WALL STREET DELI INC, 10-K405, 1996-09-25

WALL STREET DELI INC
10-K405, 1996-09-25
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<PAGE> 1

SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549

----------------

FORM 10-K
(Mark One)

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

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

For the fiscal year ended June 29, 1996 Commission File No. 0-11271

WALL STREET DELI, INC.
(exact name of registrant as specified in its charter)

DELAWARE 63-0514240
(State of Incorporation) (IRS Employer I.D. No.)

400 CENTURY PARK SOUTH, SUITE 116
BIRMINGHAM, ALABAMA 35226
(Address of principal executive offices)

(205) 822-3960
(Registrant's Telephone Number)

SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:

Name of each exchange
Title of each class on which registered
------------------- ------------------------
None None

SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT

Common Stock, $.05 par value
----------------------------
(Title of Class)

Indicate whether the registrant 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, and has been subject to such filing requirements for the past 90
days.

Yes X No
--- ---

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

The aggregate market value of the registrant's voting Common Stock held by
non-affiliates of the registrant was approximately $12,685,480 on September 19,
1996 based on the NASDAQ National Market System closing price on that date.

As of September 19, 1996 there were 3,411,740 shares of the registrant's Common
Stock, $.05 par value, outstanding.

DOCUMENTS INCORPORATED BY REFERENCE:

Portions of the Proxy Statement for the Registrant's 1996 Annual Meeting of
Shareholders are incorporated by reference into Part III of this Form l0-K.

<PAGE> 2

TABLE OF CONTENTS

<TABLE>
<CAPTION>
Item No. Page
-------- ----
<S> <C> <C> <C>
PART I
1. Business 1
2. Properties 6
3. Legal Proceedings 7
4. Submission of Matters to a Vote of Security Holders 7
4.1 Executive Officers 8
PART II
5. Market For the Registrant's Common Equity and Related Stockholder 9
Matters

6. Selected Financial Data 9

7. Management's Discussion and Analysis of Financial Condition and 10
Results of Operations
8. Financial Statements and Supplementary Data 17
9. Changes in and Disagreements With Accountants on Accounting and 40
Financial Disclosure
PART III
10. Directors and Executive Officers 40
11. Executive Compensation 40
12. Security Ownership of Certain Beneficial Owners and Management 40
13. Certain Relationships and Related Transactions 40
PART IV
14. Exhibits, Financial Statement Schedules and Reports on Form 8-K

Index to Financial Statement 17

Index to Schedules and Exhibits 41

Signatures 43

Report of Independent Certified Public Accountants on 38
Financial Statement Schedule

Financial Statement Schedule 39
</TABLE>

* Portions of the Proxy Statement for the Registrant's 1996
Annual Meeting of Shareholders are incorporated by
reference in Part III of this Form 10-K.

<PAGE> 3

WALL STREET DELI, INC.

PART I

ITEM 1: BUSINESS

GENERAL

The executive headquarters and principal office of Wall Street Deli,
Inc. (the "Company") are located at 400 Century Park South, Suite 116,
Birmingham, Alabama 35226, telephone (205)822-3960. The Company's financial
and accounting operations, as well as its central purchasing office, are
located at 5683 South Rex Road, Memphis, Tennessee 38119, telephone
(901)684-1020.

The Company operates a chain of quick service, delicatessen style
restaurants, located in eighteen cities: Atlanta, Birmingham, Chicago,
Cincinnati, Cleveland, Dallas, Denver, Houston, Indianapolis, Los Angeles,
Louisville, Memphis, Minneapolis, Newark, New York, Philadelphia, St. Louis,
and Washington, D.C. Most of the Company's 124 units are located in large
suburban and downtown office buildings and are designed to serve the population
in and around those buildings. Management believes the Company is one of the
nation's largest restaurant chains specializing in downtown and office
locations.

The Company was organized in 1966. Originally an Alabama corporation,
it was reorganized as a Delaware corporation in 1986. The name of the Company
was changed from Sandwich Chef, Inc. to Wall Street Deli, Inc. in 1992.

OVERVIEW OF 1996 OPERATING RESULTS

For fiscal 1996, Wall Street Deli reported a 1.7% increase in sales to
$69.4 million. The Company recorded a net loss of $2.5 million due to lower
restaurant operating margins and a non-cash charge of $4.7 million ($2.9
million after tax) taken as an operating expense related to the Company's
adoption of SFAS No. 121 in the fourth quarter.

Net sales increased during fiscal 1996 primarily due to the
contribution of new restaurants opened since last year. The Wall Street Deli
concept experienced revenue growth during the year, rising 9% to $59.0 million,
or 85% of total revenues. Nine new units were opened during fiscal 1996 and
thirteen units that did not meet the Company's performance goals were sold or
closed. At the end of the year, 109 Wall Street Delis and 15 R.C. Cooper's
units were in operation. Same store sales were down 5.1% for the year,
reflecting increased competition in the Company's markets. Management is
reviewing marketing, promotional and store-level operations for ways to improve
same store sales.

Wall Street Deli recorded a net loss of $2.5 million in fiscal 1996
related to the adoption of SFAS No. 121, compared with a net loss of $0.9
million the prior year. Without the adoption of SFAS No. 121 in 1996, pre-tax
income for fiscal 1996 would have been $0.7 million.

<PAGE> 4

During fiscal 1996, the Company opened a Wall Street Deli unit in the
Hartsfield International Airport in Atlanta, Georgia, under a franchise
arrangement with a company specializing in airport operations. The Company
views this as an opportunity to build on the Company's flexible dining concept.
Current plans are to open an additional 6 to 8 company owned units during
fiscal 1997.

During the fourth quarter of 1995, the Company adopted a plan designed
to dispose of its remaining commissary locations and eleven non-performing
stores. In connection therewith, a provision of $1,147,950 was recorded
related to anticipated lease cancellation payments and severance payments to
its employees and $2,086,237 was recorded related to the write-down of
equipment, fixtures and leasehold information. As of June 29, 1996, the
Company had closed all the commissary locations and had closed or sold five of
the eleven non-performing stores. Payments of $542,134 were charged against
the provision described above during fiscal 1996. Of the remaining six stores,
management has plans to close one store in October 1996, has been actively
negotiating lease cancellation terms on three of the properties and has entered
into negotiations to sell the remaining two properties. Management believes
that all of the remaining stores will be either closed or sold within the next
six to twelve months.

During the year, the Company continued to upgrade its financial
software to link all units to a centralized computer system to improve
controls. The new system has reduced regional administrative costs,
streamlined food distribution, and has provided management with timely
information to support future growth.

THE "FLAGSHIP" WALL STREET DELI

The typical flagship Wall Street Deli contains approximately 2,000 to
3,000 square feet and is decorated with a combination of black and white tile
and hardwood flooring, mahogany paneling and cabinetry, brass railing and
fixtures and vintage, black and white photographs of New York City. Outside
tables with umbrellas are included where possible.

The 76 flagship Wall Street Deli units open a full twelve months as of
year-end generated average annual sales of $642,824. This compares to average
annual sales of $187,000 per unit for all restaurants the Company operated in
fiscal 1988, the first year the Wall Street Deli concept was launched. Because
of the customer acceptance of the flagship Wall Street Deli concept and its
historically higher volume relative to the Company's other concepts, the
Company plans to continue its focus for future development on the flagship Wall
Street Deli concept.

The focal point of a typical Wall Street Deli is the 70-item,
self-serve food bar, an island in the center of the restaurant with salad
items, several types of fresh pasta with sauces, a baked potato bar and
numerous fresh fruit and vegetable items.

At the cafeteria-style soup and sandwich counter, employees serve a
variety of fresh soups and prepare fresh deli-style sandwiches to order from
the extensive Wall Street Deli menu. In addition to traditional deli sandwich
items, the sandwich counter offers a light fare, such as the Vegetarian
sandwich, all served on fresh-baked french, whole-wheat or rye bread. The
restaurants also feature daily and seasonal specials, and most of the Wall
Street Delis offer a frozen yogurt bar located strategically near the check-out
counter. In the fourth quarter of 1996, the Company announced a joint
marketing agreement with TCBY Enterprises, Inc. for the sale of its products
through the Wall Street Deli units.

2
<PAGE> 5

The Wall Street Deli breakfast menu features freshly baked muffins,
bagels, pastries and biscuits, fruit juices and seasonal fruits. A gourmet
coffee section featuring flavored and specialty coffees such as espresso and
cappuccino has been added to selected locations and is planned for inclusion in
all new locations. The Company believes the high quality of its fresh baked
products, including sandwich rolls, muffins, cookies and biscuits,
distinguishes the Wall Street Deli from its competitors.

OTHER RESTAURANT CONCEPTS

As of June 29, 1996, the Company owned and operated 124 quick service,
delicatessen style restaurants located primarily in major metropolitan markets
in the South, Northeast and Midwest. The Company's premier concept is its
flagship Wall Street Deli. The Company also operates restaurants under the
name R.C. Cooper's.

The R.C. Cooper's restaurants are less expensive to develop and
maintain than the Company's Wall Street Deli restaurants, feature a smaller
menu, usually not including fresh-baked foods, and are generally aimed at the
captive office market. There are presently 15 R.C. Cooper's units in
operation, down from 31 in fiscal 1995. The Company plans to continue focusing
its expansion on the flagship Wall Street Deli concept. In addition, the
Company anticipates conversion of R.C. Cooper's units, where appropriate, to
Wall Street Delis.

CATERING

In Memphis and Washington, D.C., the Company operates full service
off-premise catering businesses. In Houston, Washington, D.C. and Chicago, a
sales department actively markets the Company's catering business in
conjunction with its restaurants, with food deliveries coordinated among the
individual restaurants in those markets. In the remaining cities, Wall Street
Deli restaurant managers are responsible for building each restaurant's
catering sales.

SITE SELECTION CRITERIA AND LEASING

The first Wall Street Deli units were opened in food courts in large
retail malls. Today, the Company's primary target market focuses on high
pedestrian traffic, prime downtown locations in large cities. The most
desirable location for these restaurants is on the ground floor of a large
office building with both a lobby entrance and a street entrance.

The Company believes the site selection process is critical in
determining the potential success of a restaurant. Senior management devotes
significant time and resources to analyzing each prospective site. A variety
of factors are considered in the site selection process for Wall Street Delis,
including local market demographics, site visibility and accessibility and
proximity to significant generators of potential customers in a two block
radius. The Company also reviews competition and attempts to analyze the sales
of other restaurants operating in the area.

The Company leases all of its restaurant locations. The leases vary
significantly in their terms and provisions. Annual rents generally are based
on the greater of a fixed rate or a percentage of gross revenues and generally
provide for escalation of rents based on increases in the lessor's annual
operating expenses. The terms of the leases vary from five to ten years, with
most of the more recent leases being ten years, typically with one five- year
renewal option. Also see "Item 2 - Properties."

<PAGE> 6

RESTAURANT OPERATIONS AND MANAGEMENT

The Company believes that consistent high quality is a hallmark of its
operations. The Company's restaurants attract customers on the basis of their
ambiance, convenience, rapid service, and fresh quality deli food at a
reasonable price.

The Company has historically done virtually no advertising, relying
instead upon site selection, customer satisfaction, special promotions of daily
and seasonal specials, and new products to attract customers and encourage
their return.

Retail prices vary among the different markets in which the units are
located, with average lunch tickets ranging from $4.00 to $6.50, depending on
location, and breakfast tickets averaging approximately one-third of that
amount. Operating hours for the Company's restaurants are tailored to the
location, with most units open from seven a.m. until four p.m. to serve office
worker customers.

Typical staffing for a flagship Wall Street Deli includes a manager
and assistant manager, and 12 to 18 other employees. In R.C. Cooper's units,
typical staffing consists of a manager and approximately four other employees.
Most restaurant employees work at least 35 hours each week, which the Company
considers full-time, but some part-time employees are used as appropriate.

Unit managers, as well as district and regional managers, are
compensated on a salary-plus-bonus basis, with bonuses based on sales and gross
profits. The Company believes this incentive structure directly enhances
restaurant quality and service. Since most of the restaurants are primarily
geared to office environments, and thus to office working hours, the Company
also believes that it enjoys a competitive advantage by its ability to attract
and recruit employees, especially as unit managers and manager trainees,
because of the absence of night and weekend restaurant hours.

The Company prepares a weekly food and labor cost analysis and report
for each unit. These analyses are completed each Wednesday afternoon and
transmitted electronically to local and district managers so that local
management may examine each unit's weekly productivity, affording management
the ability quickly to recognize and address trends in same-store sales and
profitability.

As a result of the evaluation of its commissary operation undertaken
by the Company during 1995, the Company closed its commissaries and converted
to standardized, single source direct store vendor distribution delivery of
food and non-food items.

The Company maintains general liability, casualty and workers
compensation insurance in types and coverage amounts believed by management to
be reasonable in light of the Company's prior loss experience and in relation
to premium costs. The Company maintains casualty insurance on its office
facilities, but not on its restaurants. To date, the Company has not
experienced any material uninsured casualty or liability claims or losses. The
Company's workers compensation coverage is provided under a plan in which
premiums consist of an annual base premium plus actual claim costs for the year
and subject to certain adjustments.

<PAGE> 7

COMPETITION

The Company must compete both for restaurant locations and for
customers against a substantial number of franchised and independent restaurant
operators. The quick service restaurant business is highly competitive and is
often affected by changes in local demographics, local and national economic
conditions, and the tastes and eating habits of the public. The principal
bases of competition in the industry are the location and attractiveness of
facilities and the quality and price of the products offered.

The Company's restaurants are in competition with restaurants operated
or franchised by national, regional and local companies, many of which are well
established and have substantially greater financial resources and experience
than the Company. The Company competes for its locations on the basis of
design, flexibility and space utilization, and the quality of food and overall
attractiveness of its restaurants. The Company competes for customers
primarily on the basis of restaurant location, ambiance, price-value
relationship, unique menu and menu variety, and food product quality. While
the Company believes that its delicatessen-style restaurants are distinctive in
design and operating concept, it is aware of other restaurants that operate
with similar concepts.

GOVERNMENT REGULATION

Each of the Company's restaurants is subject to inspection and
regulation by public health authorities. Most leasehold improvements made to
the Company's restaurants are subject to local and state building code
requirements. The Company is subject to the Fair Labor Standards Act which
governs such matters as minimum age requirements, overtime and other working
conditions. The Company believes that its conduct of business is in
substantial compliance with these and other applicable government regulations.

A large number of the Company's restaurant personnel are paid at or
based upon the federal minimum wage level. Accordingly, changes in such
minimum wage affect the Company's labor costs. In August 1996, legislation was
enacted to increase the minimum wage from $4.25 per hour to $5.15. The Company
has approximately 190 employees who are paid less than $5.15 per hour.

A significant number of the Company's employees are not covered by
health insurance. The Company is unable to predict the scope or effect, if
any, of any future government regulation or legislation affecting employee
health care benefits.

SERVICE MARKS

The Company's trade name "WALL STREET DELI" and its design were
registered as a service mark on the Principal Register of the United States
Patent and Trademark Office in 1993. In 1990, the Company's trade name "R. C.
COOPER'S" was registered as a service mark. The service mark "SANDWICH CHEF"
and design was registered on the Principal Register of the United States Patent
and Trademark Office in 1974.

EMPLOYEES

As of June 29, 1996, the Company employed approximately 1,420 persons,
including 40 managerial, 26 administrative and 1,354 restaurant employees. No
labor unions represent any of the Company's employees. The Company considers
its relationship with employees to be good.

5
<PAGE> 8

INFORMATION AS TO CLASSES OF SIMILAR PRODUCTS OR SERVICES

The Company operates in only one industry segment. All significant
revenues and pre-tax earnings relate to retail sales of food to the general
public through company-owned and company-operated restaurants. The Company has
no operations outside the continental United States.

ITEM 2. PROPERTIES

RESTAURANT LOCATIONS

The Company leases all of its division offices and restaurants.

The following table shows the locations of the Company's restaurants
by city at June 29, 1996:

<TABLE>
<CAPTION>
Wall Street Deli Wall Street Deli
City Flagships Other R.C. Cooper's Total
- ------------- --------- --------- ------------- -----
<S> <C> <C> <C> <C>
Birmingham 5 4 1 10

Memphis 1 2 7 10

Houston 7 4 -- 11

Dallas 6 5 4 15

Denver 5 4 0 9

Washington 18 1 2 21

Chicago 16 1 1 18

Cincinnati 4 -- -- 4

St. Louis 2 -- -- 2

Philadelphia 7 -- -- 7

Atlanta 4 1 -- 5

Louisville 1 -- -- 1

Cleveland 2 1 -- 3

Newark 1 -- -- 1

New York 1 -- -- 1

Indianapolis 1 -- -- 1

Los Angeles 4 -- -- 4

Minneapolis 1 -- -- 1
--- --- --- ---

Totals 86 23 15 124
== == == ===
</TABLE>

6
<PAGE> 9
While the general economy in the various cities is an important
element, the Company's experience is that careful placement of restaurant units
in office buildings and regional malls is in many respects unique to each
situation. The locations and character of the restaurants, and the effect of
those elements on their suitability, adequacy, productive capacity and
utilization is integral to the Company's business, and is discussed in Item 1
of this Report, particularly under the caption "Site Selection Criteria and
Leasing."

Mr. Alan Kaufman, Chairman of the Board, and Mr. Robert Barrow,
President, are general partners of WESCO Associates, which until February 1996
leased to the Company its executive offices and commissary at Birmingham,
Alabama, and of CBK Associates, which leases to the Company its catering
offices in Memphis, Tennessee. The space leased from CBK Associates was
increased by approximately 40% in 1990, and in April 1995, this lease was
extended four additional years to June, 2000. During the Company's 1994, 1995
and 1996 fiscal years, rents paid to WESCO Associates were $32,400, $33,204 and
$24,036, respectively, and rents paid to CBK Associates were $77,124, $79,056
and $74,712, respectively.

Mr. Alan Kaufman, Mr. Robert Barrow, Mr. Jeffrey Kaufman, Executive
Vice President, and Mr. Steve Barrow (Mr. Robert Barrow's son and an employee
of the Company since 1988) are general partners in Rex Associates, which leases
to the Company its administrative offices in Memphis, Tennessee. The
administrative office lease was entered into effective as of May 1994 for a
term of 10 years beginning September 1, 1994, and provides for an annual
escalation of rents based on the consumer price index. During the Company's
1995 and 1996 fiscal years, rent paid to Rex Associates totalled $25,875 and
$62,690, respectively.

ITEM 3: LEGAL PROCEEDINGS

The Company is party to several pending legal proceedings, all of
which are deemed by the management of the Company to be ordinary routine
litigation incidental to the business, and none of which is believed likely to
have a material adverse effect on the Company, its financial position or
operations.

ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

During the fourth quarter of the Company's fiscal year covered by this
report, no matter has been submitted to a vote of security holders, through the
solicitation of proxies or otherwise.

7
<PAGE> 10

ITEM 4.1: EXECUTIVE OFFICERS

The executive officers of the Company as of the end of fiscal 1996
were as follows:

<TABLE>
<S> <C>
Alan V. Kaufman Chairman of the Board

Robert G. Barrow President, Chief Executive Officer and Chief Financial Officer

Arnold McGruder Treasurer and Chief Accounting Officer

Jeffrey V. Kaufman Executive Vice President and Chief Operating Officer
</TABLE>

Mr. Alan Kaufman, age 59, was Chairman of the Board, Chief Executive
Officer and President of the Company from its formation in 1966 through 1995.
After the close of the 1995 fiscal year, Mr. Kaufman stepped down as President
and Chief Executive Officer, and continues as its Chairman. Mr. Kaufman is the
father of Jeffrey V. Kaufman.

Mr. Robert Barrow, age 60, has been President and Chief Executive
Officer since 1995. Prior to holding these positions, Mr. Barrow served as
Executive Vice President and Chief Financial Officer from 1981 to 1995 and has
served as a Director of the Company since its formation in 1966.

Mr. McGruder, age 48, is a Certified Public Accountant and has served
as Treasurer and Chief Accounting Officer of the Company since September 1995.
Before joining the Company, Mr. McGruder was employed by Valley Products Co.,
Inc., as Chief Financial Officer from 1990 through 1995.

Mr. Jeffrey Kaufman, age 35, has been employed by the Company since
1985 and has served in the position of Executive Vice President and Chief
Operating Officer since 1995. He served as Vice President, Central Region,
from 1989 until his promotion to Senior Vice President - National Operations
Manager in August 1992 and has served as a Director of the Company since 1995.
Mr. Kaufman is the son of Alan V. Kaufman.

8
<PAGE> 11

PART II

ITEM 5: MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS

The Company's Common Stock is traded in the over-the-counter market
and is quoted in the NASDAQ National Market System under the symbol WSDI. The
following table sets forth, for the fiscal periods indicated, the high and low
sales prices as reported on the NASDAQ National Market System.

<TABLE>
<CAPTION>
FISCAL 1995 High Low
---- ---
<S> <C> <C>
Quarter Ended October 1, 1994 14 1/4 11 1/2
Quarter Ended December 31, 1994 14 1/4 9 1/4
Quarter Ended April 1, 1995 10 8
Quarter Ended July 1, 1995 9 3/4 7

<CAPTION>
FISCAL 1996 High Low
---- ---

<S> <C> <C>
Quarter Ended September 30, 1995 9 5/8 7
Quarter Ended December 30, 1995 8 1/2 5 1/4
Quarter Ended March 30, 1996 6 5/8 4 7/8
Quarter Ended June 29, 1996 6 5/8 5 1/8
</TABLE>

On August 30, 1996, there were approximately 409 record holders of the
Company's Common Stock, including shares held in "street name" by nominees who
are record holders.

The Company has never declared or paid a cash dividend, and it is the
present policy of the Board of Directors to retain all earnings for the
development of the Company's business. Any payment of dividends in the future
will depend upon the Company's earnings, capital requirements, financial
condition and such other factors as the Board of Directors may deem relevant.
In the past, the Company from time to time has effected stock splits in the
form of stock dividends, resulting in the issuance of additional shares of
Common Stock to the shareholders of the Company. No assurances are made that
the Company will effect any stock splits or declare any stock dividends in the
future.

ITEM 6: SELECTED FINANCIAL DATA

<TABLE>
<CAPTION>
1996(1) 1995(2) 1994 1993 1992
---- ---- ---- ---- -----
<S> <C> <C> <C> <C> <C>
Net sales $69,399,058 $68,228,119 $58,858,043 $47,750,103 $43,065,268

Net income (loss) (2,457,706) (921,011) 1,956,807 1,408,472 993,345

Earnings (loss) per share (.72) (.27) .58 .53 .40

Average shares 3,407,874 3,422,701 3,381,892 2,668,975 2,463,411
outstanding
Total assets $25,668,894 $29,163,709 $26,669,807 $22,450,717 $14,938,540
</TABLE>

<PAGE> 12

<TABLE>
<S> <C> <C> <C> <C> <C>
Stockholders' equity $18,229,590 $20,653,157 $21,485,457 $19,461,733 $10,192,259
Return on average
stockholders' equity (12.6)% (4.4)% 9.6% 9.5% 10.7%
Return on average assets (9.0)% (3.3)% 8.0% 7.5% 6.9%
Restaurants in operation at
year-end 124 1282 122 119 123

</TABLE>

1. Net loss includes a non-cash charge of $4.7 million taken as an
operating expense related to the adoption of Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of."

2. During the fourth quarter of fiscal 1995, the Company formally adopted
a plan to close 11 existing stores and its commissary locations. In
connection therewith a charge of $3.2 million to implement the plan
was recognized as an operating expense.

ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

The following is management's discussion and analysis of certain
significant factors that have affected the Company's financial condition and
earnings during the periods included in the accompanying consolidated balance
sheets and statements of operations.

Results of Operations

The following table sets forth, for the periods indicated, the
percentages of net sales represented by certain items in the Company's
consolidated statements of income.

<TABLE>
<CAPTION>
Fiscal Year Ended
-----------------------------------------
June 29, July 1, July 2,
1996 1995 1994
------- ------ -----
<S> <C> <C> <C>
Net sales 100.0% 100.0% 100.0%
Cost of sales 88.7 86.7 84.9
----- ----- -----
Gross profit 11.3 13.3 15.1
Administrative and general 10.7 10.9 10.8
Impairment of long-lived assets 6.8 .0 .0
Provision for estimated loss on disposal
of assets held for sale .0 4.8 .0
----- ----- -----
Operating income (loss) (6.2) (2.4) 4.3

Other income (expenses):
(Interest expense) and other income, net .4 .1 .4
----- ----- -----
Income (loss) before taxes on income (benefit) (5.8) (2.3) 4.7
Taxes on income (benefit) (2.2) (.9) 1.4
----- ----- -----
Net income (loss) (3.6)% (1.4)% 3.3%
===== ===== =====
</TABLE>

10
<PAGE> 13

FISCAL 1996 COMPARED TO FISCAL 1995

Net Sales

Net sales increased $1,170,939 or 1.7 percent over the prior year.
During the 1996 fiscal year, the Company opened nine new stores and sold or
closed thirteen of its units that did not meet or no longer met performance
goals. The increase in sales in 1996 over 1995 came primarily from new stores,
which had higher sales than stores closed during the year. The Company's sales
by concept for each of the last two fiscal years and the percent of total sales
are shown in the schedule below:

<TABLE>
<CAPTION>
Total Sales Total Sales
Concept Fiscal 1996 % of Total Fiscal 1995 % of Total
-------------- ----------- ---------- ------------ ----------
<S> <C> <C> <C> <C>
Wall Street Deli $58,962,226 85.0% $54,117,297 79.3%
R. C. Cooper's 7,114,922 10.3 10,392,019 15.2
Catering 3,321,910 4.7 3,718,803 5.5
----------- ----- ------------ -----
Total $69,399,058 100.0% $68,228,119 100.0%
=========== ===== =========== =====
</TABLE>

The sales information shown above for Wall Street Deli units and R.C.
Cooper's units includes catering sales made from the stores. The catering
sales shown as a line item above consists only of off premises sales from the
Memphis division, which has a substantial off premises catering business, and
the Washington, D.C. division.

As in the past several years, the Wall Street Deli portion of the
Company's sales continued in fiscal 1996 to grow in relation to the other
concepts, both in absolute terms and as a percentage of the Company's total
sales. The Company presently expects to continue opening only Wall Street
Delis in the immediate future and to continue converting certain R.C. Cooper's
units into Wall Street Delis, and selling or closing others. The Company
tracks sales data for the Wall Street Deli concept by two groups, flagship and
other. The following table sets forth the Company's annual average sales per
unit by concept and group for all units, and the same store sales comparisons
for units open the entire twelve months of the respective periods, for each of
the last two fiscal years.

<TABLE>
<CAPTION>
Average Annual Same Store Sales
Sales Per Unit(*) Change From Prior Year
------------------ ----------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Wall Street Deli Flagships 642,824 $662,253 (5.5)% (4.7)%
Wall Street Deli Other 366,487 344,073 (3.6) .6
R.C. Cooper's Deli 246,353 236,009 (3.3) .3
All Stores $532,395 $514,308 (5.1)% (3.2)%
</TABLE>

(*) Average annual sales per unit are computed retroactively on the basis
of current concept grouping, reflecting in some instances conversions
of R.C. Cooper's units to Wall Street Deli units.

Same store sales in fiscal 1996 declined 5.1 percent as compared to
1995; management believes both economic uncertainties and aggressive expansion
and marketing by competitors had a negative impact on same store sales.

11
<PAGE> 14

During fiscal 1996, the Company implemented only insignificant price
changes, and therefore considers price changes in products sold to have had an
immaterial effect on sales in the current year. The Company's pricing of its
food items varies slightly from store to store and city to city and among the
different concepts. Pricing in the quick- service food business is highly
competitive, and minor adjustments in pricing from time to time, while not
believed material to sales increases or decreases, are believed necessary to
remain competitive.

The only seasonal effect the Company historically has experienced is
that sales are usually lower in the second fiscal quarter of each year due to
the number of holidays in the months of October, November and December. This
affects sales because most of the Company's restaurants are located in or near
office buildings.

Costs of Sales

The cost of sales as a percentage of net sales increased in fiscal
1996 to 88.7 percent from 86.7 percent last year. The major components of cost
of sales for the last two years is set out below:

<TABLE>
<CAPTION>
Percentage
of Dollar
Fiscal 1996 % of Sales Fiscal 1995 % of Sales Change
------------- ----------- ------------- ---------- ------------

<S> <C> <C> <C> <C> <C>
Food/Paper $24,160,921 34.9% $22,947,346 33.7% 5.3%
Labor 16,156,153 23.3 14,279,940 20.9 13.1
Store Expenses 20,434,213 29.4 20,045,438 29.4 2.0
Commissary Expenses 789,190 1.1 1,876,244 2.7 (57.9)
----------- ---- ----------- ----
Total Cost of Sales $61,540,477 88.7% $59,148,968 86.7% 4.0%
=========== ==== =========== ====
</TABLE>

The increase in labor costs is largely attributable to the Company's
decision at the end of fiscal 1995 to change the compensation structure for
store managers by raising the base pay and lowering certain incentive pay
plans. The Company's purpose in instituting this structure is to be more
competitive in hiring managers but this change has raised labor costs as a
percentage of sales.

The Company completed the process of phasing out its commissaries
during fiscal 1996 and a single source vendor system was fully implemented by
June of 1996. The increase in food and paper costs of 1.2 percentage points
was due partially to the new direct store delivery system resulting in higher
food and paper costs but lower commissary costs. Commissary expenses were
reduced 1.6 percentage points, offsetting the increase in food costs.

Administrative and General Expenses

Administrative and general expenses decreased $38,281, or .5 percent,
to $7,423,574 for 1996 from $7,461,855 in 1995. The Company has made
substantial commitments to new management information systems, which are
intended to help slow the growth in administrative and general expenses and
provide administrative efficiencies in the future.

Impairment of Long-Lived Assets

In March 1995, the FASB issued SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long- Lived Assets to be Disposed Of,"
which requires the evaluation of assets based on estimated future

12
<PAGE> 15

cash flows. Although early adoption of SFAS No. 121 is encouraged, it is not
required until the first quarter of fiscal 1997. Wall Street Deli elected to
adopt SFAS No. 121 in the fourth quarter of 1996.

As discussed in Note 5 of the Notes to Consolidated Financial
Statements, the Company recorded its initial, non-cash charge upon adoption of
SFAS No. 121 in 1996, resulting in a significant effect on results of
operations. Historically, the Company had evaluated and measured its
restaurant properties for impairment by groups on a regional basis to determine
if the region was operating at a loss or was expected to operate at a loss in
the future. The Company's previous accounting policy required no evaluation of
impairment for the fiscal years 1994 and 1995 due to each region's operating
history and expected future performance. As a result of adopting SFAS No. 121,
the Company now evaluates and measures for impairment on an individual store
basis. This change resulted in a charge of $4,712,562 to reduce the carrying
amount of 14 units or 11% of all Company restaurant units. The charge
represented approximately 13% of the total carrying amount of long-lived
assets. The reduced carrying amount of assets is presently expected to reduce
1997 depreciation and amortization by approximately $600,000. Also, because
the Company now evaluates each restaurant unit for impairment, future charges,
while not expected to approach the magnitude of the initial charge recorded in
1996, are reasonably possible as estimates of future cash flows change. These
charges will generally arise as estimates used in the evaluation and
measurement of impairment upon adoption of SFAS No. 121 are refined based on
new information or as a result of future events or changes in circumstances
that cause other stores to be impaired. Also, any future expenditures for
impaired units that would normally be capitalized will have to be immediately
evaluated for recoverability.

The initial impact of adopting SFAS No. 121, as well as its ongoing
application, will generally result in lower closure costs or increased gains
for impaired stores that are closed or sold, respectively.

Interest Expense

In fiscal 1996, the Company had net interest expense of $188,038
compared to net interest expense of $121,442 in 1995. Interest expense is
related solely to the Company's $7,500,000 unsecured line of credit which bears
interest at the lower of the 30 day LIBOR rate plus 175 basis points or the
bank's quoted cost of funds plus 175 basis points. The Company had $2,500,000
outstanding against this line at June 29, 1996, down from $3,150,000 at July 1,
1995. The interest expense for fiscal 1996 of $245,752 was offset by $57,714
interest earned by the Company on notes receivable from prior sales of fixtures
and equipment in various stores.

Taxes on Income (Benefit)

As a result of the impairment charge recognized in the fourth quarter,
the Company experienced a tax benefit for fiscal 1996 of $1,536,500 compared to
a tax benefit last year of $635,600. The effective tax benefit on income was
38.5 percent in fiscal 1996, which was greater than the statutory rate, mainly
as a consequence of the availability of tax credits.

FISCAL 1995 COMPARED TO FISCAL 1994

Net Sales

Net sales in fiscal 1995 increased $9,370,076 or 15.9 percent over the
prior year. During the 1995 fiscal year, the Company opened 14 new stores and
sold or closed eight of its units which no longer met corporate cash flow
goals. The increase in sales in 1995 over 1994 came from the 14 new stores,
including new markets in Los Angeles, California and Minneapolis, Minnesota,
which had much higher sales than the 8 stores closed during the year. The
Company's sales by concept for each of fiscal 1994 and fiscal 1995 and the
percent of total sales

13
<PAGE> 16
are shown in the schedule below:

<TABLE>
<CAPTION>
Total Sales Total Sales
Concept Fiscal 1995 % of Total Fiscal 1994 % of Total
-------------- ------------- ---------- -------------- ----------
<S> <C> <C> <C> <C>
Wall Street Deli $54,117,297 79.3% $43,202,935 73.4%
R. C. Cooper's 10,392,019 15.2 12,227,441 20.7
Catering 3,718,803 5.5 2,572,184 4.4
Other -- -- 855,483 1.5
----------- ----- ----------- -----
Total $68,228,119 100.0% $58,858,043 100.0%
=========== ===== =========== =====

</TABLE>

The sales information shown above for Wall Street Deli units and
R.C. Cooper's units both include catering sales made from the stores. The
catering sales shown as a line item above consists only of off premises sales
from the Memphis division, which has a substantial off premises catering
business.

The Company also tracks sales data for the Wall Street Deli concept by
two groups, flagship and other. The Company's annual average sales per unit by
concept and group for all units, and the same store sales comparisons for units
open the entire twelve months of the respective periods, for each of the last
two fiscal years are set forth below.

<TABLE>
<CAPTION>
Average Annual Same Store Sales
Sales Per Unit Change From Prior Year
------------------------- ------------------------
1995 1994 1995 1994
--------- ---------- ----- ------
<S> <C> <C> <C> <C>
Wall Street Deli Flagships $680,601 $740,794 (4.7)% 6.6%
Wall Street Deli Other 370,533 365,184 .6 6.6
R.C. Cooper's Deli 273,795 263,752 .3 (.6)
All Stores $528,160 $481,224 (3.2)% 4.3%
</TABLE>

During fiscal 1995, the Company implemented only insignificant price
changes, and therefore considers price changes in products sold to have had an
immaterial effect on sales in the current year. The Company's pricing of its
food items varies slightly from store to store and city to city and among the
different concepts. Pricing in the quick- service food business is highly
competitive, and minor adjustments in pricing from time to time, while not
believed material to sales increases or decreases, are believed to be necessary
to remain competitive.

The Company's business, particularly the sales component, is subject
to both general economic conditions and competition in the market place. Same
store sales in fiscal 1995 declined 3.2 percent as compared to 1994; management
believes both economic uncertainties and aggressive expansion and marketing by
competitors had a negative impact on same store sales. Local and national
economic uncertainties, as well as actual downturns, have in the past adversely
affected sales and profitability, and should be expected to have similar
effects in the future. Increased competition in both established markets and
new markets is also believed to be reflective of an overall trend in the
industry, and the Company expects that trend will continue for the foreseeable
future.

14
<PAGE> 17

December. This affects sales because most of the Company's restaurants are
located in or near office buildings.

Costs of Sales

The cost of sales as a percentage of net sales increased in fiscal
1995 to 86.7 percent from 84.9 percent in the prior year. The major components
of cost of sales for fiscal 1994 and fiscal 1995 are set out below:

<TABLE>
<CAPTION>
Percentage
of Dollar
Fiscal 1995 % of Sales Fiscal 1994 % of Sales Change
------------- ----------- ------------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Food/Paper $22,947,346 33.7% $19,917,598 33.8% 15.2%
Labor 14,279,940 20.9 12,192,468 20.7 17.1
Store Expenses 20,045,438 29.4 16,056,012 27.3 24.8
Commissary Expenses 1,876,244 2.7 1,827,911 3.1 2.6
----------- ------- ----------- -------
Total Cost of Sales $59,148,968 86.7% $49,993,989 84.9% 18.3
=========== ======= =========== =======
</TABLE>

The 2.1 percent increase in store expenses is the primary cause of
the 1995 increase in cost of sales. The increase in store expenses resulted
from a decline in same store sales and lower than expected sales from certain
new stores opened in 1995, both of which cause fixed store expenses to be
higher as a percentage of sales. The increase in store expenses was partially
offset by a decrease of .4 percent in commissary expenses.

Administrative and General Expenses

Administrative and general expenses increased $1,149,595, or 18.2
percent, to $7,461,855 for 1995 from $6,312,260 in 1994. Included in the 1995
expenses is a fourth quarter addition of $500,000 to the Company's insurance
reserves as a result of some unfavorable claims ratios that became apparent in
the fourth quarter. The Company's coverages are provided under retroactive
plans in which premiums consist of a base premium plus actual claim costs for
the prior year and subject to certain adjustments. This increase in reserves
accounts for nearly half the increase over 1994 administration and general
expenses. Increased staff at the corporate level and increased computer
equipment and programming charges also contributed to the increase for 1995
over 1994.

Provision for Estimated Loss on Disposal of Assets Held for Sale

The Company recorded a pre-tax charge of $3,234,187 in the fourth
quarter of 1995 in connection with the adoption and implementation of a plan
for disposal of certain assets. This plan included closing 11 non-performing
stores located in Birmingham, Memphis, Dallas, Washington, D.C., St. Louis,
Indianapolis, and Minneapolis, and closing all of the Company's remaining
commissary locations.

In connection with this plan a provision of $2,086,237 was recorded
related to the write-down of equipment, fixtures and leasehold improvements,
and a provision of $1,147,950 was recorded related to anticipated lease
cancellation payments and severance payments to employees. As of June 29,
1996, the Company had closed all the commissary locations and had closed or
sold five of the eleven non-performing stores. Payments of $542,134 were
charged against the provision during fiscal 1996. Of the remaining six stores,
management has plans to close one store in October 1996, has been actively
negotiating lease cancellation terms on three of the properties and has entered
into negotiations to sell the remaining two properties. Management believes
that all of the remaining stores will be either closed or sold within the next
six to twelve months.

15
<PAGE> 18

Interest Expense (Income)

In fiscal 1995, the Company had net interest expense of $121,442
compared to interest income of $92,819 in 1994. Interest expense is related
solely to the Company's $7,500,000 unsecured line of credit which bears
interest at the lower of the 30 day LIBOR rate plus 150 basis points or the
bank's prime rate. The Company had $3,150,000 outstanding against this line at
July 1, 1995, up from $1,500,000 at July 2, 1994. The interest expense for
fiscal 1995 of $195,834 was offset by $74,392 interest earned by the Company on
notes receivable from prior sale of fixtures and equipment in various stores.

Taxes on Income (Benefit)

As a result of the pre-tax charge taken in the fourth quarter, the
Company experienced a tax benefit for fiscal 1995 of $635,600 compared to a tax
expense last year of $805,000. The effective tax rate on income was 29.1
percent in fiscal 1994, which was below the statutory rate mainly as a
consequence of the availability of jobs tax credits. The Targeted Jobs Tax
Credit law expired in December 1994.

IMPACT OF INFLATION

Many of the Company's employees are paid hourly rates related to the
federal minimum wage. Accordingly, inflation-related annual increases in the
minimum wage have historically increased the Company's labor costs. In August
1996, legislation was enacted to increase the minimum wage from $4.25 per hour
to $5.15. The Company has approximately 190 employees who are paid less than
$5.15 per hour. Construction costs have also increased to developers who lease
space to the Company. Developers have in turn increased and may continue to
increase rents for Company restaurants. In addition, most of the leases for
Company restaurants contain rent escalation clauses based upon cost increases
incurred by lessors. In most cases, the Company has been able to increase
prices sufficiently to match increases in its operating costs, but there is no
assurance that it will be able to do so in the future.

LIQUIDITY AND CAPITAL RESOURCES

The Company's ability to obtain the cash required for the conduct of
its business depends upon cash from operations and, to a lesser extent, bank
borrowings. Historically, cash flow from operations and periodic bank
borrowings generally have been sufficient to finance the expansion of the
Company's business. The Company does not maintain significant receivables or
inventory and it receives trade credit in purchasing food and supplies. Since
funds are available from cash sales, but are not required immediately to pay
for food and supplies or to finance receivables or inventory, such funds may be
used for non-current capital expenditures. In the process of reconfiguring the
Company's production units, stores not meeting the Company's performance
criteria are closed and the furniture and equipment sold. The terms of some
such sales require the Company to take back notes, which are contained in the
Company's notes receivable balance, for all or a portion of the sale price.

The Company's principal capital requirement is for new equipment and
leasehold improvements for new and existing restaurants. Capital expenditures
for these purposes were $10,278,019, $6,680,019 and $3,990,107 for fiscal years
1994, 1995, and 1996, respectively. The Company has historically met its
capital needs from short term bank borrowings and internally generated funds.
The Company currently has in place a line of credit which provides for
borrowings up to $7,500,000 from AmSouth Bank of Alabama pursuant to the terms
of a Credit Agreement dated June 19, 1996 (the "Credit Agreement"). The Credit
Agreement contains certain covenants that require, among other things, the
Company to maintain a certain tangible net worth, to limit the annual capital
expenditures of the Company, and certain other covenants. The Company is in
compliance with these covenants. It is presently anticipated that the
Company's capital expenditures for fiscal 1997 will be

16
<PAGE> 19

approximately $3,000,000. Cash generated from operations totaled $5,026,503,
$4,337,320, and $4,944,448 for fiscal years, 1994, 1995, and 1996,
respectively. The Company expects its future capital needs will be met
primarily by internally generated funds and supplemented, as needed, by
additional bank borrowings.

ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The following financial statements and supplementary data are
contained at pages 18 through 39 of this report:
<TABLE>
<CAPTION>
Page
-----
<S> <C>
Report of Independent Certified Public Accountants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Consolidated Financial Statements for Years ended June 29, 1996,
July 1, 1995 and July 2, 1994:
Consolidated Balance Sheets - June 29, 1996 and July 1, 1995 . . . . . . . . . . . . . . . . . . . . 19
Consolidated Statements of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Consolidated Statements of Stockholders' Equity . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Consolidated Statements of Cash Flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

Summary of Accounting Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25

Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29

Selected Quarterly Financial Data (unaudited) (appearing at Note 9 . . . . . . . . . . . . . . . . . . . . . 37
of the Notes to Consolidated Financial Statements)
</TABLE>

17
<PAGE> 20

Report of Independent Certified Public Accountants

Wall Street Deli, Inc.
Memphis, Tennessee

We have audited the accompanying consolidated balance sheets of Wall Street
Deli, Inc. and subsidiaries as of June 29, 1996 and July 1, 1995, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for each of the three years in the period ended June 29, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Wall Street Deli, Inc. and
subsidiaries at June 29, 1996 and July 1, 1995, and the results of their
operations and their cash flows for each of the three years in the period ended
June 29, 1996, in conformity with generally accepted accounting principles.

/s/ BDO Seidman, LLP

BDO Seidman, LLP

Memphis, Tennessee
August 8, 1996

18
<PAGE> 21

<TABLE>
<CAPTION>
JUNE 29, 1996 July 1, 1995
------------- -------------
<S> <C> <C>
ASSETS
CURRENT
Cash and cash equivalents $ 1,882,844 $ 921,616
Accounts and notes receivable (Note 1) 1,636,230 2,104,109
Inventories 686,809 1,060,503
Prepaid expenses and other 278,732 1,311,344
Refundable income taxes 239,670 120,729
Deferred tax benefit (Note 6) 1,043,000 1,594,400
------------ -----------

Total current assets 5,767,285 7,112,701
------------ -----------

EQUIPMENT AND IMPROVEMENTS (Note 5)
Equipment and fixtures 18,114,226 18,399,808
Leasehold improvements 14,672,885 15,463,074
------------ -----------

32,787,111 33,862,882

Less accumulated depreciation and amortization (16,190,946) (12,898,679)
------------ -----------

Net equipment and improvements 16,596,165 20,964,203
------------ -----------

OTHER
Cash surrender value of insurance ($2,251,010
and $2,191,010 face amount) on officers' lives 607,341 595,554
Long-term portion of notes receivable (Note 1) 743,103 431,151
Deferred tax benefit (Note 6) 1,955,000 60,100
------------ -----------

Total other assets 3,305,444 1,086,805
------------ -----------

$ 25,668,894 $ 29,163,709
============ ============
</TABLE>

19
<PAGE> 22
WALL STREET DELI, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
JUNE 29, 1996 July 1, 1995
------------- ------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable to bank (Note 2) $ 2,500,000 $ 3,150,000
Accounts payable 1,718,621 1,873,429
Accruals:
Taxes other than income 969,920 722,083
Compensation (Note 4) 506,106 591,334
Rent (Note 4) 624,411 1,265,933
Workers' compensation 565,687 314,861
Miscellaneous 554,559 592,912
----------- -----------

Total current liabilities 7,439,304 8,510,552
----------- -----------

COMMITMENTS AND CONTINGENCIES (Note 8)

STOCKHOLDERS' EQUITY (Note 3)
Common stock, $.05 par - shares authorized 20,000,000;
issued 3,411,043 and 3,403,354 170,552 170,168
Additional paid-in capital 10,766,896 10,733,141
Retained earnings 7,302,690 9,760,396
----------- -----------

18,240,138 20,663,705

Treasury stock, at cost, 1,075 shares (10,548) (10,548)
----------- -----------

Total stockholders' equity 18,229,590 20,653,157
----------- -----------

$25,668,894 $29,163,709
=========== ===========
</TABLE>

See accompanying summary of accounting policies and notes to consolidated
financial statements.

20
<PAGE> 23
WALL STREET DELI, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
Year ended
-------------------------------------------------------
JUNE 29, 1996 JULY 1, 1995 July 2, 1994
------------- ------------ ------------
<S> <C> <C> <C>
NET SALES $ 69,399,058 $68,228,119 $58,858,043
------------ ----------- -----------

COST OF SALES
Food and paper costs 24,160,921 22,947,346 19,917,598
Direct labor 16,156,153 14,279,940 12,192,468
Other operating expenses 21,223,403 21,921,682 17,883,923
------------ ----------- -----------

TOTAL COST OF SALES 61,540,477 59,148,968 49,993,989
------------ ----------- -----------
GROSS PROFIT 7,858,581 9,079,151 8,864,054

ADMINISTRATIVE AND GENERAL 7,423,574 7,461,855 6,312,260
IMPAIRMENT OF LONG-LIVED ASSETS (Note 5) 4,712,562 - -
FACILITIES CLOSING COSTS (Note 4) - 3,234,187 -
------------ ----------- -----------

OPERATING INCOME (LOSS) (4,277,555) (1,616,891) 2,551,794
------------ ----------- -----------

OTHER INCOME (EXPENSES)
Gain on disposal of leasehold
improvements and equipment 369,573 113,710 34,374
Interest expense (245,752) (195,834) (23,745)
Interest income 57,714 74,392 116,564
Other income - net 101,814 68,012 82,820
------------ ----------- -----------

TOTAL OTHER INCOME 283,349 60,280 210,013
------------ ----------- -----------

INCOME (LOSS) BEFORE TAXES ON
INCOME (BENEFIT) (3,994,206) (1,556,611) 2,761,807

TAXES ON INCOME (BENEFIT) (Note 6) (1,536,500) (635,600) 805,000
------------ ----------- -----------

NET INCOME (LOSS) $ (2,457,706) $ (921,011) $ 1,956,807
============ =========== ===========

EARNINGS (LOSS) PER SHARE OF
COMMON STOCK $ (.72) $ (.27) $ .58
============ =========== ===========

WEIGHTED AVERAGE NUMBER OF COMMON
AND COMMON EQUIVALENT SHARES
OUTSTANDING 3,407,874 3,422,701 3,381,892
============ =========== ===========
</TABLE>

See accompanying summary of accounting policies and notes to consolidated
financial statements.

21
<PAGE> 24
WALL STREET DELI, INC.
AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

Common stock Treasury stock
------------------------- Additional --------------------
Number paid-in Retained Number
of shares Amount capital earnings of shares Amount
----------- --------- ------------- ------------ ---------- ------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, July 3, 1993 3,328,611 $ 166,431 $10,690,702 $8,724,600 10,000 $120,000

Net income for the year - - - 1,956,807 - -
Exercise of stock options 62,636 3,131 30,297 - (2,752) (33,489)
------------ --------- ----------- ----------- ------- --------

BALANCE, July 2, 1994 3,391,247 169,562 10,720,999 10,681,407 7,248 86,511

Net loss for the year - - - (921,011) - -
Exercise of stock options 12,107 606 12,142 - (16,173) (174,088)
Purchase of treasury stock - - - - 10,000 98,125
------------ --------- ----------- ----------- ------- --------

BALANCE, July 1, 1995 3,403,354 170,168 10,733,141 9,760,396 1,075 10,548

Net loss for the year - - - (2,457,706) - -
Exercise of stock options 7,689 384 33,755 - - -
------------ --------- ----------- ----------- ------- --------

BALANCE, June 29, 1996 3,411,043 $ 170,552 $10,766,896 $ 7,302,690 1,075 $ 10,548
============ ========= =========== =========== ======= ========
</TABLE>

See accompanying summary of accounting policies and notes to consolidated
financial statements.

22
<PAGE> 25

WALL STREET DELI, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
Year ended
--------------------------------------------------------
JUNE 29, 1996 July 1, 1995 July 2, 1994
-------------- ------------ ------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $(2,457,706) $ (921,011) $ 1,956,807
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Impairment of long-lived assets 4,712,562 - -
Depreciation and amortization 3,490,447 3,888,278 3,115,378
Facilities closing costs - 3,234,187 -
Gain on sale of property and
equipment (369,573) (113,710) (34,374)
Deferred income taxes (1,343,500) (1,484,300) -
Provision for loss on notes and
accounts receivable 167,193 188,960 50,588
Decrease (increase) in operating assets:
Accounts receivable 137,498 (1,009,005) (172,451)
Inventories 373,694 612,955 (282,314)
Prepaid expenses 774,062 (603,761) (165,292)
Refundable income taxes (118,941) 16,476 (137,205)
Increase (decrease) in operating liabilities:
Accounts payable (154,808) 375,319 119,812
Accruals (266,440) 152,932 575,554
----------- ----------- ------------

Cash provided by operating activities 4,944,488 4,337,320 5,026,503
----------- ----------- ------------

INVESTING ACTIVITIES
Payments for purchase of property and
equipment (3,990,107) (6,680,019) (10,278,019)
Proceeds from sale of property and
equipment (Note 7) 338,101 234,250 160,290
Payments received on notes receivable 296,394 335,526 330,835
Increase in cash surrender value of
insurance on officers' lives (11,787) (86,525) (83,374)
----------- ----------- ------------
Cash used by investing activities (3,367,399) (6,196,768) (9,870,268)
----------- ----------- ------------
</TABLE>

23
<PAGE> 26
WALL STREET DELI, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
Year ended
--------------------------------------------------------
JUNE 29, 1996 July 1, 1995 July 2, 1994
-------------- -------------- --------------
<S> <C> <C> <C>
FINANCING ACTIVITIES
Net borrowings (payments) under line
of credit $ (650,000) $1,650,000 $ 1,500,000
Proceeds from exercise of stock options 34,139 186,836 66,917
Purchase of treasury stock - (98,125) -
---------- ---------- -----------

Cash provided (used) by financing activities (615,861) 1,738,711 1,566,917
---------- ---------- -----------

NET INCREASE (DECREASE) IN CASH FOR
THE PERIOD (Note 7) 961,228 (120,737) (3,276,848)

CASH AND CASH EQUIVALENTS, beginning
of period 921,616 1,042,353 4,319,201
---------- ---------- -----------

CASH AND CASH EQUIVALENTS, end
of period $1,882,844 $ 921,616 $ 1,042,353
========== ========== ===========
</TABLE>

See accompanying summary of accounting policies and notes to consolidated
financial statements.

24
<PAGE> 27

WALL STREET DELI, INC.
AND SUBSIDIARIES
SUMMARY OF ACCOUNTING POLICIES

INDUSTRY SEGMENT INFORMATION

The Company owns and operates delicatessen-style restaurants which are located
primarily in office buildings or in high foot traffic retail or business
complexes, primarily in central business districts of large metropolitan cities
throughout the United States. The Company also provides catering services in
those cities in which its restaurants are located.

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries. All material intercompany accounts and
transactions are eliminated.

USE OF ESTIMATES

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements.
Estimates also affect the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying amounts of the Company's financial instruments, consisting of cash
and cash equivalents, notes and accounts receivable, cash surrender value of
life insurance, accounts payable and notes payable approximate their fair
value.

INVENTORIES

Inventories of food and restaurant supplies are valued at the lower of cost
(first-in, first-out) or market. Maintenance and office supplies are not
inventoried.

25
<PAGE> 28

WALL STREET DELI, INC.
AND SUBSIDIARIES
SUMMARY OF ACCOUNTING POLICIES

EQUIPMENT, IMPROVEMENTS, DEPRECIATION AND AMORTIZATION

Equipment and improvements are stated at cost. Depreciation of equipment is
computed using the straight-line method for financial reporting purposes over a
seven year estimated useful life.

Leasehold improvements are amortized using the straight-line method for
financial reporting purposes over the lesser of the useful life of the
improvements or the term of the applicable lease.

As discussed in Note 5, the Company adopted Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of" ("SFAS 121"), in 1996 for purposes of
determining and measuring impairment of certain long-lived assets.

The Company reviews long-lived assets to be held and used in the business for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset or a group of assets may not be recoverable. The
Company considers a history of operating losses to be its primary indicator of
potential impairment. Assets are grouped and evaluated for impairment at the
lowest level for which there are identifiable cash flows. The Company has
identified the appropriate grouping of assets to be individual restaurants.
The Company deems a restaurant's assets to be impaired if a forecast of
undiscounted future operating cash flows directly related to the assets,
including disposal value, if any, is less than their carrying amount. If a
restaurant's assets are determined to be impaired, the loss is measured as the
amount by which the carrying amount of the assets exceeds their fair value.
Fair value is based on quoted market prices in active markets, if available.
If quoted market prices are not available, an estimate of fair value is based
on the best information available, including prices for similar assets or the
results of valuation techniques such as discounting estimated future cash flows
as if the decision to continue to use the impaired assets was a new investment
decision. The Company generally measures fair value based on the Company's
experience in disposing of similar under- performing properties. Considerable
management judgment is necessary to estimate fair value. Accordingly, actual
results could vary significantly from such estimates.

26
<PAGE> 29

WALL STREET DELI, INC.
AND SUBSIDIARIES
SUMMARY OF ACCOUNTING POLICIES

TAXES ON INCOME

Income taxes are calculated using the liability method specified by Statement
of Financial Accounting Standards No. 109, "Accounting for Income Taxes"
("SFAS 109"). Under SFAS 109, the Company provides for estimated income taxes
payable or refundable on current year income tax returns as well as the
estimated future tax effects attributable to temporary differences and
carryforwards. Measurement of deferred income taxes is based upon enacted tax
laws and tax rates, with the measurement of deferred income tax assets reduced
by estimated amounts of tax benefits not likely to be realized.

EMPLOYEE BENEFITS

The Company provides a defined contribution retirement plan for substantially
all of its full-time employees which meets the requirements of Section 401(k)
of the Internal Revenue Code. The Company's policy is to fund the retirement
plan costs accrued.

STOCK OPTIONS

Stock options are granted, under the Company's Incentive Stock Option Plan, to
certain officers and key employees at the prevailing market price on the date
of the grant. Proceeds from the sale of common stock issued under these
options are credited to common stock or treasury stock and additional paid-in
capital at the time the options are exercised. The Company makes no charge to
earnings with respect to these options.

Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" ("SFAS 123"), issued by the Financial Accounting
Standards Board is effective for transactions entered into in fiscal years that
begin after December 15, 1995. The disclosure requirements of SFAS 123 are
also effective for financial statements for fiscal years beginning after
December 15, 1995. The new standard encourages entities to adopt a fair value
method of accounting for employee stock-based compensation plans and requires
such accounting for transactions in which an entity acquires goods or services
from non-employees through issuance of equity instruments. As allowed under
the provision of SFAS 123, the Company will continue to measure compensation
cost for employee stock-based compensation plans using the intrinsic value
based method of accounting prescribed by the Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees." As such, the
Company will make pro forma disclosures of net income and earnings per share as
if the fair value based method of accounting had been applied. The Company
does not expect adoption to have a material effect on its financial position or
results of operations.

The Company maintains an Employee Stock Purchase Plan, which allows eligible
employees to receive grants of stock purchase rights at generally 85% of the
prevailing market rate on the offering date.

27
<PAGE> 30

WALL STREET DELI, INC.
AND SUBSIDIARIES
SUMMARY OF ACCOUNTING POLICIES

EARNINGS PER SHARE

Earnings per share are based on the weighted average number of common shares
outstanding during each year. Common stock equivalents in the form of stock
options and stock purchase rights are also considered in the computation when
the effect is dilutive.

FISCAL YEAR

The Company operates on a 52-53 week fiscal year ending on the Saturday closest
to June 30 of each year. All fiscal year periods presented include 52 weeks.

RECLASSIFICATIONS

Certain 1994 and 1995 amounts have been reclassified to conform to the 1996
presentation.

28
<PAGE> 31

WALL STREET DELI, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. ACCOUNTS AND NOTES RECEIVABLE

Accounts and notes receivable consist of the following:

<TABLE>
<CAPTION>
JUNE 29, July 1,
1996 1995
----------- ------------
<S> <C> <C>
Notes receivable $ 956,462 $ 807,697
Accounts receivable 1,562,011 1,552,644
Due from landlord 26,030 414,883
Miscellaneous 2,458 4,837
----------- ------------

2,546,961 2,780,061
Allowance for doubtful accounts (167,628) (244,801)
------------ -------------

2,379,333 2,535,260
Less long-term portion of notes receivable (743,103) (431,151)
----------- -------------

$ 1,636,230 $ 2,104,109
=========== ============
</TABLE>

The Company's notes receivable generally arise from sales of equipment in
connection with store closings, bear interest at rates ranging from 6 percent
to 12 percent, are repayable monthly and are due at various dates through
January 2003. The notes are collateralized by store equipment.

2. NOTES PAYABLE TO BANK

The Company has a $7,500,000 unsecured line-of-credit agreement with a bank.
Borrowings under the line are payable on demand and bear interest at the lower
of either (i) the 30 day LIBOR rate plus 175 basis points (7.25% at June 29,
1996), or (ii) the quoted cost of funds rate plus 175 basis points (7.19% at
June 29, 1996). Borrowings outstanding at June 29, 1996 and July 1, 1995 were
$2,500,000 and $3,150,000, respectively.

The maximum amount of short-term borrowings outstanding during the years ended
June 29, 1996, July 1, 1995 and July 2, 1994 were $3,800,000, $3,150,000 and
$1,500,000, respectively. Such borrowings averaged approximately $3,283,000 in
1996, $2,274,000 in 1995 and $84,000 in 1994, with a weighted average interest
rate of 7.2%, 7.9% and 8.1%, respectively, for such periods. The interest rate
was

29
<PAGE> 32

WALL STREET DELI, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

calculated by dividing the related interest expense by the average short-term
borrowings outstanding during the respective periods.

3. STOCKHOLDERS' EQUITY

The Company has an incentive stock option plan in effect under which options
may be granted to officers, directors and employees to purchase shares of the
Company's common stock at fair market value at the grant date. Options are
exercisable upon issuance and expire up to five years from the date granted.
Changes in options outstanding are summarized as follows:

<TABLE>
<CAPTION>
Option
Price
Shares Per Share
-------------- ---------------
<S> <C> <C>
BALANCE, July 3, 1993 196,575 $ 3.00-10.50
Granted 46,900 10.00-12.75
Exercised (84,575) 3.00-11.50
Cancelled (225) 6.22
-------------- ---------------

BALANCE, July 2, 1994 158,675 3.00-12.75
Granted 42,000 11.88-13.06
Exercised (14,275) 6.00-11.88
Cancelled or expired (7,550) 3.00-12.75
-------------- ---------------

BALANCE, July 1, 1995 178,850 6.00-13.06
Granted 72,600 5.25-9.25
Exercised (5,400) 6.22
Cancelled or expired (7,500) 6.00-12.75
-------------- ---------------

BALANCE, June 29, 1996 238,550 $ 5.25-13.06
============== ===============
</TABLE>

30
<PAGE> 33

WALL STREET DELI, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

At June 29, 1996, 373,150 shares were reserved for issuance under the plan, of
which 134,600 shares remain available for additional option grants.

The Company has an Employee Stock Purchase Plan which covers full-time
employees meeting the employment requirements, as defined. A maximum of
142,500 shares may be issued under the plan, and the employees' purchase price
is the greater of 85 percent of the fair market value of the stock on the date
of grant or 85 percent of the Company's cost to acquire stock for issuance
under the plan. Rights to acquire shares expire within 12 months from date of
grant if not exercised. Rights to acquire 6,334, 12,985 and 7,248 shares
remained outstanding as of June 29, 1996, July 1, 1995 and July 2, 1994,
respectively. A total of 65,302 shares were reserved under this plan as of
June 29, 1996.

4. FACILITIES CLOSING COSTS

During the fourth quarter of 1995, the Company adopted a plan designed to
dispose of its remaining commissary locations and eleven non-performing stores.
In connection therewith a charge of $3,234,187 to implement the plan was
recognized as an operating expense and included severance payments related to
the commissary closings ($75,630), provision for lease cancellation payments
($1,072,320), and the write-down of equipment and fixtures and leasehold
improvements ($2,086,237) to the expected net realizable value of $384,750.

As of June 29, 1996, the Company had closed all of the commissary locations and
had either closed or sold five of the eleven non-performing stores. Of the
remaining six stores, management has plans to close one store in October 1996,
has been actively negotiating lease cancellation terms on three of the
properties and has entered into negotiations to sell the remaining two
properties. Management believes that all of the remaining stores will either
be closed or sold within the next six to twelve months. Assets held for sale
as of June 29, 1996 and July 1, 1995 were $126,200 and $384,750, respectively.
The Company's results of operations include revenues related to these stores of
approximately $2,608,000, $3,132,000 and $1,317,000, and operating losses of
approximately $20,000, $352,000 and $74,000 for the years ended June 29, 1996,
July 1, 1995 and July 2, 1994, respectively.

31
<PAGE> 34
WALL STREET DELI, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

5. IMPAIRMENT OF LONG-LIVED ASSETS

In March 1995, the FASB issued SFAS 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," which requires
the evaluation of certain assets based upon estimated future cash flows.
Although early adoption of SFAS 121 is encouraged, it is not required until the
first quarter of fiscal 1997. Wall Street Deli elected to adopt SFAS 121 in
the fourth quarter of 1996.

Adoption of SFAS 121 required that Wall Street Deli group assets at a lower
level for evaluation and measurement of impairment than under its previous
accounting policy and resulted in a noncash charge of $4,712,562 (approximately
$2,898,000 after tax). Previously, long-lived assets were evaluated as a
group, on a regional basis, for impairment if the region was operating at a
loss or was expected to operate at a loss in the future. Wall Street Deli's
previous accounting policy required no evaluation of impairment for fiscal
years 1994 and 1995 due to each region's operating profit history and expected
future performance. The Company now evaluates and measures for impairment on
an individual store basis. The charge in 1996 reduced the carrying amount of
impaired assets associated with individual restaurant properties to their
estimated fair market values based on the Company's experience in disposing of
similar under-performing properties. While management believes that estimates
used in evaluation of impairment were reasonable, actual results could vary
significantly.

Depreciation and amortization expense for the fourth quarter of 1996 decreased
by approximately $153,000 ($94,000 after tax) as a result of the reduced
carrying value of impaired assets.

6. TAXES ON INCOME (BENEFIT)

Effective July 4, 1993, the Company adopted SFAS 109. As permitted by SFAS
109, the Company has elected not to restate prior periods' consolidated
financial statements. Adopting this statement did not have a material effect
on the results of operations in fiscal year 1994.

32
<PAGE> 35

WALL STREET DELI, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The components of taxes on income (benefit) are as follows:

<TABLE>
<CAPTION>
Year ended
----------------------------------------
JUNE 29, July 1, July 2,
1996 1995 1994
----------- ------------- ----------
<S> <C> <C> <C>
Current:
Federal $ (222,000) $ 670,700 $ 625,000
State 29,000 178,000 180,000
----------- ----------- ----------

Total current (193,000) 848,700 805,000
----------- ----------- ----------

Deferred:
Federal (1,202,300) (1,248,000) -
State (141,200) (236,300) -
----------- ----------- ----------

Total deferred (1,343,500) (1,484,300) -
----------- ----------- ----------

Taxes on income (benefit) $(1,536,500) $ (635,600) $ 805,000
=========== =========== ==========
</TABLE>

Significant components of the Company's deferred tax assets are comprised of
the following at:

<TABLE>
<CAPTION>
JUNE 29, July 1,
1996 1995
--------------- ------------
<S> <C> <C>
Equipment and improvements $ 2,579,700 $ 1,245,000
Accrual for contingent losses 275,300 267,500
Bad debt allowance 63,700 93,000
Inventory overhead 30,400 41,800
Accrued vacation 11,600 7,200
Other credits 37,300 -
----------- ------------

Total deferred tax assets $ 2,998,000 $ 1,654,500
=========== ============
</TABLE>

33
<PAGE> 36

WALL STREET DELI, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Although realization of the deferred tax assets is not assured, management
believes it is more likely than not that all of the deferred tax asset will be
realized.

The effective tax rate on income before taxes on income was different from the
federal statutory tax rate. The following summary reconciles taxes at the
federal statutory tax rate with actual taxes and the effective rate:

<TABLE>
<CAPTION>
Year ended
---------------------------------------------------------
JUNE 29, 1996 July 1, 1995 July 2, 1994
------------------ ---------------- ----------------
<S> <C> <C> <C>
$ % $ % $ %

Income taxes (benefit) at statutory rate (1,358,000) (34.0) (529,000) (34.0) 939,000 34.0
Increase (decrease) in taxes resulting from:
State income taxes, net of federal tax benefit (74,000) (1.9) (39,000) (2.5) 119,000 4.3
Jobs tax credit and other (104,500) (2.6) (67,600) (4.3) (253,000) (9.2)
----------- ----- -------- ----- -------- ----

Taxes on income (benefit) at effective rate (1,536,500) (38.5) (635,600) (40.8) 805,000 29.1
=========== ===== ======== ===== ======== ====
</TABLE>

7. SUPPLEMENTAL CASH FLOW INFORMATION

For purposes of the statements of cash flows, the Company classifies cash on
hand and in savings and checking accounts and short-term investments with a
maturity of three months or less as cash equivalents.

Supplemental cash flow information:

<TABLE>
<CAPTION>
Year ended
--------------------------------------------
JUNE 29, July 1, July 2,
1996 1995 1994
------------- ------------ ------------
<S> <C> <C> <C>
Cash paid for (received from):
Interest $ 241,567 $ 192,671 $ 13,745
Income taxes (76,588) 787,367 1,065,146
Non-cash financing and investing activities:
Notes received from sale of property and equipment 445,159 165,000 251,500
Exercise of stock options using company stock - - 3,131
</TABLE>

34
<PAGE> 37

WALL STREET DELI, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

8. COMMITMENTS AND CONTINGENCIES

A. LEASES

The Company and its subsidiaries lease, under noncancellable operating leases,
various restaurant facilities and computer equipment. At June 29, 1996, future
minimum lease payments required under leases that have initial noncancellable
terms in excess of one year are as follows:

<TABLE>
<CAPTION>
Fiscal year Minimum
ending lease payments
------------ --------------
<S> <C>
1997 $ 6,943,000
1998 6,711,000
1999 6,517,000
2000 6,310,000
2001 5,950,000
After 2001 16,078,000
--------------

Total $ 48,509,000
==============
</TABLE>

Rent expense for each of the three years in the period ended June 29, 1996 is
as follows:

<TABLE>
<CAPTION>
Year ended
-------------------------------------------
JUNE 29, July 1, July 2,
1996 1995 1994
--------------- ------------- ------------
<S> <C> <C> <C>
Basic rentals:
Noncancellable leases (net of subleases) $ 6,932,203 $ 6,756,539 $ 5,588,381
Cancellable equipment leases 466,360 206,953 221,739
----------- ----------- ------------

7,398,563 6,963,492 5,810,120

Contingent rentals based on sales under noncancellable
leases 418,356 94,158 -
----------- ----------- ------------

Total rent expense $ 7,816,919 $ 7,057,650 $ 5,810,120
=========== =========== ============
</TABLE>

35
<PAGE> 38

WALL STREET DELI, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Company leases certain properties from three partnerships in which certain
officers of the Company are partners. Rents paid to these partnerships for the
fiscal years ended 1996, 1995 and 1994 were approximately $161,000, $138,000
and $110,000, respectively.

B. LETTERS OF CREDIT

The Company has outstanding letters of credit totaling approximately $898,000
which are primarily being used as collateral for the Company's workers'
compensation insurance plan.

C. LITIGATION

The Company is involved in various legal matters in the ordinary course of its
business. None of these matters are expected to have a material adverse effect
on the Company's consolidated financial statements.

D. RETIREMENT PLAN

Effective January 1, 1996, the Company adopted a tax-qualified employee benefit
plan ("Plan") which meets the criteria of Section 401(k) of the Internal
Revenue Code. Under the Plan, participants may elect to defer from 2% to 15%
of their compensation, and the Company may make discretionary contributions, as
determined annually by the Company's management, of up to 10% of the employee's
compensation. Each participant's contribution is fully vested at all times.
Participants become fully vested in contributions made by the Company on a
graduated scale over a seven-year period. Operations were charged with $27,132
related to this plan for the year ended June 29, 1996.

E. CASH IN EXCESS OF FDIC LIMITS

Due to the nature of the business and the volume of sales activity, the Company
accumulates, from time to time, bank balances in excess of the insurance
provided by federal insurance authorities. At June 29, 1996, such excess
balances totaled approximately $137,000.

36
<PAGE> 39

WALL STREET DELI, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

9. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

<TABLE>
<CAPTION>
Thousands of dollars,
except per share data
-------------------------------------------
1st 2nd 3rd 4th
--------- -------- --------- ---------
<S> <C> <C> <C> <C>
Year ended June 29, 1996:
Net sales $ 17,549 $ 17,195 $ 16,975 $ 17,680
Gross profit 1,791 1,760 1,893 2,415 (a)
Income (loss) before taxes on income (benefit) 17 77 78 (4,166)(a)
Net income (loss) 17 52 58 (2,585)
Earnings (loss) per common and common equivalent share .01 .01 .02 (.76)

Year ended July 1, 1995:
Net sales 16,834 16,763 17,153 17,478
Gross profit 2,429 2,276 2,549 1,825
Income (loss) before taxes on income (benefit) 702 557 712 (3,528)(b)
Net income (loss) 472 367 427 (2,187)
Earnings (loss) per common and common equivalent share .14 .11 .12 (.64)
</TABLE>

(a) See Note 5 for discussion of the fourth quarter impairment adjustment. In
addition, the Company recorded a cumulative year-end depreciation
adjustment of approximately $335,000.

(b) See Note 4 for discussion of provision for loss on disposal of assets held
for sale. In addition, the Company recorded a $500,000 increase to
certain insurance reserves as a result of unfavorable claims ratios that
became apparent in the fourth quarter.

37
<PAGE> 40

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULE

Wall Street Deli, Inc.
Memphis, Tennessee

The audits referred to in our report dated August 8, 1996, relating to the
consolidated financial statements of Wall Street Deli, Inc. and subsidiaries,
which is contained in Item 8 of this Form 10-K, included the audits of the
financial statement schedule listed in the accompanying index. This financial
statement schedule is the responsibility of the Company's management. Our
responsibility is to express an opinion on this financial statement schedule
based upon our audits.

In our opinion, such financial statement schedule presents fairly, in all
material respects, the information set forth therein.

/s/ BDO Seidman, LLP

BDO Seidman, LLP

Memphis, Tennessee
August 8, 1996

38
<PAGE> 41

SCHEDULE II

WALL STREET DELI, INC.
AND SUBSIDIARIES

VALUATION AND QUALIFYING ACCOUNTS

<TABLE>
<CAPTION>
Additions
-------------------
Balance Charged
at begin- to costs Charged (1) Balance
ning of and to other Deduc- at end
Description period expenses accounts tions of period
- ----------- ------- --------- -------- ------- ---------

<S> <C> <C> <C> <C> <C>
Allowance for possible losses on
notes and accounts receivable:
Year ended June 29, 1996 $ 244,801 $ 167,193 $ - $244,366 $ 167,628
Year ended July 1, 1995 $ 100,000 $ 188,960 $ - $ 44,159 $ 244,801
Year ended July 2, 1994 $ 102,000 $ 50,588 $ - $ 52,588 $ 100,000
</TABLE>

__________
(1) Amounts charged off during the year

39
<PAGE> 42
ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE

During the fiscal years 1995 and 1996 and through the date of this
report, there has been no change in the Company's independent accountants, nor
have any disagreements with such accountants or reportable events occurred.

PART III

ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS

Information required by this item is incorporated by reference from
the sections entitled "Election of Directors" and "Compliance with Section
16(a) of the Securities Exchange Act of 1934" in the Proxy Statement for the
Annual Meeting of Shareholders to be held November 7, 1996, as filed with the
Securities and Exchange Commission.

ITEM 11: EXECUTIVE COMPENSATION

Information required by this item is incorporated by reference from
the section entitled "Executive Compensation" in the Proxy Statement for the
Annual Meeting of Shareholders to be held November 7, 1996, as filed with the
Securities and Exchange Commission.

ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT

Information required by this item is incorporated by reference from
the sections entitled "Security Ownership of Management and Certain Beneficial
Owners" and "Election of Directors" in the Proxy Statement for the Annual
Meeting of Shareholders to be held November 7, 1996, as filed with the
Securities and Exchange Commission.

ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

PART IV

ITEM 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K

FINANCIAL STATEMENTS

The following financial statements are included in Part II of this
report (index at page 17):

40
<PAGE> 43

Report of Independent Certified Public Accountants

Consolidated Financial Statements for Years ended June 29, 1996, July
1, 1995 and July 2, 1994.

Consolidated Balance Sheets - June 29, 1996 and July 1, 1995
Consolidated Statements of Operations
Consolidated Statements of Stockholders' Equity
Consolidated Statements of Cash Flows

Summary of Accounting Policies

Notes to Consolidated Financial Statements

Selected Quarterly Financial Data (unaudited)

FINANCIAL STATEMENT SCHEDULES

The following financial statement schedule for the years ended June
29, 1996, July 1, 1995 and July 2, 1994 is filed as a part of
this report.

Report of Independent Certified Public Accountants on
Financial Statement Schedule page 38

Schedule II Valuation and Qualifying Accounts page 39

All other schedules have been omitted since the required information
is not applicable or the information required is included in the
financial statements or the notes thereto.

EXHIBITS

The exhibits set forth in the following Index of Exhibits are filed as
a part of this report:

<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- -----------
<S> <C> <C>
3.1 Certificate of Incorporation (incorporated by
reference from the Company's Proxy Statement for the
Special Shareholders Meeting held on September 25,
1986).

3.1(a) Amendment to Certificate of Incorporation effective
November 10, 1992 (incorporated by reference from the
Company's Annual Report on Form 10-K for the year
ended July 3, 1993).

3.2 Bylaws (incorporated by reference from the Company's
Proxy Statement for the Special Shareholders Meeting
held on September 25, 1986).

4.4 Credit Agreement, dated June 19, 1996, between page 46
AmSouth Bank of Alabama and the Company, filed
herewith.

10.1 Commercial Lease dated April 16, 1979, between
the Company and WESCO Associates, as amended effective
July 1, 1989 (incorporated by reference from exhibits
to the Company's

</TABLE>

41
<PAGE> 44

<TABLE>
<S> <C> <C>
Registration Statement on Form S-2 under the
Securities Act of 1933 Registration No. 33-61700,
as filed on April 27, 1993).

10.1(a) Extension to Commercial Lease between the Company
and WESCO Associates, effective June 30, 1994
(incorporated by reference from the Company's
Annual Report on Form 10-K for the year ended
July 2, 1994).

10.2 Lease dated February 20, 1981, between the Company
and CBK Associates, as amended by Amendment Numbers
1, 2 and 3 (incorporated by reference from exhibits
to the Company's Registration Statement on Form S-2
under the Securities Act of 1933, Registration No.
33-61700, as filed on April 27, 1993).

10.3 Commercial Lease dated May 31, 1994, between
the Company and Rex Associates (incorporated by
reference from the Company's Annual Report on Form
10-K for the year ended July 1, 1995).

10.6 1977 Stock Option Plan (as amended to be incentive
stock option plan) (incorporated by reference from
exhibits to the Company's Registration Statement on
Form S-l under the Securities Act of 1933,
Registration No. 2-78902, as filed on September
28, 1982).

10.7 Extract of Minutes of the Board of Directors
(incorporated by reference from exhibits to the
Company's Registration Statement on Form S-l under
the Securities Act of 1933 Registration No. 2-78902,
as filed on September 28, 1982).

10.8 1983 Incentive Stock Option Plan (incorporated by
reference from an exhibit to the Company's Annual
Report on Form 10-K for the year ended June 30,
1984).

10.9 1989 Incentive Stock Option Plan, as amended
(incorporated by reference from an exhibit to the
Company's Annual Report on Form 10-K for the year
ended June 30, 1984).

11 Computation of Per Share Earnings, filed herewith. page 87

21 Subsidiaries of the Registrant, filed herewith. page 88

27 Financial Data Schedule (for SEC use only)
</TABLE>

REPORTS ON FORM 8-K

The Company did not file any reports on Form 8-K during the quarter
ended June 29, 1996.

42
<PAGE> 45

SIGNATURES

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

WALL STREET DELI, INC.

/s/ Robert G. Barrow
- ------------------------------------
By: ROBERT G. BARROW
President

September 30, 1996

Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.

<TABLE>
<S> <C> <C>
/s/ Robert G. Barrow President, Principal Executive September 30, 1996
- -------------------------------- Officer, Principal Financial Officer
ROBERT G. BARROW and Director

/s/ Jeff V. Kaufman Executive Vice President, Chief September 30, 1996
- ---------------------------------- Operating Officer and Director
JEFF V. KAUFMAN

/s/ Arnold McGruder Treasurer and Principal September 30, 1996
- -------------------------------- Accounting Officer
ARNOLD MCGRUDER

/s/ Alan V. Kaufman Chairman of the Board September 30, 1996
- --------------------------------
ALAN V. KAUFMAN

/s/ William S. Atherton Director September 30, 1996
- ---------------------------------
WILLIAM S. ATHERTON

/s/ Joe Lee Griffin Director September 30, 1996
- -----------------------------------
JOE LEE GRIFFIN

/s/ Louis C. Henderson, Jr. Director September 30, 1996
- --------------------------------
LOUIS C. HENDERSON, JR.

/s/ Jake L. Netterville Director September 30, 1996
- ----------------------------------
JAKE L. NETTERVILLE
</TABLE>

43
<PAGE> 46

SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
_________________________

EXHIBITS
AND
FINANCIAL STATEMENT SCHEDULES
TO

FORM 10-K

WALL STREET DELI, INC.

For the fiscal year ended June 29, 1996 Commission File No. 0-11271

44
<PAGE> 47

TABLE OF CONTENTS
FOR EXHIBITS

<TABLE>
<CAPTION>
Exhibit
Number Description Page
- ------ ------------ ----
<S> <C> <C>
4.4 Credit Agreement dated June 19, 1996 between 46
AmSouth Bank of Alabama and the Company

11 Computation of Per Share Earnings 87

21 Subsidiaries of the Registrant 88

27 Financial Data Schedule (for SEC use only)
</TABLE>

<PAGE> 1

(EXHIBIT 4.4)

================================================================================

CREDIT AGREEMENT

Dated June 19, 1996

Between

WALL STREET DELI, INC.

and

AMSOUTH BANK OF ALABAMA

Relating to a

$7,500,000 Revolving Loan

================================================================================

(1)46
<PAGE> 2

TABLE OF CONTENTS

<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE 1

RULES OF CONSTRUCTION AND DEFINITIONS
-------------------------------------

SECTION 1.1 GENERAL RULES OF CONSTRUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
-----------------------------
SECTION 1.2 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
-----------

ARTICLE 2

CREDIT TO BE EXTENDED
UNDER THIS AGREEMENT
------------------------

SECTION 2.1 Revolving Loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
--------------
SECTION 2.2 Note . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
----
SECTION 2.3 Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
--------
SECTION 2.4 Prepayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
-----------
SECTION 2.5 Extension of Termination Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
-----------------------------
SECTION 2.6 Place and Time of Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
--------------------------
SECTION 2.7 Reduction or Cancellation of Revolving Loan . . . . . . . . . . . . . . . . . . . . . . . . . . 11
-------------------------------------------
SECTION 2.8 LETTER OF CREDIT BORROWINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
---------------------------

ARTICLE 3

INTEREST
--------

SECTION 3.1 Applicable Interest Rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
-------------------------
SECTION 3.2 Procedure for Exercising Interest Rate Options . . . . . . . . . . . . . . . . . . . . . . . . 13
----------------------------------------------
SECTION 3.3 QUOTED COST OF FUNDS RATE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
-------------------------
SECTION 3.4 LIBOR-Based Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
----------------
SECTION 3.5 Termination of LIBOR-Based Rate; Increase in LIBOR-Based Rate; Reduction of Return . . . . . . 14
----------------------------------------------------------------------------------
SECTION 3.6 Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
------------

ARTICLE 4

REPRESENTATIONS AND WARRANTIES
------------------------------

SECTION 4.1 Organization, Powers, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
-------------------------
SECTION 4.2 Authorization of Borrowing, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
-------------------------------
SECTION 4.3 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
----------
SECTION 4.4 Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
----------
</TABLE>

(2)47
<PAGE> 3

<TABLE>
<S> <C>
SECTION 4.5 Federal Reserve Board Regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
---------------------------------
SECTION 4.6 Investment Company Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
----------------------
SECTION 4.7 ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
-----
SECTION 4.8 Enforceability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
--------------
SECTION 4.9 Consents, Registrations, Approvals, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
---------------------------------------
SECTION 4.10 Financial Condition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
-------------------
SECTION 4.11 No Misleading Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
-------------------------
SECTION 4.12 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
-----
SECTION 4.13 Patents, Trademarks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
-------------------
SECTION 4.14 Hazardous Substances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
--------------------
SECTION 4.15 Solvency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
--------
SECTION 4.16 Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
------------

ARTICLE 5

CONDITIONS OF LENDING
---------------------

SECTION 5.1 Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
------------------------------
SECTION 5.2 No Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
----------
SECTION 5.3 Automatic Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
----------------------------------------
SECTION 5.4 Required Items . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
--------------
SECTION 5.5 AUTHORIZED REPRESENTATIVE CERTIFICATES . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
--------------------------------------
SECTION 5.6 OTHER SUPPORTING DOCUMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
--------------------------

ARTICLE 6

COVENANTS
---------

SECTION 6.1 Existence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
---------
SECTION 6.2 Continuation of Current Business, Offices, Name, etc. . . . . . . . . . . . . . . . . . . . . . 21
----------------------------------------------------
SECTION 6.3 Sale of Assets, Consolidation, Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
-------------------------------------
SECTION 6.4 Accounting Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
------------------
SECTION 6.5 Reports to the Lender . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
---------------------
SECTION 6.6 Maintenance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
-----------
SECTION 6.7 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
---------
SECTION 6.8 Payment of Indebtedness, Taxes, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
-----------------------------------
SECTION 6.9 Litigation Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
-----------------
SECTION 6.10 Visitation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
----------
SECTION 6.11 Notice of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
-----------------
SECTION 6.12 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
------------------
SECTION 6.13 Transactions with Related Persons. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
---------------------------------
SECTION 6.14 Use of Revolving Loan Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
------------------------------
SECTION 6.15 Financial Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
-------------------
Tangible Net Worth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
</TABLE>

(3)48
<PAGE> 4

<TABLE>
<S> <C>
Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Guaranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Take or Pay Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Sale-Leaseback . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Investments, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Sale of Receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Lease Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Solvency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Certain Defined Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
SECTION 6.16 Change in Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
--------------------
SECTION 6.17 Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
------------

ARTICLE 7

EVENTS OF DEFAULT
-----------------

SECTION 7.1 Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
-----------------
SECTION 7.2 Lender's Remedies on Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
----------------------------

ARTICLE 8

MISCELLANEOUS
-------------

SECTION 8.1 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
-------
SECTION 8.2 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
--------
SECTION 8.3 Independent Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
-----------------------
SECTION 8.4 Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
----------------------
SECTION 8.5 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
-------------
SECTION 8.6 Date of Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
-----------------
SECTION 8.7 Separability Clause . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
-------------------
SECTION 8.8 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
------------
SECTION 8.9 No Oral Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
------------------
SECTION 8.10 Waiver and Election . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
-------------------
SECTION 8.11 No Obligations of Lender; Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . 33
-----------------------------------------
SECTION 8.12 Set-off . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
-------
SECTION 8.13 Participation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
-------------
SECTION 8.14 Submission to Jurisdiction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
--------------------------
SECTION 8.15 Usury Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
----------
SECTION 8.16 Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
-----------

</TABLE>

(4)49

<PAGE> 5

CREDIT AGREEMENT

THIS CREDIT AGREEMENT ("this Agreement") dated June 19, 1996 is
between WALL STREET DELI, INC., a Delaware corporation (the "Borrower"), and
AMSOUTH BANK OF ALABAMA, an Alabama banking corporation (the "Lender").

RECITALS

Capitalized terms used in these Recitals have the meanings defined for
them above or in Section 1.2. The Borrower has requested that the Lender
extend Credit to the Borrower under this Agreement and the other Credit
Documents as described herein. To induce the Lender to extend Credit to the
Borrower, the Borrower has agreed to execute and deliver this Agreement to the
Lender.

AGREEMENT

NOW, THEREFORE, in consideration of the foregoing Recitals, and to
induce the Lender to extend credit to the Borrower under this Agreement and the
other Credit Documents, the Borrower agrees with the Lender as follows:

ARTICLE 1

RULES OF CONSTRUCTION AND DEFINITIONS

SECTION 1.1 GENERAL RULES OF CONSTRUCTION. For the purposes of this
Agreement, except as otherwise expressly provided or unless the context
otherwise requires:

(a) Words of masculine, feminine or neuter gender include the
correlative words of other genders. Singular terms include the plural as well
as the singular, and vice versa.

(b) All references herein to designated "Articles," "Sections" and
other subdivisions or to lettered Exhibits are to the designated Articles,
Sections and subdivisions hereof and the Exhibits annexed hereto unless
expressly otherwise designated in context. All Article, Section, other
subdivision and Exhibit captions herein are used for reference only and do not
limit or describe the scope or intent of, or in any way affect, this Agreement.

(c) The terms "include," "including," and similar terms shall be
construed as if followed by the phrase "without being limited to."

(5)50
<PAGE> 6

(d) The terms "herein," "hereof" and "hereunder" and other words
of similar import refer to this Agreement as a whole and not to any particular
Article, Section, other subdivision or Exhibit.

(e) All Recitals set forth in, and all Exhibits to, this Agreement
are hereby incorporated in this Agreement by reference.

(f) No inference in favor of or against any party shall be drawn
from the fact that such party or such party's counsel has drafted any portion
hereof.

(g) All references in this Agreement to a separate instrument are
to such separate instrument as the same may be amended or supplemented from
time to time pursuant to the applicable provisions thereof.

(h) If the Borrower now or hereafter has any Subsidiaries, all
computations required in connection with the covenants contained in Article 6
shall be made for the Borrower and its Subsidiaries on a combined or
consolidated basis, after elimination of intercompany items, and all financial
statements, reports and certificates required hereunder shall be prepared on
the same basis.

(i) All accounting terms not otherwise defined herein have the
meanings assigned to them, and all computations herein provided for shall be
made, in accordance with generally accepted accounting principles applied on a
consistent basis. All references herein to "generally accepted accounting
principles" refer to such principles as they exist at the date of application
thereof; provided, however, that if any change in generally accepted accounting
principles after the Closing Date could, in the reasonable judgment of the
Lender, affect adversely the interests of the Lender or the Borrower in the
interpretation or calculation of the financial covenants or other provisions of
this Agreement or the other Credit Documents, such change shall not be
effective for purposes of this Agreement (other than as set forth in Section
6.15(n)(3) and (6)) or the other Credit Documents unless and until the
provisions of this Agreement and the other Credit Documents that could be
adversely affected by such change have been amended by the mutual agreement of
the Borrower and the Lender so as to assure that the interests of the Lender
and the Borrower will not be adversely affected by such change.

SECTION 1.2 DEFINITIONS. As used in this Agreement, the following
terms are defined as follows:

(a) ACTUAL/360 DAY BASIS means a method of computing interest and
other charges on the basis of an assumed year of 360 days for the actual number
of days elapsed, meaning that the interest accrued for each day will be
computed by multiplying the interest rate applicable on that day by the unpaid
principal balance on that day and dividing the result by 360.

(b) ADVANCE is defined in Section 2.1.

(6)51
<PAGE> 7

(c) AFFILIATE of any specified person means any other person
directly or indirectly controlling or controlled by or under direct or indirect
common control with such specified person. For purposes of this definition,
"control" when used with respect to any specified person means the power to
direct the management and policies of such person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have meanings correlative to the
foregoing.

(d) AGREEMENT means, on any date, this Credit Agreement, as
originally in effect on the Closing Date and as thereafter from time to time
amended, supplemented, restated or otherwise modified and in effect on such
date.

(e) APPLICATION is defined in Section 2.8.

(f) AUTHORIZED REPRESENTATIVE means the officer or officers of the
Borrower that are duly authorized to act for the Borrower in the specified
capacity under the Governing Documents of the Borrower or applicable law.

(g) BUSINESS DAY means (a) any day on which commercial banks
located in Birmingham, Alabama are generally open for business and (b) if such
day relates to the giving of notices or quotes in connection with a LIBOR Quote
or to a borrowing of, a payment or prepayment of principal of or interest on,
or a LIBOR-Based Rate Period for, a LIBOR-Based Rate Segment or a notice by the
Borrower with respect to any such borrowing, payment, prepayment or LIBOR-Based
Rate Period, any day on which dealings in Dollar deposits are carried out in
the London interbank market.

(h) CLOSING DATE means June 19, 1996.

(i) CREDIT means, individually and collectively, all loans,
forbearances, renewals, extensions, advances, disbursements and other
extensions of credit now or hereafter made by the Lender to or for the account
of the Borrower under this Agreement and the other Credit Documents, including
the Loans.

(j) CREDIT DOCUMENTS means this Agreement and the documents
described in Exhibit A and all other documents now or hereafter executed or
delivered in connection with the transactions contemplated thereby.

(k) DEBT of any person means (1) all indebtedness, whether or not
represented by bonds, debentures, notes or other securities, for the repayment
of borrowed money, (2) all deferred indebtedness for the payment of the
purchase price of property or assets purchased, (3) all capitalized lease
obligations, (4) all indebtedness secured by any Lien on any property of such
person, whether or not indebtedness secured thereby has been assumed, (5) all
obligations with respect to any conditional sale contract or title retention
agreement, (6) all indebtedness and obligations arising under acceptance
facilities or in connection with surety or similar bonds, and

(7)52
<PAGE> 8

the outstanding amount of all letters of credit issued for the account of such
person, and (7) all obligations with respect to interest rate swap agreements.

(l) DEFAULT RATE means a rate of interest equal to two percentage
points (200 basis points) in excess of the Prime Rate, or the maximum rate
permitted by law, whichever is less.

(m) DOLLAR and the symbol $ means dollars constituting legal
tender for the payment of public and private debts in the United States of
America.

(n) ERISA means the Employee Retirement Income Security Act of
1974, as amended.

(o) EVENTS OF DEFAULT is defined in Section 7.1. An Event of
Default "exists" if an Event of Default has occurred and is continuing.

(p) GOVERNING DOCUMENTS means the Certificate of Incorporation and
Bylaws of the Borrower and all amendments and supplements thereto.

(q) GOVERNMENTAL AUTHORITY means any national, state, county,
municipal or other government, domestic or foreign, and any agency, authority,
department, commission, bureau, board, court or other instrumentality thereof.

(r) GOVERNMENTAL REQUIREMENTS means all laws, rules, regulations,
ordinances, judgments, decrees, codes, orders, injunctions, notices and demand
letters of any Governmental Authority.

(s) HAZARDOUS SUBSTANCES means all pollutants, effluents,
contaminants, emissions, toxic or hazardous wastes and other substances, the
removal of which is required or the manufacture, use, maintenance, handling,
discharge or release of which is regulated, restricted, prohibited or penalized
by any Governmental Requirement, or even if not so regulated, restricted,
prohibited or penalized, might pose a hazard to the health and safety of the
public or the occupants of the property on which it is located or the occupants
of the property adjacent thereto, including (1) asbestos or asbestos-containing
materials, (2) urea formaldehyde foam insulation, (3) polychlorinated biphenyls
(PCBs), (4) flammable explosives, (5) radon gas, (6) laboratory wastes, (7)
experimental products, including genetically engineered microbes and other
recombinant DNA products, (8) petroleum, crude oil, natural gas, natural gas
liquid, liquefied natural gas, other petroleum products and synthetic gas
usable as fuel, (9) radioactive materials and (10) any substance or mixture
listed, defined or otherwise determined by any Governmental Authority to be
hazardous, toxic or dangerous, or otherwise regulated, affected, controlled or
giving rise to liability under any Governmental Requirement.

(t) LETTER OF CREDIT BORROWINGS means as of any date the maximum
aggregate amount that the Lender could be required to pay under drafts that
could properly be drawn in compliance

(8)53
<PAGE> 9

with the terms of all Letters of Credit outstanding on such date, other than
drafts that have been drawn and paid.

(u) LETTER OF CREDIT OBLIGATIONS means (a) the Letter of Credit
Borrowings and (b) the Reimbursement Obligations and the Borrower's other
obligations under this Agreement and the Applications with respect to drawings
made on Letters of Credit, including obligations with respect to all principal,
interest, fees and other charges related thereto.

(v) LETTERS OF CREDIT means all letters of credit hereafter issued
by the Lender for the account of the Borrower.

(w) LIBOR-BASED RATE means a rate per annum equal to the LIBOR
Quote, plus 175 basis points.

(x) LIBOR-BASED RATE PERIOD means a period of one, two or three
months commencing on a Business Day selected by the Borrower pursuant to
Section 3.1 below, with respect to which the LIBOR-Based Rate is (or is
proposed to be) applicable to a LIBOR-Based Rate Segment. Each LIBOR-Based
Rate Period shall end on (but exclude) the date that corresponds numerically to
the commencement date selected by the Borrower one, two or three months
thereafter; provided, however, that if there is no such numerically
corresponding date in such next, second or third succeeding month, the
LIBOR-Based Rate Period shall end on the last Business Day of such next, second
or third succeeding month. If the selected LIBOR-Based Rate Period would
otherwise end on a day that is not a Business Day, it shall end on the next
succeeding Business Day.

(y) LIBOR-BASED RATE SEGMENT means a Segment to which the
LIBOR-Based Rate is (or is proposed to be) applicable.

(z) LIBOR QUOTE means, with respect to any time at which the
LIBOR-Based Rate is to be determined, the rate of interest determined by the
Lender at such time by reference to the Knight-Ridder MoneyCenter reporting
service or other comparable financial information reporting service at the time
employed by the Lender, as the Lender's best estimate of the cost of funds
available to the Lender from the purchase on the London interbank market of
funds in the form of time deposits in Dollars in the approximate amount of the
LIBOR-Based Rate Segment, having a maturity comparable to the LIBOR-Based Rate
Period during which the LIBOR-Based Rate is to be in effect, it being expressly
understood that (1) the Lender may not actually purchase any such time deposits
and obtain such funds and (2) the LIBOR Quote will be an estimate, and for a
variety of reasons, including changing market conditions, the actual cost of
funds to the Lender (if the Lender elects to purchase funds in the form of time
deposits on such date) might vary from the LIBOR Quote.

(aa) LIBOR RESERVE REQUIREMENT means the percentage (expressed as a
decimal) prescribed by the Board of Governors of the Federal Reserve System (or
any successor

(9)54

<PAGE> 10

Governmental Authority), on the date on which the LIBOR-Based Rate is
determined, for determining the reserve requirements of the Lender (including
any marginal, emergency, supplemental, special or other reserves) with respect
to liabilities relating to time deposits purchased in the London interbank
market having a maturity equal to the period during which the LIBOR-Based Rate
will be in effect and in an amount equal to the LIBOR-Based Rate Segment
involved, without any benefit or credit for any proration, exemptions or offsets
under any now or hereafter applicable regulations.

(bb) LIEN means any mortgage, pledge, assignment, charge,
encumbrance, lien, security title, security interest or other preferential
arrangement.

(cc) LOANS means the Revolving Loan, Letter of Credit Borrowings
and Reimbursement Obligations, and all extensions and renewals thereof.

(dd) MARGIN STOCK is defined in Regulation U of the Federal Reserve
Board, as amended.

(ee) MAXIMUM AVAILABLE AMOUNT means $7,500,000.

(ff) NOTE is defined in Section 2.2.

(gg) OBLIGATIONS means (1) the Revolving Loan, the Letter of Credit
Obligations and all other obligations and debts owing to the Lender and arising
under the terms of this Agreement, the Note, the Applications and the other
Credit Documents, whether now or hereafter incurred, existing or arising,
including the Revolving Loan, all Letter of Credit Borrowings and Reimbursement
Obligations with respect thereto; (2) any sums expended by the Lender in
exercising the rights and remedies described in Section 7.2; (3) all accrued
interest on the Revolving Loan and Reimbursement Obligations, and all costs,
fees, charges and expenses incurred and payable in connection therewith,
including fees payable under the terms of, or in connection with, this
Agreement; (4) all other obligations and debts owing to the Lender arising in
connection with, ancillary to, or in support of the Revolving Loan and Letter
of Credit Borrowings; (5) the payment and performance of all other
indebtedness, obligations and liabilities of the Borrower to the Lender
(including obligations of performance) of every kind whatsoever, arising
directly between the Borrower and the Lender or acquired outright, as a
participation or as collateral security from another person by the Lender,
direct or indirect, absolute or contingent, due or to become due, now existing
or hereafter incurred, contracted or arising, joint or several, liquidated or
unliquidated, regardless of how they arise or by what agreement or instrument
they may be evidenced or whether they are evidenced by agreement or instrument,
and whether incurred as maker, endorser, surety, guarantor, general partner,
drawer, tort-feasor, account party with respect to a letter of credit,
indemnitor or otherwise; and (6) all renewals, extensions, modifications and
amendments of any of the foregoing, whether or not any renewal, extension,
modification or amendment agreement is executed in connection therewith.

(10)55
<PAGE> 11

(hh) PERMITTED CONTEST means any appropriate proceeding conducted
in good faith by the Borrower to contest any tax, assessment, charge, Lien or
similar claim, during the pendency of which proceeding the enforcement of such
tax, assessment, charge, Lien or claim is stayed; provided that the Borrower
has set aside on its books or, if required by the Lender, deposited as cash
collateral with the Lender, adequate cash reserves to assure the payment of any
such tax, assessment, charge, Lien or claim.

(ii) PERSON (whether or not capitalized) includes natural persons,
sole proprietorships, corporations, trusts, unincorporated organizations,
associations, companies, institutions, entities, joint ventures, partnerships,
limited liability companies and Governmental Authorities.

(jj) PRIME RATE means that rate of interest designated by the
Lender from time to time as its "prime rate," it being expressly understood and
agreed that the "prime rate" is merely an index rate used by the Lender to
establish lending rates and is not necessarily the Lender's most favorable
lending rate, and that changes in the "prime rate" are discretionary with the
Lender.

(kk) QUOTED COST OF FUNDS RATE means, for any day, 175 basis points
in excess of the interest rate per annum (rounded upwards, if necessary, to the
nearest 1/100 of 1%) equal to the weighted average of the rates on overnight
Federal funds transactions with members of the Federal Reserve System arranged
by Federal funds brokers on such day, as published for such day (or, if such
day is not a Business Day, for the immediately preceding Business Day) by the
Federal Reserve Bank of Atlanta, or, if such rate is not so published for any
day that is a Business Day, the average of the quotations at approximately
10:00 a.m. (Birmingham, Alabama time) on such day on such transactions received
by the Lender from three Federal funds brokers of recognized standing selected
by the Lender in its sole discretion.

(ll) REIMBURSEMENT OBLIGATION means at any time the obligation of
the Borrower with respect to any Letter of Credit to reimburse the Lender for
amounts theretofore paid by the Lender pursuant to a drawing under such Letter
of Credit.

(mm) REQUEST FOR ADVANCES OR INTEREST RATE ELECTION shall have the
meaning attributed to that term in Section 2.2.

(nn) REVOLVING LOAN is defined in Section 2.1.

(oo) SEGMENT means a portion of the Advances (or all thereof) with
respect to which a particular interest rate is (or is proposed to be)
applicable. The aggregate amount of all Advances that bear interest at the
Quoted Cost of Funds Rate shall be deemed to constitute a single Segment. The
aggregate amount of all Advances that bear interest at the same LIBOR-Based
Rate and for the same LIBOR-Based Rate Period shall be deemed to constitute a
single LIBOR-Based Rate Segment.

(11)56
<PAGE> 12

(pp) SOLVENT means, with respect to any person on a particular
date, that as of such date (1) the fair value of the property of such person
(both at fair valuation and at present fair saleable value on an orderly basis)
is greater than the total amount of liabilities (including contingent
liabilities) of such person, (2) such person is not engaged in business or a
transaction, and is not about to engage in business or a transaction, for which
such person's property would constitute an unreasonably small capital, and (3)
such person does not intend to, or believe or reasonably should have believed
that it will, incur debts beyond its ability to repay as they become due.

(qq) SUBSIDIARY means (1) any corporation more than 50% of whose
shares of stock having general voting power under ordinary circumstances to
elect a majority of the board of directors, managers or trustees of such
corporation (irrespective of whether or not at the time stock of any other
class or classes has or might have voting power by reason of the happening of
any contingency), are owned or controlled directly or indirectly by the
Borrower, or (2) any partnership or limited liability company, 50% or more of
the partnership or membership interests in which are owned or controlled,
directly or indirectly, by the Borrower, and includes entities currently or
hereafter falling within the categories described above.

(rr) TERMINATION DATE means the maturity date of the Obligations
(which is initially May 31, 1997), as such date may be extended from time to
time pursuant to Section 2.5 or accelerated pursuant to Section 7.2.

ARTICLE 2

CREDIT TO BE EXTENDED
UNDER THIS AGREEMENT

SECTION 2.1 REVOLVING LOAN.

(a) From the Closing Date to (but not including) the Termination
Date, the Lender agrees, upon the terms and subject to the conditions of this
Agreement, to make a revolving loan (the "Revolving Loan") available to the
Borrower, pursuant to which the Borrower may from time to time borrow from the
Lender and repay and reborrow, such sums as may be needed by the Borrower for
the purposes expressed in this Agreement, up to an amount at any one time
outstanding not exceeding the Maximum Available Amount in effect from time to
time, less the sum of (i) then outstanding Letter of Credit Borrowings, (ii)
then outstanding Reimbursement Obligations and (iii) then outstanding
overdrafts that the Borrower may have with respect to any and all operating
accounts established by the Borrower with the Lender.

(b) Each advance to the Borrower under the Revolving Loan (an
"Advance") that is to bear interest at the Quoted Cost of Funds Rate shall be
made not more frequently than once each Business Day and shall be made either
on telephone request by the Borrower to the Bank not later than noon
(Birmingham, Alabama time) on the day on which the Advance is to be made or in

(12)57
<PAGE> 13

accordance with the provisions of the automated Control Account-Credit Line
Service Agreement executed by the Borrower in favor of the Lender (the
"Disbursement Agreement"). Each Advance that is to bear interest at the
LIBOR-Based Rate shall be in an aggregate amount not less than $100,000 or a
greater integral multiple of $100,000. Each request for Advances that are to
bear interest at the LIBOR-Based Rate must be in writing (which may be by
facsimile transmission) and must be received by the Lender not later than noon,
Birmingham, Alabama time, on the day on which such Advances are to be made,
except that, if the Lender so requires, the request must be received by the
Lender not later than 10:00 a.m., Birmingham, Alabama time, three Business Days
prior to the day on which such Advances are to be made. Each request for
Advances that are to bear interest at the LIBOR-Based Rate shall be in the form
attached hereto as Exhibit C ("Request for Advances or Interest Rate Election")
and shall specify the aggregate amount of the Advances requested, the day as of
which the Advances are to be made and shall provide the interest rate
information called for in Section 3.2. All the Advances requested in a single
Request for Advances or Interest Rate Election shall be subject to the same
interest rate terms. Not later than 2:00 p.m. Birmingham, Alabama time on the
date specified for the Advances, the Lender shall make available the amount of
the Advances to be made by it on such date to the Borrower by depositing the
proceeds thereof into an account with the Lender or with an Affiliate of the
Lender in the name of the Borrower. The Advances shall bear interest as
provided in Article 3. The Lender's obligation to make Advances shall
terminate, if not sooner terminated pursuant to the provisions of this
Agreement, on the Termination Date. The Lender shall have no obligation to
make Advances if an Event of Default exists. Each Request for Advances or
Interest Rate Election, whether submitted under this Section 2.1(b) in
connection with requested Advances or under Section 3.2 in connection with an
interest rate election, shall be signed by an Authorized Representative of the
Borrower designated as authorized to sign and submit Request for Advances or
Interest Rate Election forms in the documents submitted to the Lender pursuant
to Section 5.5. The Borrower may, from time to time, by written notice to the
Lender, terminate the authority of any Authorized Representative to submit
Request for Advances or Interest Rate Election forms, such termination of
authority to become effective upon actual receipt by the Lender of such notice
of termination. The Borrower may from time to time authorize other Authorized
Representatives to sign and submit Request for Advances or Interest Rate
Election forms by delivering to the Lender a certificate of the Secretary of
the Borrower certifying the incumbency and specimen signature of each such
Authorized Representative. The Lender shall be entitled to rely conclusively
upon the authority of any Authorized Representative so designated by the
Borrower. The Lender may, at its option, without any request by the Borrower,
make Advances (with interest calculated at the Quoted Cost of Funds Rate) to
itself for the purpose of paying overdrafts that the Borrower may have from
time to time with respect to any operating accounts established by the Borrower
with the Lender.

SECTION 2.2 NOTE. All Advances shall be evidenced by a certain
master note (the "Note"), payable to the order of the Lender, duly executed on
behalf of the Borrower, dated the Closing Date, in the principal amount of
$7,500,000 and satisfactory in form and substance to the Lender. The Note
shall be valid and enforceable as to the aggregate amount of the Revolving

(13)58
<PAGE> 14

Loan outstanding from time to time, whether or not the full amount of the
Revolving Loan is actually advanced by the Lender to the Borrower.

SECTION 2.3 PAYMENTS. All interest accrued at the Quoted Cost of
Funds Rate shall be payable in arrears on the first day of each month,
commencing on July 1, 1996; and all interest accrued on each LIBOR-Based Rate
Segment shall be payable on the last day of the applicable LIBOR-Based Rate
Period. The principal amount of the Advances, together with accrued interest
thereon, shall be due and payable on the Termination Date.

SECTION 2.4 PREPAYMENTS.

(a) The Borrower may at any time prepay all or any part of the
Advances, without premium or penalty; provided, however, that (1) unless the
Borrower pays the amounts, if any, due under Section 3.6, no LIBOR-Based Rate
Segment may be prepaid during a LIBOR-Based Rate Period if the Lender purchases
and obtains such funds comprising the LIBOR-Based Rate Segment being prepaid,
and (2) any partial prepayment shall be in the amount of $100,000 or more
unless prepayments are made pursuant to the terms of the Disbursement
Agreement. The Borrower shall pay, on the date of prepayment, all interest
accrued to the date of prepayment on any amount prepaid in connection with the
prepayment in full of the Obligations and the concurrent termination of this
Agreement. The Borrower shall pay all interest accrued to the date of
prepayment on the amount prepaid.

(b) If at any time the principal amount of the Advances, together
with the sum of the then outstanding Letter of Credit Borrowings and
Reimbursement Obligations, is greater than the Maximum Available Amount, the
Borrower shall immediately make a prepayment (notwithstanding the provisions of
clause (a)(1) of this Section, but subject to the provisions of Section 3.6) on
the Advances equal to the difference between (i) said aggregate principal
amount of the Advances plus the sum of the then outstanding Letter of Credit
Borrowings and Reimbursement Obligations and (ii) the Maximum Available Amount.

SECTION 2.5 EXTENSION OF TERMINATION DATE. The Borrower and the
Lender may from time to time extend the then- current Termination Date to any
subsequent termination date upon which the Borrower and the Lender may agree by
executing a written extension agreement. Upon the execution of such an
extension agreement by the Borrower and the Lender, the maturity date of the
Revolving Loan shall be extended to the agreed-upon termination date, and the
agreed- upon termination date shall become the new "Termination Date" for
purposes of this Agreement.

SECTION 2.6 PLACE AND TIME OF PAYMENTS.

(a) All payments by the Borrower to the Lender under this
Agreement and the other Credit Documents shall be made in lawful currency of
the United States and in immediately available funds to the Lender at its Main
Office in Birmingham, Alabama at the hand delivery address set forth in Section
8.1 or at such other address within the continental United States as

(14)59
<PAGE> 15

shall be specified by the Lender by notice to the Borrower. Any payment
received by the Lender after 2:00 p.m. (Birmingham, Alabama time) on a
Business Day (or at any time on a day that is not a Business Day) shall be
deemed made by the Borrower and received by the Lender on the following
Business Day.

(b) All amounts payable by the Borrower to the Lender under this
Agreement or any of the other Credit Documents for which a payment date is
expressly set forth herein or therein shall be payable on the specified due
date without notice or demand by the Lender. All amounts payable by the
Borrower to the Lender under this Agreement or the other Credit Documents for
which no payment date is expressly set forth herein or therein shall be payable
ten days after written demand by the Lender to the Borrower. The Lender may,
at its option, send written notice or demand to the Borrower of amounts payable
on a specified due date pursuant to this Agreement or the other Credit
Documents, but the failure to send such notice shall not affect or excuse the
Borrower's obligation to make payment of the amounts due on the specified due
date.

(c) Payments that are due on a day that is not a Business Day
shall be payable on the next succeeding Business Day, and any interest payable
thereon shall be payable for such extended time at the specified rate.

(d) Except as otherwise required by law, payments received by the
Lender shall be applied first to expenses, fees and charges, then to interest
and finally to principal.

SECTION 2.7 REDUCTION OR CANCELLATION OF REVOLVING LOAN. The
Borrower shall have the right at any time to reduce the unused portion of the
Maximum Available Amount, provided that: (a) the Borrower shall give the
Lender at least fifteen days' prior notice in writing of each such reduction,
(b) the amount of such reduction shall not be less than $500,000, and (c) no
such reduction may be reinstated. The Borrower shall also have the right at
any time to terminate this Agreement by prepayment in full of the Obligations
(subject to the provisions of Section 2.4) with at least ten days' prior
written notice of such termination.

SECTION 2.8 LETTER OF CREDIT BORROWINGS.

(a) From and after the Closing Date to (but not including) the
Termination Date, the Lender may, at its sole discretion, upon the terms and
subject to the conditions of this Agreement, issue Letters of Credit from time
to time for the account of the Borrower in such amounts as may be requested by
the Borrower and as shall be approved by the Lender, up to a maximum aggregate
amount of Letter of Credit Borrowings at any one time outstanding that, when
added to (i) the then outstanding Reimbursement Obligations plus (ii) the then
outstanding Advances, would not exceed the Maximum Available Amount then in
effect; provided, however, that no Letter of Credit shall be issued if the
issuance thereof would cause the aggregate outstanding amount of Letter of
Credit Borrowings and Reimbursement Obligations to exceed $2,500,000.

(15)60
<PAGE> 16

(b) Each request by the Borrower for the issuance of a Letter of
Credit (an "Application") shall, if required by the Lender, be submitted to the
Lender, at least three Business Days prior to the date the Letter of Credit is
to be issued, shall be on the Lender's then standard application form for
letters of credit, shall obligate the Borrower to reimburse the Lender on
demand for any amounts drawn under a Letter of Credit and such other sums as
may be provided for therein, and shall be executed by a duly authorized officer
of the Borrower. In the event of any conflict between the provisions of any
Application and the provisions of this Agreement, the provisions of this
Agreement shall govern.

(c) Each Letter of Credit shall (i) be a letter of credit issued
in the ordinary course of the business of the Borrower; (ii) expire by its
terms on a date not later than eleven months after the Termination Date; (iii)
be in an amount that complies with paragraph (a) of this Section 2.8; and (iv)
contain such further provisions and conditions as may be requested by the
Borrower, provided that such further provisions and conditions are standard and
reasonable for ordinary irrevocable letters of credit and are reasonably
satisfactory to the Lender.

(d) For each Letter of Credit the Lender issues and all renewals
thereof, the Lender shall receive from the Borrower, a letter of credit fee
equal to the greater of (i) $500 or (ii) the rate of one and three-quarters
percent (1.75%) per annum of the stated amount of the Letter of Credit being
issued or renewed. Such fee shall be payable in advance on the date of
issuance or renewal, as the case may be, and shall not be refundable under any
circumstances.

(e) The Borrower acknowledges that the Lender as issuer of the
Letters of Credit will be required by applicable rules and regulations of the
Federal Reserve Board to maintain reserves for its liability to honor draws
made pursuant to a Letter of Credit. The Borrower agrees to reimburse the
Lender promptly for all additional costs that it may hereafter incur solely by
reason of its acting as issuer of the Letters of Credit and its being required
to reserve for such liability, it being understood by the Borrower that other
interest and fees payable under this Agreement do not include compensation of
the Lender for such reserves. The Lender shall furnish to the Borrower, at the
time of its demand for payment of such additional costs, the computation of
such additional cost, which shall be conclusive absent manifest error, provided
that such computations are made on a reasonable basis.

(f) The Borrower shall pay to the Lender administrative and other
fees, if any, in connection with the Letters of Credit in such amounts and at
such times as the Lender and the Borrower shall agree from time to time.

(g) If a draft drawn under a Letter of Credit is presented to the
Lender and the Lender honors such draft, the Borrower shall, immediately upon
demand of the Lender therefor, reimburse the Lender for the amount of such
draft, with interest thereon from the date such draft is honored by the Lender
to and including the date of reimbursement by the Borrower to the Lender
therefor, at the Quoted Cost of Funds Rate. If the Borrower fails so to
reimburse the Lender, immediately upon demand therefor, for any amount due to
the Lender on account of a

(16)61
<PAGE> 17

draft drawn under the Letter of Credit and honored by the Lender, together with
accrued interest thereon, by the close of business on the next Business Day
after such amount becomes due, the Lender may, at its sole discretion, without
exceeding the Maximum Available Amount, and without further notice to or demand
upon the Borrower, make an Advance to itself for the purpose of paying such
amount due to the Lender and interest thereon. Any such Advance shall be
treated as any other Advance hereunder for all purposes, except for the
requirement for a request from the Borrower for such Advance. Interest on any
such Advance will be at the Quoted Cost of Funds Rate.

(h) This Agreement shall not terminate so long as any Letter of
Credit is in effect; provided, however, no Letters of Credit shall be issued
under this Agreement after the Termination Date.

ARTICLE 3

INTEREST

SECTION 3.1 APPLICABLE INTEREST RATES. The Borrower shall have the
option to elect to have any Segment bear interest at the Quoted Cost of Funds
Rate or the LIBOR-Based Rate. For any period of time and for any Segment with
respect to which the Borrower does not elect the LIBOR-Based Rate, such Segment
shall bear interest at the Quoted Cost of Funds Rate. The Borrower's right to
elect the LIBOR-Based Rate shall be subject to the following requirements: (a)
each LIBOR-Based Rate Segment shall be in the amount of $100,000 or more and in
an integral multiple thereof, (b) each LIBOR-Based Rate Segment shall have a
maturity selected by the Borrower of one, two or three months, (c) no more than
five Segments may be outstanding at any time, and (d) no LIBOR-Based Rate
Segment may have a maturity date later than the Termination Date.

SECTION 3.2 PROCEDURE FOR EXERCISING INTEREST RATE OPTIONS. The
Borrower may elect to have a particular interest rate apply to a LIBOR-Based
Rate Segment by notifying the Lender in writing (which may be by facsimile
transmission) not later than noon, Birmingham, Alabama time, on the day on
which a requested LIBOR-Based Rate is to become applicable, except that, if the
Lender so requires, the notice must be received by the Lender not later than
10:00 a.m. Birmingham, Alabama time, three Business Days before the day on
which the requested LIBOR-Based Rate is to become applicable. Any notice of
interest rate election hereunder shall be irrevocable and shall be on a Request
for Advances or Interest Rate Election form and shall set forth the following:
(a) the amount of the LIBOR-Based Rate Segment to which the requested interest
rate will apply, (b) the date on which the selected interest rate will become
applicable, and (c) the maturity selected for the LIBOR-Based Rate Period. On
the day that the Lender receives a notice hereunder requesting that the
LIBOR-Based Rate be applicable, the Lender shall use its best efforts to notify
the Borrower by telephone or by facsimile transmission of the Lender's estimate
of the applicable LIBOR-Based Rate as early on that day or

(17)62
<PAGE> 18

the next Business Day as may be practical in the circumstances. The Lender
shall not be required to provide an estimate of the LIBOR-Based Rate on any day
on which dealings in deposits in Dollars are not transacted in the London
interbank market. If the Borrower does not immediately accept the LIBOR-Based
Rate quoted by the Lender, the Lender may, in view of changing market
conditions, revise the quoted LIBOR-Based Rate at any time. No LIBOR-Based
Rate shall be effective until mutually agreed upon by the Borrower and the
Lender. If the Lender and the Borrower attempt to agree on the LIBOR-Based
Rate but fail so to agree, or if there is any uncertainty as to whether or not
the Lender and the Borrower have agreed upon the LIBOR-Based Rate, interest
shall accrue on the Segment for which the LIBOR-Based Rate has been selected at
the then applicable Quoted Cost of Funds Rate.

SECTION 3.3 QUOTED COST OF FUNDS RATE. Each Segment subject to the
Quoted Cost of Funds Rate shall bear interest from the date the Quoted Cost of
Funds Rate becomes applicable thereto until payment in full, or until the
LIBOR-Based Rate is selected by the Borrower and becomes applicable thereto, on
the unpaid principal balance of such Segment on an Actual/360 Basis. Any
change in the interest rate on Advances caused by a change in the Quoted Cost
of Funds Rate shall take effect on the effective date of such change in the
Quoted Cost of Funds Rate designated by the Lender, without notice to the
Borrower and without any further action by the Lender. If an Event of Default
exists, each Segment subject to the Quoted Cost of Funds Rate shall bear
interest from the date of such Event of Default until payment in full at a per
annum rate (computed on an Actual/360 Basis) equal to the Default Rate.
Notwithstanding the foregoing, for the purpose of enabling the Lender to send
periodic billing statements in advance of each interest payment date reflecting
the amount of interest payable on such interest payment date, at the option of
the Lender, the Quoted Cost of Funds Rate in effect 15 days prior to each
interest payment date shall be deemed to be the Quoted Cost of Funds Rate, as
continuing in effect until the date prior to such interest payment date for
purposes of computing the amount of interest payable on such interest payment
date. If the Lender elects to use the Quoted Cost of Funds Rate 15 days prior
to the interest payment date for billing purposes, and if the Quoted Cost of
Funds Rate changes during such 15-day period, the difference between the amount
of interest that in fact accrues during such period and the amount of interest
actually paid will be added to or subtracted from, as the case may be, the
interest otherwise payable in preparing the periodic billing statement for the
next succeeding interest payment date. In determining the amount of interest
payable at the Termination Date or upon full prepayment of the Obligations, all
changes in the Quoted Cost of Funds Rate occurring on or prior to the day
before the Termination Date or the date of such full prepayment shall be taken
into account.

SECTION 3.4 LIBOR-BASED RATE. Each LIBOR-Based Rate Segment shall
bear interest from the date the LIBOR-Based Rate becomes applicable thereto
until the end of the applicable LIBOR-Based Rate Period on the unpaid principal
balance of such LIBOR-Based Rate Segment at the LIBOR-Based Rate on an
Actual/360 Day Basis. If an Event of Default exists, each LIBOR-Based Rate
Segment shall bear interest from the date of such Event of Default until
payment in full at a per annum rate (computed on an Actual/360 Day Basis) equal
to two percent (2%) in excess of the LIBOR-Based Rate that would otherwise have
been applicable.

(18)63
<PAGE> 19

SECTION 3.5 TERMINATION OF LIBOR-BASED RATE; INCREASE IN LIBOR-BASED
RATE; REDUCTION OF RETURN.

(a) If at any time the Lender shall reasonably determine (which
determination, if reasonable, shall be final, conclusive and binding upon all
parties) that:

(1) by reason of any changes arising after Closing Date
affecting the London interbank market or affecting the position of the
Lender in such market, adequate and fair means do not exist for
ascertaining the LIBOR-Based Rate by reference to the LIBOR Quote with
respect to a LIBOR-Based Rate Segment; or

(2) the continuation by the Lender of LIBOR-Based Rate
Segments at the LIBOR-Based Rate or the funding thereof in the London
interbank market would be unlawful by reason of any law, governmental
rule, regulation, guidelines or order; or

(3) the continuation by the Lender of LIBOR-Based Rate
Segments at the LIBOR-Based Rate or the funding thereof in the London
interbank market would be impracticable as a result of a contingency
occurring after the Closing Date that materially and adversely affects
the London interbank market;

then, and in any such event, the Lender shall on such date give notice (by
telephone and confirmed in writing) to the Borrower of such determination. The
obligation of the Lender to make or maintain LIBOR-Based Rate Segments so
affected or to permit interest to be computed thereon at the LIBOR-Based Rate,
as the case may be, shall be terminated, and interest shall thereafter be
computed on the affected LIBOR-Based Rate Segment at the Quoted Cost of Funds
Rate.

(b) It is the intention of the parties hereto that the LIBOR-Based
Rate shall accurately reflect the cost to the Lender of maintaining any
LIBOR-Based Rate Segment during the applicable LIBOR-Based Rate Period assuming
the Lender purchases any such time deposits and obtains such funds comprising
any LIBOR-Based Rate Segment. Accordingly, if by reason of any change after
the Closing Date in any applicable Governmental Requirement (or any
interpretation thereof and including the introduction of any new Governmental
Requirement), including any change in the LIBOR Reserve Requirement, the cost
to the Lender of maintaining any LIBOR-Based Rate Segment or funding the same
by means of a London interbank market time deposit, as the case may be, shall
increase, the LIBOR-Based Rate applicable to such LIBOR-Based Rate Segment
shall be adjusted as necessary to reflect such change in cost to the Lender,
effective as of the date on which such change in any applicable Governmental
Requirement becomes effective. Any amounts due under this Section 3.5(b) as a
result of a change in the LIBOR Reserve Requirement shall only be payable by
the Borrower to the extent the Lender incurs actual costs associated with any
such change.

(19)64
<PAGE> 20

(c) If the Lender shall have determined that the adoption after
the Closing Date of any Governmental Requirement regarding capital adequacy, or
any change in any of the foregoing or in the interpretation or administration
of any of the foregoing by any Governmental Authority, central bank or
comparable agency charged with the interpretation or administration thereof, or
compliance by the Lender (or any lending office of the Lender) or the Lender's
holding company with any request or directive regarding capital adequacy
(whether or not having the force of law) of any such Governmental Authority,
central bank or comparable agency, has or would have the effect of reducing the
rate of return on the Lender's capital or on the capital of the Lender's
holding company, as a consequence of the Lender's obligations under this
Agreement or the Advances made by the Lender pursuant hereto to a level below
that which the Lender or the Lender's holding company could have achieved but
for such adoption, change or compliance (taking into consideration the Lender's
guidelines with respect to capital adequacy) by an amount deemed by the Lender
to be material, then from time to time the Borrower shall pay to the Lender
such additional amount or amounts as will compensate the Lender or the Lender's
holding company for any such reduction suffered.

SECTION 3.6 COMPENSATION. The Borrower shall compensate the Lender
for all reasonable losses, expenses and liabilities (including any interest
paid by the Lender to lenders on funds borrowed by the Lender to make or carry
any LIBOR-Based Rate Segment and any loss sustained by the Lender in connection
with the re-employment of such funds), that the Lender may sustain: (a) if for
any reason (other than a default by the Lender) following agreement between the
Borrower and the Lender as to the LIBOR-Based Rate applicable to the
LIBOR-Based Rate Segment the Borrower fails to accept such LIBOR-Based Rate
Segment, (b) as a consequence of any unauthorized action taken or default by
the Borrower in the repayment of any LIBOR-Based Rate Segment when required by
the terms of this Agreement or (c) as a consequence of the prepayment of any
LIBOR-Based Rate Segment pursuant to Section 2.4. A certificate as to the
amount of any additional amounts payable pursuant to this section or Section
3.5(c) (setting forth in reasonable detail the basis for requesting such
amounts) submitted by the Lender to the Borrower shall be conclusive, in the
absence of manifest error. The Borrower shall pay to the Lender the amount
shown as due on any such certificate delivered by the Lender within 30 days
after the Borrower's receipt of the same.

ARTICLE 4

REPRESENTATIONS AND WARRANTIES

The Borrower represents and warrants to the Lender as follows:

(20)65
<PAGE> 21

SECTION 4.1 ORGANIZATION, POWERS, ETC.

(a) It is a corporation duly organized, validly existing and in
good standing under the laws of the jurisdiction of its organization.

(b) It has the corporate power and authority to own its properties
and to carry on its business as now being conducted and is duly qualified or
registered to do business in every jurisdiction where the character of its
properties or the nature of its activities makes such qualification or
registration necessary.

(d) Except as set forth on Exhibit E, it has not done business
under any other name, trade name or otherwise, within the five years
immediately preceding the Closing Date.

SECTION 4.2 AUTHORIZATION OF BORROWING, ETC. The execution, delivery
and performance of the Credit Documents to which it is a party (a) have been
duly authorized by all requisite corporate action (including any necessary
shareholder action), and (b) will not violate any Governmental Requirement, its
Governing Documents or any indenture, agreement or other instrument in any
material respect to which it is a party, or by which it or any of its
properties are bound, or be in conflict with, result in a breach of or
constitute a default under, any such indenture, agreement or other instrument,
or result in the creation or imposition of any Lien, upon any of its properties
except as contemplated by the Credit Documents.

SECTION 4.3 LITIGATION. There are no actions, suits or proceedings
(whether or not purportedly on its behalf) pending or, to the best of its
knowledge, threatened against or affecting it, by or before any Governmental
Authority, that involve any of the transactions provided for in the Credit
Documents or the possibility of any judgment or liability that might reasonably
be expected to result in any material adverse change in its business,
operations, properties or condition, financial or otherwise; and it is not, to
the best of its knowledge, in default with respect to any Governmental
Requirement.

SECTION 4.4 AGREEMENTS. It is not a party to any agreement or
instrument, or subject to any restriction in its Governing Documents that
materially and adversely affects its business, operations, properties or
condition, financial or otherwise, and it is not in default in the performance,
observance or fulfillment of any of the obligations, covenants or conditions
contained in any agreement or instrument to which it is a party, which default
might reasonably be expected to have a material adverse effect upon its
business, operations, properties or condition, financial or otherwise.

SECTION 4.5 FEDERAL RESERVE BOARD REGULATIONS. It does not intend to
use any part of the proceeds of the Credit, and has not incurred any
indebtedness to be reduced, retired or

(21)66
<PAGE> 22

purchased by it out of such proceeds, for the purpose of purchasing or carrying
any Margin Stock, and it does not own and has no intention of acquiring any
such Margin Stock.

SECTION 4.6 INVESTMENT COMPANY ACT. It is not an "investment
company," or a company "controlled" by an "investment company," as such terms
are defined in the Investment Company Act of 1940, as amended.

SECTION 4.7 ERISA.

(a) The execution and delivery of this Agreement and the issuance
and delivery of the Note as contemplated hereby will not involve any prohibited
transaction within the meaning of ERISA or Section 4975 of the Internal Revenue
Code, as amended.

(b) Based on ERISA and the regulations and published
interpretations thereunder, it is in compliance in all material respects with
the applicable provisions of ERISA.

(c) No "Reportable Event," as defined in Section 4043(b) of Title
IV of ERISA, has occurred with respect to any plan maintained by it.

SECTION 4.8 ENFORCEABILITY. All Credit Documents to which it is a
party constitute its legal, valid and binding obligations, enforceable in
accordance with their terms.

SECTION 4.9 CONSENTS, REGISTRATIONS, APPROVALS, ETC. No registration
with or consent or approval of, or other action by, any Governmental Authority
is required for the execution, delivery and performance of any Credit Documents
to which it is a party.

SECTION 4.10 FINANCIAL CONDITION.

(a) Its financial statements that have been furnished to the
Lender were prepared in conformity with generally accepted accounting
principles consistently applied throughout the periods involved, are in
accordance with its books and records, are correct and complete and present
fairly its financial condition as of the date or dates indicated and for the
periods involved in accordance with generally accepted accounting principles
applied on a consistent basis.

(b) Since the date of the financial statements no material adverse
change in its financial condition, business or operations has occurred.

(c) It has no liability, direct or, to its best knowledge,
contingent, that is material in amount and that is not reflected in the
financial statements.

(d) It has good and marketable title to all its properties and
assets reflected on the financial statements except for properties and assets
disposed of since the date thereof as no longer used or useful in the conduct
of its business or disposed of in the ordinary course of its business.

(22)67
<PAGE> 23

(e) All such properties and assets are free and clear of all
Liens, except as otherwise permitted or required by the provisions of this
Agreement and the other Credit Documents.

SECTION 4.11 NO MISLEADING INFORMATION. To the best knowledge of the
Borrower, neither this Agreement nor any of the other Credit Documents, nor any
certificate, written statement or other document furnished to the Lender by or
on behalf of the Borrower in connection with the transactions contemplated
hereby contains any untrue statement of a material fact or omits to state a
material fact necessary in order to make the statements contained herein or
therein not misleading; and there is no fact known to the Borrower that the
Borrower has not disclosed to the Lender that materially adversely affects or,
so far as the Borrower can now reasonably foresee, will materially adversely
affect the properties, or financial or other condition of the Borrower or the
ability of the Borrower to perform its obligations hereunder and under the other
Credit Documents.

SECTION 4.12 TAXES.

(a) It has filed or caused to be filed all tax returns that, to
the knowledge of its officers, are required to be filed with any Governmental
Authority, and it has paid or has caused to be paid all taxes as shown as due
on said returns or on any assessment received by it.

(b) It has reserves that are believed by its officers to be
adequate for the payment of additional taxes for years that have not been
audited by the respective tax authorities.

SECTION 4.13 PATENTS, TRADEMARKS. It owns, or possesses the right to
use, all the patents, trademarks, service marks, trade names, copyrights,
franchises, consents, authorizations and licenses and rights with respect to the
foregoing, necessary for the conduct of its business as now conducted and
proposed to be conducted, without any known conflict with the rights of others.

SECTION 4.14 HAZARDOUS SUBSTANCES. To the best of its knowledge:

(a) it has never caused or permitted any Hazardous Substance to be
placed, held, located, released or disposed of in violation of any Governmental
Requirement on, under or at any real property legally or beneficially owned,
leased or operated by it, and such property has never been used by it or, by
any other person as a dump site or permanent or temporary storage site for any
Hazardous Substance, in violation of any Governmental Requirement.

(b) it has no liabilities with respect to Hazardous Substances
that materially adversely affects the business of the Borrower taken as a
whole, and no facts or circumstances exist that could give rise to liabilities
with respect to Hazardous Substances.

SECTION 4.15 SOLVENCY. The Borrower is and will remain Solvent, taking
into account the transactions contemplated by the Credit Documents.

(23)68
<PAGE> 24

SECTION 4.16 SUBSIDIARIES. The Subsidiaries of the Borrower are listed
on Exhibit F. Each of the representations and warranties set forth in this
Article 4 (except those set forth in Section 4.5 and 4.16) with respect to the
Borrower is also true with respect to each Subsidiary.

ARTICLE 5

CONDITIONS OF LENDING

The obligation of the Lender to lend hereunder and to issue Letters of
Credit is subject to the following conditions precedent:

SECTION 5.1 REPRESENTATIONS AND WARRANTIES. On and as of the Closing
Date and any later date on which Credit is to be extended hereunder, and on the
date the Borrower requests Advances or presents to the Lender each Request for
Advances and Interest Rate Election form, the representations and warranties
set forth in Article 4 must be true and correct in all material respects with
the same effect as though they had been made on and as of such date, except to
the extent that they expressly relate to an earlier date.

SECTION 5.2 NO DEFAULT. On and as of the Closing Date hereof and any
later date on which Credit is to be extended hereunder and on the date the
Borrower presents to the Lender each Request for Advances and Interest Rate
Election form, no Event of Default, nor any event that upon notice or lapse of
time or both would constitute an Event of Default, may exist. The presentation
by the Borrower of each Request for Advances and Interest Rate Election form
shall constitute a representation and warranty by the Borrower to the Lender
that no Event of Default exists.

SECTION 5.3 AUTOMATIC REPRESENTATIONS AND WARRANTIES. The making of
any request for an Advance shall constitute an automatic representation and
warranty by the Borrower that the representations and warranties contained in
Article 4 are true and correct on and as of the date of such Advance and that
no Event of Default, nor any event that upon notice or lapse of time or both
would constitute an Event of Default, exists.

SECTION 5.4 REQUIRED ITEMS. On and as of the Closing Date and on and
as of the date of each Advance and on the date the Borrower presents to the
Lender each Request for Advances and Interest Rate Election form, the Lender
must have received all financial statements (if any), reports and other items
required as of that date under Article 2 and Article 6 of this Agreement.

SECTION 5.5 AUTHORIZED REPRESENTATIVE CERTIFICATES. On and as of the
Closing Date, the Borrower must have delivered to the Lender the following
certificates executed by the appropriate Authorized Representatives of the
Borrower, each of which certificates must be of a current date and must be
satisfactory in form and substance to the Lender: (a) a certificate confirming
compliance by the Borrower with the conditions precedent set forth in Sections
5.1 and

(24)69
<PAGE> 25

5.2; (b) a certificate certifying as in full force and effect resolutions of
its directors authorizing the transactions contemplated by the Credit Documents
and authorizing certain Authorized Representatives of the Borrower to execute
the Credit Documents on behalf of the Borrower and to act on behalf of the
Borrower with respect to the Credit Documents, including the authority to
request disbursements of the proceeds of the Credit and to direct the
disposition of such proceeds (including Request for Advances and Interest Rate
Election forms); and (c) a certificate certifying as true and correct, as
amended, attached copies of the Governing Documents of the Borrower and the
incumbency and signature of each Authorized Representative of the Borrower
specified in said resolutions. The Lender may conclusively rely on the
certified resolutions described in Section 5.5(b) as to all actions on behalf
of the Borrower by the Authorized Representatives specified therein until the
Lender receives further duly adopted resolutions cancelling or amending the
prior resolutions.

SECTION 5.6 OTHER SUPPORTING DOCUMENTS. The Lender must receive on
or before the Closing Date the following, each of which must be satisfactory to
the Lender in form and content, (a) such legal opinions, certificates,
proceedings, instruments and other documents as the Lender or its counsel may
reasonably request to evidence (1) compliance by the Borrower and all other
parties to the Credit Documents with legal requirements, (2) the truth and
accuracy as of the Closing Date of the respective representations thereof
contained in the Credit Documents, and (3) the due performance or satisfaction
by such parties at or prior to the Closing Date of all agreements then required
to be performed and all conditions then required to be satisfied by them
pursuant to the Credit Documents, and (b) such additional supporting documents
as the Lender or its counsel may reasonably request.

ARTICLE 6

COVENANTS

The Borrower covenants and agrees that the Borrower shall:

SECTION 6.1 EXISTENCE. Do or cause to be done all things necessary
to preserve and keep in full force and effect its corporate existence, rights
and franchises and comply with all applicable Governmental Requirements.

SECTION 6.2 CONTINUATION OF CURRENT BUSINESS, OFFICES, NAME, ETC.
Not (a) engage in any business other than the business now being conducted by
it and other businesses directly related thereto; (b) remove its principal
place of business or business records from Shelby County, Tennessee or
Jefferson County, Alabama, unless the removal is pursuant to a merger,
consolidation or transfer of assets approved by the Lender; (c) without
providing the Lender with prior written notice, change its name or conduct its
business in any name other than its current names; or (d) enter into (1) any
agreement whereby the management, supervision or control of its business is
delegated to or placed in any person other than its governing body and officers
or

(25)70
<PAGE> 26

(2) any contract or agreement whereby any of its principal functions are
delegated to or placed in any agent or independent contractor.

SECTION 6.3 SALE OF ASSETS, CONSOLIDATION, MERGER. Not (a) sell,
lease, transfer or otherwise dispose of all or a substantial part of its
properties or assets to any person (other than sales in the ordinary course of
business); or (b) consolidate with, merge into or participate in a statutory
share exchange with any other person, or permit another person to merge into
it, acquire all or substantially all the properties or assets of any other
person, or acquire all or substantially all the properties or assets relating
to a line of business or a division of any other person.

SECTION 6.4 ACCOUNTING RECORDS. Keep proper books of record and
account in which full, true and correct entries are made in accordance with
generally accepted accounting principles applied on a consistent basis.

SECTION 6.5 REPORTS TO THE LENDER. Furnish to the Lender:

(a) within 120 days after the end of each fiscal year of the
Borrower, a copy of the Borrower's 10-K as filed with the Securities and
Exchange Commission or if such filing is no longer required, financial
statements (including a balance sheet and the related statements of income,
cash flows and retained earnings) of the Borrower for such fiscal year,
together with statements in comparative form for the preceding fiscal year, all
in reasonable detail (including all computations necessary to show the
Borrower's compliance with Section 6.15), prepared in accordance with generally
accepted accounting principles consistently applied throughout the periods
involved, and audited and certified by independent certified public accountants
of recognized standing selected by the Borrower and satisfactory to the Lender
(the form of such certification also to be satisfactory to the Lender);

(b) within 60 days after the end of each first, second and third
fiscal quarter, a copy of the Borrower's 10-Q as filed with the Securities and
Exchange Commission or if such filing is no longer required, financial
statements similar to those referred to in Section 6.5(a) for such fiscal
quarter and for the period beginning on the first day of the fiscal year and
ending on the last day of such fiscal quarter, unaudited but certified by an
Authorized Representative of the Borrower;

(c) with the financial statements submitted under Section 6.5(a)
and 6.5(b), a certificate signed by the party certifying said statement to the
effect that no Event of Default, nor any event that, upon notice or lapse of
time or both, would constitute an Event of Default, exists or, if any such
Event of Default or event exists, specifying the nature and extent thereof;

(d) not later than 30 days after the end of each fiscal quarter
(commencing on June 30, 1996), a compliance certificate duly executed by an
Authorized Representative of the Borrower substantially in the form of Exhibit
D attached hereto evidencing compliance with the covenants set forth in Section
6.15 (a "Compliance Certificate");

(26)71
<PAGE> 27

(e) contemporaneously with the distributions thereof to the
Borrower's stockholders or the filing thereof with the Securities and Exchange
Commission, as the case may be, copies of all statements, reports, notices and
filings distributed by the Borrower to its stockholders or filed with the
Securities and Exchange Commission;

(f) promptly upon receipt thereof, copies of all other reports,
management letters and other documents submitted to it by independent
accountants in connection with any annual or interim audit of its books made by
such accountants; and

(g) as soon as practical, from time to time, such other
information regarding its operations, business affairs and financial condition
as the Lender may reasonably request including annual budgets and, within 30
days after the end of each fiscal quarter, projections for the next succeeding
eight fiscal quarters.

SECTION 6.6 MAINTENANCE. Maintain, preserve and protect all
franchises and trade names and preserve all the remainder of its property used
or useful in the conduct of its business and keep the same in good repair,
working order and condition, and from time to time make, or cause to be made,
all needful and proper repairs, renewals, replacements, betterments and
improvements thereto, so that the business carried on in connection therewith
may be properly and advantageously conducted at all times.

SECTION 6.7 INSURANCE. Maintain (a) adequate insurance on its
properties to such extent and against such risks, including fire, as is
customary with companies in the same or a similar business, (b) necessary
worker's compensation insurance and (c) such other insurance as may be required
by law or as may reasonably be required in writing by the Lender.

SECTION 6.8 PAYMENT OF INDEBTEDNESS, TAXES, ETC. (a) Pay its
indebtedness and obligations in accordance with normal terms; (b) pay all
taxes, assessments and governmental charges or levies imposed upon it or upon
its income and profits or upon any of its properties before they become in
default, except any such tax, assessment or governmental charge that is subject
to a Permitted Contest; and (c) pay all lawful claims for labor, materials and
supplies or otherwise, which, if unpaid, might become a Lien upon any of its
properties, except any such claim that is subject to a Permitted Contest.

SECTION 6.9 LITIGATION NOTICE. Promptly notify the Lender of any
action, suit or proceeding at law or in equity or by or before any Governmental
Authority that, if adversely determined, might reasonably be expected to impair
its ability to perform its obligations under any of the Credit Documents to
which it is a party, might reasonably be expected to impair its right to carry
on its business substantially as now conducted, or might reasonably be expected
to materially and adversely affect its business, operations, properties or
condition, financial or otherwise.

(27)72
<PAGE> 28

SECTION 6.10 VISITATION. Permit representatives of the Lender from
time to time to visit and inspect any of its offices and properties and to
examine its assets and books of account and to discuss its affairs, finances and
accounts with and be advised as to the same by its officers, all at such
reasonable times and intervals as the Lender may desire.

SECTION 6.11 NOTICE OF DEFAULT. Promptly notify the Lender of the
existence of any Event of Default, or any event that upon notice or lapse of
time or both would constitute an Event of Default.

SECTION 6.12 FURTHER ASSURANCES. At its cost and expense, upon request
of the Lender, duly execute and deliver, or cause to be duly executed and
delivered, to the Lender such further instruments and do and cause to be done
such further acts as may be reasonably necessary or proper in the opinion of the
Lender or its counsel to carry out more effectively the provisions and purposes
of the Credit Documents.

SECTION 6.13 TRANSACTIONS WITH RELATED PERSONS. Except as previously
disclosed in the Borrower's financial statements provided to the Lender, not
enter into any transaction with any Obligor (as hereinafter defined) or any
officer, director, partner, member or Affiliate unless the terms of that
transaction are no less favorable to it than those that would be obtained on an
arms-length basis.

SECTION 6.14 USE OF REVOLVING LOAN PROCEEDS. Not, directly or
indirectly use any part of the proceeds of the Obligations (a) for any purpose
other than providing working capital for the Borrower and financing capital
expenditures or (b) without limiting the generality of the foregoing, for the
purpose of purchasing or carrying any Margin Stock, or of reducing, retiring or
purchasing any indebtedness incurred for such purpose; or take any other action
that would involve a violation of Section 7 of the Securities Exchange Act of
1934, as amended, or any regulation issued thereunder, including Regulation U or
Regulation X of the Federal Reserve Board, in connection with the transactions
contemplated hereby; provided, however, that nothing set forth in this Section
6.14 or elsewhere in this Agreement shall be construed as imposing any duty on
the Lender to supervise the use or application of the Revolving Loan proceeds or
any liability on the Lender to any person if the Revolving Loan proceeds are not
used for the purposes set forth in this Agreement.

SECTION 6.15 FINANCIAL COVENANTS.

(a) TANGIBLE NET WORTH. Not permit its Tangible Net Worth to be
at any time less than the sum of (i) $20,000,000 plus (ii) 75% of cumulative
net income, if positive, after taxes for the period from March 30, 1996 through
the date of determination, determined on a quarterly basis.

(b) CAPITAL EXPENDITURES. Not make in the aggregate in any
consecutive four fiscal quarters Capital Expenditures that exceed $6,145,000.

(28)73
<PAGE> 29

(c) DEBT SERVICE COVERAGE RATIO. Not permit its ratio of Net
Income Available for Debt Service for any four consecutive fiscal quarters to
(i) Interest Expense and Operating Lease Payments for such period plus (ii)
Principal Maturities for the next succeeding four fiscal quarters following the
date of determination plus (iii) 20% of the outstanding Obligations as of the
date of determination to be less than 1.3 to 1.0 at any time.

(d) DIVIDENDS. Not declare or pay any dividends or make any
distributions upon any of its stock (including dividends and distributions
payable only in shares of its stock, other than stock splits effected in the
form of stock dividends that do not affect retained earnings other than to the
extent occasioned by legal requirements) or, except for purposes of the
Borrower's employee and director stock plans, directly or indirectly apply any
of its assets to the redemption, retirement, purchase or other acquisition of
its stock.

(e) INDEBTEDNESS. Not incur, create, assume or permit to exist
any Debt in excess of $2,500,000, except the indebtedness evidenced by the
Note, other indebtedness to the Lender and purchase money obligations secured
by Liens permitted under Section 6.15(f)(6).

(f) LIENS. Not incur, create, assume or permit to exist any Lien
on any of its properties, now or hereafter owned, other than:

(1) Liens securing the payment of obligations permitted
under Section 6.8(b);

(2) deposits under workmen's compensation, unemployment
insurance and Social Security laws, or to secure the performance of
bids, tenders, contracts (other than for the repayment of borrowed
money) or leases or to secure statutory obligations or surety or
appeal bonds, or to secure indemnity, performance or other similar
bonds in the ordinary course of business;

(3) Liens imposed by law, such as carriers',
warehousemen's or mechanics' liens, incurred in good faith in the
ordinary course of business and that are not delinquent or that are
subject to Permitted Contests, and any Lien arising out of a judgment
or award not exceeding $50,000 with respect to which an appeal is
being prosecuted, a stay of execution pending such appeal having been
secured;

(4) Liens in favor of the Lender;

(5) Liens for taxes, assessments or other governmental
charges or levies that are not delinquent or that are subject to
Permitted Contests; and

(6) purchase money Liens on equipment (arising
substantially contemporaneously with the purchase of such equipment)
acquired in the ordinary course of business to secure the purchase
price of such equipment or to secure indebtedness

(29)74
<PAGE> 30

incurred solely for the purpose of financing the acquisition of such
equipment, or any Lien existing on the equipment at the time of its
acquisition, provided that (A) the indebtedness secured by such Lien
does not exceed the purchase price or fair market value, whichever is
less, of the equipment so acquired at the time of its acquisition, (B)
the equipment is used or useful in the ordinary course of business of
the Borrower and (C) the Lien does not cover any property other than
the equipment so acquired.

(g) GUARANTIES. Except for guaranties of lease obligations
arising from those unexpired leases in which the premises have been vacated by
the Borrower, not guarantee, endorse, become surety for or otherwise in any way
become or be responsible for the indebtedness, liabilities or obligations of
any other person, whether by agreement to purchase the indebtedness or
obligations of any other person, or agreement for the furnishing of funds to
any other person (directly or indirectly, through the purchase of goods,
supplies or services or by way of stock purchase, capital contribution, working
capital maintenance agreement, advance or loan) or for the purpose of paying or
discharging the indebtedness or obligations of any other person, or otherwise,
except for the endorsement of negotiable instruments in the ordinary course of
business for collection.

(h) TAKE OR PAY CONTRACTS. Not enter into or be a party to any
contract for the purchase of merchandise, materials, supplies or other property
if such contract provides that payment for such merchandise, materials,
supplies or other property shall be made regardless of whether delivery of such
merchandise, materials, supplies or other property is ever made or tendered.

(i) SALE-LEASEBACK. Not enter into any arrangement, directly or
indirectly, with any person whereby it sells or transfers any property, real,
personal or mixed, and used or useful in its business, whether now owned or
hereafter acquired, and thereafter rents or leases such property or other
property that it intends to use for substantially the same purpose or purposes
as the property sold or transferred.

(j) INVESTMENTS, ETC. Except as disclosed in Exhibit B, not
purchase or hold beneficially any stock, other securities or evidences of
indebtedness of, make or permit to exist any loans or advances to, or make any
investment or acquire any interest whatsoever in, any other person; provided,
however, that it may invest in (1) direct obligations of, or obligations
unconditionally guaranteed by, the United States of America or any agency
thereof maturing in less than one year from the date of purchase; (2)
commercial paper issued by any person organized and doing business under the
laws of the United States of America or any state thereof rated in the highest
category by Moody's Investors Services, Inc. or by Standard & Poor's Ratings
Group and maturing in less than one year from the date of purchase; and (3)
certificates of deposit maturing within one year of the date of acquisition
thereof issued by any commercial bank, organized and doing business under the
laws of the United States of America or any state thereof whose deposits are
insured by the Federal Deposit Insurance Corporation, if the face amount of
said certificate of deposit, when added to all other deposits of the Borrower
at such commercial

(30)75
<PAGE> 31

bank, does not exceed the then-applicable limitation on the amount of
federally insured deposits; and further provided that it may hold the stock of
any Subsidiary to which the Lender has consented in writing.

(k) SALE OF RECEIVABLES. Not sell, assign or discount, or grant
or permit any Lien on, any of its accounts receivable or any promissory note
held by it, with or without recourse, other than the discount of such notes in
the ordinary course of business for collection.

(l) LEASE OBLIGATIONS. Not incur, create, permit to exist or
assume any commitment to make any direct or indirect payment, as rent, under
any lease, rental or other arrangement for the use of property of any other
person, if immediately thereafter the aggregate of such payments to be made by
it would exceed $10,500,000 in any consecutive four fiscal quarters.

(m) SOLVENCY. Continue to be Solvent.

(n) CERTAIN DEFINED TERMS. For purposes of this Section 6.15 the
following terms are defined as follows:

(1) CAPITAL EXPENDITURES means any expenditure for fixed
assets or that is properly chargeable to capital account in accordance
with generally accepted accounting principles.

(2) INTEREST EXPENSE means interest payable on Debt
during the period in question.

(3) NET INCOME AVAILABLE FOR DEBT SERVICE for any period
means net income, after taxes, before any extraordinary gains or
charges including those caused as a result of accounting changes (or
the net deficit, if expenses and charges exceed revenues and other
proper income credits) for such period, plus amounts that have been
deducted for (A) amortization, (B) depreciation, (C) income and profit
taxes, (D) Interest Expense and (E) Operating Lease Payments in
determining net income for such period.

(4) OPERATING LEASE PAYMENTS means all rent payable under
any lease or rental agreement (other than obligations under capital
leases) during the period in question.

(5) PRINCIPAL MATURITIES means principal maturing or
coming due on Debt during the period in question.

(6) TANGIBLE NET WORTH means the sum of the amounts set
forth on the balance sheet as shareholders' equity (including the par
or stated value of all outstanding capital stock, retained earnings,
additional paid-in capital, capital surplus and earned surplus) plus
any adjustments caused by implementation of FAS 121 by the Borrower
with respect to long-lived assets as recommended by the Borrower's
accountant and acceptable to the

(31)76
<PAGE> 32

Bank; provided, however, in no event shall any such adjustments exceed
$7,500,000 on a cumulative basis, less the sum of (A) any amount of
any write-up of assets not adjusted for purchase accounting, (B)
goodwill, (C) patents, trademarks, copyrights, leasehold improvements
not recovered at the expiration of a lease, and deferred charges
(including unamortized debt, discount and expense, organization
expenses, experimental and developmental expenses, but excluding
prepaid expenses) and (D) any amounts at which shares of capital stock
of such person appear on the asset side of the balance sheet.

SECTION 6.16 CHANGE IN MANAGEMENT. Promptly notify the Lender of any
change with respect to the members of the Board of Directors of the Borrower or
any change in the senior executive officers of the Borrower.

SECTION 6.17 SUBSIDIARIES. Cause each of its Subsidiaries to comply
with all of the covenants set forth in this Article 6 other than those set forth
in Sections 6.5, 6.14, 6.15, 6.16 and 6.17 (except to the extent that the
excluded sections may be indirectly applicable to the Subsidiaries by virtue of
their application to the Borrower).

ARTICLE 7

EVENTS OF DEFAULT

SECTION 7.1 EVENTS OF DEFAULT. The occurrence of any of the
following events shall constitute an event of default (an "Event of Default")
under this Agreement (whatever the reason for such event and whether or not it
shall be voluntary or involuntary or be effected by operation of law or
pursuant to any judgment, decree, order, rule or regulation of any Governmental
Authority):

(a) any representation or warranty made in this Agreement or in
any of the other Credit Documents shall prove to be false or misleading in any
material respect as of the time made; or

(b) any report, certificate, financial statement or other
instrument furnished in connection with the Obligations, this Agreement or any
of the other Credit Documents, shall prove to be false or misleading in any
material respect as of the time furnished; or

(d) default shall be made in the due observance or performance of
any covenant, condition or agreement on the part of the Borrower to be observed
or performed pursuant to the terms of Sections 6.2, 6.3 and 6.15 hereof; or

(e) default shall be made in the due observance or performance of
any covenant, condition or agreement on the part of the Borrower to be observed
or performed pursuant to the

(32)77
<PAGE> 33

terms of this Agreement (other than any covenant, condition or agreement,
default in the observance or performance of which is elsewhere in this Section
7.1 specifically dealt with) and such default shall continue unremedied until
the first to occur of (1) the date that is thirty days after written notice by
the Lender to the Borrower or (2) the date that is thirty days after the
Borrower first obtains knowledge thereof; or

(f) (1) default shall be made with respect to any Debt (other than
the Obligations) of the Borrower or any Subsidiary (each of the Borrower and
any Subsidiary being referred to as an "Obligor"), if the effect of such
default is to accelerate the maturity of such Debt or to permit the holder
thereof to cause such Debt to become due prior to its stated maturity, or (2)
any such Debt shall not be paid when due (after giving effect to any applicable
notice, grace or cure periods); or

(g) any Obligor shall (1) apply for or consent to the appointment
of a receiver, trustee, liquidator or other custodian of such Obligor or any of
such Obligor's properties or assets, (2) fail or admit in writing such
Obligor's inability to pay such Obligor's debts generally as they become due,
(3) make a general assignment for the benefit of creditors, (4) suffer or
permit an order for relief to be entered against such Obligor in any proceeding
under the federal Bankruptcy Code, or (5) file a voluntary petition in
bankruptcy, or a petition or an answer seeking an arrangement with creditors or
to take advantage of any bankruptcy, reorganization, insolvency, readjustment
of debt, dissolution or liquidation law or statute, or an answer admitting the
material allegations of a petition filed against such Obligor in any proceeding
under any such law or statute, or if corporate action shall be taken by any
Obligor for the purpose of effecting any of the foregoing; or

(h) a petition shall be filed, without the application, approval
or consent of any Obligor in any court of competent jurisdiction, seeking
bankruptcy, reorganization, rearrangement, dissolution or liquidation of such
Obligor or of all or a substantial part of the properties or assets of such
Obligor, or seeking any other relief under any law or statute of the type
referred to in Section 7.1(g)(5) against such Obligor, or the appointment of a
receiver, trustee, liquidator or other custodian of such Obligor or of all or a
substantial part of the properties or assets of such Obligor, and such petition
shall not have been stayed or dismissed within 30 days after the filing
thereof; or

(i) any Obligor shall become insolvent, suspend its business or be
dissolved or liquidated or any writ of execution, attachment or garnishment
shall be issued against the assets of the Borrower and such writ of execution,
attachment or garnishment shall not be dismissed, discharged or quashed within
30 days of issuance; or

(j) any final judgment for the payment of money shall be rendered
against any Obligor that materially adversely affects the business of such
Obligor taken as a whole and the same shall remain undischarged for a period of
30 days during which execution shall not be effectively stayed

(33)78
<PAGE> 34

unless such judgment is adequately covered by valid and collectible insurance,
which coverage is approved by the Lender; or

(k) any guarantor of any of the Obligations shall default in the
due observance or performance of any covenant, condition or agreement on such
guarantor's part to be observed or performed under such guarantor's guaranty
agreement (after giving effect to any applicable notice, grace or cure period
specified therein) or shall terminate or attempt to terminate such guarantor's
guaranty agreement; or

(l) any event of default, as therein defined, shall occur under
any of the other Credit Documents (after giving effect to any applicable
notice, grace or cure period specified therein).

SECTION 7.2 LENDER'S REMEDIES ON DEFAULT.

(a) If an Event of Default exists, or any event exists that upon
notice or lapse of time or both would constitute an Event of Default, the
Lender shall have no obligation to extend any further Credit hereunder. If an
Event of Default exists under Section 7.1(g) or 7.1(h), all of the Obligations
shall automatically become immediately due and payable. If any other Event of
Default exists, the Lender may, by written notice to the Borrower, declare any
or all of the Obligations to be immediately due and payable, whereupon they
shall become immediately due and payable. Any such acceleration (whether
automatic or upon notice) shall be effective without presentment, demand,
protest or other action of any kind, all of which are hereby expressly waived,
anything contained herein or in any of the other Credit Documents to the
contrary notwithstanding. If an Event of Default exists, the Lender may
exercise any of its rights and remedies on default under the Credit Documents
or applicable law.

(b) If an Event of Default exists, the Lender may treat all then
outstanding Letters of Credit as if drafts in the full amount available to be
drawn thereunder had been properly drawn thereunder and paid by the Lender and
the Borrower had failed or refused to reimburse the Lender for the amount so
paid within the time required for the Borrower to do so.

(c) If an Event of Default exists, the Borrower shall, promptly
upon demand of the Lender, deposit in cash with the Lender an amount equal to
the amount of all Letter of Credit Obligations then outstanding, as collateral
security for the repayment thereof, which deposit shall be held by the Lender
under the provisions of Section 8.16.

(34)79
<PAGE> 35

ARTICLE 8

MISCELLANEOUS

SECTION 8.1 NOTICES.

(a) Any request, demand, authorization, direction, notice,
consent, waiver or other document provided or permitted by this Agreement or
the other Credit Documents to be made upon, given or furnished to, or filed
with, the Borrower or the Lender must (except as otherwise provided in this
Agreement or the other Credit Documents) be in writing and be delivered by one
of the following means: (1) by personal delivery at the hand delivery address
specified below, (2) by first-class, registered or certified mail, postage
prepaid and addressed as specified below, or (3) if facsimile transmission
facilities for such party are identified below or pursuant to a separate notice
from such party, sent by facsimile transmission to the number specified below
or in such notice.

(b) The hand delivery address, mailing address and (if applicable)
facsimile transmission number for receipt of notice or other documents by such
parties are as follows:

Borrower

By hand and by mail:

5683 South Rex Street
Memphis, Tennessee 38119
Attention: President

By facsimile:

(901) 680-6280

Lender

By hand:

7th Floor, AmSouth-Sonat Tower
1900 Fifth Avenue North
Birmingham, Alabama 35203
Attention: Regional Banking Department

By mail:

Post Office Box 11007
Birmingham, Alabama 35288
Attention: Regional Banking Department

(35)80
<PAGE> 36

By facsimile:

(205) 583-4436

With a copy to:

J. Kris Lowry
Maynard, Cooper & Gale, P.C.
1901 Sixth Avenue North
2400 AmSouth/Harbert Plaza
Birmingham, Alabama 35203-2602

Any of such parties may change the address or facsimile transmission notice for
receiving any such notice or other document by giving notice of the change to
the other parties named in this Section 8.1.

(c) Any such notice or other document shall be deemed delivered
when actually received by the party to whom directed (or, if such party is not
a natural person, to an officer, director, partner, member or other legal
representative of the party) at the address or number specified pursuant to
this Section 8.1, or, if sent by mail, three Business Days after such notice or
document is deposited in the United States mail, addressed as provided above.

(d) Five Business Days' written notice to the Borrower as provided
above shall constitute reasonable notification to the Borrower when
notification is required by law; provided, however, that nothing contained in
the foregoing shall be construed as requiring five Business Days' notice if,
under applicable law and the circumstances then existing, a shorter period of
time would constitute reasonable notice.

SECTION 8.2 EXPENSES. The Borrower shall promptly on demand pay all
costs and expenses, including the fees and disbursements of counsel to the
Lender, incurred by the Lender in connection with (a) the extension of the
Revolving Loan and the administration or collection of the Obligations, (b) the
negotiation, preparation and review of the Credit Documents, including
documents relating to participations granted by the Lender, whether executed
before, on or after the Closing Date (whether or not the transactions
contemplated by this Agreement shall be consummated), (c) the enforcement of
any of the Credit Documents, (d) the exercise by or on behalf of the Lender of
any of its rights, powers or remedies under the Credit Documents, (e) the
compliance by the Lender with any Governmental Requirements with respect to any
of the Credit Documents or any of the Obligations, and (f) the prosecution or
defense of any action or proceeding by or against the Lender, the Borrower, any
Obligor, or any one or more of them, concerning any matter related to this
Agreement or any of the other Credit Documents, any documents relating to
participations granted by the Lender or any of the Obligations. All such
amounts shall bear interest from the date demand is made at the Default Rate
and shall be included

(36)81
<PAGE> 37

in the Obligations. The Borrower's obligations under this Section 8.2 shall
survive the payment in full of the Obligations and the termination of this
Agreement.

SECTION 8.3 INDEPENDENT OBLIGATIONS. The Borrower agrees that each
of the obligations of the Borrower to the Lender under this Agreement may be
enforced against the Borrower without the necessity of joining any other
Obligor or any other person, as a party.

SECTION 8.4 SUCCESSORS AND ASSIGNS. Whenever in this Agreement any
party hereto is referred to, such reference shall be deemed to include the
successors and assigns of such party, except that the Borrower may not assign
or transfer this Agreement without the prior written consent of the Lender; and
all covenants and agreements of the Borrower contained in this Agreement shall
bind the Borrower's successors and assigns and shall inure to the benefit of
the successors and assigns of the Lender.

SECTION 8.5 GOVERNING LAW. This Agreement and the other Credit
Documents shall be construed in accordance with and governed by the internal
laws of the State of Alabama (without regard to conflict of law principles)
except as required by mandatory provisions of law.

SECTION 8.6 DATE OF AGREEMENT. The date of this Agreement is
intended as a date for the convenient identification of this Agreement and is
not intended to indicate that this Agreement was executed and delivered on that
date.

SECTION 8.7 SEPARABILITY CLAUSE. If any provision of the Credit
Documents shall be invalid, illegal or unenforceable, the validity, legality
and enforceability of the remaining provisions shall not in any way be affected
or impaired thereby.

SECTION 8.8 COUNTERPARTS. This Agreement may be executed in any
number of counterparts, each of which so executed shall be deemed an original,
but all such counterparts shall together constitute but one and the same
agreement.

SECTION 8.9 NO ORAL AGREEMENTS. This Agreement is the final
expression of the agreement between the parties hereto, and this Agreement may
not be contradicted by evidence of any prior oral agreement between such
parties. All previous oral agreements between the parties hereto have been
incorporated into this Agreement and the other Credit Documents, and there is
no unwritten oral agreement between the parties hereto in existence.

SECTION 8.10 WAIVER AND ELECTION. The exercise by the Lender of any
option given under this Agreement shall not constitute a waiver of the right to
exercise any other option. No failure or delay on the part of the Lender in
exercising any right, power or remedy under this Agreement shall operate as a
waiver thereof, nor shall any single or partial exercise of any such right,
power or remedy preclude any further exercise thereof or the exercise of any
other right, power or remedy. No modification, termination or waiver of any
provisions of the Credit Documents, nor consent to any departure by the Borrower
therefrom, shall be effective unless in writing and signed by an authorized
representative of the Lender, and then such waiver or consent

(37)82
<PAGE> 38

shall be effective only in the specific instance and for the specific purpose
for which given. No notice to or demand on the Borrower in any case shall
entitle the Borrower to any other or further notice or demand in similar or
other circumstances.

SECTION 8.11 NO OBLIGATIONS OF LENDER; INDEMNIFICATION. The Lender
does not by virtue of this Agreement or any of the transactions contemplated by
the Credit Documents assume any duties, liabilities or obligations with respect
to any property now or hereafter granted to it as collateral for any of the
Obligations unless expressly assumed by the Lender under a separate agreement in
writing, and the Credit Documents shall not be deemed to confer on the Lender
any duties or obligations that would make the Lender directly or derivatively
liable for any person's negligent, reckless or wilful conduct. The Borrower
agrees to indemnify and hold the Lender harmless against and with respect to any
damage, claim, action, loss, cost, expense, liability, penalty or interest
(including attorney's fees) and all costs and expenses of all actions, suits,
proceedings, demands, assessments, claims and judgments directly or indirectly
resulting from, occurring in connection with, or arising out of: (a) any
inaccurate representation made by the Borrower or any Obligor in this Agreement
or any other Credit Document; and (b) any breach of any of the warranties or
obligations of the Borrower or any Obligor under this Agreement or any other
Credit Document. The provisions of this Section 8.11 shall survive the payment
of the Obligations in full and the termination of this Agreement and the other
Credit Documents.

SECTION 8.12 SET-OFF. While any Event of Default exists, the Lender
is authorized at any time and from time to time, without notice to the Borrower
(any such notice being expressly waived by the Borrower), to set off and apply
any and all deposits (general or special, time or demand, provisional or final)
at any time held and other indebtedness at any time owing by the Lender to or
for the credit or the account of the Borrower against any and all of the
Obligations, irrespective of whether or not the Lender shall have made any
demand under this Agreement and although such Obligations may be unmatured. The
rights of the Lender under this Section 8.12 are in addition to all other rights
and remedies (including other rights of set-off or pursuant to any banker's
lien) that the Lender may have.

SECTION 8.13 PARTICIPATION. The Lender may from time to time enter
into a participation agreement or agreements with one or more participants
pursuant to which each such participant shall be given a participation in the
Obligations and that any such participant may from time to time similarly grant
to one or more subparticipants subparticipations in the Obligations, and all
communications with the Lender and the Borrower shall be solely with the Lender
and not with any participant. The Borrower agrees that any participant or
subparticipant may exercise any and all rights of banker's lien or set-off with
respect to the Borrower, as fully as if such participant or subparticipant had
made a loan directly to the Borrower in the amount of the participation or
subparticipation given to such participant or subparticipant in the Obligations.
For the purposes of this Section 8.13 only, the Borrower shall be deemed to be
directly obligated to each participant or subparticipant in the amount of its
participating interest in the amount of the Obligations. Nothing contained in
this Section 8.13 shall affect the Lender's right of set-off (under Section 8.12
or applicable law) with respect to the entire amount of the Obligations,
notwithstanding any such participation or subparticipation. The Lender may
divulge to any participant or subparticipant all

(38)83
<PAGE> 39

information, reports, financial statements, certificates and documents obtained
by it from the Borrower or any other person under any provision of this
Agreement or otherwise.

SECTION 8.14 SUBMISSION TO JURISDICTION. The Borrower irrevocably (a)
acknowledges that this Agreement will be accepted by the Lender and performed by
the Borrower in the State of Alabama; (b) submits to the jurisdiction of each
state or federal court sitting in Jefferson County, Alabama (collectively, the
"Courts") over any suit, action or proceeding arising out of or relating to this
Agreement or any of the other Credit Documents (individually, an "Agreement
Action"); (c) waives, to the fullest extent permitted by law, any objection or
defense that the Borrower may now or hereafter have based on improper venue,
lack of personal jurisdiction, inconvenience of forum or any similar matter in
any Agreement Action brought in any of the Courts; (d) agrees that final
judgment in any Agreement Action brought in any of the Courts shall be
conclusive and binding upon the Borrower and may be enforced in any other court
to the jurisdiction of which the Borrower is subject, by a suit upon such
judgment; (e) consents to the service of process on the Borrower in any
Agreement Action by the mailing of a copy thereof by registered or certified
mail, postage prepaid, to the Borrower at the Borrower's address designated in
or pursuant to Section 8.1; (f) agrees that service in accordance with Section
8.14(e) shall in every respect be effective and binding on the Borrower to the
same extent as though served on the Borrower in person by a person duly
authorized to serve such process; and (g) AGREES THAT THE PROVISIONS OF THIS
SECTION, EVEN IF FOUND NOT TO BE STRICTLY ENFORCEABLE BY ANY COURT, SHALL
CONSTITUTE "FAIR WARNING" TO THE BORROWER THAT THE EXECUTION OF THIS AGREEMENT
MAY SUBJECT THE BORROWER TO THE JURISDICTION OF EACH STATE OR FEDERAL COURT
SITTING IN JEFFERSON COUNTY, ALABAMA WITH RESPECT TO ANY AGREEMENT ACTIONS, AND
THAT IT IS FORESEEABLE BY THE BORROWER THAT THE BORROWER MAY BE SUBJECTED TO THE
JURISDICTION OF SUCH COURTS AND MAY BE SUED IN THE STATE OF ALABAMA IN ANY
AGREEMENT ACTIONS. Nothing in this Section 8.14 shall limit or restrict the
Lender's right to serve process or bring Agreement Actions in manners and in
courts otherwise than as herein provided.

SECTION 8.15 USURY LAWS. Any provision of this Agreement or any of the
other Credit Documents to the contrary notwithstanding, the Borrower and the
Lender agree that they do not intend for the interest or other consideration
provided for in this Agreement and the other Credit Documents to be greater than
the maximum amount permitted by applicable law. Regardless of any provision in
this Agreement or any of the other Credit Documents, the Lender shall not be
entitled to receive, collect or apply, as interest on the Obligations, any
amount in excess of the maximum rate of interest permitted to be charged under
applicable law until such time, if any, as that interest, together with all
other interest then payable, falls within the then applicable maximum lawful
rate of interest. If the Lender shall receive, collect or apply any amount in
excess of the then maximum rate of interest, the amount that would be excessive
interest shall be applied first to the reduction of the principal amount of the
Obligations then outstanding in the inverse order of maturity, and second, if
such principal amount is paid in full, any excess shall forthwith be returned to
the Borrower. In determining whether the interest paid

(39)84
<PAGE> 40

or payable under any specific contingency exceeds the highest lawful rate, the
Borrower and the Lender shall, to the maximum extent permitted under applicable
law, (a) characterize any nonprincipal payment as an expense, fee or premium
rather than as interest, (b) exclude voluntary prepayments and the effects
thereof, (c) consider all the Obligations as one general obligation of the
Borrower, and (d) "spread" the total amount of the interest throughout the
entire term of the Note so that the interest rate is uniform throughout the
entire term of the Note.

SECTION 8.16 TERMINATION. This Agreement shall continue until the
Obligations shall have been paid in full and the Lender shall have no obligation
to make any further Advances, issue any Letters of Credit or extend any other
credit hereunder. If on any date on which the Borrower wishes to pay the
Obligations in full and terminate this Agreement, there are any outstanding
Letter of Credit Borrowings, the Borrower shall, unless otherwise agreed by the
Lender in its sole discretion, make a cash prepayment to the Lender on such date
in an amount equal to the then-outstanding Letter of Credit Borrowings, and the
Lender shall hold such prepayment in an interest-bearing cash collateral account
in the name and under the sole control of the Lender (which account shall bear
interest at the Lender's then-current rate for such accounts) as security for
the Reimbursement Obligations and other Letter of Credit Obligations. Such
account shall not constitute an asset of the Borrower but shall be subject to
the Borrower's rights under this Section 8.16. The Lender shall from time to
time debit such account for the payment of the Letter of Credit Obligations as
the same become due and payable and shall promptly refund any excess funds
(including interest) held in said account to the Borrower if and when no Letter
of Credit Borrowings remain outstanding hereunder and all of the Obligations
have been paid in full. The Borrower shall remain liable for any Obligations in
excess of the amounts paid from such account. This Agreement, and the
obligations of the Borrower hereunder, shall continue to be effective, or be
automatically reinstated, as the case may be, if at any time payment in whole or
in part of any payment made with respect to the Obligations is rescinded or must
otherwise be restored or returned to the person making such payment upon the
insolvency, bankruptcy, dissolution, liquidation or reorganization of such
person, or upon or as a result of the appointment of a custodian, receiver,
trustee or other officer with similar powers with respect to such person or with
respect to any part of the property thereof, or otherwise, all as though such
payment had not been made.

(40)85
<PAGE> 41

IN WITNESS WHEREOF, the Borrower and the Lender have caused this
Agreement to be dated June 19, 1996 and to be duly executed and delivered.

WALL STREET DELI, INC.

By /s/ Robert G. Barrow
---------------------------------
Its: President

AMSOUTH BANK OF ALABAMA

By /s/ Therese M. Sheehy
---------------------------------
Its Vice President

(41)86

<PAGE> 1
EXHIBIT (11)

WALL STREET DELI, INC.
AND SUBSIDIARIES

COMPUTATION OF EARNINGS PER COMMON SHARE

<TABLE>
<CAPTION>
For the Year Ended
--------------------------------------------------
June 29, 1996 July 1, 1995 July 2, 1994
------------- ------------ ------------
<S> <C> <C> <C>
Shares:
Weighted average number of common
shares outstanding 3,407,874 3,388,559 3,333,132
Effect of shares issuable under stock option
and stock purchase plans as determined by
the treasury stock method -0- 34,142 48,760
------------ ------------ ------------

Weighted average number of common
shares outstanding as adjusted 3,407,874 3,422,701 3,381,892
============ ============ ============
Per common share computations:
Net income (loss) $ (2,547,706) $ (921,011) $ 1,956,807
============ ============ ============

Per common share $ (.72) $ (.27) $ .58
============ ============ ============
</TABLE>

<PAGE> 1
EXHIBIT (21)

WALL STREET DELI, INC.
AND SUBSIDIARIES

SUBSIDIARIES OF THE REGISTRANT

<TABLE>
<CAPTION>
Percentage
State of of Voting
Incorporation Securities
Owned

<S> <C> <C>
Sandwich Chef of Alabama, Inc. Alabama 100%

Downtown Food Service, Inc. Tennessee 100%
Sandwich Chef of Colorado, Inc. Colorado 100%

Sandwich Chef of Texas, Inc. Texas 100% (a)

Sandwich Chef of D.C., Inc. Delaware 100%

Sandwich Chef of Illinois, Inc. Illinois 100%
Sandwich Chef of Louisiana, Inc. Louisiana 100%
</TABLE>

_____________________
(a) Wholly-owned subsidiary of Sandwich Chef of Colorado, Inc.

<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF WALL STREET DELI, INC. FOR THE YEAR ENDED JUNE 29, 1996,
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-29-1996
<PERIOD-START> JUL-02-1995
<PERIOD-END> JUN-29-1996
<CASH> 1,882,844
<SECURITIES> 0
<RECEIVABLES> 1,803,858
<ALLOWANCES> 167,628
<INVENTORY> 686,809
<CURRENT-ASSETS> 5,767,285
<PP&E> 32,787,111
<DEPRECIATION> 16,190,946
<TOTAL-ASSETS> 25,668,894
<CURRENT-LIABILITIES> 7,439,304
<BONDS> 0
0
0
<COMMON> 170,552
<OTHER-SE> 18,059,038
<TOTAL-LIABILITY-AND-EQUITY> 25,668,894
<SALES> 69,399,058
<TOTAL-REVENUES> 69,399,058
<CGS> 61,540,477
<TOTAL-COSTS> 61,540,477
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 167,193
<INTEREST-EXPENSE> 245,752
<INCOME-PRETAX> (3,994,206)
<INCOME-TAX> (1,536,500)
<INCOME-CONTINUING> (2,457,706)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,457,706)<F1>
<EPS-PRIMARY> (.72)
<EPS-DILUTED> (.72)
<FN>
<F1>NET LOSS INCLUDES A NON-CASH CHARGE OF $4,712,562 TAKEN AS AN OPERATING
EXPENSE RELATED TO THE ADOPTION OF STATEMENT OF FINANCIAL ACCOUNTING
STANDARDS NO. 121, "ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR
LONG-LIVED ASSETS TO BE DISPOSED OF."
</FN>

</TABLE>