
the conduct of its business in good condition, repair and working order (normal
wear and tear excepted), and supplied with all necessary equipment, and make all
necessary repairs, renewals, replacements, betterments and improvements thereto,
all as may be necessary so that the business carried on in connection therewith
may be properly and advantageously conducted at all times.
Section 5.7 Books and Records. The Borrower will keep, and will
-----------------
cause each Subsidiary to keep, adequate and proper records and books of account
in which full and correct entries will be made of its dealings, business and
affairs.
Section 5.8 Compliance. The Borrower will comply, and will cause
----------
each Subsidiary to comply, in all material respects with all laws, rules,
regulations, orders, writs, judgments, injunctions, decrees or awards to which
it may be subject; provided, however, that failure so to comply shall not be a
breach of this covenant if such failure does not constitute a Material Adverse
Occurrence and the Borrower or such Subsidiary is acting in good faith and with
reasonable dispatch to cure such noncompliance.
Section 5.9 Notice of Litigation. The Borrower will give prompt
--------------------
written notice to the Agent of (a) the commencement of any action, suit or
proceeding before any court or arbitrator or any governmental department, board,
agency or other instrumentality adversely affecting the Borrower or any
Subsidiary or any property of the Borrower or a Subsidiary or to which the
Borrower or a Subsidiary is a party in which an adverse determination or result
could constitute a Material Adverse Occurrence, or (other than any litigation
where the insurance insures against the damages claimed and the insurer has
assumed defense of the litigation without reservation) in which the damages
claimed could exceed $200,000 on an individual claim or $500,000 when aggregated
with other such claims, stating the nature and status of such action, (b) any
material arbitration or governmental investigation or proceeding not previously
disclosed by the Borrower to the Agent
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<PAGE>
which has been instituted or, to the knowledge of the Borrower, is threatened
against the Borrower or any of the Subsidiaries or to which its or any
Subsidiaries' property is subject and which, if determined adversely to the
Borrower or such Subsidiary, would constitute a Material Adverse Occurrence; and
(c) any adverse development which occurs in any litigation, arbitration or
governmental investigation or proceeding previously disclosed by the Borrower to
the Agent which, if determined adversely to the Borrower or such Subsidiary,
would constitute a Material Adverse Occurrence, provided that no such notice by
the Borrower shall, per se, excuse the Borrower from complying with the terms of
-------
Section 3.2.
Section 5.10 ERISA. The Borrower will maintain, and cause each
-----
Subsidiary to maintain, each Plan in compliance with all material applicable
requirements of ERISA and of the Code and with all material applicable rulings
and regulations issued under the provisions of ERISA and of the Code and will
not and not permit any of the ERISA Affiliates to (a) engage in any transaction
in connection with which the Borrower or any of the ERISA Affiliates would be
subject to either a civil penalty assessed pursuant to Section 502(i) of ERISA
or a tax imposed by Section 4975 of the Code, in either case in an amount
exceeding $100,000, (b) fail to make full payment when due of all amounts which,
under the provisions of any Plan, the Borrower or any ERISA Affiliate is
required to pay as contributions thereto, or permit to exist any accumulated
funding deficiency (as such term is defined in Section 302 of ERISA and Section
412 of the Code), whether or not waived, with respect to any Plan in an
aggregate amount exceeding $100,000 or (c) fail to make any payments in an
aggregate amount exceeding $100,000 to any Multiemployer Plan that the Borrower
or any of the ERISA Affiliates may be required to make under any agreement
relating to such Multiemployer Plan or any law pertaining thereto.
Section 5.11 Environmental Matters; Reporting. The Borrower will
--------------------------------
observe and comply with, and cause each Subsidiary to observe and comply with,
all applicable laws, rules, regulations and orders of any government or
government agency relating to health, safety, pollution, hazardous materials or
other environmental matters to the extent non-compliance could result in a
material liability for Borrower or any Subsidiary or otherwise constitute a
Material Adverse Occurrence. The Borrower will give the Agent prompt written
notice of any violation of any environmental law, rule, regulation or order by
the Borrower or any Subsidiary of which the Borrower becomes aware and of the
commencement of any judicial or administrative proceeding against the Borrower
or any Subsidiary relating to health, safety or environmental matters (a) in
which an adverse determination or result is reasonably likely to result in the
revocation of or have a material adverse effect on any operating permits, air
emission permits, water discharge permits, hazardous waste permits or other
permits held by the Borrower or any Subsidiary which are material to the
operations of the Borrower and the Subsidiaries taken as whole, or (b) which
will or is reasonably likely to impose a material liability on the Borrower or
such Subsidiary to any Person or which will require a material expenditure by
the Borrower or such Subsidiary to cure any alleged problem or violation.
Section 5.12 Reaffirmation of Guaranties. When so requested by the
---------------------------
Agent from time to time, the Borrower will promptly cause the Guarantors, and
any other Person who may
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<PAGE>
hereafter guaranty the Obligations or any part thereof, to execute and deliver
to the Agent reaffirmations of their respective Guaranties in such form as the
Agent may require.
Section 5.13 Further Assurances. The Borrower shall promptly correct
------------------
any non-material or patent defect or error that may be discovered in any Loan
Document or in the execution, acknowledgment or recordation of any Loan
Document. Promptly upon request by the Agent, the Borrower also shall do,
execute, acknowledge, deliver, record, re-record, file, re-file, register and
re-register, any and all conveyances, mortgages, deeds of trust, trust deeds,
assignments, estoppel certificates, financing statements and continuations
thereof, notices of assignment, transfers, certificates, assurances and other
instruments as the Agent may reasonably require from time to time in order: (a)
to carry out more effectively the purposes of the Loan Documents; (b) to perfect
and maintain the validity, effectiveness and priority of any security interests
intended to be created by the Loan Documents; and (c) to better assure, convey,
grant, assign, transfer, preserve, protect and confirm unto the Agent or the
Banks the rights granted now or hereafter intended to be granted to the Agent or
the Banks under any Loan Document or under any other instrument executed in
connection with any Loan Document or that the Borrower may be or become bound to
convey, mortgage or assign to the Agent for the benefit of the Banks in order to
carry out the intention or facilitate the performance of the provisions of any
Loan Document. The Borrower shall furnish to the Agent evidence satisfactory to
the Agent of every such recording, filing or registration.
Section 5.14 Year 2000 Remediation. The Borrower agrees to take, and
---------------------
to cause each of the Subsidiaries to take, all actions reasonably necessary to
ensure that the representation set forth in Section 4.20 remains true, and the
Borrower agrees to notify the Agent promptly if, at any time during the term of
this Agreement, the Borrower becomes aware of facts or circumstances such that
the representation set forth in Section 4.20 has become or may become untrue or
this Section has been or may be breached. The Borrower will promptly deliver to
the Agent such information relating to the representation in Section 4.20 and
the agreement set forth in this Section as the Agent reasonably requests from
time to time, including, without limitation, any information pertaining to the
review and assessment set forth in Section 4.20.
Section 5.15 Additional Collateral.
---------------------
(a) Pledge of BUCA (DT Minneapolis) Stock. The Borrower shall
-------------------------------------
use its best efforts to obtain the approval of the Minneapolis City Council
to the pledge to the Agent for itself and for the benefit of the Banks of
the outstanding shares of capital stock of BUCA (DT Minneapolis), Inc.
promptly after the Closing Date. Upon the receipt of such approval, the
Borrower shall deliver to the Agent a duly executed amendment to the Pledge
Agreement in respect of the capital stock of BUCA (DT Minneapolis), Inc.,
in form and substance reasonably satisfactory to the Agent, together with
the stock certificates representing the Borrower's ownership of 100% of the
shares of BUCA (DT Minneapolis), Inc. (together with stock powers related
thereto).
(b) SBA Loan. From and after the date of the repayment of the
--------
SBA Loan described in Section 5.17, the Borrower shall (i) cause all assets
of BUCA (DT
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<PAGE>
Milwaukee), Inc. subject to any Lien securing the SBA Loan to become
subject to a first priority Lien thereon in favor of the Agent for itself
and for the benefit of the Banks to secure the Obligations, pursuant to a
Security Agreement (Guarantor) and related UCC financing statements for
filing in such jurisdictions as the Agent shall request, all duly executed
by BUCA (DT Milwaukee), Inc., and (ii) deliver to the Agent a duly executed
amendment to the Pledge Agreement in respect of the capital stock of BUCA
(DT Milwaukee), Inc., in form and substance reasonably satisfactory to the
Agent, together with the stock certificates representing the Borrower's
ownership of 100% of the shares of BUCA (DT Milwaukee), Inc. (together with
stock powers related thereto).
(c) Acquisition of Title to Real Property. In the event the
-------------------------------------
Borrower or any Subsidiary holds or acquires fee title to any real property
and has not entered into a sale-leaseback agreement relating to such real
property within 270 days following the date the Borrower or any Subsidiary
commences operation of a Restaurant on such real property (or within one
year following the Closing Date, in the case of the real property located
at 2728 Gannon Road in Saint Paul, Minnesota) the Borrower shall, or, as
applicable, shall cause such Subsidiary to, create a first priority Lien
thereon (subject, however, to any Liens permitted by Section 6.14 hereof)
in favor of the Agent for itself and for the benefit of the Banks to secure
the Obligations, pursuant to agreements and instruments reasonably
satisfactory to the Agent, within 30 days after the expiration of such 270-
day period (or such one-year period, in the case of the real property
located at 2728 Gannon Road in Saint Paul, Minnesota), subject, in the case
of the any such real property acquired with purchase money financing
otherwise permitted under this Agreement, to the execution by the Agent for
itself and on behalf of the Banks of any subordination agreement requested
by the party providing such purchase money financing and reasonably
satisfactory to the Agent.
Section 5.16 Operating Leases Relating to Real Property and
-----------------------------------------------
Landlords' Waivers. Not fewer than five (5) Business Days after execution of
- ------------------
any new Operating Lease relating to real property or renewal of any existing
Operating Lease relating to real property, the Borrower agrees to provide an
executed copy thereof to the Agent. With respect to Operating Leases related to
real property entered into from and after the Closing Date (whether a new
Operating Lease related to real property or the renewal of an existing Operating
Lease related to real property), the Borrower shall attach to any proposed lease
and request the lessor thereunder to provide a landlord waiver in the form
attached hereto as Exhibit 5.16, and shall negotiate in good faith to obtain
such landlord waiver from such lessor.
Section 5.17 Repayment of SBA Loan. On or before November 1, 1999 the
---------------------
Borrower shall repay the SBA Loan in full.
Section 5.18 Century Bank Letters of Credit. On or before December
------------------------------
31, 1999, the Borrower will allow each of the Century Bank Letters of Credit
either (a) to expire without renewal, (b) to be returned to the issuer thereof
and terminated, or (c) to be replaced by a Letter of Credit. Upon the occurrence
of the events described in the preceding sentence, the Borrower will
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<PAGE>
cause all Liens securing the Borrower's or any Subsidiary's obligations with
respect to the Century Bank Letters of Credit to be released, terminated or
satisfied, and all assets pledged with respect thereto to be returned to the
Borrower or such Subsidiary.
Section 5.19 New Restaurants. The Borrower agrees that each new
---------------
Restaurant created or acquired from and after the Closing Date shall be owned or
leased and operated only by a Wholly-Owned Subsidiary the capital stock of which
has been pledged and delivered to the Bank pursuant to the Pledge Agreement.
ARTICLE VI
----------
NEGATIVE COVENANTS
Until any obligation of the Banks hereunder to make Advances and of
the Agent to issue Letters of Credit shall have expired or been terminated and
all the other Obligations have been paid in full and all outstanding Letters of
Credit shall have expired or shall have been returned to the Agent, or the
liability of the Agent thereon shall have been otherwise discharged, unless the
Agent shall otherwise consent in writing:
Section 6.1 Merger. The Borrower will not merge or consolidate or
------
enter into any analogous reorganization or transaction with any Person or
liquidate, wind up or dissolve itself (or suffer any liquidation or dissolution)
or permit any Subsidiary to do any of the foregoing; provided, however, any
-------- -------
Subsidiary may be merged with or liquidated into the Borrower or any Wholly-
Owned Subsidiary which has executed and delivered a Guaranty and a Security
Agreement (Guarantor) (and, in connection with any such liquidation, dissolved)
if the Borrower or such Wholly-Owned Subsidiary, in the case of a merger, is the
surviving corporation.
Section 6.2 Disposition of Assets. The Borrower will not, and will
---------------------
not permit any Subsidiary to, directly or indirectly, sell, assign, lease,
convey, transfer or otherwise dispose of (whether in one transaction or a series
of transactions) any property (including accounts and notes receivable, with or
without recourse) or enter into any agreement to do any of the foregoing,
except:
6.2(a) dispositions of inventory, or used, worn-out or surplus
equipment, all in the ordinary course of business;
6.2(b) the sale of equipment to the extent that such equipment
is exchanged for credit against the purchase price of similar replacement
equipment, or the proceeds of such sale are applied with reasonable
promptness to the purchase price of such replacement equipment;
6.2(c) the sale, assignment, lease, conveyance, transfer or
other disposition of property (a "Transfer") by a Subsidiary to the
Borrower or any Wholly-Owned Subsidiary; provided that such transferee
--------
Subsidiary shall have executed and delivered to
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<PAGE>
the Agent a Security Agreement (Guarantor) and related UCC financing
statements for filing in such jurisdictions as the Agent may request and,
if the assets subject to a Transfer are to be located on premises subject
to a lease, then prior to such Transfer, a landlord's waiver in form and
substance reasonably acceptable to the Agent shall have been executed and
delivered to the Agent;
6.2(d) the sale of any real property or Restaurant equipment as
part of a sale leaseback transaction in which the Borrower or a Subsidiary
becomes the lessee of such real property or equipment; and
6.2(e) other dispositions of property during the term of this
Agreement whose net book value in the aggregate does not exceed five
percent (5%) of the Borrower's total consolidated assets as shown on its
balance sheet for its most recent prior fiscal quarter; provided that no
--------
disposition which is permitted under this Section 6.2(e) at the time it is
consummated shall thereafter cease to be permitted because of a subsequent
decrease in the Borrower's total consolidated assets.
Section 6.3 Plans. The Borrower will not permit, and will not allow
-----
any Subsidiary to permit, any event to occur or condition to exist which would
permit any Plan to terminate under any circumstances which would cause the Lien
provided for in Section 4068 of ERISA to attach to any assets of the Borrower or
any Subsidiary; and the Borrower will not permit, as of the most recent
valuation date for any Plan subject to Title IV of ERISA, the present value
(determined on the basis of reasonable assumptions employed by the independent
actuary for such Plan and previously furnished in writing to the Agent) of such
Plan's projected benefit obligations to exceed the fair market value of such
Plan's assets.
Section 6.4 Change in Nature of Business. The Borrower will not, and
----------------------------
will not permit any Subsidiary to, make any material change in the nature of the
business of the Borrower or such Subsidiary, as carried on at the date hereof.
Section 6.5 Subsidiaries. After the date of this Agreement, the
------------
Borrower will not, and will not permit any Subsidiary to, form or acquire any
corporation which would thereby become a Subsidiary, except that the Borrower
may form a corporation (that would thereby become a Wholly-Owned Subsidiary) to
operate any Restaurant if the Borrower determines that the operation of such
Restaurant through a Subsidiary is desirable for tax reasons, or in order to
facilitate obtaining a liquor license for such Restaurant, or in order to
facilitate current or future negotiation with the landlord of the site for such
Restaurant. In the event the Borrower hereafter forms a corporation that
thereby becomes a Wholly-Owned Subsidiary, then upon such formation such
corporation shall deliver to the Bank a Guaranty, a Security Agreement
(Guarantor) and related UCC financing statements for filing in such
jurisdictions as the Agent shall request, all duly executed by such corporation,
and the Borrower shall deliver to the Agent an amendment to the Pledge
Agreement in form and substance reasonably satisfactory to the Agent in respect
of such corporation, duly executed by the Borrower, and the stock certificates
representing the
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<PAGE>
Borrower's ownership of 100% of the shares of such corporation (together with
stock powers related thereto).
Section 6.6 Negative Pledges; Subsidiary Restrictions. The Borrower
-----------------------------------------
will not, and will not permit any Subsidiary to, enter into any agreement, bond,
note or other instrument with or for the benefit of any Person other than the
Agent which would (i) prohibit the Borrower or such Subsidiary from granting,
or otherwise limit the ability of the Borrower or such Subsidiary to grant, to
the Agent any Lien on any assets or properties of the Borrower or such
Subsidiary (other than assets or properties subject to Liens permitted by
Section 6.14(i) or Section 6.14(j)), or (ii) require the Borrower or such
Subsidiary to grant a Lien to any other Person if the Borrower or such
Subsidiary grants any Lien to the Agent. The Borrower will not permit any
Subsidiary to place or allow any restriction, directly or indirectly, on the
ability of such Subsidiary to (a) pay dividends or any distributions on or with
respect to such Subsidiary's capital stock or (b) make loans or other cash
payments to the Borrower (other than restrictions contained in this Agreement).
Section 6.7 Restricted Payments. The Borrower will not, and will not
-------------------
permit any of the Partially-Owned Subsidiaries to, make any Restricted Payments;
provided that,
(a) the Borrower may (i) repurchase common stock to the extent
required by the Redemption Agreement dated September 30, 1996 between the
Borrower and Parasole Restaurant Holdings, Inc. or by the BUCA, Inc.
Employee Stock Ownership Plan, and (ii) make dividends, distributions,
payments, redemptions or purchases payable solely in, or in exchange for,
common stock of the Borrower; and
(b) as long as no Default or Event of Default shall exist or would be
created thereby, the Borrower may (i) repurchase common stock issued
pursuant to options or awards granted to employees or consultants under the
Borrower's 1996 Stock Incentive Plan, as amended, and the Stock Option Plan
for Nonemployee Directors, as amended, (ii) repurchase common stock upon
the exercise by it of its purchase rights under any of the Paisano Partner
Program Stock Purchase Agreements, and (iii) make dividends, distributions,
payments, redemptions or purchases out of the net cash proceeds of a Public
Offering if and only if the Borrower has previously made all payments then
due under Sections 2.5, 2.6(a), 2.6(b), 2.8(b) and 2.8(c).
Section 6.8 Transactions with Affiliates. Except as set forth on
----------------------------
Schedule 6.8 , the Borrower will not, and will not permit any Subsidiary to,
enter into any transaction with any Affiliate of the Borrower, except upon fair
and reasonable terms no less favorable to the Borrower or such Subsidiary than
would obtain in a comparable arm's-length transaction with a Person not an
Affiliate.
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<PAGE>
Section 6.9 Accounting Changes. The Borrower will not, and will not
------------------
permit any Subsidiary to, make any significant change in accounting treatment or
reporting practices, except as required by GAAP, or change its Fiscal Year or
the fiscal year of any Subsidiary.
Section 6.10 Capital Expenditures. The Borrower will not, and will
--------------------
not permit any Subsidiary to, make Capital Expenditures in an amount exceeding,
on a consolidated basis, $27,000,000 during Fiscal Year 1999 and $22,000,000
during any Fiscal Year thereafter; provided that all Capital Expenditures shall
--------
be invested in the development of new Restaurants or the maintenance of existing
Restaurants or in the construction, acquisition, repair or maintenance of the
Borrower's corporate headquarters.
Section 6.11 Subordinated Debt. The Borrower will not, and will not
-----------------
permit any Subsidiary to (a) make any scheduled payment of the principal of or
interest on any Subordinated Debt which would be prohibited by the terms of such
Subordinated Debt and any related subordination agreement; (b) directly or
indirectly make any prepayment on or purchase, redeem or defease any
Subordinated Debt or offer to do so (whether such prepayment, purchase or
redemption, or offer with respect thereto, is voluntary or mandatory), except
that, subject to the provisions of Section 7.1(p), the Borrower may make any
mandatory prepayment on or mandatory purchase, redemption or defeasance of the
Subordinated Debentures which would not be prohibited by the terms of such
Subordinated Debentures and any related subordination agreement; (c) amend or
cancel the subordination provisions applicable to any Subordinated Debt; (d)
take or omit to take any action if as a result of such action or omission the
subordination of such Subordinated Debt, or any part thereof, to the Obligations
might be terminated, impaired or adversely affected; or (e) omit to give the
Agent prompt notice of any notice received from any holder of Subordinated Debt,
or any trustee therefor, or of any default under any agreement or instrument
relating to any Subordinated Debt by reason whereof such Subordinated Debt might
become or be declared to be due or payable;
Section 6.12 Investments. The Borrower will not, and will not permit
-----------
any Subsidiary to, acquire for value, make, have or hold any Investments,
except:
6.12(a) Investments existing on the date of this Agreement.
6.12(b) Travel and expense advances to management personnel and
employees in the ordinary course of business.
6.12(c) Investments in readily marketable direct obligations
issued or guaranteed by the United States or any agency thereof and
supported by the full faith and credit of the United States.
6.12(d) A deposit account with Century Bank having funds in an
aggregate amount not to exceed $446,875, plus interest accrued thereon and
deposited therein; and certificates of deposit or bankers' acceptances in
any amount of or by any commercial bank organized under the laws of the
United States or any State thereof which has (i)
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<PAGE>
combined capital and surplus of at least $100,000,000, and (ii) a credit
rating with respect to its unsecured indebtedness from a nationally
recognized rating service of at least "A".
6.12(e) Commercial paper given the highest rating by two
nationally recognized rating services.
6.12(f) Repurchase agreements relating to securities issued or
guaranteed as to principal and interest by the United States of America.
6.12(g) Other readily marketable Investments in debt securities
which are reasonably acceptable to the Agent.
6.12(h) The stock of any Subsidiary the formation or acquisition
of which is permitted under Section 6.5.
6.12(i) Loans from the Borrower to any Wholly-Owned Subsidiary
which has executed and delivered to the Bank a Guaranty and (except in the
case of BUCA (Wheeling), Inc. and at all times prior to the execution
thereby of a Security Agreement (Guarantor) as required under Section
5.15(b) hereof, BUCA (DT Milwaukee), Inc., a Security Agreement
(Guarantor).
6.12(j) Investments in the assets of individual Restaurant
locations for consideration of no more than $2,000,000 per location.
Any Investments under clauses (c), (d), (e) or (f) above (other than the deposit
account with Century Bank) must mature within one year of the acquisition
thereof by the Borrower or a Subsidiary.
Section 6.13 Indebtedness. The Borrower will not, and will not
------------
permit any Subsidiary to, incur, create, issue, assume or suffer to exist any
Indebtedness, except:
6.13(a) The Obligations.
6.13(b) Current Liabilities, other than for borrowed money,
incurred in the ordinary course of business.
6.13(c) Indebtedness existing on the date of this Agreement and
disclosed on Schedule 6.13 , but not including any extension or refinancing
thereof.
6.13(d) Indebtedness secured by Liens permitted under Section
6.14(a) through Section 6.14(h) .
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<PAGE>
6.13(e) Indebtedness secured by Liens permitted under Section
6.14(i) in an aggregate principal amount, in the case of any such
Indebtedness secured by Liens on personal property, not to exceed
$2,500,000 at any one time outstanding.
6.13(f) Subordinated Debt.
6.13(g) Indebtedness owing to the Borrower from any Wholly-Owned
Subsidiary which has executed and delivered to the Bank a Guaranty and
(except in the case of BUCA (Wheeling), Inc. and at all times prior to the
execution thereby of a Security Agreement (Guarantor) as required under
Section 5.15(b) hereof, BUCA (DT Milwaukee), Inc., a Security Agreement
(Guarantor).
6.13(h) From and after the Closing Date to and including
December 31, 1999, Indebtedness with respect to the Century Bank Letters of
Credit.
6.13(i) Contingent Obligations permitted under Section 6.15.
Section 6.14 Liens. The Borrower will not, and will not permit any
-----
Subsidiary to, create, incur, assume or suffer to exist any Lien, or enter into,
or make any commitment to enter into, any arrangement for the acquisition of any
property through conditional sale, lease-purchase or other title retention
agreements, with respect to any property now owned or hereafter acquired by the
Borrower or a Subsidiary, except:
6.14(a) Liens granted to the Agent for itself and for the
benefit of the Banks under the Security Documents to secure the
Obligations.
6.14(b) Liens existing on the date of this Agreement and
disclosed on Schedule 6.14 .
6.14(c) Deposits or pledges to secure payment of workers'
compensation, unemployment insurance, old age pensions or other social
security obligations in the ordinary course of business of the Borrower or
a Subsidiary.
6.14(d) Liens for taxes, fees, assessments and governmental
charges not delinquent or to the extent that payment therefor shall not at
the time be required to be made in accordance with the provisions of
Section 5.4.
6.14(e) Liens of carriers, warehousemen, landlords, mechanics
and materialmen, and other like Liens arising in the ordinary course of
business, for sums not due or to the extent that payment therefor shall not
at the time be required to be made in accordance with the provisions of
Section 5.4.
6.14(f) Liens incurred or deposits or pledges made or given in
connection with, or to secure payment of, indemnity, performance, appeal,
or other similar bonds.
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<PAGE>
6.14(g) 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 (i) such
-------- ----
deposit account is not a dedicated cash collateral account and is not
subject to restriction against access by the Borrower or a Subsidiary in
excess of those set forth by regulations promulgated by the Board, and (ii)
such deposit account is not intended by the Borrower or any Subsidiary to
provide collateral to the depository institution.
6.14(h) Encumbrances on real property in the nature of zoning
restrictions, easements, rights of way, encroachments, restrictive
covenants and other similar rights or restrictions, whether or not of
record, on the use of real property, which encumbrances do not materially
detract from the value of such property or materially impair the use
thereof in the business of the Borrower or a Subsidiary.
6.14(i) The interest of any lessor under any Capitalized Lease
or purchase money Liens; provided, that, (i) the Indebtedness secured
thereby is permitted by this Agreement and (ii) such Liens are limited to
the property acquired and do not secure Indebtedness other than the related
Capitalized Lease Obligations or the purchase price of such property.
6.14(j) Liens on cash in bank accounts securing rents and other
obligations under real property leases, provided that no obligations under
any single lease shall be secured by cash in an amount in excess of
$200,000.
6.14(k) From and after the Closing Date to and including
December 31, 1999, Liens securing Indebtedness incurred with respect to the
Century Bank Letters of Credit on assets of the Borrower having a fair
market value not to exceed $446,875, plus interest accrued thereon.
Section 6.15 Contingent Liabilities. The Borrower will not, and will
----------------------
not permit any Subsidiary to, be or become liable on any Contingent Obligations,
except Contingent Obligations existing on the date of this Agreement and
described on Schedule 6.15, Contingent Obligations under any Guaranty, and
Contingent Obligations of the Borrower incurred from and after the Closing Date
with respect to obligations of Subsidiaries under leases of real property.
Section 6.16 Average Annual Comparable Restaurant Sales Growth. The
-------------------------------------------------
Borrower will not permit the Average Annual Comparable Restaurant Sales Growth
to be less than one percent (1%), as of the last day of any fiscal quarter.
Section 6.17 Average Restaurant Annual Cash Flow. The Borrower will
-----------------------------------
not permit the Average Restaurant Annual Cash Flow to be less than $450,000, as
of the last day of any fiscal quarter; provided that on the measurement date for
--------
each of the first and second fiscal quarters of Fiscal Year 2000, the Borrower
may, include an additional $500,000 of Pre-Opening
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<PAGE>
Expenses in the aggregate in the calculation of Average Restaurant Annual Cash
Flow for the 12 fiscal months ending on such measurement date.
Section 6.18 Interest/Operating Lease Payment Coverage Ratio. The
-----------------------------------------------
Borrower will not permit the Interest/Operating Lease Payment Coverage Ratio, as
of the last day of any fiscal quarter which ends during any period of
measurement described below, to be less than the ratio set forth below for such
period:
Minimum Interest/Operating
--------------------------
Measurement Period Lease Payment Coverage Ratio
------------------ ----------------------------
October 1, 1999 through March 31, 2000 2.20 to 1.00
April 1, 2000 through June 30, 2000 2.30 to 1.00
Thereafter 2.75 to 1.00
Section 6.19 Fixed Charge Coverage Ratio. The Borrower will not
---------------------------
permit the Fixed Charge Coverage Ratio, as of the last day of any fiscal quarter
which ends during any period of measurement described below, to be less than the
ratio set forth below for such period:
Minimum Fixed Charge
--------------------
Measurement Period Coverage Ratio
------------------ --------------
October 1, 1999 through December 31, 1999 1.90 to 1.00
January 1, 2000 through March 31, 2000 1.75 to 1.00
April 1, 2000 through June 30, 2000 1.55 to 1.00
July 1, 2000 through September 30, 2000 1.60 to 1.00
October 1, 2000 through September 30, 2001 1.70 to 1.00
Thereafter 1.75 to 1.00
Section 6.20 Cash Flow Leverage Ratio. The Borrower will not permit
------------------------
the Cash Flow Leverage Ratio, as of the last day of any fiscal quarter which
ends during any period of measurement described below, to be greater than the
ratio set forth below for such period:
Maximum Cash Flow
-----------------
Measurement Period Leverage Ratio
------------------ --------------
October 1, 1999 through December 31, 1999 3.50 to 1.00
January 1, 2000 through March 31, 2000 3.10 to 1.00
April 1, 2000 through June 30, 2000 3.00 to 1.00
Thereafter 2.75 to 1.00
Section 6.21 Net Worth. The Borrower will not permit its Net Worth
---------
as of the last day of any fiscal quarter to be less than:
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<PAGE>
(i) for each fiscal quarter during Fiscal Year 1999, $45,000,000; and
(ii) for each fiscal quarter during any Fiscal Year thereafter, the
greater of (A) the minimum required Net Worth during the preceding Fiscal
Year or (B) 90% of the actual Net Worth as of the end of the preceding
Fiscal Year.
Section 6.22 Loan Proceeds. The Borrower will not, and will not
-------------
permit any Subsidiary to, use any part of the proceeds of the Loans or Advances
directly or indirectly, and whether immediately, incidentally or ultimately, (a)
to purchase or carry margin stock (as defined in Regulation U of the Board) or
to extend credit to others for the purpose of purchasing or carrying margin
stock or to refund Indebtedness originally incurred for such purpose or (b) for
any purpose which entails a violation of, or which is inconsistent with, the
provisions of Regulations U or X of the Board.
Section 6.23 Modification of Ownership or Equity Structure. The
---------------------------------------------
Borrower will not permit any Subsidiary to issue or authorize the issuance of
capital stock of such Subsidiary (other than directors' qualifying shares) which
would result in any other Person becoming an owner thereof; issue or authorize
the issuance of options to purchase capital stock of such Subsidiary which
immediately, or in the future upon the exercise of rights granted therein, would
result in any other Person becoming an owner thereof; issue or authorize the
issuance of warrants to purchase capital stock of such Subsidiary which
immediately, or in the future upon the exercise of rights granted therein, would
result in any other Person becoming an owner thereof; issue or authorize the
issuance of securities or instruments convertible into capital stock of such
Subsidiary which immediately, or in the future upon the exercise of rights
granted therein, would result in any other Person becoming an owner thereof; or
authorize, issue or grant any capital stock appreciation rights, phantom stock,
profit participations or other similar rights with respect to the capital stock
of such Subsidiary which immediately, or in the future upon the exercise of
rights granted therein, would result in any other Person becoming an owner
thereof.
Section 6.24 Real Property. Except with respect to real property
-------------
leased for the Borrower's executive offices, the Borrower shall not, and shall
not permit any Subsidiary to, acquire any fee or leasehold interest in real
property unless, within two hundred and seventy (270) days after the date of the
acquisition of any such interest therein, a Subsidiary (or, in the case of a
lease under negotiation as of the date of this Agreement, the Borrower)
commences operation of a Restaurant of similar size and type to those
Restaurants in existence on the date of this Agreement, provided that, to the
extent such interest in real property is obtained through a lease with respect
to such property, the two hundred and seventy (270) days period with respect
thereto shall not begin until the date on which such Subsidiary (or, in the case
of a lease under negotiation as of the date of this Agreement, the Borrower) is
required to make its first rent payment with respect thereto.
ARTICLE VII
-----------
EVENTS OF DEFAULT AND REMEDIES
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<PAGE>
Section 7.1 Events of Default. The occurrence of any one or more of
-----------------
the following events shall constitute an Event of Default:
7.1(a) The Borrower shall fail to make when due, whether by
acceleration or otherwise, any payment of principal of or interest on any
Note or any other Obligation required to be made to the Agent or any Bank
pursuant to this Agreement, provided that failure to pay interest shall not
--------
constitute an Event of Default if such failure does not continue for more
than two Business Days.
7.1(b) Any representation or warranty made by or on behalf of
the Borrower, any Subsidiary or any Guarantor in this Agreement or any
other Loan Document or by or on behalf of the Borrower, any Subsidiary or
any Guarantor in any certificate, written statement, report or document
herewith or hereafter furnished to any Bank or the Agent pursuant to this
Agreement or any other Loan Document shall prove to have been false or
misleading in any material respect on the date as of which the facts set
forth are stated or certified.
7.1(c) The Borrower shall fail to comply with Section 5.2 or 5.3
or any Section of Article VI .
7.1(d) The Borrower shall fail to comply with any other
agreement, covenant or term contained in this Agreement (other than those
hereinabove set forth in this Section 7.1) or under Section 2(d) or Section
7 of the Trademark Assignment, and such failure to comply shall continue
for thirty (30) calendar days after whichever of the following dates is the
earliest: (i) the date the Borrower gives notice of such failure to the
Agent, (ii) the date the Borrower should have given notice of such failure
to the Agent pursuant to Section 5.1(g), and (iii) the date the Agent or
any Bank gives notice of such failure to the Borrower.
7.1(e) Any default (however denominated or defined) shall occur
under any Guaranty or the Trademark Assignment (other than those set forth
in Section 7.1 (d)), or any "Event of Default," as defined in any other
Security Document, shall occur.
7.1(f) The Borrower, any Subsidiary or any Guarantor shall
become insolvent or shall generally not pay its debts as they mature or
shall apply for, shall consent to, or shall acquiesce in the appointment of
a custodian, trustee or receiver of the Borrower, such Subsidiary or such
Guarantor or for a substantial part of the property thereof or, in the
absence of such application, consent or acquiescence, a custodian, trustee
or receiver shall be appointed for the Borrower, a Subsidiary or a
Guarantor or for a substantial part of the property thereof and shall not
be discharged within 60 days, or the Borrower, any Subsidiary or any
Guarantor shall make an assignment for the benefit of creditors.
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7.1(g) Any bankruptcy, reorganization, debt arrangement or other
proceedings under any bankruptcy or insolvency law shall be instituted by
or against the Borrower, any Subsidiary or any Guarantor, and, if
instituted against the Borrower, any Subsidiary or any Guarantor, shall
have been consented to or acquiesced in by the Borrower, such Subsidiary or
such Guarantor, or shall remain undismissed for 60 days, or an order for
relief shall have been entered against the Borrower, such Subsidiary or
such Guarantor.
7.1(h) Any dissolution or liquidation proceeding not permitted
by Section 6.1 shall be instituted by or against the Borrower or a
Subsidiary or any Guarantor, and, if instituted against the Borrower, any
Subsidiary or any Guarantor, shall be consented to or acquiesced in by the
Borrower, such Subsidiary or such Guarantor or shall remain for 60 days
undismissed.
7.1(i) Any judgment for the payment of money in excess of the
sum of $100,000, or judgements for the payment of money in excess of the
sum of $500,000 in the aggregate at any time, shall be rendered against the
Borrower or a Subsidiary and either (i) the judgment creditor executes on
such judgment or (ii) such judgment remains unpaid or undischarged for more
than 60 days from the date of entry thereof or such longer period during
which execution of such judgment shall be stayed during an appeal from such
judgment.
7.1(j) The maturity of any material Indebtedness of the Borrower
(other than Indebtedness under this Agreement) or a Subsidiary shall be
accelerated, or the Borrower or a Subsidiary shall fail to pay any such
material Indebtedness when due (after the lapse of any applicable grace
period) or, in the case of such Indebtedness payable on demand, when
demanded (after the lapse of any applicable grace period), or any event
shall occur or condition shall exist and shall continue for more than the
period of grace, if any, applicable thereto and shall have the effect of
causing, or permitting the holder of any such Indebtedness or any trustee
or other Person acting on behalf of such holder to cause, such material
Indebtedness to become due prior to its stated maturity or any collateral
given as security therefor to be realized upon. For purposes of this
Section, Indebtedness of the Borrower or a Subsidiary shall be deemed
"material" if it exceeds $500,000 as to any item of Indebtedness or in the
aggregate for all items of Indebtedness with respect to which any of the
events described in this Section 7.1(j) has occurred.
7.1(k) Any execution or attachment shall be issued whereby any
substantial part of the property of the Borrower or any Subsidiary shall be
taken or attempted to be taken and the same shall not have been vacated or
stayed within 60 days after the issuance thereof.
7.1(l) Any Guarantor shall repudiate or purport to revoke its,
his or her Guaranty, or any Guaranty for any reason shall cease to be in
full force and effect as to the Guarantor executing and delivering the same
or shall be judicially declared null and void as to such Guarantor.
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7.1(m) Any Security Document shall, at any time, cease to be in
full force and effect or shall be judicially declared null and void, or the
validity or enforceability thereof shall be contested by the Borrower, or
the Agent or the Banks shall cease to have a valid and perfected security
interest having the priority contemplated thereunder in all of the
collateral described therein, other than by action or inaction of the Agent
or the Banks, if (i) the aggregate value of the collateral affected by any
of the foregoing exceeds $100,000 and (ii) any of the foregoing shall
remain unremedied for ten days or more after receipt of notice thereof by
the Borrower from the Agent.
7.1(n) Any Change of Control shall occur.
7.1(o) Joseph Micatrotto shall cease to be the President and
Chief Executive Officer of the Borrower, and a successor President and
Chief Executive Officer approved by a majority of the Board of Directors of
the Borrower shall not have been appointed within 60 days.
7.1(p) Any Indebtedness evidenced by the Subordinated Debentures
in excess of $1,100,000 (which amount shall not include conversions of such
Indebtedness to the common stock of the Borrower) shall be paid by Borrower
prior to July 30, 2001.
Section 7.2 Remedies. If (a) any Event of Default described in
--------
Sections 7.1(f), (g) or (h) shall occur with respect to the Borrower, the
Commitments shall automatically terminate and the Notes and all other
Obligations shall automatically become immediately due and payable and the
Borrower shall without demand pay into the Holding Account an amount equal to
the aggregate undrawn face amount of all outstanding Letters of Credit; or (b)
any other Event of Default shall occur and be continuing, then, upon receipt by
the Agent of a request in writing from USBNA (so long as it is a Bank) and each
Co-Agent, the Agent shall take any of the following actions so requested: (i)
declare the Commitments terminated, whereupon the Commitments shall terminate,
(ii) declare the outstanding unpaid principal balance of the Notes, the accrued
and unpaid interest thereon and all other Obligations to be forthwith due and
payable, whereupon the Notes, all accrued and unpaid interest thereon and all
such Obligations shall immediately become due and payable, in each case without
presentment, demand, protest or other notice of any kind, all of which are
hereby expressly waived, anything in this Agreement or in the Notes to the
contrary notwithstanding, and (iii) demand that the Borrower pay into the
Holding Account an amount equal to the aggregate undrawn face amount of all
outstanding Letters of Credit. Upon the occurrence of any of the events
described in clause (a) of the preceding sentence, or upon the occurrence of any
of the events described in clause (b) of the preceding sentence when so
requested by USBNA (so long as it is a Bank) and each Co-Agent, the Agent may
exercise all rights and remedies under any of the Loan Documents, and enforce
all rights and remedies under any applicable law.
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Section 7.3 Offset. In addition to the remedies set forth in Section
------
7.2, upon the occurrence of any Event of Default and thereafter while the same
be continuing, the Borrower hereby irrevocably authorizes each Bank to set off
any Obligations owed to such Bank against all deposits and credits of the
Borrower with, and any and all claims of the Borrower against, such Bank. Such
right shall exist whether or not such Bank shall have made any demand hereunder
or under any other Loan Document, whether or not the Obligations, or any part
thereof, or deposits and credits held for the account of the Borrower is or are
matured or unmatured, and regardless of the existence or adequacy of any
collateral, guaranty or any other security, right or remedy available to such
Bank or the Banks. Each Bank agrees that, as promptly as is reasonably possible
after the exercise of any such setoff right, it shall notify the Borrower of its
exercise of such setoff right; provided, however, that the failure of such Bank
to provide such notice shall not affect the validity of the exercise of such
setoff rights. Nothing in this Agreement shall be deemed a waiver or
prohibition of or restriction on any Bank to all rights of banker's Lien, setoff
and counterclaim available pursuant to law.
ARTICLE VIII
------------
THE AGENT
The following provisions shall govern the relationship of the Agent
with the Banks.
Section 8.1 Appointment and Authorization. Each Bank appoints and
-----------------------------
authorizes the Agent to take such action as agent on its behalf and to exercise
such respective powers under the Loan Documents as are delegated to the Agent by
the terms thereof, together with such powers as are reasonably incidental
thereto. Neither the Agent nor any of its directors, officers or employees
shall be liable to the Banks or Co-Agents for any action taken or omitted to be
taken by it under or in connection with the Loan Documents, except for its own
gross negligence or willful misconduct. The Agent shall act as an independent
contractor in performing its obligations as Agent hereunder and nothing herein
contained shall be deemed to create any fiduciary relationship among or between
the Agent, the Borrower, the Co-Agents or the Banks.
Section 8.2 Note Holders. The Agent may treat the payee of any Note
------------
as the holder thereof until written notice of transfer shall have been filed
with it, signed by such payee and in form satisfactory to the Agent.
Section 8.3 Consultation With Counsel. The Agent may consult with
-------------------------
legal counsel selected by it and shall not be liable to the Banks or the Co-
Agents for any action taken or suffered in good faith by it in accordance with
the advice of such counsel.
Section 8.4 Loan Documents. The Agent shall not be under a duty to
--------------
examine or pass upon the validity, effectiveness, genuineness or value of any of
the Loan Documents or any other instrument or document furnished pursuant
thereto, and the Agent shall be entitled to assume that the same are valid,
effective and genuine and what they purport to be.
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Section 8.5 USBNA and Affiliates. With respect to its Revolving
--------------------
Commitments and the Revolving Loan made by it, USBNA shall have the same rights
and powers under the Loan Documents as any other Bank and may exercise the same
as though it were not the Agent consistent with the terms thereof, and USBNA and
its Affiliates may accept deposits from, lend money to and generally engage in
any kind of business with the Borrower as if it were not the Agent.
Section 8.6 Action by Agent. Except as may otherwise be expressly
---------------
stated in this Agreement, the Agent shall be entitled to use its discretion with
respect to exercising or refraining from exercising any rights which may be
vested in it by, or with respect to taking or refraining from taking any action
or actions which it may be able to take under or in respect of, the Loan
Documents. The Agent shall be required to act or to refrain from acting (and
shall be fully protected in so acting or refraining from acting) upon the
instructions of USBNA (so long as it is a Bank) and each Co-Agent, and such
instructions shall be binding upon all holders of Notes; provided, however, that
the Agent shall not be required to take any action which exposes the Agent to
personal liability or which is contrary to the Loan Documents or applicable law.
The Agent shall incur no liability to the Banks or the Co-Agents under or in
respect of any of the Loan Documents by acting upon any notice, consent,
certificate, warranty or other paper or instrument believed by it to be genuine
or authentic or to be signed by the proper party or parties and to be consistent
with the terms of this Agreement.
Section 8.7 Credit Analysis. Each Bank has made, and shall continue
---------------
to make, its own independent investigation or evaluation of the operations,
business, property and condition, financial and otherwise, of the Borrower in
connection with entering into this Agreement and has made its own appraisal of
the creditworthiness of the Borrower. Except as explicitly provided herein, the
Agent has no duty or responsibility, either initially or on a continuing basis,
to provide any Bank with any credit or other information with respect to such
operations, business, property, condition or creditworthiness, whether such
information comes into its possession on or before the first Event of Default or
at any time thereafter.
Section 8.8 Notices of Event of Default, Etc. In the event that the
--------------------------------
Agent shall have acquired actual knowledge of any Event of Default or Default,
the Agent shall promptly give notice thereof to the Banks.
Section 8.9 Indemnification. Each Bank agrees to indemnify the
---------------
Agent, as Agent (to the extent not reimbursed by the Borrower), ratably
according to such Bank's share of the aggregate sum of the Revolving (A)
Commitment Amounts and the Revolving (B) Commitment Amounts from and against any
and all liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements of any kind or nature
whatsoever which may be imposed on or incurred by the Agent in any way relating
to or arising out of the Loan Documents or any action taken or omitted by the
Agent under the Loan Documents, provided that no Bank shall be liable for any
portion of such liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements resulting from the Agent's
gross
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negligence or willful misconduct. No payment by any Bank under this Section
shall relieve the Borrower of any of its obligations under this Agreement.
Section 8.10 Payments and Collections. All funds received by the
------------------------
Agent in respect of any payments made by the Borrower on the Notes, Revolving
Commitment Fees or Letter of Credit Fees shall be distributed forthwith by the
Agent among the Banks, in like currency and funds as received, ratably according
to each Bank's Revolving Percentage. After any Event of Default has occurred,
all funds received by the Agent, whether as payments by the Borrower or as
realization on collateral or on any guaranties, shall (except as may otherwise
be required by law) be distributed by the Agent in the following order: (a)
first to the Agent or any Bank who has incurred unreimbursed costs of collection
with respect to any Obligations hereunder, ratably to the Agent and each Bank in
the proportion that the costs incurred by the Agent or such Bank bear to the
total of all such costs incurred by the Agent and all Banks; (b) next to the
Agent for the account of the Banks (in accordance with their respective
Revolving Percentages) for application on the Notes; (c) next to the Agent for
the account of the Banks (in accordance with their respective Revolving
Percentages) for any unpaid Revolving Commitment Fees or Letter of Credit Fees
owing by the Borrower hereunder ; and (d) last to the Agent to be held in the
Holding Account to cover any outstanding Letters of Credit.
Section 8.11 Sharing of Payments. If any Bank shall receive and
-------------------
retain any payment, voluntary or involuntary, whether by setoff, application of
deposit balance or security, or otherwise, in respect of Indebtedness under this
Agreement or the Notes in excess of such Bank's share thereof as determined
under this Agreement, then such Bank shall purchase from the other Banks for
cash and at face value and without recourse, such participation in the Notes
held by such other Banks as shall be necessary to cause such excess payment to
be shared ratably as aforesaid with such other Banks; provided, that if such
excess payment or part thereof is thereafter recovered from such purchasing
Bank, the related purchases from the other Banks shall be rescinded ratably and
the purchase price restored as to the portion of such excess payment so
recovered, but without interest. Subject to the participation purchase
obligation above, each Bank agrees to exercise any and all rights of setoff,
counterclaim or banker's lien first fully against any Notes and participations
therein held by such Bank, next to any other Indebtedness of the Borrower to
such Bank arising under or pursuant to this Agreement and to any participations
held by such Bank in Indebtedness of the Borrower arising under or pursuant to
this Agreement, and only then to any other Indebtedness of the Borrower to such
Bank.
Section 8.12 Advice to Banks. The Agent shall forward to the Banks
---------------
copies of all notices, financial reports and other communications received
hereunder from the Borrower by it as Agent, excluding, however, notices, reports
and communications which by the terms hereof are to be furnished by the Borrower
directly to each Bank.
Section 8.13 Resignation. If at any time the Agent shall deem it
-----------
advisable, in its sole discretion, it may submit to each of the Banks and the
Borrower a written notification of its resignation as Agent under this
Agreement, such resignation to be effective upon the appointment of a successor
Agent, but in no event later than 30 days from the date of such notice. Upon
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submission of such notice, USBNA (so long as it is a Bank) and the Co-Agents may
appoint a successor Agent.
ARTICLE IX
----------
MISCELLANEOUS
Section 9.1 Modifications. Notwithstanding any provisions to the
-------------
contrary herein, any term of this Agreement may be amended with the written
consent of the Agent and the Borrower; provided that no amendment, modification
or waiver of any provision of this Agreement or consent to any departure by the
Borrower therefrom shall in any event be effective except in the specific
instance and for the purpose for which given. The Agent may enter into
amendments or modifications of, and grant consents and waivers to departure from
the provisions of, those Loan Documents to which the Banks are not signatories
without the Banks or the Co-Agents joining therein. Notwithstanding the
forgoing, no such amendment, modification, waiver or consent shall:
9.1(a) Reduce the rate or extend the time of payment of interest
on any Note, or reduce the amount or extend the time of payment of the
principal of any Note without the consent of the holder of each Note so
affected; or
9.1(b) Increase the amount or extend the time of any Commitment
of any Bank, without the consent of such Bank; or
9.1(c) Reduce the rate or extend the time of payment of any fee
payable to a Bank, without the consent of the Bank affected; or
9.1(d) Except as may otherwise be expressly provided in any of
the other Loan Documents, release any material portion of collateral
securing, or any guaranties for, all or any part of the Obligations without
the consent of all the Banks; or
9.1(e) Amend any of the foregoing Sections 9.1 (a) through (d)
or this Section 9.1 (e) without the consent of all the Banks; or
9.1(f) Amend Sections 6.10, 6.16, 6.17, 6.18, 6.19, 6.20 or 6.21
or waive any Default or Event of Default arising out of failure to comply
with such Sections without the consent of the Agent, USBNA (so long as it
is a Bank) and each Co-Agent; or
9.1(g) Amend Section 9.1(f) or this Section 9.1(g) without the
consent of the Agent, USBNA (so long as it is a Bank) and each Co-Agent; or
9.1(h) Amend any provision of this Agreement relating to the
Agent in its capacity as Agent without the consent of the Agent; or
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9.1(i) Amend any provision of this Agreement relating to the
issuance of Letters of Credit without the consent of the Agent.
Section 9.2 Expenses. Whether or not the transactions contemplated
--------
hereby are consummated, the Borrower agrees to reimburse the Agent upon demand
for all reasonable out-of-pocket expenses paid or incurred by the Agent
(including filing and recording costs and reasonable fees and expenses of Dorsey
& Whitney LLP, counsel to the Agent) in connection with the negotiation,
preparation, approval, review, execution and delivery of this Agreement and the
other Loan Documents and any commitment letters relating thereto (provided that
the Borrower shall not be obligated to reimburse the Agent for any such expenses
in excess of $50,000 in the aggregate). Subject to the limitations contained in
Section 5.5, the Borrower shall also reimburse the Agent and each Bank upon
demand for all reasonable out-of-pocket expenses (including reasonable expenses
of legal counsel) paid or incurred by the Agent or any Bank in connection with
the administration, amendment, modification, interpretation, collection and
enforcement of this Agreement and any other Loan Document. The obligations of
the Borrower under this Section shall survive any termination of this Agreement.
Section 9.3 Waivers, etc. No failure on the part of the Agent and
------------
the Banks or the holder of a Note to exercise and no delay in exercising any
power or right hereunder or under any other Loan Document shall operate as a
waiver thereof; nor shall any single or partial exercise of any power or right
preclude any other or further exercise thereof or the exercise of any other
power or right. The remedies herein and in the other Loan Documents provided
are cumulative and not exclusive of any remedies provided by law.
Section 9.4 Notices. Except when telephonic notice is expressly
-------
authorized by this Agreement, any notice or other communication to any party in
connection with this Agreement shall be in writing and shall be sent by manual
delivery, telegram, telex, facsimile transmission, overnight courier or United
States mail (postage prepaid) addressed to such party at the address specified
on the signature page hereof, or at such other address as such party shall have
specified to the other parties hereto in writing. All periods of notice shall
be measured from the date of delivery thereof if manually delivered, from the
date of sending thereof if sent by telegram, telex or facsimile transmission,
from the first Business Day after the date of sending if sent by overnight
courier, or from four days after the date of mailing if mailed; provided,
however, that any notice to the Agent or any Bank under Article II shall be
deemed to have been given only when received by the Agent or such Bank.
Section 9.5 Taxes. The Borrower agrees to pay, and save the Agent
-----
and the Banks harmless from all liability for, any stamp or other taxes which
may be payable with respect to the execution or delivery of this Agreement or
the issuance of the Notes, which obligation of the Borrower shall survive the
termination of this Agreement.
Section 9.6 Successors and Assigns; Disposition of Loans;
---------------------------------------------
Transferees. This Agreement shall be binding upon and inure to the benefit of
the parties hereto and their respective successors and assigns, except that the
Borrower may not assign its
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rights or delegate its obligations hereunder or under any other Loan Document
without the prior written consent of all Banks and the Co-Agents may not assign
their rights hereunder as such without the prior written consent of the Agent.
Each Bank may at any time sell, assign, transfer, grant participations in, or
otherwise dispose of any portion of the Commitments and/or Advances (each such
interest so disposed of being herein called a "Transferred Interest") to banks
or other financial institutions ("Transferees"); provided, however, that a Bank
may dispose of a Transferred Interest only with the consent of the Agent (which
consent shall not be unreasonably withheld) and only upon payment to the Agent
by the parties to such disposition of a processing and recording fee in the
amount of $2,500 for each party. The Borrower agrees that each Transferee shall
be entitled to the benefits of Sections 2.22, 2.23, 2.24, 2.25 and 9.2 with
respect to its Transferred Interest and that each Transferee may exercise any
and all rights of banker's Lien, setoff and counterclaim as if such Transferee
were a direct lender to the Borrower. If any Bank makes any assignment to a
Transferee, then upon notice to the Borrower such Transferee, to the extent of
such assignment (unless otherwise provided therein), shall become a "Bank"
hereunder and shall have all the rights and obligations of such Bank hereunder
and such Bank shall be released from its duties and obligations under this
Agreement accruing from and after such assignment, to the extent of such
assignment. Notwithstanding the sale by any Bank of any participation hereunder,
(a) no participant shall be deemed to be or have the rights and obligations of a
Bank hereunder except that any participant shall have a right of setoff under
Section 7.3 as if it were such Bank and the amount of its participation were
owing directly to such participant by the Borrower and (b) such Bank shall not
in connection with selling any such participation condition such Bank's rights
in connection with consenting to amendments or granting waivers concerning any
matter under any Loan Document upon obtaining the consent of such participant
other than on matters relating to (i) any reduction in the amount of any
principal of, or the amount of or rate of interest on, any Note or Advance in
which such participation is sold, (ii) any postponement of the date fixed for
any payment of principal of or interest on any Note or Advance in which such
participation is sold, (iii) the release or subordination of any material
portion of any collateral other than pursuant to the terms of any Security
Document or (iv) the release of any Guaranty or Security Agreement (Guarantor)
other than pursuant to the terms of such Guaranty, the Security Agreement
(Guarantor), or the Pledge Agreement.
Section 9.7 Confidentiality of Information. The Agent and each Bank
------------------------------
shall use reasonable efforts to assure that information about the Borrower and
its operations, affairs and financial condition, not generally disclosed to the
public or to trade and other creditors, which is furnished to the Agent or such
Bank pursuant to the provisions hereof or of the other Loan Documents is used
only for the purposes of this Agreement and any other relationship between the
Agent or such Bank and the Borrower and shall not be divulged to any Person
other than the Banks, their Affiliates and their respective officers, directors,
employees and agents (who have been informed of the provisions of this Section
9.7 explicitly or implicitly under the policies and practices of the Agent or
such Bank), except: (a) to their attorneys and accountants (who have been
informed of the provisions of this Section 9.7 explicitly or implicitly under
the policies and practices of the Agent or such Bank), (b) in connection with
the enforcement of the rights of the Agent and the Banks hereunder and under the
Notes, the Guaranties and the Security Documents or otherwise in connection with
related litigation, (c) in connection with assignments and
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participations and the solicitation of prospective assignees and participants
referred to in the immediately preceding Section (provided that any such
assignee or participant or prospective assignee or participant has agreed to be
bound by the provisions of this Section 9.7), and (d) as may otherwise be
required or requested by any regulatory authority having jurisdiction over the
Agent or such Bank or by any applicable law, rule, regulation or judicial
process, the opinion of the Agent's or such Bank's counsel concerning the making
of such disclosure to be binding on the parties hereto. No Bank nor the Agent
shall incur any liability to the Borrower by reason of any disclosure permitted
by this Section 9.7.
Section 9.8 Governing Law and Construction. THE VALIDITY,
------------------------------
CONSTRUCTION AND ENFORCEABILITY OF THIS AGREEMENT AND THE NOTES SHALL BE
GOVERNED BY THE INTERNAL LAWS OF THE STATE OF MINNESOTA, WITHOUT GIVING EFFECT
TO CONFLICT OF LAWS PRINCIPLES THEREOF, BUT GIVING EFFECT TO FEDERAL LAWS OF THE
UNITED STATES APPLICABLE TO NATIONAL BANKS. Whenever possible, each provision
of this Agreement and the other Loan Documents and any other statement,
instrument or transaction contemplated hereby or thereby or relating hereto or
thereto shall be interpreted in such manner as to be effective and valid under
such applicable law, but, if any provision of this Agreement, the other Loan
Documents or any other statement, instrument or transaction contemplated hereby
or thereby or relating hereto or thereto shall be held to be prohibited or
invalid under such applicable law, such provision shall be ineffective only to
the extent of such prohibition or invalidity, without invalidating the remainder
of such provision or the remaining provisions of this Agreement, the other Loan
Documents or any other statement, instrument or transaction contemplated hereby
or thereby or relating hereto or thereto.
Section 9.9 Consent to Jurisdiction. AT THE OPTION OF THE AGENT,
-----------------------
THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS MAY BE ENFORCED IN ANY FEDERAL COURT
OR MINNESOTA STATE COURT SITTING IN HENNEPIN COUNTY, MINNESOTA; AND THE BORROWER
CONSENTS TO THE JURISDICTION AND VENUE OF ANY SUCH COURT AND WAIVES ANY ARGUMENT
THAT VENUE IN SUCH FORUMS IS NOT CONVENIENT. IN THE EVENT THE BORROWER
COMMENCES ANY ACTION IN ANOTHER JURISDICTION OR VENUE UNDER ANY TORT OR CONTRACT
THEORY ARISING DIRECTLY OR INDIRECTLY FROM THE RELATIONSHIP CREATED BY THIS
AGREEMENT, THE AGENT AT ITS OPTION SHALL BE ENTITLED TO HAVE THE CASE
TRANSFERRED TO ONE OF THE JURISDICTIONS AND VENUES ABOVE-DESCRIBED, OR IF SUCH
TRANSFER CANNOT BE ACCOMPLISHED UNDER APPLICABLE LAW, TO HAVE SUCH CASE
DISMISSED WITHOUT PREJUDICE.
Section 9.10 Waiver of Jury Trial. EACH OF THE BORROWER, THE AGENT,
--------------------
THE CO-AGENTS, AND THE BANKS IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY
JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY
OTHER LOAN DOCUMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY.
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Section 9.11 Survival of Agreement. All representations, warranties,
---------------------
covenants and agreement made by the Borrower herein or in the other Loan
Documents and in the certificates or other instruments prepared or delivered in
connection with or pursuant to this Agreement or any other Loan Document shall
be deemed to have been relied upon by the Banks and shall survive the making of
the Loans by the Banks and the execution and delivery to the Banks by the
Borrower of the Notes, regardless of any investigation made by or on behalf of
the Banks, and shall continue in full force and effect as long as any Obligation
is outstanding and unpaid and so long as the Commitments have not been
terminated; provided, however, that the obligations of the Borrower under
Sections 9.2, 9.5 and 9.12 shall survive payment in full of the Obligations and
the termination of the Commitments.
Section 9.12 Indemnification. The Borrower hereby agrees to defend,
---------------
protect, indemnify and hold harmless the Agent and the Banks and their
respective Affiliates and the directors, officers, employees, attorneys and
agents of the Agent and the Banks and their respective Affiliates (each of the
foregoing being an "Indemnitee" and all of the foregoing being collectively the
"Indemnitees") from and against any and all claims, actions, damages,
liabilities, judgments, costs and expenses (including all reasonable fees and
disbursements of counsel which may be incurred in the investigation or defense
of any matter) imposed upon, incurred by or asserted against any Indemnitee,
whether direct, indirect or consequential and whether based on any federal,
state, local or foreign laws or regulations (including securities laws,
environmental laws, commercial laws and regulations), under common law or on
equitable cause, or on contract or otherwise:
(a) by reason of, relating to or in connection with the
execution, delivery, performance or enforcement of any Loan Document, any
commitments relating thereto, or any transaction contemplated by any Loan
Document; or
(b) by reason of, relating to or in connection with any credit
extended or used under the Loan Documents or any act done or omitted by any
Person, or the exercise of any rights or remedies, thereunder, including
the acquisition of any collateral by the Agent or the Banks by way of
foreclosure of the Lien thereon, deed or bill of sale in lieu of such
foreclosure or otherwise;
provided, however, that the Borrower shall not be liable to any Indemnitee for
any portion of such claims, actions, damages, liabilities, judgments, costs and
expenses resulting from any Indemnitee's gross negligence or willful misconduct.
In the event this indemnity is unenforceable as a matter of law as to a
particular matter or consequence referred to herein, it shall be enforceable to
the full extent permitted by law and the Borrower agrees to make the maximum
contribution to the payment and satisfaction of each of the indemnified claims,
damages, liabilities and expenses which is permissible under applicable law.
This indemnification applies, without limitation, to any act,
omission, event or circumstance existing or occurring on or prior to the later
of the Termination Date or the date of payment in full of the Obligations,
including specifically Obligations arising under clause (b) of
-67-
<PAGE>
this Section. The indemnification provisions set forth above shall be in
addition to any liability the Borrower may otherwise have. Without prejudice to
the survival of any other obligation of the Borrower hereunder the indemnities
and obligations of the Borrower contained in this Section shall survive the
payment in full of the other Obligations.
Section 9.13 Captions. The captions or headings herein and any table
--------
of contents hereto are for convenience only and in no way define, limit or
describe the scope or intent of any provision of this Agreement.
Section 9.14 Entire Agreement. This Agreement and the other Loan
----------------
Documents embody the entire agreement and understanding between the Borrower.
the Agent and the Banks with respect to the subject matter hereof and thereof.
This Agreement supersedes all prior agreements and understandings relating to
the subject matter hereof. Nothing contained in this Agreement or in any other
Loan Document, expressed or implied, is intended to confer upon any Persons
other than the parties hereto any rights, remedies, obligations or liabilities
hereunder or thereunder.
Section 9.15 Counterparts. This Agreement may be executed in any
------------
number of counterparts, all of which taken together shall constitute one and the
same instrument, and any of the parties hereto may execute this Agreement by
signing any such counterpart.
Section 9.16 Borrower Acknowledgments. The Borrower hereby
------------------------
acknowledges that (a) it has been advised by counsel in the negotiation,
execution and delivery of this Agreement and the other Loan Documents, (b)
neither the Agent nor any Bank has any fiduciary relationship to the Borrower,
the relationship being solely that of debtor and creditor, (c) no joint venture
exists between the Borrower and the Agent or any Bank, and (d) neither the Agent
nor any Bank undertakes any responsibility to the Borrower to review or inform
the Borrower of any matter in connection with any phase of the business or
operations of the Borrower and the Borrower shall rely entirely upon its own
judgment with respect to its business, and any review, inspection or supervision
of, or information supplied to, the Borrower by the Agent or any Bank is for the
protection of the Banks and neither the Borrower nor any third party is entitled
to rely thereon.
Section 9.17 Co-Agents. Each of the Borrower and the Agent hereby
---------
acknowledge that the Co-Agents have no obligations or duties as co-agents under
this Agreement or any Loan Document except as expressly set forth herein or
therein and shall not be deemed an agent or fiduciary with respect to the
Borrower, the Agent or any other party as related to this Agreement or any Loan
Document.
Section 9.18 Effect of Existing Credit Agreement. This Agreement
-----------------------------------
amends and replaces in its entirety the Existing Credit Agreement; provided,
--------
however, that the obligations of the Borrower incurred under the Existing Credit
- ------
Agreement shall continue under this Agreement, and shall not in any circumstance
be terminated, extinguished or discharged hereby but shall hereafter be governed
by the terms of this Agreement.
-68-
<PAGE>
[The remainder of this page intentionally left blank.]
-69-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed as of the date first above written.
BUCA, INC.
By /s/ Greg A. Gadel
----------------------------------------
Title Chief Financial Officer
--------------------------------------
Address for the Borrower:
Attention: Greg A. Gadel
1300 Nicollet Avenue
Suite 3043
Minneapolis, MN 55403
Telephone No.: (612) 288-2382
Telecopier No.: (612) 827-6446
Revolving (A) Commitment
Amount: U.S. BANK NATIONAL ASSOCIATION,
$3,333,333.34 in its individual corporate capacity and as Agent
Revolving (B) Commitment
Amount:
$1,666,666.67 By /s/ Joshua R. Pirozzolo
----------------------------------------
Title Commercial Banking Officer
-------------------------------------
Address for the Bank:
Attention: Joshua R. Pirozzolo MPFP0602
601 Second Avenue South
Minneapolis, MN 55402-4302
Telephone No.: (612) 973-0520
Telecopier No.: (612) 973-0823
S-1
<PAGE>
Revolving (A) Commitment
Amount: BANK OF AMERICA, N.A.
$3,333,333.33 in its individual corporate capacity and as
Co-Agent
Revolving (B) Commitment
Amount:
$1,666,666.67 By /s/ William S. Richards, Jr.
------------------------------------------
Its Vice President
-----------------------------------------
Address for the Bank:
Attention: William S. Richards, Jr.
IL1-231-06-13
231 South LaSalle Street
Chicago, IL 60697
Telephone No.: (312)828-2731
Telecopier No.: (312)828-1974
S-2
<PAGE>
EXHIBIT 10.2
FIRST AMENDMENT TO CREDIT AGREEMENT
This FIRST AMENDMENT TO CREDIT AGREEMENT (this "Amendment"), made and
entered into as of October 21, 1999, is by and between BUCA, INC., a Minnesota
corporation (the "Borrower"), the banks which are signatories hereto
(individually, a "Bank" and, collectively, the "Banks"), BANK OF AMERICA, N.A.,
a national banking association, one of the Banks and as co-agent for the Banks
(in such capacity, a "Co-Agent"), BANKBOSTON, N.A., a national banking
association, as one of the Banks and as co-agent for the Banks (in such
capacity, a "Co-Agent") and U.S. BANK NATIONAL ASSOCIATION, a national banking
association, one of the Banks, as agent for the Banks (in such capacity, the
"Agent").
RECITALS
--------
1. U.S. Bank National Association, as Agent and as a Bank, and Bank
of America, N.A., as Co-Agent and as a Bank (the "Existing Banks"), and the
Borrower entered into a Credit Agreement dated as of September 27, 1999 (the
"Credit Agreement"); and
2. The Borrower has requested that the Existing Banks, together with
the BankBoston, N.A., increase the credit facility and amend the Credit
Agreement in certain respects.
3. The parties desire to amend the Credit Agreement, subject to the
terms and conditions set forth in this Amendment.
AGREEMENT
---------
NOW, THEREFORE, for good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties hereto hereby covenant
and agree to be bound as follows:
Section 1. Capitalized Terms. Capitalized terms used herein and not
-----------------
otherwise defined herein shall have the meanings assigned to them in the Credit
Agreement, unless the context shall otherwise require.
Section 2. Amendment. The Credit Agreement is hereby amended as
---------
follows:
2.1 Parties. BankBoston, N.A. is hereby added as a party and
-------
signatory to the Credit Agreement, in the capacity as a Bank and Co-Agent
thereunder.
2.2 Definitions. The following definitions are added in alphabetical
-----------
order to Section 1.1 of the Credit Agreement.
<PAGE>
"BofA" Bank of America, N.A., a national banking association.
----
"BankBoston" BankBoston, N.A., a national banking association.
----------
The definition of "Co-Agent" in Section 1.1 of the Credit Agreement is
--------
amended in its entirety to read as follows:
"Co-Agent": Each of BofA and BankBoston.
--------
2.3 Modifications. Section 9.1(d) of the Credit Agreement is amended
-------------
in its entirety to read as follows:
9.1(d) Except as may otherwise be expressly provided in any of
the other Loan Documents as such documents are amended as of October
21, 1999, release any material portion of collateral securing, or any
guaranties for, all or any part of the Obligations without the consent
of all the Banks; or
2.4 Modifications. Section 9.1(g) of the Credit Agreement is amended
------------
in its entirety to read as follows:
9.1(g) Amend Section 9.1(f) or this Section 9.1(g) without the
consent of the Agent, USBNA (so long as it is a Bank), BofA (so long
as it is a Bank), BankBoston (so long as it is a Bank) and each Co-
Agent; or
2.5 New Restaurants. Section 5.19 is amended by deleting the word
---------------
"Bank" in the fourth line thereof and substituting the word "Agent"
therefor.
2.6 Signature pages. The signature pages to the Credit Agreement are
---------------
hereby deleted and inserted in lieu thereof are the signature pages as set
forth on Exhibit A attached to this Amendment.
Section 3. Effectiveness of Amendments. The amendments contained in
---------------------------
this Amendment shall become effective upon delivery by the Borrower of, and
compliance by the Borrower with, the following:
3.1 This Amendment and the Notes in favor of BankBoston (the
"BankBoston Notes"), each duly executed by the Borrower.
3.2 A Consent and Reaffirmation in the form of Exhibit B-1 and B-2
attached to this Amendment, duly executed by each of the Guarantors shown
as a signatory thereto.
<PAGE>
3.3 A copy of the resolutions of the Board of Directors of (a) the
Borrower authorizing the execution, delivery and performance of this
Amendment and the BankBoston Notes and (b) each Guarantor authorizing the
execution delivery and performance of its respective consent and
reaffirmation, and in each case, certified as true and accurate by its
Secretary or Assistant Secretary, along with a certification by such
Secretary or Assistant Secretary (i) certifying that there has been no
amendment to the Articles of Incorporation or Bylaws of the Borrower or the
respective Guarantor since true and accurate copies of the same were
delivered to the Agent with a certificate of the Secretary of the Borrower
and each of the Guarantors dated September 27, 1999, and (ii) (A) in the
case of the Borrower, identifying the officer of the Borrower authorized to
execute this Amendment, the BankBoston Notes and any other instrument or
agreement executed by the Borrower in connection with this Amendment
(collectively, the "Amendment Documents"), and (B) in the case of each
Guarantor, identifying the officer authorized to execute its respective
Consent and Reaffirmation and any other instrument or agreement executed by
the such Guarantor in connection with this Amendment, and certifying as to
specimens of such officer's signature and such officer's incumbency in such
offices as such officer holds.
3.4 A First Amendment to Pledge Agreement, duly executed by the
Borrower, together with the delivery of the certificate representing all of
the Borrower's shares of stock in BUCA (DT Minneapolis), Inc. and
accompanied by a duly executed instrument of transfer or assignment in
blank of said certificate, all in form and substance satisfactory to the
Agent.
3.5 An opinion of counsel to the Borrower and the Guarantors in form
and substance satisfactory to the Agent.
3.6 Payment by the Borrower of a facility fee of $25,000 to the Agent
for the account of BankBoston, N.A.
3.7 Payment of all reasonable unpaid legal fees and other out-of-
pocket expenses incurred by the Agent through the date of this Amendment in
connection with the Amendment Documents of which the Borrower has been
notified as of the date of this Amendment.
Section 4. Representations, Warranties, Authority, No Adverse Claim.
--------------------------------------------------------
4.1 Reassertion of Representations and Warranties, No Default. The
---------------------------------------------------------
Borrower hereby represents that on and as of the date hereof and after giving
effect to this Amendment (a) all of the representations and warranties contained
in the Credit Agreement are true and correct in all respects as of the date
hereof as though made on and as of such date, except for changes permitted by
the terms of the Credit Agreement, and (b) there will exist no
<PAGE>
Default or Event of Default under the Credit Agreement as amended by this
Amendment on such date which has not been waived by the Agent.
4.2 Authority, No Conflict, No Consent Required. The Borrower
-------------------------------------------
represents and warrants that the Borrower has the corporate power and authority
to enter into the Amendment Documents and has duly authorized the execution and
delivery of the Amendment Documents and other agreements and documents executed
and delivered by the Borrower in connection herewith or therewith by proper
corporate action, and, except as set forth in Schedule 4.3 to the Credit
Agreement, none of the Amendment Documents nor the agreements contained herein
or therein contravenes or constitutes a default under any agreement, instrument
or indenture to which the Borrower is a party or a signatory or a provision of
the Borrower's Articles of Incorporation, Bylaws or any requirement of law
presently in effect or that is applicable to the Borrower, or result in the
imposition of any Lien on any of its property under any agreement binding on or
applicable to the Borrower or any of its property except, if any, in favor of
the Agent and except where the contravention or default or the imposition of
such Lien could not adversely effect the validity or enforceability of the
Amendment Documents or constitute a Material Adverse Occurrence. The Borrower
represents and warrants that, except as set forth in Schedule 4.3 to the Credit
Agreement, no consent, approval or authorization of or registration or
declaration with any Person, including but not limited to any governmental
authority, is required on the part of the Borrower in connection with the
execution and delivery by the Borrower of the Amendment Documents or other
agreements and documents executed and delivered by the Borrower in connection
therewith or the performance of obligations of the Borrower therein described,
except for those which the Borrower has obtained or provided and as to which the
Borrower has delivered certified copies of documents evidencing each such action
to the Agent and except where the failure to obtain such consent, approval or
authorization or to make such registration or declaration could not adversely
effect the validity or enforceability of the Amendment Documents or constitute a
Material Adverse Occurrence.
4.3 No Adverse Claim. The Borrower warrants, acknowledges and agrees
----------------
that to the Borrower's knowledge no events have been taken place and no
circumstances exist at the date hereof which would give the Borrower a basis to
assert a defense, offset or counterclaim to any claim of the Banks with respect
to the Borrower's obligations under the Credit Agreement as amended by this
Amendment.
Section 5. Affirmation of Credit Agreement, Further References,
----------------------------------------------------
Affirmation of Security Interest. The Banks and the Borrower each acknowledge
- --------------------------------
and affirm that the Credit Agreement, as hereby amended, is hereby ratified and
confirmed in all respects and all terms, conditions and provisions of the Credit
Agreement, except as amended by this Amendment, shall remain unmodified and in
full force and effect. All references in any document or instrument to the
Credit Agreement are hereby amended and shall refer to the Credit Agreement as
amended by this Amendment. The Borrower confirms to the Banks that the
Borrower's obligations under the Credit Agreement, as amended by this Amendment,
are and continue to be secured by the security interest granted by the Borrower
in favor of the Agent
<PAGE>
under the Security Agreement, that certain Pledge Agreement, and that certain
Collateral Assignment of Trademarks, all dated as of September 27, 1999, and
made by the Borrower in favor of the Banks, and all of the terms, conditions,
provisions, agreements, requirements, promises, obligations, duties, covenants
and representations of the Borrower under such documents and any and all other
documents and agreements entered into with respect to the obligations under the
Credit Agreement are incorporated herein by reference and are hereby ratified
and affirmed in all respects by the Borrower.
Section 6. Successors. The Amendment Documents shall be binding upon
----------
the Borrower and the Banks and their respective successors and assigns, and
shall inure to the benefit of the Borrower and the Banks and the successors and
assigns of the Banks.
Section 7. Legal Expenses. As provided in Section 9.2 of the Credit
--------------
Agreement, the Borrower agrees to reimburse the Agent, upon execution of this
Amendment, for all reasonable out-of-pocket expenses (including reasonable
attorney's fees and legal expenses of Dorsey & Whitney LLP, counsel for the
Agent) incurred in connection with negotiation, preparation and execution of the
Amendment Documents and all other documents negotiated, prepared and executed in
connection with the Amendment Documents, and in enforcing the obligations of the
Borrower under the Amendment Documents, and to pay and save the Banks harmless
from all liability for, any stamp or other taxes which may be payable with
respect to the execution or delivery of the Amendment Documents, which
obligations of the Borrower shall survive any termination of the Credit
Agreement.
Section 8. Counterparts. The Amendment Documents may be executed in
------------
several counterparts as deemed necessary or convenient, each of which, when so
executed, shall be deemed an original, provided that all such counterparts shall
be regarded as one and the same document, and any party to the Amendment
Documents may execute any such agreement by executing a counterpart of such
agreement.
Section 9. Governing Law. THE AMENDMENT DOCUMENTS SHALL BE GOVERNED
-------------
BY THE INTERNAL LAWS OF THE STATE OF MINNESOTA, WITHOUT GIVING EFFECT TO
CONFLICT OF LAW PRINCIPLES THEREOF, BUT GIVING EFFECT TO FEDERAL LAWS APPLICABLE
TO NATIONAL BANKS, THEIR HOLDING COMPANIES AND THEIR AFFILIATES.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be executed as of the date and year first above written.
BORROWER: BUCA, INC.
By: /s/ Greg A. Gadel
-------------------------------
Title: Chief Financial Officer
----------------------------
Address:
Attention: Greg A. Gadel
1300 Nicollet Avenue
Suite 3043
Minneapolis, MN 55403
Telephone No.: (612) 288-2382
Telecopier No.: 612) 827-6446
AGENT: U.S. BANK NATIONAL ASSOCIATION
By: /s/ Joshua R. Pirozzolo
------------------------------
Title: Commercial Banking Officer
---------------------------
Address: Attention: Joshua R. Pirozzolo
601 Second Avenue South
Minneapolis, MN 55402-4302
Telephone No.: (612) 973-0520
Telecopier No.: (612) 973-0823
S-1
Signature Page to First Amendment
<PAGE>
CO-AGENT: BANK OF AMERICA, N.A.
By: /s/ William S. Richards, Jr.
--------------------------------------------
Title: Vice President
-----------------------------------------
Address: Attention: William S. Richards, Jr.
IL1-231-06-13
231 South LaSalle Street
Chicago, IL 60697
Telephone No.: (312) 828-2731
Telecopier No.: (312) 828-1974
CO-AGENT: BANKBOSTON, N.A.
By: /s/ Rod Quinn
--------------------------------------------
Title: Division Executive
-----------------------------------------
Address:
Attention: Christopher M. Holtz
MS 01-09-05
100 Federal Street
Boston, MA 02110
Telephone No.: (617) 434-7690
Telecopier No.: (617) 434-0630
S-2
Signature Page to First Amendment
<PAGE>
EXHIBIT A
TO FIRST AMENDMENT
TO CREDIT AGREEMENT
See attached Signature Pages
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed as of the date first above written.
BUCA, INC.
By /s/ Greg A. Gadel
---------------------------------------
Title Chief Financial Officer
------------------------------------
Address:
Attention: Greg A. Gadel
1300 Nicollet Avenue
Suite 3043
Minneapolis, MN 55403
Telephone No.: (612) 288-2382
Telecopier No.: (612) 827-6446
Revolving (A) Commitment
Amount: U.S. BANK NATIONAL ASSOCIATION,
$3,333,333.34 in its individual corporate capacity and as Agent
Revolving (B) Commitment
Amount:
$1,666,666.67 By /s/ Joshua R. Pirozzolo
----------------------------------------
Title Commercial Banking Officer
-------------------------------------
Address:
Attention: Joshua R. Pirozzolo MPFP0602
601 Second Avenue South
Minneapolis, MN 55402-4302
Telephone No.: (612) 973-0520
Telecopier No.: (612) 973-0823
S-1
<PAGE>
Revolving (A) Commitment
Amount: BANK OF AMERICA, N.A.
$3,333,333.33 in its individual corporate
capacity and as Co-Agent
Revolving (B) Commitment
Amount:
$1,666,666.67
By /s/ William S. Richards, Jr.
-----------------------------------------
Its Vice President
----------------------------------------
Address:
Attention: William S. Richards, Jr.
IL1-231-06-13
231 South LaSalle Street
Chicago, IL 60697
Telephone No.: (312) 828-2731
Telecopier No.: (312) 828-1974
Revolving (A) Commitment
Amount: BANKBOSTON, N.A.
$3,333,333.33 in its individual corporate
capacity and as Co-Agent
Revolving (B) Commitment
Amount:
$1,666,666.66
By /s/ Rod Quinn
---------------------------------------
Its Division Executive
-------------------------------------
Address:
Attention: Christopher M. Holtz
MS 01-09-05
100 Federal Street
Boston, MA 02110
Telephone No.: (617) 434-7690
Telecopier No.: (617) 434-0630
S-2
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THIRD
QUARTER 10-Q FILING AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-26-1999
<PERIOD-START> DEC-28-1998
<PERIOD-END> SEP-26-1999
<CASH> 1,120
<SECURITIES> 10,308
<RECEIVABLES> 1,720
<ALLOWANCES> 0
<INVENTORY> 1,860
<CURRENT-ASSETS> 16,775
<PP&E> 56,774
<DEPRECIATION> 4,862
<TOTAL-ASSETS> 69,577
<CURRENT-LIABILITIES> 9,152
<BONDS> 1,989
0
0
<COMMON> 108
<OTHER-SE> 57,847
<TOTAL-LIABILITY-AND-EQUITY> 69,577
<SALES> 48,648
<TOTAL-REVENUES> 48,648
<CGS> 13,468
<TOTAL-COSTS> 27,840
<OTHER-EXPENSES> 7,139
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,376
<INCOME-PRETAX> (717)
<INCOME-TAX> 10
<INCOME-CONTINUING> (707)
<DISCONTINUED> 0
<EXTRAORDINARY> 1,545
<CHANGES> 0
<NET-INCOME> (2,252)
<EPS-BASIC> (.41)
<EPS-DILUTED> (.41)
</TABLE>
