UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly Period Ended March 27, 2000
Commission File Number: 000-18668
MAIN STREET AND MAIN INCORPORATED
(Exact name of registrant as specified in its charter)
DELAWARE 11-294-8370
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5050 N. 40TH STREET, SUITE 200, PHOENIX, ARIZONA 85018
(Address of principal executive offices)
(602) 852-9000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Number of shares of common stock, $.001 par value, of registrant outstanding at
May 9, 2000: 10,029,126
<PAGE>
MAIN STREET AND MAIN INCORPORATED
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements - Main Street and Main Incorporated
Consolidated Balance Sheets - March 27, 2000 and
December 27, 1999 3
Consolidated Statements of Operations - Three Months
Ended March 27, 2000 and March 29, 1999 4
Consolidated Statements of Cash Flows - Three Months
Ended March 27, 2000 and March 29, 1999 5
Notes to Consolidated Financial Statements -
March 27, 2000 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 8
Item 3. Quantitative and Qualitative Disclosures About Market Risk 12
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 13
SIGNATURES 14
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MAIN STREET AND MAIN INCORPORATED
CONSOLIDATED BALANCE SHEETS
(In Thousands)
March 27, December 27,
2000 1999
-------- --------
(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents $ 4,332 $ 3,055
Accounts receivable, net 2,955 3,434
Inventories 1,636 1,453
Prepaid expenses 563 621
-------- --------
Total current assets 9,486 8,563
Property and equipment, net 65,154 61,006
Other assets, net 2,007 2,072
Franchise costs, net 17,993 17,884
-------- --------
$ 94,640 $ 89,525
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt $ 1,830 $ 1,830
Accounts payable 8,271 14,033
Other accrued liabilities 12,374 12,352
-------- --------
Total current liabilities 22,475 28,215
-------- --------
Long-term debt, net of current portion 41,861 31,513
-------- --------
Other liabilities and deferred credits 2,507 2,414
-------- --------
Commitments and contingencies
Stockholders' Equity:
Common stock, $.001 par value,
25,000,000 shares authorized;
10,029,126 and 10,025,776 shares issued and
outstanding in 2000 and 1999, respectively 10 10
Additional paid-in capital 44,200 44,190
Accumulated deficit (16,413) (16,817)
-------- --------
27,797 27,383
-------- --------
$ 94,640 $ 89,525
======== ========
The accompanying notes are an integral part of these
consolidated balance sheets.
3
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MAIN STREET AND MAIN INCORPORATED
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In Thousands, Except Per Share Amounts)
Three Months Ended
------------------------------
March 27, 2000 March 29, 1999
-------------- --------------
Revenue $ 44,339 $ 31,464
-------- --------
Restaurant Operating Expenses:
Cost of sales 13,273 8,964
Payroll and benefits 13,644 9,389
Depreciation and amortization 1,623 1,041
Other operating expenses 11,862 8,497
-------- --------
Total restaurant operating expenses 40,402 27,891
-------- --------
Income from restaurant operations 3,937 3,573
Other Operating (Income) Expenses:
Amortization of intangible assets 233 258
General and administrative expenses 1,659 1,281
Preopening expenses 526 639
New manager training expenses 441 326
Management fee income (138) (233)
-------- --------
Operating income 1,216 1,302
Interest expense, net 898 571
-------- --------
Income before income taxes 318 731
Income tax benefit 86 --
-------- --------
Net income before cumulative
effect of change in accounting principle 404 731
Cumulative effect of change in accounting
principle -- 168
-------- --------
Net income $ 404 $ 563
======== ========
Basic Earnings Per Share:
Net income before cumulative effect of change
in accounting $ 0.04 $ 0.07
Cumulative effect of change in accounting
principle -- (0.02)
-------- --------
Net income $ 0.04 $ 0.05
======== ========
Diluted Earnings Per Share:
Net income before cumulative
effect of change in accounting principle $ 0.04 $ 0.07
Cumulative effect of change in
accounting principle -- (.02)
-------- --------
Net income $ 0.04 $ 0.05
======== ========
Weighted average shares outstanding-basic 10,028 9,989
======== ========
Weighted average shares outstanding-diluted 10,346 10,323
======== ========
The accompanying notes are an integral part of these
consolidated financial statements.
4
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MAIN STREET AND MAIN INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In Thousands)
Three Months Ended
------------------------------
March 27, 2000 March 29, 1999
-------------- --------------
Cash Flows From Operating Activities:
Net Income $ 404 $ 563
Adjustments to reconcile net income to net
cash flows - operating activities:
Depreciation and amortization 1,856 1,299
Non-cash compensation expense for
issuance of common stock to certain
employees 10 --
Changes in assets and liabilities:
Accounts receivable, net 479 (289)
Inventories (183) (184)
Prepaid expenses 58 70
Other assets, net 38 170
Accounts payable (5,762) 827
Other accrued liabilities and
deferred credits 115 (50)
-------- -------
Net Cash Flows - Operating Activities (2,985) 2,406
-------- -------
Cash Flows From Investing Activities:
Purchases of property and equipment (5,787) (4,806)
Cash received from sale-leaseback
transactions -- 1,678
Cash paid to acquire franchise rights (299) --
-------- -------
Net Cash Flows - Investing Activities (6,086) (3,128)
-------- -------
Cash Flows From Financing Activities:
Long-term debt borrowings 10,848 --
Principal payments on long-term debt (500) (347)
-------- -------
Net Cash Flows - Financing Activities 10,348 (347)
-------- -------
Net change in cash and cash equivalents 1,277 (1,069)
Cash and cash equivalents, beginning 3,055 7,294
-------- -------
Cash and cash equivalents, end $ 4,332 $ 6,225
======== =======
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for interest $ 1,010 $ 714
======== =======
Cash paid during the period for income taxes $ -- $ --
======== =======
The accompanying notes are an integral part of these
consolidated financial statements.
5
<PAGE>
MAIN STREET AND MAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 27, 2000
(Unaudited)
1. The accompanying financial statements have been prepared by the Company
without audit pursuant to the rules and regulations of the Securities and
Exchange Commission. The information furnished herein reflects all
adjustments (consisting of normal recurring accruals and adjustments) which
are, in the opinion of management, necessary to fairly state the operating
results for the respective periods. Certain information and footnote
disclosures normally included in annual financial statements prepared in
accordance with generally accepted accounting principles have been omitted
pursuant to such rules and regulations, although management of the Company
believes that the disclosures are adequate to make the information
presented not misleading. For a complete description of the accounting
policies, see the Company's Form 10-K Annual Report for the year ended
December 27, 1999.
2. The Company operates on fiscal quarters of 13 weeks.
3. The results of operations for the three months ended March 27, 2000 are not
necessarily indicative of the results to be expected for a full year.
4. On the first day of its 1999 fiscal year, December 29, 1998, the company
adopted Statement of Position 98-5 ("SOP 98-5"), "Reporting on the Costs of
Start-Up Activities." Pursuant to this accounting requirement, the costs of
start-up activities are expensed as incurred. The adoption of SOP 98-5
resulted in deferred preopening costs on the Company's consolidated balance
sheet at December 28, 1998 of $168,000, or $0.02 per share, being charged
to operations as the cumulative effect of a change in accounting principle
during the quarter ended March 29, 1999. Additionally, pursuant to SOP
98-5, preopening costs of $526,000, or $0.05 per share, were charged to
operations during the three months ended March 27, 2000.
5. During the three months ended March 27, 2000, the Company charged
approximately $921,000 in legal and condemnation costs against the reserve
for projected losses, principally as the result of the settlement of a
lawsuit in February 2000 as noted in the Company's Form 10-K for the year
ended December 27, 1999. The reserve balance in other accrued liabilities
at March 27, 2000 was approximately $232,000 for legal and condemnation
costs.
6. Effective December 30, 1997, the Company adopted SFAS No. 131, "DISCLOSURES
ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION," which established
revised standards for the reporting of financial and descriptive
information about operating segments in financial statements.
The Company has determined that it has one reportable operating segment.
Although the Company has two operating segments that are managed based on
our restaurant concepts, T.G.I. Friday's and Redfish, the Redfish operating
segment is not material to the Company as a whole and does not meet the
reportable thresholds of SFAS No. 131.
6
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As a result of the foregoing, the Company has determined that it is
appropriate to present one reportable segment consistent with the guidance
in SFAS No. 131. Accordingly, the Company has not presented separate
financial information for each of its operating segments as its
consolidated financial statements present its one reportable segment.
7. In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards 133 - Accounting for Derivative
Instruments and Hedging Activities ("SFAS 133"). This statement establishes
accounting and reporting standards for derivative instruments, including
derivative instruments embedded in other contracts, and for hedging
activities. The statement, which was to be applied prospectively, is
effective for the Company's quarter ending March 27, 2000. In June 1999,
the FASB issued Statement of Financial Accounting Standards 137 -
Accounting for Derivative Instruments and Hedging Activities - Deferral of
the Effective Date of FASB Statement No. 133. This statement deferred the
effective date of SFAS No. 133 to the Company's quarter ending April 2,
2001. The Company is currently evaluating the impact of SFAS No. 133 on its
future results of operations and financial position.
8. Reserves for projected losses and contingencies were reduced significantly
due to the settlement and payment of a pending lawsuit in February 2000
(see note 5). Management feels current reserves are adequate to cover all
known losses and contingencies.
9. In February 1997, the Financial Accounting Standards Board issued SFAS No.
128, "EARNINGS PER SHARE," which supersedes Accounting Principles Board
("APB") Opinion No. 15, "EARNINGS PER SHARE," the existing authoritative
guidance. The statement modifies the calculation of primary and fully
diluted earnings per share ("EPS") and replaces them both with basic and
diluted EPS. The following table sets forth basic and diluted EPS
computations for the quarters ended March 27, 2000 and March 29, 1999 (in
thousands, except per share amounts):
<TABLE>
<CAPTION>
2000 1999
------------------------------- -------------------------------
Per Share Per Share
Net Income Shares Amount Net Income Shares Amount
---------- ------ ------ ---------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
Basic EPS $404 10,028 $0.04 $563 9,989 $0.05
Effect of stock
options and warrants -- 318 -- -- 334 --
---- ------ ----- ---- ------ -----
Diluted EPS $404 10,346 $0.04 $563 10,323 $0.05
==== ====== ===== ==== ====== =====
</TABLE>
10. Certain amounts in 1999 have been reclassified to conform with the 2000
presentation.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the percentages that
certain items of income and expense bear to total revenue:
Three Months Ended
------------------------------
March 27, 2000 March 29, 1999
-------------- --------------
Revenue 100.0% 100.0%
----- -----
Restaurant Operating Expenses:
Cost of sales 29.9 28.5
Payroll and benefits 30.8 29.8
Depreciation and amortization 3.7 3.8
Other operating expenses 26.7 27.0
----- -----
Total restaurant operating expenses 91.1 88.6
----- -----
Income from restaurant operations 8.9 11.4
Other Operating (Income) Expenses:
Amortization of intangible assets 0.5 0.8
General and administrative expenses 3.7 4.1
Preopening expenses 1.2 2.0
New manager training expenses 1.0 1.1
Management fee income (0.3) (0.7)
----- -----
Operating income 2.7 4.1
Interest expense, net 2.0 1.8
----- -----
Income before income taxes and cumulative effect
of change in accounting principle 0.7 2.3
Income tax benefit -- --
----- -----
Net income before cumulative effect of change
in accounting principle 0.7% 2.3%
===== =====
QUARTER ENDED MARCH 27, 1999 COMPARED WITH QUARTER ENDED MARCH 29, 1999
Revenue for the three months ended March 27, 2000 increased by 41% to
$44,339,000 compared with $31,464,000 for the comparable period in 1999. This
significant increase is attributed to the opening of 13 new restaurants in 1999
and three in the first quarter of 2000 along with a same-store sales increase of
7.5% for the quarter as compared with 6.8% for the same period in 1999. The 7.5%
same-store sales increase, which is the largest quarterly improvement in our
Company's history is attributed to both a new marketing program and a favorable
economy in
8
<PAGE>
the majority of the markets we serve. In addition, the sales performance of the
majority of our new units are out-performing our expectations.
Cost of sales as a percentage of revenue for the three months ended March 27,
2000 increased to 29.9% for the three months ended March 27, 2000 as compared
with 28.5% in the same period in 1999. Cost of sales increased as result of the
discontinuance of business with our major food supply vendor, Ameriserve. The
situation with Ameriserve had the effect of requiring all of our restaurants to
seek alternate sources of supply at generally higher prices and less beneficial
terms. An expanded discussion on Ameriserve is included later in this report.
Payroll and benefit costs as a percentage of revenue were 30.8% for the three
months ended March 27, 2000 as compared with 29.8% for the same period in 1999.
The increase is primarily due to the Ameriserve situation and the resulting
inefficiencies created in our restaurants as management had to expend additional
efforts to acquire necessary inventory and supplies. The other significant
pressure on labor costs was the increased staffing needs during the initial
months of operation for newly opened restaurants. Once a restaurant has reached
operating maturity, labor costs as a percentage of revenue will be normalized.
Depreciation and amortization expense has remained in line with our revenue
growth at 3.7% of revenue for the three months ended March 27, 2000 as compared
with 3.8% of revenue for the same period in 1999.
Other operating expenses decreased as a percentage of revenue to 26.8% in the
three months ended March 27, 2000 from 27.0% in the comparable period in 1999.
These decreased costs as a percentage of revenue are due primarily to the effect
of leveraging our fixed costs over a substantially improved same-store sales
base despite the pressure of increased costs created in the new restaurants.
Amortization of intangible assets declined as a percentage of revenue to 0.5%
for the three months ended March 27, 2000 as compared with 0.8% for the same
period in 1999. This is primarily due to the fixed nature of intangibles spread
over a much larger revenue base.
General and administrative expenses decreased as a percentage of revenue to 3.7%
for the three months ended March 27, 2000 as compared with 4.1% for the same
period in 1999. We consider this decrease a continuation of the trend caused by
the beneficial effect of spreading fixed costs over a larger sales base. Our
efforts to ensure that administrative costs do not grow in excess of sales
growth has been effective.
During the first quarter of 1999, we adopted Statement of Position 98-5
("SOP-98-5"), as promulgated by the American Institute of Certified Public
Accountants, which requires us to expense preopening expenses as they are
incurred. Prior to 1999, such expenses were capitalized and amortized over a
period of one year. Pursuant to SOP-98-5, preopening expenses of $526,000, or
1.2% of revenue, were charged to operations during the quarter ended March 27,
2000, as compared with $639,000, or 2.0% of revenue, for the same period in
1999. Our continued efforts to control preopening costs are reflected in the
significant decline of the expense as a percentage to sales.
9
<PAGE>
New manager training expenses are those costs incurred in training newly hired
or promoted managers, as well as those costs incurred to relocate those managers
to permanent management positions. Due to our aggressive growth, these expenses
increased to $441,000, or 1.0% of revenue, for the three months ended March 27,
2000, as compared with $326,000, or 1.1% of revenue, for the same period in
1999. While our significant revenue growth in the quarter ended March 27, 2000
held this expense as a percentage in line with last year, several stores that
opened late in 1999 and one store that opened early in the second quarter of
2000 contributed to the increase in this item.
Management fee income declined significantly to 0.3% of revenue for the three
months ended March 27, 2000 as compared with 0.7% of revenue in the same period
in 1999. The owner of three Louisiana T.G.I. Friday's that we operated under a
management contract sold those restaurants in the second week of January 2000.
This sale terminated our contract to operate the three stores.
Interest expense was $898,000, or 2.0% of revenue, for the three months ended
March 27, 2000, as compared with $571,000, or 1.8% of revenue, in the same
period of 1999. The increase is the result of additional debt incurred in the
development of new restaurants.
We recognized a tax benefit of $86,000 during the quarter ended March 27, 2000
related to the utilization of available tax credits anticipated for the year
ending December 25, 2000.
LIQUIDITY AND CAPITAL RESOURCES
Our current liabilities exceed our current assets due in part to cash expended
on our development requirements and because the restaurant business receives
substantially immediate payment for sales, while payables related to inventories
and other current liabilities normally carry longer payment terms, usually 15 to
30 days. At March 27, 2000, we had a cash balance of $4,332,000 and monthly cash
receipts have been sufficient to pay all obligations as they become due.
At March 27, 2000, we had long-term debt of $41,861,000 and current portion of
long-term debt of $1,830,000. Long-term debt at March 27, 2000 includes
approximately $9,180,000 that we obtained in February 2000 from one lender. We
made these borrowings under secured promissory notes that mature in 10 to 15
years. The notes bear interest at LIBOR plus 2.75%, adjusted monthly, or a
combined rate of 8.63% at March 27, 2000. We have the option to convert the
notes to a fixed rate, as determined by the lender, at any time prior to
February 28, 2003. The notes are secured by the assets at five of our
restaurants.
We opened three new restaurants in the first quarter of 2000. As of the filing
date of this report, we have opened one additional store in the second quarter
of 2000. We plan to develop approximately seven additional restaurants by the
end of 2000, funded partially from available funds and partially from debt and
sale/leasebacks.
At March 27, 2000, we had outstanding debt and sale/leaseback financing
commitments totaling $27,400,000, which will be utilized to help fund
development activity over the next year.
10
<PAGE>
We lease our restaurant properties under leases with terms ranging from 10 to 25
years. Minimum payments on our existing lease obligations are approximately
$8,000,000 per year through 2003.
We believe that current cash resources, our lines of credit, sale/leaseback
financing commitments, and expected cash flows from operations will be
sufficient to fund our capital needs during the next 12 months at our current
level of operations, apart from capital needs resulting from additional
developed restaurants or acquisitions. We may be required to obtain additional
capital to fund our planned growth during the next 12-18 months and beyond.
Potential sources of any such capital may include bank financing, strategic
alliances, and additional offerings of our equity or debt securities. We cannot
provide assurance that such capital will be available from these or other
potential sources, and the lack of capital could have a material adverse effect
on our business.
AMERISERVE
It is a standard practice in the restaurant industry to have a principle
supplier for key food products. This allows good management over quality,
availability and pricing of the key ingredients in the food served to a
restaurant's customers. In prior years and until the fourth quarter of 1999, we
purchased most of our key food products, as well as many of our other restaurant
supplies, from a single independent national food distributor, Ameriserve. In
November 1999, Ameriserve announced that it was phasing out its distribution
services to the casual dining industry. This decision had an immediate and
substantial impact on deliveries to our restaurants. As the level of service
began to deteriorate, we set up alternate, temporary back-up arrangements with
new suppliers. Generally, these arrangements were at higher prices and less
favorable terms than we had previously paid. In January 2000, Ameriserve filed
for protection under Chapter 11 of the U.S. Bankruptcy Code.
For the majority of the first quarter of 2000, we operated under the alternate
supply agreements, paying generally higher prices and managing the disruption to
our business created by inconsistent quality and availability. Our restaurants'
operational performance was significantly and directly effected by this
situation. We believe that there was a direct cost of sales impact of 2% of
revenue and a nearly 1% of revenue affect on operational labor costs during the
first quarter of 2000. In addition, a portion of the dollar increase in our
administrative costs was also directly expended in order to manage the
alternative suppliers and to seek a new, permanent supplier that could provide
us with the service and costs comparable to or better than what we had with
Ameriserve. Fortunately, our significant revenue growth helped offset some of
this additional cost as a percentage of revenue.
In January 2000, we entered into an agreement with U.S. Foodservice, a company
that we had an existing relationship with, to serve substantially all of our
restaurants in California, Arizona, and Nevada. We transitioned to U.S.
Foodservice in late March 2000, and we expect to have most of the effect of the
Ameriserve situation resolved during the second quarter. Additionally, we have
selected a second distributor to serve the few remaining stores in the mid-west
and southwest that are not in the U.S. Foodservice operating area. We completed
the transition to that distributor in
11
<PAGE>
the second quarter of 2000, but there will be some lingering economic effect on
our business into the second quarter because of this transition.
FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements, including statements regarding
our business strategies, our business, and the industry in which we operate.
These forward-looking statements are based primarily on our expectations and are
subject to a number of risks and uncertainties, some of which are beyond our
control. Actual results could differ materially from the forward-looking
statements as a result of numerous factors, including those set forth in our
Form 10-K for the year ended December 27, 1999, as filed with the Securities and
Exchange Commission.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
At March 27, 2000, we did not participate in any derivative financial
instruments or other financial and commodity instruments for which fair value
disclosure would be required under Statement of Financial Accounting Standards
No. 107. We do not hold investment securities that would require disclosure of
market risk.
Our market risk exposure is limited to interest rate risk associated with our
credit instruments. We incur interest on loans made under revolving lines of
credit at variable interest rates of 1.125% over prime and 2.65% over "30-Day
Dealer Commercial Paper Rates." At March 27, 2000, we had outstanding borrowings
on these lines of credit of approximately $12,400,000.
12
<PAGE>
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.33 Secured Promissory Note dated February 28, 2000, between
Main Street and Main, Inc. and Main St. California, Inc., as
borrower, and Bay View Franchise Mortgage Acceptance Company
Loan Program, as lender
10.33A Schedule of Secured Promissory Notes substantially identical
to Exhibit 10.33
10.34 Pledge and Security Agreement dated February 28, 2000,
between Main Street and Main Incorporated and Main St.
California, Inc., as borrower, and Bay View Franchise
Mortgage Acceptance Company Loan Program, as lender
10.34A Schedule of Pledge and Security Agreements substantially
identical to Exhibit 10.34
27.1 Financial Data Schedule
(b) Reports on Form 8-K - Not applicable
13
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Main Street and Main Incorporated
Dated: May 12, 2000 /s/ Bart A. Brown Jr.
----------------------------------------
Bart A. Brown Jr., President and
Chief Executive Officer
Dated: May 12, 2000 /s/ Duane E. Wilkes
----------------------------------------
Duane E. Wilkes, Corporate Controller
and Secretary
14
NOTE (FLOATING RATE WITH CONVERSION OPTION)
BAY VIEW FRANCHISE MORTGAGE ACCEPTANCE COMPANY LOAN PROGRAM
SECURED PROMISSORY NOTE
OF
NAME OF BORROWER: MAIN STREET AND MAIN INCORPORATED,
a Delaware corporation; and
MAIN ST. CALIFORNIA, INC., an Arizona
corporation
NAME OF FRANCHISOR: TGI Friday's, Inc.
STORE NO.: 1917
Greenwich, Connecticut
DATE OF NOTE: February 28, 2000
AS USED HEREIN, THE FOLLOWING TERMS SHALL HAVE THE MEANINGS SET FORTH BELOW:
PRINCIPAL AMOUNT: $2,549,000.00
MATURITY DATE: March 1, 2015
INITIAL INTEREST RATE: 8.63%
INITIAL STATED PAYMENT
AMOUNT: $25,475.74
AMORTIZATION TERM: a period of 180 months commencing on the first day of
the first month following the date of this Note (or
on the date of this Note, if the first day of a
month).
FLOOR RATE: 7.63% [Initial Interest Rate minus one hundred basis
points]
CAPPED RATE: 12.63% [Initial Interest Rate plus four hundred basis
points]
MARGIN 2.75%
This note (the "NOTE") is the Note described in, and issued in
connection with, the Pledge and Security Agreement (the "SECURITY AGREEMENT"),
dated as of the date hereof and executed by the undersigned Borrower (if more
than one, collectively and jointly and
<PAGE>
severally, "BORROWER") in favor of Bay View Franchise Mortgage Acceptance
Company, a California corporation, its successors and assigns "BVFMAC"). This
Note evidences Borrower's obligation to pay the Principal Amount with interest
and all other charges as provided herein (the "LOAN"). Capitalized terms used in
this Note and defined above or elsewhere herein shall have the meanings so
ascribed. All terms not otherwise defined in this Note shall have the meanings
ascribed to such terms in the Security Agreement. The Note is entitled to the
benefits of and is secured by the pledge, liens, security, title, rights and
security interests granted under the Security Agreement and the other Loan
Documents, as the same may be amended, supplemented or renewed, from time to
time. The Loan may be sold, pledged, collaterally assigned, transferred,
delivered or otherwise disposed of from time to time by Secured Party (as
defined below) in its absolute and sole discretion.
The term "SECURED PARTY" of the Loan initially means and refers to
BVFMAC and following any sale, transfer or assignment of the Loan all references
to "Secured Party" shall mean and refer to the Person to whom the Loan Documents
are sold, transferred or assigned.
The term "DEBT" shall mean and refer to the unpaid Principal Amount of
this Note together with all interest accrued and unpaid thereon and all other
sums outstanding under this Note and each other Loan Document executed in
connection with the Loan.
1. PRINCIPAL AMOUNT: By executing this Note and for value received,
Borrower promises to pay to the order of Secured Party the Principal Amount plus
interest (as provided in Section 3) and all other charges, either (x) in full at
such time as this Note is prepaid (see Section 5 below), accelerated (see
Section 6 below) or matures (see Section 2 below), or (y) in monthly
installments from the date of the first Payment Date (as defined in Section 4A
below) through and including the Maturity Date.
2. MATURITY DATE: The Principal Amount, together with interest and all
other amounts outstanding under the Loan Documents, if not sooner paid, shall be
due and payable in full on the Maturity Date.
3. INTEREST: Interest will be charged, and Borrower agrees to pay such
interest, at the then Applicable Interest Rate (as defined below) on the unpaid
Principal Amount outstanding, from time to time. Interest shall be computed
daily and payable monthly in arrears on the basis of a 360-day year and the
actual number of days elapsed with respect to any payment period. Upon the
occurrence of an Event of Default, after maturity or after judgment has been
rendered on this Note, the unpaid Principal Amount together with all accrued but
unpaid interest and all other charges shall, at the option of the Secured Party,
bear interest at a rate (the "DEFAULT RATE") which is five (5) percentage points
greater than the then Applicable Interest Rate. The term "APPLICABLE INTEREST
RATE" shall mean (i) prior to the Fixed Rate Conversion (as defined below), a
rate per annum equal to (a) the Initial Interest Rate from the date hereof to
but excluding the first Rate Adjustment Date (hereinafter defined), or (b) the
applicable Libor Indexed Rate (hereinafter defined) from and including the first
Rate Adjustment Date to but
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excluding the Maturity Date, subject to adjustment as hereinafter set forth, and
(ii) subsequent to the Fixed Rate Conversion, the Fixed Rate as defined in, and
as determined by Secured Party pursuant to, Section 3B below.
A. FLOATING RATE OF INTEREST:
(i) For purposes of calculating the floating rate of interest, the
term "LIBOR INDEXED RATE" shall mean the rate per annum
determined solely by Secured Party, effective as of each Rate
Adjustment Date, and shall be equal to the sum of (i) the Margin,
plus (ii) the Reference Rate (hereinafter defined) in effect on
the Rate Adjustment Date. The term "RATE ADJUSTMENT DATE" shall
mean the first day of each month following the date hereof,
commencing on the second such date (or first such date, if
funding occurs on the first day of a month). Notwithstanding the
foregoing, the Libor Indexed Rate shall never be less than the
Floor Rate or greater than the Capped Rate. In no event shall
Borrower's interest payable, contracted for, charged or received
under or in connection with this Note exceed the maximum rate or
amount of interest permitted by applicable law (see Section 8
below).
(ii) On each Rate Adjustment Date, Secured Party will determine the
Libor Indexed Rate by adding the Margin to the Reference Rate.
The term "REFERENCE RATE" shall mean the rate set forth as the
London Interbank Offered Rate (LIBOR) for a one month period, as
published in the "Money Rates" column (or any successor column
thereto) of the "Credit Markets" page (or any successor page
thereto) of THE WALL STREET JOURNAL in New York City, on the
second business day preceding such Rate Adjustment Date (or if
THE WALL STREET JOURNAL in New York City is not published on such
date, the next preceding date on which THE WALL STREET JOURNAL in
New York City is published), subject to correction in the event
Secured Party shall determine that the published rate was the
result of typographical or similar error. In the event that THE
WALL STREET JOURNAL in New York City ceases publication or ceases
to publish a one month LIBOR rate, Secured Party shall, in its
sole discretion, select a comparable publication to determine the
Reference Rate and provide notice thereof to Borrower.
(iii) In the event that Secured Party shall be prohibited by applicable
law, rules or regulations from pricing loans with reference to
London Interbank Offered Rates, or the London
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Interbank market shall cease to operate or its rates shall cease
to be generally published, Secured Party shall, in its sole
discretion, determine an alternative means for establishing the
Reference Rate.
B. FIXED RATE CONVERSION. The Borrower may, at any time prior to the
third anniversary date of this Note, convert the interest rate under
this Note from a floating rate per annum to a Fixed Rate (as defined
below) in the manner hereinafter set forth (the "FIXED RATE
CONVERSION"). If the Borrower desires to exercise the Fixed Rate
Conversion, then Borrower must make a written request to Secured Party
(a "CONVERSION REQUEST") for a Conversion Offer (as defined below),
which Conversion Offer shall be delivered by Secured Party to Borrower
within ten business days after its receipt of the Conversion Request
subject to the following;
(i) neither the Borrower nor any of its Affiliates shall be in
default of, or delinquent with respect to (a) any Obligations to
Secured Party, or (b) any of the terms, covenants or provisions
of the Loan Documents;
(ii) the Borrower shall have delivered to Secured Party, together with
the Conversion Request, its financial statements dated not more
than 60 days prior to the date of the Conversion Request, which
financial statements must be in the form required pursuant to the
Loan Documents and must be otherwise satisfactory to Secured
Party;
(iii) Borrower shall have delivered to Secured Party, together with the
Conversion Request, evidence satisfactory to Secured Party that
Borrower remains a franchisee in good standing in the Franchisor
system of which Borrower is a franchisee and of which the Store
is a part on the date of this Note;
(iv) there shall have been no late fees or penalties assessed against
the Borrower by the Secured Party during the consecutive twelve
month time period that immediately precedes the Conversion
Request;
(v) Secured Party must then be in the business of making fixed rate
loans of the type requested to franchisee borrowers in the same
Franchisor system of which the Borrower and the Store are a part
as of the date of this Note. Additionally, the Borrower and the
Store must qualify for such fixed rate loan under Secured Party's
then existing underwriting guidelines;
(vi) at Secured Party's election, Secured Party may obtain a new
appraisal of the Collateral from an appraiser satisfactory to
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Secured Party, at Borrower's sole cost and expense, which
appraisal shall be satisfactory to Secured Party in all respects;
and
(vii) Borrower shall pay all of Secured Party's out of pocket costs and
expenses arising out of or in connection with the Fixed Rate
Conversion, including, without limitation, attorney's fees
(collectively, the "CONDITIONS PRECEDENT").
Within ten days after completion of all Conditions Precedent to
Secured Party's satisfaction, Secured Party shall send to the Borrower an
offer (the "CONVERSION OFFER"), which Conversion Offer shall state the
Fixed Rate (as defined below), the Conversion Fee (as defined below), and
any other terms and conditions that may be imposed by Secured Party, in its
discretion. The Borrower must accept the Conversion Offer, pay the
Conversion Fee and satisfy any other conditions imposed by Secured Party
within the time period and in the manner set forth in the Conversion Offer.
Provided that the Borrower timely accepts the Conversion Offer, pays the
Conversion Fee and satisfies any other conditions in accordance with the
terms of the Conversion Offer, then the Fixed Rate Conversion shall become
effective on the first day of the second month following Secured Party's
receipt of the Borrower's acceptance of the Conversion Offer (the
"CONVERSION DATE"). The term "FIXED RATE" shall mean the rate per annum
determined by Secured Party to be its then current prevailing fixed rate of
interest for comparable loans for which a borrower has paid a comparable
Conversion Fee. The term "CONVERSION FEE" shall mean an amount equal to one
percent (1.0%) of the outstanding Principal Amount as of the date of the
Conversion Request. Determination of the Fixed Rate and the Conversion Fee
by Secured Party shall be conclusive in all respects. The Fixed Rate
Conversion may only be exercised once.
4. FORM, PLACE AND TIMING OF PAYMENTS: Borrower agrees to make all payments
under this Note to the order of Secured Party in lawful money of the United
States of America and in immediately available funds, at such place or places as
Secured Party may designate from time to time. All payments under this Note
shall be made via automated clearing house (ACH) payment, or at the election of
Secured Party, by such other method or methods (including, but not limited to,
check, wire transfer or certified funds) as Secured Party may designate from
time to time.
A. AMOUNT OF PAYMENTS:
(i) On the date of funding, Borrower's first payment (the "FIRST
PAYMENT") is due. The First Payment equals the sum of (x)
interest payable from the date of the funding of this Note
through and including the last day of the month in which funding
occurs (unless funding has occurred on the first day of the
month, in which case said interest is payable as a
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component of "(y)" below) and (y) the Initial Stated Payment
Amount.
(ii) Commencing on the first day of the third full month following the
month in which funding occurs (or on the first day of the second
full month following funding if funding occurs on the first day
of a month) and on the first day of each month (each, a "PAYMENT
DATE") thereafter, to and including the earlier of the
acceleration, prepayment or Maturity Date of this Note, Borrower
agrees to pay the Stated Payment Amount (hereinafter described).
The Stated Payment Amount shall equal the sum of (x) amortization
of the Principal Amount based upon the Amortization Term, and (y)
interest on the Principal Amount outstanding from time to time
computed at the Applicable Interest Rate. All payments of the
Stated Payment Amount under this Note will be applied as provided
in Section 4D. Upon any adjustment of the Applicable Interest
Rate or upon the completion of the Fixed Rate Conversion, as set
forth in Section 3 hereof, Secured Party shall recompute the
Stated Payment Amount and the new Stated Payment Amount shall
become effective (1) at all times prior to the Fixed Rate
Conversion, on the first day of the month immediately following
such rate adjustment (or, if the adjustment occurs on the first
day of a month, the adjustment shall become effective on the date
such adjustment occurs), or (2) subsequent to the Fixed Rate
Conversion, on the first day of the month immediately following
the Conversion Date.
(iii) If the Amortization Term is equal to the period commencing on the
first day of the month following the month in which funding
occurs (or on the date of funding, if funding occurs on the first
day of a month) and ending on the Maturity Date of this Note,
then the entire Principal Amount of this Note is scheduled to be
fully amortized on the Maturity Date. If the Amortization Term is
longer than the period commencing on the first day of the month
following the month in which funding occurs (or on the date of
funding, if funding occurs on the first day of a month) and
ending on the Maturity Date of this Note, then the entire
Principal Amount of this Note is not scheduled to be fully
amortized on the Maturity Date. In the event that the Principal
Amount is not scheduled to be fully amortized on the Maturity
Date, then Borrower's Stated Payment Amount due for payment on
the Maturity Date shall include and Borrower agrees to pay an
amount (a "BALLOON PAYMENT") equal to the unpaid and outstanding
Principal
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Amount of this Note together with any and all interest and other
charges accrued and unpaid on such date.
B. TIMING OF PAYMENTS: Whenever a payment to be made under the Note
becomes due and payable on a Saturday, Sunday, legal holiday or on a date on
which banking institutions located in the State of Connecticut are authorized or
required to close, such payment shall be made on the next succeeding business
day, provided, however that interest shall continue to accrue until paid.
C. LATE PAYMENT CHARGE: If Secured Party has not received the full
amount of any payment due on any Payment Date, Borrower agrees to pay to Secured
Party, promptly on demand, as liquidated damages, a late payment charge of $500.
D. APPLICATION: All payments made under this Note and all prepayments
shall, at the option of the Secured Party, be applied in the following order:
(i) to all costs and expenses incurred by the Secured Party arising out of this
Note and the other Loan Documents, (ii) to accrued and unpaid interest, (iii) to
the Prepayment Fee (as defined in Section 5, below) to the extent then due and
unpaid, (iv) to all other charges assessed by the Secured Party against the
Borrower pursuant to this Note and the other Loan Documents, and (v) to the
unpaid and outstanding Principal Amount.
5. PREPAYMENTS:
A. NOTE PREPAYABLE IN FULL: Borrower may prepay this Note in full but
not in part on any Payment Date. Borrower understands that any prepayment in
full that is remitted pursuant to this Section 5A shall require the payment of a
Prepayment Fee calculated in accordance with Section 5B below. If Borrower
elects to prepay this Note in full, then the Borrower agrees to pay the
Prepayment Amount more particularly described in Section 5B below and Borrower
must notify Secured Party in writing of such election and agrees to specify in
such notice the proposed date for prepayment (the "PREPAYMENT DATE") (which date
shall not be less than thirty (30) days nor more than sixty (60) days from the
date of said notice). Secured Party will notify Borrower within twenty (20) days
of its receipt of such notice from Borrower of the estimated Prepayment Amount
payable on the proposed Prepayment Date. Once given, the prepayment notice may
not be rescinded and prepayment becomes mandatory. In no event shall the
Borrower be released from the obligation to pay any regular Stated Payment
Amount(s) due prior to the Prepayment Date regardless of the Borrower's delivery
of any prepayment notice.
B. AMOUNT DUE WITH PREPAYMENT IN FULL: The amount due (the "PREPAYMENT
AMOUNT") on any Prepayment Date for the prepayment in full of this Note is equal
to the sum of (i) all unpaid late payment processing fees and unreimbursed costs
and expenses then outstanding, (ii) all accrued and unpaid interest on this Note
through the Prepayment Date, (iii) the "Prepayment Fee" (as defined below), (iv)
the amount required pursuant to Section 5D below, if any, and (v) the
outstanding Principal Amount on such Prepayment Date. Prior to the Fixed Rate
Conversion, the term
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"Prepayment Fee" shall mean an amount equal to a fixed percentage of the
Principal Amount, which amount shall be calculated by multiplying the
outstanding Principal Amount as of the Prepayment Date by the applicable
percentage multiplier set forth below. The applicable percentage multiplier
shall be determined by the number of FULL calendar months that have elapsed
between the date of this Note and the date when the prepayment will be made:
If prepayment occurs during The percentage
the following months: multiplier is:
--------------------------- --------------
1-12 full calendar months after the date of this Note 4.0%
13-24 " " 3.0%
25-36 " " 2.0%
37-48 " " 2.0%
49 full calendar months or later 1.0%
Subsequent to the Fixed Rate Conversion, the term "PREPAYMENT FEE"
shall mean the amount calculated by Secured Party pursuant to its then existing
prepayment guidelines for comparable fixed rate loans.
C. APPLICABILITY OF PREPAYMENT AMOUNT. The Prepayment Amount shall
apply not only in the case of voluntary prepayment, but also in the event that
this Note becomes due and payable in full by reason of acceleration upon the
occurrence of an Event of Default or otherwise; provided, however, the
Prepayment Fee shall NOT apply (i) solely by reason of the Fixed Rate
Conversion, or (ii) in the event that, during the first thirty-six (36) months
of the Loan Term, the Loan is refinanced by Secured Party for an amount that is
greater than the Principal Amount. Any such refinancing of the Loan shall be
subject to, among other things, Secured Party's then existing financial and
underwriting guidelines and Secured Party makes no representation as to whether
any such refinancing shall be available to the Borrower. Borrower shall be
liable for the payment of all fees, costs and expenses associated with any such
refinancing. In the event that this Note becomes due and payable in full by
reason of acceleration upon the occurrence of an Event of Default or otherwise,
then the Prepayment Fee shall be calculated as of the date of the Event of
Default or other event or condition permitting or causing acceleration, and
until paid in full shall accrue interest at the Default Rate. Whether prepayment
is voluntary or involuntary, in no event shall the amount of the Prepayment Fee
or the method of calculating the Prepayment Fee result in a reduction of the
outstanding Principal Amount, accrued and unpaid interest or other amounts due
as of the date of prepayment. Absent material and manifest error, the Secured
Party's determination of the Prepayment Fee shall be binding and conclusive on
the Borrower and anyone else having an interest in the determination.
D. ADDITIONAL PREPAYMENT FEE: In the event that a prepayment is
permitted on a day other than a Payment Date, a prepayment is required as a
result of an acceleration under Section 6 below or Borrower fails to prepay on a
Prepayment Date after notification to the Secured Party and such prepayment or
failure to prepay results
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in a loss (including lost profit), cost or expense to the Secured Party, the
Secured Party shall notify the Borrower of the amount thereof and the Borrower
shall immediately pay such amount to the Secured Party.
6. ACCELERATION: Upon the occurrence of an Event of Default, other than an
Event of Default described in Section 7.2 of the Security Agreement, and at any
time thereafter if any Event of Default shall be continuing, Secured Party may,
from time to time in its discretion, by written notice to Borrower, declare the
Debt and any other Obligations to be immediately due and payable and Secured
Party may pursue its remedies against Borrower and the personal and real
property that secures Borrower's obligation to pay the Debt, from time to time
and in such order as Secured Party shall determine. In the event an Event of
Default described in Section 7.2 of the Security Agreement occurs, the Debt
shall become immediately due and payable without presentment or demand for
payment, notice of nonpayment, protest, demand or notice of any kind, all of
which is expressly waived by Borrower. If the Debt shall become immediately due
and payable for any reason whatsoever, Borrower will also be required to pay the
Prepayment Fee pursuant to Section 5. Interest shall accrue at the Default Rate
and all unpaid late charges shall also be immediately due and payable. Borrower
agrees that upon the occurrence and during the continuance of an Event of
Default, Borrower will pay all reasonable costs of collection (including,
without limitation, reasonable attorneys' fees and disbursements, whether or not
a suit is commenced), which amounts shall be added to the Principal Amount of
this Note and will bear interest at the Default Rate.
7. WAIVERS AND SPECIAL AGREEMENTS: BORROWER HEREBY MAKES AND ACKNOWLEDGES
THAT IT MAKES ALL OF THE WAIVERS AND SPECIAL AGREEMENTS ("WAIVERS") SET FORTH IN
THIS NOTE KNOWINGLY, INTENTIONALLY, VOLUNTARILY, WITHOUT DURESS, AND ONLY AFTER
EXTENSIVE CONSIDERATION OF THE RAMIFICATIONS OF SUCH WAIVERS WITH ITS ATTORNEY.
A. WAIVERS: To the extent permitted by applicable law, Borrower and
any and all obligors, sureties, guarantors and endorsers of this Note and all
other parties now or hereafter liable hereon jointly and severally (i)
acknowledge that the transaction of which this Note is a part is part of a
commercial transaction, (ii) waive any and all (from time to time) (a) rights to
notice and hearing under any state or federal law with respect to any
prejudgment remedy which the Secured Party may desire to use, from time to time,
(b) grace, diligence, demand, presentment for payment, protest, notice of any
kind (including, notice to sureties, disclosure of facts which materially
increase risks, notice of protest, acceptance, liability, suit, demand, or
action, dishonor, payment or nonpayment, protest, intention to accelerate or
acceleration, extension or renewal), surety defenses of any kind (including
defenses relating to impairment of recourse, release or modification of
underlying obligation, extension of time, impairment of collateral or
nondisclosure), rights of appraisal of any security or collateral for any
obligation or guaranteed obligation and diligence in collecting and bringing
suit against any party, and (c) right to notice and hearing allowed by any
applicable state or federal
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law with respect to any prejudgment remedy which the Secured Party may desire to
use; and (iii) agree (a) to all extensions of any obligation or guaranteed
obligations (including rescheduling and recalculation of amortization), in whole
or in part, from time to time, or any partial payments, with or without notice,
before or after maturity, (b) to any one or more substitutions, exchanges or
releases of any or all security, now or hereafter given for any obligation, (c)
to any and all releases, from time to time, of any and all parties primarily,
secondarily or otherwise liable for any obligation or guaranteed obligation, (d)
that it is not (and at no time will be) necessary for Secured Party, or any
other holder, transferee, obligee or beneficiaryof any note or obligation or
guaranteed obligation (or any interest therein) (collectively, "OBLIGEE"), in
order to enforce such note or obligation, to first institute or exhaust such
Person's remedies against any borrower or other Person or against any collateral
or other security for such note or obligation, and (e) any delay in exercising,
failure to exercise, or non-exercise (or partial exercise), from time to time,
by Secured Party or any Obligee of any obligation or guaranteed obligation of
any rights or remedies (or to insist upon strict performance) in any one or more
instances shall not constitute a waiver thereof (or preclude full exercise or
insistence upon strict performance thereof) in that or any other instance, and
any single exercise of any such Person's right or remedies in any one or more
instances shall not preclude full exercise in any other instance.
B. SPECIAL AGREEMENTS.
(i) It is understood and agreed that Secured Party may take any
action or actions as set forth in Section 7A, from time to
time, without the consent of or notice to Borrower without
incurring responsibility to Borrower, and without impairing
or releasing the obligations of Borrower. It is further
understood that this Note, the Security Agreement and the
other Loan Documents may be freely sold, transferred or
otherwise assigned without the consent of or notice to the
Borrower.
(ii) WAIVERS OF SUBROGATION, INDEMNIFICATION AND OTHER CLAIMS:
BORROWER HEREBY IRREVOCABLY WAIVES AND AGREES NOT TO ASSERT
ANY RIGHT OF SETOFF AND ANY CLAIM (AS DEFINED IN 11 U.S.C.
SECTION 101), INCLUDING, WITHOUT LIMITATION, ANY CLAIM OF
SUBROGATION, REIMBURSEMENT, EXONERATION, CONTRIBUTION OR
INDEMNIFICATION, THAT BORROWER MAY NOW OR HEREAFTER MAY HAVE
AGAINST SECURED PARTY, ITS AFFILIATES, STOCKHOLDERS,
OFFICERS, DIRECTORS, EMPLOYEES, AGENTS AND REPRESENTATIVES
AND ANY OTHER BORROWER, OR ANY SECURITY HELD BY OR AVAILABLE
TO SECURED PARTY FROM ANY OTHER BORROWER OR THE PAYMENT
THEREOF BECAUSE OF ANY PAYMENTS OR TRANSFERS MADE BY
BORROWER,
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OR ANY PAYMENT OR TRANSFER WHICH BORROWER IS OBLIGATED TO
MAKE, FOR ANY REASON. The provisions of this section are for
the benefit of Secured Party, its affiliates, stockholders,
officers, directors, employees, agents and representatives,
may be specifically and separately enforced by each such
Person, and shall survive indefinitely.
(iii) WAIVER OF TRIAL BY JURY AND APPRAISAL RIGHT. BORROWER
HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES, AND SECURED
PARTY BY ITS ACCEPTANCE OF THIS NOTE IRREVOCABLY AND
UNCONDITIONALLY WAIVES, ANY AND ALL RIGHTS TO TRIAL BY JURY
IN ANY ACTION, SUIT OR COUNTERCLAIM ARISING IN CONNECTION
WITH, OUT OF OR OTHERWISE RELATING TO THIS NOTE. BORROWER
HEREBY FURTHER WAIVES ANY AND ALL RIGHTS BORROWER MAY NOW OR
HEREAFTER HAVE TO AN APPRAISAL OF ANY SECURITY OR COLLATERAL
FOR BORROWER'S OBLIGATIONS HEREUNDER.
8. LIMITATION ON INTEREST. NOTWITHSTANDING ANY OTHER PROVISION HEREOF, IN
NO EVENT SHALL THE AMOUNT OR RATE OF INTEREST (INCLUDING TO THE EXTENT
APPLICABLE ANY DEFAULT RATE INTEREST OR LATE PAYMENT CHARGE) PAYABLE, CONTRACTED
FOR, CHARGED OR RECEIVED UNDER OR IN CONNECTION WITH THIS NOTE, FROM TIME TO
TIME OR FOR WHATEVER REASON, EXCEED THE MAXIMUM RATE OR AMOUNT, IF ANY,
SPECIFIED BY APPLICABLE LAW. If from any circumstances whatsoever fulfillment of
any provision hereof or of such other Loan Documents or other documents or
obligations at the time performance of such provision shall be due, shall
involve transcending the limit of validity prescribed by law, then, ipso facto,
the obligation to be fulfilled shall be reduced to the limit of such validity,
and if from any such circumstance the Secured Party shall ever receive an amount
deemed interest by applicable law which shall exceed the highest lawful rate,
such amount which would be excessive interest shall be applied to the reduction
of the Principal Amount owing hereunder or on account of any other principal
indebtedness of the Borrower to the Secured Party and not to payment of interest
or if such excessive interest exceeds the unpaid Principal Amount and such other
indebtedness or if the Secured Party is prohibited by applicable law from
applying such excessive interest to the reduction of the Principal Amount or on
account of any other principal indebtedness of the Borrower to the Secured
Party, the excess shall be refunded to Borrower. All sums paid or agreed to be
paid by the Borrower for the use, forbearance or detention of the indebtedness
of the Borrower to the Secured Party shall, to the extent permitted by
applicable law, be amortized, prorated, allocated and spread throughout the full
term of such indebtedness until payment in full so that the actual rate of
interest on account of such indebtedness is uniform throughout the term hereof.
The terms and provisions of this section shall control and supersede every other
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provisions of all agreements between the Borrower an the Secured Party and all
obligations of Borrower to the Secured Party.
9. CALCULATIONS OF AMOUNTS DUE ON CONVERSION, PREPAYMENT OR ACCELERATION.
All determinations of applications of payments under Section 4D and all
calculations of amounts due on conversion, prepayment or acceleration will be
made by Secured Party (or its agent or representative) and Borrower agrees that
all such determinations and calculations will be conclusive and binding absent
manifest error.
10. TIME IS OF THE ESSENCE. For all payments to be made and obligations to
be performed under this Note, time is of the essence.
11. SEVERABILITY. Whenever possible this Note and each provision hereof
shall be interpreted in such manner as to be effective, valid and enforceable
under applicable law. If and to the extent that any such provision shall be held
invalid and uneforceable by any court of competent jurisdiction, such holding
shall not invalidate or render unenforceable any other provisions hereof, and
any determination that the application of any provision hereof to any person or
under any circumstance is illegal and unenforceable shall not affect the
legality, validity and enforceability of such provision as it may be applied to
any other person or in any other circumstance.
12. MISCELLANEOUS. The Note and the other loan documents are freely
assignable in whole or in part, from time to time, by Secured Party, in its
absolute and sole discretion, without the consent of the Borrower and without
notice to the Borrower and Secured Party may grant participation interests
herein. Without limiting the foregoing, Borrower understands and agrees that
Secured Party may sell, pledge, grant a security interest in, collaterally
assign, transfer, deliver or otherwise dispose of the Note and Borrower's other
Loan Documents (or any interest therein, or its rights and powers thereunder),
from time to time, and may do so in connection with the Securitization or
otherwise. Borrower may only assign the Note and the rights and obligations
under the Note in full but not in part, (i) with the prior written consent of
Secured Party, (ii) only to Persons that, in Secured Party's sole discretion,
meet Secured Party's underwriting criteria, and (iii) then only in accordance
with the Security Agreement and upon payment to Secured Party of the amounts
required thereunder and a fee in an amount equal to 1% of the outstanding
Principal Amount on the date of any such assignment plus all expenses (including
lawyers fees and disbursements) incurred by Secured Party in connection
therewith. For all payments to be made and obligations to be performed under the
Note, time is of the essence. Whenever possible the Note and each provision
hereof shall be interpreted in such manner as to be effective, valid and
enforceable under applicable law. If and to the extent that any such provision
shall be held invalid and unenforceable by any court of competent jurisdiction,
such holding shall not invalidate or render unenforceable any other provisions
hereof, and any determination that the application of any provision hereof to
any person or under any circumstance is illegal and unenforceable shall not
affect the legality, validity and enforceability of such provision as it may be
applied to any other person or in any other circumstance. All rights and
remedies provided in the Note, the Security Agreement, any
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Loan Document or any law shall be available to Secured Party and shall be
cumulative. The Note shall be binding upon Borrower, its successors and
permitted assigns and to the extent permitted by applicable law shall be
governed by and construed in accordance with the laws of the State of
Connecticut, without reference to choice of law principles; provided, however,
that the laws of the State (as defined in the Security Agreement) shall govern
any foreclosure remedies of Secured Party. THE NOTE CONTAINS WAIVERS OF VARIOUS
RIGHTS AND DEFENSES, INCLUDING (WITHOUT LIMITATION) WAIVERS OF RIGHTS OF JURY
TRIAL AND APPRAISAL AS SET FORTH IN SECTION 7 HEREOF. THIS DOCUMENT IS INTENDED
TO TAKE EFFECT AS A SEALED INSTRUMENT.
13. CONSENT TO JURISDICTION. The Borrower hereby consents that any action
or proceeding against the Borrower in connection with this Note or the Loan
Documents may, at Secured Party's discretion, be commenced and maintained in any
court within the State of Connecticut or in the United States District Court for
the District of Connecticut. In such event, the Borrower agrees that the courts
of the State of Connecticut and the United States District Court for the
District of Connecticut shall have jurisdiction with respect to the subject
matter hereof and the person of the Borrower. The Borrower hereby waives the
requirement of personal service of the summons and complaint or other process or
papers issued in any action or proceeding against Borrower under this Note or
the Loan Documents and agrees that service of such summons and complaint, or
other process or papers may, at Secured Party's option, be made by regular or
certified mail addressed to the Borrower at the respective address(es) of the
Borrower set forth herein. The Borrower agrees not to assert any defense to any
action or proceeding initiated in any courts of the State of Connecticut or in
the United States District Court for the District of Connecticut by Secured
Party based upon improper venue or inconvenient forum. It is hereby agreed that
service of process on Borrower may be made on any manager, officer, director or
agent for service of process. The Borrower agrees that any action brought by the
Borrower shall be commercial and maintained only in a court of federal judicial
district or county in which Secured Party has a place of business in
Connecticut. Nothing contained in this section shall be interpreted or construed
in any way to limit the right of Secured Party to: (i) serve process in any
other manner or on any other person or entity (including without limitation
personal service and service on the Secretary of State of Connecticut, if
applicable) and/or (ii) bring any action or proceeding in courts other than
courts of the State of Connecticut and the United States District Court for the
District of Connecticut.
14. LIABILITY. The liability under this Note of all Persons, if more than
one, constituting Borrower shall be joint and several.
15. CROSS-COLLATERALIZATION AND CROSS-DEFAULT. The Debt is cross-defaulted
with (i) all indebtedness now or hereafter owed by the Borrower and its
Affiliates to the Secured Party, and/or (ii) all indebtedness that exceeds the
aggregate amount of $50,000 and that is now or hereafter owed by Borrower to any
other Person, including, without limitation, all loan agreements, notes,
mortgages, deeds of trust and any other documents, instruments and agreements
that now or hereafter evidence, secure and/or
-13-
<PAGE>
guarantee any such indebtedness. The security for the Debt is further
cross-collateralized with the security for all other loans, if any, that are
being advanced to the Borrower by the Secured Party.
16. USE OF PROCEEDS. The Borrower acknowledges receipt of a copy of this
Note and attests that the proceeds of this Note are to be used for general
commercial purposes and that no part of such proceeds will be used, in whole or
in part, for purchasing or carrying any "margin security" as such term is
defined in Regulation U of the Board of Governors of the Federal Reserve System.
IN WITNESS WHEREOF, this Secured Promissory Note has been executed as
of the date first written above.
MAIN STREET AND MAIN INCORPORATED
By: /s/ James Yeager
--------------------------------
Name: James Yeager
Title: Vice President - Finance
MAIN ST. CALIFORNIA, INC.
By: /s/ James Yeager
--------------------------------
Name: James Yeager
Title: Vice President - Finance
ADDRESS: 5050 North 40th Street
Suite 200
Phoenix, AZ 85018
-14-
<PAGE>
Pay to the order of ____________________________________, a _________________,
without recourse.
Dated: ____________________, ____.
BAY VIEW FRANCHISE MORTGAGE ACCEPTANCE
COMPANY, a California corporation
By: /s/ Liana Morris
--------------------------------
Name: Liana Morris
Title: Loan Closer
-15-
SCHEDULE OF SECURED PROMISSORY NOTES
SUBSTANTIALLY IDENTICAL TO EXHIBIT 10.33
Principal Maturity
Date Borrower Amount Date
- ---- -------- ------ ----
2/28/00 Main Street and Main Incorporated
and Redfish America, L.L.C. $1,012,000 3/1/10
2/28/00 Main Street and Main Incorporated
and Main St. California, Inc. $1,590,000 3/1/15
2/11/00 Main Street and Main Incorporated
and Redfish Cleveland, Inc. $1,530,000 3/1/10
2/11/00 Main Street and Main Incorporated
and Main St. California, Inc. $2,499,000 3/1/15
BAY VIEW FRANCHISE MORTGAGE ACCEPTANCE COMPANY LOAN PROGRAM
PLEDGE AND SECURITY AGREEMENT
OF
DATE: February 28, 2000
NAME OF BORROWER: MAIN STREET AND MAIN INCORPORATED,
a Delaware corporation; and
MAIN ST. CALIFORNIA, INC., an Arizona
corporation
NAME OF FRANCHISOR: TGI Friday's, Inc.
STORE NO.: 1917
PLEDGE AND SECURITY AGREEMENT ("Security Agreement"), dated the date set
forth above, by the Borrower(s) identified above (if more than one collectively,
and jointly and severally, "Borrower"), in favor of BAY VIEW FRANCHISE MORTGAGE
ACCEPTANCE COMPANY, a California corporation, its successors and assigns, as
secured party ("Secured Party").
Preliminary Statement
Borrower's legal name (and, if Borrower is comprised of more than one
Person, the name of each such Person) is accurately set forth on SCHEDULE 1
hereto. Under its legal name (or trade name(s), if any, referenced on SCHEDULE
1), Borrower is engaged in the business of operating the restaurant identified
by the above-referenced Store Number ("Business") as a franchisee of the
above-referenced Franchisor from the parcel of real property identified as the
Property on SCHEDULE 1 ("Property").
Secured Party is willing to make a loan(s) (collectively, "Loan") to
Borrower and Borrower has agreed to evidence such Loan by executing and
delivering to Secured Party (i) a Secured Promissory Note in the form of EXHIBIT
A ("Note"), dated the date hereof, made payable to Secured Party, in the
original principal amount set forth therein, and for the term and on the terms
and conditions set forth therein, and (ii) if applicable, certain other Secured
Promissory Notes (collectively, the "Other Notes"), dated the date hereof, made
payable to Secured Party, in the original principal amount(s) set forth therein,
and for the term and on the terms and conditions set forth therein. The Note and
the Other Notes, if any, are more particularly described on the attached Exhibit
B.
As a condition to the making of the Loan, Secured Party has requested and
Borrower has agreed to execute and deliver this Security Agreement, which, among
<PAGE>
other things, grants to Secured Party a security interest in the Collateral (as
defined below).
In consideration of the foregoing, the benefits accruing to Borrower and
for other good and valuable consideration, the receipt and sufficiency of which
Borrower hereby acknowledges, Borrower hereby makes the following
representations and warranties to Secured Party and covenants and agrees with
Secured Party as follows:
1. DEFINITIONS: The terms used herein (whether or not capitalized) have the
meanings accorded such terms in boldface above, in the text hereof and in
section 16 hereof, and, to the extent not inconsistent therewith, the UCC.
2. PLEDGE & GRANT: To secure the Obligations, Borrower hereby pledges and
grants to Secured Party a security interest in the Collateral (including,
without limitation, Borrower's Equipment).
3. REPRESENTATIONS, WARRANTIES AND COVENANTS: Borrower hereby represents,
warrants and covenants that:
3.1 Borrower's Name. Each of Borrower's legal name, federal tax payor
identification number, and mailing address is accurately set forth on SCHEDULE
1. Borrower has not merged, consolidated, acquired all or substantially all of
the assets of any other Person, or except as disclosed on SCHEDULE 1, used any
other name (whether in connection with the Business or the Collateral or for
business, obtaining credit or financing or otherwise) in the last five (5)
years.
3.2 Location of Borrower and Collateral; Inspection. Under its legal name,
Borrower is operating and shall continue to operate the Business from the
Property at the address and in the County and State as set forth in SCHEDULE 1.
SCHEDULE 1 correctly discloses that Borrower either is sole record owner of the
fee estate in the Property or leases (or subleases) the Property and the record
owner of the fee estate in the Property is the person or entity disclosed on
SCHEDULE 1. All personal property of Borrower owned, acquired, held, used, sold
or consumed in the Business including Goods (including Inventory and Equipment),
General Intangibles, accounts, chattel paper, instruments, documents,
certificates of title, fixtures, securities and money, and all writings relating
thereto and records thereof, books of record or account, employees, business,
offices and operations are located at and conducted out of such Property or at
the chief executive office of the Borrower set forth on SCHEDULE 1 or other
business office disclosed on SCHEDULE 1. Borrower shall allow Secured Party, its
agents and representatives, from time to time, to inspect the Collateral, the
Property and Borrower's books and records pertaining thereto or otherwise to the
Business, and Borrower will assist (and permit abstracts and photocopies of
Borrower's books and records to be taken and retained by) Secured Party, its
agents and representatives in making any such inspection.
2
<PAGE>
3.3 State of Organization, Chief Executive Office or Residence; Affiliates.
If an entity, Borrower is and will continue to be duly organized, validly
existing and in good standing in the state of its organization set forth on
SCHEDULE 1, and if such state is not the State, Borrower is and will continue to
be duly qualified to do business and in good standing in each jurisdiction where
the Business or Property is located. There is no state or jurisdiction other
than its state of organization and, if different, the State, where such
organization, qualification or standing is necessary, required or proper in
connection with Borrower's ownership or use of the Collateral or the Property or
the conduct of its Business. Borrower's chief executive office (and, if a
natural person, residence) address is accurately set forth on SCHEDULE 1.
3.4 Change in Name, Location, Ownership or Use.
3.4.1 Change in Name or Location. Borrower will neither change its
name, federal tax payor identification number, or its chief executive office
(or, if a natural person, residence), nor the location of its business, property
or assets (including the Business and the Collateral), nor assume a different
name, nor conduct its business or affairs under any other name or in any other
location, without in each instance obtaining the prior written consent of
Secured Party. Any request for such consent must specify with reasonable clarity
and particularity the terms, timing and nature of the proposed action.
3.4.2 Change in Ownership or Use. Borrower shall not merge,
consolidate, or otherwise change its corporate or ownership structure (whether
by stock sale, issuance, purchase or otherwise), nor change its use of any item
of Collateral, without in each instance obtaining the prior written consent of
Secured Party. Any request for such consent must specify with reasonable clarity
and particularity the terms, timing and nature of the proposed action.
3.5 Power and Authority. Borrower has full power, authority and the legal
right and all necessary permits, consents, licenses and authorizations to own
the Collateral and to conduct its Business. Borrower (and in the case of Loan
Documents executed by Borrower's Affiliates, each such Affiliate) has full
power, authority and the legal right and all necessary permits, consents,
licenses and authorizations to execute, deliver and perform its obligations
under this Security Agreement, the Note and the other Loan Documents.
3.6 Due Execution and Delivery, Enforceability. This Security Agreement,
the Note and the other Loan Documents have been duly and validly executed and
delivered by Borrower. Each of this Security Agreement, the Note and other Loan
Documents constitutes Borrower's legal, valid and binding obligation,
enforceable against Borrower in accordance with its terms.
3.7 Operating Experience. Borrower or its Business manager has had not less
than two years experience operating businesses such as the Business in one or
more
3
<PAGE>
of the Systems. In addition, either (i) the Business has been operating for at
least one year or (ii)(a) Borrower operates not less than two businesses in one
or more of the Systems in addition to the Business, (b) all of Borrower's
businesses in the Systems have been operating a combined average of not less
than two years, and (c) the Business has been operating not less than three
months and its operating statements for such period demonstrate operating cash
flow sufficient to make monthly payments of the Stated Payment Amount.
3.8 FCCR. During the term of this Security Agreement, Borrower shall
maintain its Borrower FCCR at not less than 1.20 ("Minimum Borrower FCCR"). All
calculations of Borrower FCCR shall be based upon the financial information
furnished by Borrower hereunder (see Sections 3.19 and 3.20) for (i) the most
recent three-month period of operations, or (ii) if higher, the most recent
twelve-month period; provided, however, that if Borrower is an entity and has
been in existence for a period of less than twelve months on the date hereof,
the twelve-month measurement period shall be reduced to the number of months in
which Borrower has been in existence until such time as Borrower has been in
existence for twelve months and provided further, however, if Borrower is a
natural person and has owned the Business for a period of less than twelve
months on the date hereof, the twelve-month measurement period shall be reduced
to the number of months for which Borrower has owned the Business until such
time as Borrower has owned the Business for twelve months. The Minimum Borrower
FCCR shall be measured with respect to either (i) Borrower (if Borrower is an
entity and not a natural person), or (ii) the Business and all other businesses
in the System owned by Borrower (if Borrower is a natural person and not an
entity).
3.9 Limitation on Indebtedness, Lease Obligations and Payments to
Affiliates. Borrower shall not, directly or indirectly, incur any Indebtedness
or Lease Obligations to any Person or make or become obligated to make any
Payments to Affiliates (i) at any time subsequent to an Event of Default or
other event that, but for the giving of notice, the passage of time, or both
would constitute an Event of Default hereunder or under any of the other Loan
Documents, and/or (ii) if the Borrower FCCR for the twelve (12) month time
period immediately preceding the making of any such proposed payment or the
incurrence of any such obligation is less than the Minimum Borrower FCCR, and/or
(iii) if the reasonably projected Borrower FCCR for the twelve (12) month time
period immediately subsequent to any such proposed payment or the incurrence of
any such obligation would be less than the Minimum Borrower FCCR.
3.10 No Further Disposition or Encumbrances. Other than with respect to the
interest granted in favor of Secured Party, to the extent of the Permitted
Encumbrances, if any, and except as provided in Section 4 hereof, Borrower has
not and, without the prior written consent of Secured Party (which consent shall
not be unreasonably withheld or delayed in connection with encumbrances in favor
of Bay View Franchise Mortgage Acceptance Company or any of its Affiliates),
will not enter into any agreement or understanding or take, permit or suffer to
exist any action (including the filing of a financing statement, agreement,
pledge, mortgage, notice or registration) or event
4
<PAGE>
(whether by operation of law or otherwise) for the purpose of, or that may have
the effect of, directly or indirectly, granting a security interest in or lien
on (including any state or federal tax lien), pledging, transferring, assigning,
selling, disposing of, or encumbering any Collateral or the Franchise Agreement,
any interest therein or rights pertaining thereto or involving the Business, or
changing, modifying, supplementing, or increasing the amount of credit, loans,
Indebtedness or value secured by the Permitted Encumbrances, if any, or the
amount, property or assets encumbered thereby.
3.11 Title; No Liens, Claims or Encumbrances. Borrower has and, subject to
Section 4, will maintain good and marketable title to the Collateral and the
Franchise Agreement, free of all liens, claims, encumbrances or rights of others
(other than the security interest granted to Secured Party hereunder and to the
extent of the Permitted Encumbrances) and such Collateral and Franchise
Agreement are sufficient to enable a franchisee of the Franchisor to operate the
Business at the Property in accordance with the Franchise Agreement. Other than
the Permitted Encumbrances, there is no financing statement (or similar
statement, agreement, pledge, mortgage, notice or registration), lien (including
any federal or state tax lien), suit (including any action, proceeding, or other
litigation pending, or to Borrower's knowledge, threatened) or judgment
(including any award, injunction, order) filed with, registered, indexed or
recorded in any public office, court, arbitration panel, administrative agency
or regulatory authority (or intended so to be), directly or indirectly,
identifying or encumbering or covering or involving the Collateral or the
Franchise Agreement or which could materially affect Borrower, its Business, or
its ability to perform its Obligations.
3.12 Franchise Agreement. Borrower is and will continue to be a franchisee
in good standing with Franchisor. Borrower has not breached and is not in
default under the Franchise Agreement or License; Borrower shall not terminate,
fail to renew, breach or be in default under the Franchise Agreement or License;
and Borrower has no knowledge of any claim of (or basis for any claim of) any
such termination, nonrenewal, breach or default. Borrower agrees to fully
comply, at Borrower's own cost and expense, with the terms of the License and
Franchise Agreement (including any renewal option) and to promptly notify
Secured Party of any adverse development with regard to the Franchise Agreement
or License, including any claim of breach of or default under, or threat of
nonrenewal or termination of, or litigation involving the Franchise Agreement or
License.
3.13 Encumbrance of Franchise Agreement. Borrower agrees that until such
time as Borrower's Obligations under the Loan Documents (including the Note)
have been fully satisfied, if, whether because of a change in the Franchise
Agreement, applicable law or otherwise, Borrower is able to grant a security
interest in the Franchise Agreement to the Secured Party to secure its
Obligations without Franchisor's consent and without breaching or defaulting
under the Franchise Agreement, Borrower agrees to promptly grant such security
interest in favor of the Secured Party and to obtain, procure, execute and
deliver, file and affix such further agreements (including modification of the
Security Agreement), assignments, instruments, documents, notices,
5
<PAGE>
statements, writings (including financing statements), powers (including stock
and bond powers, and powers of attorney), tax stamps and information, and to do
or cause to be done all such further acts and things (including the execution,
delivery and filing of financing statements on Form UCC-1) as Secured Party may
reasonably request, from time to time, in its discretion, in connection with
such security interest and the perfection thereof. Without limiting the
foregoing, Borrower authorizes Secured Party to the extent permitted by law to
execute and file, or file without Borrower's signature, any and all financing
statements, amendments thereto and continuations thereof as Secured Party deems
necessary or appropriate in connection therewith.
3.14 Renewal of Franchise Agreement. Until such time as the Obligations of
Borrower under the Loan Documents (including the Note and the Other Notes, if
any) have been fully satisfied, Borrower agrees to make one or more timely
elections to renew the term of the Franchise Agreement in accordance with the
terms of the Franchise Agreement for a period which extends beyond the Maturity
Date (as defined in the Note and the Other Notes, if any) of the Loan and shall
use its best efforts to satisfy any and all conditions to any such renewal, and
to obtain, procure, execute and deliver, file and affix such further agreements,
instruments, documents, notices, statements, writings, powers and information,
and to do or cause to be done all such further acts and things as Secured Party
may reasonably request, from time to time, in its discretion, in connection with
Borrower's Obligations set forth herein.
3.15 Perfected Security Interest; Financing Statements. The execution and
delivery of this Security Agreement and the grant and transfer of the Collateral
hereunder creates a valid security interest in the Collateral which has attached
and is enforceable. Upon filing of the Financing Statements in the State and
County with respect to all Goods (including Inventory and Equipment), General
Intangibles, accounts, fixtures and chattel paper included in the Collateral and
upon delivery into Secured Party's possession with respect to all other
Collateral, as applicable, such security interest will be perfected and subject
to no prior or equal security interest other than and only to the extent of the
Permitted Encumbrances, if any. The execution and filing of the Financing
Statements has been duly authorized by all appropriate action on the part of
Borrower (and any other Person named as debtor therein) and Borrower (and any
other Person named as debtor therein) has duly executed the Financing
Statements.
3.16 No Conflict; No Default. Borrower's (and in the case of Loan Documents
executed by Borrower's Affiliates, such Affiliate's) execution, delivery and
consummation of the transactions contemplated by this Security Agreement, the
Note and other Loan Documents do not and will not (with the passage of time or
otherwise) (i) conflict with, violate or constitute a default under any law,
rule, regulation, order, decree, contract, agreement (including the Franchise
Agreement), note, mortgage, bond, indenture, lease, license, organizational
documents, or obligation of or applicable to Borrower (or such Affiliate) or the
Collateral or (ii) grant, create or result in any lien, claim, encumbrance or
right in favor of any Person (other than Secured Party as contemplated hereby)
on or
6
<PAGE>
to Borrower's Business, property or assets (including the Collateral and the
Franchise Agreement). No Event of Default has occurred and is continuing.
3.17 No Consent Required. Except for the filing of the Financing Statements
with the UCC filing offices of the State and the County (and, if applicable, the
recording of the mortgage or deed of trust included in the Loan Documents), no
consent, authorization, approval, license, permit, registration, exemption,
filing, notice or declaration of, from, with or to any other party or any court,
government, agency or regulatory authority is required prior to or otherwise in
connection with Borrower's execution, delivery and performance of this Security
Agreement, the Note and other Loan Documents.
3.18 Purpose for Loans. Borrower does not intend to (and will not) use all
or any portion of the Loan to purchase or carry any securities, including,
without limitation, Margin Stock. Borrower intends to and agrees to use the
proceeds of the Loan solely for the lawful, proper business or commercial
purpose(s) set forth in its application for the Loan.
3.19 Solvency; Compliance Certificates; Reports; Communications. Borrower
(and each Affiliate executing any Loan Document) is solvent and, after giving
effect to the Obligations, will continue to be solvent. Borrower agrees to
provide to Secured Party (i) within 20 days after the end of (a) each of the
first three quarters of each fiscal year of the Borrower, and (b) each fiscal
year of the Borrower (each a "Fiscal Period"), a completed and signed compliance
certificate (in the form attached hereto as EXHIBIT D) and a copy of any reports
required under the Franchise Agreement covering the fiscal period then
concluded, (ii) within 45 days after December 31st, March 31st, June 30th and
September 30th of each calendar year, consolidated Borrower and individual
Business financial statements covering the three (3) month period then-ended
(each a "Quarterly Financial Statement"), and (iii) within 60 days after the end
of each fiscal year of the Borrower, consolidated Borrower and individual
Business financial statements covering the twelve (12) month period then-ended
(each an "Annual Financial Statement"). Borrower further agrees to provide to
Secured Party, upon request: (x) within ten days after the end of each calendar
month, monthly sales reports for the Business for the month just ended; (y)
promptly following receipt by Borrower, complete copies of any communications
that are material to Borrower, its Business or the Collateral provided that such
disclosure would not constitute a breach of the Franchise Agreement; and (z)
copies of such other reports and information as Secured Party may from time to
time reasonably request. The financial statements furnished to Secured Party in
connection with Borrower's application for the Loan and hereunder shall reflect
all Indebtedness and Lease Obligations of the Person covered thereby and shall
be sufficiently detailed to allow Secured Party to calculate the Borrower FCCR.
If and to the extent that any disclosure required under clauses (x), (y), or (z)
of this section is not made because of the proviso in clause (y) of this
section, then notice of such nondisclosure and the nature of information not
disclosed shall be provided to Secured Party at the time such disclosure would
have been required to be made. All Quarterly
7
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Financial Statements and Annual Financial Statements required hereunder must be
prepared as follows:
Aggregate Obligations owed
by Borrower and its Affiliates Financial Statement
to Secured Party Preparation Requirements
---------------- ------------------------
$4,999,999.00 or less Quarterly Financial Statements and Annual
Financial Statements may be prepared by the
Borrower; provided, however, all such
statements must be certified to be true,
complete and correct by an authorized officer
of the Borrower.
$5,000,000.00 - $9,999,999.00 Quarterly Financial Statements and Annual
Financial Statements must be compiled in
accordance with generally accepted accounting
principles ("GAAP") applied on a consistent
basis by an unrelated third party certified
public accountant that is acceptable to
Secured Party.
$10,000,000.00 - $19,999,999.00 Quarterly Financial Statements and Annual
Financial Statements must be reviewed in
accordance with GAAP applied on a consistent
basis by an unrelated third party certified
public accountant that is acceptable to
Secured Party.
$20,000,000.00 or greater Quarterly Financial Statements and Annual
Financial Statements must be audited and
certified in accordance with GAAP applied on
a consistent basis by an unrelated third
party certified public accountant that is
acceptable to Secured Party.
Notwithstanding the foregoing, Secured Party reserves the right to modify
the requirements set forth herein upon reasonable notice to the Borrower.
3.20 Accuracy of Information. All information, reports, statements and
financial and other data furnished (or hereafter furnished) by Borrower to
Secured Party, its agents or representatives hereunder or in connection with
Borrower's application for the Loan and the Obligations, are (and shall be on
the date so furnished) true, complete and correct.
3.21 Maintenance of Collateral and Business. At Borrower's sole cost and
expense, Borrower shall keep, use, operate and maintain the Collateral, the
Business and the Property in accordance with applicable laws, rules and
regulations in accordance with the standards established by Franchisor, operate
the Business at the Property in accordance with the Franchise Agreement and
License and customary, prudent business
8
<PAGE>
practices, and at all times fully comply with the terms and provisions of the
Franchise Agreement and License, and not do or suffer to be done any act whereby
the value of the Collateral, the Property or the Business or any part or
interest therein may be lessened in any material respect. Borrower shall notify
Secured Party promptly of any actual or threatened destruction or material
damage or impairment of the Business, the Collateral or the Property.
3.22 Insurance. Borrower shall:
(i) (a) keep the Collateral (which for purposes of this Section 3.22
includes the Property) insured against loss or damage by fire, theft, collision
and other hazards (including flood, if no certification or other evidence
satisfactory to Secured Party is delivered to Secured Party to the effect that
the Property is not located within a federally designated special flood hazard
area) as may be required by Franchisor or Secured Party and by policies of fire,
extended coverage and other insurance with such company or companies, in such
amounts (and, with respect to policies required for property, fire and flood
insurance in an amount not less than the lesser of (A) the replacement cost
thereof and (B) the Principal Amount payable under the Note), as may be required
by or acceptable to Franchisor and Secured Party, but in no event less than the
minimum amount required to prevent the imposition of any coinsurance requirement
on the insured, (b) maintain liability insurance of not less than $1 million,
(c) maintain business interruption insurance with scope and coverage reasonably
satisfactory to Secured Party, and (d) maintain such other insurance (including,
without limitation, certain minimum levels of acceptable workers' compensation,
property damage, general public liability insurance and "Year 2000" insurance)
as may be required by the Franchisor and/or Secured Party.
(ii) cause all insurance policies required hereunder (a) to be
maintained by providers either (A) having ratings of not less than A- from A.M.
Best Company Inc. (or comparable ratings from a comparable rating agency, as
determined by Secured Party) or (B) who, if not so rated, have been approved by
Secured Party and (b) to contain a standard lender's loss payable endorsement
and mortgagee's or lienholder's endorsement providing for payment directly to
Secured Party and/or its designees and to provide for a minimum of 30-days
notice to Secured Party prior to cancellation or modification or nonrenewal;
(iii) timely pay all premiums, fees and charges required in connection
with all of its insurance policies and otherwise continue to maintain such
policies in full force and effect;
(iv) promptly deliver the insurance policies, certificates (and
renewals) thereof or other evidence of compliance herewith to Secured Party; and
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(v) use its best efforts to inhibit the inclusion of any "Year 2000"
exclusion clauses in any insurance policies (and the renewals thereof) now or
hereafter required pursuant to this Agreement and/or the Mortgage.
3.23 No Violation; Indemnity. Borrower has not and shall not acquire,
obtain, make, manufacture, produce, operate, hold, possess, maintain, use, sell,
transfer, grant, pledge, or dispose of (for purposes of this section,
collectively "Borrower's Use") any of its businesses (including the Business),
securities, property or assets (including any proceeds of the Loan, any
Collateral and the Property) in violation of any statute, law, rule, ordinance,
regulation, policy, procedure, injunction, award, decree, judgment, contract,
agreement (including the Franchise Agreement), understanding, or right or
interest of any other Person (for purposes of this section collectively
"Violation"), and to Borrower's knowledge no Violation has been made by any
other Person and no basis for a claim of any Violation exists. Borrower shall
indemnify and hold Secured Party harmless from and against any Violation, and
any other loss, liability, damage, cost or expense whatsoever (including
attorneys fees and disbursements) arising out of or in connection with
Borrower's Use of any of its businesses (including the Business), securities,
property or assets (including any proceeds of the Loan, any Collateral and the
Property).
3.24 Contact With Franchisor, Suppliers and Other Creditors. Secured Party
shall have the right on an ongoing basis, and Secured Party is hereby
authorized, to contact Borrower's Franchisor, suppliers and other creditors for
purposes of confirming, among other things, (i) that Borrower is current with
respect to its obligations and liabilities owed to such parties, and (ii) that
Borrower is not in default under any agreement in connection therewith.
Borrower's Franchisor, suppliers and creditors are hereby authorized to release
all such information to Secured Party, which authorization is more particularly
set forth and confirmed in the Franchisor, Supplier and Creditor Authorization
Form attached hereto as EXHIBIT E. Neither Secured Party nor Borrower's
Franchisor, suppliers and/or creditors shall be required to obtain any further
authorization or consent from the Borrower with regard to the matters addressed
herein. Notwithstanding the foregoing, Borrower shall cooperate with Secured
Party in connection therewith and shall execute any additional documentation
that may be necessary in order for Secured Party to obtain the aforesaid
information from such third parties.
3.25 Press Releases/Promotional Materials. In addition to any other
disclosures set forth herein, the Borrower consents to the use by the Secured
Party, its Affiliates and/or its successors and assigns, of (i) the name of the
Borrower, (ii) the names of the owners and operators of the Borrower (and their
respective principals), and/or (iii) the location of the Store and photos or
other depictions of the Store, in press releases, advertising and other
promotional materials; provided, however, that Secured Party shall not disclose
information concerning the Borrower that is not otherwise available to the
public unless otherwise consented to by the Borrower, which consent shall not be
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unreasonably withheld or delayed. In no event shall the Borrower receive any fee
or other consideration for the use of information as described herein.
4. SPECIAL PROVISIONS CONCERNING INVENTORY, EQUIPMENT AND REAL PROPERTY:
4.1 Preservation of Secured Party's First Priority Lien. Borrower shall do
nothing to impair the rights of Secured Party in the Inventory and Equipment and
shall cause the Inventory and Equipment to at all times be, constitute and
remain personal property subject to a first priority security interest in favor
of Secured Party. Notwithstanding the preceding sentence, provided that Borrower
is not in default on any of its Obligations (and no event which with the passage
of time would be an Event of Default has occurred and is continuing), in the
ordinary course of Borrower's Business, Borrower may sell its Inventory, and
subject to Sections 3.7, 3.8 and 3.9 hereto, with the prior consent of Secured
Party, which will not be unreasonably withheld, Borrower may, from time to time,
refinance indebtedness secured by existing Permitted Encumbrances, if any, in
accordance with the terms thereof, replace its Equipment and/or acquire new
Equipment and accessions to its Equipment, in each case, subject to a first
priority perfected security interest in favor of Secured Party, or acquire the
fee interest in (or ground lease of) the Property; provided that, if Secured
Party has a leasehold mortgage or deed of trust on any lease of the Property,
such lease does not merge into the fee estate (or ground lease) and otherwise
remains in full force and effect and subject to Secured Party's mortgage or deed
of trust and each holder of a lien on the fee interest in (or ground lease of)
the Property provides Secured Party with a non-disturbance agreement(s) and such
other assurances as Secured Party shall reasonably request.
4.2 Permitted Debt. Subject to Sections 3.7, 3.8, and 3.9, Borrower may
enter into lease and/or purchase money financing transaction(s) for the
acquisition of specific items of new Equipment only for the Business; provided,
however (i) in no event shall the aggregate amount of all such lease and/or
purchase money financing obligations (including, without limitation, all
principal, interest, fees and other related expenses) exceed the sum of
$50,000.00 at any given time during the Loan term, (ii) Borrower provides
Secured Party with prior notice of each proposed transaction, which notice must
specify with reasonable clarity the terms of each such transaction and must
identify the specific item of new Equipment that is being acquired as a result
thereof, (iii) in no event shall the Borrower incur any such obligation(s) if an
Event of Default shall exist and/or if an event has occurred or is continuing
and that, but for the giving of notice, the passage of time, or both, would
constitute an Event of Default, (iv) in no event shall the Borrower incur any
such obligation(s) unless, after giving effect to all such present and proposed
obligations, the Borrower is in compliance with the Minimum Borrower FCCR for
the twelve (12) month time period immediately preceding the incurrence of the
proposed obligation, (v) in no event shall the Borrower incur any such
obligation(s) unless, after giving effect to all such present and proposed
obligations, the Borrower is in compliance with the Minimum Borrower FCCR as
reasonably projected for the twelve
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(12) month time period immediately following the incurrence of the proposed
obligation, and (vi) in no event shall the Borrower incur any such
obligation(s), if the consummation of any such transaction would otherwise cause
the Borrower to be in default of the Loan Documents.
5. SPECIAL PROVISIONS CONCERNING COLLATERAL REVENUES: Borrower hereby
directs any and all transferors, distributors or payors (including insurance
companies with whom Borrower maintains insurance) to make payment of all
Collateral Revenues directly to Secured Party and authorizes Secured Party, in
its sole discretion, to apply the same to repayment of the Obligations, whether
or not due, or, toward replacement of the Collateral. All Collateral Revenues
and proceeds whether received by Secured Party or by Borrower, or by any other
Person will be included in the Collateral subject to the security interest
granted to Secured Party hereunder. Upon and during the continuation of an Event
of Default, Borrower shall identify, segregate and keep separate all Collateral
Revenues and proceeds received by it, upon Secured Party's request, promptly
account to Secured Party for all Collateral Revenues and proceeds, and hold all
Collateral Revenues and proceeds received by Borrower in trust for the benefit
of Secured Party and shall promptly (and in any event not later than the fifth
day after receipt) deliver (or cause to be delivered) the same to Secured Party
and into its possession in the form received by Borrower and at a time and in a
manner satisfactory to Secured Party.
6. SPECIAL PROVISIONS CONCERNING RIGHTS AND DUTIES WHILE IN POSSESSION OF
COLLATERAL.
6.1 Borrower's Possession. Upon and during the continuation of an Event of
Default, to the extent the same shall, from time to time, be in Borrower's
possession, Borrower will hold all securities, instruments, chattel paper,
documents, certificates and money and other writings evidencing or relating to
the Collateral in trust for Secured Party and, upon request or as otherwise
provided herein, promptly deliver the same to Secured Party in form received and
at a time and in a manner satisfactory to Secured Party. With respect to the
Collateral in Borrower's possession Borrower shall at Secured Party's request
take such action as Secured Party in its discretion deems necessary or desirable
to create, perfect and protect Secured Party's security interest in any of the
Collateral.
6.2 Secured Party's Possession. With respect to all of the Collateral
delivered or transferred to, or otherwise in the custody or control of
(including any items in transit to or set apart for) Secured Party or any of its
agents, associates or correspondents in accordance with this Security Agreement,
Borrower agrees that such Collateral will be and be deemed to be in the sole
possession of Secured Party; subject to Section 4, Borrower has no right to
withdraw or substitute any such Collateral without the consent of Secured Party,
which consent may be withheld or delayed in Secured Party's sole discretion;
Borrower shall not take or permit any action, or exercise any voting and other
rights, powers and privileges in respect of the Collateral inconsistent with
Secured
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Party's interest therein and sole possession thereof and Secured Party may in
its sole discretion and without notice, without obligation or liability except
to account for property actually received by it, and without affecting or
discharging the Obligations, (x) further transfer and segregate the Collateral
in its possession; (y) receive Collateral Revenues and hold the same as a part
of the Collateral and/or apply the same as hereinafter provided; and (z)
exchange any of the Collateral for other property upon reorganization,
recapitalization or other readjustment. Following the occurrence of an Event of
Default, Secured Party is authorized (i) to exercise or cause its nominee to
exercise all or any rights, powers and privileges (including to vote) on or with
respect to the Collateral with the same force and effect as an absolute owner
thereof; (ii) whether any of the Obligations be due, in its name or in
Borrower's name or otherwise, to demand, sue for, collect or receive any money
or property at any time payable or receivable on account of or in exchange for,
or make any compromise or settlement Secured Party deems desirable with respect
to, any of the Collateral; and (iii) to extend the time of payment, arrange for
payment in installments, or otherwise modify the terms of, or release, any of
the Collateral. Notwithstanding the rights accorded Secured Party with respect
to the Collateral and except to the extent provided below or required by the UCC
or other applicable law (which requirement cannot be modified, waived or
excused), Secured Party's sole duty with respect to the Collateral in its
possession (with respect to custody, preservation, safekeeping or otherwise and
whether under Section 9-207 of the UCC or otherwise) will be to deal with it in
the same manner that Secured Party deals with similar property owned and
possessed by it. Without limiting the foregoing, Secured Party, and any of its
officers, directors, partners, trustees, owners, employees and agents, to the
extent permitted by law (i) will have no duty with respect to the Collateral or
the rights granted hereunder; (ii) will not be required to sell, invest,
substitute, replace or otherwise dispose of the Collateral; (iii) will not be
required to take any steps necessary to preserve any rights against prior
parties to any of the Collateral; (iv) will not be liable for (or deemed to have
made an election of or exercised any right or remedy on account of) any delay or
failure to demand, collect or realize upon any of the Collateral; and (v) will
have no obligation or liability in connection with the Collateral or arising
under this Agreement. Borrower agrees that such standard of care is reasonable
and appropriate under the circumstances.
7. EVENTS OF DEFAULT: The happening of any one or more of the following
events shall constitute an "Event of Default" hereunder:
7.1 Nonpayment, default, breach, etc.
7.1.1 Borrower default: (i) Borrower's failure to make any payment
when due under this Security Agreement, the Note or any other Loan Document;
(ii) Borrower's failure to make any payment when due under the Franchise
Agreement, the License, or any Permitted Encumbrance, subject to any applicable
grace periods provided for in any such agreement; (iii) the Borrower's failure
to make any payment to its material food or beverage suppliers within forty-five
(45) days from the date of each delivery; (iv) Borrower's breach of, default
under, or failure to perform or observe any other covenant
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or condition of or agreement in, this Security Agreement, the Note, any other
Loan Document, the Franchise Agreement, the License, or any Permitted
Encumbrance, subject to any applicable grace periods provided for in any such
agreements; (v) Borrower's breach of default under, or failure to perform or
observe any agreement, instrument or obligation with Borrower's material food or
beverage suppliers; (vi) the making of a material misstatement or
misrepresentation in, or the omission of any material fact or information from,
any representation or warranty under or in this Security Agreement, the Note,
any other Loan Document, or any financial statement or other statement delivered
to Secured Party; or (vii) the nonrenewal or termination of the Franchise
Agreement; or
7.1.2 Cross-default with Secured Party: Borrower or any of Borrower's
Affiliates fails to make any payment when due under, or defaults under, fails to
perform or observe any covenant of or condition or agreement in breach of, or
makes any material misstatement in or omission from any representation and
warranty under, any security agreement, note, or any other document, instrument
or agreement now or hereafter existing with Secured Party or in any other
agreement, instrument, document or certificate, or financial or other statement
now or hereafter delivered to Secured Party, and such failure, default or breach
continues beyond any applicable grace period provided therein; or
7.1.3 Cross-Default with Other Persons. Borrower fails to make any
payment when due, subject to any applicable grace period or cure period, with
regard to any indebtedness that exceeds the aggregate amount of $50,000 and that
is now or hereafter owed by the Borrower to any other Person, or the Borrower is
otherwise in default of, or fails to perform or observe any covenant, or
condition, or agreement of, or makes any material misstatement or omission from
any representation or warranty under, any security agreement, note, or any other
document, agreement, or instrument that evidences, secures and/or guarantees all
or any part of such indebtedness and such default, failure to perform and/or
misrepresentation entitles such Person to accelerate all or any portion of the
indebtedness and/or to exercise any other collection remedies.
7.2 Other Events of Default of Borrower and other liable parties: If
Borrower or any of Borrower's Affiliates who is a maker, drawer, acceptor,
endorser, guarantor, surety, accommodation party or otherwise liable for any of
the Obligations or Collateral, or any partnership in which Borrower is a partner
(each hereinafter called an "other liable party") shall die, dissolve, merge or
consolidate, suspend the transaction of business or incur any material adverse
change in its financial condition or prospects; or if Borrower or any other
liable party shall be expelled from or suspended by any stock or securities
exchange or other exchange, or any proceeding, procedure or remedy supplementary
to or in enforcement of judgment (involving an amount not fully covered by
insurance in excess of $20,000 in the aggregate) shall be resorted to or
commenced against, or with respect to any property of, Borrower or any other
liable party; or if Borrower or any other liable party shall make an assignment
for the benefit of, or composition with, creditors, or shall be or become
insolvent or unable, or generally fail, to pay its debts when due,
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or shall be or become a party or subject to any bankruptcy, reorganization,
insolvency or other similar proceeding, or a receiver or liquidator, custodian
or trustee shall be appointed for Borrower or any other liable party, or a
substantial portion of any of Borrower's or their respective assets and, if any
of the foregoing shall occur involuntarily as to Borrower and any other liable
party, it shall not be dismissed with prejudice, stayed or discharged within 45
days; or if Borrower or any other liable party shall take any action to effect,
or which indicates its acquiescence in, any of the foregoing.
8. REMEDIES.
8.1 Cumulative Rights and Remedies. Upon the occurrence of an Event of
Default, Secured Party shall have the rights, powers and remedies granted to
secured parties under the UCC or other applicable Uniform Commercial Code;
granted to Secured Party under any other applicable statute, law, rule or
regulation; and granted to Secured Party under this Security Agreement, the Note
or any other Loan Document or any other agreement between Borrower and Secured
Party. In addition, all such rights, powers and remedies shall be cumulative and
not alternative. Any single or partial exercise of, or forbearance, failure or
delay in exercising any right, power or remedy shall not be, nor shall any such
single or partial exercise of, or forbearance, failure or delay be deemed to be
a limitation, modification or waiver of any right, power or remedy and shall not
preclude the further exercise thereof; and every right power and remedy of
Secured Party shall continue in full force and effect until such right, power
and remedy is specifically waived by an instrument in writing executed and
delivered with respect to each such waiver by Secured Party.
8.2 Acceleration of Obligations. Upon the occurrence of an Event of
Default, and at any time thereafter if any Event of Default shall then be
continuing, Secured Party may, from time to time in its discretion, by written
notice to Borrower declare the Debt (as such term is defined in the Note and the
Other Notes, if any) (including an amount equal to that required to be paid if
the Loan were prepaid as described in Section 5 of the Note and the Other Notes,
if any) and any other Obligations to be immediately due and payable whereupon
(and, ipso facto, without the need for any notice or other action by any Person,
upon the occurrence of any Event of Default of the type referred to in Section
7.2 hereof) such principal, interest and other Obligations shall be immediately
due and payable, without presentment, demand, protest or other notice of any
kind, all of which are hereby waived by Borrower to the maximum extent permitted
by law.
8.3 Additional Rights of Secured Party. Upon the occurrence of an Event of
Default, Secured Party may, from time to time, in its discretion, and without
Borrower's consent, advertisements or notices of any kind (except for the notice
specified in Section 8.5 below regarding notice required in connection with a
public or private sale), or demand of performance or other demand, or obligation
or liability (except to account for amounts actually received) to or upon
Borrower or any other Person (all such advertisements, notices and demands,
obligation and liabilities, if any, hereby being expressly waived and discharged
to the extent permitted by law), forthwith, directly or
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through its agents or representatives, (i) to the extent permitted by applicable
law enter any premises, with or without the assistance of other persons or legal
process; (ii) require Borrower to account for (including accounting for any
products and proceeds of any Collateral), segregate, assemble, make available
and deliver to Secured Party, its agents or representatives, the Collateral;
(iii) take possession of, operate, render unusable, collect, transfer and
receive, recover, appropriate, foreclose, extend payment of, adjust, compromise,
settle, release any claims included in, and do all other acts or things
necessary or, in Secured Party's sole discretion appropriate, to protect,
maintain, preserve and realize upon, the Collateral and any products and
proceeds thereof, in whole or in part; and (iv) exercise all rights, powers and
interests with respect to any and all Collateral, and sell, assign, lease,
license, pledge, transfer, negotiate (including endorse checks, drafts, orders,
or instruments), deliver or otherwise dispose (by contract, option(s) or
otherwise) of the Collateral or any part thereof. Any such disposition may be in
one or more public or private sales, at or upon an exchange, board or system or
in the County, in the State or elsewhere, at such price, for cash or credit (or
for future delivery without credit risk) and upon such other terms and
conditions as it deems appropriate, with the right of Secured Party to the
extent permitted by law upon any such sale or sales, public or private, to
purchase the whole or any part of said Collateral, free of any right, claim or
equity of redemption of or in Borrower (such rights, claims and equity of
redemption, if any, hereby being expressly waived). Notwithstanding that Secured
Party, whether in its own behalf and/or on behalf of another or others, may
continue to hold the Collateral and regardless of the value thereof, or any
delay or failure to dispose thereof, unless and then only to the extent that
Secured Party proposes to retain the Collateral in satisfaction of the
Obligations by written notice in accordance with the UCC, Borrower shall be and
remain liable for the payment in full of any balance of the Obligations and
expenses at any time unpaid. Without limiting the foregoing, upon Borrower's
failure to abide by and comply with its obligations under Section 3 (including,
without limitation, Sections 3.10, 3.21 or 3.22) or Section 4 hereof, in
addition to its other rights and remedies, Secured Party may (but is not
required to), in its sole discretion and to the extent it deems necessary,
advisable or appropriate, take or cause to be taken such actions or things to be
done (including the payment or advancement of funds, or requiring advancement of
funds to be held by Secured Party to fund such obligations, including taxes or
insurance) as may be required hereby (or necessary or desirable in connection
herewith) to correct such failure (including causing the Collateral to be
maintained or insurance protection required hereby to be procured and
maintained) and any and all costs and expenses incurred (including attorneys
fees and disbursements) in connection therewith shall be included in Borrower's
Obligations and shall be immediately due and payable and bear interest at the
Default Rate.
8.4 Application of Proceeds. Secured Party may apply the net proceeds, if
any, of any collection, receipt, recovery, appropriation, foreclosure or
realization, or from any use, operation, sale, assignment, lease, pledge,
transfer, delivery or disposition of all or any of the Collateral, after
deducting all reasonable costs and expenses (including attorneys fees, court
costs and legal expenses) incurred in connection therewith or with respect to
the care, safekeeping, custody, maintenance, protection, administration or
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otherwise of any and all of said Collateral or in any way relating to the rights
of Secured Party under this Security Agreement, first, to the satisfaction of
the Obligations, in whole or in part, in such order as Secured Party may, in its
discretion, elect; second, to the payment, satisfaction or discharge of any
other Indebtedness or obligation, or otherwise as may be permitted or as
required by any law, rule or regulation (including Section 9-504(1)(c) of the
UCC); and lastly, the surplus, if any, to Borrower.
8.5 Required Notice of Sale. In exercising its rights, powers and remedies
as secured party, Secured Party agrees to give Borrower five days notice of the
time and place of any public sale of Collateral or of the time after which any
private sale of Collateral may take place, unless the Collateral is perishable
or threatens to decline speedily in value or is of a type customarily sold on a
recognized market. Borrower agrees that such period and notice is commercially
reasonable under the circumstances.
9. POWER OF ATTORNEY: Borrower hereby irrevocably constitutes and appoints
Secured Party acting through any officer or agent thereof, with full power of
substitution, as Borrower's true and lawful attorney-in-fact with full
irrevocable power and authority in Borrower's place and stead and in Borrower's
name or in its own name, from time to time in Secured Party's discretion upon
and following the occurrence of an Event of Default, to receive, open and
dispose of mail addressed to Borrower, to take any and all action, to do all
things, to execute, endorse, deliver and file any and all writings, documents,
instruments, notices, statements (including financing statements, and writings
to correct any error or ambiguity in any Loan Document), applications and
registrations (including registrations and licenses for securities, Copyrights,
Patents, and Trademarks), checks, drafts, acceptances, money orders, or other
evidence of payment or proceeds, which may be or become necessary or desirable
in the sole discretion of Secured Party to accomplish the terms, purposes and
intent of this Security Agreement and the other Loan Documents, including the
right to appear in and defend any action or proceeding brought with respect to
the Collateral or Property, and to bring any action or proceeding, in the name
and on behalf of Borrower, which Secured Party, in its discretion, deems
necessary or desirable to protect its interest in the Collateral or Property.
Said attorney or designee shall not be liable for any acts of commission or
omission, nor for any error of judgment or mistake of fact or law, unless and
then only to the extent that the same constitutes its gross negligence or
willful misconduct. This power is coupled with an interest and is irrevocable.
THIS POWER DOES NOT AND SHALL NOT BE CONSTRUED TO AUTHORIZE ANY CONFESSION OF
JUDGMENT.
10. DISCLOSURE: Borrower hereby consents to the disclosure by the Secured
Party of any and all information (financial or otherwise) which Secured Party
may now have or hereafter acquire concerning Borrower or the Property in
connection with the Loan or any other loan made by Secured Party to Borrower
(including any securitization thereof) or the sale or transfer of such
Borrower's Loan on a whole loan basis together with other loans.
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11. INDEMNIFICATION: Borrower hereby saves, indemnifies and holds Secured
Party harmless from and against all expense, cost, liability, loss or damage,
including attorney's fees and expenses, suffered or incurred by Secured Party
arising out of or in connection with this Security Agreement, the Loan Documents
or the transactions contemplated hereby or thereby. Without limiting the
foregoing, Borrower will pay to Secured Party all expenses (including expenses
for legal services of every kind) of, or incidental to, the negotiation of,
entering into and enforcement of any of the provisions hereof and of any of the
Obligations, and any actual or attempted sale, lease or other disposition of,
and any exchange, enforcement, collection, compromise or settlement of any of
the Collateral and receipt of the proceeds thereof, and for the care of the
Collateral and defending or asserting the rights and claims of Secured Party in
respect thereof, by litigation or otherwise, including expense of insurance, and
all such expenses shall be Borrower's Obligations.
12. OBLIGATIONS ABSOLUTE: Borrower's Obligations will be absolute,
unconditional and irrevocable and will be paid or satisfied strictly in
accordance with their respective terms under all circumstances whatsoever,
including: the invalidity or unenforceability of all or any of, or any part of,
this Security Agreement, the Note or any other Loan Document, or any consent,
waiver, amendment or modification thereof; the existence of any claim, setoff,
defense or other right which Borrower may have at any time against Secured
Party, or any other Person, whether in connection with this Security Agreement,
any other Loan Documents, the transactions contemplated hereby, thereby or
otherwise all of which Borrower hereby waives to the maximum extent permitted by
law; or the loss, theft, damage, destruction or unavailability of the Collateral
to Borrower for any reason whatsoever, it being understood and agreed that
Borrower retains all liability and responsibility with respect to the
Collateral.
13. ASSIGNMENT: This Security Agreement (and unless a contrary intention is
expressly provided, each other Loan Document) is freely assignable, in whole or
in part, by Secured Party without the consent of the Borrower and, to the extent
of any such assignment, Secured Party shall be fully discharged from all
responsibility. Secured Party's assignee shall, to the extent of the assignment,
be vested with all the powers and rights of Secured Party hereunder (including,
without limitation, those granted under Section 8 hereof or otherwise with
respect to the Collateral), and to the extent of such assignment the assignee
may fully enforce such rights and powers as Secured Party and all references to
Secured Party shall mean and refer to such assignee. Secured Party shall retain
all rights and powers hereby given not so assigned, transferred and/or
delivered. Without limiting the foregoing, Borrower understands and agrees that
Secured Party may, from time to time, sell, pledge, grant a security interest in
and collaterally assign, transfer and deliver or otherwise encumber or dispose
of the Note, this Security Agreement and the other Loan Documents and its rights
and powers hereunder and thereunder, in whole or in part, in connection with the
Securitization or any other assignment or other disposition of the Note.
Borrower may not, in whole or in part, directly or indirectly, assign this
Security Agreement or any Loan Document or its rights hereunder or thereunder or
delegate its duties hereunder or thereunder without,
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in each instance, the specific prior written consent of Secured Party, which
consent may be withheld or delayed in Secured Party's sole discretion, and
payment of the amount required under and compliance with Section "12.
Miscellaneous" of the Note and the Other Notes, if any. For purposes of this
Security Agreement, a change in control (whether by stock sale, issuance or
otherwise) shall constitute an assignment hereof.
14. FURTHER ASSURANCES: Borrower agrees at any time and from time to time,
at Borrower's sole cost and expense, to obtain, procure, execute and deliver,
file and affix such further agreements, bills of sale and assignments,
instruments, documents, warehouse receipts, bills of lading, vouchers, invoices,
notices, statements, writings (including financing statements, and writings to
correct any error or ambiguity in any Loan Document), powers (including stock
and bond powers, and powers of attorney), tax stamps and information, and to do
or cause to be done all such further acts and things (including the execution,
delivery and filing of financing statements, payment of filing fees and
transfer, gains and recording taxes) as Secured Party may reasonably request,
from time to time, in its discretion. Without limiting the foregoing, Borrower
authorizes Secured Party to the extent permitted under the UCC to execute and
file, or file without Borrower's signature, any and all financing statements,
amendments thereto and continuations thereof as Secured Party deems necessary or
appropriate and Borrower shall pay and indemnify Secured Party for and hold
Secured Party harmless from any and all costs and expenses in connection
therewith. Borrower further agrees that it will promptly notify Secured Party of
and, subject to Section 17.1 hereof, agree to correct any defect, error or
omission in the contents of any of the Loan Documents or in the execution,
delivery or acknowledgment thereof. In addition, Borrower agrees to cooperate in
good faith with Secured Party in connection with any Securitization, including,
without limitation, amending the Loan Documents to the extent necessary so as to
satisfy the requirements of purchasers, transferees, assignees, servicers,
participants, investors or selected rating agencies involved in any such
Securitization, so long as such amendments would not have a material adverse
effect upon Borrower, or the transaction contemplated hereunder.
15. TERM: This Security Agreement shall be immediately in full force and
effect upon Borrower's execution below, whether or not it is signed by Secured
Party. Upon indefeasible payment in full of the Obligations in accordance with
the terms thereof, this Agreement and the security interest granted hereunder
shall terminate and Secured Party, at Borrower's expense, will transfer (without
recourse, representation or warranty) such Collateral as may be in Secured
Party's possession, and not to be retained, sold, or otherwise applied or
released pursuant to this Security Agreement, to Borrower, except that
Borrower's obligations under Sections 11, 12, 14 and 17 shall survive
indefinitely.
16. DEFINED TERMS:
"Affiliate" means, when used with any specified Person, (i) any Person who
controls, is controlled by, or is under common control with such Person, (ii)
any Person
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who is a director or officer of, member of, partner in, trustee of, or blood or
legal relative, guardian or representative of the specified Person, or any
Person who acts or serves in a similar capacity with respect to the specified
Person, (iii) any Person of which or whom the specified Person is a director or
officer, partner, member, trustee, or blood or legal relative, guardian or
representative, or with respect to which or whom, the specified Person acts or
serves in a similar capacity; (iv) any Person, who, directly or indirectly, is
the legal or beneficial owner of or controls 10% or more of any class of equity
securities of the specified Person, and (v) any Person who is an Affiliate as
defined in clauses (i), (ii), (iii) or (iv) of an Affiliate of the specified
Person.
"Borrower" means the Person or Persons (if more than one collectively, and
jointly and severally) executing this Security Agreement as Borrower.
"Borrower FCCR" means, with respect to any Borrower, as of the date of
determination for any period, the quotient of (x) Borrower's Cash Flow for such
period divided by (y) the sum of Borrower's Indebtedness (excluding contingent
obligations to Secured Party which do not become due during such period), plus
Borrower's Lease Obligations for such period. As used herein:
(A) if Borrower is solely a natural person,
(i) Borrower's Cash Flow shall mean for any period an amount equal to
the difference of (1) the sum of (a) net income, plus (b) depreciation, plus (c)
amortization, plus (d) interest expense, plus (e) Discretionary Expenses, plus
(f) Lease Obligations, plus (g) Non-Recurring Expenses, minus (2) Non-Recurring
Income, in each case for the Business and any other System restaurant owned by
Borrower as a natural person, and all as reflected on Borrower's financial
statement for such period for the Business and any other System restaurant owned
by Borrower as a natural person;
(ii) Discretionary Expenses shall mean for any period the difference
(whether positive or negative) of (x) Borrower's operating expenses for
salaries, wages, benefits, and reimbursements and the like incurred by Borrower
for the Business and any other System restaurant owned by Borrower as a natural
person, minus (y) the reasonable and customary expenses for salaries, wages,
benefits, and reimbursements for the Business and any other System restaurant
owned by Borrower as a natural person;
(iii) Non-Recurring Expenses and Non-Recurring Income shall mean for
any period expenses or income, as the case may be, that is extraordinary for the
Business and any other System restaurant owned by Borrower as a natural person
and generally not reflected in any prior period or reasonably anticipated to be
incurred or received in any subsequent period; and
(iv) Borrower's Indebtedness and Borrower's Lease Obligations shall be
based for any period on the Business and any other System restaurant owned by
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Borrower as a natural person, and all as reflected on Borrower's financial
statement for such period for the Business and any other System restaurant owned
by Borrower as a natural person.
(2) if Borrower is NOT solely natural person,
(i) Borrower's Cash Flow shall mean for any period an amount equal to
the difference of (1) the sum of (a) net income, plus (b) depreciation, plus (c)
amortization, plus (d) interest expense, plus (e) Discretionary Expenses, plus
(f) Lease Obligations, plus (g) Non-Recurring Expenses, minus (2) Non-Recurring
Income, all as reflected on (x) a consolidated financial statement with respect
to such Person(s) constituting Borrower which is not a natural person and any
Affiliate of Borrower that is providing the Secured Party with an Affiliate
Guarantee of any of Borrower's Obligations (an "Affiliate Borrower") and (y)
with respect to such Person constituting Borrower who is a natural person, such
Person's financial statement for such period for the Business and any other
System restaurant owned by such Person as a natural person;
(ii) Discretionary Expenses shall mean for any period the difference
(whether positive or negative) of (x) operating expenses for salaries, wages,
benefits, and reimbursements and the like incurred by Borrower and any Affiliate
Borrower minus (y) the reasonable and customary expenses for salaries, wages,
benefits, and reimbursements incurred by Borrower and any Affiliate Borrower;
(iii) Non-Recurring Expenses and Non-Recurring Income shall mean for
any period expenses or income, as the case may be, that is extraordinary and
generally not reflected in any prior period or reasonably anticipated to be
incurred or received in any subsequent period; and
(iv) Borrower's Indebtedness and Borrower's Lease Obligations shall
mean for any period the Indebtedness and Lease Obligations of Borrower and any
Affiliate Borrower as reflected on Borrower's financial statements for such
period.
"Business" has the meaning accorded to such term in the Preliminary
Statement.
"Collateral" means all Goods (including Inventory and Equipment), General
Intangibles (other than the Franchise Agreement and License), accounts,
certificates of title, fixtures, money, instruments, securities, documents,
chattel paper, deposits, credits, claims, demands and other personal property,
now or hereafter owned, acquired, held, used, sold or consumed in connection
with Borrower's Business and any other property, rights and interests of
Borrower which at any time relate to, arise out of or in connection with the
foregoing or which shall come into the possession or custody or under the
control of Secured Party or any of its agents, representatives, associates or
correspondents, for any purpose; all additions thereto, substitutions therefor
and replacements thereof, all interest, income, dividends, distributions and
earnings thereon or other monies or revenues derived therefrom, including any
such property received in
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connection with any disposition of the Franchise Agreement and all moneys which
may become payable under any policy insuring the Collateral or otherwise
required to be maintained hereunder (including return of unearned premium)
("Collateral Revenues"); and all income, products and proceeds of the foregoing.
"Collateral Revenues" shall have the meaning accorded to such term in the
definition of Collateral.
"Copyrights" shall mean all United States or other registered and
unregistered copyrights, all licenses thereto, and all applications therefor,
and all reissues, divisions, continuations, renewals, extensions, modifications,
supplements thereto or to any part thereof, and the right to sue for past,
present and future infringements of the foregoing, and all rights corresponding
to the foregoing throughout the world.
"County" means the county, parish, city or recording district where
financing statements are filed under the UCC with respect to security interests
in personal property (including fixtures).
"Default Rate" shall have the meaning ascribed to such term in the Note and
the Other Notes, if any.
"Equipment" shall have the meaning accorded to such term in the UCC and
shall include all goods used or bought for use primarily in the Business and not
included within the Inventory, including machines, computers, fixtures,
furnishings, furniture, appliances, vehicles, tools, and supplies, and the like
employed in connection with the Business, together with all present and future
additions, attachments, accessions thereto, all replacements, improvements and
betterments thereof and all substitutions therefor.
"Event of Default" shall have the meaning accorded to such term in section
7.
"FCCR" or "Fixed Charge Coverage Ratio" means Borrower FCCR as defined in
this section 16.
"Financing Statements" mean the financing statements on Form UCC-1 dated as
of the date hereof by Borrower in favor of Secured Party.
"Franchise Agreement" means the Franchise Agreement between Franchisor, as
franchisor, and Borrower, as franchisee.
"Franchisor" means the franchisor identified as such in boldface on page 1
of this Security Agreement.
"General Intangibles" shall have the meaning accorded to such term in the
UCC and shall include agreements, contracts, writings, memoranda, confirmations,
passbooks, signature cards, acknowledgments, understandings, contract rights,
licenses, leases,
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permits, filings, consents, and approvals, and all puts, calls, options,
warrants, and securities, and all security interests, Patents, inventions,
processes, lists (including customer and suppliers lists), methods, and
information (including proprietary information, director and shareholder, sales,
business, financial, accounting, forecasts, projections, media, and other
information), know how, software, programs, plans, data, blueprints, designs,
drawings, surveys, notices, Copyrights, Trademarks, trade names, trade secrets,
service marks, service names, logos and goodwill, and all recordings and
registrations thereof, applications for recording or registration, renewals,
modifications, supplements, reissues, continuations, extensions, divisions
thereof and rights corresponding thereto, and all manuals, standards, practices,
mail, advertisements, files, reports, books, catalogs, records, journals,
invoices, and bills, and all rights (including voting rights, rights to receive
notice or to consent, rights to payment, interest, dividends, distributions or
earnings, rights to sue and enforce), powers (including powers of attorney),
privileges, benefits, and remedies relating thereto or arising in connection
therewith.
"Goods" shall have the meaning accorded to such term in the UCC and shall
include (i) all Inventory and (ii) all Equipment.
"Indebtedness" means all indebtedness (including reimbursement,
subrogation, or contribution obligations and any other indebtedness assumed or
guaranteed) in respect of money borrowed, or evidenced by a note (including the
Note and the Other Notes, if any) or other like written obligation to pay money,
or deferred purchase price or constituting a capitalized lease obligation.
"Inventory" shall have the meaning accorded to such term in the UCC and
shall include all goods held by Borrower for sale or lease or to be furnished
under contracts of service, all goods so furnished by Borrower, all raw
materials and work in process, and all materials used or consumed in Borrower's
Business and all documents of title covering any inventory.
"Lease Obligations" mean Personal Property Lease Obligations and Real
Property Lease Obligations.
"License" means the license to use the Trademarks of Franchisor under the
Franchise Agreement.
"Loan" shall have the meaning accorded to such term in the Preliminary
Statement.
"Loan Documents" means the Note, the Other Notes, if any, this Security
Agreement, any Mortgage, assignment of lease, security agreement or other
instrument, agreement, guaranty document, certificate or other writing, now or
hereafter executed and delivered in connection with the Obligations, as the same
may be modified, amended, consolidated, continued or extended, from time to
time.
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"Margin Stock" shall have the meaning accorded to such term in Regulation G
of the Federal Reserve Board.
"Minimum Borrower FCCR" shall have the meaning accorded to such term in
section 3.8 hereof.
"Mortgage" means the mortgages, deeds of trust and similar instruments
securing or perfecting Secured Party's security interest in the Property.
"Note" shall have the meaning accorded to such term in the Preliminary
Statement.
"Obligations" shall mean all of Borrower's Indebtedness, obligations and
liabilities to Secured Party evidenced by, arising under or in connection with
the Note and the Other Notes, if any (including, without limitation,
indebtedness, obligations and liabilities in respect of principal, interest, and
Prepayment Amount (as defined in the Note and the Other Notes, if any)), this
Security Agreement, or any other Loan Document, and any future advances thereon,
renewals, extensions, modifications, amendments, substitutions and
consolidations thereof, or any other agreement with Secured Party under or in
connection with the Loan, including Borrower's obligations to pay (or reimburse
Secured Party for) all costs and expenses (including attorneys fees and
disbursements) incurred by Secured Party in obtaining, maintaining, protecting
and preserving its interest in the Collateral or its security interest therein,
foreclosing, retaking, holding, preparing for sale or lease, selling or
otherwise disposing or realizing on the Collateral or in exercising its rights
hereunder or as secured party under the UCC, any other applicable law,
regulation or rule or this Security Agreement, and all other indebtedness,
obligations and liabilities of any kind of Borrower to Secured Party now or
hereafter existing (including future advances whether or not pursuant to
commitment), arising directly between Borrower and Secured Party or acquired
outright, conditionally or as collateral security from another, absolute or
contingent, joint and/or several, secured, due or not due, contractual or
tortious, liquidated or unliquidated, arising by operation of law or otherwise,
or direct or indirect, including Borrower's liabilities to Secured Party as a
member of any partnership, syndicate, association or other group, and whether
incurred by Borrower as principal, surety, indorser, guarantor, accommodation
party or otherwise.
"Office" shall mean Borrower's chief executive office (or, if a natural
person, residence) as set forth on Schedule 1 hereto.
"Patents" shall mean all United States or other registered and unregistered
patents, all licenses thereto, and all applications therefor, and all reissues,
divisions, continuations, renewals, extensions, modifications, supplements
thereto or to any part thereof, and the right to sue for past, present and
future infringements of the foregoing, and all rights corresponding to the
foregoing throughout the world.
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"Payments to Affiliates" shall mean all payments, transfers, dividends,
distributions, salaries, fees and other compensation, and all reimbursement,
repayment, and/or indemnification, directly or indirectly, paid or payable to
(or for the benefit of) any Affiliate of Borrower, other than a Person who is an
officer of Borrower and is not otherwise an Affiliate of Borrower, any Guarantor
and any Affiliate of Guarantor and regardless of whether any of the foregoing is
made to any of them in their capacity as a shareholder, partner, member or
otherwise, or characterized as repayment of loans, other obligations, or
interest or as return of capital, return on equity, or investment. Payment to
Affiliates shall specifically include, without limitation, any payment or
reimbursement of travel and entertainment expenses, automobiles expenses, and
premiums or expenses associated with any insurance policy other than those
expressly required to be maintained pursuant to section 3.22 hereof.
"Permitted Encumbrances" has the meaning accorded to such term in EXHIBIT C
hereto.
"Person" shall mean any natural person, corporation, partnership,
association, firm, trust, limited liability company or other entity.
"Personal Property Lease Obligation" shall mean any obligations of Borrower
in connection with any leases for personal property, including Equipment, not
included in Indebtedness.
"Principal Amount" shall have the meaning accorded to such term in the Note
and the Other Notes, if any.
"Preliminary Statement" shall mean the paragraphs of this Security
Agreement preceding section 1 hereof and captioned "Preliminary Statement."
"Property" has the meaning accorded to such term in the Preliminary
Statement.
"Real Property Lease Obligation" shall mean any obligations of Borrower in
connection with any leases for real property not included in Indebtedness.
"Securitization" shall mean the sale, pledge, grant of a security interest,
collateral assignment, transfer and delivery or other encumbrance or disposition
of all or any portion of the Loan (or Secured Party's rights and powers
therein), from time to time, to one or more of its Affiliates or to other
Persons, including the sale of the Loan by Secured Party to one or more Persons
who will issue debt instruments or equity certificates backed by the Loan and
the servicing of the Loan by a Person appointed as servicer in connection
therewith.
"State" shall mean the state of the location of the Property from which
Borrower operates the Business.
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"Stated Payment Amount" has the meaning accorded to such term in the Note
and the Other Notes, if any, and has the same meaning as "Initial Stated Payment
Amount" in any Note or Other Note that has a floating rate of interest.
"System" or "Systems" mean one or more restaurant franchise concepts
approved by Secured Party.
"Trademarks" shall mean all United States or other registered or
unregistered trademarks together with the goodwill of the business connected
with the use thereof, and symbolized thereby, all licenses thereto (including
the License), and all applications therefor, and all reissues, divisions,
continuations, renewals, extensions, modifications, supplements thereto or to
any part thereof, and the right to sue for past, present and future
infringements of the foregoing, and all rights corresponding to the foregoing
through out the world.
"UCC" means the Uniform Commercial Code of the State and the state where
the Office is located, if different and as applicable.
"UCC Search" means the security interest, tax lien, suit and judgment
search of Borrower conducted in the state and county of the Office and in the
State and the County.
17. MISCELLANEOUS.
17.1 Final Agreement; Amendments, Consents, Authorizations. THIS SECURITY
AGREEMENT REPRESENTS THE FINAL AGREEMENT BETWEEN BORROWER AND SECURED PARTY AND
MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL
AGREEMENTS OF BORROWER AND SECURED PARTY. BORROWER UNDERSTANDS AND AGREES THAT
ORAL AGREEMENTS AND ORAL COMMITMENTS TO LOAN MONEY, EXTEND CREDIT OR TO FORBEAR
FROM ENFORCING REPAYMENT OF A DEBT ARE NOT ENFORCEABLE. BORROWER ACKNOWLEDGES
AND AGREES THERE ARE NO ORAL AGREEMENTS BETWEEN BORROWER AND SECURED PARTY. This
Security Agreement and the Loan Documents represent the entire understanding of
Secured Party and Borrower with respect to the transactions contemplated hereby
and thereby. None of the terms or provisions of this Security Agreement or any
other Loan Document may be waived, altered, modified, or amended except in each
instance by a specific written instrument duly executed by Secured Party.
Without limiting the foregoing, no action or omission to act shall be deemed to
be a consent, authorization, representation or agreement of Secured Party, under
the UCC or otherwise, unless, in each instance, the same is in a specific
writing signed by Secured Party. The inclusion of Collateral Revenues and
proceeds in the Collateral does not and shall not be deemed to authorize
Borrower to sell, exchange or dispose the Collateral or the Franchise Agreement
or otherwise use the Collateral in any manner not otherwise specifically
authorized herein.
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17.2 Notices. All notices and other communications given pursuant to or in
connection with this Security Agreement shall be in writing delivered to the
parties at the addresses set forth below (or such other address as may be
provided by one party in a notice to the other):
If to Secured Party:
Bay View Franchise Mortgage Acceptance Company
Three American Lane
Greenwich, Connecticut 06831
Attn: Chief Operating Officer
If to Borrower, at its Chief Executive Office, as represented by Borrower
on Schedule 1.
Notice delivered in accordance with the foregoing shall be effective (i) when
delivered, if delivered personally, (ii) two days after being delivered in the
United States (properly addressed and all fees paid) for overnight delivery
service to a courier (such as Federal Express) which regularly provides such
service and regularly obtains executed receipts evidencing delivery or (iii)
five days after being deposited (properly addressed and stamped for first-class
delivery) in a daily serviced United States mail box.
17.3 Reasonableness. If at any time Borrower believes that Secured Party
has not acted reasonably in granting or withholding any approval or consent
under the Note, this Security Agreement, or any other Loan Document or otherwise
with respect to the Obligations, as to which approval or consent either Secured
Party has expressly agreed to act reasonably, or absent such agreement, a court
of law having jurisdiction over the subject matter would require Secured Party
to act reasonably, then Borrower's sole remedy shall be to seek injunctive
relief or specific performance and no action for monetary damages or punitive
damages shall in any event or under any circumstance be maintained by Borrower
against Secured Party.
17.4 Recovery of Sums Required To Be Paid. Secured Party shall have the
right from time to time to take action to recover any sum or sums which
constitute a part of the Obligations as the same become due, without regard to
whether or not the balance of the Obligations shall be due, and without
prejudice to the right of Secured Party thereafter to bring an action of
foreclosure, or any other action, for a default or defaults by Borrower existing
at the time such earlier action was commenced.
17.5 WAIVERS. BORROWER HEREBY MAKES AND ACKNOWLEDGES THAT IT MAKES ALL OF
THE WAIVERS SET FORTH IN THIS SECURITY AGREEMENT, THE NOTE AND THE OTHER LOAN
DOCUMENTS KNOWINGLY, INTENTIONALLY, VOLUNTARILY, WITHOUT DURESS, AND ONLY AFTER
EXTENSIVE CONSIDERATION OF THE RAMIFICATIONS OF SUCH WAIVERS WITH ITS
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ATTORNEY; BORROWER FURTHER ACKNOWLEDGES THAT SUCH WAIVERS ARE A MATERIAL
INDUCEMENT TO SECURED PARTY TO MAKE THE LOAN TO BORROWER AND THAT SECURED PARTY
WOULD NOT HAVE MADE THE LOAN WITHOUT SUCH WAIVERS.
17.6 WAIVER OF TRIAL BY JURY. BORROWER HEREBY IRREVOCABLY AND
UNCONDITIONALLY WAIVES, AND SECURED PARTY BY ITS ACCEPTANCE OF THE NOTE AND THIS
SECURITY AGREEMENT AND OTHER LOAN DOCUMENTS IRREVOCABLY AND UNCONDITIONALLY
WAIVES, ANY AND ALL RIGHTS TO TRIAL BY JURY IN ANY ACTION, SUIT OR COUNTERCLAIM
ARISING IN CONNECTION WITH, OUT OF OR OTHERWISE RELATING TO THE NOTE, THIS
SECURITY AGREEMENT, OR ANY OTHER LOAN DOCUMENT OR THE OBLIGATIONS.
17.7 Relationship. The relationship of Secured Party to Borrower hereunder
is strictly and solely that of secured commercial lender on the one hand and
commercial borrower on the other in a commercial transaction and nothing
contained in the Note, this Security Agreement or any other Loan Document or
otherwise in connection with the Obligations is intended to create, or shall in
any event or under any circumstance be construed as creating, a partnership,
joint venture, tenancy-in-common, joint tenancy or other relationship of any
nature whatsoever between Secured Party and Borrower other than as secured
commercial lender on the one hand and commercial borrower on the other in a
commercial transaction.
17.8 No Conflict with Franchise Agreement. This Agreement and the rights
(including the remedies) granted and the duties imposed hereunder are not
intended to conflict with or contravene the Franchise Agreement or the License.
17.9 Time is of the Essence. For all payments to be made and all
obligations to be performed under the Loan Documents, time is of the essence.
17.10 LIMITATION ON INTEREST. NOTWITHSTANDING ANY OTHER PROVISION HEREOF,
IN NO EVENT SHALL THE AMOUNT OR RATE OF INTEREST (INCLUDING TO THE EXTENT
APPLICABLE ANY DEFAULT RATE INTEREST OR LATE PAYMENT CHARGE) PAYABLE, CONTRACTED
FOR, CHARGED OR RECEIVED UNDER OR IN CONNECTION WITH THE NOTE OR ANY OTHER LOAN
DOCUMENT, FROM TIME TO TIME OR FOR WHATEVER REASON, EXCEED THE MAXIMUM RATE OR
AMOUNT, IF ANY, SPECIFIED BY APPLICABLE LAW.
17.11 Governing Law; Binding Effect; Consent to Jurisdiction. (i) This
Security Agreement shall be governed by and construed in accordance with the
laws of the State of Connecticut without reference to choice of law principles;
provided, however, that the laws of the State shall govern any foreclosure
remedies of Secured Party. This Security Agreement shall be binding upon
Borrower, and the heirs, devisees, administrators, executives, personal
representatives, successors, receivers, trustees, and (without limiting Section
12 hereof) assigns, including all successors in interest of Borrower in and
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to all or any part of the Collateral, and shall inure to the benefit of Secured
Party, and the successors and assigns of Secured Party.
(ii) The Borrower hereby consents that any action or proceeding against the
Borrower in connection with this Agreement or the Loan Documents may be
commenced and maintained in any court within the State of Connecticut or in the
United States District Court for the District of Connecticut. The Borrower
agrees that the courts of the State of Connecticut and the United States
District Court for the District of Connecticut shall have jurisdiction with
respect to the subject matter hereof and the person of the Borrower. The
Borrower hereby waives the requirement of personal service of the summons and
complaint or other process or papers issued in any action or proceeding against
Borrower under this Agreement or the Loan Documents and agrees that service of
such summons and complaint, or other process or papers may, at Secured Party's
option, be made by regular or certified mail addressed to the Borrower at the
respective addresses of the Borrower set forth herein. The Borrower agrees not
to assert any defense to any action or proceeding initiated in any courts of the
State of Connecticut or in the United States District Court for the District of
Connecticut by Secured Party based upon improper venue or inconvenient forum. It
is hereby agreed that service of process on Borrower may be made on any manager,
officer, director or agent for service of process. The Borrower agrees that any
action brought by the Borrower shall be commercial and maintained only in a
court of federal judicial district or county in which Secured Party has a place
of business in Connecticut. Nothing contained in this section shall be
interpreted or construed in any way to limit the right of Secured Party to: (i)
serve process in any other manner or on any other person or entity (including
without limitation personal service and service on the Secretary of State of
Connecticut) and/or (ii) bring any action or proceeding in courts other than
courts of the State of Connecticut and the United States District Court for the
District of Connecticut.
17.12 Severability. Whenever possible this Security Agreement, the Note and
each Loan Document and each provision hereof and thereof shall be interpreted in
such manner as to be effective, valid and enforceable under applicable law. If
and to the extent that any such provision shall be held invalid and
unenforceable by any court of competent jurisdiction, such holding shall not
invalidate or render unenforceable any other provisions hereof or thereof, and
any determination that the application of any provision hereof or thereof to any
person or under any circumstance is illegal and unenforceable shall not affect
the legality, validity and enforceability of such provision as it may be applied
to any other person or in any other circumstances.
17.13 Captions; Construction. The paragraph titles used herein are for
convenience only and shall not affect the construction of this Security
Agreement or any term or provision hereof. The inclusion of an example by way of
illustration such as a parenthetical ("including . . .") shall not be construed
as or deemed a limitation on the generality of the general text to which it
refers. The terms Borrower and Secured Party
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shall include heirs, devisees, executors, administrators, personal
representatives, successors, receivers, trustees and assigns.
17.14 Liability. The liability under this Security Agreement of all
Persons, if more than one, constituting Borrower shall be joint and several.
17.15 Cross-Collateralization. The Loan Documents are cross-collateralized
with all other loan agreements, notes, mortgages, deeds of trust and all other
agreements, if any, entered into concurrently herewith between Borrower and
Secured Party; provided, however, notwithstanding anything to the contrary
contained in this Security Agreement or the other Loan Documents:
(a) in the event that the Loan evidenced by the Note is sold,
transferred or otherwise conveyed by Secured Party to a third party, then
at the election of Secured Party, this Security Agreement shall not secure
the indebtedness and obligations evidenced by the Other Notes, if any,
which are not similarly sold, transferred or otherwise conveyed to such
third party; and
(b) in the event that one or more of the Other Notes, if any, is sold,
transferred or otherwise conveyed by Secured Party to a third party, then
at the election of Secured Party, this Security Agreement shall not secure
the indebtedness and obligations evidenced by the Other Notes so conveyed
unless the Loan evidenced by the Note is similarly sold, transferred or
otherwise conveyed to such third party; and
(c) in the event that the Loan evidenced by the Note becomes the
subject of a Securitization transaction, this Security Agreement shall not
secure the indebtedness and obligations evidenced by the Other Notes, if
any, except for those Other Notes which are part of the same Securitized
Loan Pool as the Loan evidenced by the Note; and
(d) in the event that one or more of the Other Notes, if any, becomes
the subject of a Securitization transaction, this Security Agreement shall
not secure the indebtedness and obligations evidenced by such Other Notes
that become the subject of any such Securitization transaction unless the
Loan evidenced by the Note is part of the same Securitized Loan Pool; and
(e) as used herein, (i) the term "Securitization" transaction shall
mean an asset securitization vehicle or a securitized financing
transaction, as selected by Secured Party, in its sole discretion,
including, without limitation, the sale, pledge, grant of a security
interest, collateral assignment, transfer and delivery or other encumbrance
or disposition of all or any portion of a loan (or Secured Party's rights
and powers therein), from time to time, to one or more of its Affiliates
(as defined in the Security Agreement) or to other Persons (as defined in
the Security Agreement), including the sale of a loan by Secured Party to
one
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or more Persons who will issue debt instruments or equity certificates
backed by the loan and the servicing of the loan by a Person appointed as
servicer in connection therewith, and (ii) the term "Securitized Loan Pool"
shall mean any classification, pooling, or grouping of all or any part of
one or more loans that are a part of a Securitization transaction.
17.16 Year 2000 Compliance. On the basis of a comprehensive review and
assessment of Borrower's computer software, related systems and equipment, and
inquiry made of Borrower's material suppliers, vendors, customers, and
Affiliates, Borrower represents and warrants that all of Borrower's computer
software and related systems for the Business and all other operations of the
Borrower are "Year 2000" compliant, or, will be "Year 2000" compliant no later
than June 1, 1999. For purposes of this Agreement, the term "Year 2000
compliant" means that computers and computer components, software, and
accessories, as well as imbedded microchips in non-computing devices and
equipment, shall perform properly and for the purpose or purposes intended,
including performance of date-sensitive functions with respect to certain dates
prior to and after December 31, 1999. Borrower reasonably believes that all
costs of investigation, analysis, testing, and remediation to become Year 2000
compliant, could not reasonably be expected to result in or have any material
adverse effect upon the Business, financial condition, operations,
administration, sales and acquisitions, business prospects, or other business
affairs of Borrower; and Borrower has developed feasible contingency plans
adequate to ensure uninterrupted and unimpaired business operation in the event
of a failure of its own or a third party's systems or equipment due to a failure
to become Year 2000 compliant, including those of vendors, customers, suppliers,
and Affiliates, as well as a general failure of or interruption in its
communications and delivery infrastructure. In this regard, Borrower has
delivered to Secured Party documentation evidencing (i) its current compliance,
or (ii) its current adoption of plans and procedures to attain "Year 2000"
compliance no later than June 1, 1999. Borrower agrees to deliver to Secured
Party, immediately upon request, any written documentation that Secured Party
may request to verify or confirm the foregoing.
Borrower further agrees to promptly comply with any "Year 2000"
compliance requirements imposed on it by the Secured Party, Franchisor, and/or
any other third party that is involved with the Borrower and its Business
operations. Secured Party may, in its discretion, undertake an additional
assessment and/or review of Borrower's computer software and related systems, at
Borrower's sole cost and expense to ascertain and confirm Borrower's "Year 2000"
compliance. In such event, Borrower agrees to fully cooperate with Secured Party
in connection with any such review or assessment. In the event that Borrower
breaches any representation or warranty set forth herein, then such failure
shall, in the sole discretion of the Secured Party, constitute an Event of
Default under this Agreement and Secured Party shall be entitled to exercise any
and all rights and remedies available to it at law, in equity and/or under the
Loan Documents.
31
<PAGE>
17.17 Lost Note. Borrower shall, if any Note is mutilated, destroyed, lost
or stolen (a "Lost Note"), promptly deliver to Secured Party, upon receipt of an
affidavit from Secured Party stipulating that such Note has been mutilated,
destroyed, lost or stolen, in substitution therefor, a new promissory note
containing the same terms and conditions as such Lost Note with a notation
thereon of the unpaid principal and accrued and unpaid interest. Borrower shall
provide fifteen (15) days prior notice to Secured Party before making any
payments to third parties in connection with a Lost Note.
[SIGNATURE PAGE TO FOLLOW]
32
<PAGE>
IN WITNESS WHEREOF, Borrower has executed and entered into this Security
Agreement and delivered it to Secured Party on and as of the date set forth
below. This document is executed under seal and intended to take effect as a
sealed instrument.
BORROWER(S):
MAIN STREET AND MAIN INCORPORATED
By: /s/ James Yeager
-------------------------------------
Name: James Yeager
Title: Vice President - Finance
MAIN ST. CALIFORNIA, INC.
By: /s/ James Yeager
-------------------------------------
Name: James Yeager
Title: Vice President - Finance
SECURED PARTY:
BAY VIEW FRANCHISE MORTGAGE
ACCEPTANCE COMPANY,
a California corporation
By: /s/ Liana Morris
-------------------------------------
Name: Liana Morris
Title: Loan Closer
SCHEDULE OF PLEDGE AND SECURITY AGREEMENTS
SUBSTANTIALLY IDENTICAL TO EXHIBIT 10.34
Date Borrower
- ---- --------
2/28/00 Main Street and Main Incorporated and Redfish America, L.L.C.
2/28/00 Main Street and Main Incorporated and Main St. California, Inc.
2/11/00 Main Street and Main Incorporated and Redfish Cleveland, Inc.
2/11/00 Main Street and Main Incorporated and Main St. California, Inc.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS EXHIBIT CONTAINS SUMMARY FINANCIAL DATA INFORMATION FROM THE REGISTRANT'S
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED MARCH 27, 2000
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. THIS
EXHIBIT SHALL NOT BE DEEMED FILED FOR PURPOSES OF SECTION 11 OF THE SECURITIES
ACT OF 1933 AND SECTION 18 OF THE SECURITIES EXCHANGE ACT OF 1934, OR OTHERWISE
SUBJECT TO THE LIABILITY OF SUCH SECTIONS, NOR SHALL IT BE DEEMED A PART OF ANY
OTHER FILING UNLESS SUCH OTHER FILING EXPERSSLY INCORPORARES THIS EXHIBIT BY
REFERENCE.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-25-2000
<PERIOD-END> MAR-27-2000
<CASH> 4,332
<SECURITIES> 0
<RECEIVABLES> 2,955
<ALLOWANCES> 0
<INVENTORY> 1,636
<CURRENT-ASSETS> 9,486
<PP&E> 86,069
<DEPRECIATION> (21,058)
<TOTAL-ASSETS> 94,640
<CURRENT-LIABILITIES> 22,475
<BONDS> 41,861
0
0
<COMMON> 10
<OTHER-SE> 27,787
<TOTAL-LIABILITY-AND-EQUITY> 94,640
<SALES> 44,339
<TOTAL-REVENUES> 44,477
<CGS> 13,273
<TOTAL-COSTS> 40,402
<OTHER-EXPENSES> 2,859
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 898
<INCOME-PRETAX> 318
<INCOME-TAX> (86)
<INCOME-CONTINUING> 404
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 404
<EPS-BASIC> .04
<EPS-DILUTED> .04
</TABLE>
