SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 28, 1997 Commission File No. 0-19542
APPLE SOUTH, INC.
(Exact name of registrant as specified in its charter)
Georgia 59-2778983
(State of Incorporation) (I.R.S. Employer Identification No.)
Hancock at Washington
Madison, Georgia 30650
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (706) 342-4552
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $0.01 per share Nasdaq
(Title of Class) (Name of each exchange on which
registered)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES X NO_____
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in the definitive proxy statement incorporated
by reference in Part III of this Form 10-K or any amendment to this Form 10-K.
[X]
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As of March 20, 1998, the aggregate market value of the common stock of
registrant held by non-affiliates of the registrant, as determined by the last
sales price, was $435,051,177.
As of March 20, 1998, the number of shares of common stock outstanding was
38,822,214.
DOCUMENTS INCORPORATED BY REFERENCE:
(1) Annual Report to Shareholders for the fiscal year ended December 28,
1997 (Part II of Form 10-K).
(2) Definitive Proxy Statement for use in connection with the 1998 Annual
Meeting of Shareholders (Part III of Form 10-K).
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PART I
Unless otherwise noted, the information in this annual report reflects
stock dividends of four-tenths of a share for each share outstanding on
September 10, 1991, one-half share for each share outstanding on November 2,
1992, one-half share for each share outstanding on January 29, 1993, one-half
share for each share outstanding on August 30, 1993, and one-half share for each
share outstanding on June 1, 1994. In November 1995, the Company acquired DF&R
Restaurants, Inc. ("DF&R") in a transaction accounted for as a pooling of
interests, and accordingly all financial and other information concerning the
Company set forth in this annual report includes DF&R for all periods unless
otherwise indicated. References in this annual report to the "Company" or "Apple
South" include Apple South, Inc., and its operating subsidiaries unless
otherwise indicated.
Item 1. Business
General
Apple South is a rapidly growing, multi-concept restaurant operating
company. Since its inception in 1986, the Company has increased its
profitability and size through the efficient management of restaurant operations
and through a series of strategic restaurant openings and acquisitions. Over the
last five fiscal years, restaurant sales have increased at a compound annual
growth rate of 39.8% and restaurant margins have increased at a compound annual
growth rate of 41.2%.
At December 28, 1997, the Company operated 429 casual dining restaurants,
including 264 Applebee's Neighborhood Grill & Bar restaurants, 91 Don Pablo's
Mexican Kitchen restaurants, 30 Hops Restaurant Bar & Brewery restaurants, 17
McCormick & Schmick's seafood dinner houses plus one catering facility, 16
Canyon Cafe restaurants and 11 Harrigan's Grill & Bar restaurants. The Company
owns all of its brands on a proprietary basis except Applebee's which is
franchised. For the year ended December 28, 1997, restaurant sales were $808.3
million.
During 1997, the Company completed three purchase business combinations.
McCormick & Schmick Holding Corp. ("McCormick & Schmick's") was acquired for
$68.3 million. Hops Restaurant Bar & Brewery ("Hops") was acquired for $58.4
million. Additionally, the Company acquired Canyon Cafes, Inc. ("Canyon Cafes")
for $46.3 million. The Company's results for 1997 included ten months of
operations from McCormick & Schmick's and Hops and six months of operations from
Canyon Cafes.
The Company's Applebee's restaurants are operated under franchise
agreements with Applebee's International, Inc. ("AII"). AII is a publicly held
company headquartered in Overland Park, Kansas. As of December 28, 1997, the
Applebee's restaurant system consisted of 960 restaurants in 48 states, Canada,
the Caribbean and Europe. Approximately 20% of these restaurants are operated by
AII, 28% by Apple South and the remainder by other franchisees. During 1997, a
total of 145 new Applebee's restaurants were opened system-wide; 34 of these
were opened by the Company's Applebee's division.
On December 23, 1997, the Company announced its decision to sell its
franchised Applebee's restaurants in order to focus on the continued development
of its higher margin, better return, greater growth proprietary concepts as well
as the the acquisition of new proprietary concepts. The Company expects to
substantially complete this divestiture during 1998 and believes that net
proceeds, after selling expenses and income taxes, will be approximately $400
million. In furtherance of its divestiture strategy, the Company entered into an
Asset Purchase Agreement (the "Agreement") with AII whereby the Company has
agreed to sell 31 of its existing Applebee's restaurants and one restaurant
under construction to AII for a purchase price of $93.4 million in cash. The
restaurants and development territories to be sold to AII are located in the
Charlottesville, Norfolk, Richmond, and Roanoke, Virginia areas. The Agreement
provides that the Company use its reasonable best efforts to dispose of all its
remaining Applebee's restaurants by the end of 1999, and AII has agreed to
cooperate in accomplishing the disposition. The Company has an option to put up
to 15 remaining restaurants to AII at a predetermined formula through 1999.
Thereafter, AII has an option to acquire all of the Company's remaining
Applebee's restaurants. Existing covenants not to compete with the Applebee's
concept, which are contained in franchise and development agreements with AII,
are to be eliminated by the end of 1998. In addition, the Company has agreed to
complete 16 restaurants currently under development, but will be released from
all other restaurant development requirements.
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The Company has also entered into an Asset Purchase Agreement with Quality
Restaurant Concepts, Inc. for 26 restaurants in Mississippi and East Tennessee
for $48.0 million in cash. In addition, the Company has executed letters of
intent with ten purchasers for the sale of 154 additional Applebee's restaurants
and is finalizing letters of intent and reviewing verbal and written offers for
the remaining 53 Applebee's restaurants. These transactions are contingent upon
completion and signing of definitive purchase agreements and satisfaction of
customary closing conditions, including purchaser financing.
Also during 1997, the Company completed the sale of its 10-unit Hardee's
division for approximately $2.5 million and signed a contract to sell the
business operations of its Harrigan's division to Pinnacle Restaurant Group, LLC
("Pinnacle") for $3 million in cash plus a $4 million note. In addition, the
Company is to receive a 25% equity interest in Pinnacle and retain ownership of
certain real estate relating to two Harrigan's locations to be leased to
Pinnacle.
Subsequent to year end, the Company acquired a 20% interest in Belgo Group,
PLC ("Belgo"), a public restaurant company based in the United Kingdom that
operates two Belgo restaurants in London, for $6.1 million. In addition, the
Company and Belgo have established two, 50/50 joint ventures: one for the
initial development of one of the Company's proprietary brands in Europe,
probably McCormick & Schmick's, and the other for the development of Belgo
restaurants in the Western Hemisphere.
The Company's growth strategy includes the expansion of existing
proprietary concepts, acquiring new restaurant concepts, and leveraging
Company-wide expertise and resources across concepts to improve the
effectiveness of existing operations while maintaining concept integrity and
individuality. This multi-concept strategy allows the Company to reach a broad
customer base through specialized restaurant market segments. By operating
restaurant concepts as separate divisions, the Company protects each concept's
individuality, but allows each division to leverage the best practices of other
divisions. Each of the Company's restaurant concepts is established as an
entrepreneurial operating division and functions on a decentralized basis with
its own executive management, real estate development, purchasing, recruiting,
training, marketing, accounting, and restaurant operations. Each division is
supported by various centralized functions such as human resources, finance,
treasury and capital formation. The Company expects to open a total of 59 to 66
restaurants in 1998, including at least 35 Don Pablo's, 12 Hops, 8 Canyon Cafes
and 4 McCormick & Schmick's.
Apple South's Restaurant Concepts
Don Pablo's
Apple South acquired 44 Don Pablo's as a result of its merger with DF&R in
November 1995. The first Don Pablo's was opened in Lubbock, Texas in 1985. The
restaurants feature traditional Mexican dishes served in a distinctive, festive
dining atmosphere reminiscent of a Mexican village plaza. Each restaurant is
staffed with a highly experienced management team that is visible in the dining
area and interacts with both customers and the staff to ensure attentive
customer service and consistent food quality. Items are prepared fresh on-site
using high-quality ingredients at relatively low prices. The diverse menu,
generous portions and attractive price/value relationship appeal to a broad
customer base.
Menu. The menu offers a wide variety of entrees, including enchiladas and
tacos served with various sauces and homemade salsa plus mesquite-grilled items
such as fajitas, carne asada and chicken. The menu also includes tortilla soup,
a selection of salads, Mexican-style appetizers such as quesadillas and unique
desserts. During 1997, the cost of a typical meal, including beverages, was
$7.00 to $9.00 for lunch and $8.00 to $11.00 for dinner. In addition to its
regular menu, Don Pablo's offers 15 lunch specials priced from $4.35 to $6.99
each and a lower- priced children's menu. Full bar service is also provided.
Alcoholic beverage sales accounted for approximately 20% of sales during 1997.
Restaurant Layout. Distinctive Mexican architecture and interior decor
provide a casual, fun dining atmosphere. The restaurants have an open, spacious
feel, created with the use of sky-lights and a Mexican village plaza design, and
are enhanced by an indoor fountain and the use of stucco, brick and tile, as
well as plants, signs and art work. Homemade tortillas cooked in the dining area
underscore the commitment to fresh, authentic Mexican food. Both one and
two-story building designs are utilized. The two-story design features a balcony
which provides seating for bar patrons and dining customers waiting to be
seated. The one-story design incorporates a smaller bar adjacent to the dining
area. Both designs use high
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ceiling architecture and have similar dining capacities. Restaurants range in
size from 6,000 square feet to 9,900 square feet, with the average restaurant
containing approximately 8,000 square feet. The restaurants generally have
dining room seating for approximately 230 customers and bar seating for
approximately 70 additional customers.
Unit Economics. During 1997, the average cost of developing and opening a
Don Pablo's restaurant was approximately $1.7 million, excluding land costs and
preopening expenses. The cost of land for these restaurants ranged from
approximately $600,000 to $1,200,000; preopening expenses averaged $135,000.
Field Management. Management is shared by 34 district and area managers who
report to two Regional Vice Presidents of Operations. The division's strategy is
to have each area manager responsible for a limited number of restaurants, thus
facilitating a focus on quality of operations and unit profitability. The
management staff of a typical restaurant consists of one general manager, one
kitchen manager and three assistant managers. General managers and kitchen
managers are eligible to receive bonuses equal to a percentage of their
restaurant's sales, subject to operating within budgeted costs.
Advertising and Marketing. Don Pablo's historical success has been achieved
with minimal expenditures on advertising and marketing, relying primarily on the
curb appeal of its buildings and customer word-of-mouth. Beginning in 1996, the
division devoted more resources to marketing efforts, including television
campaigns and radio advertising in certain core markets. During 1997,
advertising contributed to a 4% increase in annual sales for those restaurants
open for all of 1996 and 1997. The increased marketing efforts are expected to
continue in 1998.
McCormick & Schmick's
The Company acquired 16 McCormick & Schmick's restaurants plus one catering
facility in March 1997. McCormick & Schmick's was established in the early
1970's by co-founders William P. McCormick and Douglas L. Schmick. Each
restaurant is designed to capture the distinctive attributes of the local
market. Varying in design from a traditional, New England-style fish house to a
more contemporary dinner house with spectacular waterfront views, many of the
restaurants are located in historical buildings. Traditional-style bars are an
integral component of each restaurant. The same philosophy of distinctiveness
and quality applies equally to the bar operation and the dining rooms. Alcoholic
beverages, represent approximately 30% of sales. Restaurants are operated under
the names McCormick & Schmick's, McCormick's Fish House, Harborside, and Jake's.
McCormick & Schmick's offers superior service to its guests and is positioned in
a price range at the upper end of moderate.
Menu. McCormick & Schmick's features a daily menu, offering the freshest
seafood available based on price and product availability. With 25 to 30
distinctive species and over 85 individual selections, the menu gives range in
culinary appeal as well as price selection. The cost of a typical meal,
including beverage, is approximately $10.00 to $20.00 for lunch and $25.00 to
$35.00 for dinner.
Restaurant Layout. Restaurants range in size from 6,000 to 14,000 square
feet with an average restaurant containing approximately 8,500 square feet. The
restaurants generally seat 200 to 300 customers in the dining room with some
locations having 40 to 60 additional patio seats available.
Unit Economics. The average cost of developing a restaurant is
approximately $1,750,000, including leasehold improvements, fixtures and
equipment. All restaurant real estate is leased. Additionally, preopening
expenses average $200,000.
Field Management. Management is shared by five regional senior managers and
two Vice Presidents of Operations. Staffing levels vary depending on restaurant
size. A typical restaurant has a general manager, an executive chef, a sous chef
and four assistant managers and will employ 70 to 80 full and part-time
employees. The McCormick & Schmick's operating philosophy encourages and trains
the management of individual restaurant units to be creative by promoting a
large degree of self-sufficiency.
Advertising and Marketing. Advertising and marketing efforts are focused on
a grassroots philosophy. Advertising and marketing begins with the daily printed
menu and other grassroots efforts. Advertising strategies focus on existing and
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local customers, but also emphasize out-of-town travelers as a key customer
component. Each region utilizes the services of a public relations firm and
makes full use of media events targeting the local market.
Hops Restaurant Bar & Brewery
The Company acquired 21 Hops restaurants in March 1997. The first Hops was
opened in Clearwater, Florida in 1989. Each restaurant offers a diverse menu of
popular foods, freshly prepared in a display kitchen with a strict commitment to
quality and value. Additionally, each restaurant features an on-premises
microbrewery.
Menu. The restaurants feature an American-style menu that includes top
choice steaks and prime rib, smoked baby back ribs, fresh fish, chicken and
pasta dishes, deluxe burgers and sandwiches, hand-tossed salads with homemade
dressings, appetizers, soups and desserts. The menu offers separate selections
for children. The cost of a typical meal, including beverages, ranges from $6.00
to $9.00 per person for lunch and $13.00 to $15.00 per person for dinner. Each
restaurant offers four distinctive lager-style beers and ales that are brewed
on-premises. An observation microbrewery at each restaurant allows customers to
view the entire brewing process. Except for one non-alcoholic beer, the brewed
beers are the only beers served. Full bar service is also available at each
restaurant. Alcoholic beverages accounted for approximately 16% of sales during
1997.
Restaurant Layout. Restaurants range in size from approximately 5,000 to
7,300 square feet. The on-premise brewing equipment is an integral aspect of the
design and occupies from 450 to 750 square feet. The restaurant dining and bar
areas seat from 160 to 240 customers.
Unit Economics. The cost of developing and opening a restaurant averaged
approximately $1,350,000 in 1997, excluding land and preopening costs but
including approximately $160,000 in microbrewery equipment. Land costs ranged
from $650,000 to $900,000 and preopening costs averaged $145,000.
Field Management. Management is shared by seven operating partners and one
area manager who report to both the Vice President of Operations and the Chief
Executive Officer. Each operating partner is responsible for four to five
restaurants, thus facilitating a focus on quality of operations and unit
profitability. The management staff of a typical restaurant consists of one
general manager, one kitchen manager and two assistant managers. General
managers and kitchen managers are eligible to receive bonuses equal to a
percentage of their restaurant's controllable income, subject to operating above
a minimum operating margin.
Advertising and Marketing. Hops has historically devoted minimal resources
to marketing efforts, relying primarily on the curb appeal of its buildings and
customer word-of-mouth. In 1997, marketing efforts were expanded, consisting
primarily of radio advertising in certain core markets. In addition, a
concentrated grassroots marketing effort was initiated through the use of
special events equipment. Increased marketing efforts are expected to continue
into 1998 primarily through radio and print media as well as continued
grassroots efforts.
Canyon Cafes
The Company acquired 13 Canyon Cafes restaurants in July 1997. Canyon Cafes
restaurants operate under the names Canyon Cafe and Sam's Cafe. The first
restaurant was opened in Dallas, Texas in 1989. Canyon Cafes is dedicated to the
flavor and feel of the American Southwest.
Menu. The menu offers a wide variety of unique items such as Desert Fire
Pasta, Chile Rubbed Grilled Tuna and Chipotle Mango Chicken. A variety of more
traditional items including chicken tacos and grilled chicken salad are also
offered. All food is prepared from scratch, including salad dressings, desserts,
and bread sticks. During 1997, the cost of a typical meal, including beverages,
was $7.00 to $11.00 for lunch and $13.00 to $16.00 for dinner. Full bar service
is also provided. Alcoholic beverages accounted for approximately 20% of sales
during 1997.
Restaurant Layout. The restaurants are based on a Santa Fe design which
reflects a strong southwestern influence through the use of heavy ponderosa pine
timbers. The walls, floors and furniture reflect surfaces and colors native to
the American Southwest. Restaurants are located in malls, in-line power centers
and as freestanding buildings. In-line and mall
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sites average 7,000 square feet with some locations featuring an additional
800-1,000 square foot patio. The freestanding buildings have 6,700 square feet
with a 1,050 square foot patio. The goal at all locations is to have a minimum
of 190 interior dining seats, an average of 26 bar seats and 45-50 patio seats.
Unit Economics. The cost of developing and opening a restaurant averaged
$1,300,000 for in-line/mall locations and $1,500,000 for freestanding locations,
excluding land costs and preopening expenses. During 1997, the division
purchased one land site at a cost of $650,000. Preopening expenses averaged
$150,000.
Field Management. Management is structured with a general manager, two to
three assistant managers, an executive chef and a sous chef. Regional Directors
are responsible for quality of operations and sales and profitability of four to
five restaurants and report to a Director of Operations.
Advertising and Marketing. Canyon Cafes has historically incurred minimal
advertising expenditures, relying on the curb appeal of its buildings and
customer word-of-mouth. The division has implemented a grassroots marketing
strategy encompassing local radio and billboard advertising within targeted
markets and a system-wide "neighborhood networking" program.
Other Restaurant Operational Functions
Quality Control. All levels of management are responsible for ensuring that
restaurants are operated in accordance with strict quality standards. Each
divisions' management structure allows restaurant general managers to spend a
significant portion of their time in the dining area of the restaurant
supervising staff and providing service to customers. Compliance with quality
standards is monitored by periodic on-site visits and formal periodic
inspections by multi-unit management.
Training. Each division requires employees to participate in formal
training programs. Management training programs generally last ten to 16 weeks
and encompass three general areas, including (i) all service positions, (ii)
management accounting, personnel management, and dining room and bar operations
and (iii) kitchen management. Management positions at new restaurants are
typically staffed with personnel who have had previous experience in a
management position at another of the respective divisions' restaurants. In
addition, a highly experienced opening team assists in opening each restaurant.
Prior to opening, all personnel undergo intensive training conducted by the
restaurant opening team. A training department at the Corporate level assists
each division with the ongoing evolution of training policies and procedures.
Purchasing. Apple South strives to obtain consistent quality items at
competitive prices from reliable sources for all of its divisions. The Company
continually researches and tests various products in an effort to maintain the
highest quality products and to be responsive to changing customer tastes.
Purchasing is handled by each division, which, with the exception of McCormick &
Schmick's, uses one primary distributor for food products other than produce,
which is typically purchased locally. In the McCormick & Schmick's division,
purchasing is under the direction of each restaurants' executive chef in order
to obtain the freshest, highest quality seafood available with a focus on local
tastes. A Corporate purchasing department assists the divisions in evaluating
supplier alternatives and identifying opportunities for Company-wide cost
savings. All food and beverage products are available on short notice from
alternative qualified suppliers. The Company has not experienced any significant
delays in receiving food and beverage inventories, restaurant supplies or
equipment.
Restaurant Reporting. Financial controls are maintained through a
centralized accounting system at each divisions' headquarters. A point-of-sale
reporting system is utilized in each of the Company's restaurants. Restaurant
management submits to divisional headquarters various daily and weekly reports
of cash, deposits, sales, labor costs, etc. Physical inventories of all food,
beverage and supply items are taken at least monthly. Operating results compared
to prior periods and budgets are closely monitored by both divisional and
corporate personnel.
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Governmental Regulation
Alcoholic Beverage Regulation. Each restaurant is subject to licensing and
regulation by a number of governmental authorities, which include alcoholic
beverage control and health, safety and fire agencies in the state or
municipality in which the restaurant is located. Difficulties or failures in
obtaining the required licenses or approvals could delay or prevent the opening
of a new restaurant in a particular area. Alcoholic beverage control regulations
require restaurants to apply to a state authority and, in certain locations,
county or municipal authorities for a license or permit to sell alcoholic
beverages on the premises and to provide service for extended hours and on
Sundays. Some counties prohibit the sale of alcoholic beverages on Sundays.
Typically, licenses or permits must be renewed annually and may be revoked or
suspended for cause at any time. Alcoholic beverage control regulations relate
to numerous aspects of a restaurant's operations, including minimum age of
patrons and employees, hours of operation, advertising, wholesale purchasing,
inventory control and handling, storage and dispensing of alcoholic beverages.
The Company may be subject in certain states to "dram-shop" statutes which
generally provide a person injured by an intoxicated patron the right to recover
damages from an establishment that wrongfully served alcoholic beverages to the
intoxicated person. The Company carries liquor liability coverage as part of its
existing comprehensive general liability insurance.
Brewpub Regulation. The Hops division is subject to additional regulations
as a result of the on-premises microbrewery in each restaurant. Historically,
the alcoholic beverage laws of most states prohibited the manufacture and retail
sale of beer to consumers by a single person or entity or related persons or
entities. At present, 49 states allow for the limited manufacture and retail
sale of microbrewed beer by restaurants and bars classified as "brewpubs" under
state law. The Hops restaurants are required to comply with such state brewpub
laws in order to obtain necessary state licenses and permits. Additionally, many
states impose restrictions on the operations of brewpubs, such as a prohibition
on the bottling of beer, a prohibition on the sale of beer for consumption off
of restaurant premises, and a limitation on the volume of beer that may be
brewed at any location, as well as certain geographic limitations. In addition,
certain states limit the number of brewpubs that may be owned by any person or
entity or a related group of entities. The Company's ability to own and operate
Hops restaurants in any state is and will continue to be dependent upon its
ability to operate within the regulatory scheme of such states.
Other Regulation. The Company's restaurant operations are also subject to
Federal and state laws governing such matters as minimum wage, working
conditions, overtime and tip credits. The Company experienced a slight increase
in hourly labor costs as a result of the 1996 and 1997 increases in the federal
minimum wage rate. The impact of minimum wage increases is expected to slightly
increase hourly labor costs in 1998.
Competition
The restaurant industry in the U.S. is highly competitive with respect to
price, service, location, and food type and quality, and competition is expected
to intensify. There are a few, well-established competitors with greater
financial and other resources than Apple South. Some of the Company's
competitors have been in existence for a substantially longer period than Apple
South and may be better established in the markets where the Company's
restaurants are or may be located. The restaurant business is often affected by
changes in consumer tastes, national, regional or local economic conditions,
demographic trends, traffic patterns, the availability and cost of suitable
locations, and the type, number and location of competing restaurants. The
Company also experiences competition in attracting and retaining qualified
management level operating personnel. In addition, factors such as inflation,
increased food, labor and benefits costs, and difficulty in attracting hourly
employees may adversely affect the restaurant industry in general and Apple
South's restaurants in particular.
Employees
As of December 28, 1997, Apple South employed approximately 28,500 persons
in 30 states plus the District of Columbia. Of those employees, approximately
450 held management or administrative positions, 2,250 were involved in
restaurant management, and the remainder were engaged in the operation of
restaurants. Management believes that the Company's continued success will
depend to a large degree on its ability to attract and retain good management
employees. While the Company will have to continually address a level of
employee attrition normally expected in the food-service
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industry, Apple South has taken steps to attract and keep qualified management
personnel through the implementation of a variety of employee benefit plans,
including an Employee Stock Ownership Plan, a 401(k) Plan, and an incentive
stock option plan for its key employees. None of the Company's employees is
covered by a collective bargaining agreement. The Company considers its employee
relations to be good.
Item 2. Properties
The Company owns a renovated historic building in Madison, Georgia,
containing approximately 19,000 square feet of office space and an adjoining
building containing approximately 41,000 square feet of office space. These
office buildings serve as the Company's corporate and Applebee's division
headquarters. During 1997, the Company completed construction of a new
divisional facility in Bedford, Texas, to house the Don Pablo's division
headquarters. The division headquarters for McCormick & Schmick's is located in
approximately 10,800 square feet of leased space in Portland, Oregon. The
division headquarters for Hops is located in approximately 9,000 square feet of
leased space in Tampa, Florida and the headquarters for the Canyon Cafe division
is located in approximately 7,500 square feet of leased space in Dallas, Texas.
The Company believes that its corporate and division headquarters are sufficient
for its present needs and believes that it will be able utilize the space
currently occupied by the Applebee's division headquarters, after the completion
of the Applebee's divestiture.
In selecting sites, the Company attempts to acquire prime locations in
market areas to maximize both short- and long-term revenues. Site selection is
made by each division's development department, subject to executive officer
approval. Within the target market areas, the divisions evaluate major retail
and office concentrations and major traffic arteries to determine focal points.
Site specific factors include visibility, ease of ingress and egress, proximity
to direct competition, accessibility to utilities, local zoning regulations,
laws regulating the sale of alcoholic beverages, and various other factors.
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As of February 23, 1998, the Company operated 442 restaurants in the
following locations:
<TABLE>
<CAPTION>
Don McCormick Canyon
Pablo's & Schmick's Hops Cafes Sub-total Applebee's Harrigan's Total
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Florida 11 23 34 31 65
Texas 13 6 19 7 26
Ohio 12 1 13 2 15
Indiana 9 9 1 10
Pennsylvania 8 8 1 9
California 6 1 7 7
Michigan 7 7 7
Virginia 6 1 7 41 48
Arizona 3 3 6 6
Minnesota 6 6 6
South Carolina 3 2 5 35 40
Oregon 5 5 5
Colorado 1 2 1 4 4
Kentucky 3 1 4 9 13
North Carolina 2 2 4 4 8
Oklahoma 4 4 3 7
Washington 3 1 4 4
Georgia 1 1 1 3 5 8
Maryland 2 1 3 9 12
New York 3 3 3
Tennessee 1 1 1 3 40 43
Missouri 2 2 2
Washington D.C. 1 1 2 2
Illinois 1 1 30 31
New Jersey 1 1 1
Wisconsin 24 24
Iowa 14 14
Mississippi 10 10
West Virginia 9 9
Delaware 2 2
New Mexico 1 1
- ----------------------------------------------------------------------------------------------------------------
Totals 96 18 32 18 164 267 11 442
================================================================================================================
</TABLE>
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Item 3. Legal Proceedings
An action titled John Bryant, et al. v. Apple South, Inc., et al., Civil
Action No. 3:97-CV-83(DF) was filed on September 22, 1997 in the United States
District Court for the Middle District of Georgia. Additionally, an action
titled Artel Foam Corporation Pension Trust, et al. v. Apple South, Inc., et
al., Civil Action No. CV-97-6189 was filed on October 28, 1997 in the United
States District Court for the Eastern District of New York. Each of these
lawsuits was filed by a person who seeks to represent a class of shareholders of
the Company who purchased shares of the Company's common stock between May 26,
1995 and September 24, 1996. Each plaintiff named the Company and certain of its
officers and directors as defendants. The complaints alleged acts of fraudulent
misrepresentation by the defendants which induced the plaintiffs to purchase the
Company's common stock and alleged illegal insider trading by certain of the
defendants, each of which allegedly resulted in losses to the plaintiffs and
similarly situated shareholders of the Company. The complaints each seek damages
and other relief. Although the ultimate outcome of these lawsuits cannot be
determined at this time, based on its preliminary analysis the Company believes
that the allegations therein are without merit and intends to vigorously defend
itself.
The Company is involved in various other claims and legal actions arising
in the ordinary course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse effect on the
Company's consolidated financial position or results of operations.
Item 4. Submission of Matters to a Vote of Security Holders
The Company did not submit any matter to a vote of its security holders
during the fourth quarter of the fiscal year ended December 28, 1997.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
Information in response to this item is incorporated by reference to page
36 of the Company's Annual Report to Shareholders for the fiscal year ended
December 28, 1997, a copy of which is attached as Exhibit 13.1 hereto.
Item 6. Selected Financial Data
Information in response to this item is incorporated by reference to page
17 of the Company's Annual Report to Shareholders for the fiscal year ended
December 28, 1997, a copy of which is attached as Exhibit 13.1 hereto.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Information in response to this item is incorporated by reference to pages
18 through 22 , inclusive, of the Company's Annual Report to Shareholders for
the fiscal year ended December 28, 1997, a copy of which is attached as Exhibit
13.1 hereto.
Item 8. Financial Statements and Supplementary Data
Information in response to this item is incorporated by reference to pages
23 through 35, inclusive, of the Company's Annual Report to Shareholders for the
fiscal year ended December 28, 1997, a copy of which is attached as Exhibit 13.1
hereto.
10
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Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Not applicable
Part III
Item 10. Directors and Executive Officers of the Registrant
Information in response to this item is incorporated by reference to the
Company's definitive Proxy Statement for use in connection with the 1998 Annual
Meeting of Shareholders, a copy of which is attached as Exhibit 22.1 hereto.
Item 11. Executive Compensation
Information in response to this item is incorporated by reference to the
Company's definitive Proxy Statement for use in connection with the 1998 Annual
Meeting of Shareholders, a copy of which is attached as Exhibit 22.1 hereto.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Information in response to this item is incorporated by reference to the
Company's definitive Proxy Statement for use in connection with the 1998 Annual
Meeting of Shareholders, a copy of which is attached as Exhibit 22.1 hereto.
Item 13. Certain Relationships and Related Transactions
In March 1995, the Company entered into a Split Dollar Insurance Agreement
(the "Agreement") with The DuPree Insurance Trust (the "Trust") whereby the
Company agreed to make premium payments on certain life insurance policies of
which the Trust is the owner and beneficiary. These policies provide a total of
$50 million in death proceeds payable upon the death of the survivor of Tom E.
DuPree, Jr., the Chairman of the Board and Chief Executive Officer of the
Company, and his wife. The devisees under the wills of Mr. DuPree and his wife
are the beneficiaries of the Trust.
The Trust has agreed to reimburse the Company on an annual basis for that
portion of the premiums which equals the current value of the economic benefit,
as defined by the Internal Revenue Service, attributable to the life insurance
protection provided. The premiums due under the policies total $850,000 per
year. Reimbursements for the current value of the economic benefit attributable
to the life insurance protection provided in 1997 totaled $2,003. There were no
reimbursements due to the Company from the Trust at December 28, 1997.
The Company or the Trust can cancel the Agreement at any time. Upon
cancellation, the Trust is obligated to repay the Company an amount equal to the
lesser of either the cash surrender value of the policies or the total amount of
unreimbursed premiums paid by the Company. Upon receipt of the death proceeds
under the policies, the Trust is required to repay the Company for all
unreimbursed premium payments. The policies have been assigned to the Company to
secure the repayment obligations of the Trust.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) The following documents are filed as part of this Report:
1. Financial Statements
11
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The following financial statement items are set forth in pages 23 through
35 of the Company's Annual Report to Shareholders for the fiscal year ended
December 28, 1997, which is attached as Exhibit 13.1 hereto:
Consolidated Statements of Earnings for the years ended December 28,
1997, December 29, 1996 and December 31, 1995
Consolidated Balance Sheets as of December 28, 1997 and December 29, 1996
Consolidated Statements of Shareholders' Equity for the years ended
December 28, 1997, December 29, 1996 and December 31, 1995
Consolidated Statements of Cash Flows for the years ended December 28,
1997, December 29, 1996 and December 31, 1995
Notes to Consolidated Financial Statements
Report of Management
Independent Auditors' Report
2. Financial Statement Schedules
None
(b) Reports on Form 8-K
Report on Form 8-K dated January 15, 1998, reporting unaudited pro forma
consolidated financial statements of the Applebee's restaurants expected to be
disposed.
(c) Exhibits
2.1 Stock Purchase Agreement among the Company, the owners of the
partnership interests in Apple Tenn-Flo, L.P., et al. dated March 18, 1994. (4)
2.2 Asset Purchase Agreement among the Company, TUG, Inc., et al. dated
February 1, 1995. (6)
2.3 Asset Purchase Agreement among Apple South, Inc. And Marcus
Restaurants, Inc. Et al, dated April 12, 1995. (8)
2.4 Agreement and Plan of Merger, dated August 15, 1995, by and among the
Company, SALSA Acquisition Corp., and DF&R Restaurants, Inc. (9)
2.5 Agreement and Plan of Merger among Apple South, Inc., M&S Acquisition
of Delaware Inc., and McCormick & Schmick Holding Corp., et. al., dated February
6, 1997. (12)
2.6 Agreements and Plan of Merger among Apple South, Inc., HG Acquisition
Corp., and Mason and Schelldorf Leasing Company, Hops Restaurants, Inc., et.
al., dated February 6, 1997. (12)
2.7 Agreement and Plan of Merger among Apple South, Inc., Coyote
Acquisition Corp., and Canyon Cafes, Inc., et. al., dated June 19, 1997. (13)
2.8 Asset Purchase Agreement dated December 23, 1997 by and among
Applebee's International, Inc. and Apple South, Inc. (14)
2.9 Asset Purchase Agreement dated March 16, 1998 by and among Quality
Restaurant Concepts, L.L.C., and Apple South, Inc.
3.1 Amended and Restated Articles of Incorporation of the Company, as
amended August 1, 1995. (8)
12
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3.2 By-laws of the Company. (1)
4.1 See Exhibits 3.1 and 3.2 for provisions in the Company's Amended and
Restated Articles of Incorporation and by-laws defining the rights of holders of
the Company's Common Stock. (1)
4.2 Indenture dated May 1, 1996, between the Company and SunTrust Bank,
Atlanta, as Trustee. (10)
4.3 Trust Agreement of Apple South Financing I, dated as of February 18,
1997, among Apple South, Inc., First Union National Bank of Georgia, First Union
Bank of Delaware and Lansing S. Patterson.(15)
4.4 Amended and Restated Declaration of Trust of Apple South Financing I,
dated as of March 11, 1997, among Apple South, Inc., as Sponsor, First Union
National Bank of Georgia, as Institutional Trustee, First Union Bank of
Delaware, as Delaware Trustee, and the Regular Trustees named therein. (15)
4.5 Indenture for the 7% Convertible Subordinated Debentures, dated as of
March 6, 1997, between Apple South, Inc. and First Union National Bank of
Georgia, as Trustee. (15)
4.6 Form of $3.50 Term Convertible Security, Series A (included in Exhibit
4.4).
4.7 Form of 7% Convertible Subordinated Debenture (included in Exhibit
4.5).
4.8 Preferred Securities Guarantee Agreement, dated as of March 11, 1997,
between Apple South, Inc., as Guarantor, and First Union National Bank of
Georgia, as Preferred Guarantee Trustee. (15)
4.9 Registration Rights Agreement, dated as of March 11, 1997 among Apple
South, Inc., Apple South Financing I, J.P. Morgan Securities, Inc., and Smith
Barney, Inc. (15)
10.1 Apple South, Inc. 1988 Stock Option Plan. (1)
10.2 Form of Stock Option Agreement under the Apple South, Inc. 1988 Stock
Option Plan. (1) (11)
10.3 Form of Apple South, Inc. Director's Indemnification Agreement
executed by and between the Company and each member of its Board of Directors.
(1)
10.4 Form of Apple South, Inc. Officer's Indemnification Agreement executed
between the Company and each of its executive officers. (1)
10.5 Standard Form Applebee's Neighborhood Grill & Bar Development
Agreement among the Company, Tom E. DuPree, Jr. and Applebee's International,
Inc., as amended and supplemented, pertaining to South Carolina. (1) (11)
10.6 Standard Form Applebee's Neighborhood Grill & Bar Development
Agreement among the Company, Tom E. DuPree, Jr. and Applebee's International,
Inc., as amended and supplemented, pertaining to West Palm Beach, Ft. Myers and
Sarasota A.D.I. (1) (11)
10.7 Standard Form Applebee's Neighborhood Grill & Bar Development
Agreement among the Company, Tom E. DuPree, Jr. and Applebee's International,
Inc., as amended and supplemented, pertaining to Tennessee/Mississippi A.D.I.
(1) (11)
10.8 Standard Form Applebee's Neighborhood Grill & Bar Development
Agreement among the Company, Tom E. DuPree, Jr. and Applebee's International,
Inc., as amended and supplemented, pertaining to Nashville, Tennessee A.D.I. and
Bowling Green, Kentucky A.D.I. (1) (11)
13
<PAGE>
10.9 Standard Form Applebee's Neighborhood Grill & Bar Development
Agreement among the Company, Tom E. DuPree, Jr. and Applebee's International,
Inc., as amended and supplemented, pertaining to Virginia, West Virginia,
Washington, D.C., and Louisville, Kentucky. (1) (11)
10.10 Standard Form Applebee's Neighborhood Grill & Bar Franchise Agreement
among the Company, Tom E. DuPree, Jr. and Applebee's International, Inc. (5)
(11)
10.11 Foodservice Distribution Agreement between PYA/Monarch, Inc. and the
Company. (1)
10.12 Apple South, Inc. Employee Stock Ownership Plan and Trust. (1) (11)
10.13 Apple South, Inc. Profit Sharing Plan and Trust. (1) (11)
10.14 Amendment No. 2 to the Apple South, Inc. Employee Stock Ownership
Plan and Trust, dated November 22, 1993. (3)
10.15 Standard Form Applebee's Neighborhood Grill & Bar Development
Agreement among the Company, Tom E. DuPree, Jr. and Applebee's International,
Inc., pertaining to Jacksonville, Florida A.D.I. (2) (11)
10.16 Amendment to Development Agreement dated January 10, 1992, Second
Amendment and Supplement to Development Agreement dated May 14, 1993, and Third
Amendment to Development Agreement dated January 26, 1994, amending the Standard
Form Applebee's Neighborhood Grill & Bar Development Agreement among the
Company, Tom E. DuPree, Jr. and Applebee's International, Inc., as amended and
supplemented, pertaining to South Carolina. (3)
10.17 Third Amendment to Development Agreement dated January 10, 1992, and
Fourth Amendment to Development Agreement dated January 26, 1994, amending the
Standard Form Applebee's Neighborhood Grill & Bar Development Agreement among
the Company, Tom E. DuPree, Jr. and Applebee's International, Inc., as amended
and supplemented, pertaining to West Palm Beach, Ft. Meyers and Sarasota A.D.I.
(3)
10.18 Second Amendment to Development Agreement dated January 10, 1992, and
Third Amendment to Development Agreement dated January 26, 1994, amending the
Standard Form Applebee's Neighborhood Grill & Bar Development Agreement among
the Company, Tom E. DuPree, Jr. and Applebee's International, Inc., as amended
and supplemented, pertaining to Tennessee/Mississippi A.D.I. (3)
10.19 Amendment to Development Agreement dated January 10, 1992, and its
Second Amendment to Development Agreement dated January 26, 1994, amending the
Standard Form Applebee's Neighborhood Grill & Bar Development Agreement among
the Company, Tom E. DuPree, Jr. and Applebee's International, Inc., as amended
and supplemented, pertaining to Nashville, Tennessee A.D.I. and Bowling Green,
Kentucky A.D.I. (3)
10.20 Second Amendment to Development Agreement dated January 10, 1992, and
Third Amendment to Development Agreement dated January 26, 1994, amending the
Standard Form Applebee's Neighborhood Grill & Bar Development Agreement among
the Company, Tom E. DuPree, Jr. and Applebee's International, Inc., as amended
and supplemented, pertaining to Virginia, West Virginia, Washington, D.C., and
Louisville, Kentucky. (3)
10.21 Amendment to Development Agreement dated January 26, 1994, amending
the Standard Form Applebee's Neighborhood Grill & Bar Development Agreement
among the Company, Tom E. DuPree, Jr. and Applebee's International, Inc.,
pertaining to Jacksonville, Florida A.D.I. (3)
10.22 Apple South, Inc. [Restated] Profit Sharing Plan and Trust dated
October 26, 1993. (3)
10.23 Amended form of Stock Option Agreement under the Apple South, Inc.
1988 Stock Option Plan. (3)
14
<PAGE>
10.24 Apple South, Inc. 1993 Stock Incentive Plan. (3)
10.25 Form of Stock Option Agreement under the Apple South, Inc. 1993 Stock
Incentive Plan. (3)
10.26 Second Supplement to Development Agreement dated July 27, 1994,
between the Company and Applebee's International, Inc., pertaining to
Chattanooga, Tennessee A.D.I., Knoxville, Tennessee A.D.I. and Bristol-
Kingsport-Johnson City: Tri-Cities A.D.I. (5) (11)
10.27 Universal Agreement dated June 30, 1995, by and between the Company
and Applebee's International, Inc. amending the Standard Form Development
Agreements appearing as Exhibits 10.5 through 10.9, 10.15, and 10.28 through
10.30.
10.28 Standard Form Applebee's Neighborhood Grill & Bar Development
Agreement, dated April 25, 1995, by and between the Company and Applebee's
International, Inc., pertaining to the Cedar Rapids, and Des Moines, Iowa
A.D.I.s, the Rockford, Illinois A.D.I. and portions of the Davenport-Rock
Island- Moline: Quad City A.D.I.; the Sioux City, Iowa A.D.I.; the
Peoria-Bloomington, Illinois, A.D.I.; and the Rochester-Mason City- Austin
A.D.I. (11)
10.29 Standard Form Applebee's Neighborhood Grill & Bar Development
Agreement, dated June 30, 1995, by and between the Company and Applebee's
International, Inc., pertaining to a portion of the Chicago, Illinois A.D.I.
(11)
10.30 Standard Form Applebee's Neighborhood Grill & Bar Development
Agreement dated December 29, 1989 by and between Marcus Restaurants, Inc. And
Applebee's International, Inc. pertaining to the Milwaukee, Madison,
LaCrosse-Eau Claire, Wausau-Rhinelander, and Green Bay-Appleton, Wisconsin
A.D.I.s. (11)
10.31 Consent and Release Agreement by and among the company, Marcus
Restaurants, Inc. and Applebee's International, Inc. dated June 30, 1995
pertaining to the development and franchise rights in the Milwaukee, Madison,
LaCrosse-Eau Claire, Wausau-Rhinelander, and Green Bay-Appleton, Wisconsin
A.D.I.s. (11)
10.32 Amendment to Development Agreement dated June 30, 1995 by and between
the Company and Applebee's International, pertaining to market areas in portion
of Illinois, Iowa, Missouri and Wisconsin. (11)
10.33 Second Amendment to Development Agreement dated June 30, 1995 by and
between the Company and Applebee's International, Inc., pertaining to the
Milwaukee, Madison, LaCrosse-Eau Claire, Wausau- Rhinelander and Green
Bay-Appleton, Wisconsin A.D.I.s. (11)
10.34 Fifth Amendment to Development Agreement dated June 30, 1995 by and
between the Company and Applebee's International, Inc., amending the Standard
Form Applebee's Neighborhood Grill & Bar Development Agreement pertaining to the
West Palm Beach, Ft. Myers and Sarasota A.D.I. (11)
10.35 Fourth Amendment to Development Agreement dated June 30, 1995 and
Third Amendment to Development Agreement dated February 24, 1995 by and between
the Company and Applebee's International, Inc., amending the Standard Form
Applebee's Neighborhood Grill & Bar Development Agreement pertaining to the
South Carolina market. (11)
10.36 Second Amendment to Development Agreement dated June 30, 1995 by and
between the Company and Applebee's International, Inc., amending the Standard
Form Applebee's Neighborhood Grill & Bar Development Agreement pertaining to the
Chattanooga A.D.I., the Knoxville A.D.I. and the Bristol-Kingsport- Johnson
City: Tri-Cities A.D.I. (11)
10.37 Fourth Amendment to Development Agreement dated June 30, 1995 by and
between the Company and Applebee's International, Inc., amending the Standard
Form Applebee's Neighborhood Grill & Bar Development Agreement pertaining to the
Tennessee/Mississippi A.D.I. (11)
15
<PAGE>
10.38 Second Amendment to Development Agreement dated June 30, 1995 by and
between the Company and Applebee's International, Inc., amending the Standard
Form Applebee's Neighborhood Grill & Bar Development Agreement pertaining to the
Jacksonville, Florida A.D.I. (11)
10.39 Fifth Amendment to Development Agreement dated June 30, 1995 and
Fourth Amendment to Development Agreement dated February 24, 1995, by and
between the Company and Applebee's International, Inc., amending the Standard
Form Applebee's Neighborhood Grill & Bar Development Agreement pertaining to
Virginia, West Virginia, Washington, D.C. and Louisville, Kentucky. (11)
10.40 Third Amendment to Development Agreement dated June 30, 1995 by and
between the Company and Applebee's International, Inc., amending the Standard
Form Applebee's Neighborhood Grill & Bar Development Agreement pertaining to the
Nashville, Tennessee A.D.I. and the Bowling Green, Kentucky A.D.I. (11)
10.41 $30 Million Amended and Restated Participation Agreement Between
Apple South, Inc., DR Holdings, L.P., Trust Company Bank, Southtrust Bank of
Georgia, N.A., Life Insurance Company of Georgia, and Columbine Life Insurance
Company. (7)
10.42 Lease and Development Agreement Between DR Holdings, L.P. and Apple
South, Inc. (7)
10.43 Second Amended and Restated Credit Agreement, dated March 1, 1998,
among Apple South, Inc. Wachovia Bank, National Association, as agent for the
lenders, and the Banks listed as parties thereto.
10.44 Participation Agreement (Apple South Trust No. 97-1), dated as of
September 24, 1997, among Apple South, Inc., as lessee, First Security Bank,
National Association, as lessor, SunTrust Bank, Atlanta, as administrative
agent, and the holders and lenders signatory thereto.
10.45 $70 million Credit Agreement, dated December 10, 1997, among Apple
South, Inc., Wachovia Bank, National Association, as agent for the lenders, and
the Banks listed as parties thereto.
13.1 Annual Report to Shareholders for the fiscal year ended December 28,
1997.
22.1 Definitive Proxy Statement for use in connection with the 1998 Annual
Meeting of Shareholders, filed with the Commission on March 20, 1998.
23.1 Consent of KPMG Peat Marwick LLP.
27.1 Financial Data Schedule (EDGAR version only).
99.1 Safe harbor under the Private Securities Litigation Reform Act of
1995. (13)
(1) Incorporated by reference to the corresponding exhibit number filed
with the Company's Registration Statement on Form S-1, File No. 33-42662.
(2) Incorporated by reference to the corresponding exhibit number filed
with the Company's Registration Statement on Form S-1, File No. 33-58378.
(3) Incorporated by reference to the Company's Annual Report on Form 10-K
for its fiscal year ended December 31, 1993.
(4) Incorporated by reference to Exhibit 2.1 filed with the Company's
Report on Form 8-K dated April 12, 1994.
16
<PAGE>
(5) Incorporated by reference to the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1994.
(6) Incorporated by reference to Exhibit 10.30 filed with the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 1994.
(7) Incorporated by reference to the registrant's Quarterly Report on Form
10-Q for its fiscal quarter ended April 2, 1995.
(8) Incorporated by reference to the registrant's Quarterly Report on Form
10-Q for its fiscal quarter ended July 2, 1995.
(9) Incorporated by reference to the registrant's Quarterly Report on Form
10-Q for its fiscal quarter ended October 1, 1995.
(10) Incorporated by reference to the Company's registration statement on
Form S-3, File No. 333-02958.
(11) Incorporated by reference to the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1995.
(12) Incorporated by reference to the registrant's Quarterly Report on Form
10-Q for its fiscal quarter ended March 30, 1997.
(13) Incorporated by reference to the registrant's Quarterly Report on Form
10-Q for its fiscal quarter ended June 29, 1997.
(14) Incorporated by reference to Exhibit 2.1 filed with the Company's
Report on Form 8-K dated January 15, 1998.
(15) Incorporated by reference to the Company's registration statement on
Form S-3, File No. 333-25205.
17
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
APPLE SOUTH, INC.
By:/s/ Tom E. DuPree, Jr.
---------------------------
Tom E. DuPree, Jr.
Chief Executive Officer and
Chairman of the Board
March 3, 1998
Atlanta, Georgia
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed below by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
Signature Title Date
/s/ Tom E. DuPree, Jr. Chairman of the Board of March 3, 1998
- ----------------------- Directors and Chief Executive
Tom E. DuPree, Jr. Officer (principal executive officer)
/s/ S. Kirk Kinsell Director and President and Chief March 3, 1998
- ----------------------- Operating Officer
S. Kirk Kinsell
/s/ Erich J. Booth Director and Chief Financial March 3, 1998
- ----------------------- Officer
Erich J. Booth
/s/ John G. McLeod, Jr. Senior Vice President - Human March 3, 1998
- ----------------------- Resources, and Secretary
John G. McLeod, Jr.
/s/ Margaret E. Waldrep Chief Administrative Officer March 3, 1998
- -----------------------
Margaret E. Waldrep
/s/ Philip L. Ammons Chief Accounting Officer March 3, 1998
- -----------------------
Philip L. Ammons
/s/ Thomas R. Williams Director March 3, 1998
- -----------------------
Thomas R. Williams
/s/ James W. Rowe Director March 3, 1998
- -----------------------
James W. Rowe
/s/ Dr. Ruth G. Shaw Director March 3, 1998
- -----------------------
Dr. Ruth G. Shaw
/s/ John L. Moorhead Director March 3, 1998
- -----------------------
John L. Moorhead
18
<PAGE>
Exhibit Index
Exhibit Number
2.1 Stock Purchase Agreement among the Company, the owners of the
partnership interests in Apple Tenn-Flo, L.P., et al. dated March 18, 1994.
(4)
2.2 Asset Purchase Agreement among the Company, TUG, Inc., et al. dated
February 1, 1995. (6)
2.3 Asset Purchase Agreement among Apple South, Inc. And Marcus
Restaurants, Inc. Et al, dated April 12, 1995. (8)
2.4 Agreement and Plan of Merger, dated August 15, 1995, by and among the
Company, SALSA Acquisition Corp., and DF&R Restaurants, Inc. (9)
2.5 Agreement and Plan of Merger among Apple South, Inc., M&S Acquisition
of Delaware Inc., and McCormick & Schmick Holding Corp., et. al., dated February
6, 1997. (12)
2.6 Agreements and Plan of Merger among Apple South, Inc., HG Acquisition
Corp., and Mason and Schelldorf Leasing Company, Hops Restaurants, Inc., et.
al., dated February 6, 1997. (12)
2.7 Agreement and Plan of Merger among Apple South, Inc., Coyote
Acquisition Corp., and Canyon Cafes, Inc., et. al., dated June 19, 1997. (13)
2.8 Asset Purchase Agreement dated December 23, 1997 by and among
Applebee's International, Inc. and Apple South, Inc. (14)
2.9 Asset Purchase Agreement dated March 16, 1998 by and among Quality
Restaurant Concepts, L.L.C., and Apple South, Inc.
3.1 Amended and Restated Articles of Incorporation of the Company, as
amended August 1, 1995. (8)
3.2 By-laws of the Company. (1)
4.1 See Exhibits 3.1 and 3.2 for provisions in the Company's Amended and
Restated Articles of Incorporation and by-laws defining the rights of holders of
the Company's Common Stock. (1)
4.2 Indenture dated May 1, 1996, between the Company and SunTrust Bank,
Atlanta, as Trustee. (10)
4.3 Trust Agreement of Apple South Financing I, dated as of February 18,
1997, among Apple South, Inc., First Union National Bank of Georgia, First Union
Bank of Delaware and Lansing S. Patterson.(15)
4.4 Amended and Restated Declaration of Trust of Apple South Financing I,
dated as of March 11, 1997, among Apple South, Inc., as Sponsor, First Union
National Bank of Georgia, as Institutional Trustee, First Union Bank of
Delaware, as Delaware Trustee, and the Regular Trustees named therein. (15)
4.5 Indenture for the 7% Convertible Subordinated Debentures, dated as of
March 6, 1997, between Apple South, Inc. and First Union National Bank of
Georgia, as Trustee. (15)
4.6 Form of $3.50 Term Convertible Security, Series A (included in Exhibit
4.4).
19
<PAGE>
4.7 Form of 7% Convertible Subordinated Debenture (included in Exhibit
4.5).
4.8 Preferred Securities Guarantee Agreement, dated as of March 11, 1997,
between Apple South, Inc., as Guarantor, and First Union National Bank of
Georgia, as Preferred Guarantee Trustee. (15)
4.9 Registration Rights Agreement, dated as of March 11, 1997 among Apple
South, Inc., Apple South Financing I, J.P. Morgan Securities, Inc., and Smith
Barney, Inc. (15)
10.1 Apple South, Inc. 1988 Stock Option Plan. (1)
10.2 Form of Stock Option Agreement under the Apple South, Inc. 1988 Stock
Option Plan. (1) (11)
10.3 Form of Apple South, Inc. Director's Indemnification Agreement
executed by and between the Company and each member of its Board of Directors.
(1)
10.4 Form of Apple South, Inc. Officer's Indemnification Agreement executed
between the Company and each of its executive officers. (1)
10.5 Standard Form Applebee's Neighborhood Grill & Bar Development
Agreement among the Company, Tom E. DuPree, Jr. and Applebee's International,
Inc., as amended and supplemented, pertaining to South Carolina. (1) (11)
10.6 Standard Form Applebee's Neighborhood Grill & Bar Development
Agreement among the Company, Tom E. DuPree, Jr. and Applebee's International,
Inc., as amended and supplemented, pertaining to West Palm Beach, Ft. Myers and
Sarasota A.D.I. (1) (11)
10.7 Standard Form Applebee's Neighborhood Grill & Bar Development
Agreement among the Company, Tom E. DuPree, Jr. and Applebee's International,
Inc., as amended and supplemented, pertaining to Tennessee/Mississippi A.D.I.
(1) (11)
10.8 Standard Form Applebee's Neighborhood Grill & Bar Development
Agreement among the Company, Tom E. DuPree, Jr. and Applebee's International,
Inc., as amended and supplemented, pertaining to Nashville, Tennessee A.D.I. and
Bowling Green, Kentucky A.D.I. (1) (11)
10.9 Standard Form Applebee's Neighborhood Grill & Bar Development
Agreement among the Company, Tom E. DuPree, Jr. and Applebee's International,
Inc., as amended and supplemented, pertaining to Virginia, West Virginia,
Washington, D.C., and Louisville, Kentucky. (1) (11)
10.10 Standard Form Applebee's Neighborhood Grill & Bar Franchise Agreement
among the Company, Tom E. DuPree, Jr. and Applebee's International, Inc. (5)
(11)
10.11 Foodservice Distribution Agreement between PYA/Monarch, Inc. and the
Company. (1)
10.12 Apple South, Inc. Employee Stock Ownership Plan and Trust. (1) (11)
10.13 Apple South, Inc. Profit Sharing Plan and Trust. (1) (11)
10.14 Amendment No. 2 to the Apple South, Inc. Employee Stock Ownership
Plan and Trust, dated November 22, 1993. (3)
10.15 Standard Form Applebee's Neighborhood Grill & Bar Development
Agreement among the Company, Tom E. DuPree, Jr. and Applebee's International,
Inc., pertaining to Jacksonville, Florida A.D.I. (2) (11)
10.16 Amendment to Development Agreement dated January 10, 1992, Second
Amendment and
20
<PAGE>
Supplement to Development Agreement dated May 14, 1993, and Third Amendment
to Development Agreement dated January 26, 1994, amending the Standard Form
Applebee's Neighborhood Grill & Bar Development Agreement among the Company, Tom
E. DuPree, Jr. and Applebee's International, Inc., as amended and supplemented,
pertaining to South Carolina. (3)
10.17 Third Amendment to Development Agreement dated January 10, 1992, and
Fourth Amendment to Development Agreement dated January 26, 1994, amending the
Standard Form Applebee's Neighborhood Grill & Bar Development Agreement among
the Company, Tom E. DuPree, Jr. and Applebee's International, Inc., as amended
and supplemented, pertaining to West Palm Beach, Ft. Meyers and Sarasota A.D.I.
(3)
10.18 Second Amendment to Development Agreement dated January 10, 1992, and
Third Amendment to Development Agreement dated January 26, 1994, amending the
Standard Form Applebee's Neighborhood Grill & Bar Development Agreement among
the Company, Tom E. DuPree, Jr. and Applebee's International, Inc., as amended
and supplemented, pertaining to Tennessee/ Mississippi A.D.I. (3)
10.19 Amendment to Development Agreement dated January 10, 1992, and its
Second Amendment to Development Agreement dated January 26, 1994, amending the
Standard Form Applebee's eighborhood Grill & Bar Development Agreement among the
Company, Tom E. DuPree, Jr. and Applebee's International, Inc., as amended and
supplemented, pertaining to Nashville, Tennessee A.D.I. and Bowling Green,
Kentucky A.D.I. (3)
10.20 Second Amendment to Development Agreement dated January 10, 1992, and
Third Amendment to Development Agreement dated January 26, 1994, amending the
Standard Form Applebee's Neighborhood Grill & Bar Development Agreement among
the Company, Tom E. DuPree, Jr. and Applebee's International, Inc., as amended
and supplemented, pertaining to Virginia, West Virginia, Washington, D.C., and
Louisville, Kentucky. (3)
10.21 Amendment to Development Agreement dated January 26, 1994, amending
the Standard orm Applebee's Neighborhood Grill & Bar Development Agreement among
the Company, Tom E. DuPree, Jr. and Applebee's International, Inc., pertaining
to Jacksonville, Florida A.D.I. (3)
10.22 Apple South, Inc. [Restated] Profit Sharing Plan and Trust dated
October 26, 1993. (3)
10.23 Amended form of Stock Option Agreement under the Apple South, Inc.
1988 Stock Option Plan. (3)
10.24 Apple South, Inc. 1993 Stock Incentive Plan. (3)
10.25 Form of Stock Option Agreement under the Apple South, Inc. 1993 Stock
Incentive Plan. (3)
10.26 Second Supplement to Development Agreement dated July 27, 1994,
between the Company and Applebee's International, Inc., pertaining to
Chattanooga, Tennessee A.D.I., Knoxville, Tennessee A.D.I. and
Bristol-Kingsport-Johnson City: Tri-Cities A.D.I. (5) (11)
10.27 Universal Agreement dated June 30, 1995, by and between the Company
and Applebee's International, Inc. amending the Standard Form Development
Agreements appearing as Exhibits 10.5 through 10.9,10.15, and 10.28 through
10.30.
10.28 Standard Form Applebee's Neighborhood Grill & Bar Development
Agreement, dated April 25, 1995, by and between the Company and Applebee's
International, Inc., pertaining to the Cedar Rapids, and Des Moines, Iowa
A.D.I.s, the Rockford, Illinois A.D.I. and portions of the Davenport- Rock
Island- Moline: Quad City A.D.I.; the Sioux City, Iowa A.D.I.; the
Peoria-Bloomington, Illinois, A.D.I.; and the Rochester-Mason City-Austin A.D.I.
(11)
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10.29 Standard Form Applebee's Neighborhood Grill & Bar Development
Agreement, dated June 30, 1995, by and between the Company and Applebee's
International, Inc., pertaining to a portion of the Chicago, Illinois A.D.I.
(11)
10.30 Standard Form Applebee's Neighborhood Grill & Bar Development
Agreement dated December 29, 1989 by and between Marcus Restaurants, Inc. And
Applebee's International, Inc. pertaining to the Milwaukee, Madison,
LaCrosse-Eau Claire, Wausau-Rhinelander, and Green Bay-Appleton, Wisconsin
A.D.I.s. (11)
10.31 Consent and Release Agreement by and among the company, Marcus
Restaurants, Inc. and Applebee's International, Inc. dated June 30, 1995
pertaining to the development and franchise rights in the Milwaukee, Madison,
LaCrosse-Eau Claire, Wausau-Rhinelander, and Green Bay- Appleton, Wisconsin
A.D.I.s. (11)
10.32 Amendment to Development Agreement dated June 30, 1995 by and between
the Company and Applebee's International, pertaining to market areas in portion
of Illinois, Iowa, Missouri and Wisconsin. (11)
10.33 Second Amendment to Development Agreement dated June 30, 1995 by and
between the ompany and Applebee's International, Inc., pertaining to the
Milwaukee, Madison, LaCrosse-Eau Claire, Wausau-Rhinelander and Green
Bay-Appleton, Wisconsin A.D.I.s. (11)
10.34 Fifth Amendment to Development Agreement dated June 30, 1995 by and
between the Company and Applebee's International, Inc., amending the Standard
Form Applebee's Neighborhood Grill & Bar Development Agreement pertaining to the
West Palm Beach, Ft. Myers and Sarasota A.D.I. (11)
10.35 Fourth Amendment to Development Agreement dated June 30, 1995 and
Third Amendment to Development Agreement dated February 24, 1995 by and between
the Company and Applebee's International, Inc., amending the Standard Form
Applebee's Neighborhood Grill & Bar Development Agreement pertaining to the
South Carolina market. (11)
10.36 Second Amendment to Development Agreement dated June 30, 1995 by and
between the Company and Applebee's International, Inc., amending the Standard
Form Applebee's Neighborhood Grill & Bar Development Agreement pertaining to the
Chattanooga A.D.I., the Knoxville A.D.I. and the Bristol-Kingsport-Johnson City:
Tri-Cities A.D.I. (11)
10.37 Fourth Amendment to Development Agreement dated June 30, 1995 by and
between the Company and Applebee's International, Inc., amending the Standard
Form Applebee's Neighborhood Grill & Bar Development Agreement pertaining to the
Tennessee/Mississippi A.D.I. (11)
10.38 Second Amendment to Development Agreement dated June 30, 1995 by and
between the Company and Applebee's International, Inc., amending the Standard
Form Applebee's Neighborhood Grill & Bar Development Agreement pertaining to the
Jacksonville, Florida A.D.I. (11)
10.39 Fifth Amendment to Development Agreement dated June 30, 1995 and
Fourth Amendment to Development Agreement dated February 24, 1995, by and
between the Company and Applebee's International, Inc., amending the Standard
Form Applebee's Neighborhood Grill & Bar Development Agreement pertaining to
Virginia, West Virginia, Washington, D.C. and Louisville, Kentucky. (11)
10.40 Third Amendment to Development Agreement dated June 30, 1995 by and
between the Company and Applebee's International, Inc., amending the Standard
Form Applebee's Neighborhood Grill & Bar Development Agreement pertaining to the
Nashville, Tennessee A.D.I. and the Bowling Green, Kentucky A.D.I. (11)
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10.41 $30 Million Amended and Restated Participation Agreement Between
Apple South, Inc., DR Holdings, L.P., Trust Company Bank, Southtrust Bank of
Georgia, N.A., Life Insurance Company of Georgia, and Columbine Life Insurance
Company. (7)
10.42 Lease and Development Agreement Between DR Holdings, L.P. and Apple
South, Inc. (7)
10.43 Second Amended and Restated Credit Agreement, dated March 1, 1998,
among Apple South, Inc. Wachovia Bank, National Association, as agent for the
lenders, and the Banks listed as parties thereto.
10.44 Participation Agreement (Apple South Trust No. 97-1), dated as of
September 24, 1997, among Apple South, Inc., as lessee, First Security Bank,
National Association, as lessor, SunTrust Bank, Atlanta, as administrative
agent, and the holders and lenders signatory thereto.
10.45 $70 million Credit Agreement, dated December 10, 1997, among Apple
South, Inc., Wachovia Bank, National Association, as agent for the lenders, and
the Banks listed as parties thereto.
13.1 Annual Report to Shareholders for the fiscal year ended December 28,
1997.
22.1 Definitive Proxy Statement for use in connection with the 1998 Annual
Meeting of Shareholders, filed with the Commission on March 20, 1998.
23.1 Consent of KPMG Peat Marwick LLP.
27.1 Financial Data Schedule (EDGAR version only)
99.1 Safe harbor under the Private Securities Litigation Reform Act of
1995. (13)
(1) Incorporated by reference to the corresponding exhibit number filed
with the Company's Registration Statement on Form S-1, File No. 33-42662.
(2) Incorporated by reference to the corresponding exhibit number filed
with the Company's Registration Statement on Form S-1, File No. 33-58378.
(3) Incorporated by reference to the Company's Annual Report on Form 10-K
for its fiscal year ended December 31, 1993.
(4) Incorporated by reference to Exhibit 2.1 filed with the Company's
Report on Form 8-K dated April 12, 1994.
(5) Incorporated by reference to the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1994.
(6) Incorporated by reference to Exhibit 10.30 filed with the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 1994.
(7) Incorporated by reference to the registrant's Quarterly Report on Form
10-Q for its fiscal quarter ended April 2, 1995.
(8) Incorporated by reference to the registrant's Quarterly Report on Form
10-Q for its fiscal quarter ended July 2, 1995.
(9) Incorporated by reference to the registrant's Quarterly Report on Form
10-Q for its fiscal quarter ended October 1, 1995.
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(10) Incorporated by reference to the Company's registration statement on
Form S-3, File No. 333-02958.
(11) Incorporated by reference to the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1995.
(12) Incorporated by reference to the registrant's Quarterly Report on Form
10-Q for its fiscal quarter ended March 30, 1997.
(13) Incorporated by reference to the registrant's Quarterly Report on Form
10-Q for its fiscal quarter ended June 29, 1997.
(14) Incorporated by reference to Exhibit 2.1 filed with the Company's
Report on Form 8-K dated January 15, 1998.
(15) Incorporated by reference to the Company's registration statement on
Form S-3, File No. 333-25205.
24
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT, dated as of March 16, 1998, by and between
APPLE SOUTH, INC., a Georgia corporation ("Seller") and QUALITY RESTAURANT
CONCEPTS, L.L.C., an Alabama limited liability company ("Purchaser"),
W I T N E S S E T H :
WHEREAS, Seller owns and operates a number of Applebee's Neighborhood Grill
& Bar ("Applebee's") franchise restaurants; and
WHEREAS, Seller desires to sell to Purchaser certain Applebee's restaurants
and related property, and Purchaser desires to purchase such assets, all on the
terms and subject to the conditions set forth herein;
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and adequacy of which are hereby
acknowledged, and intending to be legally bound, the parties hereby agree as
follows:
ARTICLE I - DEFINITIONS
1.1 Definitions. For purposes of this Agreement, the following terms shall
have the meanings set forth below:
"Action" shall mean any action, suit, litigation, complaint, counterclaim,
claim, petition, mediation contest, or administrative proceeding, whether at
law, in equity, in arbitration or otherwise, and whether conducted by or before
any Government or other Person.
"ADI's" shall mean Arbitron Rating Areas of Dominant Influence.
"ADI Personnel" shall have the meaning set forth in Section 4.5.
"Assets" shall mean all of Seller's rights and interests in, to, or under
the following:
(i) all tangible personal property of any kind
located in, or customarily located in, the Restaurants or on
the Real Property, including, but not limited to (A)
equipment, computer hardware (including the laptop computers
used by the regional managers), fax machines, appliances,
machinery, tables, chairs, other furniture, bars, tableware,
cookware, utensils, furnishings and signage (including,
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but not limited to, any of the foregoing property currently
held by Seller pursuant to equipment leases, all of which
leased property will be purchased by Seller prior to Closing
at its sole cost and expense pursuant to Section 4.13); (B)
leasehold improvements and fixtures; (C) uniforms, supplies,
food and beverage inventory (including beer, liquor, and wine
inventory); and (D) advertising and promotional materials;
(ii) $1,500 cash in each Restaurant;
(iii) all prepaid items to the extent such items
relate exclusively to the Business;
(iv) all assignable Permits;
(v) all assignable rights under express or implied
warranties of manufacturers, distributors, retailers, or other
third parties relating to the Assets;
(vi) all of Seller's supplier lists, demographic,
statistical, and other information related exclusively to the
Business;
(vii) copies of Seller's employee records of those
current employees of Seller who are employed by Purchaser as
of the Closing (subject to execution of a release by each
affected employee allowing for the disclosure of such files);
(viii) the Contracts and Leases;
(ix) the Owned Real Property;
(x) all records and files related to the Real
Property such as rent calculations, landlord correspondence,
purchase agreements, deeds, construction documents, title
reports, environmental and engineering reports, appraisals,
surveys, etc.; records of all service and maintenance
histories, if any, of the Assets; all records relating to
warranties, service agreements, or similar agreements
pertaining to the Assets; and copies of any other records and
files that contain information material to the Business or the
Assets, in whatever media such records or files are kept;
(xi) any written information related to any pending
or proposed litigation, ordinance, or regulation in any state,
county, municipality, or other governmental unit affecting the
Business;
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(xii) rights to existing Restaurant telephone
numbers;
(xiii) all of Seller's other rights and property
interests of any nature which are customarily and exclusively
used in the operation of the Restaurants; and
(xiv) in the circumstances and to the extent
specified in Section 10.14, the Building Materials.
"Assets" shall not include cash in the Restaurants in excess of $1,500 per
Restaurant, bank accounts, or any other property, tangible or intangible, real
or personal, not described above. In the circumstances and to the extent
specified in Section 10.15, "Assets" shall not include the Real Property upon
which the Bristol, Tennessee Restaurant is located.
"Assumed Liabilities" shall mean (i) all obligations of Seller that accrue
after the Closing under the terms of the Contracts and Leases, (ii) all
obligations of Seller under the Contracts and Leases that accrue prior to the
Closing but which are not due for payment until after the Closing and which are
taken into account in computing the Purchase Price pursuant to Section 2.3,
(iii) obligations arising after the Closing under any Permits which are assigned
to Purchaser, (iv) all Property Taxes and all other obligations with respect to
the Assets that accrue prior to the Closing but which are not due for payment
until after the Closing and which are taken into account in computing the
Purchase Price pursuant to Section 2.3, (v) all Property Taxes and all other
obligations with respect to the Assets that accrue after the Closing, (vi) gift
certificates issued by Seller prior to Closing, and (vii) accrued vacation of
ADI Personnel assumed pursuant to Section 6.3(e). Assumed Liabilities shall not
include any liability, obligation, payment, duty, or responsibility of any
nature except as expressly described above and specifically shall not include
(i) liabilities or obligations of Seller arising out of any breach by Seller of
any of the Contracts or Leases; (ii) except as provided in clauses (ii) or (iv)
above, liabilities or obligations of Seller under any of the Contracts or Leases
or with respect to the Owned Real Property or other Assets that accrue in any
such case prior to the Closing or are attributable to the period prior to
Closing, including, without limitation, base rent, percentage rent, common area
maintenance or similar charges, other items of additional rent, and any
adjustments with respect to such items of rent and other charges; (iii) any
liabilities or obligations of Seller under the Franchise Agreements; (iv) any
liability of Seller for product liability, personal injury, property damage, or
otherwise based on any tort claim or statutory liability (including but not
limited to any "dram shop" liability); (v) any federal, state, or local tax
liability of Seller except to the extent expressly assumed hereunder, (vi) any
contractual claim based on any lease, contract, or agreement other than the
Contracts and Leases; (vii) any liability, obligation, or responsibility of
Seller to Seller's employees, agents, or independent contractors with respect to
wages, salaries, bonuses, or other compensation or benefits earned or accrued
prior to the Closing (except for accrued vacation assumed pursuant to Section
6.3(e)); and (viii) any liability or obligation of Seller arising out of the
negotiation, execution, or performance of this Agreement, including fees and
expenses of
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attorneys and accountants, except as otherwise expressly provided herein.
"Bill of Sale and Assignment Agreement" shall mean an instrument in
substantially the form of Exhibit A hereto pursuant to which the Assets (except
for the Owned Real Property) will be transferred and assigned to Purchaser at
the Closing and pursuant to which Purchaser will assume the Assumed Liabilities.
"Building Materials" shall have the meaning set forth in Section 10.14
hereof.
"Business" shall mean the business of owning and operating the Restaurants
and developing and opening new Applebee's restaurants in the Territory, as
conducted prior to the Closing by Seller pursuant to the Franchise Agreements.
"Closing" shall have the meaning set forth in Section 2.6 hereof.
"Closing Date" shall mean the time and date that the Closing occurs.
"Code" shall mean the United States Internal Revenue Code of 1986, as
amended, and all regulations thereunder. Any reference herein to a specific
section or sections of the Code shall be deemed to include a reference to any
corresponding provision of future law.
"Consents" shall mean all consents, approvals, waivers, and estoppels of
others which are required to be obtained in order to effect the valid
assignment, transfer, and conveyance to Purchaser of the Material Contracts and
the Leases without resulting in any default or penalty thereunder.
"Contracts" shall mean all contracts, agreements, and leases of equipment
or other personal property that relate exclusively to the Business; provided,
however, that the Franchise Agreements are not included within the meaning of
"Contracts."
"Deeds" shall mean special warranty deeds, limited warranty deeds or other
appropriate instruments to convey good and marketable fee simple title to the
Owned Real Property, with the warranty of title contained therein limited to the
claims of Persons claiming by, through or under Seller, but not otherwise, in
the form attached hereto as Exhibit "B" (a separate form being attached for each
state in which Owned Real Property is located.)
"Disclosure Memorandum" shall mean the set of numbered schedules
referencing Sections of this Agreement delivered by Seller and dated of even
date herewith, as supplemented by new or amended schedules delivered by Seller
prior to the Closing.
"Effective Time" shall have the meaning set forth in Section 2.5 hereof.
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"Environmental Laws" shall mean all federal, state, municipal, and local
laws, statutes, ordinances, rules, regulations, conventions, and decrees
relating to the environment, including without limitation, those relating to
emission, discharge, release, or threatened release of pollutants, contaminants,
chemicals, or industrial, toxic, or hazardous materials or wastes of every kind
and nature into the environment (including without limitation ambient air,
surface water, ground water, soil and subsoil), or otherwise relating to the
manufacture, generation, processing, distribution, application, use, treatment,
storage, disposal, presence, management, transport, or handling of pollutants,
contaminants, chemicals, or industrial, toxic, or hazardous substances or
wastes, and any and all laws, rules, regulations, codes, directives, orders,
decrees, judgments, injunctions, consent agreements, stipulations, provisions,
and conditions of Environmental Permits, licenses, injunctions, consent
agreements, stipulations, certificates of authorization, and other operating
authorizations, entered, promulgated, or approved thereunder.
"Environmental Permits" shall mean all permits, licenses, certificates,
approvals, authorizations, regulatory plans or compliance schedules required by
applicable Environmental Laws, or issued by a Government pursuant to applicable
Environmental Laws, or entered into by agreement of the party to be bound,
relating to activities that affect the environment, including without
limitation, permits, licenses, certificates, approvals, authorizations,
regulatory plans and compliance schedules for air emissions, water discharges,
pesticide and herbicide or other agricultural chemical storage, use or
application, and Hazardous Material or Solid Waste generation, use, storage,
treatment and disposal.
"Forum" shall mean any federal, state, local, municipal, or foreign court,
governmental agency, administrative body or agency, tribunal, private
alternative dispute resolution system, or arbitration panel.
"Financing Commitment" shall have the meaning set forth in Section 6.4.
"Franchise Agreements" shall mean those development agreements, franchise
agreements, and other agreements between Seller and Franchisor relating
exclusively to the Territory.
"Franchisor" shall mean Applebee's International, Inc.
"Financial Statements" shall have the meaning set forth in Section 3.8.
"Government" shall mean any federal, state, local, municipal, or foreign
government or any department, commission, board, bureau, agency,
instrumentality, unit, or taxing authority thereof.
"Hazardous Material" shall mean all substances and materials designated as
hazardous or toxic as of the date hereof pursuant to any applicable
Environmental Law.
"HSR Act" shall mean the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended.
"Indemnification Agreement" shall mean an agreement in the form attached
hereto as Exhibit "C".
"Knowledge of Seller" (or words of like effect) when used to qualify a
representation, warranty, or other statement shall mean the actual knowledge of
Sellers' directors of operations for the Territory and all management of Seller
senior thereto.
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"Leases" shall mean the leases of real property and improvements described
on Schedule 1.1A.
"Material Contracts" shall mean all Contracts that involve monetary
obligations of Seller of more than $12,000 per year and that are not cancelable
by Seller upon thirty days notice or less, a list of which is set forth in
Schedule 1.1B.
"Minor Contracts" shall mean all Contracts that are not Material Contracts.
"Note" shall have the meaning set forth in Section 2.3.
"Orders" shall mean all applicable orders, writs, judgments, decrees,
rulings, consent agreements, and awards of or by any Forum or entered by consent
of the party to be bound.
"Owned Real Property" shall mean those tracts and parcels of land owned by
Seller on which a Restaurant is located and the parcel located at 11807 Kingston
Pike, Farragut, Tennessee, which is being held for development (all of which
tracts and parcels are described in Schedule 1.1C) and all buildings, fixtures,
signs, parking facilities, and other improvements located thereon.
"Permits" shall mean all rights of Seller under any liquor, alcoholic
beverage, beer and wine licenses, other licenses of every kind, certificates of
occupancy, and permits or approvals of any nature, from governmental and
regulatory authorities which relate exclusively to the Business, the
Restaurants, or the Real Property.
"Permitted Encumbrances" shall mean, in the case of all Real Property, (i)
such easements, restrictions, covenants, and other such encumbrances which are
shown as exceptions on the Title Commitments, (ii) any other encumbrances of
record as of the effective date of the Title Commitments, (iii) ordinances
(municipal and zoning), (iv) survey matters, and (v) such easements,
restrictions, covenants, and other encumbrances which become matters of public
record after the effective date of the Title Commitments and before the Closing,
in each such case described in items (i) through (v) hereof, to the extent that
such encumbrances are waived, or deemed to be waived, by Purchaser pursuant to
Section 7.1(a). Permitted Encumbrances shall include in the case of both Real
Property and personal property all liens for taxes not yet due and payable
subject to pro ration in accordance with Section 3.9.
"Person" shall include an individual, a partnership, a joint venture, a
corporation, a limited liability company, a trust, an unincorporated
organization, a government, and any other legal entity.
"Property Taxes" shall mean all ad valorem, real property, and personal
property taxes, all general and special private and public assessments, all
other property taxes, and all similar obligations pertaining to the Assets.
"Real Property" shall mean the land and improvements comprising the Owned
Real Property and all land and improvements subject to Leases.
"Restaurants" shall mean the 26 Applebee's Neighborhood Grill & Bar
restaurants operated by Seller at the locations set forth on Schedule 3.7.
"Schedules" shall mean the numbered sections of the Disclosure Memorandum.
"Seller Plans" shall have the meaning set forth on Schedule 3.15.
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"Solid Waste" shall mean any garbage, refuse, sludge from a waste treatment
plant, water supply treatment plant, or air pollution control facility, and
other discarded material, including solid, liquid, semisolid, or contained
gaseous material resulting from industrial, commercial, mining, and agricultural
operations, and from community activities.
"Termination Date" shall mean April 30, 1998; provided that if prior to
April 30, 1998, Purchaser shall have certified to Seller in writing that (i) the
only contingencies precluding the Closing from occurring are Purchaser's
obtaining any material Permits required for it to operate the Business or any
Restaurant and/or the failure of Purchaser's lender to be ready to close
Purchaser's financing for the purchase of the Assets and (ii) Purchaser has used
its reasonable best efforts to cause such contingencies to have been satisfied
by April 30, 1998, then the Termination Date shall be extended to a date five
business days after any of the contingencies referenced above are satisfied, but
in no event later than May 31, 1998.
"Territory" shall mean those ADI's consisting of Knoxville, Tennessee;
Bristol/Kingsport, Tennessee; Chattanooga, Tennessee; Columbus/Tupelo,
Mississippi; Jackson, Mississippi; Meridian, Mississippi; Hattiesburg,
Mississippi; and Biloxi/Gulfport, Mississippi, including the counties set forth
on Schedule 1.1D.
"Title Commitments" shall have the meaning set forth in Section 7.1(a).
"Title Policies" shall mean the Owner's Title Policies and the Lessee's
Title Policies as defined in Section 7.1(a).
ARTICLE II - PURCHASE AND SALE
2.1 Purchase and Sale. Upon the terms and subject to the conditions set
forth in this Agreement, and based upon the representations and warranties
contained herein, at the Closing Seller shall sell, transfer, assign, and
deliver to Purchaser all of Seller's right, title, and interest in and to the
Assets free and clear of any mortgage, security interest, lien, charge, claim,
or other encumbrance of any nature except the Permitted Encumbrances, and
Purchaser shall purchase the Assets from Seller for the Purchase Price set forth
in Section 2.3.
2.2 Assumption of Liabilities. As of the Effective Time, Purchaser shall
assume all of the Assumed Liabilities. Except for the Assumed Liabilities,
Purchaser does not hereby assume or agree to assume or pay any obligations,
liabilities, indebtedness, duties, responsibilities, or commitments of Seller or
any other Person, of any nature whatsoever, whether known or unknown, absolute
or contingent, due or to become due.
2.3 Purchase Price. The purchase price for the Assets (the "Purchase
Price") shall be $47,955,000 as adjusted as follows:
(a) The amount of the Purchase Price shall be increased by (i) all Property
Taxes accruing with respect to the Assets after the Closing that have been paid
by Seller prior to Closing; (ii) all amounts paid by Seller under the Contracts
and Leases with respect to periods after the Closing; (iii) any other prepaid
expenses pertaining to the Business (such as telephone expenses, advertising
expenses, utility charges, and the like) to the extent that the same will
benefit Purchaser afte the Closing; and (iv) an amount equal to Seller's cost of
those Assets consisting of food, beverage (including beer, wine, and liquor),
and paper inventory as determined by the parties' joint inventory at the close
of business on the day prior to the Closing Date.
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(b) The amount of the purchase price shall be decreased by (i) all Property
Taxes accruing with respect to the Assets prior to the Closing that are due and
payable after the Closing and that have not been paid as of the Closing, (ii)
all amounts payable under the Contracts and Leases that pertain to periods
before the Closing but are due and payable after the Closing and that have not
been paid as of the Closing, (iii) the cost of unused vacation accrued as of the
Closing Date by AD Personnel hired by Purchaser the cost of which is being
assumed by Seller pursuant to Section 6.3(e), (iv) the amounts specified in
Section 10.14, if applicable pursuant to the terms of such section, and (iv) the
amounts specified in Section 10.15, if applicable pursuant to the terms of such
section.
(c) The amount of the purchase price shall be further adjusted to reflect
any expense paid by one party which the other party has agreed to pay or share
pursuant to Section 10.1 or otherwise pursuant to this Agreement.
(d) Not less than three days prior to Closing, the parties hereto will
prepare a draft of a closing statement setting forth the adjustments to the
Purchase Price made pursuant to this Section 2.3.
The foregoing adjustments shall be calculated by the parties and set forth
on Schedule 2.3 which shall be signed by both parties at Closing. The Purchase
Price shall be paid by Purchaser by wire transfer on the Closing Date of
$47,000,000 in immediately available funds to an account designated by Seller
and by delivery at the Closing of a promissory note duly executed by Seller in
the form attached to as Exhibit "D" (the "Note") in an amount equal to the
remainder of the Purchase Price.
2.4 Deliveries at the Closing. (a) At the Closing, Seller shall deliver to
Purchaser the following:
(i) A certificate executed by Seller, dated as of the Closing Date,
certifying in such detail as Purchaser may reasonably request that subject to
the matters disclosed in the Disclosure Memorandum, as it may be supplemented by
Seller from time to time, all representations and warranties of Seller in this
Agreement are true in all material respects as of the Closing Date and such
certificate shall also include the representations and warranties set forth on
Exhibit "E";
(ii) A certificate of the Secretary or an Assistant Secretary of Seller,
dated as of the Closing Date, certifying in such detail as Purchaser may
reasonably request (A) that attached thereto is a true and complete copy of
resolutions adopted by the Board of Directors of Seller authorizing the
execution, delivery, and performance of this Agreement, the Bill of Sale and
Assignment Agreement, and the Deeds, and that all such resolutions are still in
full force and effect and are all the resolutions adopted in connection with the
transactions contemplated by this Agreement, and (B) as to the incumbency and
specimen signature of each officer of Seller executing this Agreement, the Bill
of Sale and Assignment Agreement, the Deeds, and any certificate or instrument
furnished pursuant hereto, and a certification by another officer of Seller as
to the incumbency and signature of the officer signing such certificate;
(iii) The opinion of Kilpatrick Stockton LLP, counsel to Seller, in
substantially the form of Exhibit "F" hereto;
(iv) The Bill of Sale and Assignment Agreement, duly executed by Seller;
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(v) The Consents;
(vi) The Deeds, duly executed by Seller;
(vii) An affidavit executed by or on behalf of Seller and dated as of the
Closing Date acknowledging that no bills for labor or materials furnished to the
Real Property are due and owing to any Person;
(viii) A waiver, duly executed by Franchisor, releasing Seller from all
obligations with respect to the development of additional restaurants in the
Territory as required by the terms of any agreement between Franchisor and
Seller;
(ix) Any management agreements entered into pursuant to Section 7.2(f),
duly executed by Seller;
(x) The Indemnification Agreement, duly executed by Seller;
(xi) Copies of all operating manuals, recipes, and other documents provided
by Franchisor;
(xii) A Cross-Receipt, duly executed by Seller; and
(xiii) Any other documents that Purchaser may reasonably request prior to
the Closing in order to effectuate the transactions contemplated hereby;
provided, however, that Seller shall have the right to delay the Closing up to
three business days to respond to any such request.
(b) At the Closing Purchaser shall deliver to Seller the following:
(i) A certificate executed by Purchaser, dated as of the Closing Date,
certifying in such detail as Seller may reasonably request to the fulfillment of
the conditions specified in Sections 7.3(a) and (b) hereof;
(ii) A certificate of the Secretary or an Assistant Secretary of Purchaser,
dated as of the Closing Date, certifying in such detail as Seller may request
(i) that attached thereto is a true and complete copy of resolutions adopted by
the Board of Directors of Purchaser authorizing the execution, delivery and
performance of this Agreement and the Bill of Sale and Assignment Agreement, and
that all such resolutions are still in full force and effect and are all the
resolutions adopted in connection with the transactions contemplated by this
Agreement, and (ii) as to the incumbency and specimen signature of each officer
of Purchaser executing this Agreement, and any certificate or instrument
furnished pursuant hereto or to be furnished in connection herewith as of the
Closing Date, and a certification by another officer of Purchaser as to the
incumbency and signature of the officer signing such certificate;
(iii) The funds constituting the cash portion of the Purchase Price;
(iv) The Note, duly executed by Purchaser;
(v) The Bill of Sale and Assignment Agreement, duly executed by Purchaser;
(vi) The opinion of Berkowitz, Lefkovits, Isom & Kushner, A Professional
Corporation, counsel to Purchaser, in substantially the form of Exhibit "G"
hereto;
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(vii) A waiver, duly executed by Franchisor, releasing Seller from all
obligations with respect to the development of additional restaurants in the
Territory as required by the terms of any agreement between Franchisor and
Seller;
(viii) Any management agreements entered into pursuant to Section 7.2(f),
duly executed by Purchaser.
(ix) The Indemnification Agreement, duly executed by Purchaser;
(x) A Cross-Receipt, duly executed by Purchaser; and
(xi) Any other documents that Seller may reasonably request at least three
days prior to the Closing.
2.5 Transfer of Operations. Purchaser shall be entitled to immediate
possession of, and to exercise all rights arising under, the Assets from and
after the time that the Restaurants open for business on the Closing Date, and
operation of the Restaurants shall transfer at such time (the "Effective Time").
Except as expressly provided in this Agreement, all profits, losses,
liabilities, claims, or injuries arising before the Effective Time shall be
solely to the benefit or the risk of Seller. All such occurrences after the
Effective Time shall be solely to the benefit or the risk of Purchaser. The risk
of loss or damage by fire, storm, flood, theft, or other casualty or cause shall
be in all respects upon Seller prior to the Effective Time and upon the
Purchaser thereafter.
2.6 Closing. The closing of the transactions described in this Article II
(the "Closing") shall take place at the offices of Kilpatrick Stockton LLP,
Suite 2800, 1100 Peachtree Street, Atlanta, Georgia, at 10:00 a.m. on April 30,
1998, or on such other date and time as may be mutually agreed upon by the
parties hereto. Purchaser may delay the Closing for up to three business days
following receipt of any amendment to the Disclosure Memorandum.
2.7 Allocation of Purchase Price. The Purchase Price shall be allocated
among the various Assets as set forth on Schedule 2.7 hereof. Each party hereby
agrees that it will not take a position on any income tax return, Internal
Revenue Service Form 8594, before any governmental agency charged with the
collection of any income tax, or in any judicial proceeding that is inconsistent
with the terms of this Section 2.7.
2.8 Further Assurances. From time to time after the Closing at Purchaser's
request and expense, Seller shall execute, acknowledge, and deliver to Purchaser
such other instruments of conveyance and transfer and shall take such other
actions and execute and deliver such other documents, certifications, and
further assurances as Purchaser may reasonably require to vest more effectively
in Purchaser, or to put Purchaser more fully in possession of, any of the
Assets, or to better enable Purchaser to complete, perform and discharge the
Assumed Liabilities. Each party hereto will cooperate with the other and execute
and deliver to the other party hereto such other instruments and documents and
take such other actions as may be reasonably requested from time to time by any
other party hereto as necessary to carry out, evidence, and confirm the intended
purpose of this Agreement.
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ARTICLE III - REPRESENTATIONS AND WARRANTIES OF SELLER
Subject to the limitations and exceptions set forth in the Disclosure
Memorandum dated of even date hereof, as supplemented or amended from time to
time by Seller prior to the Closing Date to reflect any event or occurrence
after the date hereof, regardless of whether any Schedule constituting a part of
the Disclosure Memorandum is referenced in any specific provision below, Seller
hereby represents and warrants to Purchaser as follows:
3.1 Organization, Qualifications and Corporate Power. Seller is a
corporation duly incorporated and organized, validly existing, and in good
standing under the laws of the State of Georgia and has all requisite authority
to own, lease, and operate its properties and assets and to carry on its
business as it is now being conducted and is duly qualified or licensed as a
foreign corporation in good standing to do business in Tennessee and
Mississippi. Seller has the corporate power and authority to execute, deliver,
and perform this Agreement, the Bill of Sale and Assignment Agreement, the
Deeds, the Indemnification Agreement, and all other agreements, documents,
certificates, and other papers contemplated to be delivered by Seller pursuant
to this Agreement.
3.2 Authorization. The execution, delivery, and performance by Seller of
this Agreement, the Bill of Sale and Assignment Agreement, the Deeds, the
Indemnification Agreement, and all other agreements, documents, certificates,
and other papers contemplated to be delivered by Seller pursuant to this
Agreement have been duly authorized by all necessary corporate actions or
proceedings on the part of Seller, including approval by the Board of Directors
of Seller and no other corporate actions or proceedings on the part of Seller
are necessary under its Articles of Incorporation, its Bylaws, by law, or
otherwise to authorize the execution and delivery by the Seller of this
Agreement, the performance by Seller of its obligations hereunder, and the
consummation by Seller of the transactions contemplated herein.
3.3 Non-Contravention. The execution, delivery and performance of this
Agreement will not violate or result in a breach of any term of Seller's
Articles of Incorporation or Bylaws, subject to obtaining the consents to
assignment of the Leases and Material Contracts set forth on Schedule 3.3,
result in a breach of any agreement (including, without limitation, any Leases)
or other instrument to which Seller is a party (except for defaults under Minor
Contracts where the consent of the other party or parties to such contract to
the assignment thereof will not be obtained), result in any penalty, or violate
any law or any order, rule, or regulation applicable to Seller of any court or
of any regulatory body, administrative agency, or other governmental
instrumentality having jurisdiction over Seller; and will not result in the
creation or imposition of any lien, charge, or encumbrance of any nature
whatsoever upon any of the Assets. Except as set forth on Schedule 3.3 and
except for consents required under Minor Contracts, the execution, delivery and
performance of this Agreement and the other documents executed in connection
herewith, and the consummation of the transactions contemplated hereby and
thereby do not require any filing with, notice to or consent, waiver or approval
of any third party, including but not limited to, any governmental body or
entity other than any filing required under the HSR Act and the expiration of
any applicable waiting period thereunder. Schedule 3.3 identifies separately
each notice, consent, waiver, or approval by reference to each Lease and to each
Material Contract to which it is applicable.
3.4 Validity. This Agreement has been duly executed and delivered by the
Seller and constitutes the legal, valid, and binding obligation of Seller,
enforceable in accordance with its terms, subject to general equity principles
and to applicable bankruptcy, insolvency, reorganization, moratorium, and
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similar laws from time to time in effect affecting the enforcement of creditors'
rights. When the Bill of Sale, Assignment Agreement, and the Indemnification
Agreement have been executed and delivered in accordance with this Agreement,
they will constitute the legal, valid, and binding obligation of Seller,
enforceable in accordance with its terms, subject to general equity principles
and to applicable bankruptcy, insolvency, reorganization, moratorium, and
similar laws from time to time in effect affecting the enforcement of creditors'
rights. The documents delivered by Seller at Closing will be sufficient to
transfer to Purchaser all of Seller's right, title, and interest in and to the
Assets.
3.5 Assets. (a) Seller has good and valid title to all of the Assets
constituting personal property, free and clear of any and all mortgages,
pledges, security interests, liens, charges, conditional sales agreements, and
other encumbrances except Permitted Encumbrances, or except for personal
property held subject to equipment or other personal property leases that will
be purchased by Seller on or before the Closing Date pursuant to Section 4.13
below, whereupon Seller shall have good title to such property free and clear of
any and all mortgages, pledges, security interests, liens, charges, conditional
sales agreements, and other encumbrances except Permitted Encumbrances.
(b) The Assets located at each Restaurant constitute all tangible personal
property required on site to operate the Restaurant in accordance with the
Franchise Agreements.
(c) There are no assets or property of any nature which are not being
transferred to Purchaser hereunder that has been customarily used exclusively in
the operation or ownership of the Restaurants other than Permits and software
licenses that are not assignable.
(d) Each Asset constituting tangible personal property having a fair market
value of $2,000 or more is in good operating condition consistent with its age,
subject to normal wear and tear. As to each Restaurant, the maximum replacement
cost of Assets constituting tangible personal property which are not in good
operating condition consistent with their age, subject to normal wear and tear,
is less than $10,000.
3.6 Contracts and Leases.
(a) Each Material Contract and Lease is a valid and subsisting agreement,
without any material default of Seller thereunder, and to the knowledge of
Seller, without any default on the part of any other party thereto. To the
knowledge of Seller, no event or occurrence has transpired which with the
passage of time or giving of notice or both will constitute a default under any
Material Contract or Lease. A true and correct list of each Material Contract
and Lease and every amendment thereto or other agreement or document relating
thereto is set forth as Schedules 1.1A and 1.1B to this Agreement. True and
correct copies of the Material Contracts and Leases (and any amendments thereto)
have been provided to Purchaser. The summary of certain terms of the Leases and
any amendments thereto set forth on Schedule 1.1A is true and correct. At the
time of Closing, Seller shall have made all payments and performed all
obligations due through the Closing Date under each Contract and Lease, except
to the extent that any payment due is set forth on Schedule 2.3 and deducted in
calculating the Purchase Price pursuant to Section 2.3.
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(b) No Contract or Lease has been assigned by Seller or is subject to any
mortgage, pledge, hypothecation, security interest, lien, or other encumbrance
or claim, nor has any interest therein been granted by Seller to any third
party.
(c) Seller's possession of property subject to the Leases has not been
disturbed, nor has any claim been asserted against Seller adverse to its rights
in such leasehold interests.
(d) The Contracts have been entered into in the ordinary course of Seller's
business and, in Seller's opinion, contain commercially reasonable terms.
3.7 Real Property.
(a) Schedule 3.7(a) sets forth with respect to each Restaurant, its
location, whether it is located on Owned Real Property or is on a site subject
to a Lease, and whether the improvements are owned or leased.
(b) The water, electric, gas, and sewer utility services, and storm
drainage facilities currently available to each parcel of Real Property are
adequate for the operation of the Restaurants as presently operated, and to
Seller's knowledge, there is no condition which will result in the termination
of such utility services and other facilities or of the present access from each
parcel of Real Property to such utility services and other facilities.
(c) Seller has obtained all authorizations and rights-of-way which are
necessary to ensure vehicular and pedestrian ingress and egress to and from the
site of each Restaurant, all of which are assignable and shall be assigned to
Purchaser at the Closing. Except as set forth in Schedule 3.7(c), to the
knowledge of Seller, there is no fact or condition which would or could result
in a termination or reduction of the current access of the real property to
existing roads.
(d) Except as set forth in Schedule 3.7(c), Seller has received no notice
that any governmental body having the power of eminent domain over any parcel of
Real Property has commenced or intends to exercise the power of eminent domain
or a similar power with respect to any part of the Real Property.
(e) The Real Property and the present uses thereof comply in all material
respects with all material laws and regulations (including zoning laws and
ordinances) of all governmental bodies having jurisdiction over the Real
Property, and Seller has received no notice from any governmental body alleging
that the Real Property or any improvements erected or situated thereon, or the
uses conducted thereon or therein, violate any regulations of any governmental
body having jurisdiction over the Real Property.
(f) To the knowledge of Seller and except as set forth in Schedule 3.7(c),
no work for municipal improvements has been commenced on or in connection with
any parcel of Real Property or any street adjacent thereto and no such
improvements are contemplated. No assessment for public improvements has been
made against the Real Property which remains unpaid and Seller has received no
notice and has no knowledge of any pending improvement liens or special
assessments to be made against the Real Property by any governmental authority,
and the Real Property is not subject to any current use assessment or possible
"roll-back" taxes. No notice from any county, township, or other governmental
body has been served upon the Real Property or received by Sellers, or to the
knowledge of Seller received by any owner of any of the Real Property subject to
a Lease, requiring or calling attention to the need for any work, repair,
construction, alteration, or installation on or in connection with the Real
Property which has not been complied with.
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(g) Seller holds all Environmental Permits necessary for conducting the
Business and has conducted, and is presently conducting, the Business in
material compliance with all applicable Environmental Laws and Environmental
Permits held by it, including, without limitation, all record keeping and filing
requirements. Seller has not taken or omitted to take any action relating to the
Real Property that would result in any liability to Seller or any subsequent
owner or lessee of the Real Property under any Environmental Law. Except as set
forth in Schedule 3.7(g), to the Seller's knowledge, all Hazardous Materials and
Solid Waste, on, in, or under Real Property have been properly removed and
disposed of, and to the Seller's knowledge no past or present disposal,
discharge, spill, or other release of, or treatment, transportation, or other
handling of Hazardous Materials or Solid Waste on, in, under, or off-site from
any Real Property will subject the Purchaser, or any subsequent owner, occupant,
or operator of the Real Property to corrective or compliance action or any other
liability. There are no presently pending, or to Seller's knowledge, threatened
Actions or Orders against or involving Seller relating to any alleged past or
ongoing violation of any Environmental Laws or Environmental Permits with
respect to the Real Property, nor to Seller's knowledge is Seller subject to any
liability for any such past or ongoing violation. To Seller's knowledge there
are no underground storage tanks located on the Owned Real Property.
(h) To the knowledge of Seller, there are no disputes concerning the
location of property lines or corners of the Owned Real Property.
(i) To the knowledge of Seller, there are no mineshafts or sinkholes under
the Real Property.
3.8 Financial Statements. Schedule 3.8 contains for each Restaurant
unaudited statements of operations as of the end of the 1997 fiscal year and for
each fiscal month ended thereafter through the date hereof for which such
statements are available, prepared in accordance with generally accepted
accounting principles, except for the absence of explanatory notes and except as
otherwise expressly described therein (the "Financial Statements"). The
Financial Statements have been prepared in accordance with Seller's historical
practices and fairly present the operations of the Restaurants for the periods
presented and as of their respective dates.
3.9 Taxes. All Property Taxes relating to the Assets have been fully paid
for 1997 and all prior tax years and there are no delinquent property tax liens
or assessments. Seller has also timely filed (or will timely file) all other tax
returns and reports of whatever kind pertaining to the Assets and required to be
filed by Seller up to the Closing Date. Seller has paid (or will timely pay) all
Taxes of whatever kind, including any interest, penalties, governmental charges,
duties, fees, and fines imposed by all governmental entities or taxing
authorities, which are due and payable prior to the Closing Date or for which
assessments relating to any period prior to the Closing Date have been received,
the nonpayment of which would result in lien on any of the Assets. There are no
audits, suits, actions, claims, investigations, inquiries, or proceedings
pending or, to Seller's knowledge, threatened against Seller with respect to
taxes, interest, penalties, governmental charges, duties, or fines, nor are any
such matters under discussion with any governmental authority, nor have any
claims for additional taxes, interest, penalties, charges, fines, fees, or
duties been received by assessed against Seller that in any such case affect the
Assets. "Taxes" shall mean all taxes, charges, fees, levies, or other
assessments, including, without limitation, all net income, gross income, gross
receipts, sales, excise and ad valorem, transfer, franchise, profits, license,
withholding, payroll, employment, excise, severance, stamp, occupation,
property, or other taxes, customs, duties, fees, assessments, or charges of any
nature whatsoever, together with any interest, penalties, addition to tax, or
additional amounts imposed by any taxing authority, domestic, or foreign.
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3.10 Litigation. Except as set forth on Schedule 3.10, there is no material
action, suit, investigation, or proceeding pending or, to the knowledge of
Seller, threatened against or affecting Seller that pertains to the Restaurants,
any of the Assets or, to Seller's knowledge, the Real Property subject to Leases
before any court or by or before any governmental body or arbitration board or
tribunal nor is Seller aware of any facts which are likely to result in any such
action, suit, investigation, or proceeding. Seller is not in violation of any
term of any judgment, decree, injunction, or order outstanding against it.
3.11 Permits. Seller has all material Permits as are necessary to operate
the Restaurants. Seller has fulfilled and performed all of its material
obligations with respect to such Permits and, to the knowledge of Seller, no
event has occurred which allows, nor after notice or lapse of time or both would
allow, revocation or termination thereof or would result in any other impairment
of the rights of the holder of any such Permits. Except as set forth of Schedule
3.11, to the knowledge of Seller, there is no pending or proposed modification
of any Permit or other regulation or ordinance in any state, county, municipal,
or other government unit affecting the Business in any material respect.
3.12 Health and Safety Requirements. To the knowledge of Seller, Seller is
in compliance with all laws, governmental standards, rules and regulations
applicable to Seller or to any of the Assets in respect to the Americans with
Disabilities Act and similar state laws, occupational health and safety laws,
and environmental laws.
3.13 Employment Contracts, Etc. Seller is not is a party to any written
employment agreements related to the employees at the Restaurants, (or any oral
agreements providing for employment other than employment "at will") or any
deferred compensation agreements.
3.14 Labor Matters. Seller is not and never has been a party to any
collective bargaining or other labor agreement affecting the Business. To the
knowledge of Seller, there is no pending or threatened labor dispute, strike,
work stoppage, union representation, election, negotiation of collective
bargaining agreement, or similar labor matter affecting the Business. Seller is
not involved in any controversy with any group of its employees or any
organization representing any employees involved in the Business, and to the
knowledge of Seller, Seller is in compliance with all applicable federal and
state laws and regulations concerning the employer/employee relationship,
including but not limited to wage/hour laws, laws prohibiting discrimination,
and labor laws. Seller is in compliance with all of its agreements relating to
the employment of its employees, including, without limitation, provisions
thereof relating to wages, bonuses, hours of work and the payment of Social
Security taxes, and Seller is not liable for any unpaid wages, bonuses, or
commissions or any tax, penalty, assessment, or forfeiture for failure to comply
with any of the foregoing.
3.15 Employee Benefits.
(a) Schedule 3.15 hereto contains a true and complete list of all the
following agreements or plans of Seller which are presently in effect and which
cover or benefit any of the employees engaged in the Business:
(i) "employee benefit plans," as defined in Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA");
(ii) any other pension, profit sharing, retirement, deferred compensation,
stock purchase, stock option, incentive, bonus, vacation, severance, disability,
health, hospitalization, medical, life insurance, vision, dental, prescription
drug, supplemental unemployment, layoff, automobile, apprenticeship and
training, day care, scholarship, group legal benefits, fringe benefits, or other
employee benefit plan, program, policy, or arrangement, whether written or
unwritten, forma or informal, which Sellers maintains or to which Seller has any
outstanding, present, or future obligation to contribute to or make payments
under, whether voluntary, contingent, or otherwise (the plans, programs,
policies, or arrangements described in clauses (i) or (ii) are herein
collectively referred to as the "Seller Plans").
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(b) Seller has provided to Purchaser copies of all Seller Plans.
(c) All Seller Plans have been operated, administered, and funded in
compliance with the applicable provisions of ERISA, the Code, and all applicable
regulations promulgated thereunder (including the minimum funding requirements
of Section 302 of ERISA and Section 412 of the Code). Without limiting the
generality of the foregoing:
(i) No "reportable event" (as such term is defined in Section 4043(a) of
ERISA) and no transaction described in Section 406 of ERISA has occurred with
respect to any of the Seller Plans.
(ii) There are no pending, threatened, or anticipated claims by, against,
or on behalf of the Seller Plans other than uncontested routine claims by
participants and beneficiaries for benefits due and owing under the Seller
Plans.
(iii) None of the Assets is subject to a lien pursuant to Section 302(f) or
Section 4068 of ERISA and no event has occurred which could subject any of the
Assets to any such lien.
(iv) Neither the Seller nor any of its affiliates has engaged in any
transaction or is a successor to or parent corporation of any party which has
engaged in any transaction which could subject it to liability under Section
4069 of ERISA.
(d) Seller has never sponsored, maintained, made, or been required to make
contributions to a multi-employer plan as defined in Section 3(37) of ERISA.
(e) No Seller Plan is subject to Title IV of ERISA.
3.16 Employees. Seller has not made any statements to its employees which
are inconsistent with the provisions of Sections 6.3(a), 6.3(b) or 6.3(c).
3.17 Inventory. The inventory (including food, beverage, and liquor and all
paper products) in each Restaurant consists of a quality which is usable and
saleable in the ordinary course of business. Stocks of new uniforms and supplies
(including carbon dioxide, matches, filters, balloons, crayons, and other
children's novelties and menus) are of a quantity and quality customary to
Seller's past practice. All inventory, uniforms, and supplies are of a nature
and quality which complies with the Franchise Agreements.
3.18 Accuracy of Schedules, Certificates, and Documents. No representation,
warranty, or covenant by Seller in this Agreement (including the Exhibits
attached hereto and the Disclosure Memorandum) contains or will contain any
untrue statement of material fact or omits or will omit to state any material
fact required to be stated herein or therein necessary in order to make the
statements herein or therein not misleading. All documents furnished to
Purchaser pursuant to this Agreement which are documents described in this
Agreement or in the Disclosure Memorandum are true and correct copies of the
documents which they purport to represent.
ARTICLE IV - COVENANTS OF SELLER
4.1 Performance of Real Property Leases and Assumed Contracts. Seller
shall, through the Closing Date, continue to faithfully and diligently perform
each and every continuing obligation of Seller, if any, under each of the Leases
and Material Contracts, where the failure to do so would have a material adverse
affect on the operations of a Restaurant.
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4.2 Lease Options. Seller shall, through the Closing Date, exercise any
option becoming exercisable under a Lease to extend the term of such Lease.
4.3 Transfer of Licenses and Permits. Seller shall use reasonable best
efforts to cooperate in assisting Purchaser with the assumption, transfer, or
reissuance of any and all Permits required for the operation of the Restaurants.
4.4 Liabilities of Seller. All liabilities of Seller related to the Assets
which are not Assumed Liabilities will be promptly paid by Seller as they come
due.
4.5 Agreements Respecting Employees of Seller.
(a) Prior to the Effective Time without the prior written approval of
Purchaser, Seller shall not transfer or reassign to operations outside the
Business any employee exclusively involved in the operation or supervision of
the Restaurants ("ADI Personnel") At the Effective Time, Seller shall terminate
the employment of all ADI Personnel. For a period of twelve months following the
Closing, Seller shall not hire any person who was an employee of Purchaser
within the previous three months. For a period of eighteen months following the
Closing, Seller shall not solicit for employment any person who is an employee
of Purchaser.
(b) Seller shall be solely responsible for any severance amounts due or
granted by Seller to any ADI Personnel.
(c) Seller shall cooperate with Purchaser in the transition of coverage of
ADI Personnel from Seller's health, medical, life insurance and other welfare
plans to plans maintained by Purchaser.
4.6 Conduct of Business. (a) From the date hereof until Closing, Seller
shall (i) operate the Restaurants as they are currently being operated and in
the ordinary course of business and in compliance with all terms and conditions
of the Franchise Agreements, using reasonable best efforts in keeping with
Seller's historical practices to preserve and maintain the services of its
employees and its relationships with suppliers and customers, (ii) pay all bills
and debts incurred by it related to the Business promptly as they become due,
and (iii) consult in advance with Purchaser on all decisions outside the
ordinary course of business relating to the Assets or the Restaurants.
(b) In particular, and without limiting the foregoing, with respect to the
Business, Seller shall:
(i) continue to conduct the advertising activities and efforts as set forth
on Schedule 4.6;
(ii) maintain the Assets consistent with past practices and in accordance
with the maintenance capital expenditure budget set forth on Schedule 4.6;
(iii) continue to conduct on a timely basis all Restaurant remodeling and
refurbishments as set forth on Schedule 4.6, which Schedule shows the remodeling
and refurbishment activities of Seller with respect to the Territory as budgeted
by Seller;
(iv) continue to purchase and maintain inventories for each Restaurant in
such quantities and quality as necessary to operate the Restaurants in
accordance with Seller's historical practice;
(v) continue to operate the Restaurants in accordance with all material
applicable local, state, and federal laws and regulations; and
(c) Further, with respect to the Restaurants, Seller shall not, without the
express prior written approval of Purchaser:
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(i) change in any material manner the ownership of the Assets;
(ii) increase the rate of compensation to ADI Personnel beyond the usual
and customary annual merit increases or bonuses under established compensation
plans, except for payments under the stay-bonus plan described on Schedule 4.6,
which has been approved;
(iii) mortgage, pledge, or subject to lien any of the Assets;
(iv) sell or otherwise dispose of any Asset except in the ordinary course
of business;
(v) enter into any Material Contract except in the ordinary course of
business and consistent with past practices;
(vi) establish or adopt any new "employee benefit plan" as defined in
Section 3(3) of ERISA; or
(vii) other than in the ordinary course of business, cancel or terminate or
consent to or accept any cancellation or termination of any Material Contract or
Lease, amend or otherwise modify any of its material terms or waive any breach
of any of its material terms or provisions or take any other action in
connection with any Material Contract or Lease that would materially impair the
interests or rights of Seller to be transferred to Purchaser hereunder.
4.7 Access to Information. Seller shall afford Purchaser, its counsel,
financial advisors, auditors, lenders, lenders' counsel and other authorized
representatives reasonable access for any purpose consistent with this Agreement
from the date hereof until the Closing, during normal business hours, to the
offices, properties, books, and records of Seller with respect to the Assets and
the Restaurants and shall furnish to Purchaser such additional financial and
operating data and other information as Seller may possess and as Purchaser may
reasonably request, subject to Purchaser's obligations regarding the
confidentiality of such information as set forth in Section 6.2 hereof;
provided, however, that such access shall be arranged in advance by Purchaser
with Seller and will be scheduled in a manner and with a frequency calculated to
cause the minimum disruption of the business of Seller.
4.8 Reporting Requirements. Through the Closing Date, Seller shall furnish
to Purchaser:
(a) Promptly after the occurrence, or failure to occur, of any such event,
information respect to any event which has materially adversely affected the
Assets or the operations of the Restaurants.
(b) As soon as available and in any event within fifteen business days
after the end of each fiscal month, the statement of operations of each
Restaurant for such month in the Seller's regularly prepared format.
(c) Promptly after the commencement of each such matter, notice of all
actions, charges, orders or other directives affecting the Business or any
Restaurant that, if adversely determined, could materially adversely affect the
Assets, the operations, business, prospects or condition (financial or
otherwise) of the Restaurant or the ability of Seller to perform its obligations
hereunder;
(d) Such other information respecting the Assets or the operations,
business prospects, or condition (financial or otherwise) of the Restaurants as
the Purchaser may from time to time reasonably request.
4.9 Cooperation. Insofar as such conditions are within its reasonable
control or influence, Seller will use reasonable best efforts to cause the
conditions set forth in Article VII to be satisfied and to facilitate and cause
the consummation of the transactions contemplated hereby, including obtaining
the Consents. The parties acknowledge that no consents will be sought with
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respect to any Minor Contract even if the failure to so obtain a consent to
assignment may result in a default or termination thereunder. Seller will use
reasonable best efforts to obtain required consents of landlords to the
assignment of the Leases and shall bear any expenses associated with obtaining
such consents; however, Seller shall not be required to make any payment to a
landlord (other than reimbursement of expenses), guarantee any Lease or remain
liable for the payment thereof following the Closing, or agree to any
concessions or amendment to other leases or arrangements with such landlord in
order to obtain such consents.
4.10 Subsequent Contracts. From the date of this Agreement to the Closing
Date, Seller shall use reasonable best efforts (a) to include in any Material
Contracts entered into by Seller ("Subsequent Contracts") a provision permitting
the assignment of any such Subsequent Contract to Purchaser and providing that
upon such assignment, Purchaser shall succeed to all of Seller's rights, title,
and interests thereunder subject to the Purchaser's assumption of all of
Seller's duties, powers, and obligations under such Subsequent Contract, and (b)
to ensure that no Subsequent Contract contains any provision which would limit
in any way the rights, title, and interests of Seller in the Assets.
4.11 Transition Services.
(a) For a period of three months after the Closing, if and to the extent
requested in writing by Purchaser, Seller agrees to provide to Purchaser
restaurant accounting, POS system support, and/or other services related to the
Restaurants as mutually agreed upon between Seller and Purchaser (the
"Services"). Purchaser shall give Seller notice of the Services requested at
least thirty days prior to Closing. The Services shall be provided promptly as
requested and shall be provided i the same manner and with the same or similar
personnel as Seller previously utilized. Purchaser may extend the period for
which the Services will be provided for up to sixty days by giving at least
forty-five days prior written notice to Seller.
(b) Purchaser will pay for the Services on a monthly basis. The Services
will be provided for an agreed upon fixed fee.
4.12 Delivery of Real Estate Documents. Within five business days of the
date hereof Seller shall provide to Purchaser legal descriptions of the Owned
Real Property and copies of all surveys, title policies, and environmental
reports pertaining to the Owned Real Property in Seller's possession.
4.13 Equipment Leases and Liens. (a) Prior to or at the Closing, Seller
shall purchase all equipment and other tangible personal property customarily
located in the Restaurants or on the Real Property or used exclusively with
respect to the Business that is subject to any equipment or other personal
property lease (other than immaterial personal property such as a postage meter
or copying machine separately subject to a Minor Contract). Title to all such
property so acquired shall be transferred to Purchaser at Closing free and clear
of any lien, security interest, claim, or other encumbrance.
(b) Seller shall satisfy any and all claims for mechanic's or materialmen's
liens against the Real Property or any part thereof on or prior to Closing.
(c) Prior to or at the Closing, Seller shall cause to be removed any
security deed, deed of trust, security interest, lien, or other encumbrance upon
the Owned Real Property or any other Asset that secures any loan, debt, or other
financing obligation.
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ARTICLE V REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser hereby represents and warrants to Sellers as follows:
5.1 Organization, Corporate Power, Authorization. Purchaser is a limited
liability company duly organized, validly existing, and in good standing under
the laws of the State of Alabama and in each other jurisdiction in which it is
lawfully required to qualify to conduct business. Purchaser has the power and
authority to execute and deliver this Agreement, the Bill of Sale and Assignment
Agreement, and the Indemnification Agreement and to consummate the transactions
contemplated hereby. All action on the part of Purchaser necessary for the
authorization, execution, and delivery of this Agreement, the Bill of Sale and
Assignment Agreement, and the Indemnification Agreement, and performance of all
obligations of Purchaser thereunder has been duly taken.
5.2 Non-Contravention. The execution and delivery of this Agreement, the
Bill of Sale and Assignment Agreement, and the Indemnification Agreement by
Purchaser do not and the consummation by Purchaser of the transactions
contemplated hereby and thereby will not violate any provision of its articles
of organization or operating agreement.
5.3 Validity. This Agreement has been duly executed and delivered by
Purchaser, and constitutes the legal, valid, and binding obligation of
Purchaser, enforceable against it in accordance with its terms, subject to
general equity principles and to applicable bankruptcy, insolvency,
reorganization, moratorium, and similar laws from time to time in effect
affecting the enforcement of creditors' rights. When the Bill of Sale and
Assignment Agreement, and the Indemnification Agreement have been executed and
delivered in accordance with this Agreement, they will constitute the legal,
valid, and binding obligation of Purchaser, enforceable in accordance with their
terms, subject to general equity principles and to applicable bankruptcy,
insolvency, reorganization, moratorium, and similar laws from time to time in
effect affecting the enforcement of creditors' rights.
5.4 Litigation Relating to the Agreement. Purchaser is not a party to, or
subject to any judgment, decree, or order entered in any lawsuit or proceeding
brought by any governmental agency or instrumentality or other party seeking to
prevent the execution of this Agreement or the consummation of the transactions
contemplated hereby.
ARTICLE VI - COVENANTS OF PURCHASER
6.1 Purchaser Performance. After the Closing Date, Purchaser shall promptly
pay as they become due and otherwise perform all obligations of Seller, subject
to Purchaser's right, in good faith, to contest the amount or validity of such
obligation under the Assumed Liabilities and otherwise perform and fulfill all
other obligations with respect to the Assets pertaining to the period after the
Closing Date; provided, however, that this Agreement is intended only for the
benefit of the parties hereto and neither this Agreement, nor any of the rights,
interests, or obligations hereunder, is intended for the benefit of any other
Person.
6.2 Confidentiality. In connection with the negotiation of this Agreement,
Seller may disclose Confidential Information, as defined below, to Purchaser.
Purchaser agrees that if the transactions contemplated herein are not
consummated, it will return to Seller all documents and other written
information furnished to it. Purchaser further agrees to maintain the
confidentiality of any and all Confidential Information of Seller and not
disclose any Confidential Information to any Person othe than its employees,
agents, attorneys, lenders, and accountants in connection with the transactions
contemplated hereby or use such Confidential Information for financial gain or
in any manner adverse to Seller; provided, however, the foregoing obligations
shall not apply to (i) any information which was known by Purchaser prior to its
disclosure by Seller; (ii) any information which was in the public domain prior
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to the disclosure thereof; (iii) any information which comes into the public
domain through no fault of Purchaser; (iv) any information which is disclosed to
Purchaser by a third party, other than an affiliate, having the legal right to
make such disclosure; or (iv) any information which is required to be disclosed
by Order of any Forum. For purposes of this Section, "Confidential Information"
shall mean any and all technical, business, and other information which is (a)
possessed or hereafter acquired by Seller and disclosed to Purchaser and (b)
derives economic value, actual or potential, fro not being generally known to
Persons other than Seller, including, without limitation, technical or
nontechnical data, compositions, devices, methods, techniques, drawings,
inventions, processes, financial data, financial plans, product plans, lists of
actual or potential customers or suppliers, information regarding the business
plans and operations of Seller, and the existence of discussions and
negotiations between the parties hereto relating to the terms hereof. The
restrictions of this Section shall expire three years from the date hereof with
respect to any confidential business information that does not constitute a
trade secret under applicable law.
6.3 Seller Employees.
(a) Purchaser shall offer employment to all ADI Personnel as to whom
Purchaser has been furnished all employment records at Closing upon terms and
conditions substantially equivalent to those provided by Seller; however,
Purchaser shall not be required to provide stock options or any stock purchase
rights. For a period of twelve months following the Closing, Purchaser shall not
hire any person who was an employee of Seller or any subsidiary of Seller within
the previous three month (other than ADI Personnel) and for a period of eighteen
months following the Closing. Purchaser shall not solicit for employment any
person who is an employee of Seller or any subsidiary of Seller.
(b) Each of the ADI Personnel offered employment pursuant to Section 6.3(a)
shall be offered employment by Purchaser as an "at will" employee of Purchaser
to perform such duties as Purchaser may assign to such employee from time to
time. Each such employee shall be subject to the same rules and policies
applicable to Purchaser's current employees with respect to all employment
related matters including retention, disciplinary action, termination,
promotion, compensation, and except as otherwise provided in this Agreement,
benefits. Each party hereby represents to the other party that neither such
party nor any of its officers or directors has made any representation to any
such employee which is materially inconsistent with the foregoing.
(c) The covenants of Purchaser contained in this Section are made solely to
Seller. Nothing contained in this Section gives or shall be construed as giving
any employee of Seller, including ADI Personnel, any right to be employed by
Purchaser in any capacity, for any rate of compensation or for any period of
time. No employee of Seller, including ADI Personnel, shall be considered a
third party beneficiary of the covenants of Purchaser contained in this Section
and Purchaser shall have no liability to any employee on account of its breach
of any such covenants.
(d) Purchaser shall maintain employee records transferred to Purchaser
hereunder for a period of not less than four years and during that period will
afford Seller reasonable access to such records during Purchaser's normal
business hours. Purchaser shall maintain the confidentiality of such records and
limit access thereto in a manner consistent with Purchaser's treatment of its
employee records.
(e) Purchaser agrees with respect to ADI Personnel hired by Purchaser: (i)
to give such employees credit under Purchaser's benefits plans, programs, and
arrangements, including credit for accrued vacation which has been charged to
Seller under Section 2.3, for such employees' period of service with Seller,
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provided that such credit shall only be taken into account under any
tax-qualified plan maintained by Purchaser for purposes of determining such
employees' eligibility for participation and eligibility to satisfy any hours of
service requirement in order to receive an allocation of an employer
contribution; (ii) to provide coverage to such employees who are eligible under
Purchaser's health, medical, life insurance, and other welfare plans (A) without
the need to undergo a physical examination or otherwise provide evidence of
insurability; (B) any pre-existing condition or similar limitations or
exclusions will be applied by taking into account the period of coverage under
Seller's plan; (C) by applying and giving credit for amounts paid for the plan
year in which the Closing Date occurs as deductibles, out of pocket expenses,
and similar amounts paid by individuals and their beneficiaries.
6.4 Cooperation. Insofar as such conditions are within its reasonable
control or influence, Purchaser shall use reasonable best efforts to cause the
conditions set forth in Article VII to be satisfied and to facilitate and cause
the consummation of the transactions contemplated hereby. Specifically, but not
by way of limitation, Purchaser will (i) use its reasonable best efforts to
obtain a signed commitment letter for financing in substantially the form
attached hereto as Exhibit "H" from the lender referenced therein ("Financing
Commitment") and to obtain financing from such lender on the terms set forth
therein, (ii) promptly provide Franchisor with all information required by
Franchisor to determine whether Purchaser will be approved as a franchisee with
respect to the Territory, (iii) actively pursue an agreement with Franchisor as
to the principal terms of franchise and development agreements with respect to
the Territory, and (iv) file all documents required to obtain approval of the
transactions contemplated hereby under the HSR Act within 15 days of the date
hereof.
ARTICLE VII - CONDITIONS PRECEDENT TO THE CLOSING
7.1 Title Examination and Property Inspection. (a) Purchaser shall have 30
days following the later of the date of this Agreement or the receipt of the
documents referred to in Section 4.12 (the "Title Inspection Period") to obtain
and review (i) current ALTA/ASCM as-built surveys and title insurance
commitments with respect to the Owned Real Property ("Owner's Title ALTA
Commitments") pursuant to which the Title Company will agree to issue at Closing
owner's policies of title insurance ("Owner's Title Policies") on American Land
Title Association standard Form B-1970, without exceptions except as shown in
the Owner's Title ALTA Commitments, to be issued by a reputable title insurance
company of Purchaser's choice and reasonably acceptable to Seller ("Title
Company") in an amount in the case of each parcel equal to the purchase price
allocated to such parcel of the Owned Real Property pursuant to Section 2.7, and
(ii) current ALTA/ASCM as-built surveys and title insurance commitments wit
respect to the Real Property subject to a Lease (collectively, the "Leased Real
Property") (the "Lessee Title Commitments", and collectively with the Owner's
Title ALTA Commitments, the "Title Commitments") pursuant to which the Title
Company will agree to issue at Closing lessee's policies of title insurance
("Lessee's Title Policies") on American Land Title Association standard form of
leasehold owner's policy to insure leasehold estates, showing no exceptions
except as shown in the Lessee Title Commitments. The Owner's Title Policies
shall insure the Purchaser that, upon consummation of the purchase and sale
herein contemplated, Purchaser will be vested with good, fee simple, marketable
and insurable title to the Owned Real Property, subject only to the Permitted
Encumbrances or encumbrances arising out of acts of the insured. The Lessee's
Title Policies shall insure the Purchaser that, upon consummation of the
transactions herein contemplated, Purchaser will be vested with a good, valid,
marketable and insurable leasehold estate in and to the Leased Real Property,
subject only to the Permitted Encumbrances. Seller and Purchaser shall take such
steps as may be necessary to cause the deletion of all the standard exceptions
within the Title Policies for mechanic's and materialmen's liens and the survey
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exceptions. Purchaser shall have until the end of the Title Inspection Period in
which to furnish Seller a written statement of objections to any title,
ordinance, zoning, or survey matter ( Material Objections"). Any requirements of
Schedule B-1 of the Title Commitments, to the extent not within the control of
Purchaser, shall automatically be considered as Material Objections. Seller
shall have until the Termination Date to satisfy such Material Objections (but
with no obligation to do so) in all material respects, and if Seller fails to
satisfy all Material Objections in all material respects on or prior to the
Termination Date, then Purchaser's sole right and remedy shall be to either (i)
waive the Material Objections and elect to close (in which case the subject of
such Material Objections shall be deemed Permitted Encumbrances), or (ii)
terminate this Agreement by giving written notice of such termination to Seller.
If Purchaser fails to furnish Seller a written statement of Material Objections
by the end of the Title Inspection Period with respect to any matter appearing
as an exception on a Title Commitment, such matter along with all other
encumbrances of record as of the effective date of the Title Commitments not
objected to by Purchaser shall be deemed waived by Purchaser and shall be a
Permitted Encumbrance. Any easement, restriction, covenant, and other
encumbrance which becomes an exception to title after the date of the Title
Commitments and prior to the Closing shall upon notice to Seller in writing be
considered a Material Objection. The parties acknowledge that some of the Leased
Real Property may be located in shopping centers, and as such, unless the leased
premises are a free standing building located on a separate pad with its own
legal description ("Free Standing Premises") the Lessee Title Commitments for
such Leased Real Property will contain encumbrances for entire shopping centers.
Notwithstanding anything to the contrary contained herein, while Lessee Title
Commitments will be delivered for such Leased Real Property, no surveys will be
delivered for Leases unless such Leases are for Free Standing Premises. With
respect to Leased Real Property other than Free Standing Premises, Purchaser may
not object to title encumbraces for such Leased Real Property that do not affect
the premises leased under the Leases or tenant's rights under such Leases, which
such encumbrances shall be deemed to be Permitted Encumbrances.
(b) Property Inspection.
(i) Between the date of this Agreement and the Closing Date, Purchaser and
Purchaser's agents, employees, contractors, representatives and other designees
(hereinafter collectively called "Purchaser's Designees") shall have the right
to enter the Real Property for the purposes of inspecting the Real Property,
conducting soil tests, conducting surveys, mechanical and structural engineering
studies, environmental studies, and conducting any other investigations,
examinations, tests, and inspections as Purchaser may reasonably require to
assess the condition of the Real Property; provided, however, that (A) any
activities by or on behalf of Purchaser, including, without limitation, the
entry by Purchaser or Purchaser's Designees onto the Real Property, or the other
activities of Purchaser or Purchaser's Designees with respect to the Real
Property (hereinafter called "Purchaser's Activities") shall not damage the Real
Property in any manner whatsoever or disturb or interfere with the rights of any
lessor of Leased Real Property; provided, however, that Seller agrees and
acknowledges that Purchaser's activities may, upon reasonable notice to Seller,
involve soil borings and samplings and similar invasive procedures that will not
adversely affect operations of the Restaurants or affect the structural
integrity of the Real Property; (B) in the event the Real Property is altered or
disturbed in any manner in connection with any Purchaser's Activities, Purchaser
shall promptly return the Real Property t the condition existing prior to
Purchaser's Activities; (C) Purchaser shall in no event without Seller's prior
written consent disclose the results of any of its investigations, examinations,
tests, or inspections to any party (including any Government unless required by
law) other than to its lenders, attorneys, consultants, and investors; and (D)
Purchaser shall indemnify, defend, and hold Seller harmless from and against any
and all claims, liabilities, damages, losses, costs, and expenses of any kind or
nature whatsoever (including, without limitation, attorneys' fees, and expenses
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and court costs) suffered, incurred or sustained by Seller as a result of, by
reason of, or in connection with any Purchaser's Activities. Notwithstanding any
provision of this Agreement to the contrary, Purchaser shall not have the right
to undertake any environmental studies or testing beyond the scope of a standard
"Phase I" evaluation without the prior written consent of Seller and, if
applicable, the lessor of any Leased Real Property; provided, however, that
Purchaser shall have the right to undertake and conduct a "Phase II" evaluation
or other evaluation Purchaser deems necessary on the Real Property on which the
Bristol, Tennessee Restaurant is located.
(ii) Purchaser shall have until the date which is thirty (30) days after
the date of this Agreement (hereinafter called the "Due Diligence Date"), to
perform such investigations, examinations, tests and inspections as Purchaser
shall deem necessary or desirable to determine whether the Real Property is
suitable and satisfactory to Purchaser and can be used for Applebee's franchise
restaurants. In the event Purchaser shall in good faith determine that the Real
Property is not suitable and satisfactory to Purchaser, Purchaser shall have the
right to terminate this Agreement by giving written notice to Seller on or
before the Due Diligence Date If Purchaser does not terminate this Agreement in
accordance with this Section 7.1(b) on or before the Due Diligence Date,
Purchaser shall have no further right to terminate this Agreement pursuant to
this Section 7.1(b).
(iii) Prior to any entry by Purchaser or any of Purchaser's Designees onto
the Real Property, Purchaser shall: (A) procure a policy of commercial general
liability insurance, issued by an insurer reasonably satisfactory to Seller,
covering all Purchaser's Activities, with a single limit of liability (per
occurrence and aggregate) of not less than $1,000,000.00; and (B) deliver to
Seller a Certificate of Insurance, evidencing that such insurance is in force
and effect, and evidencing that Selle has been named as an additional insured
thereunder with respect to any Purchaser's Activities. Such insurance shall be
written on an "occurrence" basis, and shall be maintained in force until the
earlier of (A) the termination of this Agreement and the conclusion of all
Purchaser's Activities; or (B) Closing.
(iv) Purchaser acknowledges that Seller may deliver to Purchaser certain
documents and information in possession of Seller or Seller's agents with regard
to the Real Property (hereinafter called the "Due Diligence Materials"). The Due
Diligence Materials will be provided to Purchaser without any representation or
warranty of any kind or nature whatsoever and are merely provided to Purchaser
for Purchaser's informational purposes. Until Closing, Purchaser and Purchaser's
Designees shall maintain all Due Diligence Materials as Confidential
Information.
7.2 Purchaser's Conditions to Closing. The obligations of Purchaser
hereunder are subject to satisfaction of each of the following conditions at or
before Closing, the occurrence of which may, at the option of Purchaser, be
waived:
(a) Subject to the matters disclosed in the Disclosure Memorandum as
supplemented by Seller from time to time to reflect any event or occurrence
after the date hereof, all representations and warranties of Seller in this
Agreement shall be true in all material respects on and as of the Closing.
(b) Any supplement to the Disclosure Memorandum delivered by Seller shall
not reflect in Purchaser's reasonable judgment any material adverse change in
the Assets or the Business.
(c) Seller shall have performed and complied in all material respects with
all of its obligations under this Agreement which are to be performed or
complied with by Seller prior to or on the Closing Date.
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(d) Seller shall have obtained and delivered to Purchaser all consents
necessary to transfer and assign the Assets (except for Minor Contract) to
Purchaser.
(e) Purchaser and Franchisor shall have entered into a franchise agreement
with respect to each Restaurant and development agreements with respect to each
ADI in the Territory.
(f) Purchaser shall have obtained, either from Seller or directly from the
issuing authority, all permits, licenses, including liquor licenses, and
approvals of all governmental and quasi-governmental authorities necessary for
the operation of the Restaurants in accordance with franchise requirements;
provided, however, that if Purchaser is unable to obtain from local municipal or
county authorities a permit necessary for such operation of the Restaurants, and
Purchaser reasonably believes that it will be able to obtain such a permit
within two months of the Closing Date, Closing of the transactions contemplated
hereunder will not be delayed if Seller delivers to Purchaser a duly executed
liquor license management agreement or agreements.
(g) The waiting period under the HSR Act shall have expired or a
notification of early termination of the waiting period shall have been received
by Purchaser.
(h) Purchaser shall have obtained the financing described on Exhibit "H" or
other financing reasonably acceptable to Purchaser and the lender providing such
financing shall be prepared and willing to fund.
(i) Purchaser shall have been issued the Title Policies.
(j) Seller shall have delivered the items required by Section 2.4(a).
(k) There shall be no material adverse change in the Assets or the
operations of the Seller at the Restaurants or the business prospects or
financial condition of the Business from the date hereof to the Closing Date;
provided that (i) any such adverse change must affect more than 5% of the
Restaurants or must result in a decrease in the aggregate monthly sales of all
the Restaurants taken as a group by 10% or more when compared to the average
monthly sales for the last three full calendar months ended immediately prior to
the date of this Agreement, and (ii) any adverse change in the business and
financial condition of the Restaurants resulting from national and regional
economic conditions, events, or other factors affecting the casual dining
restaurant industry in general, or the Applebee's system in particular, shall
not be deemed to be a material adverse change hereunder.
7.3 Seller's Conditions to Closing. The obligations of Seller hereunder are
subject to satisfaction of each of the following conditions at or before
Closing, the occurrence of which may, at the option of Seller, be waived:
(a) All representations and warranties of Purchaser in this Agreement shall
be true on and as of the Closing, and Purchaser shall have delivered to Seller a
certificate to such effect dated as of the Closing Date.
(b) Purchaser shall have performed and complied in all material respects
with all of its obligations under this Agreement which are to be performed or
complied with by Purchaser prior to or on the Closing Date.
(c) Franchisor shall have agreed to terminate the Franchise Agreements
effective as of the Closing.
(d) Seller shall have obtained all the Consents; provided, however, that
this condition shall not apply if Purchaser shall indemnify Seller for any
liability in excess of $25,000 resulting from the failure to receive any
Consent.
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(e) The waiting period under the HSR Act shall have expired or a
notification of early termination of the waiting period shall have been received
by Seller.
(f) Purchaser shall have delivered the items required by Section 2.4(b).
ARTICLE VIII - ARBITRATION
8.1 Settlement of Disputes.
(a) Arbitration. All disputes and controversies of every kind and nature
between the parties hereto arising out of or in connection with this Agreement
or the transactions contemplated hereby shall be submitted to arbitration
pursuant to the following procedures:
(i) After a dispute or controversy arises, either party may, in a written
notice delivered to the other party, demand such arbitration. Such notice shall
designate the name of the arbitrator appointed by such party demanding
arbitration, together with a statement of the matter in controversy;
(ii) Within 30 days after receipt of such demand, the other party shall, in
a written notice delivered to the other party, name such party's arbitrator. If
such party fails to name an arbitrator, then the second arbitrator shall be
named by the American Arbitration Association ("AAA"). The two arbitrators so
selected shall name a third arbitrator within 30 days, or in lieu of such
agreement on a third arbitrator by the two arbitrators so appointed, the third
arbitrator shall be appointed by the AAA;
(iii) The arbitration hearing shall be held in Birmingham, Alabama (in the
case of arbitration initiated by Seller) or in Atlanta, Georgia (in the case of
arbitration initiated by Purchaser) at a location designated by a majority of
the arbitrators. The Commercial Arbitration Rule of the AAA shall be used and
the substantive laws of the State of Georgia (excluding conflict of laws
provisions) shall apply;
(iv) An award rendered by a majority of the arbitrators appointed pursuant
to this Agreement shall be final and binding on all parties to the proceeding,
shall deal with the question of costs of the arbitration and all related
matters, and judgment on such award may be entered by either party in a court of
competent jurisdiction; and
(v) Except as set forth in subsection (b) below, the parties stipulate that
the provisions of this Section 8.1 shall be a complete defense to any suit,
action or proceeding instituted in any federal, state, or local court or before
any administrative tribunal with respect to any controversy or dispute arising
out of this Agreement. The arbitration provisions hereof shall, with respect to
such controversy or dispute, survive the termination or expiration of this
Agreement.
(b) Emergency Relief. Notwithstanding anything in this Section 8.1 to the
contrary, either party may seek from a court any provisional remedy that may be
necessary to protect any rights or property of such party pending the
establishment of the arbitral tribunal or its determination of the merits of the
controversy.
ARTICLE IX - TERMINATION
9.1 Termination.
(a) This Agreement may be terminated as follows:
(i) At any time by the mutual consent of Seller and Purchaser;
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(ii) By Purchaser pursuant to Section 7.1;
(iii) By Seller if Purchaser shall not (i) have obtained and provided a
copy of an executed Financing Commitment to Seller within ten days from the date
hereof; provided however that such ten day period shall not apply to financing
with respect to the Real Property upon which the Bristol, Tennessee Restaurant
is located, (ii) been approved hereof as a franchisee with respect to the
Territory by Franchisor within twenty days from the date hereof, (iii) reached
agreement with Franchisor as to a development schedule and other material terms
of franchise and development agreements with respect to the Territory within
twenty days from the date hereof; or
(iv) By either Seller or Purchaser, at its sole election, at any time after
the Termination Date, if the Closing shall not have occurred on or prior to such
date.
(b) In the event of the termination of this Agreement pursuant to Section
9.1 (a)(iv) above because Seller or Purchaser, as the case may be, shall have
willingly failed to fulfill its obligations hereunder, the other party shall,
subject to Article VIII, be entitled to pursue, exercise, and enforce any and
all remedies, rights, powers, and privileges available to it at law or in
equity.
(c) If this Agreement is terminated as provided herein, then except for the
provisions of Section 6.2, Article VIII, and Article X hereof which shall
survive termination of this Agreement, no party shall have any liability or
further obligation to any other party hereto, except that nothing contained in
this Section 9.1 shall relieve any party from liability for any breach of this
Agreement. The provisions of Article VIII hereof shall be applicable with
respect to any such breach o claimed breach.
ARTICLE X - MISCELLANEOUS
10.1 Expenses. (a) Each party hereto shall pay its own legal, accounting,
and similar expenses incidental to the preparation of this Agreement, the
carrying out of the provisions of this Agreement, and the consummation of the
transactions contemplated hereby.
(b) Purchaser shall pay all filing fees required under the HSR Act.
(c) Purchaser shall pay the costs of obtaining title insurance with respect
to the Real Property and all transfer, intangible, recording, and documentary
taxes, stamps, and fees with respect to the transfer of the Owned Real Property
and the Leases. Purchaser shall also pay the cost of all surveys, and all
environmental investigations, studies, and reports, and all other costs of any
investigation of the Assets, the Restaurants, or the Business by Purchaser.
(d) Purchaser shall pay any costs associated with the transfer of any
Permits and the cost of obtaining liquor licenses or other Permits that are not
assignable.
(e) The parties shall split equally the cost of any sales taxes, transfer
taxes, documentary stamp taxes, or other taxes imposed with respect to the
transfer of any Assets constituting personal property.
(f) Seller shall pay the costs of obtaining any Consents.
(g) Following the Closing, Seller shall pay to Purchaser on a monthly basis
as billed the amount of all gift certificates issued by Seller prior to the
Closing and redeemed thereafter.
10.2 Contents of Agreement; Parties in Interest; etc. This Agreement sets
27
<PAGE>
forth the entire understanding of the parties hereto with respect to the
transactions contemplated hereby and together with the Indemnification Agreement
constitutes a complete statement of the terms of such transaction. This
Agreement shall not be amended or modified except by written instrument duly
executed by each of the parties hereto. Any and all previous agreements and
understandings between the parties regarding the subject matter hereof, whether
written or oral, are superseded by this Agreement. Neither party has been
induced to enter into this Agreement in reliance on, and has not relied upon,
any statement, representation, or warranty of the other party not set forth in
this Agreement, the Disclosure Memorandum, or any certificate delivered pursuant
to this Agreement.
10.3 Assignment and Binding Effect. This Agreement may not be assigned
prior to the Closing by any party hereto without the prior written consent of
the other party. Subject to the foregoing, all of the terms and provisions of
this Agreement shall be binding upon and inure to the benefit of and be
enforceable by the successors and assigns of Seller and Purchaser.
10.4 Notices. Any notice, request, demand, waiver, consent, approval, or
other communication which is required or permitted hereunder shall be in writing
and shall be deemed given only if delivered personally or sent by telecopy or by
first class registered or certified United States Mail, with proper postage
prepaid, as follows:
28
<PAGE>
If to Seller, to: With a required copy to:
Apple South, Inc. Kilpatrick Stockton LLP
Hancock at Washington 1100 Peachtree Street, Suite 2800
Madison, Georgia 30650 Atlanta, Georgia 30309
Attention: Louis J. (Dusty) Profumo Attention: Larry D. Ledbetter, Esq.
Fax: 706-343-2434 Fax: 404-815-6555
If to Purchaser: With a required copy to:
Quality Restaurant Concepts, L.L.C. Berkowitz, Lefkovits, Isom &
Kushner, A Professional Corporation
822 Columbiana Road Suite 1600
Birmingham, Alabama 35209 420 Twentieth Street North
Attention: Fred Gustin Birmingham, Alabama 35203
Fax: 205-290-9265 Attention: Barry S. Marks, Esq.
Fax: 205-322-8007
or to such other address or person as the addressee may have specified in a
notice duly given to the sender as provided herein. Such notice, request,
demand, waiver, consent, approval or other communication will be deemed to have
been given as of the date actually delivered, or if mailed, four days after
deposit in the U. S. Mail properly addressed with adequate postage affixed.
10.5 GEORGIA LAW TO GOVERN. THIS AGREEMENT SHALL BE GOVERNED BY AND
INTERPRETED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF GEORGIA
WITHOUT REGARD TO CONFLICT OF LAW PRINCIPLES.
29
<PAGE>
10.6 Headings. All section headings contained in this Agreement are for
convenience of reference only, do not form a part of this Agreement, and shall
not affect in any way the meaning or interpretation of this Agreement.
10.7 Schedules and Exhibits. All Exhibits and Schedules referred to herein
are intended to be and hereby are specifically made a part of this Agreement.
10.8 Severability. Any provision of this Agreement which is invalid or
unenforceable in any jurisdiction shall be ineffective to the extent of such
invalidity or unenforceability without invalidating or rendering unenforceable
the remaining provisions hereof, and any such invalidity or unenforceability in
any jurisdiction shall not invalidate or render unenforceable such provision in
any other jurisdiction.
10.9 Public Announcements. Purchaser and Seller will coordinate with each
other all press releases relating to the transactions contemplated by this
Agreement and, except to the extent required by law, refrain from issuing any
press release, publicity statement, or other public notice relating to this
Agreement or the transactions contemplated hereby without providing the other
party reasonable opportunity to review and comment thereon.
10.10 Construction. The parties hereto have participated jointly in the
negotiation and drafting of this Agreement. In the event that any ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the parties hereto and no presumption or burden of
proof shall arise favoring or disfavoring any party hereto by virtue of the
authorship of any of the provisions of this Agreement.
10.11 Disclaimer of Warranties. OTHER THAN TO THE EXTENT OF ANY EXPRESS
REPRESENTATIONS AND WARRANTIES OF SELLER SET FORTH IN THIS AGREEMENT AND IN THE
CLOSING CERTIFICATE REQUIRED BY SECTION 2.4(a)(i), SELLER DOES NOT, BY THE
EXECUTION AND DELIVERY OF THIS AGREEMENT, AND SELLER SHALL NOT, BY THE EXECUTION
AND DELIVERY OF ANY DOCUMENT OR INSTRUMENT EXECUTED AND DELIVERED IN CONNECTION
WITH THE CLOSING, MAKE ANY REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, OF
ANY KIND OR NATURE WHATSOEVER, WITH RESPECT TO THE ASSETS, AND ALL SUCH
WARRANTIES ARE HEREBY DISCLAIMED. PURCHASER WILL CONDUCT SUCH INSPECTIONS AND
INVESTIGATIONS OF THE ASSETS (INCLUDING, BUT NOT LIMITED TO, THE PHYSICAL AND
ENVIRONMENTAL CONDITION THEREOF) AND RELY UPON SAME AND, UPON CLOSING, SHALL
ASSUME THE RISK THAT ADVERSE MATTERS MAY NOT HAVE BEEN REVEALED BY PURCHASER'S
INSPECTIONS AND INVESTIGATIONS. SELLER SHALL SELL AND CONVEY TO PURCHASER, AND
PURCHASER SHALL ACCEPT, THE ASSETS "AS IS", "WHERE IS", AND WITH ALL FAULTS, AND
THERE ARE NO ORAL AGREEMENTS, WARRANTIES OR REPRESENTATIONS, COLLATERAL TO OR
AFFECTING THE ASSETS BY SELLER OR ANY THIRD PARTY. WITHOUT LIMITING THE
GENERALITY OF THE FOREGOING, SELLER MAKES, AND SHALL MAKE, NO EXPRESS OR IMPLIED
WARRANTY OF SUITABILITY OR FITNESS OF ANY OF THE ASSETS FOR ANY PURPOSE, OR AS
TO THE MERCHANTABILITY, ENVIRONMENTAL CONDITION, TITLE, VALUE, QUALITY,
QUANTITY, CONDITION OR SALABILITY OF ANY OF THE ASSETS, OR AS TO THE PRESENCE ON
OR ABSENCE FROM THE ASSETS OF ANY HAZARDOU MATERIAL, OR THAT THE USE OR SALE OF
ANY OF THE ASSETS WILL NOT VIOLATE THE COPYRIGHT, TRADEMARK OR PATENT RIGHTS OF
ANY PERSON. THE TERMS AND CONDITIONS OF THIS SECTION 10.11 SHALL SURVIVE THE
CONSUMMATION OF THE PURCHASE AND SALE OF THE ASSETS ON THE CLOSING DATE WITHOUT
REGARD TO ANY GENERAL LIMITATIONS UPON SURVIVAL SET FORTH IN THIS AGREEMENT.
10.12 Purchaser's Right to Rely. NOTWITHSTANDING ANYTHING IN THE FORGOING
TO THE CONTRARY, PURCHASER'S INSPECTIONS AND INVESTIGATIONS OF THE ASSETS SHALL
NOT IN ANY WAY OBVIATE OR HAVE ANY EFFECT ON SELLER'S REPRESENTATIONS,
WARRANTIES, AND COVENANTS MADE HEREIN. FURTHER, ANY DISCLOSURE BY SELLER OR
SELLER'S EMPLOYEES OR AGENTS, OTHER THAN A DISCLOSURE APPEARING ON THE
DISCLOSURE MEMORANDUM SHALL NOT IN ANY WAY OBVIATE OR HAVE ANY EFFECT ON
SELLER'S REPRESENTATIONS, WARRANTIES, AND COVENANTS MADE HEREIN.
10.13 Time. Time is and shall be of the essence of this Agreement.
30
<PAGE>
10.14 Steel Building Materials. If Seller is unable to cancel without
penalty its obligation to purchase the steel building materials which Seller has
ordered for a future Jackson, Mississippi restaurant (the "Building Materials"),
Seller shall sell, transfer, assign, and deliver to Purchaser all of Seller's
right, title, and interest in the Building Materials at the Closing for no
additional payment, and the Building Material shall be deemed to constitute
"Assets" for all purposes of this Agreement. If Seller is able to cancel its
contract for the Building Materials, the Purchase Price payable pursuant to
Section 2.3 hereof will be decreased by the amount of $10,000 and the Building
Materials shall not be deemed to constitute "Assets" for purposes hereof.
10.15 Bristol Restaurant. If (i) Purchaser shall have obtained the
financing described on Exhibit H or other financing reasonably acceptable to
Purchaser by or prior to the Closing Date but (ii) such financing does not
include financing for the purchase of the Real Property upon which the Bristol,
Tennessee Restaurant is located and Purchaser, after exercising reasonable
commercial efforts, is unable to obtain financing for the purchase of such Real
Property upon terms at least as favorable to Purchaser as the financing obtained
in item (i) of this sentence, at the Closing each of the following shall occur:
(a) The definitions of "Assets" and "Owned Real Property" in Section 1.1
shall be modified to exclude the Real Property (but not the improvements) on
which the Bristol Restaurant is located, and every other definition, provision,
exhibit, and schedule of this Agreement shall be modified to the extent
necessary to reflect such exclusion of the Bristol Restaurant Real Property from
the definitions of "Assets" and "Owned Real Property;" provided however, that
(i) the definition of "Restaurants shall not be modified, (ii) the definition of
"Real Property" shall continue to include the real property upon which the
Bristol Restaurant is located, and (iii) solely for purposes of the
representations and warranties contained in Sections 3.9, 3.10, and 3.12 hereof,
"Assets" shall continue to include the Real Property upon which the Bristol
Restaurant is located.
(b) The Purchase Price payable pursuant to Section 2.3 shall be decreased
by the amount of $374,000.
(c) Seller shall, or shall arrange for another Person having fee ownership
of the Bristol Restaurant to, enter into a ground lease with Purchaser for the
Real Property on which the Bristol Restaurant is located at the Closing. Such
ground lease shall: (i) be for a term of twenty years, (ii) have rent payable
thereunder at the rate of $31,790 per year, payable monthly in advance, (iii)
contain a purchase option for Purchaser for an initial purchase price of
$374,000, such purchase price to be increased by 2% per year for each year
subsequent to the fifth year of the term of the lease, (iv) permit the Seller or
other landlord thereof to freely assign the property subject to the
nondisturbance of Purchaser's leasehold interest, (v) contain such other terms
and conditions as are customary for a ground lease in the State of Tennessee,
and (vi) require Seller, or such other Person constituting the ground lessor, to
consent to the assignment of such ground lease by the Purchaser to Purchaser's
lender or lenders as security for Purchaser's financing and to take such further
actions in connection with such consent as Purchaser may reasonably request.
31
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first written above.
SELLER:
APPLE SOUTH, INC.
By:
Name:
Title:
PURCHASER:
QUALITY RESTAURANT CONCEPTS, L.L.C.
By:
By:
Name:
Title:
32
<PAGE>
Apple South agrees to supplementally furnish to the Commission a copy of
any omitted exhibit or schedule to this Agreement upon the request of the
Commission. The following is a list briefly identifying the contents of all
omitted exhibits and schedules:
EXHIBIT TABLE OF CONTENTS
EXHIBIT TITLE
A Bill of Sale and Assignment Agreement
B Deeds (Mississippi and Tennessee)
C Form of Indemnification Agreement
D Form of Note
E Language for Closing Certificate
F Opinion of Seller's Counsel
G Opinion of Purchaser's Counsel
H Lender's Commitment Letter
33
<PAGE>
DISCLOSURE MEMORANDUM
Table of Contents
Schedule Title
1.1A Description of Leases
1.1B Material Contracts
1.1C Legal Description
1.1D Territory
2.3 Adjustment to Purchase Price
2.7 Allocation of Purchase Price
3.3 Leases and Material Contracts acquiring
consents of third parties
3.7 Location and Ownership of Restaurants
3.8 Financial Statements
3.10 Litigation
3.11 Pending modifications to Permits or Laws
3.15 Seller Plans
4.6 Advertising, Maintenance Capital Expenditure Budget,
Remodeling and Refurbishing Budget, Stay-Bonus Plan
34
$200,000,000
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
DATED AS OF
MARCH 1, 1998
AMONG
APPLE SOUTH, INC.,
AS BORROWER
WACHOVIA BANK, NATIONAL ASSOCIATION
AND
ANY OTHER BANK OR BANKS LISTED ON THE
SIGNATURE PAGE(S) HEREOF,
AS BANKS
AND
WACHOVIA BANK, NATIONAL ASSOCIATION
AS AGENT FOR THE BANKS
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE 1. DEFINITIONS........................................................1
SECTION 1.1. Definitions.............................................1
SECTION 1.2. Accounting Terms and Determinations....................13
SECTION 1.3. References.............................................14
SECTION 1.4. Use of Defined Terms...................................14
SECTION 1.5. Terminology............................................14
ARTICLE 2. THE LOAN..........................................................14
SECTION 2.1. Commitments to Make the Loan...........................14
SECTION 2.2. Method of Borrowing....................................14
SECTION 2.3. Notes..................................................14
SECTION 2.4. Maturity of Loan.......................................15
SECTION 2.5. Interest Rates.........................................15
SECTION 2.6. Fees...................................................17
SECTION 2.7. Termination and Reduction of Commitments...............17
SECTION 2.8. Optional Prepayments...................................17
SECTION 2.9. Mandatory Prepayments..................................17
SECTION 2.10. General Provisions as to Payments.....................18
SECTION 2.11. Computation of Interest and Fees. ....................18
ARTICLE 3. CONDITIONS TO BORROWING...........................................19
SECTION 3.1. Conditions to Borrowing................................19
ARTICLE 4. REPRESENTATIONS AND WARRANTIES....................................20
SECTION 4.1. Corporate Existence and Power..........................20
SECTION 4.2. Corporate and Governmental Authorization; No
Contravention..........................................20
SECTION 4.3. Binding Effect.........................................20
SECTION 4.4. Financial Information; No Material Adverse Effect......20
SECTION 4.5. No Litigation..........................................21
SECTION 4.6. Compliance with Laws Generally; Compliance with ERISA..21
SECTION 4.7. Taxes..................................................21
SECTION 4.8. Subsidiaries...........................................22
SECTION 4.9. Not a Holding Company, Public Utility, Investment
Company, Investment Adviser............................22
SECTION 4.10. Ownership of Property; Liens..........................22
SECTION 4.11. No Default............................................22
SECTION 4.12. Full Disclosure.......................................22
SECTION 4.13. Environmental Matters.................................22
SECTION 4.14. Capital Stock.........................................23
i
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SECTION 4.15. Margin Stock..........................................23
SECTION 4.16. Solvency..............................................23
SECTION 4.17. Possession of Franchises, Licenses, Etc...............23
SECTION 4.18. Insurance.............................................24
ARTICLE 5. COVENANTS.........................................................24
SECTION 5.1. Information............................................24
SECTION 5.2. Inspection of Property, Books and Records..............26
SECTION 5.3. Adjusted Funded Debt/Adjusted Capitalization Ratio.....26
SECTION 5.4. Minimum Stockholders' Equity. ........................26
SECTION 5.5. Fixed Charge Coverage Ratio............................26
SECTION 5.6. Total Funded Debt/EBITDA Ratio.........................27
SECTION 5.7. Negative Pledge........................................27
SECTION 5.8. Maintenance of Existence...............................28
SECTION 5.9. Dissolution............................................28
SECTION 5.10. Consolidations, Mergers and Sales of Assets...........28
SECTION 5.11. Use of Proceeds.......................................29
SECTION 5.12. Compliance with Laws; Payment of Taxes................29
SECTION 5.13. Insurance.............................................29
SECTION 5.14. Change in Fiscal Year.................................29
SECTION 5.15. Maintenance of Property...............................29
SECTION 5.16. Environmental Notices.................................30
SECTION 5.17. Environmental Matters.................................30
SECTION 5.18. Environmental Releases................................30
SECTION 5.19. Investments...........................................30
SECTION 5.20. Subsidiary Debt.......................................32
ARTICLE 6. DEFAULTS..........................................................33
SECTION 6.1. Events of Default......................................33
SECTION 6.2. Notice of Default......................................36
ARTICLE 7. THE AGENT.........................................................36
SECTION 7.1. Appointment; Powers and Immunities.....................36
SECTION 7.2. Reliance by Agent......................................37
SECTION 7.3. Defaults...............................................37
SECTION 7.4. Rights of Agent as a Bank..............................37
SECTION 7.5. Indemnification........................................38
SECTION 7.6. Payee of Note Treated as Owner.........................38
SECTION 7.7. Nonreliance on Agent and Other Banks...................38
SECTION 7.8. Failure to Act.........................................39
SECTION 7.9. Resignation of Agent...................................39
ARTICLE 8. CHANGE IN CIRCUMSTANCES; COMPENSATION.............................39
ii
<PAGE>
SECTION 8.1. Basis for Determining Interest Rate Inadequate or
Unfair.................................................39
SECTION 8.2. Illegality.............................................40
SECTION 8.3. Increased Cost and Reduced Return......................40
SECTION 8.4. Base Rate Loan Tranche Substituted for Affected
Euro-Dollar Rate Loan Tranche..........................41
SECTION 8.5. Replacement of a Lender................................42
SECTION 8.6. Compensation...........................................42
ARTICLE 9. MISCELLANEOUS.....................................................43
SECTION 9.1. Notices................................................43
SECTION 9.2. No Waivers.............................................43
SECTION 9.3. Expenses; Documentary Taxes............................43
SECTION 9.4. Indemnification........................................44
SECTION 9.5. Sharing of Setoffs.....................................44
SECTION 9.6. Amendments and Waivers.................................45
SECTION 9.7. No Margin Stock Collateral.............................45
SECTION 9.8. Successors and Assigns.................................46
SECTION 9.9. Confidentiality........................................47
SECTION 9.10. Representation by Banks...............................48
SECTION 9.11. Obligations Several...................................48
SECTION 9.12. GEORGIA LAW...........................................48
SECTION 9.13. Interpretation........................................48
SECTION 9.14. CONSENT TO JURISDICTION...............................49
SECTION 9.15. Counterparts..........................................49
SECTION 9.16. Survival..............................................49
SECTION 9.17. Entire Agreement; Amendment; Severability.............49
SECTION 9.18. TIME OF THE ESSENCE...................................50
SECTION 9.19. Banks Not a Joint Venturer............................50
iii
<PAGE>
EXHIBITS
EXHIBIT A Form of Assignment and Acceptance
EXHIBIT B Form of Note
EXHIBIT C Form of Notice of Borrowing
EXHIBIT D Form of Opinion of Counsel for Borrower
EXHIBIT E Form of Closing Certificate
EXHIBIT F Form of Secretary's Certificate
EXHIBIT G Form of Compliance Certificate
SCHEDULES
SCHEDULE 4.8 Existing Subsidiaries
SCHEDULE 5.7 Existing Permitted Liens
iv
<PAGE>
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
THIS SECOND AMENDED AND RESTATED CREDIT AGREEMENT, dated as of March 1,
1998, is made among APPLE SOUTH, INC., as Borrower; WACHOVIA BANK, NATIONAL
ASSOCIATION and any other party or parties listed as a "Bank" or the "Banks" on
the signature page(s) hereof, as Banks; and WACHOVIA BANK, NATIONAL ASSOCIATION,
as Agent for the Banks.
The parties hereto agree as follows:
ARTICLE 1. DEFINITIONS
SECTION 1.1. Definitions.
The terms as defined in this Section 1.1 shall for all purposes of this
Agreement and any amendment hereto (except as herein otherwise expressly
provided or unless the context otherwise requires), have the meanings set forth
herein:
"Adjusted Capitalization" shall be equal to the sum at any date of: (i)
Adjusted Funded Debt; plus (ii) Stockholders' Equity.
"Adjusted Funded Debt" shall mean and include the sum (without duplication)
of the following, at any date, for the Borrower and its Consolidated
Subsidiaries on a consolidated basis: (i) Total Funded Debt; plus (ii) the
present value (discounted at ten percent (10%) per annum) of the minimum amount
of noncancellable operating lease payments owing by Borrower and such Sub
sidiaries at such date (excluding, however, for this purpose, any such lease
payments owing under the DR Holdings Lease); plus (iii) the present value
(discounted at ten percent (10%) per annum) of the total payments of "Rent"
owing by the Borrower under the DR Holdings Lease for the entire remaining
"Lease Term" (inclusive of the original term and all renewal terms, whether or
not then ef fective), with the terms "Rent" and "Lease Term" as used hereinabove
having the meanings given to such terms in the DR Holdings Lease; plus (iv) all
Redeemable Preferred Stock.
"Adjusted Funded Debt/Adjusted Capitalization Ratio" shall mean the ratio
which (i) the Adjusted Funded Debt of the Borrower and its Consolidated
Subsidiaries at any date bears to (ii) the Adjusted Capitalization of the
Borrower and its Consolidated Subsidiaries at such date.
"Adjusted LIBOR Rate," applicable to any Interest Period, means that
interest rate per annum determined by the Agent to be equal to the quotient
obtained (rounded upwards, if neces sary, to the next higher 1/100th of 1%) by
dividing (i) the applicable LIBOR Rate for such Interest Period by (ii) 1.00
minus the then applicable Euro-Dollar Reserve Percentage (if any).
"Affiliate" means, as to any Person (i) any other Person that directly, or
indirectly through one or more intermediaries, controls such Person (a
"Controlling Person"), (ii) any other Per son which is controlled by or is under
common control with such Person or a Controlling Person, or (iii) any other
Person of which such Person owns, directly or indirectly, twenty percent (20%)
or more of the common stock or equivalent equity interests. As used herein, the
term "control" means possession, directly or indirectly, of the power to direct
or cause the direction of the management or policies of a Person, whether
through the ownership of voting securities, by contract or otherwise.
"Agent" means Wachovia Bank, National Association, a national banking
association organized under the laws of the United States of America, in its
capacity as agent for the Banks hereunder, and its successors and permitted
assigns in such capacity.
"Agent's Address" means the address of Agent referred to or specified in
Section 9.1.
"Agent's Letter Agreement" means that certain letter agreement, dated on or
prior to the Closing Date, between the Borrower and the Agent relating to
certain fees from time to time payable by the Borrower to the Agent, together
with all amendments and modifications thereto.
"Agreement" means this Second Amended and Restated Credit Agreement,
together with all amendments and modifications hereto.
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<PAGE>
"Applebee's Spinoff" shall mean any sale or other disposition by the
Borrower of any of its Applebee's Neighborhood Grill & Bar restaurants to
Applebee's International, Inc. or to other third parties, all of which sales in
the aggregate shall result in the sale or other disposition by Borrower of all,
or substantially all, of the Applebee's Neighborhood Grill & Bar restaurants
owned by Borrower for an aggregate amount of not less than Three Hundred Fifty
Million Dollars ($350,000,000), in cash, each payment of which shall be made in
full upon the closing of the final sale for such respective transaction, with
all such sales to occur as soon as practicable, but in any event on or before
April 1, 1999.
"Applicable Margin" means: (i) for any Base Rate Loan Tranche, zero percent
(0%); and (ii) for any Euro-Dollar Rate Loan Tranche, one and one-half of one
percent (1-1/2%) per annum.
"Assignee" has the meaning set forth in Section 9.8.3.
"Assignment and Acceptance" means an Assignment and Acceptance executed in
accordance with Section 9.8.3 in the form attached hereto as Exhibit A.
"Authority" has the meaning set forth in Section 8.2.
"Bank" means each bank or other financial institution listed on the
signature pages hereof and identified therein as a "Bank."
"Base Rate" means for any Base Rate Loan Tranche for any day, the rate per
annum equal to the higher as of such day of (i) the Prime Rate, and (ii)
one-half of one percent (1/2%) per annum above the Federal Funds Rate. For
purposes of determining the Base Rate for any day, changes in the Prime Rate or
the Federal Funds Rate, as the case may be, shall be effective on the date of
each such change.
"Base Rate Loan Tranche" means a Loan Tranche bearing interest at the Base
Rate pursuant to Section 2.1.
"Borrower" means Apple South, Inc., a Georgia corporation, and its
successors and permitted assigns.
"Borrowing" means a borrowing hereunder consisting of a Loan Tranche made
to the Borrower at the same time by the Banks pursuant to Article II. A
Borrowing is a "Base Rate Borrowing" if such Borrowing is a Base Rate Loan
Tranche, or a "Euro-Dollar Rate Borrowing" if such Borrowing is a Euro-Dollar
Rate Loan Tranche.
"Capital Stock" means any nonredeemable capital stock of the Borrower or
any Consolidated Subsidiary (to the extent issued to a Person other than the
Borrower), whether common or preferred.
"Capitalized Lease Obligations" shall mean those liabilities of the
Borrower and its Consolidated Subsidiaries under any leases that are required to
be capitalized for financial reporting purposes in accordance with GAAP, and the
amount of such liabilities shall be the capitalized amount of such liabilities
as determined in accordance with GAAP.
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<PAGE>
"CERCLA" means the Comprehensive Environmental Response Compensation and
Liability Act, 42 U.S.C. ss. 9601 et seq. and its implementing regulations and
amendments.
"CERCLIS" means the Comprehensive Environmental Response Compensation and
Liability Inventory System established pursuant to CERCLA.
"Change of Law" shall have the meaning set forth in Section 8.2.
"Closing Certificate" has the meaning set forth in Section 3.1.4.
"Closing Date" means the date of this Agreement, as first inscribed
hereinabove.
"Code" means the Internal Revenue Code of 1986, as amended, or any
successor Federal tax code.
"Commitment" means, with respect to each Bank, the amount set forth
opposite the name of such Bank on the signature pages hereof, as such amount may
be reduced from time to time pursuant to Section 2.7 or Section 8.5.
"Compliance Certificate" has the meaning set forth in Section 5.1.3.
"Consolidated Net Income," for any period, means the net income of the
Borrower and its Consolidated Subsidiaries for such period, determined on a
consolidated basis in accordance with GAAP, excluding, however, (i) any
extraordinary items and (ii) any equity interest of the Borrower or any
Consolidated Subsidiary in the unremitted earnings of any Person which is not a
Subsidiary, in each case as likewise determined on a consolidated basis in
accordance with GAAP.
"Consolidated Subsidiary" means at any date any Subsidiary or other entity
the accounts of which, in accordance with GAAP, would be consolidated with those
of the Borrower in its consolidated financial statements as of such date.
"Controlled Group" means all members of a controlled group of corporations
and all trades or businesses (whether or not incorporated) under common control
which, together with the Borrower, are treated as a single employer under
Section 414 of the Code.
"Default" means any condition or event which constitutes an Event of
Default or which with the giving of notice or lapse of time or both would,
unless cured and waived, become an Event of Default.
"Default Rate" means, with respect to any Loan Tranche, on any day, the sum
of two percent (2%) per annum in excess of the interest rate otherwise then or
thereafter payable on such Loan Tranche, but, in any event, not less than two
percent (2%) per annum in excess of the Base Rate.
"Dollars" or "$" means dollars in lawful currency of the United States of
America.
"Domestic Business Day" means any day except a Saturday, Sunday or other
day on which commercial banks are not required to be open for business in the
State of Georgia.
"DR Holdings Lease" shall mean the Lease and Development Agreement, dated
as of March 2, 1995, between DR Holdings, L.P., as lessor, and the Borrower, as
lessee, together with Appendix "A" thereto and each "Lease Supplement" thereto
(as defined therein), all "Operative Documents" (as also defined therein) and
all amendments and modifications thereto made from time to time hereafter.
"EBITDA" shall mean, for any fiscal period of the Borrower and its
Consolidated Subsidiaries, that amount equal to the sum, determined in
accordance with GAAP, of the Consoli dated Net Income of the Borrower and its
Consolidated Subsidiaries for such period (considered
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without regard to any extraordinary gains or extraordinary losses), plus,
without duplication, and to the extent deducted from revenue in determining
Consolidated Net Income, depreciation and amortization expense and any other
non-cash charges for such period, interest expense for such period, and taxes
for such period.
"Environmental Authorizations" means all licenses, permits, orders,
approvals, notices, registrations or other legal prerequisites for conducting
the business of the Borrower or any Subsidiary required by any Environmental
Requirement.
"Environmental Authority" means any foreign, federal, state, local or
regional government that exercises any form of jurisdiction or authority under
any Environmental Requirement.
"Environmental Judgments and Orders" means all judgments, decrees or orders
arising from or in any way associated with any Environmental Requirements,
whether or not entered upon consent or pursuant to written agreements with an
Environmental Authority or any other entity, arising from or in any way
associated with any Environmental Requirement, whether or not incorpo rated in a
judgment, decree or order.
"Environmental Liabilities" means any liabilities whether accrued,
contingent or otherwise, arising from and in any way associated with any
Environmental Requirements.
"Environmental Notices" means notice from any Environmental Authority or by
any other Person, of possible or alleged noncompliance with or liability under
any Environmental Require ment, including, without limitation any complaints,
citations, demands or requests from any Environmental Authority or from any
other Person for correction of any violation of any Environmental Requirement or
any investigations concerning any violation of any Environmental Requirement.
"Environmental Proceedings" means any judicial or administrative
proceedings arising from or in any way associated with any Environmental
Requirement.
"Environmental Releases" means "releases" as defined in CERCLA or under any
applicable state or local environmental law or regulation.
"Environmental Requirements" means any legal requirement relating to
health, safety or the environment and applicable to the Borrower, any Subsidiary
or any Property, including, but not limited to, any such requirement under
CERCLA or similar state legislation and all federal, state and local laws,
ordinances, regulations, orders, writs, decrees and common law.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, or any successor law. Any reference to any provision
of ERISA shall also be deemed to be a reference to any successor provision or
provisions thereof.
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"Euro-Dollar Business Day" means any Domestic Business Day in which
dealings in Dollar deposits are carried out in the London interbank Euro-Dollar
market.
"Euro-Dollar Rate," applicable to any Interest Period, means that interest
rate per annum equal to the sum of (i) the Adjusted LIBOR Rate for such Interest
Period, plus (ii) the Ap plicable Margin.
"Euro-Dollar Rate Loan" means a Loan Tranche made at the Euro-Dollar Rate
pursuant to Section 2.1.
"Euro-Dollar Reserve Percentage" means for any day that percentage
(expressed as a decimal) which is in effect on such day, as prescribed by the
Board of Governors of the Federal Re serve System (or any successor) for
determining the maximum reserve requirement for a member bank of the Federal
Reserve System in respect of "Eurocurrency liabilities" (or in respect of any
other category of liabilities which includes deposits by reference to which the
interest rate on Euro-Dollar Rate Loans is determined or any category of
extensions of credit or other assets which includes loans by a non-United States
office of any Bank to United States residents). The Adjusted LIBOR Rate shall be
adjusted automatically on and as of the effective date of any change in the
Euro-Dollar Reserve Percentage.
"Event of Default" has the meaning set forth in Section 6.1.
"Federal Funds Rate" means, for any day, the rate per annum (rounded
upward, if necessary, to the next higher 1/100th of 1%) equal to the weighted
average of the rates on overnight federal funds transactions with members of the
Federal Reserve System arranged by Federal funds brokers on such day, as
published by the Federal Reserve Bank of New York on the Domestic Business Day
next succeeding such day, provided that (i) if the day for which such rate is to
be determined is not a Domestic Business Day, the Federal Funds Rate for such
day shall be such rate on such transactions on the next preceding Domestic
Business Day as so published on the next succeeding Domestic Business Day, and
(ii) if such rate is not so published for any day, the Federal Funds Rate for
such day shall be the average rate charged to the Agent on such day on such
transactions, as determined by the Agent.
"Fiscal Quarter" means any fiscal quarter of the Borrower.
"Fiscal Year" means any fiscal year of the Borrower.
"Fixed Charge Coverage Ratio" shall mean, for any fiscal period, the ratio
which (A) the sum of: (i) Consolidated Net Income for such period; plus (ii) the
sum (without duplication) of (a) interest expense for such period, (b) any
dividends paid in respect of Redeemable Preferred Stock during such period, and
(c) any payments made (howsoever denominated or construed) in respect of any tax
deductible, convertible preferred stock ("TECONS") or similar tax-advantaged
investment vehicles, regardless of maturity or the timing of any redemption or
repurchase rights granted in regard
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thereto (the sum of (a), (b) and (c) above being called, collectively,
"Investment Costs"); plus (iii) any provision for taxes and operating lease
expense; in each case, for the Borrower and its Consolidated Subsidiaries for
such period; bears to (B) the sum (without duplication) of: (i) all Investment
Costs; plus (ii) operating lease expense; in each case, for the Borrower and its
Consolidated Subsidiaries for the same such period; all as determined under
GAAP.
"Franchise Rights" shall mean all rights, privileges and interests of the
Borrower and its Consolidated Subsidiaries to own, operate and develop
franchised restaurants as a franchisee, whether now or hereafter existing, and
whether with respect to the operation of any "Applebee's" restaurants or
otherwise.
"GAAP" means generally accepted accounting principles applied on a basis
consistent with those which, in accordance with Section 1.2, are to be used in
making the calculations for pur poses of determining compliance with the terms
of this Agreement.
"Guarantee" or "Guaranty" by any Person means any obligation, contingent or
otherwise, of such Person directly or indirectly guaranteeing any debt or other
obligation of any other Person and, without limiting the generality of the
foregoing, any obligation, direct or indirect, contingent or otherwise, of such
Person (i) to secure, purchase or pay (or advance or supply funds for the
purchase or payment of) such debt or other obligation (whether arising by virtue
of partnership arrangements, by agreement to keep-well, to purchase assets,
goods, securities or services, to provide collateral security to take-or-pay, or
to maintain financial statement conditions or otherwise) or (ii) entered into
for the purpose of assuring in any other manner the obligee of such debt or
other obligation of the payment thereof or to protect such obligee against loss
in respect thereof (in whole or in part), provided that the term "Guarantee"
shall not include endorsements for collection or deposit in the ordinary course
of business. The terms "Guarantee" or "Guaranty" used as a verb has a
corresponding meaning.
"Hazardous Materials" includes, without limitation, (a) solid or hazardous
waste, as defined in the Resource Conservation and Recovery Act of 1980, 42
U.S.C. ss. 6901 et seq. and its implementing regulations and amendments, or in
any applicable state or local law or regulation, (b) "hazardous substance,"
"pollutant," or "contaminant" as defined in CERCLA, or in applicable state or
local law or regulation, (c) gasoline, or any other petroleum product or
by-product, including, crude oil or any fraction thereof, (d) "toxic
substances", as defined in the Toxic Substances Control Act of 1976, or in any
applicable state or local law or regulation, and (e) insecticides, fungicides,
or rodenticides, as defined in the Federal Insecticide, Fungicide, and
Rodenticide Act of 1975, or in any applicable state or local law or regulation,
as each such Act, statute or regulation may be amended from time to time.
"Interest Period" means: (1) with respect to each Euro-Dollar Rate
Borrowing, the period commencing on the date of such Borrowing and ending on the
numerically corresponding date in the first, second, third or sixth calendar
month thereafter, as the Borrower may elect in the applicable Notice of
Borrowing; provided that:
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(a) any Interest Period (other than an Interest Period determined pursuant
to paragraph (c) below) which would otherwise end on a day which is not a
Euro-Dollar Business Day shall be extended to the next succeeding Euro-Dollar
Business Day unless such Euro-Dollar Business Day falls in another calendar
month, in which case such Interest Period shall end on the next preceding
Euro-Dollar Business Day;
(b) any Interest Period which begins on the last Euro-Dollar Business Day
of a calendar month (or on a day for which there is no numerically corresponding
day in the ap propriate subsequent calendar month) shall, subject to paragraph
(c) below, end on the last Euro-Dollar Business Day of the appropriate
subsequent calendar month; and
(c) any Interest Period which begins before the Termination Date and would
otherwise end after the Termination Date shall end on the Termination Date.
(2) with respect to each Base Rate Borrowing, the period commencing on the
date of such Borrowing and ending on the date on which such Base Rate Borrowing
is fully paid or converted to a Euro-Dollar Rate Borrowing; provided that:
(a) any Interest Period (other than an Interest Period determined pursuant
to paragraph (b) below) which would otherwise end on a day which is not a
Domestic Business Day shall be extended to the next succeeding Domestic Business
Day;
(b) any Interest Period which begins before the Termination Date and would
otherwise end after the Termination Date shall end on the Termination Date.
"Lending Office" means, as to each Bank, its office located at its address
set forth on the signature pages hereof (or identified on the signature pages
hereof as its Lending Office) or such other office in the United States as such
Bank may hereafter designate as its Lending Office by notice to the Borrower and
the Agent.
"LIBOR Rate" means, for any Euro-Dollar Rate Loan for the Interest Period
of such Euro-Dollar Rate Loan, the rate per annum determined by the Agent on the
basis of the offered rate for deposits in Dollars of amounts equal or comparable
to the principal amount of such Euro-Dollar Rate Loan offered for a term
comparable to such Interest Period, which rate appears on the display designated
as page "3750" of the Telerate Service (or such other page as may replace page
3750 of that service or such other service or services as may be nominated by
the British Bankers' Association for the purpose of displaying London interbank
offered rates for U.S. dollar deposits), determined as of 11:00 A.M., London
time, two (2) Euro-Dollar Business Days prior to the first day of such In terest
Period, provided that (i) if more than one such offered rate appears on such
page, the "LIBOR Rate" will be the arithmetic average (rounded upward, if
necessary, to the next higher 1/100th of 1%) of such offered rates; (ii) if no
such offered rates appear on such page, the "LIBOR Rate" for such Interest
Period will be the arithmetic average (rounded upward, if necessary, to the next
higher 1/100th of 1%) of rates quoted by not less than two (2) major banks in
New York City, selected by
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the Agent, at approximately 10:00 A.M., New York City time, two (2) Euro-Dollar
Business Days prior to the first day of such Interest Period, for deposits in
Dollars offered to leading European banks for a period comparable to such
Interest Period in an amount comparable to the principal amount of such
Euro-Dollar Loan.
"Lien" means, with respect to any asset, any mortgage, deed to secure debt,
deed of trust, lien, pledge, charge, security interest, security title or other,
preferential arrangement, which has the practical effect of constituting a
security interest or encumbrance, or encumbrance or servitude of any kind in
respect of such asset to secure or assure payment of a debt or a Guarantee,
whether by consensual agreement or by operation of statute or other law. For
purposes of this Agreement, the Borrower or any Subsidiary shall be deemed to
own subject to a Lien any asset which it has acquired or holds subject to the
interest of a vendor or lessor under any conditional sale agreement, capital
lease or other title retention agreement relating to such asset.
"Loan" means the non-revolving loan in the principal amount of Two Hundred
Million Dollars ($200,000,000) made by the Banks to the Borrower in accordance
with, and pursuant to, Section 2.1.
"Loan Documents" means this Agreement, the Notes, any other document
evidencing or relating to the Loan, and any other document, instrument,
certificate or agreement delivered in connection with this Agreement, the Notes
or the Loan, as such documents, instruments, certificates and agreements may be
amended or modified from time to time.
"Loan Tranche" shall mean each subdivision of the Loan selected by the
Borrower for the purpose of determining the interest rate payable thereon in
accordance with, and pursuant to, Section 2.5.
"Margin Stock" means "margin stock" as defined in Regulations G, T, U or X.
"Material Adverse Effect" means, with respect to any event, act, condition
or occurrence of whatever nature (including any adverse determination in any
litigation, arbitration, or governmental investigation or proceeding), whether
singly or in conjunction with any other event or events, act or acts, condition
or conditions, occurrence or occurrences, whether or not related, that such
event or events, act or acts, condition or conditions, and/or occurrence or
occurrences results in a material adverse change in, or has a material adverse
effect upon, any of (a) the financial condition, operations, business, or
properties of Borrower and its Consolidated Subsidiaries taken as a whole, (b)
the rights and remedies of the Agent or the Banks under the Loan Documents, or
the ability of the Borrower to perform its obligations under the Loan Documents
to which it is a party, as applicable, or (c) the legality, validity or
enforceability of this Agreement, any Note or any Loan Document.
"Multiemployer Plan" shall have the meaning set forth in Section 4001(a)(3)
of ERISA.
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"Net Cash Proceeds" shall mean, the total cash proceeds received by the
Borrower from any Applebee's Spinoff, less (i) provisions for all taxes actually
paid or payable as a result thereof, (ii) any direct costs incurred by Borrower
or any Subsidiary associated therewith, (iii) any payments (including
prepayments of rent and termination charges) required to be made in such event
under the DR Holdings Lease and (iv) any payments made to repay any indebtedness
or other obligation outstanding at the time of an Applebee's Spinoff that is
secured by a Purchase Money Lien on the property or assets sold.
"New Banks" means all those Banks (if any) other than the Original Banks.
"Notes" means, collectively, the promissory notes of the Borrower
evidencing, collectively, Loan, each to be substantially in the form of Exhibit
B, together with all amendments, consolidations, modifications, renewals, and
supplements thereto.
"Notice of Borrowing" has the meaning set forth in Section 2.2.1.
"Original Banks" means those Banks party to the Original Credit Agreement
as of the Closing Date, immediately prior to this Agreement becoming effective.
"Original Commitments" means the "Commitments" (as that term is defined in
the Original Credit Agreement") of the Original Banks as in effect on the
Closing Date, immediately prior to this Agreement becoming effective.
"Original Credit Agreement" means the Amended and Restated Credit
Agreement, dated as of September 9, 1997, as amended, among Borrower, the
Original Banks, and Wachovia, as agent for the Original Banks.
"Participant" has the meaning set forth in Section 9.8.2.
"PBGC" means the Pension Benefit Guaranty Corporation or any entity
succeeding to any or all of its functions under ERISA.
"Person" means an individual, a corporation, a partnership, an
unincorporated association, a trust or any other entity or organization,
including, but not limited to, a government or political subdivision or an
agency or instrumentality thereof.
"Plan" means at any time an employee pension benefit plan which is covered
by Title IV of ERISA or subject to the minimum funding standards under Section
412 of the Code and is either (i) maintained by a member of the Controlled Group
for employees of any member of the Controlled Group or (ii) maintained pursuant
to a collective bargaining agreement or any other arrangement under which more
than one employer makes contributions and to which a member of the Controlled
Group is them making or accruing an obligation to make contributions or has
within the preceding five plan years made contributions.
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"Prime Rate" refers to that interest rate so denominated and set by
Wachovia from time to time as an interest rate basis for borrowings. The Prime
Rate is but one of several interest rate bases used by Wachovia. Wachovia lends
at interest rates at, above and below the Prime Rate.
"Properties" means all property owned, leased or otherwise used, operated
or occupied by the Borrower or any Subsidiary, wherever located, and whether
real property or personal property.
"Purchase Money Liens" means Liens securing the repayment of any purchase
money debt permitted hereunder incurred to finance the purchase of any Property
hereafter acquired by the Borrower or any Consolidated Subsidiary, so long as
such Liens are limited solely to the Property so acquired, secure only the
purchase money debt so incurred and are terminated upon payment in full of such
purchase money debt.
"Redeemable Preferred Stock" of any Person means any preferred stock issued
by such Person which is at any time prior to the Termination Date either (i)
mandatorily redeemable (by sinking fund or similar payments or otherwise) or
(ii) redeemable at the option of the holder thereof.
"Regulation D" means Regulation D of the Board of Governors of the Federal
Reserve System, as in effect from time to time, together with all official
rulings and interpretations issued thereunder.
"Regulation G" means Regulation G of the Board of Governors of the Federal
Reserve System, as in effect from time to time, together with all official
rulings and interpretations issued thereunder.
"Regulation T" means Regulation T of the Board of Governors of the Federal
Reserve System, as in effect from time to time, together with all official
rulings and interpretations issued thereunder.
"Regulation U" means Regulation U of the Board of Governors of the Federal
Reserve System, as in effect from time to time, together with all official
rulings and interpretations issued thereunder.
"Regulation X" means Regulation X of the Board of Governors of the Federal
Reserve System, as in effect from time to time, together with all official
rulings and interpretations issued thereunder.
"Required Banks" means any Bank or Banks having (i) more than fifty percent
(50%) of the aggregate amount of the Commitments or (ii), if the Commitments are
no longer in effect, more than fifty percent (50%) of the aggregate outstanding
principal amount of the Notes.
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"Solvent" means as to any Person, that such Person (i) owns Property whose
fair saleable value is greater than the amount required to pay all of such
Person's total debts, direct or indirect, contingent or otherwise, (ii) is able
to pay all of such debts as and when such debts mature and (iii) has capital
sufficient to carry on the business and transactions in which it is engaged and
all business and transactions in which it is about to engage.
"Stockholders' Equity" means, at any time, the stockholders' equity of the
Borrower and its Consolidated Subsidiaries, as set forth or reflected on the
most recent consolidated balance sheet of the Borrower and its Consolidated
Subsidiaries prepared in accordance with GAAP, but excluding any Redeemable
Preferred Stock of the Borrower or any of its Consolidated Subsidiaries.
Shareholders' Equity generally would include, but not be limited to (i) the par
or stated value of all outstanding Capital Stock, (ii) capital surplus, (iii)
retained earnings, and (iv) various deductions such as (A) purchases of treasury
stock, (B) valuation allowances, (C) receivables due from an employee stock
ownership plan, and (D) employee stock ownership plan debt Guarantees.
"Subsidiary" means any corporation or other entity of which securities or
other ownership interests having ordinary voting power to elect a majority of
the board of directors or other Persons performing similar functions are at the
time directly or indirectly owned by the Borrower.
"Synthetic Lease" shall mean any agreement, or series of related
agreements, between the Borrower and one or more other parties which are
intended to be treated, for accounting purposes, as an operating lease with the
Borrower as lessee and, for tax purposes, as a financing arrangement with the
Borrower as debtor.
"Tangible Net Worth" shall mean the difference at any time between (i) the
Stockholders Equity of the Borrower and its Consolidated Subsidiaries at such
time and (ii) the sum of all those assets of the Borrower and its Consolidated
Subsidiaries at such time constituting (A) goodwill, patents, copyrights,
trademarks, trade names and other intangible assets, as determined under GAAP,
plus (B) write-ups of any assets occurring subsequent to December 31, 1996, plus
(C) unamortized debt discount and expense, as determined under GAAP, plus (D)
deferred charges, as determined under GAAP, plus (E) any indebtedness owing to
such Person by any Affiliate of such Person.
"Termination Date" has the meaning set forth in Section 2.7.1.
"Third Parties" means all lessees, sublessees, licensees and other users of
the Properties, excluding those users of the Properties in the ordinary course
of the Borrower's business and on a temporary basis.
"Total Funded Debt" shall mean that portion of the total liabilities of the
Borrower and its Consolidated Subsidiaries at any date equal to the sum (without
duplication) of: (i) all in debtedness for borrowed money at such date
(including, for this purpose, indebtedness in respect of any outstanding
bankers' acceptances); plus (ii) all Capitalized Lease Obligations outstanding
at such
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date; plus (iii) all debts, liabilities and obligations which are Guaranteed by
the Borrower or any Consolidated Subsidiary as of such date; plus (iv) all
debts, liabilities or obligations at such date to any seller incurred to pay the
deferred price of property or services having a deferred purchase price of One
Million Dollars ($1,000,000) or more, excepting, in any event, trade accounts
payable arising in the ordinary course of business and purchase options prior to
their exercise; plus (v) all debts, liabilities and obligations outstanding at
such date in respect of any Synthetic Leases, excluding therefrom, however, any
debts, liabilities or obligations under the DR Holdings Lease up to a maximum
thereof of Twenty-Eight Million Dollars ($28,000,000), it being understood and
agreed that, subject to such limitation, no debts, liabilities or obligations
(including any constituting Guaranteed Obligations) under the DR Holdings Lease
shall be included in the definition of Total Funded Debt.
"Transferee" has the meaning set forth in Section 9.8.4.
"Unfunded Vested Liabilities" means, with respect to any Plan at any time,
the amount (if any) by which (i) the present value of all vested nonforfeitable
benefits under such Plan exceeds (ii) the fair market value of all Plan assets
allocable to such benefits, all determined as of the then most recent valuation
date for such Plan, but only to the extent that such excess represents a
potential liability of a member of the Controlled Group to the PBGC or the Plan
under Title IV of ERISA.
"Voluntary Store Closing" shall mean any voluntary closing by the Borrower
or any Subsidiary of any franchised restaurant location in the ordinary course
of its business which does not cause, or result in, the forfeiture, suspension,
loss, rejection, disclaimer, impairment, curtailment, alteration of, or other
adverse effect on, any Franchise Rights with respect to the operation or
development of any other existing or future franchised restaurant location or
locations.
"Wachovia" means Wachovia Bank, National Association, a national banking
associa tion, and its successors.
SECTION 1.2. Accounting Terms and Determinations.
Unless otherwise specified herein, all terms of an accounting character
used herein shall be interpreted, all accounting determinations hereunder shall
be made, and all financial statements required to be delivered hereunder shall
be prepared in accordance with GAAP, applied on a basis consistent (except for
changes concurred with by the Borrower's independent public ac countants or
otherwise required by a change in GAAP) with the then most recent audited
consolidated financial statements of the Borrower and its Consolidated
Subsidiaries delivered to the Banks; provided, however, that upon any change in
GAAP material to Borrower occurring hereafter, the Banks shall have the right to
require either that conforming adjustments be made to any financial covenants
hereafter set forth, or the components thereof, affected by such change or that
the Borrower report its financial condition based on GAAP as in effect
immediately prior to such change occurring.
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SECTION 1.3. References.
Unless otherwise indicated, references in this Agreement to "Articles,"
"Exhibits," "Schedules," "Sections" and other Subdivisions are references to
articles, exhibits, schedules, sections and other subdivisions hereof.
SECTION 1.4. Use of Defined Terms.
All terms defined in this Agreement shall have the same defined meanings
when used in any of the other Loan Documents, unless otherwise defined therein
or unless the context shall re quire otherwise.
SECTION 1.5. Terminology.
All personal pronouns used in this Agreement, whether used in the
masculine, feminine or neuter gender, shall include all other genders; the
singular shall include the plural, and the plural shall include the singular.
Titles of Articles and Sections in this Agreement are for convenience only, and
neither limit nor amplify the provisions of this Agreement.
ARTICLE 2. THE LOAN
SECTION 2.1. Commitments to Make the Loan.
Each Bank severally agrees, to the extent of its individual Commitment, to
make the Loan to the Borrower.
SECTION 2.2. Method of Borrowing.
The Loan shall be made to the Borrower, in a single disbursement, on the
Closing Date, for the purpose described in Section 5.11.
SECTION 2.3. Notes.
2.3.1 Single Notes. That portion of the Loan allocable to each Bank shall
be evidenced by a single Note payable to the order of such Bank for the account
of its Lending Office in an amount equal to the original principal amount of
such Bank's Commitment.
2.3.2 Endorsements to Notes. Upon receipt of each Bank's Note pursuant to
Section 3.1.2, the Agent shall deliver such Note to such Bank. Each Bank may
record and, prior to any transfer of its Note shall, endorse on the schedule
forming a part thereof appropriate notations to evidence the date and amount of
each payment of principal made by the Borrower with respect thereto, and such
schedule shall constitute rebuttable presumptive evidence of the principal
amount
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owing and unpaid on such Bank's Note; provided that the failure of any Bank to
make any such recordation or endorsement shall not affect the obligation of the
Borrower hereunder or under the Notes. Each Bank is hereby irrevocably
authorized by the Borrower so to endorse its Notes and to attach to and make a
part of any Note a continuation of any such schedule as and when required.
SECTION 2.4. Maturity of Loan.
The Loan shall mature, and the principal amount thereof then outstanding
and unpaid, shall be due and payable, on the Termination Date.
SECTION 2.5. Interest Rates.
Subject to Section 8.1, the Borrower shall have the continuing right to
select the interest rate payable on the Loan, or a portion thereof, by giving
the Agent written notice (a "Notice of Borrowing"), which shall be substantially
in the form of Exhibit C, not later than 11:00 a.m. (Atlanta, Georgia time) on
the Domestic Business Day of each Base Rate Borrowing and not later than 11:00
a.m. ( Atlanta, Georgia time) at least three (3) Euro-Dollar Business Days in
the case of a Euro-Dollar Borrowing, specifying:
(a) the date of such Borrowing, which shall be a Domestic Business day in
the case of a Base Rate Borrowing or a Euro-Dollar Business Day in the case of a
Euro-Dollar Borrowing,
(b) the aggregate amount of such Borrowing, which shall be not less than
One Million Dollars ($1,000,000) or any larger multiple of Five Hundred Thousand
Dollars ($500,000), in the case of a Base Rate Loan Tranche, and in an aggregate
principal amount of Two Million Dollars ($2,000,000), or any larger multiple of
One Million Dollars ($1,000,000), in the use of a Euro-Dollar Rate Loan Tranche;
(c) whether the Borrowing is to be a Base Rate Borrowing or a Euro-Dollar
Rate Borrowing; provided, however, that not more than six (6) Euro-Dollar Rate
Borrowings may be outstanding at any given time; and
(d) the duration of the Interest Period applicable thereto, subject to the
definition of "Interest Period."
2.5.1 Base Rate Loan Tranche. Each Base Rate Loan Tranche shall bear
interest on the outstanding principal amount thereof, for the Interest Period
applicable thereto, at a rate per annum equal to the Base Rate, as it may change
from time to time during such Interest Period, plus the Applicable Margin. Such
interest shall be payable quarterly, in arrears, on the last day of each
calendar quarter, in respect of interest accrued in such month (or portion
thereof), commencing on March 31, 1998 (with the first payment date to cover the
period from the Closing Date until March 31, 1998), until maturity and
thereafter on demand. Any overdue principal of and,
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to the extent permitted by applicable law, overdue interest on any Base Rate
Loan Tranche shall bear interest, payable on demand, for each day until paid at
a rate per annum equal to the Default Rate.
2.5.2 Euro-Dollar Rate Loan Tranche. Each Euro-Dollar Rate Loan Tranche
shall bear interest on the outstanding principal amount thereof, for the
Interest Period applicable thereto, at the Euro-Dollar Rate for such Interest
Period. Such interest shall be payable for each Interest Period on the last day
thereof; provided, however, if any Interest Period is for a period of more than
three (3) months, accrued interest shall also be due and payable at the end of
each consecutive three (3) month period within such Interest Period, commencing
with the first day thereof, as well as on the last day thereof. Any overdue
principal of and, to the extent permitted by law, overdue interest on any
Euro-Dollar Rate Loan Tranche shall bear interest, payable on demand, for each
day until paid at a rate per annum equal to the Default Rate; provided that the
mere application of the Default Rate to any Euro-Dollar Rate Loan Tranche shall
not give rise to the breakage of an Interest Period, but only an increased
margin applicable thereto.
2.5.3 Agent to Determine. The Agent shall determine each interest rate ap
plicable to the Loan hereunder. The Agent shall give prompt notice to the
Borrower and the Banks by telecopier of each rate of interest so determined, if
so requested to do so, and its determination thereof shall be conclusive in the
absence of manifest error.
2.5.4 Savings Clause. In no contingency or event whatsoever, whether by
reason of advancement of the proceeds hereof or otherwise, shall the amount paid
or agreed to be paid to the Banks for the use, forbearance or detention of money
advanced hereunder exceed the highest lawful rate permissible under any law
which a court of competent jurisdiction may deem applicable hereto. In the event
that such a court determines that any Bank has charged or received interest
hereunder in excess of the highest applicable rate, such rate shall
automatically be reduced to the maximum rate permitted by applicable law and
such Bank shall promptly refund to the Borrower any interest received by such
Bank in excess of the maximum lawful rate or, if so requested by the Borrower,
shall apply such excess to the principal balance of that Bank's Note. It is the
intent hereof that the Borrower not pay or contract to pay, and that the Banks
not receive or contract to receive, directly or indirectly in any manner
whatsoever, interest in excess of that which may be paid by the Borrower under
applicable law.
2.5.5 Rollover of Existing Loans. If, and to the extent that, on the
Closing Date, there exists any outstanding indebtedness of the Borrower under
the Original Credit Agreement, then, such indebtedness shall be deemed "rolled
over" to each Bank's account under this Agreement for the remainder of the
Interest Period(s) thereon in order to avoid the imposition of any prepayment
premium, fee or charge, notwithstanding any other term of this Agreement which
may be to the contrary.
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SECTION 2.6. Fees.
2.6.1 Upfront Fee. The Borrower shall pay to the Agent for the account of
each Bank on the Closing Date a fully earned, non-refundable upfront fee, the
amount of which shall be equal to twenty-five thousandths of one percent
(0.025%) of its respective Commitment.
2.6.2 Other Fees. The Borrower shall pay to the Agent, for the account and
sole benefit of the Agent, such fees and other amounts at such times as set
forth in the Agent's Letter Agreement.
SECTION 2.7. Termination and Reduction of Commitments. The Commitments
shall terminate on April 1, 1999 (the "Termination Date"), and any portion of
the Loan then outstanding (together with accrued interest thereon) shall be due
and payable, in full, on such date. In addition to the foregoing, the
Commitments shall reduce, dollar-for-dollar, at the time of any optional or
mandatory prepayment of the Loan, by an amount equal to the amount of such
prepayment, which reduction shall be allocated ratably among the Banks, and
shall reduce to zero on that date on which the Loan is paid in full, if sooner
prepaid pursuant hereto.
SECTION 2.8. Optional Prepayments.
The Borrower may, on any Business Day, upon giving notice to the Agent by
not later than 11:00 A.M. (Atlanta, Georgia time) on such Business Day, and
making payment to the Agent, for the ratable benefit of the Banks, on such
Business Day of any compensation required by Section 8.6, prepay any Borrowing
in whole at any time, or from time to time in part in amounts aggregating at
least One Million Dollars ($1,000,000) and integral multiples of Five Hundred
Thousand Dollars ($500,000), by paying the principal amount to be prepaid
together with accrued interest thereon to the date of prepayment. Each such
optional prepayment shall be applied to prepay ratably the Loan Tranche included
in such Borrowing. Upon receipt of a notice of prepayment pursuant to this Sec
tion 2.8, the Agent shall promptly notify each Bank of the contents thereof and
of such Bank's ratable share of such prepayment and such notice shall not
thereafter be revocable by the Borrower.
SECTION 2.9. Mandatory Prepayments.
On each date on which any Applebee's Spinoff shall occur, the Borrower
shall prepay the Loan by an amount equal to the entire Net Cash Proceeds
therefrom; provided, however, that if, in so doing, the Borrower would incur any
costs under Section 8.6 below, then, Borrower shall have the option to delay the
date by which such prepayment of the Loan shall occur, subject, however, to the
following conditions: (i) the Borrower shall specify in its notice of such
Applebee's Spinoff required under Section 5.10 below the date on which actual
prepayment of the Loan shall, instead, occur, which must be not later than the
earlier of: (A) the Termination Date or (B) ninety (90) days after the date on
which such Applebee's Spinoff actually occurs; (ii) the Borrower shall deliver
to the Agent on the date on which such Applebee's Spinoff occurs the entire Net
Cash Proceeds therefrom, to be held thereafter by the Agent in a deposit account
in its name as Agent as cash collateral for the
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payment of the Loan (the "Cash Collateral Account"); (iii) the Borrower shall
have no right to make withdrawals from the Cash Collateral Account and Wachovia
shall have no right to exercise any set off against the Cash Collateral Account
except in its capacity as Agent for the benefit of the Banks; (iv) the Agent
shall pay the Borrower, by crediting same to such deposit account, interest at
the rate then being currently paid by Wachovia for deposits of like tenor and
amount, for any sums on deposit in the Cash Collateral Account until withdrawal
thereof; and (v) the Agent is hereby authorized and empowered, on the date
specified by the Borrower for prepayment of the Loan in accordance with the
requirements set forth above or, sooner, if any Event of Default has occurred
which is then continuing, to apply from funds then on deposit in the Cash
Collateral Account an amount equal to the Net Cash Proceeds deposited therein
for each affected Applebee's Spinoff for prepayment to the Loan,and any
remaining funds then on deposit in the Cash Collateral Account, representing
earned interest, shall be returned to the Borrower or, if any Event of Default
has occurred which is then continuing, continued to be held by the Agent as cash
collateral for the Loan. Each such mandatory prepayment shall be applied, when
made, to prepay the Loan ratably among the Banks.
SECTION 2.10. General Provisions as to Payments.
2.10.1 Timing. The Borrower shall make each payment of principal of, and
interest on, the Loan and of fees and any other sums owing hereunder, not later
than 11:00 A.M. (Atlanta, Georgia time) on the date when due, in federal or
other funds immediately available in Atlanta, Georgia, to the Agent's Address.
The Agent will promptly distribute to each Bank its ratable share of each such
payment received by the Agent for the account of the Banks.
2.10.2 Next Banking Day. Whenever any payment of principal of, or interest
on, the Loan or of any fee or other sum owing hereunder shall be due on a day
which is not a Domestic Business Day, the date for payment thereof shall be
extended to the next succeeding Domestic Business Day. Whenever any payment of
principal of, or interest on, any Euro-Dollar Rate Loan Tranche shall be due on
a day which is not a Euro-Dollar Business Day, the date for payment thereof
shall be extended to the next succeeding Euro-Dollar Business Day unless such
Euro-Dollar Business Day falls in another calendar month, in which case the date
for payment thereof shall be the next preceding Euro-Dollar Business Day.
SECTION 2.11. Computation of Interest and Fees.
Interest on the Loan shall be computed on the basis of a year of 360 days
and paid for the actual number of days elapsed, calculated as to each Interest
Period from and including the first day thereof to but excluding the last day
thereof. Any fees or other sums payable hereunder on a per annum basis shall be
computed on the basis of a year of 360 days and paid for the actual number of
days elapsed (including the first day but excluding the last day).
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ARTICLE 3. CONDITIONS TO BORROWING
SECTION 3.1. Conditions to Borrowing.
The obligation of each Bank to make its allocable share of the Loan
available to the Borrower on the Closing Date is subject to receipt by the Agent
of the following in a sufficient number of counterparts (except as to the Notes)
for delivery of a counterpart to each Bank and retention of one counterpart by
the Agent):
3.1.1 This Agreement. From each of the parties hereto of either (i) a duly
executed counterpart of this Agreement signed by such party or (ii) a facsimile
transmission stating that such party has duly executed a counterpart of this
Agreement and sent such counterpart to the Agent;
3.1.2 Notes. A duly executed Note for the account of each Bank complying
with the provisions of Section 2.3;
3.1.3 Opinion. An opinion (together with any opinions of local counsel
relied on therein) of legal counsel for the Borrower, dated as of the Closing
Date, substantially in the form of Exhibit D and covering such additional
matters relating to the transactions contemplated hereby as the Agent or any
Bank may reasonably request;
3.1.4 Closing Certificate. A certificate ("Closing Certificate"), dated as
of the Closing Date, substantially in the form of Exhibit E, signed by the chief
financial officer of the Borrower, to the effect that (i) no Default has
occurred and is continuing on the date of the first Borrowing and (ii) the
representations and warranties of the Borrower contained in Article 4 are true
on and as of the Closing Date;
3.1.5 Other Documents. All documents which the Agent or any Bank may
reasonably request relating to the existence of the Borrower, the corporate
authority for and the validity of this Agreement, the Notes and the other Loan
Documents, and any other matters relevant hereto, all in form and substance
satisfactory to the Agent, including, without limitation, a certificate of
incumbency of the Borrower, signed by the Secretary or an Assistant Secretary of
the Borrower, in substantially the form of Exhibit F, certifying as to the
names, true signatures and incumbency of the officer or officers of the Borrower
authorized to execute and deliver the Loan Documents, and certified copies of
the following items: (i) the Borrower's Articles of Incorporation, (ii) the
Borrower's Bylaws, (iii) a certificate of the Secretary of State of the State of
Georgia as to the good standing of the Borrower in the State of Georgia, and
(iv) the action taken by the Board of Directors of the Borrower authorizing the
Borrower's execution, delivery and performance of this Agreement, the Notes and
the other Loan Documents to which the Borrower is a party;
3.1.6 Borrowing Notice. The initial Notice of Borrowing.
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ARTICLE 4. REPRESENTATIONS AND WARRANTIES
The Borrower represents and warrants that:
SECTION 4.1. Corporate Existence and Power.
Each of the Borrower and each Subsidiary is a corporation duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
incorporation, is duly qualified to transact business in every jurisdiction
where, by the nature of its business, such qualification is necessary, and has
all corporate powers and all governmental licenses, authorizations, consents and
approvals required to carry on its business as now conducted, except where the
failure to so qualify, or obtain such licenses, authorizations, consents or
approvals could not be reasonably expected to have or cause a Material Adverse
Effect.
SECTION 4.2. Corporate and Governmental Authorization; No Contravention.
The execution, delivery and performance by the Borrower of this Agreement,
the Notes and the other Loan Documents (i) are within the Borrower's corporate
powers, (ii) have been duly authorized by all necessary corporate action, (iii)
require no action by or in respect of or filing with, any governmental body,
agency or official, (iv) do not contravene, or constitute a default under, any
provision of applicable law or regulation or of the articles of incorporation or
by-laws of the Borrower or, to the best of the Borrower's knowledge, of any
material agreement, judgment, injunction, order, decree or other instrument
binding upon the Borrower or any of its Subsidiaries, and (v) do not result in
the creation or imposition of any Lien on any asset of the Borrower or any of
its Subsidiaries.
SECTION 4.3. Binding Effect.
This Agreement constitutes a valid and binding agreement of the Borrower
enforceable in accordance with its terms, and the Notes and the other Loan
Documents, when executed and delivered in accordance with this Agreement, will
constitute valid and binding obligations of the Bor rower enforceable in
accordance with their respective terms, provided that the enforceability hereof
and thereof is subject in each case to general principles of equity and to
bankruptcy, insolvency and similar laws affecting the enforcement of creditors'
rights generally.
SECTION 4.4. Financial Information; No Material Adverse Effect.
The audited balance sheet of the Borrower and its Consolidated Subsidiaries
as of the Fiscal Year ended closest to December 31, 1996, and the related
consolidated audited statements of income, shareholders' equity and cash flows
of the Borrower and its Consolidated Subsidiaries for the Fiscal Year then
ended, and the unaudited financial statements of the Borrower and its
Consolidated Subsidiaries as of and for the Fiscal Quarter ended closest to
December 31, 1997, copies of which have been delivered to each of the Banks,
fairly present, in conformity with GAAP,
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the financial position of the Borrower and its Consolidated Subsidiaries as of
such dates and the results of its operations and cash flow for such periods
stated; provided, that, (i) the interim statements remain subject to normal
year-end audit adjustments and (ii) during the term of this Agreement after the
Closing Date, future representations as to the matters set forth in this
sentence shall be deemed to refer to the most recent financial statements
delivered pursuant to Sections 5.1.1 and 5.1.2. Since December 31, 1996, there
has been no event, act, condition or occurrence having or which could be
expected to have a Material Adverse Effect, except for matters disclosed in the
quarterly financial statements referred to above; provided that during the term
of this Agreement following the Closing Date, future representations as to
matters set forth in this sentence shall be deemed to refer to the last day of
the most recent audited financial statements delivered by the Bor rower pursuant
to Section 5.1.1.
SECTION 4.5. No Litigation.
There is no action, suit or proceeding pending, or to the knowledge of the
Borrower threatened, against or affecting the Borrower or any of its
Subsidiaries before any court or arbitrator or any governmental body, agency or
official which could have a Material Adverse Effect or which in any manner draws
into question the validity of, or could impair the ability of the Borrower to
perform its obligations under, this Agreement, the Notes or any of the other
Loan Documents.
SECTION 4.6. Compliance with Laws Generally; Compliance with ERISA.
The Borrower and each Subsidiary are in compliance in all material respects
with applicable laws (including, but not limited to, ERISA), regulations and
similar requirements of gov ernmental authorities (including, but not limited
to, PBGC), noncompliance with which could have or cause a Material Adverse
Effect, except where the necessity of such compliance is being contested in good
faith through appropriate proceedings. To the best of the Borrower's knowledge,
(i) the Bor rower and each member of the Controlled Group have fulfilled their
respective obligations under the minimum funding standards of ERISA and the Code
with respect to each Plan and are in compliance in all material respects with
the presently applicable provisions of ERISA and the Code, and have not incurred
any liability to the PBGC or a Plan under Title IV of ERISA; and (ii) neither
the Borrower nor any member of the Controlled Group is or ever has been
obligated to contribute to any Multiemployer Plan.
SECTION 4.7. Taxes.
There have been filed on behalf of the Borrower and its Subsidiaries all
federal, state and local income, excise, property and other tax returns which
are required to be filed by them and all taxes due pursuant to such returns or
pursuant to any assessment received by or on behalf of the Borrower or any
Subsidiary have been paid, except for amounts that either are immaterial or are
being disputed in good faith and by appropriate proceedings. The charges,
accruals and reserves on the books of the Borrower and its Subsidiaries in
respect of taxes or other governmental charges are, in the opinion of the
Borrower, adequate.
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SECTION 4.8. Subsidiaries.
As of the Closing Date, the Borrower has no Subsidiaries, except for the
Subsidiaries set forth on Schedule 4.8, all of which are Consolidated
Subsidiaries.
SECTION 4.9. Not a Holding Company, Public Utility, Investment
Company, Investment Adviser.
Neither the Borrower nor any Subsidiary is a "holding company," or a
"subsidiary company" of a "holding company," or an "affiliate" of a "holding
company" or of a "subsidiary company" of a "holding company," or a "public
utility," within the meaning of the Public Utility Holding Company Act of 1935,
as amended; or a "public utility" within the meaning of the Federal Power Act,
as amended; or an "investment company" or a company "controlled" by an
"investment company" within the meaning of the Investment Company Act of 1940,
as amended; or an "investment adviser" within the meaning of the Investment
Advisers Act of 1940, as amended.
SECTION 4.10. Ownership of Property; Liens.
The Borrower owns Properties, or interests in Properties, sufficient for
the conduct of its business; and none of such Properties is subject to any Lien
except as permitted in Section 5.8.
SECTION 4.11. No Default.
Neither the Borrower nor any of its Subsidiaries is in default under or
with respect to any agreement, instrument or undertaking to which it is a party
or by which it or any of its property is bound which could have or cause a
Material Adverse Effect. No Default has occurred and is con tinuing.
SECTION 4.12. Full Disclosure.
All written information and, to the best of the Borrower's knowledge, all
other information, heretofore furnished by the Borrower to the Agent or any Bank
for purposes of or in connection with this Agreement or any transaction
contemplated hereby is, and all such information hereafter furnished by the
Borrower to the Agent or any Bank will be, true, accurate and complete in every
material respect or based on reasonable estimates on the date as of which such
information is stated or certified. The Borrower has disclosed to the Banks in
writing any and all facts which could reasonably be expected to have or cause a
Material Adverse Effect.
SECTION 4.13. Environmental Matters.
To the best of the Borrower's knowledge, (i) neither the Borrower nor any
Subsidiary is subject to any Environmental Liability which could have or cause a
Material Adverse Effect and neither the Borrower nor any Subsidiary has been
designated as a potentially responsible party under
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CERCLA or under any state statute similar to CERCLA. None of the Properties
located in the United States, owned by either the Borrower or a Subsidiary, has
been identified on any current or proposed (A) National Priorities List under 40
C.F.R. ss. 300, (B) CERCLIS list or (C) any list arising from a state statute
similar to CERCLA; (ii) to the best of the Borrower's knowledge, no Hazardous
Materials have been or are being used, produced, manufactured, processed,
treated, recycled, gener ated, stored, disposed of, managed or otherwise handled
at, or shipped or transported to or from the Properties or are otherwise present
at, in or under the Properties, owned or operated by either the Borrower or a
Subsidiary, or, to the best of the knowledge of the Borrower, at or from any
adjacent site or facility, except for Hazardous Materials, such as cleaning
solvents, pesticides and other materi als used, produced, manufactured,
processed, treated, recycled, generated, stored, disposed of, managed, or
otherwise handled in the ordinary course of business in compliance with all
applicable Environmental Requirements; and (iii) to the best of the Borrower's
knowledge, the Borrower and its Subsidiaries are in compliance with all
Environmental Requirements in connection with the ownership, use and operation
of the Properties and the Borrower's and such Subsidiary's respective
businesses.
SECTION 4.14. Capital Stock.
All Capital Stock, debentures, bonds, notes and all other securities of the
Borrower and its Subsidiaries presently issued and outstanding are validly and
properly issued in accordance with all applicable laws, including but not
limited to, the "Blue Sky" laws of all applicable states and the federal
securities laws.
SECTION 4.15. Margin Stock.
Neither the Borrower nor any of its Subsidiaries is engaged principally, or
as one of its important activities, in the business of purchasing or carrying
any Margin Stock, and no part of the proceeds of the Loan will be used to
purchase or carry any Margin Stock or to extend credit to others for the purpose
of purchasing or carrying any Margin Stock, or be used for any purpose which
violates, or which is inconsistent with the provisions of, Regulations G, T, U
or X.
SECTION 4.16. Solvency.
After giving effect to the execution and delivery of the Loan Documents and
the making of the Loan, the Borrower will be Solvent.
SECTION 4.17. Possession of Franchises, Licenses, Etc.
The Borrower and its Subsidiaries possess to the extent material all
franchises, certificates, licenses, permits and other authorizations from
governmental and political subdivisions or regulatory authorities, and all
patents, trademarks, service marks, trade names, copyrights, franchises,
licenses and other rights that are necessary for ownership, maintenance and
operation of any of their respective material Properties and assets, and neither
the Borrower nor any of its
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Subsidiaries is in violation of any thereof, which, individually or in the
aggregate, would or might have or cause a Material Adverse Effect. Without
limiting the generality of the foregoing, and, in any event, the Borrower and
its Subsidiaries possess all Franchise Rights necessary for the ownership,
operation and development of its (or their) franchised restaurant business as
conducted, or contemplated to be conducted, by the Borrower and such
Subsidiaries, including, without limitation, in the case of "Applebee's"
restaurants, franchise agreements for each franchised restaurant location and
exclusive development rights for each designated area in which franchised
restaurants are located or contemplated to be located.
SECTION 4.18. Insurance.
The Borrower and each of its Subsidiaries maintains adequate insurance on,
and in respect of the ownership and operation of, its Properties in at least
such amounts and against at least such risks as are usually insured against in
the same general area by companies of established repute engaged in the same or
similar business.
ARTICLE 5. COVENANTS
The Borrower agrees that, so long as any Bank has any Commitment hereunder
or any amount payable hereunder or under any Note remains unpaid:
SECTION 5.1. Information.
The Borrower will deliver to each of the Banks:
5.1.1 Annual Audit. As soon as available and in any event within ninety
(90) days after the end of each Fiscal Year, a consolidated balance sheet of the
Borrower and its Con solidated Subsidiaries as of the end of such Fiscal Year
and the related consolidated statements of income, shareholders' equity and cash
flows for such Fiscal Year, setting forth in each case in comparative form the
figures for the previous fiscal year, all certified by independent public
accountants of nationally recognized standing, with such certification to be
free of any material exceptions and qualifications; provided that, the
information required by this paragraph may be satis fied by delivery of
information pursuant to Section 5.1.5 or Section 5.1.6;
5.1.2 Interim Statements. As soon as available and in any event within
fifty (50) days after the end of each of the first three (3) Fiscal Quarters of
each Fiscal Year, a con solidated balance sheet of the Borrower and its
Consolidated Subsidiaries as of the end of such Fiscal Quarter and the related
statement of income and statement of cash flows for such quarter and for the
portion of the Fiscal Year ended at the end of such quarter, setting forth in
each case in comparative form the figures for the corresponding quarter and the
corresponding portion of the previous Fiscal Year, all certified (subject to
normal year-end adjustments) as to fairness of presentation, GAAP and
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consistency by the chief financial officer of the Borrower; provided that the
information required by this paragraph may be satisfied by delivery of
information pursuant to Section 5.1.5 or Section 5.1.6;
5.1.3 Compliance Certificates. Simultaneously with the delivery of each set
of financial statements referred to in Sections 5.1.1 and 5.1.2, a certificate,
substantially in the form of Exhibit G (a "Compliance Certificate"), of the
chief financial officer of the Borrower (i) setting forth in reasonable detail
the calculations required to establish (A) the then effective "Applicable
Margin" for Euro-Dollar Rate Loans, (B) the then effective "Applicable Rate" for
commitment fees and (C) whether the Borrower was in compliance with the
requirements of Sections 5.3, 5.4, 5.5, 5.6 and 5.19 on the date of such
financial statements and (ii) stating whether any Default exists on the date of
such certificate and, if any Default then exists, setting forth the details
thereof and the action which the Borrower is taking or proposes to take with
respect thereto;
5.1.4 Default Notice. Promptly (and, in any event, within five (5) Domestic
Business Days) after the Borrower becomes aware of the occurrence of any
Default, a certificate of the chief financial officer of the Borrower setting
forth the details thereof and the action which the Borrower is taking or
proposes to take with respect thereto;
5.1.5 Proxy. Promptly upon the mailing thereof to the shareholders of the
Borrower generally, copies of all financial statements, reports and proxy
statements so mailed;
5.1.6 Registration Statements. Promptly upon the filing thereof, copies of
all registration statements and annual, quarterly or monthly reports which the
Borrower shall have filed with the Securities and Exchange Commission;
5.1.7 ERISA Notices. If and when any member of the Controlled Group (i)
gives or is required to give notice to the PBGC of any reportable event (as
defined in Section 4043 of ERISA) with respect to any Plan which might
constitute grounds for a termination of such Plan under Title IV of ERISA, or
knows that the plan administrator of any Plan has given or is required to give
notice of any such reportable event, a copy of the notice of such reportable
event given or required to be given to the PBGC; (ii) receives notice of
complete or partial withdrawal liability under Title IV of ERISA, a copy of such
notice; or (iii) receives notice from the PBGC under Title IV of ERISA of an
intent to terminate or appoint a trustee to administer any Plan, a copy of such
notice; and
5.1.8 Other Reports. From time to time such additional information
regarding the financial position or business of the Borrower and its
Subsidiaries as the Agent, at the request of any Bank, may reasonably request.
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SECTION 5.2. Inspection of Property, Books and Records.
The Borrower will keep, and require each Subsidiary to keep, proper books
of record and account in which full, true and correct entries in conformity with
GAAP (or, in the case of any non-domestic Subsidiary, such other accounting
standards, rules, regulations and practices applicable to businesses operating
in the locality in which each such Person operates); and permit, and cause each
Subsidiary to permit, representatives of any Bank at such Bank's expense prior
to the occurrence of a Default and at the Borrower's expense after the
occurrence and during the continuance of a Default to visit and inspect any of
their respective properties, to examine and make abstracts from any of their
respective books and records and to discuss their respective affairs, finances
and accounts with their respective officers, employees and independent public
accountants. The Borrower agrees to cooperate and assist in such visits and
inspections in each case at such reasonable times and as often as may reasonably
be desired.
SECTION 5.3. Adjusted Funded Debt/Adjusted Capitalization Ratio.
The Adjusted Funded Debt/Adjusted Capitalization Ratio will not at any time
exceed .65:1.
SECTION 5.4. Minimum Stockholders' Equity.
Stockholders' Equity will at no time be less than the sum of (i)
$180,000,000, as of the Fiscal Quarter ended closest to December 31, 1996 (the
"Base Fiscal Quarter"), plus (ii) fifty percent (50%) of Consolidated Net Income
(if positive) for each Fiscal Quarter subsequent to the Base Fiscal Quarter;
plus, without duplication, (iii) seventy-five percent (75%) of any net proceeds
received by Borrower from any offering of equity securities (other than
Redeemable Preferred Stock) by Borrower subsequent to the Closing Date; plus,
without duplication, (iv) seventy-five percent (75%) of any net proceeds
received by Borrower from any conversion of debt into equity subsequent to the
Closing Date; plus, without duplication, (v) seventy-five percent (75%) of any
adjustment to equity due to any pooling of interests occurring subsequent to
December 31, 1996; plus, without duplication, (vi) seventy-five percent (75%) of
any increase in Stockholders' Equity resulting from the issuance or exchange of
any equity securities in furtherance of any acquisition constituting a permitted
investment under Section 5.19.
SECTION 5.5. Fixed Charge Coverage Ratio.
Borrower's Fixed Charge Coverage Ratio, measured on a rolling four (4)
Fiscal Quar ters' basis as of the end of each Fiscal Quarter, commencing with
the Fiscal Quarter ended closest to December 31, 1997, shall be (i) not less
than 1.80:1, for the Fiscal Quarters ending closest to December 31, 1997, March
31, 1998 and June 30, 1998, (ii) not less than 1.90:1, for the Fiscal Quarter
ending closest to September 30, 1998; and (iii) not less than 2.00:1, for each
Fiscal Quarter ending thereafter.
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SECTION 5.6. Total Funded Debt/EBITDA Ratio.
The ratio which (i) the Total Funded Debt of the Borrower and its
Consolidated Subsidiaries at the end of any Fiscal Quarter, commencing with the
Fiscal Quarter ended closest to December 31, 1997, bears to (ii) the EBITDA of
the Borrower and its Consolidated Subsidiaries, measured on a rolling four (4)
Fiscal Quarters' basis as of the end of such Fiscal Quarter, shall be (i) not
more than 3.80:1, for the Fiscal Quarters ending closest to December 31, 1997
and closest to March 31, 1998, and (ii) not more than 3.50:1, for each Fiscal
Quarter ending thereafter. In computing EBITDA in respect of the foregoing
ratio, (a) any asset or stock dispositions by the Borrower consisting of the
sale of a business line, segment or other group of related stores (including,
particularly, for this purpose, the Applebee's Spinoff) occurring within a
Fiscal Quarter shall be accounted for by reducing EBITDA by the individual
EBITDA attributable to each store within such group for such Fiscal Quarter and
the three (3) preceding Fiscal Quarters; and (b) any asset or stock acquisitions
by the Borrower consisting of the purchase of a business, line, segment or other
group of related stores occurring within a Fiscal Quarter shall be accounted for
by increasing EBITDA by the individual EBITDA attributable to each store within
such group for such Fiscal Quarter and for the three (3) preceding Fiscal
Quarters; in each instance, on an historical basis, in a manner which Borrower
shall determine, but subject to prior review with, and approval by, the Agent.
SECTION 5.7. Negative Pledge.
The Borrower will not, nor will the Borrower permit any Subsidiary to,
create, assume or suffer to exist any Lien on any asset now owned or hereafter
acquired by it, except: (i) those Liens, if any, described on Schedule 5.7,
concerning existing debt of the Borrower, to be set forth and described more
particularly therein, together with any Lien arising out of the refinancing,
extension, renewal or refunding of any debt secured by any such Lien, provided
that such debt is not secured by any additional assets, and the amount of such
debt secured by any such Lien is not increased; (ii) Liens incidental to the
conduct of its business or the ownership of its Properties which (A) do not
secure debt and (B) do not in the aggregate materially detract from the value of
its Properties or materially impair the use thereof or the operation of its
business, including, without limitation, easements, rights of way, restrictive
covenants, zoning and other similar restrictions on real property; (iii)
materialmen's mechanics', warehousemen's carriers', landlords' and other similar
statutory Liens which secure debt or other obligations that are not past due,
or, if past due are being contested in good faith by the Borrower or the
appropriate Subsidiary by appropriate proceedings; (iv) Liens for taxes not
delinquent or taxes being contested in good faith and by appropriate
proceedings; (v) pledges or deposits in connection with worker's compensation,
unemployment insurance and other social security legislation; (vi) deposits to
secure performance of bids, trade contracts, leases, statutory obligations (to
the extent not excepted elsewhere herein); (vii) grants of security and rights
of setoff in accounts, securities and other properties held at banks or
financial institutions to secure the payment or reimbursement under overdraft,
letter of credit, acceptance and other credit facilities; (viii) rights of
setoff, banker's liens and other similar rights arising solely by operation of
law; (ix) Pur chase Money Liens; (x) Liens on any Properties acquired by
Borrower or any Subsidiary subsequent to the Closing Date, to the extent that
(A) such Liens are existing at the time of acquisition, (B) the
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debt secured thereby is not secured by any other Properties of Borrower or such
Subsidiary except the acquired Properties, (C) the amount of such debt so
secured thereby is not increased at or subse quent to the acquisition and (D)
the total amount of all such debt secured by all such acquired Properties does
not exceed at any time, in aggregate amount, fifteen percent (15%) of Tangible
Net Worth; together with any Lien arising out of the refinancing, extension,
renewal or refunding of any debt secured by any such Lien, provided that such
debt is not secured by any additional assets, and the amount of such debt
secured by any such Lien is not increased; (xi) capital leases made in the
ordinary course of business (but excluding, however, sale-leaseback transactions
in any event) in which there is no provision for title to the leased Property to
pass to the Borrower or such Subsidiary at the expiration of the lease term or
as to which no bargain purchase option exists; and (xii) rights of lessors in
respect of Properties leased to the Borrower or its Subsidiaries under operating
leases.
SECTION 5.8. Maintenance of Existence.
Except as permitted in Section 5.10, the Borrower shall, and shall cause
each Subsidiary to, maintain its corporate existence and carry on its business
in substantially the same manner and in substantially the same fields as such
business is now carried on and maintained. Without limiting the generality of
the foregoing, the Borrower shall, and shall cause each Subsidiary to, maintain
at all times in full force and effect all Franchise Rights necessary to the
ownership, operation and development of all franchised restaurant business
conducted, or contemplated to be conducted, by the Borrower and such
Subsidiaries, except with respect to Voluntary Store Closings and except with
respect to any Applebee's Spinoff.
SECTION 5.9. Dissolution.
Neither the Borrower nor any of its Subsidiaries shall suffer or permit
dissolution or liquidation either in whole or in part, except through corporate
reorganization to the extent permitted by Section 5.10.
SECTION 5.10. Consolidations, Mergers and Sales of Assets.
The Borrower will not, nor will it permit any Subsidiary to, consolidate or
merge with or into, or sell, lease or otherwise transfer all or any substantial
part of its assets to, any other Person, or discontinue or eliminate any
business line or segment, provided, however, that subject at all times to
Section 5.19, the Borrower or any Subsidiary may merge with another Person
(which is not the Borrower or such Subsidiary) if (i) such Person was organized
under the laws of the United States of America or one of its states (ii) the
Borrower or such Subsidiary (as the case may be) is the corporation surviving
such merger and (iii) immediately after giving effect to such merger, no Default
shall have occurred and be continuing, and any Subsidiaries of the Borrower may
(i) merge or con solidate with each other or with the Borrower (so long as the
Borrower is the corporation surviving such merger), or (ii) sell assets to each
other or to the Borrower; and, provided, further, that, the Borrower may, upon
giving at least two (2) Business Days' advance written notice to the Agent
thereof, consummate an Applebee's Spinoff if made in accordance with the terms
set forth in the
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definition thereof and provided that Borrower complies with Section 2.9 in
regard thereto respecting coincident mandatory prepayment of the Loan by an
amount equal to the Net Cash Proceeds therefrom.
SECTION 5.11. Use of Proceeds.
The entire proceeds of the Loan will be used by the Borrower to refinance
all existing indebtedness of the Borrower under the Original Credit Agreement,
by extension and renewal thereof, and for no other purpose.
SECTION 5.12. Compliance with Laws; Payment of Taxes.
The Borrower will, and will cause each of its Subsidiaries and each member
of the Controlled Group to, comply in all material respects with applicable laws
(including but not limited to ERISA), regulations and similar requirements of
governmental authorities (including but not limited to PBGC), except where the
necessity of such compliance is being contested in good faith through
appropriate proceedings. The Borrower will, and will cause each of its
Subsidiaries to, pay promptly when due all taxes, assessments governmental
charges, claims for labor, supplies, rent and other obligations which, if
unpaid, might become a Lien against the Property of the Borrower or any
Subsidiary, except liabilities being contested in good faith and against which,
if requested by the Agent, the Borrower will set up reserves in accordance with
GAAP.
SECTION 5.13. Insurance.
The Borrower will maintain, and will cause each of its Subsidiaries to
maintain (either in the name of the Borrower or in such Subsidiary's own name),
with financially sound and reputable insurance companies, insurance on, and in
respect of the ownership and operation of, its Properties in at least such
amounts and against at least such risks as are usually insured against in the
same general area by companies of established repute engaged in the same or
similar business.
SECTION 5.14. Change in Fiscal Year.
The Borrower will not change its Fiscal Year without the consent of the
Required Banks.
SECTION 5.15. Maintenance of Property.
The Borrower shall, and shall cause each Subsidiary to, maintain all of its
Properties in good condition, repair and working order, ordinary wear and tear
excepted.
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SECTION 5.16. Environmental Notices.
The Borrower shall furnish to the Agent, promptly after the Borrower
becomes aware thereof, written notice of all Environmental Liabilities, pending,
threatened Environmental Proceedings, Environmental Notices, Environmental
Judgments and Orders and Environmental Re leases, at, on, in, under or in any
way affecting the Properties or any adjacent property and all facts, events, or
conditions that could reasonably be expected to lead to any of the foregoing.
SECTION 5.17. Environmental Matters.
The Borrower will not, and will not permit any Third Party to, use,
produce, manufac ture, process, treat, recycle, generate, store, dispose of,
manage at, or otherwise handled or ship or transport to or from the Properties
any Hazardous Materials except for Hazardous Materials such as cleaning
solvents, pesticides and other similar materials used, produced, manufactured,
processed, treated, recycled, generated, stored, disposed, managed, or otherwise
handled in the ordinary course of business in compliance with all applicable
Environmental Requirements.
SECTION 5.18. Environmental Releases.
The Borrower agrees that upon the occurrence of an Environmental Release
(except for any Environmental Release which (x) occurred in compliance with all
Environmental Requirements and (y) could not reasonably be expected to have or
cause a Material Adverse Effect), it will act immediately to investigate the
extent of, and to take appropriate remedial action to eliminate, such
Environmental Release, whether or not ordered or otherwise directed to do so by
any Environmental Authority.
SECTION 5.19. Investments.
The Borrower will not make (nor will the Borrower permit any Subsidiary to
make) any investment in any Person or Property (which term "investment," for
purposes hereof, shall mean and include, without limitation, the acquisition of
any property, the issuance, acquisition or exchange of any capital stock, debt
or other obligations or security to, from or with any Person, the making of any
loan, advance, extension of credit, credit accommodation, Guarantee or capital
contribution to or on behalf of any Person, and the leasing or subleasing of any
property to any Person), provided, however, that, notwithstanding the foregoing,
the Borrower (or any Subsidiary) may, from time to time, undertake the
following, without the necessity of obtaining the Required Lenders' prior
written consent thereto:
(i) Current Assets. Acquire current assets for use in, or arising from, the
sale of goods or services in the ordinary course of its business (including, for
this purpose, but without limitation, credit card receivables);
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(ii) Capital Expenditures. Make capital expenditures in the ordinary course
of its business;
(iii) Franchise Fees. Pay franchisee fees and royalties to its franchisors
in the ordinary course of its business;
(iv) Escrow Deposits. Make or maintain escrow deposits for the payment of
taxes, rents, utilities, insurance or like matters in the ordinary course of its
business;
(v) Bank Accounts. Make and maintain deposits of cash in demand deposit
accounts of banks in the ordinary course of its business, and make endorsements
of checks, drafts or other in struments in connection therewith;
(vi) Surplus Cash. Consistent at all times with the Borrower's internal
Statement of Investment Policy, invest surplus cash in (A) obligations of, or
guaranteed by, the United States of America or any agency thereof, (B)
short-term certificates of deposit issued by, and time deposits with, any Bank
or any other financial institution domiciled in the United States of America
with assets of at least $500,000,000, (C) short-term commercial paper rated at
least "A1" by Standard & Poors or "P1" by Moody's, and (D) fixed or adjustable
rate corporate debt securities with a credit rating of at least double A (Aa/AA)
by either Moody's or Standard & Poors, provided that any fixed rate debt
securities have a maturity of one year or less;
(vii) Subsidiaries. Make investments in those Consolidated Subsidiaries of
the Borrower which are wholly-owned, directly or indirectly, by the Borrower, in
the ordinary course of, and pursuant to the reasonable requirements of, the
Borrower's and such Subsidiaries' respective businesses, provided that the
aggregate amount of such investments which may be outstanding at any one time
hereafter, as to all such Subsidiaries, shall not exceed, in any event, (A) ten
percent (10%) of consolidated total assets of Borrower and its Consolidated
Subsidiaries at any time prior to December 30, 1997, (B) seven and one-half
percent (7-1/2%) of consolidated total assets of Borrower and its Consolidated
Subsidiaries on or at any time after December 31, 1997, but prior to June 30,
1998, and (C) five percent (5%) of consolidated total assets of Borrower and its
Consolidated Subsidiaries on or after June 30, 1998; it being understood and
agreed that (a) there shall be excluded from such calculation any investment
deemed made by the Borrower in DF&R Restaurants, Inc., a Texas corporation which
is a wholly-owned, Consolidated Subsidiary of the Borrower, pursuant to the
accounting for the prior acquisition of such corporation by the Borrower as a
pooling of interests; (b) there shall be deducted in any event from the amount
of investments in Subsidiaries which may be made pursuant to this clause (vii)
the aggregate amount of Capitalized Lease Obligations of all Subsidiaries which
are at any time outstanding, if and to the extent not already counted against
such amount as an investment of Borrower; i.e., as a Capitalized Lease
Obligation owing to Borrower as lessor or sublessor; and (c) the provisions of
this clause (vii) shall be the exclusive means by which the Borrower (or any
Subsidiary) may make investments in any Subsidiaries (whether or not
wholly-owned Subsidiaries) and shall override any other provisions of
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this Section 5.19 (including, particularly, clauses (x), (xi) and (xii) below)
which may be construed otherwise to permit such investments.
(viii) Travel Advances. Make travel and similar advances to employees from
time to time in the ordinary course of business;
(ix) Special Life Insurance Program. The Borrower may invest up to Eight
Hundred Fifty Thousand Dollars ($850,000) per Fiscal Year in the making of
annual premiums payable on the split dollar joint survivor life insurance
program implemented, or to be implemented, covering the lives of Tom E. DuPree,
Jr. and his spouse Anne DuPree, with an initial death benefit of Fifty Million
Dollars ($50,000,000), provided, however, that (i) such investments are made
over a period not to exceed ten (10) Fiscal Years and (ii) Borrower maintains at
all times during the effective period of the program a security interest in
policy proceeds and cash values of policies issued as part of the program equal
in amount to not less than its then cumulative premium investments;
(x) Applebee's Franchisees. Make investments in franchisees of "Applebee's"
restaurants, but no investment in Applebee's International, Inc. (or any Person
which subsequent hereto shall become the franchisor of "Applebee's" restaurants)
shall be permitted to be made subsequent to the Closing Date, notwithstanding
this clause (x) or any other provision of this Section, except with the prior
written consent of the Required Lenders;
(xi) Other Restaurant Concepts. Make investments in other restaurant
concepts, besides "Applebee's," so long as the total amount of each such
investment (either considered in dividually or as part of a series of related,
concurrent investments), does not exceed ten percent (10%) of Borrower's
consolidated total assets immediately before such investment (or the last in a
series of related, concurrent investments) is made; or
(xii) Other Investments Generally. Make other investments, not described in
clauses (i) through (xi) above, provided that all such investments, in the
aggregate, do not exceed at any one time ten percent (10%) of Stockholders'
Equity.
The Borrower shall notify the Agent from time to time, but not less frequently
than quarterly, or at any time at Agent's request, of the nature and amount of
any investments made pursuant to clauses (x), (xi) and (xii) hereof which,
individually or in the aggregate, exceed One Hundred Thousand Dollars
($100,000).
SECTION 5.20. Subsidiary Debt.
Except solely to the extent expressly permitted in clause (vii) of Section
5.19 of this Agreement, the Borrower will not permit any Consolidated Subsidiary
of the Borrower which is a wholly-owned Subsidiary, directly or indirectly, of
the Borrower, to create, incur or suffer to exist any of the following: (i)
indebtedness for borrowed funds; (ii) Capitalized Lease Obligations, provided,
however, that DF&R Restaurants, Inc. and its Subsidiaries may incur Capitalized
Lease
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Obligations in an aggregate amount not to exceed Ten Million Dollars
($10,000,000) at any one time outstanding; (iii) Guarantees; (iv) debts,
liabilities or obligations to any seller incurred to pay the deferred purchase
price of property or services having a deferred purchase price of One Million
Dollars ($1,000,000) or more, excepting, in any event, trade accounts payable
arising in the ordinary course of business and purchase options prior to their
exercise; and (v) debts, liabilities or obligations in respect of Synthetic
Leases.
ARTICLE 6. DEFAULTS
SECTION 6.1. Events of Default.
If one or more of the following events ("Events of Default") shall have
occurred and be continuing:
6.1.1 Non-Payment. The Borrower (i) shall fail to pay when due any
principal of the Loan or (ii) shall fail to pay any interest on the Loan within
five (5) Domestic Business Days after such interest shall become due, or (iii)
shall fail to pay any fee or other amount payable hereunder or under any Loan
Document within five (5) Domestic Business Days after such fee or other amount
becomes due; or
6.1.2 Failure to Observe Certain Covenants. The Borrower shall fail to
observe or perform any covenant contained in Sections 5.3 through 5.9, 5.10,
5.11, 5.12, 5.15 or 5.19, inclusive; or
6.1.3 Failure to Observe Covenants Generally. The Borrower shall fail to
observe or perform any covenant or agreement contained or incorporated by
reference in this Agreement (other than those covered by Sections 6.1.1 and
6.1.2) and such failure shall not have been cured within ten (10) days after the
earlier to occur of (i) written notice thereof has been given to the Borrower by
the Agent at the request of any Bank or (ii) an executive, senior financial or
accounting officer of the Borrower otherwise becomes aware of any such failure;
or
6.1.4 Misrepresentation. Any representation, warranty, certification or
statement made by the Borrower in Article IV of this Agreement or in any
certificate, financial statement or other document delivered pursuant to this
Agreement shall prove to have been incorrect or misleading in any material
respect when made (or deemed made); or
6.1.5 Cross-Default. The Borrower or any Subsidiary shall fail to make any
payment in respect of any debt, liability or obligation outstanding individually
or in the aggregate with all other such debts, liabilities or obligations, equal
to or in excess of Five Hundred Thousand Dollars ($500,000), other than the
Notes, when due or within any applicable grace period; or any event or condition
shall occur which results in the acceleration of the maturity of any such debt,
liability or obligation outstanding of the Borrower or any Subsidiary
individually or in the aggregate
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with all other such debts, liabilities or obligations equal to or in excess of
Five Hundred Thousand Dollars ($500,000) or the mandatory prepayment or purchase
of any such debt, liability or obligation by the Borrower (or its designee) or
such Subsidiary (or its designee) individually or in the aggregate with all
other such debts, liabilities or obligations equal to or in excess of Five
Hundred Thousand Dollars ($500,000) prior to the scheduled maturity thereof, or
enables (or, with the giving of notice or lapse of time or both, would enable)
the holders of any such debt, liability or obligation individually or in the
aggregate with all other such debts, liabilities or obligations equal to or in
excess of Five Hundred Thousand Dollars ($500,000) or any Person acting on such
holders' behalf to accelerate the maturity thereof or require the mandatory
prepayment or purchase thereof prior to the scheduled maturity thereof, without
regard to whether such holders or other Person shall have exercised or waived
their right to do so; or
6.1.6 Voluntary Bankruptcy. The Borrower or any Subsidiary shall commence a
voluntary case or other proceeding seeking liquidation, reorganization or other
relief with respect to itself or its debts under any bankruptcy, insolvency or
other similar law now or hereafter in effect or seeking the appointment of a
trustee, receiver, liquidator, custodian or other similar official of it or any
substantial part of its property, or shall consent to any such relief or to the
appointment of or taking possession by any such official in an involuntary case
or other proceeding commenced against it, or shall make a general assignment for
the benefit of creditors, or shall fail generally to pay its debts as they
become due, or shall take any corporate action to authorize any of the
foregoing; or
6.1.7 Involuntary Bankruptcy. An involuntary case or other proceeding shall
be commenced against the Borrower or any Subsidiary seeking liquidation,
reorganization or other relief with respect to it or its debts under any
bankruptcy, insolvency or other similar law now or hereafter in effect or
seeking the appointment of a trustee, receiver, liquidator, custodian or other
similar official of it or any substantial part of its property, and such
involuntary case or other proceeding shall remain undismissed and unstayed for a
period of sixty (60) days; or an order for relief shall be entered against the
Borrower or any Subsidiary under the federal bankruptcy laws as now or hereafter
in effect; or
6.1.8 ERISA. The Borrower or any member of the Controlled Group shall fail
to pay when due any material amount which it shall have become liable to pay to
the PBGC or to a Plan under Title IV of ERISA; or notice of intent to terminate
a Plan or Plans shall be filed under Title IV of ERISA by the Borrower, any
member of the Controlled Group, any plan administrator or any combination of the
foregoing; or the PBGC shall institute proceedings under Title IV of ERISA to
terminate or to cause a trustee to be appointed to administer any such Plan or
Plans or a proceeding shall be instituted by a fiduciary of any such Plan or
Plans to enforce Section 515 or 4219(c)(5) of ERISA and such proceeding shall
not have been dismissed within thirty (30) days thereafter; or a condition shall
exist by reason of which the PBGC would be entitled to obtain a decree
adjudicating that any such Plan or Plans must be terminated; or
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6.1.9 Judgments. One or more judgments or orders for the payment of money
in an aggregate amount equal to or greater than Five Hundred Thousand Dollars
($500,000) shall be rendered against the Borrower or any Subsidiary and such
judgment or order shall continue unsatisfied and unstayed for a period of thirty
(30) days; or
6.1.10 Tax Liens. A federal tax Lien shall be filed against the Borrower
under Section 6323 of the Code or a Lien of the PBGC shall be filed against the
Borrower or any Subsidiary under Section 4068 of ERISA and in either case such
Lien shall remain undischarged for a period of thirty (30) days after the date
of filing; or
6.1.11 Change of Control. Tom E. DuPree, Jr. shall cease to own and
control, beneficially and with power to vote, at least fifteen percent (15%) of
the outstanding shares of the voting common stock of the Borrower; or any Person
(other than Tom E. DuPree, Jr.) or two or more Persons acting in concert shall
have acquired beneficial ownership (within the meaning of Rule 13d-3 of the
Securities and Exchange Commission under the Securities Exchange Act of 1934) of
twenty percent (20%) or more of the outstanding shares of the voting common
stock of the Bor rower; or as of any date, a majority of the Board of Directors
of the Borrower consists of individuals who were not either (A) directors of the
Borrower as of the corresponding date of the previous year, (B) selected or
nominated to become directors by a Board of Directors of the Borrower of which a
majority consisted of individuals described in clause (A), or (C) selected or
nominated to become di rectors by the Board of Directors of the Borrower of
which a majority consisted of individuals described in clause (A) and
individuals described in clause (B); or
6.1.12 Loss of Franchise Rights. If any of the Franchise Rights of the
Borrower or its Subsidiaries shall be forfeited, suspended, lost, rejected,
disclaimed, impaired, curtailed or otherwise adversely altered or affected in
any manner, in whole or in any material part, for any reason whatsoever, whether
or not related to the Borrower's or such Subsidiary's performance of its duties
and obligations as franchisee at any time hereafter except with respect to any
Voluntary Store Closing and except in connection with any Applebee's Spinoff; or
there shall occur any default by the Borrower or any such Subsidiary in the
payment, performance or observance of any terms, covenants or conditions of any
franchise or development agreements giving rise to the existence and/or
continuation of any such Franchise Rights, and any grace or cure period relative
thereto granted therein shall have expired without such default being waived or
cured except in connection with any Applebee's Spinoff; or
6.1.13 Material Adverse Effect. The occurrence of any event, act,
occurrence, or condition which the Required Banks determine either does or has a
reasonable probability of causing, or resulting in, a Material Adverse Effect;
then, and in every such event, the Agent shall (i) if requested by the Required
Banks, by notice to the Borrower terminate the Commitments and they shall
thereupon terminate, and (ii) if requested by the Required Banks, by notice to
the Borrower declare the Notes (together with accrued interest thereon) to be,
and the Notes shall thereupon become, immediately due and payable without
presentment,
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demand, protest or other notice of any kind, all of which are hereby waived by
the Borrower, together with interest at the Default Rate accruing on the
principal amount thereof from and after the date of such Event of Default;
provided that if any Event of Default specified in Sections 6.1.6 or 6.1.7 above
occurs with respect to the Borrower or any Subsidiary, without any notice to the
Borrower or any other acts by the Agent or the Banks, the Commitments shall
thereupon terminate and the Notes (together with accrued interest thereon) shall
become immediately due and payable without presentment, demand, protest or other
notice of any kind, all of which are hereby waived by the Borrower, together
with interest thereon at the Default Rate accruing on the principal amount
thereof from and after the date of such Event of Default. Notwithstanding the
foregoing, the Agent shall have available to it all other remedies at law or
equity, and shall exercise any one or all of them at the request of the Required
Banks.
SECTION 6.2. Notice of Default.
The Agent shall give notice to the Borrower of any Default under Section
6.1.3 promptly upon being requested to do so by any Bank and shall thereupon
notify all the Banks thereof.
ARTICLE 7. THE AGENT
SECTION 7.1. Appointment; Powers and Immunities.
Each Bank hereby irrevocably appoints and authorizes the Agent to act as
its agent hereunder and under the other Loan Documents with such powers as are
specifically delegated to the Agent by the terms hereof and thereof, together
with such other powers as are reasonably incidental thereto. The Agent: (a)
shall have no duties or responsibilities except as expressly set forth in this
Agreement and the other Loan Documents, and shall not by reason of this
Agreement or any other Loan Document be a trustee for any Bank; (b) shall not be
responsible to the Banks for any recitals, statements, representations or
warranties contained in this Agreement or any other Loan Document, or in any
certificate or other document referred to or provided for in, or received by any
Bank under, this Agreement or any other Loan Document, or for the validity,
effectiveness, genuineness, enforceability or sufficiency of this Agreement or
any other Loan Document or any other document referred to or provided for herein
or therein or for any failure by the Borrower to perform any of its obligations
hereunder or thereunder; (c) shall not be required to initiate or conduct any
litigation or collection proceedings hereunder or under any other Loan Document
except to the extent requested by the Required Banks, and then only on terms and
conditions satisfactory to the Agent; and (d) shall not be responsible for any
action taken or omitted to be taken by it hereunder or under any other Loan
Document or any other document or instrument referred to or provided for herein
or therein or in connection herewith or therewith, except for its own gross
negligence or willful misconduct. The Agent may employ agents and
attorneys-in-fact and shall not be responsible for the negligence or misconduct
of any such agents or attorneys-in-fact selected by it with reasonable care. The
provi sions of this Article VII are solely for the benefit of the Agent and the
Banks, and the Borrower shall not have any rights as a third party beneficiary
of any of the provisions hereof. In performing its
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functions and duties under this Agreement and under the other Loan Documents,
the Agent shall act solely as agent of the Banks and does not assume and shall
not be deemed to have assumed any obligation towards or relationship of agency
or trust with or for the Borrower. The duties of the Agent shall be ministerial
and administrative in nature, and the Agent shall not have by reason of this
Agreement or any other Loan Document a fiduciary relationship in respect of any
Bank.
SECTION 7.2. Reliance by Agent.
The Agent shall be entitled to rely upon any certification, notice or other
com munication (including any thereof by telephone, telefax, telegram or cable)
believed by it to be genu ine and correct and to have been signed or sent by or
on behalf of the proper Person or Persons, and upon advice and statements of
legal counsel, independent and accountants or other experts selected by the
Agent. As to any matters not expressly provided for by this Agreement or any
other Loan Document, the Agent shall in all cases be fully protected in acting,
or in refraining from acting, hereunder and thereunder in accordance with
instructions signed by the Required Banks, and such instructions of the Required
Banks in any action taken or failure to act pursuant thereto shall be binding on
all of the Banks.
SECTION 7.3. Defaults.
The Agent shall not be deemed to have knowledge of the occurrence of a
Default or an Event of Default (other than the nonpayment of principal of or
interest on the Loan) unless the Agent has received notice from a Bank or the
Borrower specifying such Default or Event of Default and stating that such
notice is a "Notice of Default". In the event that the Agent receives such a
notice of the occurrence of a Default or an Event of Default, the Agent shall
give prompt notice thereof to the Banks. The Agent shall give each Bank prompt
notice of each nonpayment of principal of or interest on the Loan whether or not
it has received any notice of the occurrence of such nonpayment. The Agent shall
(subject to Section 9.6) take such action hereunder with respect to such Default
or Event of Default as shall be directed by the Required Banks, provided that,
unless and until the Agent shall have received such directions, the Agent may
(but shall not be obligated to) take such action, or refrain from taking such
action, with respect to such Default or Event of Default as it shall deem
advisable in the best interests of the Banks.
SECTION 7.4. Rights of Agent as a Bank.
With respect to its pro rata share of the Loan, Wachovia in its capacity as
a Bank here under shall have the same rights and powers hereunder as any other
Bank and may exercise the same as though it were not acting as the Agent, and
the term "Bank" or "Banks" shall, unless the context otherwise indicates,
include Wachovia in its individual capacity. The Agent may (without having to
account therefor to any Bank) accept deposits from, lend money to and generally
engage in any kind of banking, trust or other business with the Borrower (and
any of its Affiliates) as if it were not acting as the Agent, and the Agent may
accept fees and other consideration from the Borrower (in addition to any agency
fees and arrangement fees heretofore agreed to between the Borrower and the
Agent)
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for services in connection with this Agreement or any other Loan Document or
otherwise without having to account for the same to the Banks.
SECTION 7.5. Indemnification.
Each Bank severally agrees to indemnify the Agent, to the extent the Agent
shall not have been reimbursed by the Borrower, ratably in accordance with its
Commitment, for any and all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses (including, without
limitation, counsel fees and disbursements) or disbursements of any kind and
nature whatsoever which may be imposed on, incurred by or asserted against the
Agent in any way relating to or arising out of this Agreement or any other Loan
Document or any other documents con templated by or referred to herein or
therein or the transactions contemplated hereby or thereby (excluding, unless an
Event of Default has occurred and is continuing, the normal administrative costs
and expenses incident to the performance of its agency duties hereunder) or the
enforcement of any of the terms hereof or thereof or any such other documents;
provided, however that no Bank shall be liable for any of the foregoing to the
extent they arise from the gross negligence or willful misconduct of the Agent.
If any indemnity furnished to the Agent for any purpose shall, in the opinion of
the Agent, be insufficient or become impaired, the Agent may call for additional
indemnity and cease, or not commence, to do the acts indemnified against until
such additional indemnity is furnished.
SECTION 7.6. Payee of Note Treated as Owner.
The Agent may deem and treat the payee of any Note as the owner thereof for
all purposes hereof unless and until a written notice of the assignment or
transfer thereof shall have been filed with the Agent and the provisions of
Section 9.8 have been satisfied. Any requests, authority or consent of any
Person who at the time of making such request or giving such authority or
consent is the holder of any Note shall be conclusive and binding on any
subsequent holder, transferee or assignee of that Note or of any Note or Notes
issued in exchange therefor or replacement thereof.
SECTION 7.7. Nonreliance on Agent and Other Banks.
Each Bank agrees that it has, independently and without reliance on the
Agent or any other Bank, and based on such documents and information as it has
deemed appropriate, made its own credit analysis of the Borrower and decision to
enter into this Agreement and that it will, independently and without reliance
upon the Agent or any other Bank, and based on such documents and information as
it shall deem appropriate at the time, continue to make its own analysis and
decisions in taking or not taking action under this Agreement or any of the
other Loan Documents. The Agent shall not be required to keep itself informed as
to the performance or observance by the Borrower of this Agreement or any of the
other Loan Documents or any other document referred to or provided for herein or
therein or to inspect the properties or books of the Borrower or any other
Person. Except for notices, reports and other documents and information
expressly required to be furnished to the Banks by the Agent hereunder or under
the other Loan Documents, the Agent shall
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not have any duty or responsibility to provide any Bank with any credit or other
information concerning the affairs, financial condition or business of the
Borrower or any other Person (or any of their Affiliates) which may come into
the possession of the Agent.
SECTION 7.8. Failure to Act.
Except for action expressly required of the Agent hereunder or under the
other Loan Documents, the Agent shall in all cases be fully justified in failing
or refusing to act hereunder and thereunder unless it shall receive further
assurances to its satisfaction by the Banks of their indemnification obligations
under Section 7.5 against any and all liability and expense which may be
incurred by the Agent by reason of taking, continuing to take, or failing to
take any such action.
SECTION 7.9. Resignation of Agent.
Subject to the appointment and acceptance of a successor Agent as provided
below, the Agent may resign at any time by giving notice thereof to the Banks.
Upon any such resignation, the Required Banks shall have the right to appoint a
successor Agent. If no successor Agent shall have been so appointed by the
Required Banks and shall have accepted such appointment within thirty (30) days
after the retiring Agent's notice of resignation, then the retiring Agent may,
on behalf of the Banks, appoint a successor Agent. Upon the acceptance of any
appointment as Agent hereunder by a successor Agent, such successor Agent shall
thereupon succeed to and become vested with all the rights, powers, privileges
and duties of the retiring Agent, and the retiring Agent shall be discharged
from its duties and obligations hereunder. After any retiring Agent's
resignation or removal hereunder as Agent, the provisions of this Article 7
shall continue in effect for its benefit in respect of any actions taken or
omitted to be taken by it while it was acting as the Agent hereunder.
ARTICLE 8. CHANGE IN CIRCUMSTANCES; COMPENSATION
SECTION 8.1. Basis for Determining Interest Rate Inadequate or Unfair.
If on or prior to the first day of any Interest Period, the Agent
determines that deposits in Dollars (in the applicable amounts) are not being
offered in the relevant market for such Interest Period, or the Required Banks
advise the Agent that the Adjusted LIBOR Rate, as determined by the Agent, will
not adequately and fairly reflect the cost to such Banks of funding the relevant
Euro-Dollar Rate Loan Tranche for such Interest Period, then, the Agent shall
forthwith give notice thereof to the Borrower and the Banks, whereupon until the
Agent notifies the Borrower that the circumstances giving rise to such
suspension no longer exist, the obligations of the Banks to make the Euro-Dollar
Rate Loan Tranche specified in such notice shall be suspended. Unless the
Borrower notifies the Agent at least two (2) Domestic Business days before the
date of any Borrowing of such Euro-Dollar Rate Loan Tranche for which a Notice
of Borrowing has previously been given that it elects not to borrow on such
date, such Borrowing shall instead be made as a Base Rate Borrowing.
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SECTION 8.2. Illegality.
If, after the date hereof, the adoption of any applicable law, rule or
regulation, or any change therein, or any change in the interpretation or
administration thereof by any governmental authority, central bank or comparable
agency charged with the interpretation or administration thereof (any such
agency being referred to as an "Authority" and any such event being referred to
as a "Change of Law"), or compliance by any Bank (or its Lending Office) with
any request or directive (whether or not having the force of law) of any
Authority shall make it unlawful or impossible for any Bank (or its Lending
Office) to make, maintain or fund its Euro-Dollar Rate Loan Tranche and such
Bank shall so notify the Agent, the Agent shall forthwith give notice thereof to
the other Banks and the Borrower, whereupon until such Bank notifies the
Borrower and the Agent that the circumstances giving rise to such suspension no
longer exist, the obligation of such Bank to make Euro-Dollar Rate Loan Tranche
shall be suspended. Before giving any notice to the Agent pursuant to this
Section, such Bank shall designate a different Lending Office if such
designation will avoid the need for giving such notice and will not, in the
judgment of such Bank, be otherwise disadvantageous to such Bank, in any respect
deemed material by such Bank. If such Bank shall determine that it may not
lawfully continue to maintain and fund any of its outstanding Euro-Dollar Rate
Loan Tranches to maturity and shall so specify in such notice, the Borrower
shall immediately prepay in full the then outstanding principal amount of each
Euro-Dollar Rate Loan Tranche of such Bank, together with accrued interest
thereon. Concurrently with prepaying each such Euro-Dollar Rate Loan Tranche,
the Borrower shall borrow, pursuant to Section 2.2.3, a Base Rate Loan Tranche
in an equal principal amount from such Bank (on which interest and principal
shall be payable contemporaneously with the related Euro-Dollar Rate Loan
Tranches of the other Banks), and such Bank shall make such a Base Rate Loan
Tranche.
SECTION 8.3. Increased Cost and Reduced Return.
8.3.1 Change of Law. If after the date hereof, a Change of Law or
compliance by any Bank (or its Lending Office) with any request or directive
(whether or not having the force of law) of any Authority either: (i) shall
subject any Bank (or its Lending Office) to any tax, duty or other charge with
respect to its allocable portion of the Loan, its Note or its obligation to make
the Loan, or shall change the basis of taxation of payments to any Bank (or its
Lending Office) of the principal of or interest on its allocable portion of the
Loan or any other amounts due under this Agreement in respect of its allocable
portion of the Loan or its obligation to make a Loan (except for changes in the
rate of tax on the overall net income of such Bank or its Lending Office imposed
by the jurisdiction in which such Bank's principal executive office or Lending
Office is located); or (ii) shall impose, modify or deem applicable any reserve,
special deposit insurance or similar requirement (including, without limitation,
any such requirement imposed by the Board of Governors of the Federal Reserve
System, but excluding any such requirement included in an applicable Euro-Dollar
Reserve Percentage) against assets of, deposits with or for the account of, or
credit extended by, any Bank (or its Lending Office); or (iii) shall impose on
any Bank (or its Lending Office) or the London Interbank Market any other
similar condition affecting its Loan, its Note or its obligation to make the
Loan; and the result of any of the foregoing is to increase the cost to such
Bank (or its Lending
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Office) of making or maintaining such Loan, or to reduce the amount of any such
received or receiv able by such Bank (or its Lending Office) under this
Agreement or under its Note with respect thereto, by an amount deemed by such
Bank to be material, then, within fifteen (15) days after demand by such Bank
(with a copy to the Agent), the Borrower shall pay to such Bank such additional
amount or amounts as will compensate such Bank for such increased cost or
reduction.
8.3.2 Capital Adequacy. If any Bank shall have determined that after the
date hereof the adoption of any applicable law, rule or regulation regarding
capital adequacy, or any change therein, or any change in the interpretation or
administration thereof, or compliance by any Bank (or its Lending Office) with
any request or directive regarding capital adequacy (whether or not having the
force of law) of any Authority, has or would have the effect of reducing the
rate of return on such Bank's capital as a consequence of its obligations
hereunder to a level below that which such Bank could have achieved but for such
adoption, change or compliance (taking into consideration such Bank's policies
with respect to capital adequacy), by an amount deemed by such Bank to be
material, then from time to time, within fifteen (15) days after demand by such
Bank, the Borrower shall pay to such Bank such additional amount or amounts as
will compensate such Bank for such reduction.
8.3.3 Notice of Determination. Each Bank will promptly notify the Borrower
and the Agent of any event of which it has knowledge, occurring after the date
hereof, which will en title such Bank to compensation pursuant to this Section
and will designate a different Lending Office if such designation will avoid the
need for, or reduce the amount of, such compensation and will not, in the
judgment of such Bank, be otherwise disadvantageous to such Bank, in any respect
deemed material by such Bank. A certificate of any Bank claiming compensation
under this Section and setting forth the additional amount or amounts to be paid
to it hereunder shall be conclusive in the absence of manifest error. In
determining such amount, such Bank may use any reasonable averaging and
attribution methods.
8.3.4 Assignees Covered. The provisions of this Section 8.3 shall be ap
plicable with respect to any Assignee or other Transferee (excluding any
Participants), and any calculations required by such provisions shall be made
based upon the circumstances of such Assignee or other Transferee.
SECTION 8.4. Base Rate Loan Tranche Substituted for Affected Euro-Dollar
Rate Loan Tranche.
If (i) the obligation of any Bank to make or maintain a Euro-Dollar Rate
Loan Tranche has been suspended pursuant to Section 8.2 or (ii) any Bank has
demanded compensation under Sec tion 8.3.1, and the Borrower shall, by at least
five (5) Euro-Dollar Business Days' prior notice to such Bank through the Agent,
have elected that the provisions of this Section shall apply to such Bank, then,
unless and until such Bank notifies the Borrower that the circumstances giving
rise to such suspension or demand for compensation no longer apply: (i) all Loan
Tranches which would oth erwise be made by such Bank as Euro-Dollar Rate Loan
Tranches, shall be made instead as Base Rate
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Loan Tranches (in all cases interest and principal on such Loan Tranches shall
be payable contemporaneously with the related Euro-Dollar Rate Loan Tranche of
the other Banks), and (ii) after each Euro-Dollar Rate Loan Tranche has been
repaid, all payments of principal which would otherwise be applied to repay such
Euro-Dollar Rate Loan Tranches shall be applied to repay its Base Rate Loan
Tranches instead.
SECTION 8.5. Replacement of a Lender.
In addition to the foregoing, if (i) the obligation of any Bank (but not
all Banks) to make available or maintain Euro-Dollar Rate Loan Tranches has been
suspended pursuant to Section 8.2 or (ii) any Bank (but not all Banks) has
demanded compensation under Section 8.3, then, in either such case, the Borrower
shall have the right, at its option, upon giving at least five (5) Euro- Dollar
Business Days' prior notice to such Bank through the Agent, either: (i)
notwithstanding any term of Section 2.7.3 to the contrary, to reduce the
Commitment of such Bank to zero, in which case the Borrower shall reduce, by
repayment or prepayment, as the case may be, its Borrowings from such Bank to
zero effective upon such Commitment reduction becoming effective, and the
Commitment of each remaining Bank shall remained unchanged; or (ii) to obtain
one or more Banks or Assignees willing to replace such Bank, in which case the
Bank which is being replaced shall execute and deliver to such Bank or Assignee
an Assignment and Acceptance in accordance with Section 9.8.3 with respect to
such Bank's entire interest under this Agreement and the Notes.
SECTION 8.6. Compensation.
Upon the request of any Bank, delivered to the Borrower and the Agent, the
Borrower shall pay to such Bank such amount or amounts as shall compensate such
Bank for any loss, cost or expense incurred by such Bank (in connection with the
relevant Interest Period) as a result of: (i) any payment or prepayment (whether
pursuant to Section 8.2 or otherwise) of a Euro-Dollar Rate Loan Tranche on a
date other than the last day of an Interest Period for such Euro-Dollar Rate
Loan Tranche; or (ii) any failure by the Borrower to prepay a Euro-Dollar Rate
Loan Tranche on the date for such prepayment specified in the relevant notice of
prepayment hereunder; or (iii) any failure by the Borrower to borrow a
Euro-Dollar Rate Loan on the date for the Euro-Dollar Borrowing of which such
Euro-Dollar Rate Loan Tranche is a part specified in the applicable Notice of
Borrowing delivered pursuant to Section 2.2. Such compensation shall include,
without limitation, an amount equal to the excess, if any, of (x) the amount of
interest which would have accrued on the amount so paid or prepaid or not
prepaid or borrowed for the period from the date of such payment, prepayment or
failure to prepay or borrow to the last day of the then current Interest Period
for such Euro-Dollar Rate Loan Tranche (or, in the case of a failure to prepay
or borrow, the Interest Period for such Euro-Dollar Rate Loan Tranche which
would have commenced on the date of such failure to prepay or borrow) at the
applicable rate of interest for such Euro-Dollar Rate Loan provided for herein
(excluding, however, therefrom the amount thereof attributable to the imposition
of the Applicable Margin) over (y) the amount of interest (as reasonably
determined by such Bank) such Bank would have paid on deposits in Dollars of
comparable amounts having terms comparable to such period placed with it by
leading banks in the London Interbank Market.
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ARTICLE 9. MISCELLANEOUS
SECTION 9.1. Notices.
All notices, requests and other communications to any party hereunder or
under any Loan Document shall be in writing (including bank wire, telecopier or
similar writing) and shall be given to such party at its address or telecopier
number set forth on the signature pages hereof or such other address or
telecopier number as such party may hereafter specify for the purpose by notice
to each other party. Each such notice, request or other communication shall be
effective (i) if given by telecopier, when such telecopy is transmitted to the
telecopier number specified in this Section and the appropriate confirmation is
received, (ii) if given by mail, seventy-two (72) hours after such communication
is deposited in the United States mails with first class postage prepaid,
addressed as aforesaid or (iii) if given by any other means, when delivered at
the address specified in this Section; provided that notices to the Agent under
Article 2 or Article 8 shall not be effective until received.
SECTION 9.2. No Waivers.
No failure or delay by the Agent or any Bank in exercising any right, power
or privilege hereunder or under any Note shall operate as a waiver thereof nor
shall any single or partial exercise thereof preclude any other or further
exercise thereof or the exercise of any other right, power or privilege. The
rights and remedies herein provided shall be cumulative and not exclusive of any
rights or remedies provided by law.
SECTION 9.3. Expenses; Documentary Taxes.
The Borrower shall pay (i) all out-of-pocket expenses of the Agent,
including fees and disbursements of special counsel for the Banks and the Agent,
in connection with the preparation of this Agreement and the other Loan
Documents, any waiver or consent hereunder or thereunder or any amendment hereof
or thereof or any Default or alleged Default hereunder or thereunder and (ii) if
a Default occurs, all out-of-pocket expenses incurred by the Agent and any Bank,
including fees and disbursements of counsel (including a reasonable allocation
of the cost of internal counsel), in con nection with such Default and
collection and other enforcement proceedings resulting therefrom, in cluding
out-of-pocket expenses incurred in enforcing this Agreement, the Notes and other
Loan Documents. The Borrower shall indemnify the Agent and each Bank against any
transfer taxes, docu mentary taxes, assessments or charges made by any Authority
by reason of the execution and delivery of this Agreement, the Notes or the
other Loan Documents.
SECTION 9.4. Indemnification.
The Borrower shall indemnify the Agent, the Banks and each affiliate
thereof and their respective directors, officers, employees and agents from, and
hold each of them harmless against, any and all losses, liabilities, claims or
damages to which any of them may become subject, insofar
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as such losses, liabilities, claims or damages arise out of or result from any
actual or proposed use by the Borrower of the proceeds of any extension of
credit by any Bank hereunder or breach by the Borrower of this Agreement, the
Notes or any other Loan Document or from any investigation, litigation or other
proceeding (including any threatened investigation or proceeding) relating to
the foregoing, and the Borrower shall reimburse the Agent and each Bank, and
each affiliate thereof and their respective directors, officers, employees and
agents, upon demand for any expenses (including, without limitation, legal fees)
incurred in connection with any such investigation or proceeding; but excluding
any such losses, liabilities, claims, damages or expenses incurred by reason of
the gross negligence or willful misconduct of the Person to be indemnified. The
indemnification provisions (including, without limitation, provisions for
default interest, to the extent that this Section 9.4 might be construed as
duplicating the Borrower's obligation to pay interest at the Default Rate as
required elsewhere in this Agreement) set forth in this Section 9.4 are meant to
be without duplication of any other indemnification provisions set forth in this
Agreement.
SECTION 9.5. Sharing of Setoffs.
Each Bank agrees that if it shall, by exercising any right of setoff or
counterclaim or otherwise, receive payment of a proportion of the aggregate
amount of principal and interest owing with respect to the Note held by it which
is greater than the proportion received by any other Bank in respect of the
aggregate amount of all principal and interest owing with respect to the Note
held by such other Bank, the Bank receiving such proportionately greater payment
shall purchase such participations in the Notes held by the other Banks owing to
such other Banks, and such other adjustments shall be made, as may be required
so that all such payments of principal and interest with respect to the Notes
held by the Banks owing to such other Banks shall be shared by the Banks pro
rata; provided that (i) nothing in this Section shall impair the right of any
Bank to exercise any right of setoff or counterclaim it may have and to apply
the amount subject to such exercise to the payment of indebtedness of the
Borrower other than its indebtedness under the Notes, and (ii) if all or any
portion of such payment received by the purchasing Bank is thereafter recovered
from such purchasing Bank, such purchase from each other Bank shall be rescinded
and such other Bank shall repay to the purchasing Bank the purchase price of
such participation to the extent of such recovery together with an amount equal
to such other Bank's ratable share (according to the proportion of (x) the
amount of such other Bank's required repayment to (y) the total amount so
recovered from the purchasing Bank) of any interest or other amount paid or
payable by the purchasing Bank in respect of the total amount so recovered. The
Borrower agrees, to the fullest extent it may effectively do so under applicable
law, that any holder of a participation in a Note, acquired pursuant to the
foregoing arrangements, may exercise rights of setoff or counterclaim and other
rights with re spect to such participation as fully as if such holder of a
participation were a direct creditor of the Borrower in the amount of such
participation.
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SECTION 9.6. Amendments and Waivers.
Any provision of this Agreement, the Notes or any other Loan Documents may
be amended or waived if, but only if, such amendment or waiver is in writing and
is signed by the Borrower and the Required Banks (and, if the rights or duties
of the Agent are affected thereby, by the Agent); provided that, no such
amendment or waiver shall, unless signed by all Banks, (i) except as otherwise
provided in Section 8.5, change the Commitment of any Bank or subject any Bank
to any additional obligation, (ii) change the principal of or rate of interest
on the Loan or any fees or other amounts payable hereunder, (iii) change the
date fixed for any payment of principal of or interest on the Loan or any fees
hereunder, (iv) change the amount of principal, interest, fees or other amounts
payable hereunder due on any date fixed for the payment thereof, (v) change the
percentage of the Commitments or of the aggregate unpaid amount of the Notes, or
the percentage of Banks, which shall be required for the Banks or any of them to
take any action under this Section or any other provision of this Agreement,
(vi) change the manner of application of any payments made under this Agreement
or the Notes, (vii) release or substitute all or any substantial part of the
collateral (if any) held as security for the Loan, (viii) release any Guarantee
given to support payment of the Loan; (ix) change any terms of clause (vii) of
Section 5.19; or (x) change any terms of Section 5.20. In connection with the
foregoing, the Borrower will not solicit, request or negotiate for or with
respect to any proposed waiver or amendment of any of the provisions of this
Agreement unless each Bank shall be informed thereof by the Borrower or the
Agent and shall be afforded an opportunity of considering the same and shall be
supplied by the Borrower with sufficient information to enable it to make an
informed decision with respect thereto. Executed or true and correct copies of
any waiver or consent effected pursuant to the provisions of this Agreement
shall be delivered by the requisite percentage of Banks. The Borrower will not,
directly or indirectly, pay or cause to be paid any remuneration, whether by way
of supplemental or additional interest, fee or otherwise, to any Bank (in its
capacity as a Bank) as consideration for or as an inducement to the entering
into by such Bank of any waiver or amendment of any of the terms and provisions
of this Agreement unless such re muneration is concurrently paid, on the same
terms, ratably to all such Banks.
SECTION 9.7. No Margin Stock Collateral.
Each of the Banks represents to the Agent, the Borrower and each of the
other Banks that it in good faith is not, (i) directly or indirectly (by
negative pledge or otherwise), relying upon any Margin Stock as collateral in
the extension or maintenance of the credit provided for in this Agreement or
(ii) entering into this Agreement with an immediate intention to resell its
Commitment or its pro rata share of the Loan.
SECTION 9.8. Successors and Assigns.
9.8.1 No Assignment by Borrower. The provisions of this Agreement shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors and assigns; provided that the Borrower may not assign or otherwise
transfer any of its rights under this Agreement.
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9.8.2 Participation. Any Bank may, without the consent of the Borrower, at
any time sell to one or more Persons (each a "Participant") participating
interests in the allocable portion of the Loan owing to such Bank, any Note held
by such Bank, any Commitment of such Bank hereunder or any other interest of
such Bank hereunder. In the event of any such sale by a Bank of a participating
interest to a Participant, such Bank's obligations under this Agreement shall
remain unchanged, such Bank shall remain solely responsible for the performance
thereof, such Bank shall remain the holder of any such Note for all purposes
under this Agreement, and the Borrower and the Agent shall continue to deal
solely and directly with such Bank in connection with such Bank's rights and
obligations under this Agreement. In no event shall a Bank that sells a
participation be obligated to the Participant to take or refrain from taking any
action hereunder except that such Bank may agree that it will not (except as
provided below), without the consent of the Participant, agree to (i) the change
of any date fixed for the payment of principal of or interest on the Loan, (ii)
the change of the amounts of any principal, interest or fees due on any date
fixed for the payment thereof with respect to the Loan, (iii) the change of the
principal of the Loan, (iv) any change in the rate at which either interest is
payable thereon or (if the Participant is entitled to any part thereof) any fee
is payable hereunder from the rate at which the Participant is entitled to
receive interest or such fee in respect of such participation, (v) the release
or substitution of all or any substantial part of the collateral (if any) held
as security for the Loan, or (vi) the release of any Guarantee given to support
payment of the Loans. Each Bank selling a participating interest in respect of
the Loan, or its Note, Commitment or other interest under this Agreement shall,
within ten (10) Domestic Business Days of such sale, provide the Borrower and
the Agent with written notification stating that such sale has occurred and
identifying the Participant and the interest purchased by such Participant.
Except as otherwise expressly provided in Article 8, the Agent, the Banks and
the Borrower agree that each Participant shall be entitled to the benefits of
Article 8 with respect to its participation in the Loan outstanding from time to
time, but only to the extent that such Bank which sold the relevant
participation would have been entitled thereto pursuant to the terms of this
Agreement.
9.8.3 Assignments. Any Bank may at any time assign to one or more banks or
financial institutions (each an "Assignee") all, or a proportionate part of all,
of its rights and obligations under this Agreement and the Notes, and such
Assignee shall assume all such rights and obligations, pursuant to an Assignment
and Acceptance, executed by such Assignee, such transferor Bank and the Agent
(and, in the case of an Assignee that is not then a Bank, by the Borrower);
provided that (i) no interest may be sold by a Bank pursuant to this Section
unless the Assignee shall agree to assume ratably equivalent portions of the
transferor Bank's Commitment, (ii) the amount of the Commitment of the
transferor Bank subject to such assignment (determined as of the effective date
of the assignment) shall be equal to at least Five Million Dollars ($5,000,000),
(iii) no interest may be sold by a Bank pursuant to this Section to any Assignee
that is not then a Bank or an Affiliate of a Bank without the consent of the
Borrower and the Agent (which consent shall not be unreason ably withheld),
except after the occurrence of, and during the continuance of, an Event of
Default, and (iv) during the term of this Agreement, a Bank may not have more
than two Assignees that are not then Banks at any one time. Upon (A) execution
of the Assignment and Acceptance by such transferor Bank, such Assignee, the
Agent and (if applicable) the Borrower, (B) delivery of an executed copy of the
Assignment and Acceptance of the Borrower and the Agent, (C) payment by
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such Assignee to such transferor Bank of an amount equal to the purchase price
agreed between such transferor Bank and such Assignee, and (D) payment of a
processing and recordation fee of Two Thousand Five Hundred Dollars ($2,500) to
the Agent, such Assignee shall for all purposes be a Bank party to this
Agreement and shall have all the rights and obligations of a Bank under this
Agreement to the same extent as if it were an original party hereto with a
Commitment as set forth in such instrument of assumption, and the transferor
Bank shall be released from its future obligations hereunder to a corresponding
extent, and no further consent or action by the Borrower, the Banks or the Agent
shall be required. Upon the consummation of any transfer to an Assignee pursuant
to this Section 9.8.3, the transferor Bank, the Agent and the Borrower shall
make appropriate arrangements so that, if required, a new Note is issued to such
Assignee.
9.8.4 Disclosures. Subject to the provisions of Section 9.9, the Borrower
authorizes each Bank to disclose to any Participant, Assignee or other
transferee (each a "Transferee") and any prospective Transferee any and all
information in such Bank's possession concerning the Borrower which has been
delivered to such Bank by the Borrower pursuant to this Agreement or which has
been delivered to such Bank by the Borrower in connection with such Bank's
credit evaluation prior to entering into this Agreement.
9.8.5 Status of Transferee. No Transferee shall be entitled to receive any
greater payment under Section 8.3 than the transferor Bank would have been
entitled to receive with respect to the rights transferred, unless such transfer
is made with the Borrower's prior written consent or by reason of the provisions
of Section 8.2 or 8.3 requiring such Bank to designate a different Lending
Office under certain circumstances or at a time when the circumstances giving
rise to such greater payment did not exist.
SECTION 9.9. Confidentiality.
Each Bank and the Agent agrees to exercise its best efforts (and, in any
event, with at least the same degree of care as it ordinarily exercises with
respect to confidential information of its other customers) to keep any
information delivered or made available by the Borrower to it, including,
without limitation, information obtained by the Agent or such Bank by reason of
a visit or investigation by any Person contemplated in Section 5.2, confidential
from any one other than persons employed or retained by such Bank who are or are
expected to become engaged in evaluating, approving, structuring or
administering the Loan; provided, however that nothing herein shall prevent any
Bank from disclosing such information (i) to the Agent or any other Bank, (ii)
upon the order of any court or administrative agency, (iii) upon the request or
demand of any regulatory agency or authority having jurisdiction over such Bank,
(iv) which has been publicly disclosed other than by an act or omission of the
Agent or any Bank except as permitted herein, (v) to the extent reasonably re
quired in connection with any litigation (with respect to this Agreement, any of
the other Loan Docu ments, in connection with any of the foregoing, or any other
obligations of the Borrower or any Subsidiary owing to the Agent or any Bank) to
which the Agent, any Bank or their respective Affili ates may be a party, (vi)
to the extent reasonably required in connection with the exercise of any remedy
hereunder, (vii) to such Bank's legal counsel and independent auditors and
(viii) to any actual
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<PAGE>
or proposed Participant, Assignee or other Transferee of all or part of its
rights hereunder which has agreed in writing to be bound by the provisions of
this Section 9.9.
SECTION 9.10. Representation by Banks.
Each Bank hereby represents that it is a commercial lender or financial
institution which makes loans in the ordinary course of its business and that it
will make its pro rata share of the Loan hereunder for its own account in the
ordinary course of such business; provided, however that, subject to Section
9.8, the disposition of a Note or the Notes held by that Bank shall at all times
be within its exclusive control.
SECTION 9.11. Obligations Several.
The obligations of each Bank hereunder are several, and no Bank shall be
responsible for the obligations or commitment of any other Bank hereunder.
Nothing contained in this Agreement and no action taken by Banks pursuant hereto
shall be deemed to constitute the Banks to be a partnership, an association, a
joint venture or any other kind of entity. The amounts payable at any time
hereunder to each Bank shall be a separate and independent debt, and each Bank
shall be entitled to protect and enforce its rights arising out of this
Agreement or any other Loan Document and it shall not be necessary for any other
Bank to be joined as an additional party in any proceeding for such purpose.
SECTION 9.12. GEORGIA LAW.
THIS AGREEMENT, EACH NOTE AND EACH OTHER LOAN DOCUMENT SHALL BE CONSTRUED
IN ACCORDANCE WITH AND GOVERNED BY THE LAW OF THE STATE OF GEORGIA.
SECTION 9.13. Interpretation.
No provision of this Agreement or any of the other Loan Documents shall be
construed against or interpreted to the disadvantage of any party hereto by any
court or other governmental or judicial authority by reason of such party having
or being deemed to have structured or dictated such provision.
SECTION 9.14. CONSENT TO JURISDICTION.
THE BORROWER, AND EACH OF THE BANKS AND THE AGENT IR REVOCABLY (A) SUBMITS
TO THE NONEXCLUSIVE PERSONAL JURISDICTION IN THE STATE OF GEORGIA, THE COURTS
THEREOF AND THE UNITED STATES DISTRICT COURTS SITTING THEREIN, FOR THE
ENFORCEMENT OF THIS AGREEMENT, THE NOTES AND THE OTHER LOAN DOCUMENTS, (B)
WAIVES ANY AND ALL PERSONAL RIGHTS UNDER THE LAW OF ANY JURISDICTION TO OBJECT
ON ANY BASIS
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<PAGE>
(INCLUDING, WITHOUT LIMITATION, INCONVENIENCE OF FORUM) TO JURISDICTION OR VENUE
WITHIN THE STATE OF GEORGIA FOR THE PURPOSE OF LITIGATION TO ENFORCE THIS
AGREEMENT, THE NOTES OR THE OTHER LOAN DOCUMENTS, AND (C) AGREES THAT SERVICE OF
PROCESS MAY BE MADE UPON IT IN THE MANNER PRESCRIBED IN SECTION 9.1 FOR THE
GIVING OF NOTICE TO THE BORROWER. NOTHING HEREIN CONTAINED, HOWEVER, SHALL
PREVENT THE AGENT FROM BRINGING ANY ACTION OR EXERCISING ANY RIGHTS AGAINST ANY
SECURITY AND AGAINST THE BORROWER PERSONALLY, AND AGAINST ANY ASSETS OF THE
BORROWER, WITHIN ANY OTHER STATE OR JURISDICTION.
SECTION 9.15. Counterparts.
This Agreement may be signed in any number of counterparts, each of which
shall be an original, with the same effect as if the signatures thereto and
hereto were upon the same instru ment.
SECTION 9.16. Survival.
All representations, warranties and covenants made herein shall survive the
execution and delivery of all of the Loan Documents. The terms and provisions of
this Agreement shall con tinue in full force and effect until the payment of the
Notes and termination of the Commitments.
SECTION 9.17. Entire Agreement; Amendment; Severability.
This Agreement shall constitute the entire agreement among the parties
hereto with respect to the subject matter hereof. This Agreement amends and
restates, in its entirety, the Original Credit Agreement, effective as of the
Closing Date, except that, for purposes of Sections 5.4, 5.5 and 5.6, the
effective date of the amendment and restatement of those sections pursuant
hereto shall be deemed to be one (1) Business Day prior to the last day of the
Fiscal Quarter ending closest to December 31, 1997. This Agreement is not
intended to be, and shall not constitute, a novation of the Original Credit
Agreement. Neither this Agreement nor any provision hereof may be changed,
waived, discharged, modified or terminated orally, but only by an instrument in
writing in accordance with Section 9.6. If any provision of any of the Loan
Documents or the application thereof to any party thereto or circumstances shall
be invalid or unenforceable to any extent, the remainder of such Loan Documents
and the application of such provisions to any other party thereto or
circumstance shall not be affected thereby and shall be enforced to the greatest
extent permitted by law.
SECTION 9.18. TIME OF THE ESSENCE.
TIME IS OF THE ESSENCE IN THIS AGREEMENT, THE NOTES AND THE OTHER LOAN
DOCUMENTS.
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<PAGE>
SECTION 9.19. Banks Not a Joint Venturer.
Neither this Agreement nor any agreements, instruments, documents or
transactions contemplated hereby (including the Loan Documents), shall in any
respect be interpreted, deemed or construed as making any Bank or the Agent a
partner or joint venturer with the Borrower or as creat ing any similar
relationship or entity.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed, under seal, by their respective authorized officers, as of the
day and year first above written.
"BORROWER"
APPLE SOUTH, INC.
(SEAL)
By:_________________________________
Erich J. Booth, Chief Financial
Officer and Treasurer
Attest:_____________________________
Tonya Benjamin, Assistant
Secretary
Apple South, Inc.
Corporate Headquarters
Hancock at Washington
Madison, Georgia 30650
Attn: Erich J. Booth,
Chief Financial Officer
Telecopier Number: (706) 342-4057
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<PAGE>
COMMITMENTS
"BANKS"
$60,000,000.00 WACHOVIA BANK, NATIONAL
ASSOCIATION, as the Agent and as
a Bank
(SEAL)
By:________________________________
W. Tompkins Rison, Vice President
Lending Office:
Wachovia Bank, N.A.
191 Peachtree Street, N.E.
30th Floor
Atlanta, Georgia 30303-1757
Attention: Georgia Corporate
Commercial Group
Telecopier Number: (404) 332-6920
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<PAGE>
$15,000,000 SUNTRUST BANK, ATLANTA
(SEAL)
By:_________________________________
Name:_______________________________
Title:______________________________
By:_________________________________
Name:_______________________________
Title:______________________________
Lending Office:
SunTrust Bank, Atlanta
25 Park Place
23rd Floor
Atlanta, Georgia 30302
Telecopier Number: (404) 558-8833
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<PAGE>
$25,000,000 BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION
(SEAL)
By:_________________________________
Name:_______________________________
Title:______________________________
Lending Office:
Bank of America National Trust
and Savings Association
231 South LaSalle Street
MC 200-9
Chicago, Illinois 60697
Telecopier Number: (312) 974-9626
With a copy to:
Bank of America National Trust
and Savings Association
1230 Peachtree Street
Suite 3800
Atlanta, Georgia 30309
Telecopier Number: (404) 249-6938
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<PAGE>
$20,000,000 BANQUE PARIBAS
(SEAL)
By:_________________________________
Name:_______________________________
Title:______________________________
By:_________________________________
Name:_______________________________
Title:______________________________
Lending Office:
Banque Paribas
787 Seventh Avenue
New York, New York 10019
Telecopier Number: (212) 841-2333
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<PAGE>
$20,000,000 COOPERATIEVE CENTRALE
RAIFFEISEN-BOERENLEENBANK B.A.,
"RABOBANK NEDERLAND,"
NEW YORK BRANCH
By:_________________________________
Name:_______________________________
Title:______________________________
By:_________________________________
Name:_______________________________
Title:______________________________
Lending Office:
Cooperatieve Central
Raiffeisen-Boerenleenbank B.A.
"Rabobank Nederland"
New York Branch
245 Park Avenue
36th Floor
New York, New York 10167
Telecopier Number: (212) 818-0233
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<PAGE>
$15,000,000 CANADIAN IMPERIAL BANK OF COMMERCE, INC.
By:_________________________________
Name:_______________________________
Title:______________________________
Lending Office:
Canadian Imperial Bank of Commerce, Inc.
2 Paces West
2727 Paces Ferry Road
Suite 1200
Atlanta, Georgia 30339
Telecopier Number: (770) 319-4915
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<PAGE>
$10,000,000 CRESTAR BANK
(SEAL)
By:_________________________________
Name:_______________________________
Title:______________________________
Lending Office:
Crestar Bank
919 East Main Street
Richmond, Virginia 23219
Telecopier Number: (804) 782-5413
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<PAGE>
$20,000,000 BANKBOSTON, N.A.
By:_________________________________
Debra L. Zurka, Director
Lending Office:
Large Corporate -- Restaurant Division
100 Federal Street
Mail Stop 01-09-05
Boston, Massachusetts 02110
Telecopier Number: (617) 434-0637
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<PAGE>
$10,000,000 COMERICA BANK
By:_________________________________
Kristine L. Andersen, Account Officer
Lending Office:
Comerica Bank
500 Woodward Avenue
9th Floor, MC 3280
Detroit, Michigan 48226
Telecopier Number: (313) 222-3330
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<PAGE>
$5,000,000 AMSOUTH BANK OF ALABAMA
By:_________________________________
Name:_______________________________
Title:______________________________
Lender Office:
AmSouth Bank of Alabama
1900 5th Avenue North
7th Floor
Birmingham, Alabama 35203
Telecopier Number: (205) 326-5601
$200,000,000 Total Commitments
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<PAGE>
EXHIBIT A
FORM OF ASSIGNMENT AND ACCEPTANCE
ASSIGNMENT AND ACCEPTANCE
Dated ________ __, 19__
Reference is made t o the Second Amended and Restated Credit Agreement
dated as of March 1, 1998 (together with all amendments and modifications
thereto, the "Credit Agreement" among Apple South, Inc., a Georgia corporation
(the "Borrower"), the Banks (as defined in the Credit Agreement) and Wachovia
Bank, National Association, as Agent (the "Agent"). Terms defined in the Credit
Agreement are used herein with the same meaning.
________________________________________ (the "Assignor") and
________________________________________ (the "Assignee") agree
as follows:
1. The Assignor hereby sells and assigns to the Assignee, and the Assignee
hereby purchases and assumes from the Assignor, a ________% interest in and to
all of the Assignor's rights and obligations under the Credit Agreement as of
the Effective Date (as defined below) (including, without limitation, a _____%
interest (which on the Effective Date hereof is $__________) in the Assignor's
Commitment and a _____ interest (which on the Effective Date hereof is
$__________) in that portion of the Loan owing to the Assignor (which on the
Effective Date hereof is $----------).
2. The Assignor (i) makes no representation or warranty and assumes no
responsibility with respect to any statements, warranties or representations
made in or in connection with the Credit Agreement or the execution, legality,
validity, enforceability, genuineness, sufficiency or value of the Credit
Agreement or any other instrument or document furnished pursuant thereto, other
than that it is the legal and beneficial owner of the interest being assigned by
it hereunder, that such interest is free and clear of any adverse claim and that
as of the date hereof its Commitment (without giving effect to assignments
thereof which have not yet become effective) is $__________ and the aggregate
outstanding principal amount of that portion of the Loan owing to it (without
giving effect to assignments thereof which have not yet become effective) is
$__________; (ii) makes no representation or warranty and assumes no
responsibility with respect to the financial condition of the Borrower or the
performance or observance by the Borrower of any of its obligations under the
Credit Agreement or any other instrument or document furnished pursuant thereto;
and (iii) at taches the Note(s) referred to in paragraph 1 above and requests
that the Agent exchange such Note(s) for [a new Note dated __________, ____ in
the principal amount of $__________ payable to the order of the Assignee) (new
Notes as follows: a Note dated __________, ____ in the principal
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<PAGE>
amount of $__________ payable to the order of the Assignor and a Note dated
__________, ____ in the principal amount of $__________ payable to the order of
the Assignee].
3. The Assignee (i) confirms that it has received a copy of the Credit
Agreement, together with copies of the financial statements referred to in
Section 4.4.1 thereof (or any more recent financial statements of the Borrower
delivered pursuant to Sections 5.1.1 or 5.1.2 thereof) and such other documents
and information as it has deemed appropriate to make its own credit analysis and
decision to enter into this Assignment and Acceptance; (ii) agrees that it will,
independently and without reliance upon the Agent, the Assignor or any other
Bank and based on such documents and information as it shall deem appropriate at
the time, continue to make its own credit decisions in taking or not taking
action under the Credit Agreement; (iii) confirms that it is a bank or financial
institution; (iv) appoints and authorizes the Agent to take such action as agent
on its behalf and to exercise such powers under the Credit Agreement as are
delegated to the Agent by the terms thereof, together with such powers as are
reasonably incidental thereto; (v) agrees that it will perform in accordance
with their terms all of the obligations which by the terms of the Credit
Agreement are required to be performed by it as a Bank; (vi) specifies as its
Lending Office (and address for notices) the office set forth beneath its name
on the signature pages hereof, (vii) represents and warrants that the execution,
delivery and performance of this Assignment and Acceptance are within its
corporate powers and have been duly authorized by all necessary corporate
action, and (viii) attaches the forms prescribed by the Internal Revenue Service
of the United States certifying as to the Assignee's status for purposes of
determining exemption from United States withholding taxes with respect to all
payments to be made to the Assignee under the Credit Agreement and the Notes or
such other documents as are necessary to indicate that all such payments are
subject to such taxes at a rate reduced by an applicable tax treaty.
4. The Effective Date for this Assignment and Acceptance shall be (the
"Effective Date"). Following the execution of this Assignment and Acceptance, it
will be delivered to the Agent for execution and acceptance by the Agent (and to
the Borrower for execution by the Borrower. If Assignee is organized under the
laws of a jurisdiction outside the United States.
5. Upon such execution and acceptance by the Agent and execution by the
Borrower, if the Assignee is not a Bank prior to the Effective Date, from and
after the Effective Date, (i) the Assignee shall be a party to the Credit
Agreement and, to the extent rights and obligations have been transferred to it
by this Assignment and Acceptance, have the rights and obligations of a Bank
thereunder and (ii) the Assignor shall, to the extent its rights and obligations
have been transferred to the Assignee by this Assignment and Acceptance,
relinquish its rights (other than under Section 8.3 of the Credit Agreement) and
be released from its obligations under the Credit Agreement.
6. Upon such execution and acceptance by the Agent and execution by the
Borrower, if the Assignee is not a Bank prior to the Effective Date, from and
after the Effective Date, the Agent shall make all payments in respect of the
interest assigned hereby to the Assignee. The
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<PAGE>
Assignor and Assignee shall make all appropriate adjustments in payments for
periods prior to such acceptance by the Agent directly between themselves.
7. This Assignment and Acceptance shall be governed by, and construed in
accordance with, the laws of the State of Georgia.
[NAME OF ASSIGNOR]
By:
Title:
[NAME OF ASSIGNEE]
By:
Title:
Lending Office:
[Address]
WACHOVIA BANK, NATIONAL
ASSOCIATION, as Agent
By:
Title:
APPLE SOUTH, INC.
If the Assignee is not a
Bank prior to the Effective
Date.
By:
Title:
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<PAGE>
EXHIBIT B
FORM OF NOTE
NOTE
Atlanta, Georgia
March 1, 1998
For value received, APPLE SOUTH, INC., a Georgia corporation (the
"Borrower"), promises to pay to the order of ________________________________
(the "Bank"), for the account of its Lending Office, the principal sum of
[______________________________ Dollars ($__________)], representing the Bank's
pro rata share of the Loan made by the Banks to the Borrower pursuant to the
Credit Agreement referred to below, on the dates and in the amounts provided in
the Credit Agreement. The Borrower promises to pay interest on the unpaid
principal amount of this Note on the dates and at the rate or rates provided for
in the Credit Agreement referred to below. Interest on any overdue principal of
and, to the extent permitted by law, overdue interest on the principal amount
hereof shall bear interest at the Default Rate, as provided for in the Credit
Agreement. All such payments of principal and interest shall be made in lawful
money of the United States in Federal or other immediately available funds at
the office of Wachovia Bank, National Association, 191 Peachtree Street, N.E.,
Atlanta, Georgia 30303-1757, or such other address as may be specified from time
to time pursuant to the Credit Agreement.
All repayments of the principal amount hereof may be recorded by the Bank
and, prior to any transfer hereof, endorsed by the Bank on the schedule attached
hereto, or on a continuation of such schedule attached to and made a part
hereof; provided that the failure of the Bank to make any such recordation or
endorsement shall not affect the obligations of the Borrower hereunder or under
the Credit Agreement.
This Note is one of the Notes referred to in the Second Amended and
Restated Credit Agreement dated as of March 1, 1998, among the Borrower, the
Banks listed on the signature pages thereof and Wachovia Bank, National
Association, as Agent (as the same may be amended and modified from time to
time, the "Credit Agreement"). Terms defined in the Credit Agreement are used
herein with the same meanings. Reference is made to the Credit Agreement for the
provisions for the voluntary and mandatory prepayment and the repayment hereof
and the acceleration of the maturity hereof.
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<PAGE>
IN WITNESS WHEREOF, the Borrower has caused this Note to be duly executed,
under seal, by its duly authorized officer as of the day and year first above
written.
APPLE SOUTH, INC.
(SEAL)
By:_______________________________
Erich J. Booth, Chief Financial
Officer and Treasurer
Attest:__________________________
Tonya Benjamin, Assistant
Secretary
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<PAGE>
Note (cont'd)
PAYMENTS OF PRINCIPAL
Amount of
Principal Notation
Date Repaid Made By
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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<PAGE>
EXHIBIT C
FORM OF NOTICE OF BORROWING
NOTICE OF BORROWING
________________, 199_
Wachovia Bank, National
Association, as Agent
191 Peachtree Street, N.W.
Atlanta, Georgia 30303-1757
Attention: Commercial Group
Re: Second Amended and Restated Credit Agreement (as amended or
modified from time to time, the "Credit Agreement") dated as
of March 1, 1998, by and among Apple South, Inc., Wachovia
Bank, National Association, as a Bank and as the Agent, and
the other Banks from time to time party thereto.
Ladies and Gentlemen:
Unless otherwise defined herein, capitalized terms used herein shall
have the meanings attributable thereto in the Credit Agreement.
This Notice of Borrowing is delivered to you pursuant to Section 2.2 of
the Credit Agreement.
The Borrower hereby requests a Borrowing in the aggregate principal
amount of $________________ to be established on ______________, 199__, and for
interest to accrue thereon at the rate established by the Credit Agreement for
(check one):
1. _____ Base Rate Loan Tranche
2. _____ Euro-Dollar Rate Loan Tranche
The duration of the Interest Period with respect thereto in the case of
a Euro-Dollar Rate Loan Tranche shall be (check one):
1. _____ 1 month
2. _____ 2 months
3. _____ 3 months
4. _____ 6 months
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<PAGE>
The Borrower has caused this Notice of Borrowing to be executed and
delivered by its duly authorized officer as of this ____ day of __________,
199__.
APPLE SOUTH, INC.
By:
Title:
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<PAGE>
EXHIBIT D
FORM OF OPINION OF
COUNSEL FOR THE BORROWER
March 1, 1998
To the Banks and the Agent
Referred to below
c/o Wachovia Bank,
National Association, as Agent
191 Peachtree Street, N.E.
Atlanta, Georgia 30303-1757
Ladies and Gentlemen:
We have acted as legal counsel to Apple South, Inc. (the "Borrower") in
connection with the Second Amended and Restated Credit Agreement (the "Credit
Agreement") dated as of March 1, 1998, among the Borrower, the Banks from time
to time parties thereto, and Wachovia Bank, National Association, as Agent.
Terms defined in the Credit Agreement are used herein as therein defined.
We have examined original or copies, certified or otherwise identified to
our satisfaction, of such documents, corporate records, certificates of public
officials and other instruments and have conducted such other investigations of
fact and law as we have deemed necessary or advisable for purposes of this
opinion. We have assumed for purposes of our opinions set forth below that the
executed and delivery of the Credit Agreement by each Bank and by the Agent have
been duly authorized by each Bank and by the Agent.
When facts relevant to these opinions were not independently established by
us, we have relied upon the certificate of the Secretary of the Borrower. We
have assumed the genuineness of all signatures, the authenticity of all
documents delivered to us as originals, the legal capacity of natural persons,
the conformity to original documents of all documents submitted to us as
certified or photostatic copies and the authenticity of the originals of such
letter documents.
Upon the basis of the foregoing, and subject to the further qualifications
and assumptions set forth below, we are of the opinion that:
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<PAGE>
1. The Borrower is a corporation duly incorporated, validly existing and in
good standing under the laws of the State of Georgia and has all corporate
powers required to carry on its business as now conducted.
2. The execution, delivery and performance by the Borrower of the Credit
Agreement, the Notes and the Other Agreements (i) are within the Borrower's
corporate powers, (ii) have been duly authorized by all necessary corporate
action, (iii) require no action by or in respect of, or filing with, any
governmental body, agency or official, (iv) do not contravene, or constitute a
default under, any provision of (A) applicable law or regulation or (B) the
certificate of incorporation or by-laws of the Borrower or (C) any material
judgment, injunction, order or decree which to our knowledge is binding upon the
Borrower or (D) any material indenture, mortgage, deed of trust, loan agreement
or other financial agreement or instrument (but not including leases) known to
us which to our knowledge is binding on the Borrower and (V) do not, to our
knowledge, result in the creation or imposition of any Lien on any asset of the
Borrower.
3. The Credit Agreement, the Notes and the Other Agreements constitutes a
valid and binding agreement of the Borrower, enforceable against the Borrower in
accordance with its terms, except as such enforceability may be limited: (i) by
bankruptcy, insolvency, reorganization, fraudulent conveyance, voidable
preference, moratorium or similar laws applicable to creditors' rights or the
collection of debtors' obligations generally and (ii) by general principles of
equity (including, without limitation, the availability of equitable remedies).
4. To our knowledge, there is no action, suit or proceeding pending, or
threatened, against or affecting the Borrower or any of its Subsidiaries before
any court or arbitrator or any governmental body, agency or official in which
there is a reasonable possibility of an adverse decision which could materially
adversely affect the business, consolidated financial position or consolidated
results of operations of the Borrower and its Consolidated Subsidiaries,
considered as a whole, or which in any manner questions the validity or
enforceability of the Credit Agreement or any Note.
5. The Borrower is not an "investment company" within the meaning of the
Investment Company Act of 1940, as amended.
We are qualified to practice law in the State of Georgia and do not purport
to be experts on any laws other than the federal laws of the United States and
the laws of the State of Georgia, and this opinion is rendered only with respect
to such laws. We have made no investigation of the laws of any other
jurisdiction.
Very truly yours,
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<PAGE>
EXHIBIT E
FORM OF CLOSING CERTIFICATE
APPLE SOUTH, INC.
CLOSING CERTIFICATE
Reference is made to the Second Amended and Restated Credit Agreement ("the
Credit Agreement") dated as of March 1, 1998, among Apple South, Inc., the Banks
listed therein, and Wachovia Bank, N.A., as Agent. Capitalized terms used herein
have the meanings ascribed thereto in the Credit Agreement.
Pursuant to Section 3.1.4 of the Credit Agreement, the undersigned, Erich
J. Booth, the duly authorized Chief Financial Officer and Treasurer of Apple
South, Inc., in his aforesaid official capacity and not personally, hereby
certifies to the Agent and the Banks on behalf of the Borrower that (i) no
Default has occurred and is continuing as of the date hereof, and (ii) the
representations and warranties contained in Article IV of the Credit Agreement
are true on and as of the date hereof.
IN WITNESS WHEREOF, the undersigned has executed this Certificate in his
aforesaid official capacity as Chief Financial Officer and not personally as of
March 1, 1998.
By:
Erich J. Booth, as Chief
Financial Officer and
Treasurer, for and on
behalf of Apple
South, Inc.
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<PAGE>
EXHIBIT F
FORM OF SECRETARY'S CERTIFICATE
SECRETARY'S CERTIFICATE
The undersigned, being the duly elected, qualified and acting Secretary of
APPLE SOUTH, INC., a Georgia corporation (the "Corporation"), and, in such
capacity, being duly authorized and empowered to issue this certificate on its
behalf, does hereby certify that:
1. On or prior to the date hereof, by unanimous consent of the Board of
Directors of the Corporation, the resolutions set forth and described on Exhibit
A were unanimously adopted and, being the only effective resolutions adopted by
the Board of Directors of this Corporation (or any committee thereof) with
respect to the matters referred to therein, remain unmodified and in full force
and effect as of the date hereof:
2. The following are the names of the duly elected officers of this
Corporation now holding the respective offices indicated, and that the signature
set forth opposite the name of each such officer is the true and genuine
signature of such officer (complete as applicable):
Erich J. Booth, Chief Financial _____________________________
Officer and Treasurer (Signature)
Tonya Benjamin, Assistant Secretary _____________________________
(Signature)
3. Attached hereto as Exhibit B is a true, correct and complete copy of the
Articles of Incorporation of the Corporation as in effect on the date hereof
(including all amendments thereof to date).
4. Attached hereto as Exhibit C is a true, correct and complete copy of the
By-Laws of the Corporation as in effect on the date hereof (including all
amendments thereof to date).
IN WITNESS WHEREOF, I have hereunto set my hand as Assistant Secretary and
the seal of the Corporation as of the 1st day of March, 1998.
[CORPORATE SEAL] ________________________________
Tonya Benjamin, Assistant Secretary
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<PAGE>
EXHIBIT G
FORM OF COMPLIANCE CERTIFICATE
COMPLIANCE CERTIFICATE
Reference is made to that certain Second Amended and Restated Credit
Agreement dated as of March 1, 1998 (as modified and supplemented and in effect
from time to time, the "Credit Agreement") among Apple South, Inc., the Banks
from time to time party thereto, and Wachovia Bank, National Association, as a
Bank and as Agent as ascribed thereto in the Credit Agreement.
Pursuant to Section 5.1.3 of the Credit Agreement, the undersigned, the
[Chief Financial Officer/Chief Accounting Officer] of the Borrower, hereby
certifies that (i) attached hereto as Annex 1 are the true and accurate
calculations required to establish whether the Borrower was in compliance with
Sections 5.3, 5.4, 5.5, 5.6 and 5.19 of the Credit Agreement as of the end of
the Fis cal [Quarter/Year] ended __________, 19__, each determined in accordance
with the requirements of the Credit Agreement and (ii) [no Default exists on the
date hereof] [the following Defaults (including the details thereof) exist and
the Borrower is taking or proposes to take the following actions with respect
thereto]:
======================
======================
IN WITNESS WHEREOF, the undersigned has executed this Certificate in his
capacity as [Chief Financial Officer] and not personally as of the ____ day of
__________, 199___.
By:_________________________________
_______________________,
as _________________,
for and on behalf of
Apple South, Inc.
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SCHEDULE 4.8
SUBSIDIARY SCHEDULE
[TO BE COMPLETED BY APPLE SOUTH, INC.]
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SCHEDULE 5.7
DEBT SCHEDULE
Monthly
Description Short-Term Long-Term Total Payment Maturity Security
- ----------- ---------- --------- ----- ------- -------- --------
[TO BE COMPLETED BY APPLE SOUTH, INC.]
PARTICIPATION AGREEMENT
(Apple South Trust No. 97-1)
Dated as of September 24, 1997
among
APPLE SOUTH, INC.,
as the Lessee,
FIRST SECURITY BANK, NATIONAL ASSOCIATION,
not in its individual capacity except as expressly provided herein,
but solely as Owner Trustee under Apple South Trust No. 97-1,
SUNTRUST BANK, ATLANTA,
as Holder,
SUNTRUST BANK, ATLANTA,
as Administrative Agent,
and
certain financial institutions from time to time parties hereto,
as Lenders
<PAGE>
TABLE OF CONTENTS
SECTION 1. DEFINITIONS; INTERPRETATION OF THIS AGREEMENT................2
1.1 Definitions.........................................2
1.2 Directly or Indirectly..............................2
SECTION 2. FUNDING OF LOANS AND ADVANCES; PURCHASE OF EQUIPMENT;
PARTICIPATION IN THE EQUIPMENT COST; CLOSING; TRANSACTION
COSTS........................................................2
2.1 Funding of Loans and Advances; Purchase.............2
2.2 Participation in Equipment Cost.....................3
2.3 Closing Date; Commencement Dates; Procedures for
Participation.......................................4
2.4 Directions to Owner Trustee and Administrative
Agent; Satisfaction of Conditions...................6
2.5 Expenses; Fees......................................7
SECTION 3. REPRESENTATIONS AND WARRANTIES...............................8
3.1 Representations and Warranties of the Owner Trustee.8
3.2 Representations and Warranties of the Lessee as of
the Closing Date...................................11
3.3 Representations and Warranties of the Lessee as of
Each Commencement Date.............................15
SECTION 4. CLOSING CONDITIONS..........................................16
4.1 Conditions Precedent to the Obligations of Parties
other than the Lessee on the Closing Date..........16
4.2 Conditions Precedent to the Obligations of the
Parties other than the Lessee on each Commencement
Date...............................................18
4.3 Conditions Precedent to the Obligation of the
Lessee on the Closing Date.........................21
4.4 Conditions Precedent to the Obligations of the
Lessee on each Commencement Date...................22
SECTION 5. COVENANTS OF THE LESSEE.....................................23
5.1 Information........................................23
5.2 Inspection of Property, Books and Records..........25
5.3 Adjusted Funded Debt/Adjusted Capitalization Ratio.25
5.4 Minimum Stockholder's Equity.......................25
5.5 Fixed Charge Coverage Ratio........................26
5.6 Total Funded Debt/Cash Flow Coverage Ratio.........26
5.7 Negative Pledge....................................26
5.8 Maintenance of Existence...........................27
5.9 Dissolution........................................27
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5.10 Consolidations, Mergers and Sales of Assets........27
5.11 Investments........................................27
5.12 Compliance with Laws; Payment of Taxes.............30
5.13 Maintenance of Property............................30
5.14 Insurance..........................................30
5.15 Change in Fiscal Year..............................30
5.16 Environmental Notices..............................30
5.17 Environmental Matters..............................31
5.18 Environmental Releases.............................31
5.19 Subsidiary Debt....................................31
5.20 Change of Chief Executive Office...................31
5.21 Lien Searches......................................32
5.22 Classification of Equipment........................32
5.23 Lien Perfection Filings............................32
5.24 Allocation of Equipment Cost among the States
and Counties.......................................32
5.25 UCC Filing Amendments..............................32
SECTION 6. OTHER COVENANTS AND AGREEMENTS..............................33
6.1 Restrictions on Transfer...........................33
6.2 Lessor's Liens Attributable to the Holders.........35
6.3 Lessor's Liens Attributable to the Owner Trustee...36
6.4 Liens Created by the Lenders.......................36
6.5 Liens Created by the Administrative Agent..........37
6.6 Covenants Restricting the Owner Trustee............37
6.7 Covenants of All Parties Regarding Operative
Agreements.........................................39
6.8 Rent Sufficiency...................................39
6.9 Receipts Distribution and Application of Income....39
6.10 Acceleration Upon Certain Events of Default........42
SECTION 7. LESSEE'S INDEMNITIES........................................42
7.1 General Tax Indemnity..............................42
7.2 Special Income Tax Indemnity.......................46
7.3 General Indemnification and Waiver of Certain
Claims.............................................47
SECTION 8. YIELD PROTECTION; TAXES; COMPENSATION.......................49
8.1 Yield Protection Provisions........................49
8.2 Withholding Taxes..................................51
8.3 Compensation.......................................54
SECTION 9. MISCELLANEOUS...............................................54
9.1 Consents...........................................54
9.2 Appointment of Agent...............................54
9.3 Notices............................................55
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9.4 Successors and Assigns.............................56
9.5 Governing Law; Submission To Jurisdiction..........57
9.6 Severability.......................................58
9.7 Counterparts.......................................58
9.8 The Lessee's Right to Quiet Enjoyment..............59
9.9 Limitations of Liability...........................59
9.10 Confidentiality....................................59
9.11 Effectiveness and Survival of Indemnities..........60
9.12 Compliance Certificate.............................60
iii
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ATTACHMENTS
Attachment A - Form of Certificate of Delivery and Acceptance
Attachment B - Form of Compliance Certificate
Attachment C - Form of Assignment and Assumption Agreement
SCHEDULES
Schedule 3.2(h) - List of Subsidiaries
Schedule 5.7 - List of Existing Liens
APPENDIX A - Definitions
iv
<PAGE>
PARTICIPATION AGREEMENT
Apple South Trust No. 97-1
THIS PARTICIPATION AGREEMENT (Apple South Trust No. 97-1) dated as of
September 24, 1997 (as amended, modified, supplemented, restated and for
replaced from time to time, the "Agreement"), is among (i) APPLE SOUTH, INC., a
corporation organized and existing under the Laws of Georgia (herein, together
with its successors and assigns permitted hereunder, called the "Lessee"), (ii)
FIRST SECURITY BANK, NATIONAL ASSOCIATION, a national banking association
("First Security"), not in its individual capacity except as expressly provided
herein, but solely as Owner Trustee under Apple South Trust No. 97-1 (herein in
such capacity, together with its successors and assigns permitted hereunder,
called the "Owner Trustee"), (iii) SUNTRUST BANK, ATLANTA, a banking corporation
organized and existing under the Laws of Georgia, in its capacity as the holder
of the beneficial interest in the trust estate established under Apple South
Trust No. 97-1 (in such capacity as of the date hereof, the "Holder", and
together with its successors and assigns permitted hereunder, called the
"Holders"), (iv) the financial institutions now and from time to time parties
hereto (each herein in such capacity, together with its successors and assigns
permitted hereunder, called a "Lender" and collectively, the "Lenders"), and (v)
SUNTRUST BANK, ATLANTA, a banking corporation organized and existing under the
laws of Georgia, ("SunTrust"), as collateral agent and administrative agent for
the Lenders and the Holders (in such capacity, the "Administrative Agent").
W I T N E S S E T H:
WHEREAS, concurrently with the execution and delivery of this Agreement,
the Holders have entered into that certain Trust Agreement (Apple South Trust
No. 97-1) dated as of the date hereof (as amended, modified, supplemented,
restated and/or replaced from time to time, the "Trust Agreement") with the
Owner Trustee pursuant to which the Owner Trustee agrees, among other things,
(a) to hold the Trust Estate for the benefit of the Holders thereunder on the
terms specified in the Trust Agreement and (b) subject to the terms and
conditions hereof, to purchase the Equipment from each applicable Seller and
concurrently therewith lease such Equipment to the Lessee;
WHEREAS, pursuant to the terms of the Trust Agreement, the Owner Trustee is
authorized and directed (a) to accept delivery from time to time of any and all
title transfer documents evidencing the purchase of each Unit by the Owner
Trustee, and (b) to execute and deliver the Lease relating to the Equipment
pursuant to which the Owner Trustee agrees to lease to the Lessee, and the
Lessee agrees to lease from the Owner Trustee, each Unit to be delivered on the
applicable Commencement Date, such lease of Equipment to be evidenced by the
execution and delivery of a Lease Schedule or a Lease Replacement Schedule, as
the case may be, to the Lease;
WHEREAS, concurrently with the execution and delivery of this Agreement,
the Owner Trustee has entered into the Loan Agreement with the Lenders and the
Administrative Agent pursuant to which the Owner Trustee agrees, among other
things, to issue the Notes to the Lenders as evidence of the Owner Trustee's
indebtedness in respect of the Loans made under the
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Loan Agreement, which Notes are to be secured by, among other things, the
Equipment and certain of the Lessee's obligations under the Lease;
WHEREAS, the proceeds from the Loans will be applied, together with the
equity contributions made by the Holders pursuant to this Agreement and the
Trust Agreement, to effect the purchase of the Equipment by the Owner Trustee
contemplated hereby.
NOW, THEREFORE, in consideration of the mutual agreements herein contained
and other good and valuable consideration, receipt of which is acknowledged, the
parties hereto agree as follows:
SECTION 1. DEFINITIONS; INTERPRETATION OF THIS AGREEMENT
1.1 Definitions.
The capitalized terms used in this Agreement (including the foregoing
recitals) and not otherwise defined herein shall have the respective meanings
specified in Appendix A hereto, unless the context hereof shall otherwise
require. The "General Provisions" of Appendix A hereto are hereby incorporated
herein by this reference.
1.2 Directly or Indirectly.
Where any provision in this Agreement refers to action to be taken by any
Person, or which such Person is prohibited from taking, such provision shall be
applicable whether such action is taken directly or indirectly by such Person.
SECTION 2. FUNDING OF LOANS AND ADVANCES; PURCHASE OF EQUIPMENT;
PARTICIPATION IN THE EQUIPMENT COST; CLOSING;
TRANSACTION COSTS
2.1 Funding of Loans and Advances; Purchase of Equipment.
The Loans and Holder Advances shall be made, at the request of the Lessee,
on any Commencement Date, in accordance with the terms hereof; provided, it is
understood and agreed that (a) no such Loan or Holder Advance shall be made
subsequent to the Commitment Expiration Date and (b) the aggregate amount of
Loans and Holder Advances requested by the Lessee shall be in an amount of (1)
at least $1,000,000 on the first Commencement Date and (2) at least $3,000,000
on each subsequent Commencement Date, unless the remaining unfunded portion of
the Commitments is less than $3,000,000, in which case the aggregate amount of
Loans and Holders Advances may be the amount of such unfunded portion of the
Commitments.
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Subject to the terms and conditions hereof and on the basis of the
representations and warranties set forth herein, the Owner Trustee agrees to
purchase from the applicable Seller on the applicable Commencement Date the
Units of such Seller described in the applicable Certificate of Delivery and
Acceptance delivered pursuant to Section 2.3(b), and in connection therewith,
the Owner Trustee agrees to pay to such Seller, or at the request of the Lessee
to reimburse the Lessee for, the cost for each such Unit as specified in the
Certificate of Delivery and Acceptance therefor; provided, however, that the
Owner Trustee shall not be obligated to purchase on any Commencement Date any
Unit that is destroyed, damaged, defective, in unsuitable condition or otherwise
unacceptable to the Lessee for lease pursuant to the Lease. Each Seller shall
deliver its respective Units to the Owner Trustee (or its designee) and the
Owner Trustee (or its designee) shall accept such delivery of all the Equipment
on a Commencement Date not later than the Commitment Expiration Date.
2.2 Participation in Equipment Cost.
(a) Subject to the terms and conditions hereof and on the basis of the
representations and warranties set forth herein, on each applicable Commencement
Date, each Holder hereby agrees that it shall participate in the payment of the
Equipment Cost for the Units delivered on such Commencement Date by making a
Holder Advance to the Owner Trustee (payable to the Administrative Agent for the
benefit of the Owner Trustee) in an amount equal to the product of the Equity
Percentage of the aggregate Equipment Cost for the Units delivered on such
Commencement Date and such Holder's Pro Rata Share percentage set forth opposite
such Holder's name on the signature pages of the Trust Agreement (collectively,
the "Aggregate Holder Funded Amount"). The Lessee shall not request, pursuant to
a Certificate of Delivery and Acceptance or otherwise, that the Owner Trustee
obtain a Holder Advance (and the Holders shall have no obligation to make any
Holder Advances regarding any Equipment) in excess of the unused portion of the
Holder Commitments. Each Holder shall pay its respective portion of the
Aggregate Holder Funded Amount required on each applicable Commencement Date to
the Administrative Agent to be held and applied by the Administrative Agent
toward the payment of the Equipment Cost for the Units accepted on such
Commencement Date as provided in Section 2.3.
(b) Subject to the terms and conditions hereof and on the basis of the
representations and warranties set forth herein, on each applicable Commencement
Date, each Lender hereby agrees that it shall participate in the payment of the
Equipment Cost for the Units delivered on such Commencement Date by making a
Loan Advance to the Owner Trustee (payable to the Administrative Agent for the
benefit of the Owner Trustee) in an amount equal to the product of the Debt
Percentage of the aggregate Equipment Cost for the Units delivered on such
Commencement Date and the Lender's Pro Rata Share percentage set forth opposite
such Lender's name on the signature pages of the Loan Agreement (collectively,
the "Aggregate Lender Funded Amount"). The Lessee shall not request, pursuant to
a Certificate of Delivery and Acceptance or otherwise, that the Owner Trustee
obtain a Loan (and the Lenders shall have no obligation to make any Loan
Advances regarding any Equipment) in excess of the unused portion
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of the Lender Commitments. Each Lender shall pay its respective portion of the
Aggregate Lender Funded Amount required on each applicable Commencement Date to
the Administrative Agent to be held and applied by the Administrative Agent
toward the payment of the Equipment Cost for the Units accepted on such
Commencement Date as provided in Section 2.3.
2.3 Closing Date; Commencement Dates; Procedures for Participation.
(a) All documents and instruments required to be delivered on the Closing
Date shall be delivered on or prior to such date at the office of King &
Spalding, 191 Peachtree Street., N.E., Atlanta, Georgia 30303 or at such other
location as may be determined by the Owner Trustee, the Administrative Agent and
the Lessee.
(b) Not later than 11:00 A.M., Eastern time, on the fifteenth Business Day
preceding each applicable Commencement Date, the Lessee shall deliver to the
Administrative Agent, on behalf of the Owner Trustee, the Holders and the
Lenders (1) a certificate substantially in the form attached as Attachment A (a
"Certificate of Delivery and Acceptance") setting forth the information
requested therein, including without limitation a requested Commencement Date
and a description of any Units that the Lessee requests be purchased and leased
to it by the Owner Trustee on the Commencement Date (including the location of
each such Unit by county and state) and (2) the original invoices respecting the
Units of Equipment described in such Certificate of Delivery and Acceptance,
which invoices must reference (to the extent available), for each Unit, the
make, model, serial number, and registration number and Equipment Cost of such
Units. Such Certificate of Delivery and Acceptance and original invoices must be
complete in all material respects and in form and substance reasonably
satisfactory to the Administrative Agent in its sole discretion.
(c) If the Certificate of Delivery and Acceptance and original invoices are
reasonably satisfactory to the Administrative Agent in its sole discretion, not
later than 3:00 P.M. Eastern time, three Business Days prior to the applicable
Commencement Date, the Administrative Agent shall deliver to the Holders, the
Owner Trustee and the Lenders, by facsimile or other form of telecommunication
or telephone (to be promptly confirmed in writing), a copy of the Certificate of
Delivery and Acceptance together with a statement prepared by the Administrative
Agent (the "Funding Statement") setting forth (1) the date on which each Lender
shall be obligated to fund its portion of the Aggregate Lender Funded Amount
unless it has notified the Administrative Agent that a condition to funding has
not been met, (2) the Aggregate Holder Funded Amount required to be advanced on
such Commencement Date and each Holder's portion thereof, (3) the Aggregate
Lender Funded Amount required to be advanced on such Commencement Date and each
Lender's portion thereof and (4) the Scheduled Payment Dates and the Base Loan
Installments for such Loan (including the Scheduled Principal Installment and
the Scheduled Interest Installment portions thereof).
(d) Prior to 11:00 A.M., Eastern time on the applicable Commencement Date,
each Holder shall make its respective portion of the Aggregate Holder Funded
Amount required
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to be paid on such Commencement Date available to the Administrative Agent, and
each Lender shall make its respective portion of the Aggregate Lender Funded
Amount for the Equipment Cost required to be paid on such Commencement Date
available to the Administrative Agent, in each case, by transferring or
delivering such amounts, in funds immediately available on such Commencement
Date, to the Administrative Agent. The making available by a Holder or a Lender
of its respective portion of the Aggregate Holder Funded Amount or Aggregate
Lender Funded Amount for the Equipment Cost, as the case may be, shall be deemed
a consent to the terms set forth in the Certificate of Delivery and Acceptance
and the Funding Statement by such Holder or Lender.
(e) Upon receipt by the Administrative Agent on each applicable
Commencement Date of the full amount of the Aggregate Holder Funded Amount and
the Aggregate Lender Funded Amount in respect of the Units delivered on such
Commencement Date, the Administrative Agent on behalf of the Owner Trustee
shall, subject to the conditions set forth in Section 4 having been fulfilled to
the satisfaction of the Owner Trustee, the Holders, the Lenders and the
Administrative Agent or waived by such parties as appropriate, pay to the
applicable Seller, or at the request of the Lessee reimburse the Lessee, from
the funds then held by the Administrative Agent, in immediately available funds,
an amount equal to the Equipment Cost for the Units delivered by the applicable
Seller on such Commencement Date, and simultaneously therewith, (i) the Lessee,
individually and as authorized representative of the Owner Trustee (the making
available by the Holders of the Aggregate Holder Funded Amount to be paid on
such Commencement Date shall constitute their agreement to permit the Lessee to
act as the authorized representative of the Owner Trustee), shall be deemed to
have confirmed acceptance of such Units from the applicable Seller for all
purposes as among the Owner Trustee and the Lessee (except that there shall not
be any waiver of claims by any Person as against the applicable Seller as a
result thereof), such confirmation to be conclusively evidenced by the execution
and delivery by the Lessee or its authorized representative of the Certificate
of Delivery and Acceptance, (ii) the Lessee shall cause to be delivered to the
Owner Trustee (or its designee) all title transfer documents which are legally
sufficient to evidence the purchase and the transfer of good and marketable
title in the Units to the Owner Trustee and (iii) the Owner Trustee shall,
pursuant to the Lease, lease the Units delivered on such Commencement Date to
the Lessee, and the Lessee, pursuant to the Lease, shall accept delivery of the
Units under the Lease (such lease, delivery and acceptance of the Units under
the Lease being conclusively evidenced by the execution and delivery by the
Lessee and the Owner Trustee of a Lease Schedule to the Lease concerning such
Units so delivered). Each of the Lessee, the Holders, the Owner Trustee, the
Lenders and the Administrative Agent hereby agree to take all actions required
to be taken by such party in connection therewith and pursuant to this Section
2.3(e).
(f) If any Lender does not fund its portion of the Aggregate Lender Funded
Amount on any Commencement Date, the Administrative Agent shall, subject to the
conditions set forth in Section 4 having been fulfilled to the satisfaction of
the Owner Trustee, the Holders, the other Lenders and the Administrative Agent
or waived by such parties as appropriate, (i) delete from the Certificate of
Acceptance and Delivery and the Lease Schedule for such
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Commencement Date such Units as it shall deem appropriate in its sole discretion
such that the Equipment Cost for the remaining Units is as close as possible to,
but less than, the portion of the Aggregate Holder Funded Amount and the
Aggregate Lender Funded Amount that the Administrative Agent has received on
such Commencement Date and (ii) pay to the applicable Seller, or at the request
of the Lessee reimburse the Lessee, from the funds then held by the
Administrative Agent, in immediately available funds, an amount equal to the
Equipment Cost for the Units delivered by the applicable Seller on such
Commencement Date (after giving effect to the removal of Units from the
Certificate of Acceptance and Delivery and the Lease Schedule by the
Administrative Agent), and simultaneously therewith, (i) the Lessee,
individually and as authorized representative of the Owner Trustee (the making
available by the Holders of the Aggregate Holder Funded Amount to be paid on
such Commencement Date shall constitute their agreement to permit the Lessee to
act as the authorized representative of the Owner Trustee), shall be deemed to
have confirmed acceptance of such Units from the applicable Seller for all
purposes as among the Owner Trustee and the Lessee (except that there shall not
be any waiver of claims by any Person as against the applicable Seller as a
result thereof), such confirmation to be conclusively evidenced by the execution
and delivery by the Lessee or its authorized representative of the Certificate
of Delivery and Acceptance, as modified by the Administrative Agent, (ii) the
Lessee shall cause to be delivered to the Owner Trustee (or its designee) all
title transfer documents which are legally sufficient to evidence the purchase
and the transfer of good and marketable legal title in such Units to the Owner
Trustee and (iii) the Owner Trustee shall, pursuant to the Lease, lease such
Units delivered on such Commencement Date to the Lessee, and the Lessee,
pursuant to the Lease, shall accept delivery of such Units under the Lease (such
lease, delivery and acceptance of such Units under the Lease being conclusively
evidenced by the execution and delivery by the Lessee and the Owner Trustee of a
Lease Schedule to the Lease (as modified by the Administrative Agent) concerning
such Units so delivered). Each of the Lessee, the Holders, the Owner Trustee,
the Lenders and the Administrative Agent hereby agree to take all actions
required to be taken by such party in connection therewith and pursuant to this
Section 2.3(f). Upon the Administrative Agent's request, the Lessee and the
Owner Trustee agree promptly to execute and deliver to the Administrative Agent
a new Certificate of Acceptance and Delivery and a new Lease Schedule revised to
reflect the deletion of Units from the original Certificate of Acceptance and
Delivery and Lease Schedule by the Administrative Agent.
2.4 Directions to Owner Trustee and Administrative Agent; Satisfaction of
Conditions.
(a) Each Holder agrees that the making available to the Administrative
Agent on each applicable Commencement Date of its respective portion of the
Aggregate Holder Funded Amount for the Units delivered on the corresponding
Commencement Date in accordance with the terms of this Section 2 shall
constitute the direction of such Holder to the Owner Trustee, without further
act, authorization and direction by such Holder to the Owner Trustee, subject,
on such Commencement Date, to the conditions set forth in Section 4 having been
fulfilled to the satisfaction of such Holder or waived by the Required Holders,
to take the actions specified in this Agreement and the Trust Agreement with
respect to the Units on such
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Commencement Date and the corresponding Commencement Date. Such Holder further
agrees that the making available to the Administrative Agent on each applicable
Commencement Date of its respective portion of the Aggregate Holder Funded
Amount for the Units delivered on the corresponding Commencement Date in
accordance with the terms of this Section 2 shall constitute (i) the direction
of such Holder to the Administrative Agent to release to each applicable Seller
or the Lessee (upon its request) its respective portion of the Aggregate Holder
Funded Amount with respect to the Units delivered on the corresponding
Commencement Date and (ii) the agreement of such Holder, without further act,
notice or confirmation, that all conditions set forth in Section 4 were either
met to the satisfaction of such Holder or, if not so met, were waived by it with
respect to the Units; provided, notwithstanding the foregoing, such Holder shall
not be deemed (pursuant to the foregoing provisions) to have waived its right
after such Commencement Date to require the satisfaction of any such condition
for which the Lessee was responsible unless the Required Holders shall have
given the Lessee an express written waiver with respect to any such condition.
(b) Each Lender agrees that the making available to the Administrative
Agent of its respective portion of the Aggregate Lender Funded Amount for the
Units delivered on each applicable Commencement Date in accordance with the
terms of this Section 2 shall constitute the direction of such Lender to the
Administrative Agent, without further act, authorization and direction by such
Lender to the Administrative Agent, subject, on such Commencement Date, to the
conditions set forth in Section 4 having been fulfilled to the satisfaction of
such Lender or waived by the Required Lenders, to take the actions specified in
this Agreement and the Loan Agreement with respect to the Units on such
Commencement Date. Such Lender further agrees that the making available to the
Administrative Agent on each applicable Commencement Date of its respective
portion of the Aggregate Lender Funded Amount for the Units delivered on the
corresponding Commencement Date in accordance with the terms of this Section 2
shall constitute (i) the direction of such Lender to the Administrative Agent to
release to each applicable Seller or the Lessee (upon its request) its
respective portion of the Aggregate Lender Funded Amount with respect to the
Units delivered on the corresponding Commencement Date and (ii) the agreement of
such Lender, without further act, notice or confirmation, that all conditions
set forth in Section 4 were either met to the satisfaction of such Lender or, if
not so met, were waived by it with respect to the Units; provided,
notwithstanding the foregoing, such Lender shall not be deemed (pursuant to the
foregoing provisions) to have waived its right after such Commencement Date to
require the satisfaction of any such condition for which the Lessee was
responsible unless the Required Lenders shall have given the Lessee an express
written waiver with respect to any such condition.
2.5 Expenses; Fees.
(a) Subject to the provisions of Section 2.5(b), the Lessee agrees to pay
when due the reasonable fees, costs and expenses (including, without limitation,
reasonable legal fees and expenses) of the Owner Trustee, the initial Holder and
the Administrative Agent incurred in connection with the negotiation,
documentation and closing of the Overall Transaction and the
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recording, registration and filing of documents from time to time in connection
with the Overall Transaction ("Transaction Costs"). In addition, the Lessee
agrees to pay as Supplemental Rent (i) all reasonable fees, costs and expenses
(including, without limitation, reasonable legal fees and expenses) of the Owner
Trustee and the Administrative Agent from time to time in connection with any
lien searches and UCC financing statements (including preparation and filing
costs) made in connection with Equipment leased hereunder after the Closing
Date, (ii) all fees, costs and expenses (including without limitation,
reasonable legal fees and expenses) of the Owner Trustee, the initial Holder and
the Administrative Agent, and if a Default or Event of Default has occurred and
is continuing, all fees, costs and expenses (including without limitation,
reasonable legal fees and expenses) of all other Holders and the Lenders, from
time to time in connection with (A) any supplements, amendments, modifications
or alterations of any of the Operative Agreements (other than with respect to
such supplements, amendments, modifications, waivers or alterations requested
solely by parties to this Agreement other than the Lessee regarding matters
solely for the benefit of such parties, in which case each other party
requesting such supplement, amendment, modification or alteration shall bear its
own fees, costs and expenses associated with such matter), (B) any enforcement
action, preservation of rights, or exercise of remedies with regard to the
Operative Agreements or the Overall Transaction, and (C) any disposition of any
Unit, (iii) all fees payable to the Owner Trustee in accordance with the Owner
Trustee Fee Schedule, (iv) the ongoing reasonable out-of-pocket fees and
expenses of the Owner Trustee (including, without limitation, reasonable legal
fees and expenses of the Owner Trustee) under the Operative Agreements, (v) the
reasonable fees, costs and expenses of any separate Owner Trustee or co-trustee
appointed pursuant to the Trust Agreement as a result of any requirement of Law
or if otherwise required by any Operative Agreement or if requested or consented
to by the Lessee and (vi) the Administrative Agent's Fee payable in accordance
with the Fee Letter. The Lessee also agrees to pay as Supplemental Rent on the
respective due date therefor from time to time the Commitment Fee.
(b) If the transactions contemplated hereby are not consummated for any
reason, the Lessee shall pay all Transaction Costs.
(c) Notwithstanding the foregoing provisions of this Section 2.5, except as
specifically provided in the Operative Agreements, the Lessee shall have no
liability for any costs or expenses relating to any voluntary transfer by a
Holder of a Certificate or by a Lender of a Note (other than during the
occurrence and continuation of a Lease Event of Default). No such costs or
expenses shall constitute Transaction Costs, and the Lessee will not have any
obligation with respect to the costs and expenses resulting from any such
transfer, whenever occurring.
SECTION 3. REPRESENTATIONS AND WARRANTIES
3.1 Representations and Warranties of the Owner Trustee.
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The Owner Trustee, both in its individual capacity and as the Owner
Trustee, represents and warrants to the other parties to this Agreement,
notwithstanding the provisions of Section 9.9 or any similar provision in any
other Operative Agreement, that, as of the date hereof:
(a) The Owner Trustee, in its individual capacity, is a national banking
association duly organized and validly existing in good standing under the Laws
of the United States of America, has full power and authority to carry on its
business as now conducted and to enter into and perform its obligations
hereunder and under the Trust Agreement and (assuming due authorization,
execution and delivery of the Trust Agreement by the Holder) has full power and
authority, as the Owner Trustee or, to the extent expressly provided herein or
therein, in its individual capacity, to enter into and perform its obligations
under each of the Owner Trustee Agreements.
(b) The Owner Trustee, in its individual capacity, has duly authorized,
executed and delivered the Trust Agreement and (assuming the due authorization,
execution and delivery of the Trust Agreement by the Holder) the Owner Trustee
in its trust capacity and, to the extent expressly provided therein, in its
individual capacity, has duly authorized, executed and delivered each of the
other Owner Trustee Agreements to be delivered as of the Closing Date; and the
Owner Trustee Agreements each constitute or when entered into will constitute a
legal, valid and binding obligation of the Owner Trustee, in its individual
capacity to the extent such Owner Trustee Agreements relate to the Owner Trustee
in its individual capacity, enforceable against it in its individual capacity in
accordance with its terms except as the same may be limited by bankruptcy,
insolvency, reorganization, moratorium or similar Laws affecting the rights of
creditors generally and by general principles of equity.
(c) Assuming the due authorization, execution and delivery of the Trust
Agreement by the Holders and each of the Owner Trustee Agreements to be
delivered as of the Closing Date by each of the other parties thereto, each of
the Owner Trustee Agreements to which it is a party constitutes, or when entered
into will constitute, a legal, valid and binding obligation of the Owner
Trustee, enforceable against the Owner Trustee, in accordance with its terms,
except as enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar Laws affecting the rights of
creditors generally and by general principles of equity.
(d) Neither the execution and delivery by the Owner Trustee, in its
individual capacity or as the Owner Trustee, as the case may be, of the Owner
Trustee Agreements, nor the consummation by the Owner Trustee, in its individual
capacity or as the Owner Trustee, as the case may be, of any of the transactions
contemplated hereby or thereby, nor the compliance by the Owner Trustee, in its
individual capacity or as the Owner Trustee, as the case may be, with any of the
terms and provisions hereof and thereof, (i) requires or will require any
approval of its stockholders, or approval or consent of any trustees or holders
of any indebtedness or obligations of it in its individual capacity, or (ii)
violates or will violate its organizational documents or bylaws, or contravenes
or will contravene any provision of, or constitutes or will constitute a
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default under, or results or will result in any breach of, any indenture,
mortgage, chattel mortgage, deed of trust, conditional sale contract, bank loan
or credit agreement, license or other agreement or instrument to which the Owner
Trustee in its individual capacity is a party or by which it is bound, or
contravenes or will contravene any Law, governmental rule or regulation of the
State of Utah or of the United States of America governing the banking or trust
powers of the Owner Trustee, or any judgment or order applicable to or binding
on it.
(e) There are no Taxes payable by the Owner Trustee, either in its
individual capacity or as the Owner Trustee, imposed by the State of Utah or any
political subdivision thereof in connection with the execution and delivery by
the Owner Trustee in its individual capacity of the Trust Agreement, and, in its
individual capacity or as the Owner Trustee, as the case may be, of this
Agreement or the other Owner Trustee Agreements solely because the Owners
Trustee in its individual capacity is a national banking association with its
principal place of business in Salt Lake City, Utah and performs certain of its
duties as the Owner Trustee in the State of Utah; and there are no Taxes payable
by the Owner Trustee, in its individual capacity or as the Owner Trustee, as the
case may be, imposed by the State of Utah or any political subdivision thereof
in connection with the acquisition of its interest in the Equipment (other than
franchise or other Taxes based on or measured by any fees or compensation
received by the Owner Trustee for services rendered in connection with the
transactions contemplated hereby) solely because the Owner Trustee in its
individual capacity is a national banking association with its principal place
of business in Salt Lake City, Utah and performs certain of its duties as the
Owner Trustee in the State of Utah.
(f) There are no pending or, to its knowledge, threatened actions or
proceedings against the Owner Trustee, either in its individual capacity or as
the Owner Trustee, before any court or administrative agency which individually
or in the aggregate, if determined adversely to it, would materially adversely
affect the ability of the Owner Trustee, in its individual capacity or as the
Owner Trustee, as the case may be, to perform its obligations under the Trust
Agreement or the other Owner Trustee Agreements.
(g) Its chief executive office, principal place of business and the place
where its records concerning the Equipment and all its interest in, to and under
all documents relating to the Trust Estate are located at 79 South Main Street,
Salt Lake City, Utah 84111.
(h) No consent, approval, order or authorization of, giving of notice to,
or registration with, or taking of any other action in respect of, any Utah
state or local governmental authority or agency or any United States federal
governmental authority or agency regulating the banking or trust powers of the
Owner Trustee, in its individual capacity, is required for the execution and
delivery of, or the carrying out by, the Owner Trustee in its individual
capacity or as the Owner Trustee, as the case may be, of any of the transactions
contemplated hereby or by the Trust Agreement or of any of the transactions
contemplated by any of the other Owner Trustee Agreements, other than any such
consent, approval, order, authorization, registration, notice or action as has
been duly obtained, given or taken.
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3.2 Representations and Warranties of the Lessee as of the Closing Date.
The Lessee represents and warrants to the other parties to this Agreement
that, as of the Closing Date:
(a) Each of the Lessee and its Subsidiaries is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation, is duly qualified to transact business in
every jurisdiction where, by the nature of its business, such qualification is
necessary, and has all corporate powers and all governmental licenses,
authorizations, consents and approvals required to carry on its business as now
conducted, except where the failure to so qualify or obtain such licenses,
authorizations, consents or approvals could not be reasonably expected to have
or cause a Material Adverse Effect.
(b) The execution, delivery and performance by the Lessee of this
Agreement, the Lease, and the other Operative Agreements to which it is a party
(i) are within the Lessee's corporate powers, (ii) have been duly authorized by
all necessary corporate action, and, except for such Operative Agreements which
are to be delivered at subsequent Commencement Dates, accepted and delivered,
(iii) require no action by or in respect of or filing with, any governmental
body, agency or official, (iv) do not contravene, or constitute a default under,
any provision of applicable Law or of the articles of incorporation or by-laws
of the Lessee or, to the best of the Lessee's knowledge, of any material
agreement, judgment, injunction, order, decree or other instrument binding upon
the Lessee or any of its Subsidiaries, and (v) do not result in the creation or
imposition of any Lien on any asset of the Lessee or any of its Subsidiaries.
(c) This Agreement and the Lease constitute valid and binding obligations
of the Lessee enforceable in accordance with their respective terms, and the
other Operative Agreements, when executed and delivered in accordance with this
Agreement and the Lease, will constitute valid and binding obligations of the
Lessee enforceable in accordance with their respective terms, provided that the
enforceability hereof and thereof is subject in each case to general principles
of equity and to bankruptcy, insolvency and similar laws affecting the enforce
ment of creditors' rights generally.
(d) The audited balance sheet of the Lessee and its Consolidated
Subsidiaries as of December 29, 1996, and the related consolidated audited
statements of income, shareholders' equity and cash flows of the Lessee and its
Consolidated Subsidiaries for the Fiscal Year then ended, copies of which have
been delivered to each of the Holders and the Lenders, and the unaudited
financial statements of the Lessee and its Consolidated Subsidiaries as of and
for the Fiscal Quarter ended June 29, 1997, copies of which have been delivered
to each of the Holders and the Lender, fairly present, in conformity with GAAP,
the financial position of the Lessee and its Consolidated Subsidiaries as of
such dates and the results of its operations and cash flow for such periods
stated; provided, that, (i) the interim statements remain subject to normal
year-end audit adjustments and (ii) during the term of this Agreement after the
Closing Date, future rep resentations as to the matters set forth in this
sentence shall be deemed to refer to the most recent
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financial statements delivered pursuant to Sections 5.1(a) and 5.1(b). Since
June 29, 1997, there has been no event, act, condition or occurrence having or
which could be expected to have a Material Adverse Effect, except for matters
disclosed in the quarterly financial statements referred to above; provided that
during the term of this Agreement following the Closing Date, future
representations as to matters set forth in this sentence shall be deemed to
refer to the last day of the most recent audited financial statements delivered
by the Lessee pursuant to Section 5.1(a).
(e) There is no action, suit or proceeding pending, or to the knowledge of
the Lessee threatened, against or affecting the Lessee or any of its
Subsidiaries before any court or arbitrator or any governmental body, agency or
official which could have a Material Adverse Effect or which in any manner draws
into question the validity of, or could impair the ability of the Lessee to
perform its obligations under, this Agreement, the Lease, or any of the other
Operative Agreements.
(f) The Lessee and each Subsidiary are in compliance in all material
respects with applicable Laws (including, but not limited to, ERISA) and similar
requirements of Gov ernmental Authorities (including, but not limited to, PBGC),
noncompliance with which could have or cause a Material Adverse Effect, except
where the necessity of such compliance is being contested in good faith through
appropriate proceedings. To the best of the Lessee's knowledge, (i) the Lessee
and each member of the Controlled Group have fulfilled their respective
obligations under the minimum funding standards of ERISA and the Code with
respect to each Plan and are in compliance in all material respects with the
presently applicable provisions of ERISA and the Code, and have not incurred any
liability to the PBGC or a Plan under Title IV of ERISA; and (ii) neither the
Lessee nor any member of the Controlled Group is or ever has been obligated to
contribute to any Multiemployer Plan.
(g) There have been filed on behalf of the Lessee and its Subsidiaries all
federal, state and local income, excise, property and other tax returns which
are required to be filed by them and all taxes due pursuant to such returns or
pursuant to any assessment received by or on behalf of the Lessee or any
Subsidiary have been paid, except for amounts that either are immaterial or are
being disputed in good faith and by appropriate proceedings. The charges,
accruals and reserves on the books of the Lessee and its Subsidiaries in respect
of taxes or other governmental charges are, in the opinion of the Lessee,
adequate.
(h) As of the Closing Date, the Lessee has no Subsidiaries, except for the
Subsidiaries set forth on Schedule 3.2(h), all of which are Consolidated
Subsidiaries.
(i) Neither the Lessee nor any Subsidiary is a "holding company," or a
"subsidiary company" of a "holding company," or an "affiliate" of a "holding
company" or of a "subsidiary company" of a "holding company," or a "public
utility," within the meaning of the Public Utility Holding Company Act of 1935,
as amended; or a "public utility" within the meaning of the Federal Power Act,
as amended; or an "investment company" or a company "controlled" by an
"investment company" within the meaning of the Investment Company Act of 1940,
as amended; or an "investment adviser" within the meaning of the Investment
Advisers Act of 1940, as amended.
(j) The Lessee owns Properties, or interests in Properties, sufficient for
the conduct of its business; and none of such Properties is subject to any Lien
except as permitted in Section 5.7.
(k) Neither the Lessee nor any of its Subsidiaries is in default under or
with respect to any agreement, instrument or undertaking to which it is a party
or by which it or any of its property is bound which could have or cause a
Material Adverse Effect. No Lease Default or Lease Event of Default has occurred
and is continuing and no Event of Loss has occurred.
(l) All written information and, to the best of the Lessee's knowledge, all
other information, heretofore furnished by the Lessee to the Owner Trustee, any
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Holder, any Lender or the Administrative Agent for purposes of or in connection
with this Agreement or any transaction contemplated hereby is, and all such
information hereafter furnished by the Lessee to the Owner Trustee, any Holder,
any Lender or the Administrative Agent will be, true, accurate and complete in
every material respect or based on reasonable estimates on the date as of which
such information is stated or certified. The Lessee has disclosed to the Owner
Trustee, the Holders, the Lenders and the Administrative Agent in writing any
and all facts which could reasonably be expected to have or cause a Material
Adverse Effect.
(m) To the best of the Lessee's knowledge: (i) neither the Lessee nor any
Subsidiary is subject to any Environmental Liability which could have or cause a
Material Adverse Effect, and neither the Lessee nor any Subsidiary has been
designated as a potentially responsible party under CERCLA or under any state
statute similar to CERCLA; (ii) none of the Properties located in the United
States, owned by either the Lessee or a Subsidiary, has been identified on any
current or proposed (A) National Priorities List under 40 C.F.R. ss. 300, (B)
CERCLIS list or (C) any list arising from a state statute similar to CERCLA;
(iii) no Hazardous Materials have been or are being used, produced,
manufactured, processed, treated, recycled, generated, stored, disposed of,
managed or otherwise handled at, or shipped or transported to or from the
Properties or are otherwise present at, in or under the Properties, owned or
operated by either the Lessee or a Subsidiary, or at or from any adjacent site
or facility, except for Hazardous Materials such as cleaning solvents,
pesticides and other materials used, produced, manufactured, processed, treated,
recycled, generated, stored, disposed of, managed, or otherwise handled in the
ordinary course of business in compliance with all applicable Environmental
Requirements; and (iv) the Lessee and its Subsidiaries are in compliance with
all Environmental Requirements in connection with the ownership, use and
operation of the Properties and the Lessee's and such Subsidiary's respective
businesses.
(n) All Capital Stock, debentures, bonds, notes and all other securities of
the Lessee and its Subsidiaries presently issued and outstanding are validly and
properly issued in ac cordance with all applicable laws, including but not
limited to, the "Blue Sky" laws of all applicable states and the federal
securities laws.
(o) Neither the Lessee nor any of its Subsidiaries is engaged principally,
or as one of its important activities, in the business of purchasing or carrying
any Margin Stock, and no part of the proceeds of any Loan will be used to
purchase or carry any Margin Stock or to extend credit to others for the purpose
of purchasing or carrying any Margin Stock, or be used for any purpose which
violates, or which is inconsistent with the provisions of, Regulations G, T, U
or X.
(p) After giving effect to the execution and delivery of this Agreement,
the Lease, and the other Operative Agreements to which it is a party, and the
leasing of the Equipment to Lessee under the Lease, the Lessee will be Solvent.
(q) The Lessee and its Subsidiaries possess to the extent material all
franchises, certificates, licenses, permits and other authorizations from
governmental and political subdivisions or regulatory authorities, and all
patents, trademarks, service marks, trade names, copyrights, franchises,
licenses and other rights that are necessary for ownership, maintenance and
operation of any of their respective material Properties and assets, and neither
the Lessee nor any of its Subsidiaries is in violation of any thereof, which,
individually or in the aggregate, would or might have or cause a Material
Adverse Effect. Without limiting the generality of the foregoing, and, in any
event, the Lessee and its Subsidiaries possess all Franchise Rights necessary
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for the ownership, operation and development of its (or their) franchised
restaurant business as con ducted, or contemplated to be conducted, by the
Lessee and such Subsidiaries, including, without limitation, in the case of
"Applebee's" restaurants, franchise agreements for each franchised restaurant
location and exclusive development rights for each designated area in which
franchised restaurants are located or contemplated to be located.
(r) The Lessee and each of its Subsidiaries maintain adequate insurance on,
and in respect of the ownership and operation of, its Properties in at least
such amounts and against at least such risks as are usually insured against in
the same general area by companies of established repute engaged in the same or
similar business.
(s) The principal place of business and chief executive office of the
Lessee and the place where the Lessee shall retain its records concerning the
Equipment and all its interest in, to and under all documents relating to the
Trust Estate (i) are located in Morgan County, Georgia and (ii) have been
located at such address for no less than the six month period immediately
preceding the Closing Date.
(t) The legal name of the Lessee is (and for no less than the five-year
period immediately preceding the Closing Date has been) "Apple South, Inc."
(u) Each item of Equipment is personal property and is not, and is not
intended to be, attached to real estate in such manner that any item of
Equipment constitutes or would constitute a fixture.
(v) The Equipment will (i) qualify as property with respect to which the
depreciation deductions provided by Code Section 167(a) are determined pursuant
to Code Section 168 using the applicable depreciation method set forth in Code
Section 168(b)(1) and the applicable convention described in Code Section
168(d)(4); (ii) qualify as "five-year property" within the meaning of Code
Section 168(d)(1); and (iii) have a tax basis equal to one hundred percent
(100%) of Equipment Cost (not taking into account the Transaction Costs).
3.3 Representations and Warranties of the Lessee as of Each Commencement
Date.
The Lessee represents and warrants to the other parties to this Agreement
that, as of each Commencement Date (except to the extent any such
representations and warranties are waived in writing by the Required Holders and
Required Lenders as of such Commencement Date):
(a) The representations and warranties given by the Lessee under Section
3.2 shall be true and accurate as of each such Commencement Date.
(b) Upon (i) the filing of the Uniform Commercial Code financing statements
(which have been prepared by the Administrative Agent and reviewed by the
Lessee) in the filing offices referenced on such Uniform Commercial Code
financing statements, and (ii) the execution and delivery of the applicable
Lease Schedule regarding the Equipment accepted under the Lease on such
Commencement Date, all filings and other actions necessary or required to
establish and perfect the right, title and interest of the Owner Trustee (and to
establish good and marketable legal title in favor of the Owner Trustee, free
and clear of all Liens, except Permitted Liens) in and to the Equipment funded
on the applicable Commencement Date and the remainder of the Trust Estate and to
perfect the Lien of the Administrative Agent on the Collateral will have been
made on or prior to such Commencement Date, and the Loan Agreement will on such
Commencement Date create a valid and perfected first priority Lien on the
Collateral, subject only to any Lessor's Liens and Permitted Liens.
(c) On the applicable Commencement Date all sales, use or transfer Taxes
due and payable upon the purchase of the Equipment by the Owner Trustee on each
applicable Commencement Date and on the lease thereof to the Lessee will have
been paid or the Lessee shall be liable for the payment thereof.
(d) The Units accepted under the Lease on such Commencement Date are
adequate to operate in commercial service and comply with all Laws governing the
service in which such Units are being placed by the Lessee; each Unit specified
in Annex 1 to the applicable
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Lease Schedule has been delivered directly by the applicable Seller to the
Lessee, and the Lessee is unaware of any defects in or damage to such Units.
(e) The conveyance of the Units effected on such Commencement Date are not
void or voidable under any applicable Law.
(f) The Lessee is in compliance with all applicable Environmental Laws
relating to the Equipment accepted under the Lease on such Commencement Date,
including, without limitation, the ownership, use, transport, storage,
condition, maintenance and operation of the Equipment.
(g) The Lessee has received no service of any writs, injunctions, decrees,
orders or judgments outstanding against the Lessee relating to the Equipment
accepted under the Lease on such Commencement Date, including, without
limitation, the ownership, use, transport, storage, condition, maintenance or
operation of the Equipment resulting from a material violation of any applicable
Environmental Law, and there are no material lawsuits, proceedings or
investigations under any applicable Environmental Law pending or, to the
Lessee's knowledge, threatened against the Lessee relating to the ownership,
use, maintenance or operation of the Equipment.
(h) Since the date of the financial statements referenced in Section 5.1(a)
or Section 5.1(b) most recently provided by the Lessee to the Administrative
Agent, there has been no change in the financial condition, operations or
business of the Lessee and its Subsidiaries, taken as a whole, which would give
rise to a Material Adverse Effect.
(i) The Equipment accepted on such Commencement Date has an Equipment Cost
as set forth in the Certificate of Acceptance.
SECTION 4. CLOSING CONDITIONS
4.1 Conditions Precedent to the Obligations of Parties other than
the Lessee on the Closing Date.
The obligation of each of the parties hereto (other than the Lessee) to
comply with its obligations under Article 2 and to participate in the
transactions contemplated hereby on the Closing Date shall be subject to
satisfaction of the following conditions (and, to the extent such conditions
precedent require the delivery of any agreement, document, instrument, opinion
or any other item, such shall be in form and substance reasonably satisfactory
to the Owner Trustee, the Holders, the Lenders and the Administrative Agent) on
or prior to the Closing Date, except that (i) the obligation of any such party
shall not be subject to such party's own performance or compliance and (ii) the
conditions specified below as being only for the benefit of a specified party or
parties need be fulfilled only to the satisfaction of, or waived by, such party
or parties:
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(a) (i) Each of the Operative Agreements to be delivered as of such date
shall have been duly authorized, executed and delivered by the parties thereto,
shall be in full force and effect and executed counterparts of each shall have
been delivered to the Administrative Agent or its designee (on behalf of the
Owner Trustee, the Holders and the Lenders) on or before the Closing Date and
promptly thereafter, the Administrative Agent shall cause executed counterparts
of each to be delivered to the Owner Trustee, the Holders and the Lenders
(except that the executed Certificates shall be delivered only to the Holders
and executed Notes shall be delivered only to the Lenders), and (ii) no event
shall have occurred and be continuing that constitutes a Lease Default or a
Lease Event of Default.
(b) (i) The Lessee shall have caused the original chattel paper counterpart
of the Lease to be duly delivered to the Administrative Agent, and (ii) Uniform
Commercial Code financing statements and other documents pertaining to Lien
perfection shall have been filed in such places as the Owner Trustee or the
Administrative Agent may reasonably request for (A) the protection of the Owner
Trustee's and Administrative Agent's interest in the Lease and (B) the
termination of any existing Liens against the Lease.
(c) The representations and warranties of the parties hereto contained in
Section 3 shall be true and correct with the same effect as though made on and
as of said date, and the execution and delivery of this Agreement shall
constitute a certification by each party giving such representations and
warranties as to the accuracy of the representations and warranties in Section 3
as of the Closing Date.
(d) The Owner Trustee, the Holders, the Lenders and the Administrative
Agent shall have received the favorable written opinion of each of (i)
Kilpatrick Stockton L.L.P., counsel for the Lessee and (ii) Ray, Quinney &
Nebeker, counsel for the Owner Trustee.
(e) The Lessee shall deliver or cause to be delivered to the Owner Trustee,
the Holders, the Lenders and the Administrative Agent the following, each unless
otherwise noted dated the Closing Date, (i) good standing certificates from its
jurisdiction of incorporation, the jurisdiction of its principal place of
business and each other jurisdiction in which the failure to qualify may have a
Material Adverse Effect, each dated a recent date prior to the Closing Date,
(ii) a certified copy of its articles of incorporation, bylaws and the
resolutions of its Board of Directors approving and authorizing the execution,
delivery and performance of this Agreement, the Lease, and all other Lessee
Agreements, certified as of the Closing Date by its corporate secretary or
assistant secretary as being in full force and effect without modification or
amendment, and (iii) signature and incumbency certificates of its officers
executing this Agreement, the Lease, and all other Lessee Agreements.
(f) The Owner Trustee shall deliver or cause to be delivered to the
Holders, the Lenders and the Administrative Agent the following, each unless
otherwise noted dated the Closing Date, (i) a good standing certificate from the
Office of the Comptroller of the Currency dated a recent date prior to the
Closing Date (ii) a certified copy of its articles of association,
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bylaws and the resolutions of its Board of Directors approving and authorizing
the execution, delivery and performance of the Operative Agreements to which it
is a party, certified as of the Closing Date by an authorized officer as being
in full force and effect without modification or amendment, and (iii) signature
and incumbency certificates of its officers executing the Operative Agreements
to which it is a party.
(g) No action or proceeding shall have been instituted nor shall
governmental action be threatened before any court or Governmental Authority,
nor shall any order, judgment or decree have been issued or proposed to be
issued by any court or Governmental Authority at the time of the Closing Date,
to set aside, restrain, enjoin or prevent the completion and consummation of
this Agreement or the transactions contemplated hereby.
(h) All approvals and consents of any trustees or holders of any
indebtedness or obligations of the Lessee which are required to be obtained on
or prior to the Closing Date in connection with the transactions contemplated by
the Operative Agreements, shall have been duly obtained and be in full force and
effect.
(i) All actions, if any, required to have been taken by any Governmental
Authority on or prior to the Closing Date in connection with the transactions
contemplated by the Operative Agreements shall have been taken by such
Governmental Authority, and all orders, permits, waivers, exemptions,
authorizations and approvals of such entities required to be in effect on or
prior to the Closing Date in connection with the transactions contemplated by
this Agreement shall have been issued, and all such orders, permits, waivers,
exemptions, authorizations and approvals shall be in full force and effect, on
the Closing Date.
(j) The Administrative Agent shall have received evidence satisfactory to
it that the aggregate amount of all Fees due and payable on the Closing Date
have been paid.
(k) The Owner Trustee and the Administrative Agent shall have received such
other documents, appraisals, certificates, financing statements and other items
as any such parties may reasonably require.
4.2 Conditions Precedent to the Obligations of the Parties other than the
Lessee on each Commencement Date.
The obligation of each of the parties hereto (other than the Lessee) to
comply with its obligations under Article 2 and to participate in the
transactions contemplated hereby on each Commencement Date shall be subject to
satisfaction of the following conditions (and, to the extent such conditions
precedent require the delivery of any agreement, document, instrument, opinion
or any other item, such shall be in form and substance reasonably satisfactory
to the Owner Trustee and the Administrative Agent) on or prior to each such
Commencement Date, except that (i) the obligation of any such party shall not be
subject to such party's own performance or compliance and (ii) the conditions
specified below as being only for the benefit of
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a specified party or parties need be fulfilled only to the satisfaction of, or
waived by, such party or parties:
(a) Each of the Operative Agreements to be delivered as of such
Commencement Date shall have been duly authorized, executed and delivered by the
parties thereto, shall be in full force and effect and executed counterparts of
each shall have been delivered to the Owner Trustee, the Holders, the Lenders
and the Administrative Agent or their counsel on or before such Commencement
Date, and no event shall have occurred and be continuing that constitutes a
Lease Default or a Lease Event of Default.
(b) (i) The Lessee shall have caused the original chattel paper counterpart
of the Lease Schedule covering the Units delivered on such Commencement Date to
be duly delivered to the Administrative Agent (and the Units described on such
Lease Schedule shall be identical to the Units described in the applicable
Certificate of Delivery and Acceptance) and (ii) Uniform Commercial Code
financing statements and other documents pertaining to Lien perfection shall
have been filed in such places as the Owner Trustee or the Administrative Agent
may request for (A) the protection of the Owner Trustee's title to the Equipment
and interest in the Lease or the Lien of the Administrative Agent in the
Collateral and (B) the termination of any existing Liens against the Collateral.
(c) The Owner Trustee, the Holders, the Lenders and the Administrative
Agent shall have received Lien searches regarding the Lessee (including without
limitation Uniform Commercial Code searches and similar searches in foreign
jurisdictions), Tax Lien searches and judgment Lien searches in such
jurisdictions as such parties shall determine based on the location of the
Equipment and all such Liens which would materially impair the rights of such
parties (as determined in good faith by such parties) shall have been removed at
such time or otherwise handled in a manner satisfactory to all such parties.
(d) The Owner Trustee, the Holders, the Lenders and the Administrative
Agent shall have received (1) landlord consents and waivers, in form and
substance satisfactory to the Majority In Interest, from the landlords at all
real property locations leased by Lessee where Equipment is, or as of such
applicable Commencement Date will be, located to the extent that Lessee is able
to obtain such landlord consents and waivers after using its reasonable efforts
to do so and (2) commencing on the September 30, 1998 Commencement Date and
continuing on each Commencement Date thereafter, a certificate from a
Responsible Officer of the Lessee to the effect that after giving effect to the
purchase of the Units on such Commencement Date, at least seventy percent (70%)
of the Equipment, based on the Equipment Cost of all Equipment on such
Commencement Date, will be located at locations either owned by Lessee or leased
by Lessee for which a landlord consent and waiver, in form and substance
satisfactory to the Majority In Interest, has been delivered.
(e) The Lessee shall have delivered the Certificate of Delivery and
Acceptance and all related originals invoices for such Commencement Date to the
Administrative Agent (on
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behalf of the Owner Trustee, the Holders and the Lenders) in accordance with the
provisions of Section 2.3(b).
(f) The representations and warranties of the parties hereto contained in
Section 3 shall be true and correct with the same effect as though made on and
as of said date, and the execution and delivery of the applicable Lease Schedule
shall constitute a certification by each party giving such representations and
warranties of the accuracy of the representations and the warranties in Section
3 as of such Commencement Date.
(g) After giving effect to the transactions contemplated hereby, the Owner
Trustee shall have good and marketable legal title to each Unit of Equipment to
be delivered on such Commencement Date, free and clear of all Liens other than
Permitted Liens, and the execution and delivery of the Lease Schedule by the
Lessee to which such Unit is applicable shall be deemed a certification by the
Lessee of the same.
(h) If not previously furnished, the Additionally Insured Parties shall
have received certificates of insurance signed by the insurer or by an
independent insurance broker evidencing insurance coverages required pursuant to
Section 12 of the Lease.
(i) No action or proceeding shall have been instituted nor shall
governmental action be threatened before any court or Governmental Authority,
nor shall any order, judgment or decree have been issued or proposed to be
issued by any court or Governmental Authority at the time of the applicable
Commencement Date, to set aside, restrain, enjoin or prevent the completion and
consummation of this Agreement or the transactions contemplated hereby.
(j) The Administrative Agent (on behalf of the other parties to this
Agreement) shall have received (or shall have waived receipt of) the Certificate
of Delivery and Acceptance applicable to such Commencement Date required
pursuant to Section 2.3.
(k) No change shall have occurred after the date of the execution and
delivery of this Agreement in applicable Law or interpretations thereof by
regulatory authorities that, in the opinion of either the Owner Trustee, any
Holder, any Lender, the Administrative Agent or their counsel, would make it
illegal for such party to enter into any transaction contemplated by the
Operative Agreements.
(l) Each Holder shall have made available its respective portion of the
Aggregate Holder Funded Amount in the amount specified in, and otherwise in
accordance with, Sections 2.2(a) and 2.3.
(m) All approvals and consents of any trustees or holders of any
indebtedness or obligations of the Lessee which are required to be obtained
prior to such Commencement Date in connection with the transactions contemplated
by the Operative Agreements shall have been duly obtained and be in full force
and effect.
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(n) All actions, if any, required to have been taken by any Governmental
Authority on or prior to such Commencement Date in connection with the
transactions contemplated by the Operative Agreements on such Commencement Date
shall have been taken by such Governmental Authority, and all orders, permits,
waivers, exemptions, authorizations and approvals of such entities required to
be in effect on such Commencement Date in connection with the transactions
contemplated by this Agreement on such Commencement Date shall have been issued,
and all such orders, permits, waivers, exemptions, authorizations and approvals
shall be in full force and effect, on such Commencement Date.
(o) A Certificate of Acceptance with respect to the applicable Units
delivered to the Lessee, on behalf of the Owner Trustee on such Commencement
Date shall have been duly executed and delivered by the Lessee, as the
authorized representative of the Owner Trustee.
(p) The Owner Trustee and the Administrative Agent shall have received such
other documents, appraisals, certificates, financing statements, opinions of
counsel, and other items as any such parties may reasonably require.
4.3 Conditions Precedent to the Obligation of the Lessee on the Closing Date.
The obligations of the Lessee to enter into this Agreement and the other
Operative Agreements to which the Lessee is a party is subject to the following
conditions as of the Closing Date:
(a) Each of the Operative Agreements to be delivered as of such date shall
be satisfactory in form and substance to the Lessee and shall have been duly
authorized, executed and delivered by the respective party or parties thereto
(other than the Lessee), and an executed counterpart of each thereof shall have
been delivered to the Lessee or its counsel (except that the executed
Certificates shall be delivered only to the Holders and executed Notes shall be
delivered only to the Lenders).
(b) The representations and warranties of the Owner Trustee contained in
Section 3 shall be true and correct in all material respects as of the Closing
Date as though made on and as of such date, and the execution and delivery of
this Agreement shall constitute a certification by the Owner Trustee as to the
accuracy of the representations and warranties in Section 3 as of the Closing
Date.
(c) The Lessee shall have received the opinion of counsel, in form and
substance reasonably satisfactory to the Lessee, referred to in Section
4.l(d)(ii).
(d) The Notes shall have been duly issued and delivered by the Owner
Trustee to the Lenders, and the Certificate shall have been duly issued and
delivered by the Owner Trustee to the Holders, each dated the Closing Date.
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(e) The Owner Trustee shall deliver or cause to be delivered to the Lessee
the following, each unless otherwise noted dated the Closing Date and in form
and substance satisfactory to the Lessee, (i) a good standing certificate from
the Office of the Comptroller of the Currency dated a recent date prior to the
Closing Date, (ii) a certified copy of its articles of association, bylaws and
the resolutions of its Board of Directors approving and authorizing the
execution, delivery and performance of the Operative Agreements to which it is a
party, certified as of the Closing Date by an authorized officer as being in
full force and effect without modification or amendment, and (iii) signature and
incumbency certificates of its officers executing the Operative Agreements to
which it is a party.
(f) No change shall have occurred after the date of the execution and
delivery of this Agreement in applicable Law or interpretations thereof by
regulatory authorities that, in the opinion of either the Lessee or its counsel,
would make it illegal for the Lessee to enter into any transaction contemplated
by the Operative Agreements.
(g) All actions, if any, required to have been taken by any Governmental
Authority on or prior to the Closing Date in connection with the transactions
contemplated by the Operative Agreements on the Closing Date shall have been
taken by any such Governmental Authority, and all orders, permits, waivers,
exemptions, authorizations and approvals of such entities required to be in
effect on the Closing Date in connection with the transactions contemplated by
the Operative Agreements on the Closing Date shall have been issued, and all
such orders, permits, waivers, exemptions, authorizations and approvals shall be
in full force and effect, on the Closing Date.
4.4 Conditions Precedent to the Obligations of the Lessee on each
Commencement Date.
The obligation of the Lessee to participate in the transactions
contemplated hereby on each Commencement Date shall be subject to satisfaction
of the following conditions (and, to the extent such conditions precedent
require the delivery of any agreement, document, instrument, opinion or any
other item, such shall be in form and substance reasonably satisfactory to the
Lessee) on or prior to such Commencement Date, except that (i) the obligation of
the Lessee shall not be subject to the Lessee's own performance or compliance
and (ii) the conditions specified below as being only for the benefit of a
specified party or parties need be fulfilled only to the satisfaction of, or
waived by, such party or parties:
(a) Each of the Operative Agreements to be delivered as of such date shall
be reasonably satisfactory in form and substance to the Lessee and shall have
been duly authorized, executed and delivered by the respective party or parties
thereto (other than the Lessee), and an executed counterpart of each thereof
shall have been delivered to the Lessee or its counsel.
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(b) The representations and warranties of the Owner Trustee contained in
Section 3 shall be true and correct with the same effect as though made on and
as of said date, and the execution and delivery of the applicable Lease Schedule
shall constitute a certification by the Owner Trustee as to the accuracy of the
representations and warranties in Section 3 as of such Commencement Date.
(c) No action or proceeding shall have been instituted nor shall
governmental action be threatened before any court or Governmental Authority,
nor shall any order, judgment or decree have been issued or proposed to be
issued by any court or Governmental Authority at the time of such Commencement
Date, to set aside, restrain, enjoin or prevent the completion and consummation
of this Agreement or the Lease or the transactions contemplated hereby or
thereby.
(d) The Holders shall have made available the Aggregate Holder Funded
Amount in the amount specified in, and otherwise in accordance with, Sections
2.2(a) and 2.3.
(e) The Lenders shall have made available the Aggregate Lender Funded
Amount in the amount specified in, and otherwise in accordance with, Sections
2.2(b) and 2.3.
(f) After giving effect to the transactions contemplated hereby, the Owner
Trustee shall have good and marketable legal title to each Unit of Equipment to
be delivered on such Commencement Date, free and clear of all Liens, except
Lessor Liens and Permitted Liens.
(g) No change shall have occurred after the date of the execution and
delivery of this Agreement in applicable Law or interpretations thereof by
regulatory authorities that, in the opinion of either the Lessee or its counsel,
would make it illegal for the Lessee to enter into any transaction contemplated
by the Operative Agreements.
(h) All actions, if any, required to have been taken by any Governmental
Authority on or prior to such Commencement Date in connection with the
transactions contemplated by the Operative Agreements on such Commencement Date
shall have been taken by any such Governmental Authority and all orders,
permits, waivers, exemptions, authorizations and approvals of such entities
required to be in effect on such Commencement Date in connection with the
transactions contemplated by the Operative Agreements on such Commencement Date
shall have been issued, and all such orders, permits, waivers, exemptions,
authorizations and approvals shall be in full force and effect, on such
Commencement Date.
SECTION 5. COVENANTS OF THE LESSEE
5.1 Information.
The Lessee will deliver to each of the Holders and Lenders:
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(a) as soon as available and in any event within ninety (90) days after the
end of each Fiscal Year, a consolidated balance sheet of the Lessee and its
Consolidated Subsidiaries as of the end of such Fiscal Year and the related
consolidated statements of income, shareholders' equity and cash flows for such
Fiscal Year, setting forth in each case in comparative form the figures for the
previous fiscal year, all audited and reported on by independent public
accountants of nationally recognized standing, with such report to be free of
any material exceptions and qualifications; provided that, the information
required by this paragraph may be satisfied by delivery of information pursuant
to Section 5.1(e) or Section 5.1(f);
(b) As soon as available and in any event within fifty (50) days after the
end of each of the first three (3) Fiscal Quarters of each Fiscal Year, a
consolidated balance sheet of the Lessee and its Consolidated Subsidiaries as of
the end of such Fiscal Quarter and the related statement of income and statement
of cash flows for such quarter and for the portion of the Fiscal Year ended at
the end of such quarter, setting forth in each case in comparative form the
figures for the corresponding quarter and the corresponding portion of the
previous Fiscal Year, all certified (subject to normal year-end adjustments) as
to fairness of presentation, GAAP and consistency by the chief financial officer
of the Lessee; provided, that the information required by this paragraph may be
satisfied by delivery of information pursuant to Section 5.1(e) or Section
5.1(f);
(c) Simultaneously with the delivery of each set of financial statements
referred to in Sections 5.1(a) and 5.1(b), a certificate, substantially in the
form of Attachment B (a "Compliance Certificate"), of the chief financial
officer of the Lessee (i) setting forth in reasonable detail the calculations
required to establish whether the Lessee was in compliance with the requirements
of Sections 5.3, 5.4, 5.5, 5.6 and 5.11 on the date of such financial statements
and (ii) stating whether any Lease Default exists on the date of such
certificate and, if any Lease Default then exists, setting forth the details
thereof and the action which the Lessee is taking or proposes to take with
respect thereto;
(d) Promptly (and, in any event, within five (5) Business Days) after the
Lessee becomes aware of the occurrence of any Lease Default, a certificate of
the chief financial officer of the Lessee setting forth the details thereof and
the action which the Lessee is taking or pro poses to take with respect thereto;
(e) Promptly upon the mailing thereof to the shareholders of the Lessee
generally, copies of all financial statements, reports and proxy statements so
mailed;
(f) Promptly upon the filing thereof, copies of all registration statements
and annual, quarterly or monthly reports which the Lessee shall have filed with
the Securities and Exchange Commission;
(g) If and when any member of the Controlled Group (i) gives or is required
to give notice to the PBGC of any reportable event (as defined in Section 4043
of ERISA) with
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respect to any Plan which might constitute grounds for a termination of such
Plan under Title IV of ERISA, or knows that the plan administrator of any Plan
has given or is required to give notice of any such reportable event, a copy of
the notice of such reportable event given or required to be given to the PBGC;
(ii) receives notice of complete or partial withdrawal liability under Title IV
of ERISA, a copy of such notice; or (iii) receives notice from the PBGC under
Title IV of ERISA of an intent to terminate or appoint a trustee to administer
any Plan, a copy of such notice; and
(h) From time to time such additional information regarding the financial
position or business of the Lessee and its Subsidiaries as the Administrative
Agent, at the request of any Holder or Lender, may reasonably request.
5.2 Inspection of Property, Books and Records.
The Lessee will keep, and require each Subsidiary to keep, proper books of
record and account in which full, true and correct entries in conformity with
GAAP (or, in the case of any non-domestic Subsidiary, such other accounting
standards, rules, regulations and practices applicable to businesses operating
in the locality in which each such Person operates); and permit, and cause each
Subsidiary to permit, representatives of any Holder or Lender, at such Person's
expense prior to the occurrence of a Lease Default and at the Lessee's expense
after the occurrence and during the continuation of a Lease Default to visit and
inspect any of their respective properties, to examine and make abstracts from
any of their respective books and records and to discuss their respective
affairs, finances and accounts with their respective officers, employees and
independent public accountants. The Lessee agrees to cooperate and assist in
such visits and inspections in each case at such reasonable times and as often
as may reasonably be desired.
5.3 Adjusted Funded Debt/Adjusted Capitalization Ratio.
The Adjusted Funded Debt/Adjusted Capitalization Ratio will not at any time
exceed 0.65:1.00.
5.4 Minimum Stockholder's Equity.
Stockholders' Equity will at no time be less than the sum of (i)
$180,000,000, as of the Fiscal Quarter ended closest to December 31, 1996 (the
"Base Fiscal Quarter"), plus (ii) fifty percent (50%) of Consolidated Net Income
(if positive) for each Fiscal Quarter subsequent to the Base Fiscal Quarter;
plus, without duplication, (iii) seventy-five percent (75%) of any net proceeds
received by Lessee from any offering of equity securities (other than Redeemable
Preferred Stock) by Lessee subsequent to February 27, 1996; plus, without
duplication, (iv) seventy-five percent (75%) of any net proceeds received by
Lessee from any conversion of debt into equity subsequent to February 27, 1996;
plus, without duplication, (v) seventy-five percent (75%) of any adjustment to
equity due to any pooling of interests occurring subsequent to December 31,
1996; plus, without duplication, (vi) seventy-five percent (75%) of any increase
in
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Stockholders' Equity resulting from the issuance or exchange of any equity
securities in furtherance of any acquisition constituting a permitted investment
under Section 5.11.
5.5 Fixed Charge Coverage Ratio.
Lessee's Fixed Charge Coverage Ratio, measured on a rolling four (4) Fiscal
Quarters' basis as of the end of each Fiscal Quarter, commencing with the Fiscal
Quarter ended closest to September 30, 1997, shall be not less than 2:1.
5.6 Total Funded Debt/Cash Flow Coverage Ratio.
The ratio which (i) the Total Funded Debt of the Lessee and its
Consolidated Subsidiaries at the end of any Fiscal Quarter, commencing with the
Fiscal Quarter ended closest to September 30, 1997, bears to (ii) the Cash Flow
of the Lessee and its Consolidated Subsidiaries, measured on a rolling four (4)
Fiscal Quarters' basis as of the end of such Fiscal Quarter, commencing with the
Fiscal Quarter ended closest to September 30, 1997, shall be less than
4.50:1.00.
5.7 Negative Pledge.
The Lessee will not, nor will the Lessee permit any Subsidiary to, create,
assume or suffer to exist any Lien on any asset now owned or hereafter acquired
by it, except: (i) those Liens, if any, described on Schedule 5.7, concerning
existing debt of the Lessee, to be set forth and described more particularly
therein, together with any Lien arising out of the refinancing, extension,
renewal or refunding of any debt secured by any such Lien, provided that such
debt is not secured by any additional assets, and the amount of such debt
secured by any such Lien is not increased; (ii) Liens incidental to the conduct
of its business or the ownership of its Properties which (A) do not secure debt
and (B) do not in the aggregate materially detract from the value of its
Properties or materially impair the use thereof or the operation of its
business, including, without limitation, easements, rights of way, restrictive
covenants, zoning and other similar restrictions on real property; (iii)
materialmen's mechanics', warehousemen's carriers', landlords' and other similar
statutory Liens which secure debt or other obligations that are not past due,
or, if past due are being contested in good faith by the Lessee or the
appropriate Subsidiary by appropriate proceedings; (iv) Liens for taxes not
delinquent or taxes being contested in good faith and by appropriate
proceedings; (v) pledges or deposits in connection with worker's compen sation,
unemployment insurance and other social security legislation; (vi) deposits to
secure performance of bids, trade contracts, leases, statutory obligations (to
the extent not excepted elsewhere herein); (vii) grants of security and rights
of setoff in accounts, securities and other properties held at banks or
financial institutions to secure the payment or reimbursement under overdraft,
letter of credit, acceptance and other credit facilities; (viii) rights of
setoff, banker's liens and other similar rights arising solely by operation of
law; (ix) Purchase Money Liens; (x) Liens on any Properties acquired by Lessee
or any Subsidiary subsequent to the Closing Date, to the extent that (A) such
Liens are existing at the time of acquisition, (B) the debt secured thereby is
not secured by any other Properties of Lessee or such Subsidiary except the
acquired
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Properties, (C) the amount of such debt so secured thereby is not increased at
or subsequent to the acquisition and (D) the total amount of all such debt
secured by all such acquired Properties does not exceed at any time, in
aggregate amount, fifteen percent (15%) of Tangible Net Worth, together with any
Lien arising out of the refinancing, extension, renewal or refunding of any debt
secured by any such Lien described in this clause (x), provided that such debt
is not secured by any additional assets, and the amount of such debt secured by
any such Lien is not increased; and (xi) capital leases made in the ordinary
course of business (but excluding, however, sale-leaseback transactions in any
event) in which there is no provision for title to the leased Property to pass
to the Lessee or such Subsidiary at the expiration of the lease term or as to
which no bargain purchase option exists.
5.8 Maintenance of Existence.
Except as permitted in Section 5.10, the Lessee shall, and shall cause each
Subsidiary to, maintain its corporate existence and carry on its business in
substantially the same manner and in substantially the same fields as such
business is now carried on and maintained. Without limiting the generality of
the foregoing, the Lessee shall, and shall cause each Subsidiary to, maintain at
all times in full force and effect all Franchise Rights necessary to the
ownership, operation and development of all franchised restaurant business
conducted, or contemplated to be conducted, by the Lessee and such Subsidiaries,
except with respect to Voluntary Store Closings.
5.9 Dissolution.
Neither the Lessee nor any of its Subsidiaries shall suffer or permit
dissolution or liq uidation either in whole or in part, except through corporate
reorganization to the extent per mitted by Section 5.10.
5.10 Consolidations, Mergers and Sales of Assets.
The Lessee will not, nor will it permit any Subsidiary to, consolidate or
merge with or into, or sell, lease or otherwise transfer all or any substantial
part of its assets to, any other Person, or discontinue or eliminate any
business line or segment, provided that, subject at all times to Section 5.11,
the Lessee or any Subsidiary may merge with another Person (which is not the
Lessee or such Subsidiary) if (i) such Person was organized under the laws of
the United States of America or one of its states (ii) the Lessee or such
Subsidiary (as the case may be) is the corpora tion surviving such merger and
(iii) immediately after giving effect to such merger, no Lease De fault shall
have occurred and be continuing; and, provided, further, that any Subsidiaries
of the Lessee may (i) merge or consolidate with each other or with the Lessee
(so long as the Lessee is the corporation surviving such merger), or (ii) sell
assets to each other or to the Lessee.
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5.11 Investments.
The Lessee will not make (nor will the Lessee permit any Subsidiary to
make) any invest ment in any Person or Property (which term "investment," for
purposes hereof, shall mean and in clude, without limitation, the acquisition of
any property, the issuance, acquisition or exchange of any capital stock, debt
or other obligations or security to, from or with any Person, and the making of
any loan, advance, extension of credit, credit accommodation, Guarantee or
capital contribution to or on behalf of any Person), provided, however, that,
notwithstanding the foregoing, the Lessee (or any Subsidiary) may, from time to
time, undertake the following, without the necessity of obtaining the prior
written consent of the Majority In Interest thereto:
(a) Current Assets. Acquire current assets for use in, or arising from, the
sale of goods or services in the ordinary course of its business (including, for
this purpose, but without limitation, credit card receivables);
(b) Capital Expenditures. Make capital expenditures in the ordinary course
of its business;
(c) Franchise Fees. Pay franchisee fees and royalties to its franchisors in
the ordinary course of its business;
(d) Escrow Deposits. Make or maintain escrow deposits for the payment of
taxes, rents, utilities, insurance or like matters in the ordinary course of its
business;
(e) Bank Accounts. Make and maintain deposits of cash in demand deposit
accounts of banks in the ordinary course of its business, and make endorsements
of checks, drafts or other instruments in connection therewith;
(f) Surplus Cash. Consistent at all times with the Lessee's internal
Statement of Investment Policy, invest surplus cash in (A) obligations of, or
guaranteed by, the United States of America or any agency thereof, (B)
short-term certificates of deposit issued by, and time deposits with, any Bank
or any other financial institution domiciled in the United States of America
with assets of at least $500,000,000, (C) short-term commercial paper rated at
least "A1" by Standard & Poors or "P1" by Moody's, and (D) fixed or adjustable
rate corporate debt securities with a credit rating of at least double A (Aa/AA)
by either Moody's or Standard & Poors, provided that any fixed rate debt
securities have a maturity of one year or less;
(g) Subsidiaries. Make investments in those Consolidated Subsidiaries of
the Lessee which are wholly-owned, directly or indirectly, by the Lessee, in the
ordinary course of, and pursuant to the reasonable requirements of, the Lessee's
and such Subsidiaries' respective businesses, provided that the aggregate amount
of such investments which may be outstanding at any one time hereafter, as to
all such Subsidiaries, shall not exceed, in any event, (A) ten percent (10%) of
Lessee's consolidated total assets at any time prior to December 30, 1997, (B)
seven and one-half percent (7 1/2%) of Lessee's consolidated total assets on or
at any time after December 31, 1997, but prior to June 30, 1998, and (C) five
percent (5%) of Lessee's consolidated total
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assets on or after June 30, 1998; it being understood and agreed that (i) there
shall be excluded from such calculation any investment deemed made by the Lessee
in DF&R Restaurants, Inc., a Texas corporation which is a wholly-owned,
Consolidated Subsidiary of the Lessee, pursuant to the accounting for the prior
acquisition of such corporation by the Lessee as a pooling of interests; (ii)
there shall be deducted in any event from the amount of investments in
Subsidiaries which may be made pursuant to this clause (g) the aggregate amount
of Capitalized Lease Obligations of all Subsidiaries which are at any time
outstanding; and (iii) the provisions of this clause (g) henceforth shall be the
exclusive means by which the Lessee (or any Subsidiary) may make investments in
any Subsidiaries (whether or not wholly-owned Subsidiaries) and shall override
any other provisions of this Section 5.11 (including, particularly, clauses (j),
(k) and (l) below) which may be construed otherwise to permit such investments.
(h) Travel Advances. Make travel and similar advances to employees from
time to time in the ordinary course of business;
(i) Special Life Insurance Program. The Lessee may invest up to$850,000 per
Fiscal Year in the making of annual premiums payable on the split dollar joint
survivor life insurance program implemented, or to be implemented, covering the
lives of Tom E. DuPree, Jr. and his spouse Anne DuPree, with an initial death
benefit of $50,000,000, provided, however, that (i) such investments are made
over a period not to exceed ten (10) Fiscal Years and (ii) the Lessee maintains
at all times during the effective period of the program a security interest in
policy proceeds and cash values of policies issued as part of the program equal
in amount to not less than its then cumulative premium investments;
(j) Applebee's Franchisees. Make investments in franchisees of "Applebee's"
restaurants, but no investment in Applebee's International, Inc. (or any Person
which subsequent hereto shall become the franchisor of "Applebee's" restaurants)
shall be permitted to be made subsequent to the Closing Date, notwithstanding
this clause (j) or any other provision of this Sec tion, except with the prior
written consent of the Majority In Interest;
(k) Other Restaurant Concepts. Make investments in other restaurant
concepts, besides "Applebee's," so long as the total amount of each such
investment (either considered individually or as part of a series of related,
concurrent investments), does not exceed ten percent (10%) of Lessee's
consolidated total assets immediately before such investment (or the last in a
series of related, concurrent investments) is made;
(l) Other Investments Generally. Make other investments, not described in
clauses (a) through (k) above, provided that all such investments, in the
aggregate, do not exceed at any one time ten percent (10%) of Stockholders'
Equity.
The Lessee shall notify the Administrative Agent from time to time, but not
less frequently than quarterly, or at any time at the Administrative Agent's
request, of the nature and amount of any
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investments made pursuant to clauses (j), (k) and (l) hereof which, individually
or in the aggregate, exceed $100,000.
Notwithstanding anything in this Section 5.11 to the contrary, no Subsidiary
shall be required to comply with, and Lessee shall not be required to cause any
Subsidiary to comply with, any part of clause (g), (j), (k) and (l) of this
Section 5.11 to the extent it would cause a violation of any term of the
Lessee's $125,000,000 9 3/4% Senior Notes due 2006 or the Prospectus Supplement
dated May 23, 1996 related thereto.
5.12 Compliance with Laws; Payment of Taxes.
The Lessee will, and will cause each of its Subsidiaries and each member of
the Controlled Group to, comply in all material respects with applicable Laws
(including but not limited to ERISA) and similar requirements of Governmental
Authorities (including but not limited to PBGC), except where the necessity of
such compliance is being contested in good faith through appropriate
proceedings. The Lessee will, and will cause each of its Subsidiaries to, pay
promptly when due all taxes, assessments governmental charges, claims for labor,
supplies, rent and other obligations which, if unpaid, might become a Lien
against the Property of the Lessee or any Subsidiary, except liabilities being
contested in good faith and against which, if requested by the Administrative
Agent, the Lessee will set up reserves in accordance with GAAP.
5.13 Maintenance of Property.
The Lessee shall, and shall cause each Subsidiary to, maintain all of its
Properties in good condition, repair and working order, ordinary wear and tear
excepted.
5.14 Insurance.
The Lessee will maintain, and will cause each of its Subsidiaries to
maintain (either in the name of the Lessee or in such Subsidiary's own name),
with financially sound and reputable insurance companies, insurance on, and in
respect of the ownership and operation of, its Properties in at least such
amounts and against at least such risks as are usually insured against in the
same general area by companies of established repute engaged in the same or
similar business.
5.15 Change in Fiscal Year.
The Lessee will not change its Fiscal Year without the consent of the
Majority In Interest.
5.16 Environmental Notices.
The Lessee shall furnish to the Administrative Agent, promptly after the
Lessee becomes aware thereof, written notice of all Environmental Liabilities,
pending or threatened Environmental Proceedings, Environmental Notices,
Environmental Judgments and Orders, and
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Environmental Releases, at, on, in, under or in any way affecting the Properties
or any adjacent property and all facts, events, or conditions that could
reasonably be expected to lead to any of the foregoing.
5.17 Environmental Matters.
The Lessee will not, and will not permit any Third Party to, use, produce,
manufacture, process, treat, recycle, generate, store, dispose of, manage at, or
otherwise handled or ship or transport to or from the Properties any Hazardous
Materials except for Hazardous Materials such as cleaning solvents, pesticides
and other similar materials used, produced, manufactured, processed, treated,
recycled, generated, stored, disposed, managed, or otherwise handled in the
ordinary course of business in compliance with all applicable Environmental
Requirements.
5.18 Environmental Releases.
The Lessee agrees that upon the occurrence of an Environmental Release
(except for any Environmental Release which (x) occurred in compliance with all
Environmental Requirements and (y) could not reasonably be expected to have or
cause a Material Adverse Effect), it will act immediately to investigate the
extent of, and to take appropriate remedial action to eliminate, such
Environmental Release, whether or not ordered or otherwise directed to do so by
any Environmental Authority.
5.19 Subsidiary Debt.
Except solely to the extent expressly permitted in clause (g) of Section
5.11 of this Agreement, the Lessee will not permit any Consolidated Subsidiary
of the Lessee which is a wholly owned Subsidiary, directly or indirectly, of the
Lessee, to create, incur or suffer to exist any of the following: (i)
indebtedness for borrowed funds; (ii) Capitalized Lease Obligations, provided,
however, that DF&R Restaurants, Inc. and its Subsidiaries may incur Capitalized
Lease Obligations in an aggregate amount not to exceed $10,000,000 at any one
time outstanding; (iii) Guarantees; (iv) debts, liabilities or obligations to
any seller incurred to pay the deferred purchase price of property or services
having a deferred purchase price of $1,000,000 or more, excepting, in any event,
trade accounts payable arising in the ordinary course of business and purchase
options prior to their exercise; and (v) debts, liabilities or obligations in
respect of Synthetic Leases.
5.20 Change of Chief Executive Office.
No less than 30 days prior to the date upon which the Lessee shall change
its chief executive office (as such term is defined in Article 9 of the Uniform
Commercial Code as in effect in the State of Georgia), principal place of
business or the place where the Lessee shall retain its records concerning the
Equipment and all its interests in, to and under all documents relating to the
Trust Estate from Hancock at Washington, Madison, Georgia 30650, then in any
such case
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the Lessee shall notify the Administrative Agent (on behalf of the Owner
Trustee, the Holders and the Lenders) of the same and of the need to make
additional Uniform Commercial Code filing with respect thereto.
5.21 Lien Searches.
Within 30 days after the Closing Date and within 30 days after the last
Commencement Date, the Administrative Agent (on behalf of the Owner Trustee, the
Holders and the Lenders) shall have received Lien searches regarding the Lessee
and the Equipment (including, without limitation, Uniform Commercial Code
searches and similar searches in foreign jurisdictions, Tax Lien searches and
judgment Lien searches) in such jurisdictions as such parties shall determine in
their reasonable discretion, and Lessee shall cause all such Liens which would
materially impair the rights of such parties (as reasonably determined by such
parties) to be removed at such time or otherwise handled in a manner
satisfactory to all such parties.
5.22 Classification of Equipment.
At all times during the Term, the Lessee shall cause all Equipment to be
personal property, not fixtures.
5.23 Lien Perfection Filings.
Regarding the Uniform Commercial Code financing statements and other
filings referenced in Section 4.2 of this Agreement relating to any Commencement
Date, the Lessee shall execute and deliver any and all such financing statements
and filings as the Administrative Agent may deem necessary or desirable promptly
and no later than five Business Days after receipt of such financing statements
and filings by the Administrative Agent . The Lessee also hereby authorizes the
Administrative Agent, for the benefit of itself, the Lenders and the Holders, to
file any such financing statements, filings or continuation statements without
the signature of the Lessee to the extent permitted by applicable law, and to
pay all reasonable fees and expenses in connection therewith.
5.24 Allocation of Equipment Cost among the States and Counties.
On each December 31 during the Term, the Lessee shall provide a certificate
to the Administrative Agent on behalf of the Owner Trustee, the Lenders and the
Holders certifying (a) any changes in the allocation of Equipment Cost among the
various States and counties therein referenced in each Certificate of Delivery
and Acceptance and (b) the Lessee shall have made all necessary and appropriate
payment of additional filing taxes and other like charges in connection with the
foregoing. The Lessee shall provide evidence of the same to the Administrative
Agent on each such date.
5.25 UCC Filing Amendments.
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The Administrative Agent (at the direction of the Majority In Interest but
at the cost and expense of the Lessee) shall have the option of electing to
amend the Uniform Commercial Code financing statements filed with respect to the
Equipment in a manner determined by the Administrative Agent in its reasonable
discretion (such amendments to be in form and substance satisfactory to the
Majority In Interest) in order to correct or supplement the description of the
property therein or any other information set forth therein. The Lessee hereby
agrees to execute any and all such amendments (as provided by the Administrative
Agent to the Lessee) and to promptly return the same to the Administrative
Agent.
SECTION 6. OTHER COVENANTS AND AGREEMENTS
6.1 Restrictions on Transfer.
(a) Subject to the provisos to this sentence, each of the Holders and
Lenders agrees that no such entity shall sell, transfer or assign (in whole or
in part) its right, title and interest in and to the Operative Agreements (or
any of them) without the prior written consent of the Lessee and the
Administrative Agent (which consent may not be unreasonably withheld or
delayed); provided, no such consent from Lessee shall be required subsequent to
the occurrence and during the continuance of a Lease Default or Lease Event of
Default; provided, further, that without the prior written consent of the Lessee
and the Administrative Agent (i) any Holder may sell, transfer or assign its
interest to an Affiliate of such Holder, to another Holder or to an Eligible
Assignee, and (ii) any Lender may sell, transfer or assign its interest to an
Affiliate of such Lender, to another Lender or to an Eligible Assignee. In
addition, (x) no Holder may sell, transfer or assign any such interest unless
(1) such sale, transfer or assignment is ratable as to all of such Holder's
interests in the Operative Agreements (including, without limitation, with
respect to its Certificate), and (2) the amount of the Holder Commitment
assigned by such Holder is at least $5,000,000 and increments thereof, unless
such Holder is selling, transferring or assigning one hundred percent (100%) of
its Holder Commitment, and (y) no Lender may sell, transfer or assign any such
interest unless (1) such sale, transfer or assignment is ratable as to all such
Lender's interests in the Operative Agreements (including, without limitation,
with respect to all Notes), (2) the amount of the Lender Commitment assigned by
such Lender is at least $5,000,000 and increments thereof, unless such Lender is
selling, transferring or assigning one hundred percent (100%) of its Lender
Commitment and (3) such Lender and the Person to whom such sale, transfer or
assignment is made shall execute and deliver to the Administrative Agent an
Assignment and Assumption Agreement in substantially the form of Attachment C
attached hereto (the "Assignment Agreement"). In addition, there shall be no
such sale, transfer or assignment of any Certificate or Note in violation of
applicable securities Laws, and Lessee shall have no obligation to pay any cost
or expense for the registration under applicable securities Laws of any
Certificate or Note.
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(b) Upon any such transfer, (i) except as the context otherwise requires,
the Person to whom such sale, transfer or assignment is made (a "Transferee")
shall be deemed a "Holder" or "Lender", as the case may be, and shall enjoy the
rights and privileges and perform the obligations of the transferring party (the
"Transferor") to the extent of the interest transferred hereunder and under each
other Operative Agreement to which the Transferor is a party, and, except as the
context otherwise requires, each reference in this Agreement and each other
Operative Agreement to the "Holders" or the "Lenders", as the case may be, shall
thereafter be deemed to include such Transferee for all purposes to the extent
of the interest transferred, (ii) the Transferor shall continue to be entitled
to all the benefits and rights, including without limitation any right to
indemnification, rights to reimbursement for increased costs or similar rights,
hereunder and under each other Operative Agreement to which the Transferor was a
party or by which it was bound except to the extent otherwise agreed in writing;
provided, subsequent to any such sale, transfer or assignment from a Transferor
to a Transferee, with respect to any judgment award for which the Lessee has an
indemnity obligation under the Operative Agreements, the Lessee shall not have
an obligation to pay such judgment award more than once for the benefit of such
Transferor and Transferee; provided, further, the foregoing proviso shall not
diminish the obligations of the Lessee under the Operative Agreements to
indemnify each Transferor and Transferee in all matters regarding fees, costs
and expenses associated with litigation and (iii) the Transferor shall be
released from all obligations hereunder and under each other Operative Agreement
to which the Transferor is a party or by which the Transferor is bound to the
extent such obligations are expressly assumed by a Transferee; provided,
further, that in no event shall any such sale, transfer or assignment waive or
release the Transferor from any liability on account of any breach existing
immediately prior to such sale, transfer or assignment of any of its
representations, warranties, covenants or obligations set forth in the Operative
Agreements or for any gross negligence or fraudulent or willful misconduct. The
restrictions set forth in this Section 6.1 shall not apply with respect to the
sale, transfer or assignment of the Equipment which is to be consummated on or
after the expiration or the termination of the Lease or after the occurrence and
during the continuation of a Lease Event of Default. In connection with any such
sale, transfer or assignment of a Lender's interest, the Transferor or the
Transferee (as agreed between the parties) shall pay the Administrative Agent a
transfer fee of $2,500.
(c) The Lessee agrees that any Holder or Lender may, without the consent of
the Lessee, at any time sell to one or more Persons (each a "Participant")
participating interests in any Holders Advances owing to such Holder, any
Certificate of such Holder, such Holder's Holder Commitment hereunder or any
other interest of such Holder hereunder, in the case of any Holder, or
participating interests in any Loan Advances owing to such Lender, any Note held
by such Lender, such Lender's Lender Commitment hereunder or any other interest
of such Lender hereunder, in the case of any Lender. In the event of any such
sale by any Holder or Lender of a participating interest to a Participant, such
Holder's or such Lender's obligations, as the case may be, under this Agreement
shall remain unchanged, such Holder or such Lender, as the case may be, shall
remain solely responsible for the performance thereof, such Holder or such
Lender, as the case may be, shall remain the holder of any such Certificate or
Note, as the case may be, for all purposes under this Agreement, and the Lessee
and the Administrative Agent shall continue to
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deal solely and directly with such Holder or such Lender, as the case may be, in
connection with such Holder's or such Lender's, as the case may be, rights and
obligations under this Agreement. In no event shall any Holder that sells a
participation be obligated to the Participant to take or refrain from taking any
action hereunder except that such Holder may agree that it will not (except as
provided below), without the consent of the Participant, agree to (i) the change
of any date fixed for the payment of any Holder Advances or yield on the Holder
Advances, (ii) the change of the amounts of the Holder Advances or yield on
Holder Advances due on any date fixed for the payment thereof, (iii) the change
of the Holder Commitment or the amount of the Holder Advances, (iv) any change
in the rate at which the yield on the Holder Advances is computed from the rate
at which the Participant is entitled to receive yield in respect of such
participation, (v) the release or substitution of all or any substantial part of
the Trust Estate or (vi) the release of any Guarantee given to support payment
of the Holder Advances. In no event shall any Lender that sells a participation
be obligated to the Participant to take or refrain from taking any action
hereunder except that such Lender may agree that it will not (except as provided
below), without the consent of the Participant, agree to (i) the change of any
date fixed for the payment of principal of or interest on the Loans, (ii) the
change of principal, interest or fees due on any date fixed for the payment
thereof, (iii) the change of such Lender's Lender Commitment or the principal
amount of the Loans related thereto, (iv) any change in the rate at which
interest on the Loans or any commitment fee is payable from the rate at which
the Participant is entitled to receive interest or a commitment fee in respect
of such participation, (v) the release or substitu tion of all or any
substantial part of the Collateral or (vi) the release of any Guarantee given to
support payment of the Loans. Each Holder or Lender selling such a participating
interest to any other Person shall, within ten (10) Business Days of such sale,
provide the Lessee and the Administrative Agent with written notification
stating that such sale has occurred and identifying the Participant and the
interest purchased by such Participant. The Administrative Agent, the Owner
Trustee and the Lessee agree that each Participant shall be entitled to the
benefits of Article 8 with respect to its participation in the Holder Advances
or the Loans outstanding from time to time, but only to the extent that the
Holder or Lender which sold the relevant participation would have been entitled
thereto pursuant to the terms of this Agreement.
(d) Subject to the rights of the Lessee pursuant to Section 18.2(b) of the
Lease, the Lessee shall not sell, transfer or assign (in whole or in part) its
respective right, title and interest in and to the Equipment or its obligations
hereunder or the other Operative Agreements without the prior written consent of
each other party to this Agreement (which consent may be withheld in such
party's sole discretion).
6.2 Lessor's Liens Attributable to the Holders.
(a) Each Holder hereby covenants and agrees with and for the benefit of the
other parties to this Agreement that such Holder will not directly or indirectly
create, incur, assume or suffer to exist any Lessor's Liens on or against any
part of the Trust Estate or the Equipment attributable to it, and such Holder
agrees that it will, at its own cost and expense, take such action as may be
necessary to duly discharge and satisfy in full any such Lessor's Lien
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described above (by bonding or otherwise in a manner reasonably acceptable to
the Lessee and the Administrative Agent); provided, that such Holder may contest
any such Lessor's Lien in good faith by appropriate proceedings so long as such
proceedings do not involve any material danger of the sale, forfeiture or loss
of the Equipment or any interest therein and do not interfere with the use,
operation, or possession of the Equipment by the Lessee under the Lease or the
rights of the Lenders under the Loan Agreement or the payment of Rent.
(b) Each Holder agrees, severally and not jointly, to indemnify and hold
harmless the other parties to this Agreement from time to time from and against
any loss, cost, expense or damage which may be suffered by such party as a
result of the failure of such Holder to discharge and satisfy in full any
Lessor's Lien attributable to it and of the type identified in and when required
to be discharged and satisfied by it under Section 6.2(a).
6.3 Lessor's Liens Attributable to the Owner Trustee.
(a) The Owner Trustee in its individual capacity hereby unconditionally
agrees with and for the benefit of the other parties to this Agreement that the
Owner Trustee in its individual capacity will not directly or indirectly create,
incur, assume or suffer to exist any Lessor's Liens on or against any part of
the Trust Estate or the Equipment arising out of any act or omission of or claim
against the Owner Trustee in its individual capacity, and the Owner Trustee in
its individual capacity agrees that it will, at its own cost and expense, take
such action as may be necessary to duly discharge and satisfy in full any such
Lessor's Lien attributable to the Owner Trustee in its individual capacity (by
bonding or otherwise in a manner reasonably acceptable to the Lessee and
Lenders); provided, that the Owner Trustee may contest any such Lessor's Lien in
good faith by appropriate proceedings so long as such proceedings do not involve
any material danger of the sale, forfeiture or loss of the Equipment or any
interest therein and do not interfere with the use, operation, or possession of
the Equipment by the Lessee under the Lease or the rights of the Lenders under
the Loan Agreement or the payment of Rent.
(b) The Owner Trustee in its individual capacity agrees to indemnify and
hold harmless the other parties to this Agreement from and against any loss,
cost, expense or damage which may be suffered by such party as a result of the
failure of the Owner Trustee to discharge and satisfy any Lessor's Liens
attributable to it in its individual capacity and of the type identified in and
when required to be discharged and satisfied by it under Section 6.3(a).
6.4 Liens Created by the Lenders.
(a) Each Lender covenants and agrees with and for the benefit of the other
Parties to this Agreement that such Lender shall not cause or permit to exist
any Lien on or against any part of the Trust Estate or the Equipment
attributable to such Lender, except such Liens which are contemplated and
permitted by the Operative Agreements, and that such Lender will, at its own
cost and expense, promptly take such action as may be necessary duly to
discharge any such Lien; provided, that such Lender may contest any such Lien in
good faith by appropriate
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proceedings so long as such proceedings do not involve any material danger of
the sale, forfeiture or loss of the Equipment or any interest therein and do not
interfere with the use, operation, or possession of the Equipment by the Lessee
under the Lease or the rights of the Lenders under the Loan Agreement or the
payment of Rent.
(b) Each Lender agrees, severally and not jointly, to indemnify and hold
harmless the other parties to this Agreement from time to time from and against
any loss, cost, expense or damage which may be suffered by such party as a
result of the failure of such Lender to discharge and satisfy in full any Lien
attributable to it and of the type identified in and when required to be
discharged and satisfied by it under Section 6.4(a).
6.5 Liens Created by the Administrative Agent.
(a) The Administrative Agent covenants and agrees with and for the benefit
of the other parties to this Agreement that the Administrative Agent shall not
cause or permit to exist any Lien on or against any part of the Trust Estate or
the Equipment attributable to the Administrative Agent, except such Liens which
are contemplated and permitted by the Operative Agreements, and that the
Administrative Agent will, at its own cost and expense, promptly take such
action as may be necessary duly to discharge any such Lien.
(b) The Administrative Agent agrees to indemnify and hold harmless the
other parties to this Agreement from time to time from and against any loss,
cost, expense or damage which may be suffered by such party as a result of the
failure of the Administrative Agent to discharge and satisfy in full any Lien
attributable to it and of the type identified in and when required to be
discharged and satisfied by it under Section 6.5(a).
6.6 Covenants Restricting the Owner Trustee.
So long as any Loans, Notes, Holder Advances or Certificates remain
outstanding and have not been paid in full or otherwise discharged in accordance
with the terms of the Operative Agreements:
(a) The Owner Trustee shall not conduct, transact or otherwise engage in,
or commit to transact, conduct or otherwise engage in, any business or
operations other than the entry into, and exercise of rights and performance of
obligations in respect of, the Operative Agreements and other activities
incidental or related to the foregoing.
(b) The Owner Trustee shall not own, lease, manage or otherwise operate any
properties or assets other than in connection with the activities described in
Section 6.6(a), or incur, create, assume or suffer to exist any indebtedness or
other consensual liabilities or financial obligations other than as may be
incurred, created or assumed or as may exist in connection with the activities
described in Section 6.6(a).
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(c) The Owner Trustee shall not convey, sell, lease, assign, transfer or
otherwise dispose of any of its property, business or assets, including without
limitation its interest in the Trust Estate, whether now owned or hereafter
acquired, except to the extent expressly contemplated by the Operative
Agreements.
(d) The Owner Trustee shall at all times (i) observe and perform all of the
covenants, conditions and obligations required to be performed by it (whether in
its capacity as the Lessor, the Owner Trustee or otherwise) under each Operative
Agreement to which it is a party and (ii) observe and perform, or cause to be
observed and performed, all of the covenants, conditions and obligations of the
Lessor under the Lease, even in the event that the Lease is terminated at stated
expiration following a Lease Event of Default or otherwise.
(e) At any time and from time to time, upon the written request of the
Administrative Agent or any Lender or Holder, the Owner Trustee will promptly
and duly execute and deliver such further instruments and documents and take
such further action as the Administrative Agent or any Lender or Holder may
reasonably request for the purpose of obtaining or preserving the full benefits
of this Agreement and the other Operative Agreements and of the rights and
powers herein or therein granted.
(f) If on any date a Responsible Officer of the Owner Trustee shall obtain
actual knowledge of the occurrence of a Default or Event of Default, the Owner
Trustee will give written notice thereof to the Administrative Agent within five
Business Days after such date.
(g) Without prejudice to any right under the Trust Agreement of the Owner
Trustee to resign, the Owner Trustee (in such capacity and in its individual
capacity) agrees not to terminate or revoke the trust created by the Trust
Agreement except as permitted by the terms thereof.
(h) On each Commencement Date, the Owner Trustee's rights, title and
interests in and to the Equipment delivered on such Commencement Date and the
Collateral shall be free of any Lessor's Liens attributable to the Owner Trustee
in its individual capacity.
(i) The Owner Trustee shall receive from each Seller such title to the
Equipment as is conveyed to it by such Seller, subject to the rights of the
Owner Trustee and the Lessee under the Lease.
(j) The Owner Trustee in its individual capacity agrees to give the Lessee,
the Holders, the Lenders and the Administrative Agent at least 30 days prior
written notice of any relocation of the Owner Trustee's chief executive office,
principal place of business or said place where its records concerning the
Equipment and all its interest in, to and under all documents relating to the
Trust Estate are located from its present location referenced in Section 3.1(g)
or any subsequent location, which in all cases shall remain in the United
States.
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6.7 Covenants of All Parties Regarding Operative Agreements.
The Owner Trustee (in such capacity and in its individual capacity), the
Holders, the Administrative Agent, the Lenders and the Lessee hereby agree to
comply with the provisions of all Operative Agreements to which they are a party
and not to terminate, amend, modify, supplement, restate or replace any
Operative Agreement in such a manner that increases the obligations or
liabilities, or decreases the rights of, or is adverse to, any other party
hereto without the prior written consent of such Person (it being understood
that (i) the consent of each Lender and Holder is unnecessary to the extent
permitted by the provisions of Section 9.1 of the Loan Agreement and Section
11.01 of the Trust Agreement, respectively and (ii) the Owner Trustee, the
Holders, the Administrative Agent and the Lenders may exercise the remedies
granted to them in the Operative Agreements).
6.8 Rent Sufficiency.
Anything contained herein, in the Lease or in any other Operative Agreement
to the contrary notwithstanding, (i) the aggregate amount of Basic Rent payable
on any Payment Date under the Lease shall be, under all circumstances and in any
event, at least equal to the sum of (A) the amount of the scheduled installments
of yield on the Certificates pursuant to the Trust Agreement, plus (B) the
amount of the scheduled installments of principal and interest on the Notes
pursuant to the Loan Agreement, in each case, due on such Payment Date, and (ii)
the amount of the Stipulated Loss Value payable on any date on account of any
Unit of Equipment, together with any other amounts payable pursuant to Sections
11 or 21 of the Lease, as the case may be, shall be, under all circumstances and
in any event, at least equal to the sum of (x) the amount of any payments then
required to be made respecting such Unit on account of the outstanding principal
of and interest on the Notes pursuant to the Loan Agreement plus (y) the amount
of any payments then required to be made respecting such Unit on account of the
outstanding Holder Advances to be repaid and yield on the Certificates pursuant
to the Trust Agreement. Anything contained herein, in the Lease or in any other
Operative Agreement to the contrary notwithstanding, the amount of the Early
Termination Option Payment payable on any date on account of any Unit of
Equipment, together with any other amounts payable pursuant to Section 10 of the
Lease, shall be, under all circumstances and in any event, at least equal to the
amount of any payments then required to be made respecting such Unit on account
of the outstanding principal of and interest on the Notes pursuant to the Loan
Agreement.
6.9 Receipts Distribution and Application of Income.
The Lessee has agreed pursuant to the terms of the Operative Agreements to
pay to the Administrative Agent, until such time as the Loan Agreement has been
discharged pursuant to its terms and thereafter to the Holders, any and all Rent
(provided, that such right to receive Rent shall not include a right to receive
Segregated Excepted Property but shall include a right to receive all other
Excepted Property) and any and all other amounts of any kind or type under any
of the Operative Agreements due and owing the Lessor, the Owner Trustee, the
Holders, the
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Administrative Agent and the Lenders (excluding such amounts referenced in the
immediately preceding parenthetical phrase in this sentence). The Lessee has
agreed pursuant to the terms of the Operative Agreements to pay to the Holders
or such other Persons as are entitled to the receipt thereof, as appropriate,
the Segregated Excepted Property payable to such Persons. Notwithstanding the
preceding provisions of this Section 6.9, in connection with any disposition of
Equipment, upon the exercise of remedies in connection with any Event of Default
and with regard to all amounts received by the Administrative Agent under the
Operative Agreements other than Segregated Excepted Property or otherwise with
respect to the Equipment, the Administrative Agent shall apply all such amounts
received in accordance with the terms of this Section 6.9 to the obligations
owed under the Operative Agreements (including, without limitation, to the
Certificates and Notes and to the out-of-pocket costs and expenses of the
Administrative Agent or the Owner Trustee in connection with such disposition or
exercise of remedies).
(a) Any such payment or amount identified as or deemed to be Basic Rent
shall be applied and allocated by the Administrative Agent: first, ratably
(based on principal amounts then outstanding under the Notes) to the Lenders for
application and allocation to the payment of interest and principal (in that
order of priority) then due and payable on the Notes, second, ratably (based on
amounts then outstanding as Holders Advances) to the Holders for application and
allocation to the payment of accrued yield and Holder Advances (in that order of
priority) then due and payable on the Certificates; and third, if no Lease
Default or Lease Event of Default has occurred and is continuing, any excess (if
other than a prepayment) shall be paid to such Person or Persons as the Lessee
may designate; provided, that if a Lease Default or a Lease Event of Default has
occurred and is continuing, such excess (if any) shall instead be held by the
Administrative Agent until the earlier of (i) the first date thereafter on which
no Lease Default or Lease Event of Default shall be in effect (in which case
such payments or amounts shall then be made to such other Person or Persons as
the Lessee may designate) and (ii) the Maturity Date (or, if earlier, the date
of any acceleration of the Notes), in which case such amounts shall be applied
and allocated in the manner contemplated by Section 6.9(c)(i).
(b) Any such payment or amount identified as or deemed to be Renewal Rent
or proceeds from the disposition of a Class of Equipment pursuant to Section
21.2 of the Lease shall be applied and allocated by the Administrative Agent:
first, ratably (based on amounts then outstanding as Holders Advances) to the
Holders for application and allocation to the payment of accrued yield and
Holder Advances (in that order of priority) then due and payable on the
Certificates; and second, if no Lease Default or Lease Event of Default has
occurred and is continuing, any excess (if other than a prepayment) shall be
paid to such Person or Persons as the Lessee may designate; provided, that if a
Lease Default or a Lease Event of Default has occurred and is continuing, such
excess (if any) shall instead be held by the Administrative Agent until the
earlier of (i) the first date thereafter on which no Lease Default or Lease
Event of Default shall be in effect (in which case such payments or amounts
shall then be made to such other Person or Persons as the Lessee may designate)
and (ii) the Termination Date (or, if earlier, the date of any
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acceleration of the Certificates), in which case such amounts shall be applied
and allocated in the manner contemplated by Section 6.9(c)(i).
(c) (i) Except as otherwise provided in Sections 6.9(c)(ii), or 6.9(e), in
the event that any prepayment of the Notes or the Certificates, in whole or in
part, is required in accordance with the provisions of' Section 2.10 of the Loan
Agreement or Section 4.10 of the Trust Agreement, then any amount received
pursuant to Section 10 or 11 of the Lease or otherwise shall in each case be
distributed and paid in the following order of priority: first, ratably to the
Owner Trustee and the Administrative Agent with respect to their respective
out-of pocket costs and expenses regarding any such prepayment or sale of the
Equipment; second, ratably (based on principal amounts then outstanding under
the Notes) to the Lenders as provided in Section 2.10 of the Loan Agreement;
third, ratably (based on amounts then outstanding as Holder Advances) to the
Holders as provided in Section 4.10 of the Trust Agreement; fourth, ratably to
the Owner Trustee and the Administrative Agent regarding any other amounts owing
to either such party under the Operative Agreements; and fifth, the balance, if
any, of such amount remaining thereafter shall be distributed to the Owner
Trustee for distribution to the Holders.
(ii) Any insurance payment, requisition payment or other amount received by
the Administrative Agent that is not required to be paid over to the Lessee or
distributed shall be held by the Administrative Agent as security for the
obligations of the Lessee under the Lease and applied as set forth therein or
herein.
(d) (i) Except as otherwise provided in Section 6.9(e),
(A) An amount equal to any such payment identified as or which is is
Supplemental Rent received by the Administrative Agent for which provision as to
the application thereof is made in the Operative Agreements shall be applied
forthwith to the purpose for which such payment was made in accordance with the
terms thereof and otherwise shall be applied and allocated by the Administrative
Agent to the payment of any amounts (other than any such amounts payable
pursuant to the preceding provisions of this Section 6.9) then owing first,
ratably to the Owner Trustee and the Administrative Agent with respect any
Supplemental Rent then due and payable to such Person; second, ratably (based on
principal amounts then outstanding under the Notes) to the Lenders with respect
to any Supplemental Rent then due and payable to the Lenders; third, ratably
(based on amounts then outstanding as Holder Advances) to the Holders with
respect to any Supplemental Rent then due and payable to the Holders; and
fourth, the balance, if any, of such amount remaining thereafter shall be
distributed to the Owner Trustee for distribution to the Holders.
(B) Subject to Section 6.9(d)(ii), any payments received and amounts
realized by the Administrative Agent for which no provision as to the
application thereof is made in the Lease or this Section 6.9 or otherwise in any
Operative Agreement shall be distributed forthwith by the Administrative Agent
to the Owner Trustee for distribution pursuant to
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the Trust Agreement; provided, however, that if a Loan Agreement Event of
Default has occurred and is continuing, such amounts shall be paid to the
Lenders pursuant to the Loan Agreement.
(ii) Any payments received by the Administrative Agent for which provision
as to the application thereof is made in the Lease or any other Operative
Agreement, but not elsewhere in this Agreement, shall be applied to the purposes
for which such payments were made in accordance with the provisions of the Lease
or such other Operative Agreement, as the case may be.
(iii) The Administrative Agent in its reasonable judgment shall identify
the nature of each payment or amount received by the Administrative Agent and
apply and allocate each such amount in the manner specified above.
(e) All amounts constituting Excepted Property received by the
Administrative Agent shall be paid by the Administrative Agent to the Person or
Persons entitled thereto.
Ratable allocations under this Section 6.9 between the Administrative Agent
and the Owner Trustee shall be based upon the relative amount of costs, expenses
and other amounts owed to each such party at the particular time under the
particular provisions of the Operative Agreements.
6.10 Acceleration Upon Certain Events of Default.
Each of the parties hereto agrees that the occurrence of a Lease Event of
Default and the exercise of any remedies set forth in Section 15 of the Lease
with respect thereto shall immediately create a Loan Agreement Event of Default
and an acceleration of the Notes under the Loan Agreement and the Certificates
under the Trust Agreement.
SECTION 7. LESSEE'S INDEMNITIES
7.1 General Tax Indemnity.
(a) Indemnification. The Lessee shall pay and assume liability for, and
does hereby agree to indemnify, protect and defend all Indemnified Persons, and
hold them harmless against all Impositions (other than amounts addressed in and
either covered by or specifically excluded from the coverage of Section 7.2
hereof) on an After Tax Basis.
(b) The foregoing indemnity in Section 7.1(a) hereof shall not apply to any
Impositions for Taxes to the extent they result from the gross negligence or
willful misconduct of an Indemnified Person, or (subject to the last sentence of
Section 7.1(b)) to the extent such Taxes are based upon or measured by an
Indemnified Person's net income (other than Taxes that are, or are in the nature
of, sales, use, value added, transfer or property Taxes, and other than a
Covered
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Income Tax as defined in the following sentence). For purposes of this
Agreement, a "Covered Income Tax" shall mean an income Tax (including without
limitation a Tax imposed upon gross income or receipts) imposed on an
Indemnified Person by any state, local or foreign taxing authority (excluding
the United States federal government) in whose jurisdiction an Indemnified
Person (including without limitation for this purpose all entities with which it
is combined, integrated or consolidated in such taxing authority's jurisdiction)
would not engage in business, would not maintain an office or other place of
business, would not otherwise be located therein, and would not otherwise be
subject to such taxing authority but for an Indemnified Person's role in the
Operative Agreements and the transactions contemplated thereby, with respect to
the Equipment, its manufacture, construction, ordering, purchase, acceptance or
rejection, ownership, delivery, leasing, releasing, subleasing, possession, use,
operation, maintenance, storage, titling or retitling, licensing or
re-licensing, documentation, removal, return, sale (including without limitation
sale to the Lessee by an Indemnified Person pursuant to the terms hereof) or
other applications or dispositions thereof, or the presence of the Lessee in
such jurisdiction. The foregoing indemnity in Section 7.1(a) shall apply to any
Taxes upon or with respect to any of the enumerated matters of Section 7.1(a)
imposed on the Owner Trustee (including without limitation those based upon or
measured by the Owner Trustee's net income or other such Taxes that are, or are
in the nature of, a Tax on net income) other than such Taxes based on or
measured by any fees or compensation received by the Owner Trustee for services
rendered in connection with the transactions contemplated hereby.
(c) Payments. (i) Subject to the terms of Section 7.1(e) hereof, the Lessee
shall pay or cause to be paid all Impositions directly to the taxing authorities
where feasible and otherwise to the Indemnified Person, as appropriate, and the
Lessee shall at its own expense, upon such Indemnified Person's reasonable
request, furnish to such Indemnified Person copies of official receipts or other
satisfactory proof evidencing such payment.
(ii) In the case of Impositions for which no contest is conducted pursuant
to Section 7.1(e) hereof and which the Lessee pays directly to the taxing
authorities, the Lessee shall pay such Impositions prior to the latest time
permitted by the relevant taxing authority for timely payment. In the case of
Impositions for which the Lessee is to reimburse an Indemnified Person, the
Lessee shall make such payment within twenty (20) days after receipt by the
Lessee of demand by such Indemnified Person describing in reasonable detail the
nature of the Imposition and the basis for the demand (including the computation
of the amount payable), but in no event shall the Lessee be required to make
such payment prior to thirty (30) days before the latest time permitted by the
relevant taxing authority for timely payment. In the case of Impositions for
which a contest is conducted pursuant to Section 7.1(e) hereof, the Lessee shall
pay such Impositions or reimburse such Indemnified Person for such Impositions,
to the extent not previously paid or reimbursed pursuant to subsection (a),
prior to the latest time permitted by the relevant taxing authority for timely
payment after conclusion of all contests under Section 7.1(e) hereof.
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(iii) Impositions imposed with respect to Equipment for a Tax billing
period during which the Lease expires or terminates (unless the Lessee has
exercised its option to purchase the Equipment pursuant to Section 21.2 of the
Lease or to renew the Lease pursuant to Section 21.3 of the Lease) shall be
adjusted and prorated on a daily basis between the Lessee and the Lessor,
whether or not such Imposition is imposed before or after such expiration or
termination, and each party shall pay or reimburse the other for each party's
pro rata share thereof.
(d) Reports and Returns. (i) The Lessee shall be responsible for preparing
and filing all property and ad valorem tax returns in respect of each item of
Equipment. In case any other report or tax return shall be required to be made
with respect to any obligations of the Lessee under or arising out of subsection
(a) and of which the Lessee has knowledge or should have knowledge, the Lessee,
at its cost and expense, shall notify the relevant Indemnified Person of such
requirement and (except if such Indemnified Person notifies the Lessee that such
Indemnified Person intends to file such report or return) (A) to the extent
required or permitted by and consistent with applicable Laws, make and file in
its own name such return, statement or report: and (B) in the case of any other
such return, statement or report required to be made in the name of such
Indemnified Person, advise such Indemnified Person of such fact and prepare and
deliver to such Indemnified Person (together with payment of all Impositions
required to be paid at the time of filing such return, statement or report), at
least fifteen (15) Business Days prior to the date of any required filing, such
return, statement or report for filing by such Indemnified Person or, where such
return, statement or report shall be required to reflect items in addition to
any obligations of the Lessee under or arising out of subsection (a), provide
such Indemnified Person at the Lessee's expense with information sufficient to
permit such return, statement or report to be properly made with respect to any
obligations of the Lessee under or arising out of subsection (a). Such
Indemnified Person shall, upon the Lessee's request and at the Lessee's expense,
provide any data maintained by such Indemnified Person (and not otherwise
available to or within the control of the Lessee) with respect to each item of
Equipment which the Lessee reasonably requires to prepare any required tax
returns or reports.
(ii) The Lessee shall deliver to the Administrative Agent copies of all
property and ad valorem tax returns that it is required to file pursuant to
clause (i) above no later than fifteen (15) Business Days prior to the date
Lessee intends to file such tax returns.
(e) Contests of Impositions. (i) If a written claim is made against any
Indemnified Person or if any proceeding shall be commenced against such
Indemnified Person (including a written notice of such proceeding) for any
Impositions, such Indemnified Person shall promptly notify the Lessee in writing
and shall not take action with respect to such claim or proceeding without the
consent of the Lessee for thirty (30) days after the receipt of such notice by
the Lessee; provided, however, that, in the case of any such claim or
proceeding, if action shall be required by Law to be taken prior to the end of
such 30-day period, such Indemnified Person shall, in such notice to the Lessee,
inform the Lessee of such shorter period, and no action shall be taken with
respect to such claim or proceeding without the consent of the Lessee before two
(2)
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days before the end of such shorter period; provided, further, that the failure
of such Indemnified Person to give the notices referred to in this sentence
shall not diminish the Lessee's obligation hereunder except to the extent
failure to give such notice precludes the Lessee from contesting all or part of
such claim.
(ii) If, within thirty (30) days of receipt of such notice from the
Indemnified Person (or such shorter period as the Indemnified Person has
notified the Lessee is required by Law or regulation for the Indemnified Person
to commence such contest), the Lessee shall request in writing that such
Indemnified Person contest such Imposition, the Indemnified Person shall, at the
sole cost and expense of the Lessee, in good faith conduct and control such
contest (including, without limitation, by pursuit of appeals) relating to the
validity, applicability or amount of such Impositions (provided, however, that
(A) if such contest involves a tax other than a tax on net income and can be
pursued independently from any other proceeding involving a tax liability of
such Indemnified Person, the Indemnified Person, at the Lessee's request, shall
allow the Lessee to conduct and control such contest and (B) in the case of any
contest, the Indemnified Person may require the Lessee to conduct and control
such contest at the sole cost and expense of the Lessee) by, in the sole
discretion of the Person conducting and controlling such contest, (1) resisting
payment thereof, (2) not paying the same except under protest, if protest is
necessary and proper, (3) if the payment be made, using reasonable efforts to
obtain a refund thereof in appropriate administrative and judicial proceedings,
or (4) taking such other action as is reasonably requested by the Lessee from
time to time. If Lessee conducts and controls such contest, it shall use counsel
selected by it and consented to by the Indemnified Person (which consent shall
not be unreasonably withheld), except that in the event of any material conflict
of interest between Lessee and such Indemnified Person, such Indemnified Person
may retain separate counsel, the reasonable fees and expenses of which will be
paid by the Lessee.
(iii) The Person controlling any contest shall consult in good faith with
the non-controlling Person and shall keep the non-controlling party reasonably
informed as to the conduct of such contest; provided, that all decisions
ultimately shall be made in the sole discretion of the controlling party. The
parties agree that an Indemnified Person may at any time decline to take further
action with respect to the contest of any Imposition and may settle such contest
if such Indemnified Person shall waive its rights to any indemnity from the
Lessee that otherwise would be payable in respect of such claim (and any future
claim by any taxing authority, the contest of which is precluded by reason of
such resolution of such claim) and shall pay to the Lessee any amount previously
paid or advanced by the Lessee pursuant to this Section 7.1 by way of
indemnification or advance for the payment of an Imposition other than expenses
of such contest.
(iv) Notwithstanding the foregoing provisions of this Section 7.1, an
Indemnified Person shall not be required to take any action and the Lessee shall
not be permitted to contest any Impositions in its own name or that of the
Indemnified Person unless (A) the Lessee shall have agreed in writing to pay and
shall pay to such Indemnified Person on demand and on an After Tax Basis all
reasonable costs, losses and expenses that such Indemnified Person
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actually incurs in connection with contesting such Impositions, including,
without limitation, all reasonable legal, accounting and investigatory fees and
disbursements, and the amount of such Imposition should the contest be
unsuccessful, (B) in the case of a claim that must be pursued in the name of an
Indemnified Person (or an Affiliate thereof), the amount of the potential
indemnity (taking into account all similar or logically related claims that have
been or could be raised in any audit involving such Indemnified Person for which
the Lessee may be liable to pay an indemnity under this Section 7.1) exceeds
$100,000, (C) the Indemnified Person shall have reasonably determined that the
action to be taken will not result in any material danger of sale, forfeiture or
loss of any Equipment, or any part thereof or interest therein, will not
interfere with the payment of Rent, and will not result in risk of criminal
liability, (D) if such contest shall involve the payment of the Imposition prior
to the contest, the Lessee shall provide to the Indemnified Person an
interest-free advance in an amount equal to the Imposition that the Indemnified
Person is required to pay (with no additional net after-tax cost to such
Indemnified Person), (E) in the case of a claim that must be pursued in the name
of an Indemnified Person (or an Affiliate thereof), the Lessee shall have
provided to such Indemnified Person an opinion of independent tax counsel
selected by the Indemnified Person and reasonably satisfactory to the Lessee
stating that a reasonable basis exists to contest such claim (or, in the case of
an appeal of an adverse determination, an opinion of such counsel to the effect
that the position asserted in such appeal will more likely than not prevail) and
(F) no Lease Event of Default shall have occurred and be continuing. In no event
shall an Indemnified Person be required to appeal an adverse judicial
determination to the United States Supreme Court. In addition, an Indemnified
Person shall not be required to contest any claim in its name (or that of an
Affiliate) if the subject matter thereof shall be of a continuing nature and
shall have previously been decided adversely by a court of competent
jurisdiction pursuant to the contest provisions of this Section 7.1, unless
there shall have been a change in Law (or interpretation thereof) and the
Indemnified Person shall have received, at the Lessee's expense, an opinion of
independent tax counsel selected by the Indemnified Person and reasonably
acceptable to the Lessee stating that as a result of such change in Law (or
interpretation thereof), it is more likely than not that the Indemnified Person
will prevail in such contest.
7.2 Special Income Tax Indemnity.
(a) Indemnity. The Lessee will indemnify the Lessor and each Holder on an
After Tax Basis for (i) any loss, reduction, failure to claim (based on an
opinion of tax counsel that there is no reasonable basis to claim),
disallowance, recapture, or deferral, in whole or in part, of any tax benefits
that the Lessor or such Holder has claimed in connection with the Equipment and
the transactions contemplated by the Operative Agreements and any costs,
expenses, losses or breakage incurred by the Lessor or such Holder in connection
therewith, and (ii) any inclusion (an "Inclusion") in the Lessor's or such
Holder's foreign, federal, state or local gross income of any amounts other than
(A) Basic Rent, Renewal Rent, Stipulated Loss Value, or the purchase price paid
by Lessee pursuant to Section 21.2 of the Lease, in the amounts and at the times
provided in the Lease; (B) payments made hereunder or under the Lease on an
After-Tax Basis; (C) any other amount to the extent that such income Inclusion
is completely offset by a deduction of the same
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character and in the same taxable year as the Inclusion; and (D) any amount
designated as a pre-tax fee or interest payment due and owing to the Lessor or
such Holder under the terms of the Operative Agreements, each loss and Inclusion
under clause (a)(i) and (ii) constituting a "Tax Loss." This tax indemnity shall
constitute an "all events" indemnity, covering, by way of example only, any Tax
Loss resulting from a change of law, change in tax rates, recharacterization of
the transaction for tax purposes, and the Lessor's inability to currently
utilize any tax benefits. Notwithstanding the foregoing, the Lessee shall not
indemnify the Lessor or any Holder for (i) a Tax Loss resulting solely from (x)
such Holder's failure to take the actions within its control that are reasonably
necessary to secure the benefits that are the subject of the Tax Loss or (y)
such Holder's failure to prevent the Trust from becoming an entity separately
subject to United States federal income tax liability; or (ii) a Tax Loss to the
extent that such Tax Loss exceeds the amount that the Tax Loss would have been
had the Lessor not transferred, assigned, pledged or sold its interest in the
Equipment after the applicable Closing Date or had such Holder not transferred,
assigned, pledged or sold its interest in its Certificate or in the Trust or
Trust Estate after the applicable Closing Date.
(b) Computation of Indemnity and Gross-Up; Payment. The amount of the
indemnity payable as a result of a Tax Loss, and the gross-up of the indemnity
payment for income taxes attributable to the indemnity payment hereunder, shall
be computed using the actual rate(s) of United States federal, state and local
tax then in effect and applicable to the Lessor or the affected Holder, as the
case may be. An event or occurrence giving rise to a Tax Loss for federal income
tax purposes shall be deemed to give rise to a Tax Loss at the same time and in
the same amount for state and local income tax purposes. At the Lessor's option,
the Lessee shall pay the indemnity in installments on each subsequent Scheduled
Payment Date or by an amendment to the Lease.
(c) Certain Adjustments. If the Lessor shall suffer a Tax Loss involving a
tax benefit that was taken into account in calculating any amount under the
Lease, then such value or values shall be adjusted to take into account the
unavailability, if any, of such tax benefit.
(d) Contests. Any contests of claims arising in connection with a Tax Loss
shall be conducted under the provisions set forth in Section 7.1(e) hereof,
except that (i) references to the Indemnified Person shall be to the Lessor or
the Holders, or both, as the case may be; and (ii) references to an Imposition
shall be to a Tax Loss.
7.3 General Indemnification and Waiver of Certain Claims.
The Lessee hereby assumes liability for, and does hereby agree, whether or
not any of the transactions contemplated hereby are consummated, to indemnify,
protect, save, defend, exonerate, pay and hold harmless each Indemnified Person
on an After-Tax Basis from and against any and all obligations, fees,
liabilities, losses, interest, damages, punitive damages, penalties, fines,
claims, demands, actions, suits, judgments, costs and expenses (collectively
"Expenses"), including, without limitation, reasonable legal fees and expenses
payable pursuant to
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Section 2.5(a) (including, without limitation, such reasonable legal fees and
expenses incurred in connection with the enforcement or modification of this
Agreement or any other Operative Agreement), of every kind and nature whatsoever
imposed on, incurred by, or asserted against any Indemnified Person, in any way
relating to or arising out of (a) the Equipment, including without limitation
the manufacture, construction, ordering, purchase, acceptance or rejection,
ownership, delivery, leasing, releasing, subleasing, possession, use, operation,
maintenance, storage, titling or re-titling, licensing or re-licensing,
documentation, removal, return, sale (including, without limitation, sale by an
Indemnified Person to the Lessee pursuant to the terms of the Lease) or other
applications or dispositions of the Equipment, including, without limitation,
any of such as may arise from (i) loss or damage to any property or death or
injury to any Person, (ii) patent or latent defects in the Equipment (whether or
not discoverable by the Lessee or any Indemnified Person), (iii) any claims
based on strict liability in tort or otherwise, (iv) any claims based on patent,
trademark or copyright infringement and (v) any claims relating to any
Environmental Violation, Hazardous Material or otherwise based on liability
arising under any Environmental Law or other pollution control Law, (b) any
failure on the part of the Lessee to perform or comply with any of the terms of
the Lease, any other Operative Agreement or any document, instrument, agreement
or contract entered into in relation hereto or otherwise in relation to the
Equipment, (c) any claims, Liens or legal processes regarding such Indemnified
Person's title to or interest in the Equipment (except as such arise in
connection with Lessor's Liens), (d) any representation or warranty made by the
Lessee under or in connection with this Agreement, the Lease, or any other
Operative Agreement or any certificate or report delivered by the Lessee
pursuant hereto or thereto which shall have been false or incorrect in any
material respect when made or deemed made, or (e) the Operative Agreements
(including, without limitation, Section 8 of this Agreement). The Lessee shall
not be required to indemnify an Indemnified Person for any claims resulting from
acts which would constitute the willful misconduct or gross negligence of such
Indemnified Person. The Lessee shall give each Indemnified Person prompt notice
of any occurrence, event or condition known to the Lessee as a consequence of
which any Indemnified Person is or is reasonably likely to be entitled to
indemnification hereunder. The indemnification provided in this Section 7.3
shall specifically apply to and include claims or actions brought by or on
behalf of employees of the Lessee notwithstanding any immunity to which the
Lessee may otherwise be entitled under any industrial or worker's compensation
Laws. The Lessee shall promptly upon request of any such Indemnified Person (but
in any event within 30 days of such request) reimburse such Indemnified Person
for amounts expended by it in connection with any of the foregoing or pay such
amounts directly.
In case any action, suit or proceeding is brought against any Indemnified
Person in connection with any claim indemnified against hereunder, such
Indemnified Person will, after receipt of notice of the commencement of such
action, suit or proceeding, notify the Lessee thereof, enclosing a copy of all
papers served upon such Indemnified Person; provided, failure to deliver such
notice will not impair the rights of indemnification of such Indemnified Person
unless such failure by the Indemnified Person materially and adversely affects
the ability of the Lessee to defend such action, suit or proceeding. The Lessee
shall, at its sole cost and expense, assume control of such action, suit or
proceeding (with counsel to be selected by the Lessee and
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consented to by the Indemnified Person, such consent not to be unreasonably
withheld). Notwithstanding any of the foregoing to the contrary, the Lessee
shall not be entitled to pursue any such action, suit or proceeding if (i) a
Lease Event of Default shall have occurred and be continuing, (ii) such action,
suit or proceeding will involve a material risk of the sale, forfeiture or loss
of, or the creation of any lien on the Equipment unless the Lessee shall have
posted a bond or other security reasonably satisfactory to the Owner Trustee and
the Holders in respect to such risk, (iii) such proceedings, in the good faith
opinion of the Indemnified Person, entail any risk of criminal liability to such
Indemnified Person or (iv) a conflict of interest exists between the Indemnified
Person and the Lessee with respect to such action, suit or proceeding. The
Indemnified Person may participate at its own expense and with its own counsel
in any judicial proceeding controlled by the Lessee pursuant to the preceding
provisions; provided, in the event of a material conflict of interest between
the Lessee and such Indemnified Person, the Lessee shall pay the costs and
expenses of counsel for such Indemnified Person.
Each Indemnified Person shall supply the Lessee with such information
reasonably available to it and reasonably requested by the Lessee as is
necessary or advisable for the Lessee to control or participate in any
proceeding to the extent permitted by this Section 7.3. Unless a Lease Event of
Default shall have occurred and be continuing, each Indemnified Person agrees
not to enter into a settlement or other compromise with respect to any such
action, suit or proceeding without the prior written consent of the Lessee,
which consent shall not be unreasonably withheld or delayed, unless the
Indemnified Person waives its right to be indemnified with respect to such
action, suit or proceeding. The Lessee shall supply the Indemnified Person with
such information reasonably requested by the Indemnified Person as is necessary
or advisable for the Indemnified Person to control or participate in any
proceeding to the extent permitted by this Section 7.3. In addition, the Lessee
shall be subrogated to the rights of the Indemnified Person against any
manufacturer or maintenance provider with respect to any such action, suit or
proceeding with respect to which the Lessee has actually reimbursed such
Indemnified Person for amounts expended by it or has actually paid such amounts
directly pursuant to this Section 7.3; provided, further to do so will not
impair the rights of indemnification of such Indemnified Person unless the
failure by the Indemnified Person to deliver such notice materially and
adversely affects the ability of the Lessee to defend such action, suit or
proceeding.
SECTION 8. YIELD PROTECTION; TAXES; COMPENSATION.
8.1 Yield Protection Provisions.
(a) If, after the date hereof, any Participant has determined that the
adoption or the becoming effective of, or any change in, or any change by any
Governmental Authority, central bank or comparable agency charged with the
interpretation or administration thereof in the interpretation or administration
of, any applicable Law regarding capital adequacy, or compliance by such
Participant or its parent with any request or directive regarding capital
adequacy (whether or not having the force of Law) of any such authority, central
bank or comparable agency, has or would have the effect of reducing the rate of
return on such Participant's or its parent's capital or
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assets as a consequence of such Participant's obligations hereunder to a level
below that which such Participant or its parent could have achieved but for such
adoption, effectiveness, change or compliance (taking into consideration such
Participant's or its parent's policies with respect to capital adequacy), then,
upon notice from such Participant to the Owner Trustee, the Owner Trustee shall
be obligated to pay (with funds provided by the Lessee as Supplemental Rent) to
such Participant such additional amount or amounts as will compensate such
Participant for such reduction. Each determination by such Participant of
amounts owing under this Section 8.1 shall, absent manifest error, be conclusive
and binding on the parties hereto.
(b) Notwithstanding any other provision herein, if the adoption of or any
change in any Requirement of Law or in the interpretation or application thereof
occurring after the Closing Date shall make it unlawful for any Participant to
fund or maintain its Loan Advances or its Holder Advances, as the case may be,
based upon LIBOR, (a) such Participant shall promptly give written notice of
such circumstances to the Owner Trustee, the Administrative Agent and the Lessee
(which notice shall be withdrawn whenever such circumstances no longer exist),
(b) the commitment of such Participant to continue Loan Advances or Holder
Advances, as the case may be, based upon LIBOR shall forthwith be canceled and
(c) the interest rate on the outstanding Loan Advances and the yield on the
outstanding Holder Advances, as the case may be, shall automatically begin to
accrue or be computed, as the case may be, based upon the CD Rate (and all
calculations and definitions shall substitute CD Rate for LIBOR) on the next
succeeding Scheduled Payment Date or within such earlier period as required by
Law until such time as such Participant shall notify the Owner Trustee, the
Administrative Agent and the Lessee that it is no longer unlawful for such
Participant to fund or maintain Loan Advances or Holder Advances, as the case
may be, based upon LIBOR, whereupon the interest rate on the outstanding Loan
Advances and the yield on the outstanding Holder Advances shall automatically be
restored to accrue or be computed based upon LIBOR.
(c) If the adoption of or any change in any Requirement of Law or in the
interpretation or application thereof applicable to any Participant, or
compliance by any Participant with any request or directive (whether or not
having the force of Law) from any central bank or other Governmental Authority,
in each case made subsequent to the Closing Date (or, if later, the date on
which a Participant becomes a Participant):
(i) shall subject such Participant to any Tax of any kind whatsoever with
respect to the Operative Agreements, ownership, maintenance, or financing of the
Loan Advances or Holder Advances or payments of other amounts due, as the case
may be, made by it, or change the basis of taxation of payments to such
Participant in respect thereof (except for Non-Excluded Taxes covered by Section
8.2 hereof (including Non- Excluded Taxes imposed solely by reason of any
failure of such Participant to comply with its obligations under Section 8.2(b)
hereof) and changes in Taxes measured by or imposed upon the overall net income,
or franchise Tax (imposed in lieu of such net income Tax), of such Participant
or its applicable lending office, or any branch, or any affiliate thereof);
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(ii) shall impose, modify or hold applicable any reserve,
special deposit, compulsory loan or similar requirement (including
without limitation any requirement imposed by the Board of Governors of
the Federal Reserve System) against assets held by, deposits or other
liabilities in or for the account of, advances, loans or other
extensions of credit by, or any other acquisition of funds by, any
office of such Participant which is not otherwise included in the
determination of LIBOR hereunder;
(iii) shall impose on such Participant any other condition
(excluding any Tax of any kind whatsoever); or
(iv) shall impose upon any Indemnified Party any other expense
(including, without limitation, reasonable attorneys' fees and
expenses, and expenses of litigation or preparation therefor in
contesting any of the foregoing) with respect to this Agreement, the
other Operative Agreements, the ownership, maintenance or financing of
the Loan Advances or Holder Advances or payments of amounts due under
the Operative Agreements or any obligation of any Indemnified Party to
advance funds under the Operative Agreements, the Loan Advances by the
Lenders, the Holder Advances by the Holders or otherwise in respect of
this Agreement, the other Operative Agreements or the ownership,
maintenance or financing of the Loans or the Holder Advances;
and the result of any of the foregoing in (i), (ii), (iii) or (iv) above is to
increase the cost to such Participant, by an amount which such Participant deems
to be material, of continuing or maintaining the Loan Advances or Holder
Advances, as the case may be, based upon LIBOR, then, upon notice to the Owner
Trustee from such Participant, through the Administrative Agent, in accordance
herewith, the Owner Trustee shall be obligated to promptly pay (with funds
provided by the Lessee as Supplemental Rent) to such Participant, within 10 days
after its demand, any additional amounts necessary to compensate such
Participant for such increased cost or reduced amount receivable.
(d) If a Participant becomes entitled to claim any additional amounts
pursuant to this Section 8.1, it shall provide prompt written notice thereof to
the Owner Trustee, through the Administrative Agent, certifying (x) that one of
the events described in this Section 8.1 has occurred and describing in
reasonable detail the nature of such event, (y) as to the increased cost or
reduced amount resulting from such event and (z) as to the additional amount
demanded by such Participant and a reasonably detailed explanation of the
calculation thereof. Such a certificate as to any additional amounts payable
pursuant to this Section 8.1 submitted by such Participant to the Owner Trustee,
through the Administrative Agent, shall be conclusive and binding on the parties
hereto in the absence of manifest error.
8.2 Withholding Taxes.
(a) Except as provided below in this Section 8.2, all payments made by the
Owner Trustee under this Agreement, any Operative Agreements, the Notes and the
Certificates,
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as the case may be, shall be made free and clear of, and without deduction or
withholding for or on account of, any present or future income, stamp or other
Taxes, now or hereafter imposed, levied, collected, withheld or assessed by any
court or Governmental Authority excluding Taxes measured by or imposed upon the
overall net income of any Participant or its applicable lending office, or any
branch or affiliate thereof, and all franchise Taxes or Taxes on the overall
capital or net worth of any Participant or its applicable lending office, or any
branch or affiliate thereof, in each case imposed in lieu of income Taxes,
imposed: (i) by the jurisdiction under the Laws of which such Participant,
applicable lending office, branch or affiliate is organized or is located, or in
which its principal executive office is located, or any nation within which such
jurisdiction is located or any political subdivision thereof, or (ii) by reason
of any connection between the jurisdiction imposing such Tax and such
Participant, applicable lending office, branch or affiliate other than a
connection arising solely from such Participant having executed, delivered or
performed its obligations, or received payment under or enforced, this
Agreement, the Operative Agreements, the Notes, or the Certificates, as the case
may be. If any such non-excluded Taxes ("Non-Excluded Taxes") are required to be
withheld from any amounts payable to the Administrative Agent or any Participant
hereunder or under the Notes or the Certificates, (A) the amounts so payable to
the Administrative Agent or such Participant shall be increased to the extent
necessary to yield to the Administrative Agent or such Participant (after
payment of all Non-Excluded Taxes) interest or any such other amounts payable
hereunder at the rates or in the amounts specified in this Agreement, the Notes
or the Certificates; provided, however, that the Owner Trustee shall be entitled
to deduct and withhold any Non-Excluded Taxes and shall not be required to
increase any such amounts payable to such Participant if such Participant is not
organized under the Laws of the United States of America or a state thereof and
such Participant fails to comply with the requirements of paragraph (b) of this
subsection whenever any Non-Excluded Taxes are payable by the Owner Trustee, and
(B) as promptly as possible thereafter the Owner Trustee shall send to the
Administrative Agent for its own account or for the account of such Participant,
as the case may be, a certified copy of an original official receipt received by
the Owner Trustee showing payment thereof. If the Owner Trustee fails to pay any
Non-Excluded Taxes when due to the appropriate taxing authority or fails to
remit to the Administrative Agent the required receipts or other required
documentary evidence, the Owner Trustee shall indemnify (with funds provided by
the Lessee as Supplemental Rent) the Administrative Agent and any Participant
for any incremental Taxes, interest or penalties that may become payable by the
Administrative Agent or such Participant as a result of any such failure.
(b) If any Participant is not incorporated under the laws of the United
States of America or any state thereof such Participant shall:
(i) on or before the date of any payment by the Owner Trustee
under this Agreement, the Notes or the Certificates, as the case may
be, to such Participant, deliver to the Owner Trustee and the
Administrative Agent (A) two duly completed copies of United States
Internal Revenue Service Form 1001 or 4224, or successor applicable
form, as the case may be, certifying that it is entitled to receive
payments under this Agreement, the Notes or the Certificate, as the
case may be, without deduction or withholding of any
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United States federal income Taxes and (B) an Internal Revenue Service
Form W-8 or W- 9, or any successor applicable form, as the case may be,
certifying that it is entitled to an exemption from United States
backup withholding Tax;
(ii) deliver to the Owner Trustee and the Administrative Agent
two further copies of any such form or certification on or before the
date that any such form or certification expires or becomes obsolete
and after the occurrence of any event requiring a change in the most
recent form previously delivered by it to the Owner Trustee; and
(iii) (A) obtain such extensions of time for filing and
complete such forms or certifications as may reasonably be requested by
the Owner Trustee or the Administrative Agent in order to establish the
legal entitlement of such Participant to an exemption from withholding
with respect to payments under this Agreement, the Notes or the
Certificate, as the case may be; or
(B) in the case of any such Participant that is not a
"bank" within the meaning of Section 881(c)(3)(A) of the Code, (1)
represent to the Lessee and the Owner Trustee (for the benefit of the
Owner Trustee and the Administrative Agent) that it is not a bank
within the meaning of Section 881(c)(3)(A) of the Code, (2) agree to
furnish to the Owner Trustee on or before the date of any payment by
the Owner Trustee, with a copy to the Administrative Agent two accurate
and complete original signed copies of Internal Revenue Service Form
W-8, or any successor applicable form, as the case may be, certifying
to such Participant's legal entitlement at the date of such certificate
to an exemption from U.S. withholding Tax under the provisions of
Section 881(c) of the Code with respect to payments to be made under
this Agreement, the Notes or the Certificates, as the case may be (and
to deliver to the Lessee, the Owner Trustee and the Administrative
Agent two further copies of such form on or before the date it expires
or becomes obsolete and after the occurrence of any event requiring a
change in the most recently provided form and, if necessary, obtain any
extensions of time reasonably requested by the Lessee, the Owner
Trustee or the Administrative Agent for filing and completing such
forms), and (3) agree, to the extent legally entitled to do so, upon
reasonable request by the Lessee or the Owner Trustee, to provide to
the Lessee and the Owner Trustee (for the benefit of the Owner Trustee
and the Administrative Agent) such other forms as may be reasonably
required in order to establish the legal entitlement of such
Participant to an exemption from withholding with respect to payments
under this Agreement, the Notes or the Certificates, as the case may
be.
Notwithstanding the above, if any change in treaty or other Law has occurred
after the date such Person becomes a Participant hereunder which renders all
such forms inapplicable or which would prevent such Participant from duly
completing and delivering any such form with respect to it and such Participant
so advises the Owner Trustee and the Administrative Agent then such Participant
shall be exempt from such requirements. Each Person that shall become a
Participant or a participant of a Participant shall, upon the effectiveness of
the related transfer, be required to
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provide all of the forms, certifications and statements required pursuant to
this Section 8.2(b); provided, that in the case of a participant of a
Participant the obligations of such participant of such Participant pursuant to
this Section 8.2(b) shall be determined as if the participant of such
Participant were a Participant except that such participant of such Participant
shall furnish all such required forms, certifications and statements to such
Participant from which the related participation shall have been purchased.
8.3 Compensation.
The Owner Trustee promises to indemnify (with funds provided by the Lessee
as Supplemental Rent) and to hold each Participant harmless from any loss or
expense which such Participant may sustain or incur as a consequence of the
failure of the Lessee to close on any funding to be made on a Commencement Date
as identified in any Certificate of Delivery and Acceptance or as a consequence
of the making of any payment of Basic Rent or Renewal Rent on any date other
than a Scheduled Payment Date. Such indemnification shall be an amount equal to
(i) the amount of interest or yield, as the case may be, which would have
accrued or been realized on the amount not funded or the amount paid, as the
case may be, for the period from the date of such failure to close or such
payment, as the case may be, to the next succeeding Scheduled Payment Date at
the rate of interest yield, as the case may be, provided for in the Operative
Agreements minus (ii) the amount of interest (as reasonably determined by such
Participant) which would have accrued to such Participant on such amount by
placing such amount on deposit for a comparable period with leading banks in the
London interbank market.
SECTION 9. MISCELLANEOUS
9.1 Consents.
Each Holder hereby covenants and agrees that it shall not unreasonably
withhold its consent to any consent requested of the Owner Trustee under the
terms of the Operative Agreements that by its terms is not to be unreasonably
withheld by the Owner Trustee.
9.2 Appointment of Agent.
The Owner Trustee, the Holders and the Lenders hereby designate and appoint
the Administrative Agent as the agent for each such Person under this Agreement
and the other Operative Agreements to take such action on behalf of such Person
under the provisions of Section 6.9 of this Agreement, to receive notices,
documents and other items under the Operative Agreements (including, without
limitation, pursuant to Sections 2.3(c), 2.8, 3.2(l), 3.3(m), 4.1(a), 4.2(c),
5.3, 5.4, 5.6 and 5.8 of this Agreement and Sections 19 and 21.1 of the Lease)
and to take such other action, exercise such powers and perform such duties as
are expressly delegated to the Administrative Agent by the terms of this
Agreement and the other Operative Agreements, together with such other powers as
are reasonably incidental thereto. The Owner Trustee and the
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Holders, as applicable, hereby designate and appoint the Administrative Agent as
the collateral agent for each such Person under this Agreement and the other
Operative Agreements to accept and hold the Liens (a) securing the obligations,
agreements and covenants of the Owner Trustee in favor of the Holders under the
Operative Agreements and granted by the Owner Trustee in favor of the
Administrative Agent for the benefit of the Holders under the Loan Agreement and
(b) securing the obligations, agreements and covenants of the Lessee under the
Lease and the other Operative Agreements (to the extent such obligations run in
favor of the Owner Trustee or the Holders) granted by the Lessee in favor of the
Owner Trustee for the benefit of the Holders under the Lease and assigned by the
Owner Trustee in favor of the Administrative Agent pursuant to various Uniform
Commercial Code financing statements. The Owner Trustee hereby designates and
appoints the Administrative Agent as its attorney-in-fact for the purpose of
executing UCC-1 financing statements and UCC-3 assignments on behalf of the
Owner Trustee to evidence the assignment to the Administrative Agent of UCC-1
financing statements granted by the Lessee in favor of the Owner Trustee. The
Administrative Agent hereby accepts such appointments and agrees, promptly upon
receipt by the Administrative Agent, to forward copies of all such notices,
documents and other items (referenced in the first sentence of this Section 9.2)
to the Owner Trustee, the Holders and the Lenders. The Administrative Agent
further agrees for the benefit of the Owner Trustee and each Holder and Lender
to act on behalf of such parties respecting Uniform Commercial Code filings
pertaining to the Equipment and other filings evidencing Liens on the Equipment,
to the extent such Uniform Commercial Code filings and other filings relate to
Liens in favor of any such party and are made in connection with the Overall
Transaction. The preceding sentence is intended as an agreement among the
Administrative Agent, the Owner Trustee, and each Holder and Lender and shall in
no way impact or diminish the obligations of the Lessee under the Operative
Agreements. For purposes of this Section 9.2, the Lenders hereby reaffirm their
appointment of the Administrative Agent under the Loan Agreement, and the
Administrative Agent hereby reaffirms its acceptance of such appointment. The
parties to this Agreement further agree that any successor Administrative Agent
appointed pursuant to the terms of the Loan Agreement shall also be subject to
approval by the Required Holders.
9.3 Notices.
Unless otherwise expressly specified or permitted by the terms hereof, all
communications and notices provided for herein shall be in writing or by a
telecommunications device capable of creating a written record, and any such
notice shall become effective (a) upon personal delivery thereof, including
without limitation by express mail or courier service, (b) in the case of notice
by United States mail, certified or registered, postage prepaid, return receipt
requested, upon receipt thereof or (c) in the case of notice by such a
telecommunications device, upon transmission thereof; provided, such
transmission is promptly confirmed by any of the methods set forth in clauses
(a) or (b) above or this clause (c), in each case addressed to each party hereto
at its address set forth below or, in the case of any such party hereto, at such
other address as such party may from time to time designate by written notice to
the other parties hereto:
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If to the Lessee: Apple South, Inc.
Corporate Headquarters
Hancock at Washington
Madison, Georgia 30650
Attention: Mr. Erich J. Booth,
Chief Financial Officer
Telephone: (706) 342-4552
Facsimile: (706) 342-7890
If to the Owner
Trustee: First Security Bank, National Association
79 South Main Street, 3rd Floor
Salt Lake City, Utah 84111
Attention: Mr. Val T. Orton
Vice President
Telephone: (801) 246-5300
Facsimile: (801) 246-5053
with a copy to: the Holder at the address set forth below
If to the Holder: SunTrust Bank, Atlanta
25 Park Place, Mail Code 130
Atlanta, Georgia 30303
Attention: Mr. Mark T. MacElroy
Telephone: (404) 724-3513
Facsimile: (404) 827-6695
If to the Administrative
Agent: SunTrust Bank, Atlanta
25 Park Place, Mail Code 126
Atlanta, Georgia 30303
Attention: Mr. Thomas R. Banks
Telephone: (404) 724-3293
Facsimile: (404) 588-8833
If to any Lender: To the addresses of such Lender set forth on the
signature pages to the Loan Agreement
If to any Person which becomes a party to this Agreement (including without
limitation as a Lender) after the Closing Date, to such address as such Person
may from time to time designate by written notice to the other parties hereto.
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9.4 Successors and Assigns.
This Agreement shall be binding upon and shall inure to the benefit of, and
shall be enforceable by, the parties hereto and their respective successors and
assigns as permitted by and in accordance with the terms of the Operative
Agreements, including, without limitation, each successive holder of any
Certificate and each successive holder of any Note issued and delivered pursuant
to this Agreement, the Trust Agreement or the Loan Agreement. Except as
expressly provided herein or in the other Operative Agreements, no party hereto
may assign its interests herein without the consent of the parties hereto.
9.5 Governing Law; Submission To Jurisdiction.
THIS AGREEMENT SHALL BE IN ALL RESPECTS GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF GEORGIA, INCLUDING ALL MATTERS OF
CONSTRUCTION, VALIDITY AND PERFORMANCE, WITHOUT GIVING EFFECT TO ANY
CONFLICT-OF-LAWS RULES. EACH PARTY TO THIS AGREEMENT AND THEIR RESPECTIVE
SUCCESSORS AND ASSIGNS PERMITTED HEREUNDER, (I) HEREBY IRREVOCABLY SUBMITS FOR
ITSELF AND ITS PROPERTY TO THE NONEXCLUSIVE JURISDICTION OF THE COURTS OF THE
STATE OF GEORGIA IN FULTON COUNTY, AND TO THE NON-EXCLUSIVE JURISDICTION OF THE
UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF GEORGIA, FOR THE
PURPOSES OF ANY SUIT, ACTION OR OTHER PROCEEDING ARISING OUT OF THIS AGREEMENT
OR ANY OTHER OPERATIVE AGREEMENT TO WHICH IT IS A PARTY, THE SUBJECT MATTER OF
ANY THEREOF OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY BROUGHT BY
ANY PARTY OR PARTIES THERETO, OR THEIR SUCCESSORS OR ASSIGNS, (II) HEREBY
WAIVES, AND AGREES NOT TO ASSERT, BY WAY OF MOTION, AS A DEFENSE, OR OTHERWISE,
IN ANY SUCH SUIT, ACTION OR PROCEEDING, TO THE EXTENT PERMITTED BY APPLICABLE
LAW, THAT THE SUIT, ACTION OR PROCEEDING IS BROUGHT IN AN INCONVENIENT FORUM,
THAT THE VENUE OF THE SUIT, ACTION OR PROCEEDING IS IMPROPER, OR THAT THIS
AGREEMENT OR ANY OTHER OPERATIVE AGREEMENT TO WHICH IT IS A PARTY OR THE SUBJECT
MATTER OF ANY THEREOF OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY
MAY NOT BE ENFORCED IN OR BY SUCH COURTS AND (III) HEREBY WAIVES ITS RIGHT TO A
JURY TRIAL TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW. EACH OF THE
PARTIES TO THIS AGREEMENT CONSENTS TO THE SERVICE OF ANY AND ALL PROCESS IN ANY
SUCH PROCEEDING BY THE MAILING OF COPIES OF SUCH PROCESS TO SUCH PARTY AT ITS
ADDRESS SPECIFIED IN SECTION 9.3.
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9.6 Severability.
Whenever possible, each provision of this Agreement shall be interpreted in
such manner as to be effective and valid under applicable Law, but if any
provision of this Agreement shall be prohibited by or invalid under the Laws of
any applicable jurisdiction, such provision, as to such jurisdiction, shall be,
to the extent permitted by Law, ineffective to the extent of such prohibition or
invalidity, without invalidating the remainder of such provision or the
remaining provisions of this Agreement in such jurisdiction or in any other
jurisdiction.
9.7 Counterparts.
This Agreement may be executed in any number of counterparts (and each of
the parties hereto shall not be required to execute the same counterpart). Each
counterpart of this Agreement including a signature page executed by each of the
parties hereto shall be an original counterpart of this Agreement, but all such
counterparts together shall constitute one instrument.
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9.8 The Lessee's Right to Quiet Enjoyment.
Each party to this Agreement acknowledges notice of, and consents in all
respects to, the terms of the Lease, and expressly agrees that with respect to
the Lease, so long as no Lease Event of Default has occurred and is continuing
thereunder, it or any Person acting on its authority, shall not, through its or
any such Person's actions or inactions, interfere with the Lessee's rights under
the Lease, including without limitation the right to possession, use and quiet
enjoyment by the Lessee or any permitted sublessee of the Equipment leased
thereunder.
9.9 Limitations of Liability.
(a) Neither the Lenders, the Owner Trustee, the Holders nor the
Administrative Agent shall have any obligation or duty to the Lessee, to any
other party hereto or to others with respect to the transactions contemplated
hereby, except those obligations or duties of such parties expressly set forth
in this Agreement and the other Operative Agreements, and neither the Lenders,
the Owner Trustee, the Holders nor the Administrative Agent shall be liable for
performance by any other party hereto of such other party's obligations or
duties hereunder. Without limiting the generality of the foregoing, under no
circumstances whatsoever shall the Lenders, the Holders or the Administrative
Agent be liable to the Lessee or any other Person for any action or inaction on
the part of the Owner Trustee in connection with the transactions contemplated
herein, whether or not such action or inaction is caused by the willful
misconduct or gross negligence of the Owner Trustee, unless such action or
inaction is at the direction of the Lenders, the Holders or the Administrative
Agent, as the case may be.
(b) It is expressly understood and agreed by and among the Owner Trustee,
the Lessee, the Holders, the Lenders and the Administrative Agent, and their
respective successors and permitted assigns that, subject to the proviso
contained in this Section 9.9(b), all representations, warranties and
undertakings of the Owner Trustee hereunder shall be binding upon the Owner
Trustee only in its capacity as the Owner Trustee under the Trust Agreement, and
(except as expressly provided herein) the Owner Trustee shall not be liable in
its individual capacity (i) for any breach thereof, except for its gross
negligence or willful misconduct, or (ii) for breach of its covenants,
representations and warranties contained herein, except to the extent expressly
covenanted or made in its individual capacity; provided, however, that nothing
in this Section 9.9(b) shall be construed to limit in scope or substance those
representations and warranties of the Owner Trustee made expressly in its
individual capacity set forth herein. The term "Owner Trustee" as used in this
Agreement shall include any successor trustee under the Trust Agreement.
9.10 Confidentiality.
Each of the Owner Trustee, the Lenders, the Holders and the Administrative
Agent agrees to exercise its best efforts (and, in any event, with at least the
same degree of care as it ordinarily exercises with respect to confidential
information of its other customers) to keep any information
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delivered or made available by the Lessee to it, including, without limitation,
information obtained by the Owner Trustee, such Lender, such Holder or the
Administrative Agent, as the case may be, by reason of a visit or investigation
by any Person contemplated in Section 5.2, confidential from any one other than
persons employed or retained by the Owner Trustee, such Lender, such Holder or
the Administrative Agent, as the case may be, who are or are expected to become
engaged in evaluating, approving, structuring or administering the transactions
contemplated by the Operative Agreements; provided, however that nothing herein
shall prevent the Owner Trustee, any Lender, any Holder or the Administrative
Agent from disclosing such information (i) to the Owner Trustee, any other
Lender, any other Holder or the Administrative Agent, as the case may be, (ii)
upon the order of any court or administrative agency, (iii) upon the request or
demand of any regulatory agency or authority having jurisdiction over the Owner
Trustee, such Lender, such Holder or the Administrative Agent, as the case may
be, (iv) which has been publicly disclosed other than by an act or omission of
the Owner Trustee, such Lender, such Holder or the Administrative Agent, as the
case may be, except as permitted herein, (v) to the extent reasonably required
in connection with any litigation (with respect to this Agreement, any of the
other Operative Agreements, in connection with any of the foregoing, or any
other obligations of the Lessee or any Subsidiary owing to the Owner Trustee,
any Lender, any Holder or the Administrative Agent, as the case may be) to which
the Owner Trustee, such Lender, such Holder, the Administrative Agent or their
respective Affiliates may be a party, (vi) to the extent reasonably required in
connection with the exercise of any remedy hereunder, (vii) to legal counsel and
independent auditors of the Owner Trustee, such Lender, such Holder or the
Administrative Agent, as the case may be, and (viii) to any actual or proposed
participant, assignee or other transferee of all or part of its rights hereunder
which has agreed in writing to be bound by the provisions of this Section 9.10.
9.11 Effectiveness and Survival of Indemnities.
All indemnification obligations of the Lessee, including, without
limitation, the indemnities set forth in Section 2.5 and Sections 7 and 8, shall
apply from the date of the execution of this Agreement and shall survive the
expiration or earlier termination of this Agreement, the other Operative
Agreements, and all other documents, instruments, agreements and contracts
entered into in connection herewith or otherwise relating to the Equipment, and
are expressly made for the benefit of, and shall be enforceable by, each
Indemnified Person. Notwithstanding anything in this Agreement or in any other
document or agreement to the contrary, any indemnity provided by any Person
hereunder (including without limitation Sections 7.1, 7.2, 8.1, 8.2 or 8.3) or
in any other Operative Agreement shall survive the termination of this
Agreement, the Lease and any other Operative Agreement.
9.12 Compliance Certificate.
The Compliance Certificate, as required to be delivered from time to time
by the terms of the Operative Agreements, shall be executed by the President,
any Vice President, the Treasurer
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or the Chief Financial Officer of the Lessee and delivered as required by the
applicable provisions of the Operative Agreements.
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IN WITNESS WHEREOF, the parties hereto have caused this Participation
Agreement to be executed and delivered by their respective officers thereunto
duly authorized, all as of the date first above written.
APPLE SOUTH, INC., as the Lessee
By:
Name:
Title:
[Signature Pages Continued]
[SIGNATURE PAGE TO PARTICIPATION AGREEMENT]
<PAGE>
FIRST SECURITY BANK,
NATIONAL ASSOCIATION, not
in its individual capacity
except as expressly
provided herein, but solely
as Owner Trustee under
Apple South Trust No. 97-1
By:
Name:
Title:
[Signature Pages Continued]
[SIGNATURE PAGE TO PARTICIPATION AGREEMENT]
<PAGE>
SUNTRUST BANK, ATLANTA, as Administrative
Agent
By:
Name:
Title:
By:
Name:
Title:
[SIGNATURE PAGE TO PARTICIPATION AGREEMENT]
<PAGE>
SUNTRUST BANK, ATLANTA, as
a Lender
By:
Name:
Title:
By:
Name:
Title:
[SIGNATURE PAGE TO PARTICIPATION AGREEMENT]
<PAGE>
SOUTHTRUST BANK, NATIONAL
ASSOCIATION
By:
Name:
Title:
[Signatures Pages Continued]
[SIGNATURE PAGE TO PARTICIPATION AGREEMENT]
<PAGE>
FIRST UNION NATIONAL BANK
By:
Name:
Title:
[Signatures Pages Continued]
[SIGNATURE PAGE TO PARTICIPATION AGREEMENT]
<PAGE>
BANKBOSTON, N.A.
By:
Name:
Title:
[Signatures Pages Continued]
[SIGNATURE PAGE TO PARTICIPATION AGREEMENT]
<PAGE>
AMSOUTH BANK
By:
Name:
Title:
[Signatures Pages Continued]
[SIGNATURE PAGE TO PARTICIPATION AGREEMENT]
<PAGE>
SUNTRUST BANK, ATLANTA,
as the Holder
By:
Name:
Title:
By:
Name:
Title:
[SIGNATURE PAGE TO PARTICIPATION AGREEMENT]
<PAGE>
ATTACHMENT A
(Form of Certificate of Delivery and Acceptance)
CERTIFICATE OF DELIVERY AND ACCEPTANCE
THIS CERTIFICATE OF DELIVERY AND ACCEPTANCE dated as of____________, ____,
199_ is given by APPLE SOUTH, INC., as Lessee, under that certain Master
Equipment Lease Agreement (Apple South Trust No. 97-1) dated as of September 24,
1997 (as amended, modified, supplemented, restated or replaced from time to
time, the "Lease") between Lessor and Lessee, pursuant to the terms of Section
2.3(b) of the Participation Agreement (such term and other capitalized terms
used herein and not otherwise defined herein shall have the meanings provided
therefor in the Agreement). The Lessee hereby makes the following requests and
certifications:
1. The Lessee requests that:
a. The Units described in Annex 1 (the "Class of
Equipment") be leased to the Lessee pursuant to the
Lease.
b. The Commencement Date for funding of the Class of
Equipment is---------.
2. The Lessee certifies that:
a. The aggregate Equipment Cost of the Class of
Equipment is $_________.
b. The allocation of the Equipment Cost of the Class of
Equipment by state is set forth in Annex 2 and is
true and correct.
c. As between the Lessee and the Lessor, the Lessee
unconditionally accepts all of the Units in the Class
of Equipment listed on the attached Annex 1 and
hereby subjects such Units to the Lease.
d. As between the Lessee and the Lessor, all of the
Units in the Class of Equipment are adequate to
operate in commercial service, comply with all Laws
governing the service in which such Units are being
placed by the Lessee and have been delivered directly
by the applicable Seller to the Lessee, and the
Lessee is unaware of any defects in or damage to such
Units.
e. The undersigned person signing on behalf of the
Lessee is duly authorized to execute and deliver this
Certificate of Delivery and Acceptance.
A-1-
<PAGE>
f. No Lease Event of Default has occurred and is
continuing, and no Loan Agreement Event of Default
has occurred and is continuing.
[The remainder of this page has been intentionally
left blank.]
DATED: ____________1 APPLE SOUTH, INC.
By:
Name:
Title:
- --------
1 Notice must be dated no later than 15 Business Days prior to
the requested Commencement Date.
A-2-
<PAGE>
ANNEX 1
to Certificate of Delivery and Acceptance
DESCRIPTION OF THE EQUIPMENT/EQUIPMENT COST
Per Store Location
Unit Total (County
Make Model Serial No. Quantity Cost Cost and State) Store #
- ---- ----- ------ -- -------- ---- ---- --- ------ ----- -
A-3-
<PAGE>
ANNEX 2
to Certificate of Delivery and Acceptance
Allocation of Equipment Cost among the Approved States
A-4-
<PAGE>
ATTACHMENT B
(Form of Compliance Certificate)
COMPLIANCE CERTIFICATE
Reference is made to that certain Participation Agreement dated as of
September 24, 1997 (as modified and supplemented and in effect from time to
time, the "Participation Agreement") among Apple South, Inc. (the "Lessee"),
First Security Bank National Association, in its capacity as Owner Trustee of
Apple South Trust No. 97-1, SunTrust Bank, Atlanta, as the Holder, the Lenders
from time to time party thereto, and SunTrust Bank as Administrative Agent as
ascribed thereto in the Participation Agreement.
Pursuant to Section 5.1(c) of the Participation Agreement, the undersigned,
the [Chief Financial Officer/Chief Accounting Officer] of the Lessee, hereby
certifies that (i) attached hereto as Annex 1 are the true and accurate
calculations required to establish whether the Lessee was in compliance with
Sections 5.3, 5.4, 5.5, 5.6 and 5.11 of the Participation Agreement as of the
end of the Fiscal [Quarter/Year] ended __________, 19__, each determined in
accordance with the requirements of the Participation Agreement and (ii) [no
Event of Default, Potential Default, Lease Event of Default, Lease Default, Loan
Agreement Default or Loan Agreement Event of Default exists on the date hereof]
[the following Event of Defaults, Potential Defaults, Lease Event of Defaults,
Lease Defaults, Loan Agreement Defaults or Loan Agreement Events of Default
(including the details thereof) exist and the Lessee is taking or proposes to
take the following actions with respect thereto]:
======================
======================
In addition, the attached [audited] [unaudited] financial statements have
been prepared by the Lessee in accordance with generally accepted accounting
principles and, in the judgment of management, present fairly and consistently
the Lessee's financial position and results of operations.
B-1-
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this Certificate in his
capacity as [Chief Financial Officer/Chief Accounting Officer] and not
personally as of the ____ day of __________, 199___.
By:_________________________________
_______________________,
as _________________,
for and on behalf of
Apple South, Inc.
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ATTACHMENT C
(Form of Assignment and Assumption Agreement)
ASSIGNMENT AND ASSUMPTION AGREEMENT
Reference is made to the Loan and Security Agreement, dated as of September
24, 1997 (together with all amendments and modifications thereto, the
"Agreement"), by and among First Security Bank, National Association, as Owner
Trustee under Apple South Trust No. 97-1 (the "Owner Trustee"), certain
financial institutions party thereto (the "Lenders") and SunTrust Bank, Atlanta,
as Administrative Agent (the "Administrative Agent"). Terms used herein and not
otherwise defined herein or in the Agreement shall have the meanings specified
therefor in Appendix A to that certain Participation Agreement, dated as of
September 24, 1997 (as it may be amended or otherwise modified from time to
time, (the "Participation Agreement"), by and among Apple South, Inc., as the
Lessee (the "Lessee"), the Owner Trustee, SunTrust Bank, Atlanta (the "Holder"),
the Administrative Agent and the Lenders.
[Name of Assignor], in its capacity as Lender under the Participation
Agreement (the "Assignor") and [Name of Assignee] (the "Assignee") hereby agree
as follows:
1. The Assignor hereby sells and assigns to the Assignee, and the Assignee
hereby purchases and assumes from the Assignor, an interest in and to the Notes,
the Loans and all of the Assignor's right, title, interest and obligations under
the Agreement (the "Assignor's Interest"), such interest acquired by the
Assignee hereunder expressed as a percentage of all rights and obligations of
the Lenders being equal to the percentage equivalent of a fraction, the
numerator of which is $[__________] and the denominator of which is the
aggregate Lender Commitments of all Lenders.
2. The Assignor (i) represents and warrants that it is the legal and
beneficial owner of the Assignor's Interest being assigned by it hereunder and
that such Assignor's Interest is free and clear of any Lien created by it; (ii)
makes no representation or warranty and assumes no responsibility with respect
to any statements, warranties or representations made in or in connection with
the Operative Agreements, the Notes or the Loans or the execution, legality,
validity, enforceability, genuineness, sufficiency or value of the Operative
Agreements, the Notes or the Loans; and (iii) makes no representation or
warranty and assumes no responsibility with respect to the financial condition
of the Owner Trustee or the Lessee or the performance or observance by the Owner
Trustee or the Lessee of any of its respective obligations under the Agreement
or any instrument or document furnished pursuant thereto.
3. The Assignee (i) confirms that it has received a copy of the Operative
Agreements and such other documents and information as it has deemed appropriate
to make its own credit analysis and decision to enter into this Assignment and
Assumption Agreement and purchase the
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Assignor's Interest from the Assignor; (ii) agrees that it will, independently
and without reliance upon the Administrative Agent or any of its Affiliates, the
Assignor or any other Lender and based on such documents and information as it
shall deem appropriate at the time, continue to make its own credit decisions in
taking or not taking action under the Operative Agreements to which the Assignor
is a party; (iii) appoints and authorizes the Administrative Agent to take such
action as agent on its behalf and to exercise such powers under the Operative
Agreements as are delegated to the Administrative Agent by the terms thereof,
together with such powers as are reasonably incidental thereto; (iv) appoints
the Administrative Agent to enforce its respective rights and interests in and
under the Agreement and the Collateral in accordance with the Operative
Agreements; (v) agrees that it will perform in accordance with their terms all
of the obligations which by the terms of the Operative Agreements are required
to be performed by it as a Lender; (vi) specifies as its address for notices and
its account for payments the office and account set forth beneath its name on
the signature pages hereof, (vii) attaches the forms prescribed by the Internal
Revenue Service of the United States of America certifying as to the Assignee's
status for purposes of determining exemption from United States withholding
taxes with respect to all payments to be made to the Assignee under the
Agreement or such other documents as are necessary to indicate that all such
payments are subject to such rates at a rate reduced by an applicable tax
treaty; and (viii) represents and warrants to the Assignor that (A) it is duly
organized and in good standing under the laws of its jurisdiction of
organization, (B) its execution, delivery and performance of this Agreement have
been duly authorized and (C) this Agreement is enforceable against it in
accordance with its terms.
4. The effective date for this Assignment and Assumption Agreement shall be
the later of (i) the date on which the Administrative Agent receives this
Assignment and Assumption Agreement executed by the parties hereto, and receives
the consent of the Lessee and the Administrative Agent, (provided, however, the
consent of the Lessee shall not be required if a Default or Event of Default has
occurred and is continuing), and (ii) the date of this Assignment and Assumption
Agreement (the "Effective Date"). Following the execution of this Assignment and
Assumption Agreement and the consent of the Lessee and the Administrative Agent
(provided, however, the consent of the Lessee shall not be required if a Default
or Event of Default has occurred and is continuing), this Assignment and
Assumption Agreement shall be delivered to the Administrative Agent for
acceptance and, with respect to the Agreement, recording by the Administrative
Agent.
5. Upon such acceptance and recording, as of the Effective Date, (i) the
Assignee shall be a party to the Agreement and, to the extent provided in this
Agreement, have the rights and obligations of a Lender thereunder and (ii) the
Assignor shall, to the extent provided in this Assignment and Assumption
Agreement, relinquish its rights and be released from its obligations under the
Agreement.
6. Upon such acceptance and recording, from and after the Effective Date,
the Administrative Agent shall make all payments under the Agreement in respect
of the interest assigned hereby (including, without limitation, all payments in
respect of such interest in the
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related principal of and interest on the Loans allocable to the related Lender
and fees) to the Assignee. The Assignor and Assignee shall make all appropriate
adjustments in payments under the Agreement for periods prior to the Effective
Date directly between themselves.
7. THIS ASSIGNMENT AND ASSUMPTION AGREEMENT SHALL BE
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE
STATE OF GEORGIA.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized as of the __ day
of ____ 199_.
[ASSIGNOR]
By:
Name:
Title:
[ASSIGNEE]
By:
Name:
Title:
Address for notices and Account for payments:
For Credit Matters: For Administrative Matters:
[NAME] [NAME]
===================== ====================
Attn: ________________ Attn: _______________
Telephone:(___)___-____ Telephone:(___)___-___
Telefax:(___)___-____ Telefax:(___)___-____
Account for Payments:
NAME
- --------------
ABA Number:___-___-___
Account Number: _______
Attn: ________________
Re: ______________
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<PAGE>
Consented to this __ day
of ________ 199_
SUNTRUST BANK, ATLANTA, as Administrative Agent
By:
Name:
Title:
By:
Name:
Title:
[if required] APPLE SOUTH, INC., as the Lessee
By:
Name:
Title:
Accepted this ___ day
of ___________, 199_
SUNTRUST BANK, ATLANTA, as Administrative Agent
By:
Name:
Title:
By:
Name:
Title:
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<PAGE>
SCHEDULE 3.2(h)
Subsidiaries
<PAGE>
SCHEDULE 5.7
Existing Liens
$70,000,000
CREDIT AGREEMENT
DATED AS OF
DECEMBER 10, 1997
AMONG
APPLE SOUTH, INC.,
AS BORROWER
WACHOVIA BANK, NATIONAL ASSOCIATION
AND
ANY OTHER BANK OR BANKS LISTED ON THE
SIGNATURE PAGE(S) HEREOF,
AS BANKS
AND
WACHOVIA BANK, NATIONAL ASSOCIATION
AS AGENT FOR THE BANKS
<PAGE>
TABLE OF CONTENTS
ARTICLE 1. DEFINITIONS........................................................1
SECTION 1.1. Definitions.............................................1
SECTION 1.2. Accounting Terms and Determinations....................13
SECTION 1.3. References.............................................13
SECTION 1.4. Use of Defined Terms...................................13
SECTION 1.5. Terminology............................................14
ARTICLE 2. THE CREDIT........................................................14
SECTION 2.1. Commitments to Lend....................................14
SECTION 2.2. Method of Borrowing....................................14
SECTION 2.3. Notes..................................................16
SECTION 2.4. Maturity of Revolving Loans............................16
SECTION 2.5. Interest Rates.........................................17
SECTION 2.6. Fees...................................................18
SECTION 2.7. Termination or Reduction of Commitments................18
SECTION 2.8. Optional Prepayments...................................19
SECTION 2.9. Mandatory Prepayments..................................19
SECTION 2.10. General Provisions as to Payments.....................19
SECTION 2.11. Computation of Interest and Fees. ....................20
ARTICLE 3. CONDITIONS TO BORROWINGS..........................................20
SECTION 3.1. Conditions to First Borrowing..........................20
SECTION 3.2. Conditions to All Borrowings...........................21
ARTICLE 4. REPRESENTATIONS AND WARRANTIES....................................21
SECTION 4.1. Corporate Existence and Power..........................21
SECTION 4.2. Corporate and Governmental Authorization; No
Contravention..........................................22
SECTION 4.3. Binding Effect.........................................22
SECTION 4.4. Financial Information; No Material Adverse Effect......22
SECTION 4.5. No Litigation..........................................23
SECTION 4.6. Compliance with Laws Generally; Compliance with ERISA..23
SECTION 4.7. Taxes..................................................23
SECTION 4.8. Subsidiaries...........................................23
SECTION 4.9. Not a Holding Company, Public Utility, Investment
Company, Investment Adviser............................24
SECTION 4.10. Ownership of Property; Liens..........................24
SECTION 4.11. No Default............................................24
SECTION 4.12. Full Disclosure.......................................24
SECTION 4.13. Environmental Matters.................................24
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SECTION 4.14. Capital Stock.........................................25
-------------
SECTION 4.15. Margin Stock..........................................25
------------
SECTION 4.16. Solvency..............................................25
--------
SECTION 4.17. Possession of Franchises, Licenses, Etc...............25
---------------------------------------
SECTION 4.18. Insurance.............................................26
---------
ARTICLE 5. COVENANTS.........................................................26
SECTION 5.1. Information............................................26
SECTION 5.2. Inspection of Property, Books and Records..............27
SECTION 5.3. Adjusted Funded Debt/Adjusted Capitalization Ratio.....28
SECTION 5.4. Minimum Stockholders' Equity. ........................28
SECTION 5.5. Fixed Charge Coverage Ratio............................28
SECTION 5.6. Total Funded Debt/Cash Flow Coverage Ratio.............28
SECTION 5.7. Negative Pledge........................................28
SECTION 5.8. Maintenance of Existence...............................29
SECTION 5.9. Dissolution............................................29
SECTION 5.10. Consolidations, Mergers and Sales of Assets...........30
SECTION 5.11. Use of Proceeds.......................................30
SECTION 5.12. Compliance with Laws; Payment of Taxes................30
SECTION 5.13. Insurance.............................................31
SECTION 5.14. Change in Fiscal Year.................................31
SECTION 5.15. Maintenance of Property...............................31
SECTION 5.16. Environmental Notices.................................31
SECTION 5.17. Environmental Matters.................................31
SECTION 5.18. Environmental Releases................................31
SECTION 5.19. Investments...........................................32
SECTION 5.20. Subsidiary Debt.......................................34
ARTICLE 6. DEFAULTS..........................................................34
SECTION 6.1. Events of Default......................................35
SECTION 6.2. Notice of Default......................................38
ARTICLE 7. THE AGENT.........................................................38
SECTION 7.1. Appointment; Powers and Immunities.....................38
SECTION 7.2. Reliance by Agent......................................39
SECTION 7.3. Defaults...............................................39
SECTION 7.4. Rights of Agent as a Bank..............................39
SECTION 7.5. Indemnification........................................40
SECTION 7.6. Payee of Note Treated as Owner.........................40
SECTION 7.7. Nonreliance on Agent and Other Banks...................40
SECTION 7.8. Failure to Act.........................................41
SECTION 7.9. Resignation of Agent...................................41
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<PAGE>
ARTICLE 8. CHANGE IN CIRCUMSTANCES; COMPENSATION.............................41
SECTION 8.1. Basis for Determining Interest Rate Inadequate
or Unfair..............................................41
SECTION 8.2. Illegality.............................................42
SECTION 8.3. Increased Cost and Reduced Return......................42
SECTION 8.4. Base Rate Loans Substituted for Affected Euro-Dollar
Rate Loans.............................................43
SECTION 8.5. Replacement of a Lender................................44
SECTION 8.6. Compensation...........................................44
ARTICLE 9. MISCELLANEOUS.....................................................45
SECTION 9.1. Notices................................................45
SECTION 9.2. No Waivers.............................................45
SECTION 9.3. Expenses; Documentary Taxes............................45
SECTION 9.4. Indemnification........................................45
SECTION 9.5. Sharing of Setoffs.....................................46
SECTION 9.6. Amendments and Waivers.................................46
SECTION 9.7. No Margin Stock Collateral.............................47
SECTION 9.8. Successors and Assigns.................................47
SECTION 9.9. Confidentiality........................................49
SECTION 9.10. Representation by Banks...............................50
SECTION 9.11. Obligations Several...................................50
SECTION 9.12. GEORGIA LAW...........................................50
SECTION 9.13. Interpretation........................................50
SECTION 9.14. CONSENT TO JURISDICTION...............................50
SECTION 9.15. Counterparts..........................................51
SECTION 9.16. Survival..............................................51
SECTION 9.17. Entire Agreement; Amendment; Severability.............51
SECTION 9.18. TIME OF THE ESSENCE...................................51
SECTION 9.19. Banks Not a Joint Venturer............................51
iii
<PAGE>
EXHIBITS
EXHIBIT A Form of Assignment and Acceptance
EXHIBIT B Form of Revolving Loan Note
EXHIBIT C Form of Notice of Borrowing
EXHIBIT D Form of Opinion of Counsel for Borrower
EXHIBIT E Form of Closing Certificate
EXHIBIT F Form of Secretary's Certificate
EXHIBIT G Form of Compliance Certificate
SCHEDULES
SCHEDULE 4.8 Existing Subsidiaries
SCHEDULE 5.7 Existing Permitted Liens
iv
<PAGE>
CREDIT AGREEMENT
THIS CREDIT AGREEMENT, dated as of December 10, 1997, is made among APPLE
SOUTH, INC., as Borrower; WACHOVIA BANK, NATIONAL ASSOCIATION and any other
party or parties listed as a "Bank" or the "Banks" on the signature page(s)
hereof, as Banks; and WACHOVIA BANK, NATIONAL ASSOCIATION, as Agent for the
Banks.
The parties hereto agree as follows:
ARTICLE 1. DEFINITIONS
SECTION 1.1. Definitions.
The terms as defined in this Section 1.1 shall for all purposes of this
Agreement and any amendment hereto (except as herein otherwise expressly
provided or unless the context otherwise requires), have the meanings set forth
herein:
"Adjusted Capitalization" shall be equal to the sum at any date of: (i)
Adjusted Funded Debt; plus (ii) Stockholders' Equity.
"Adjusted Funded Debt" shall mean and include the sum (without duplication)
of the following, at any date, for the Borrower and its Consolidated
Subsidiaries on a consolidated basis: (i) Total Funded Debt; plus (ii) the
present value (discounted at ten percent (10%) per annum) of the minimum amount
of noncancellable operating lease payments owing by Borrower and such Sub
sidiaries at such date (excluding, however, for this purpose, any such lease
payments owing under the DR Holdings Lease); plus (iii) the present value
(discounted at ten percent (10%) per annum) of the total payments of "Rent"
owing by the Borrower under the DR Holdings Lease for the entire remaining
"Lease Term" (inclusive of the original term and all renewal terms, whether or
not then ef fective), with the terms "Rent" and "Lease Term" as used hereinabove
having the meanings given to such terms in the DR Holdings Lease; plus (iv) all
Redeemable Preferred Stock.
"Adjusted Funded Debt/Adjusted Capitalization Ratio" shall mean the ratio
which (i) the Adjusted Funded Debt of the Borrower and its Consolidated
Subsidiaries at any date bears to (ii) the Adjusted Capitalization of the
Borrower and its Consolidated Subsidiaries at such date.
"Adjusted LIBOR Rate," applicable to any Interest Period, means that
interest rate per annum determined by the Agent to be equal to the quotient
obtained (rounded upwards, if neces sary, to the next higher 1/100th of 1%) by
dividing (i) the applicable LIBOR Rate for such Interest Period by (ii) 1.00
minus the then applicable Euro-Dollar Reserve Percentage (if any).
"Affiliate" means, as to any Person (i) any other Person that directly, or
indirectly through one or more intermediaries, controls such Person (a
"Controlling Person"), (ii) any other Per son which is controlled by or is under
common control with such Person or a Controlling Person, or
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<PAGE>
(iii) any other Person of which such Person owns, directly or indirectly, twenty
percent (20%) or more of the common stock or equivalent equity interests. As
used herein, the term "control" means possession, directly or indirectly, of the
power to direct or cause the direction of the management or policies of a
Person, whether through the ownership of voting securities, by contract or
otherwise.
"Agent" means Wachovia Bank, National Association, a national banking
association organized under the laws of the United States of America, in its
capacity as agent for the Banks hereunder, and its successors and permitted
assigns in such capacity.
"Agent's Address" means the address of Agent referred to or specified in
Section 9.1.
"Agreement" means this Credit Agreement, together with all amendments and
modifications hereto.
"Announcement Date" shall mean that date on which the Borrower announces
publicly, such as by issuance of a press release, that it has entered into a
letter of intent, agreement in principle or similar arrangement with Applebee's
International, Inc. and one or more other franchisees designated by it in
respect of the Applebee's Spinoff.
"Applebee's Spinoff" means the sale or other disposition by the Borrower to
Applebee's International, Inc. and one or more other franchisees, acting in
concert, of at least one hundred thirteen (113) Applebee's store locations owned
by the Borrower for not less than Two Hundred Fifty Million Dollars
($250,000,000), in cash, payable in full upon closing, with closing to occur as
soon as practicable but in any event on or before March 31, 1998, and with
Applebee's International, Inc. being the purchaser of at least sixty-five (65)
of such locations for a cash purchase price of at least One Hundred Sixty-Five
Million Dollars ($165,000,000).
"Applicable Margin" means: (i) for any Base Rate Loan, zero percent (0%);
and (ii) for any Euro-Dollar Rate Loan, one and one-fourth of one percent
(1-1/4%) per annum; plus in each case, for both clauses (i) and (ii) the BumpUp
(if any).
"Assignee" has the meaning set forth in Section 9.8.3.
"Assignment and Acceptance" means an Assignment and Acceptance executed in
accordance with Section 9.8.3 in the form attached hereto as Exhibit A.
"Authority" has the meaning set forth in Section 8.2.
"Bank" means each bank or other financial institution listed on the
signature pages hereof and identified therein as a "Bank." As of the Closing
Date, Wachovia is the only Bank.
"Base Rate" means for any Base Rate Loan for any day, the rate per annum
equal to the higher as of such day of (i) the Prime Rate, and (ii) one-half of
one percent (1/2%) per annum
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<PAGE>
above the Federal Funds Rate. For purposes of determining the Base Rate for any
day, changes in the Prime Rate or the Federal Funds Rate, as the case may be,
shall be effective on the date of each such change.
"Base Rate Loan" means a Revolving Loan made at the Base Rate pursuant to
Section 2.1.
"Borrower" means Apple South, Inc., a Georgia corporation, and its
successors and permitted assigns.
"Borrowing" means a borrowing hereunder consisting of Revolving Loans made
to the Borrower at the same time by the Banks pursuant to Article II. A
Borrowing is a "Base Rate Borrowing" if such Revolving Loans are Base Rate Loans
or a "Euro-Dollar Rate Borrowing" if such Revolving Loans are Euro-Dollar Rate
Loans.
"BumpUp" shall mean: (i) in respect of the Applicable Margin, an increase
of one-fourth of one percent (1/4%) per annum for each increase in interest
rates payable thereunder (other than any related to changes in the Base Rate or
Eurodollar Rate described therein) made effective pursuant to the Other Wachovia
Credit Agreement (defined below) in accordance with the terms thereof; and (ii)
in respect of the commitment fees payable under Section 2.6.2 hereof, an
increase of seventy-five thousandths of one percent (.075%) per annum for each
increase in commitment fees payable thereunder made effective pursuant to the
Other Wachovia Credit Agreement. The "Other Wachovia Credit Agreement" shall be
as described in Section 6.1.14 below.
"Capital Stock" means any nonredeemable capital stock of the Borrower or
any Consolidated Subsidiary (to the extent issued to a Person other than the
Borrower), whether common or preferred.
"Capitalized Lease Obligations" shall mean those liabilities of the
Borrower and its Consolidated Subsidiaries under any leases that are required to
be capitalized for financial reporting purposes in accordance with GAAP, and the
amount of such liabilities shall be the capitalized amount of such liabilities
as determined in accordance with GAAP.
"Cash Flow" shall mean, for any fiscal period of the Borrower and its
Consolidated Subsidiaries, that amount equal to the sum, determined in
accordance with GAAP, of: (i) the Consolidated Net Income of the Borrower and
its Consolidated Subsidiaries for such period, plus (ii) depreciation and
amortization expense and any other non-cash charges for such period, minus (iii)
any non-cash gains recorded in such period.
"CERCLA" means the Comprehensive Environmental Response Compensation and
Liability Act, 42 U.S.C. ss. 9601 et seq. and its implementing regulations and
amendments.
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"CERCLIS" means the Comprehensive Environmental Response Compensation and
Liability Inventory System established pursuant to CERCLA.
"Change of Law" shall have the meaning set forth in Section 8.2.
"Closing Certificate" has the meaning set forth in Section 3.1.4.
"Closing Date" means the date of this Agreement, as first inscribed
hereinabove.
"Code" means the Internal Revenue Code of 1986, as amended, or any
successor Federal tax code.
"Commitment" means Thirty Million Dollars ($30,000,000), in the aggregate
as to all Banks, until the Announcement Date, and Seventy Million Dollars
($70,000,000) thereafter; in each instance, as such amount may be reduced from
time to time pursuant to Section 2.7 or Section 8.5.
"Compliance Certificate" has the meaning set forth in Section 5.1.3.
"Consolidated Net Income," for any period, means the net income of the
Borrower and its Consolidated Subsidiaries for such period, determined on a
consolidated basis in accordance with GAAP, excluding, however, (i) any
extraordinary items and (ii) any equity interest of the Borrower or any
Consolidated Subsidiary in the unremitted earnings of any Person which is not a
Subsidiary, in each case as likewise determined on a consolidated basis in
accordance with GAAP.
"Consolidated Subsidiary" means at any date any Subsidiary or other entity
the accounts of which, in accordance with GAAP, would be consolidated with those
of the Borrower in its consolidated financial statements as of such date.
"Controlled Group" means all members of a controlled group of corporations
and all trades or businesses (whether or not incorporated) under common control
which, together with the Borrower, are treated as a single employer under
Section 414 of the Code.
"Default" means any condition or event which constitutes an Event of
Default or which with the giving of notice or lapse of time or both would,
unless cured and waived, become an Event of Default.
"Default Rate" means, with respect to any Revolving Loan, on any day, the
sum of two percent (2%) per annum in excess of the interest rate otherwise then
or thereafter payable on such Revolving Loan, but, in any event, not less than
two percent (2%) per annum in excess of the Base Rate.
"Dollars" or "$" means dollars in lawful currency of the United States of
America.
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"Domestic Business Day" means any day except a Saturday, Sunday or other
day on which commercial banks are not required to be open for business in the
State of Georgia.
"DR Holdings Lease" shall mean the Lease and Development Agreement, dated
as of March 2, 1995, between DR Holdings, L.P., as lessor, and the Borrower, as
lessee, together with Appendix "A" thereto and each "Lease Supplement" thereto
(as defined therein), all "Operative Documents" (as also defined therein) and
all amendments and modifications thereto made from time to time hereafter.
"Environmental Authorizations" means all licenses, permits, orders,
approvals, notices, registrations or other legal prerequisites for conducting
the business of the Borrower or any Subsidiary required by any Environmental
Requirement.
"Environmental Authority" means any foreign, federal, state, local or
regional government that exercises any form of jurisdiction or authority under
any Environmental Requirement.
"Environmental Judgments and Orders" means all judgments, decrees or orders
arising from or in any way associated with any Environmental Requirements,
whether or not entered upon consent or pursuant to written agreements with an
Environmental Authority or any other entity, arising from or in any way
associated with any Environmental Requirement, whether or not incorpo rated in a
judgment, decree or order.
"Environmental Liabilities" means any liabilities whether accrued,
contingent or otherwise, arising from and in any way associated with any
Environmental Requirements.
"Environmental Notices" means notice from any Environmental Authority or by
any other Person, of possible or alleged noncompliance with or liability under
any Environmental Require ment, including, without limitation any complaints,
citations, demands or requests from any Environmental Authority or from any
other Person for correction of any violation of any Environmental Requirement or
any investigations concerning any violation of any Environmental Requirement.
"Environmental Proceedings" means any judicial or administrative
proceedings arising from or in any way associated with any Environmental
Requirement.
"Environmental Releases" means "releases" as defined in CERCLA or under any
applicable state or local environmental law or regulation.
"Environmental Requirements" means any legal requirement relating to
health, safety or the environment and applicable to the Borrower, any Subsidiary
or any Property, including, but not limited to, any such requirement under
CERCLA or similar state legislation and all federal, state and local laws,
ordinances, regulations, orders, writs, decrees and common law.
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"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, or any successor law. Any reference to any provision
of ERISA shall also be deemed to be a reference to any successor provision or
provisions thereof.
"Euro-Dollar Business Day" means any Domestic Business Day in which
dealings in Dollar deposits are carried out in the London interbank Euro-Dollar
market.
"Euro-Dollar Rate," applicable to any Interest Period, means that interest
rate per annum equal to the sum of (i) the Adjusted LIBOR Rate for such Interest
Period, plus (ii) the Ap plicable Margin.
"Euro-Dollar Rate Loan" means a Revolving Loan made at the Euro-Dollar Rate
pursuant to Section 2.1.
"Euro-Dollar Reserve Percentage" means for any day that percentage
(expressed as a decimal) which is in effect on such day, as prescribed by the
Board of Governors of the Federal Re serve System (or any successor) for
determining the maximum reserve requirement for a member bank of the Federal
Reserve System in respect of "Eurocurrency liabilities" (or in respect of any
other category of liabilities which includes deposits by reference to which the
interest rate on Euro-Dollar Rate Loans is determined or any category of
extensions of credit or other assets which includes loans by a non-United States
office of any Bank to United States residents). The Adjusted LIBOR Rate shall be
adjusted automatically on and as of the effective date of any change in the
Euro-Dollar Reserve Percentage.
"Event of Default" has the meaning set forth in Section 6.1.
"Federal Funds Rate" means, for any day, the rate per annum (rounded
upward, if necessary, to the next higher 1/100th of 1%) equal to the weighted
average of the rates on overnight federal funds transactions with members of the
Federal Reserve System arranged by Federal funds brokers on such day, as
published by the Federal Reserve Bank of New York on the Domestic Business Day
next succeeding such day, provided that (i) if the day for which such rate is to
be determined is not a Domestic Business Day, the Federal Funds Rate for such
day shall be such rate on such transactions on the next preceding Domestic
Business Day as so published on the next succeeding Domestic Business Day, and
(ii) if such rate is not so published for any day, the Federal Funds Rate for
such day shall be the average rate charged to the Agent on such day on such
transactions, as determined by the Agent.
"Fiscal Quarter" means any fiscal quarter of the Borrower.
"Fiscal Year" means any fiscal year of the Borrower.
"Fixed Charge Coverage Ratio" shall mean, for any fiscal period, the ratio
which (A) the sum of: (i) Consolidated Net Income for such period; plus (ii) the
sum (without duplication) of
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(a) interest expense for such period, (b) any dividends paid in respect of
Redeemable Preferred Stock during such period, and (c) any payments made
(howsoever denominated or construed) in respect of any tax deductible,
convertible preferred stock ("TECONS") or similar tax-advantaged investment
vehicles, regardless of maturity or the timing of any redemption or repurchase
rights granted in regard thereto (the sum of (a), (b) and (c) above being
called, collectively, "Investment Costs"); plus (iii) any provision for taxes
and operating lease expense; in each case, for the Borrower and its Consolidated
Subsidiaries for such period; bears to (B) the sum (without duplication) of: (i)
all Investment Costs; plus (ii) operating lease expense; in each case, for the
Borrower and its Consolidated Subsidiaries for the same such period; all as
determined under GAAP.
"Franchise Rights" shall mean all rights, privileges and interests of the
Borrower and its Consolidated Subsidiaries to own, operate and develop
franchised restaurants as a franchisee, whether now or hereafter existing, and
whether with respect to the operation of any "Applebee's" restaurants, any
"Hardee's" restaurants or otherwise.
"GAAP" means generally accepted accounting principles applied on a basis
consistent with those which, in accordance with Section 1.2, are to be used in
making the calculations for pur poses of determining compliance with the terms
of this Agreement.
"Guarantee" or "Guaranty" by any Person means any obligation, contingent or
otherwise, of such Person directly or indirectly guaranteeing any debt or other
obligation of any other Person and, without limiting the generality of the
foregoing, any obligation, direct or indirect, contingent or otherwise, of such
Person (i) to secure, purchase or pay (or advance or supply funds for the
purchase or payment of) such debt or other obligation (whether arising by virtue
of partnership arrangements, by agreement to keep-well, to purchase assets,
goods, securities or services, to provide collateral security to take-or-pay, or
to maintain financial statement conditions or otherwise) or (ii) entered into
for the purpose of assuring in any other manner the obligee of such debt or
other obligation of the payment thereof or to protect such obligee against loss
in respect thereof (in whole or in part), provided that the term "Guarantee"
shall not include endorsements for collection or deposit in the ordinary course
of business. The terms "Guarantee" or "Guaranty" used as a verb has a
corresponding meaning.
"Hazardous Materials" includes, without limitation, (a) solid or hazardous
waste, as defined in the Resource Conservation and Recovery Act of 1980, 42
U.S.C. ss. 6901 et seq. and its implementing regulations and amendments, or in
any applicable state or local law or regulation, (b) "hazardous substance,"
"pollutant," or "contaminant" as defined in CERCLA, or in applicable state or
local law or regulation, (c) gasoline, or any other petroleum product or
by-product, including, crude oil or any fraction thereof, (d) "toxic
substances", as defined in the Toxic Substances Control Act of 1976, or in any
applicable state or local law or regulation, and (e) insecticides, fungicides,
or rodenticides, as defined in the Federal Insecticide, Fungicide, and
Rodenticide Act of 1975, or in any applicable state or local law or regulation,
as each such Act, statute or regulation may be amended from time to time.
"Interest Period" means: (1) with respect to each Euro-Dollar Rate
Borrowing, the period commencing on the date of such Borrowing and ending on the
numerically corresponding date in the first, second, third or sixth calendar
month thereafter, as the Borrower may elect in the applicable Notice of
Borrowing; provided that:
(a) any Interest Period (other than an Interest Period determined pursuant
to paragraph (c) below) which would otherwise end on a day which is not a
Euro-Dollar Business Day shall be extended to the next succeeding Euro-Dollar
Business Day unless such Euro-Dollar Business Day falls in another calendar
month, in which case such Interest Period shall end on the next preceding
Euro-Dollar Business Day;
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(b) any Interest Period which begins on the last Euro-Dollar Business Day
of a calendar month (or on a day for which there is no numerically corresponding
day in the ap propriate subsequent calendar month) shall, subject to paragraph
(c) below, end on the last Euro-Dollar Business Day of the appropriate
subsequent calendar month; and
(c) any Interest Period which begins before the Termination Date and would
otherwise end after the Termination Date shall end on the Termination Date.
(2) with respect to each Base Rate Borrowing, the period commencing on the
date of such Borrowing and ending on the date on which such Base Rate Borrowing
is fully paid or converted to a Euro-Dollar Rate Borrowing; provided that:
(a) any Interest Period (other than an Interest Period determined pursuant
to paragraph (b) below) which would otherwise end on a day which is not a
Domestic Business Day shall be extended to the next succeeding Domestic Business
Day;
(b) any Interest Period which begins before the Termination Date and would
otherwise end after the Termination Date shall end on the Termination Date.
"Lending Office" means, as to each Bank, its office located at its address
set forth on the signature pages hereof (or identified on the signature pages
hereof as its Lending Office) or such other office in the United States as such
Bank may hereafter designate as its Lending Office by notice to the Borrower and
the Agent.
"LIBOR Rate" means, for any Euro-Dollar Rate Loan for the Interest Period
of such Euro-Dollar Rate Loan, the rate per annum determined by the Agent on the
basis of the offered rate for deposits in Dollars of amounts equal or comparable
to the principal amount of such Euro-Dollar Rate Loan offered for a term
comparable to such Interest Period, which rate appears on the display designated
as page "3750" of the Telerate Service (or such other page as may replace page
3750 of that service or such other service or services as may be nominated by
the British Bankers' Association for the purpose of displaying London interbank
offered rates for U.S. dollar deposits), determined as of 11:00 A.M., London
time, two (2) Euro-Dollar Business Days prior to the first day of such In terest
Period, provided that (i) if more than one such offered rate appears on such
page, the "LIBOR Rate" will be the arithmetic average (rounded upward, if
necessary, to the next higher 1/100th of 1%) of such offered rates; (ii) if no
such offered rates appear on such page, the "LIBOR Rate" for such Interest
Period will be the arithmetic average (rounded upward, if necessary, to the next
higher 1/100th of 1%) of rates quoted by not less than two (2) major banks in
New York City, selected by the Agent, at approximately 10:00 A.M., New York City
time, two (2) Euro-Dollar Business Days prior to the first day of such Interest
Period, for deposits in Dollars offered to leading European banks for a period
comparable to such Interest Period in an amount comparable to the principal
amount of such Euro-Dollar Loan.
"Lien" means, with respect to any asset, any mortgage, deed to secure debt,
deed of trust, lien, pledge, charge, security interest, security title or other,
preferential arrangement, which has the practical effect of constituting a
security interest or encumbrance, or encumbrance or servitude of any kind in
respect of such asset to secure or assure payment of a debt or a Guarantee,
whether by consensual agreement or by operation of statute or other law. For
purposes of this Agreement, the Borrower or any Subsidiary shall be deemed to
own subject to a Lien any asset which it has acquired or holds subject to the
interest of a vendor or lessor under any conditional sale agreement, capital
lease or other title retention agreement relating to such asset.
"Loan Documents" means this Agreement, the Notes, any other document
evidencing or relating to the Revolving Loans, and any other document,
instrument, certificate or agreement delivered in connection with this
Agreement, the Notes or the Revolving Loans, as such documents, instruments,
certificates and agreements may be amended or modified from time to time.
"Margin Stock" means "margin stock" as defined in Regulations G, T, U or X.
"Material Adverse Effect" means, with respect to any event, act, condition
or occurrence of whatever nature (including any adverse determination in any
litigation, arbitration, or governmental investigation or proceeding), whether
singly or in conjunction with any other event or events, act or acts, condition
or conditions, occurrence or occurrences, whether or not related, that such
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event or events, act or acts, condition or conditions, and/or occurrence or
occurrences results in a material adverse change in, or has a material adverse
effect upon, any of (a) the financial condition, operations, business, or
properties of Borrower and its Consolidated Subsidiaries taken as a whole, (b)
the rights and remedies of the Agent or the Banks under the Loan Documents, or
the ability of the Borrower to perform its obligations under the Loan Documents
to which it is a party, as applicable, or (c) the legality, validity or
enforceability of this Agreement, any Note or any Loan Document.
"Multiemployer Plan" shall have the meaning set forth in Section 4001(a)(3)
of ERISA.
"Notes" means, collectively, the promissory notes of the Borrower
evidencing the Revolving Loans, each to be substantially in the form of Exhibit
B, together with all amendments, consolidations, modifications, renewals, and
supplements thereto.
"Notice of Borrowing" has the meaning set forth in Section 2.2.1.
"Participant" has the meaning set forth in Section 9.8.2.
"PBGC" means the Pension Benefit Guaranty Corporation or any entity
succeeding to any or all of its functions under ERISA.
"Person" means an individual, a corporation, a partnership, an
unincorporated association, a trust or any other entity or organization,
including, but not limited to, a government or political subdivision or an
agency or instrumentality thereof.
"Plan" means at any time an employee pension benefit plan which is covered
by Title IV of ERISA or subject to the minimum funding standards under Section
412 of the Code and is either (i) maintained by a member of the Controlled Group
for employees of any member of the Controlled Group or (ii) maintained pursuant
to a collective bargaining agreement or any other arrangement under which more
than one employer makes contributions and to which a member of the Controlled
Group is them making or accruing an obligation to make contributions or has
within the preceding five plan years made contributions.
"Prime Rate" refers to that interest rate so denominated and set by
Wachovia from time to time as an interest rate basis for borrowings. The Prime
Rate is but one of several interest rate bases used by Wachovia. Wachovia lends
at interest rates at, above and below the Prime Rate.
"Prior Credit Agreement" shall mean the Credit Agreement, dated as of
October 20, 1997, among the parties hereto, which is being superseded and
replaced by this Agreement.
"Properties" means all property owned, leased or otherwise used, operated
or occupied by the Borrower or any Subsidiary, wherever located, and whether
real property or personal property.
"Purchase Money Liens" means Liens securing the repayment of any purchase
money debt permitted hereunder incurred to finance the purchase of any Property
hereafter acquired by the Borrower or any Consolidated Subsidiary, so long as
such Liens are limited solely to the Property so acquired, secure only the
purchase money debt so incurred and are terminated upon payment in full of such
purchase money debt.
"Redeemable Preferred Stock" of any Person means any preferred stock issued
by such Person which is at any time prior to the Termination Date either (i)
mandatorily redeemable (by sinking fund or similar payments or otherwise) or
(ii) redeemable at the option of the holder thereof.
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"Regulation D" means Regulation D of the Board of Governors of the Federal
Reserve System, as in effect from time to time, together with all official
rulings and interpretations issued thereunder.
"Regulation G" means Regulation G of the Board of Governors of the Federal
Reserve System, as in effect from time to time, together with all official
rulings and interpretations issued thereunder.
"Regulation T" means Regulation T of the Board of Governors of the Federal
Reserve System, as in effect from time to time, together with all official
rulings and interpretations issued thereunder.
"Regulation U" means Regulation U of the Board of Governors of the Federal
Reserve System, as in effect from time to time, together with all official
rulings and interpretations issued thereunder.
"Regulation X" means Regulation X of the Board of Governors of the Federal
Reserve System, as in effect from time to time, together with all official
rulings and interpretations issued thereunder.
"Required Banks" means any Bank or Banks having (i) more than fifty percent
(50%) of the aggregate amount of the Commitments or (ii), if the Commitments are
no longer in effect, more than fifty percent (50%) of the aggregate outstanding
principal amount of the Notes.
"Revolving Loan" means, as to any Bank, a Base Rate Loan or a Euro-Dollar
Rate Loan made by such Bank pursuant to Section 2.1.
"Solvent" means as to any Person, that such Person (i) owns Property whose
fair saleable value is greater than the amount required to pay all of such
Person's total debts, direct or indirect, contingent or otherwise, (ii) is able
to pay all of such debts as and when such debts mature and (iii) has capital
sufficient to carry on the business and transactions in which it is engaged and
all business and transactions in which it is about to engage.
"Stockholders' Equity" means, at any time, the stockholders' equity of the
Borrower and its Consolidated Subsidiaries, as set forth or reflected on the
most recent consolidated balance sheet of the Borrower and its Consolidated
Subsidiaries prepared in accordance with GAAP, but excluding any Redeemable
Preferred Stock of the Borrower or any of its Consolidated Subsidiaries.
Shareholders' Equity generally would include, but not be limited to (i) the par
or stated value of all outstanding Capital Stock, (ii) capital surplus, (iii)
retained earnings, and (iv) various deductions such as (A) purchases of treasury
stock, (B) valuation allowances, (C) receivables due from an employee stock
ownership plan, and (D) employee stock ownership plan debt Guarantees.
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"Subsidiary" means any corporation or other entity of which securities or
other ownership interests having ordinary voting power to elect a majority of
the board of directors or other Persons performing similar functions are at the
time directly or indirectly owned by the Borrower.
"Synthetic Lease" shall mean any agreement, or series of related
agreements, between the Borrower and one or more other parties which are
intended to be treated, for accounting purposes, as an operating lease with the
Borrower as lessee and, for tax purposes, as a financing arrangement with the
Borrower as debtor.
"Tangible Net Worth" shall mean the difference at any time between (i) the
Stockholders Equity of the Borrower and its Consolidated Subsidiaries at such
time and (ii) the sum of all those assets of the Borrower and its Consolidated
Subsidiaries at such time constituting (A) goodwill, patents, copyrights,
trademarks, trade names and other intangible assets, as determined under GAAP,
plus (B) write-ups of any assets occurring subsequent to December 31, 1996, plus
(C) unamortized debt discount and expense, as determined under GAAP, plus (D)
deferred charges, as determined under GAAP, plus (E) any indebtedness owing to
such Person by any Affiliate of such Person.
"Termination Date" has the meaning set forth in Section 2.7.1.
"Third Parties" means all lessees, sublessees, licensees and other users of
the Properties, excluding those users of the Properties in the ordinary course
of the Borrower's business and on a temporary basis.
"Total Funded Debt" shall mean that portion of the total liabilities of the
Borrower and its Consolidated Subsidiaries at any date equal to the sum (without
duplication) of: (i) all in debtedness for borrowed money at such date
(including, for this purpose, indebtedness in respect of any outstanding
bankers' acceptances); plus (ii) all Capitalized Lease Obligations outstanding
at such date; plus (iii) all debts, liabilities and obligations which are
Guaranteed by the Borrower or any Consolidated Subsidiary as of such date; plus
(iv) all debts, liabilities or obligations at such date to any seller incurred
to pay the deferred price of property or services having a deferred purchase
price of One Million Dollars ($1,000,000) or more, excepting, in any event,
trade accounts payable arising in the ordinary course of business and purchase
options prior to their exercise; plus (v) all debts, liabilities and obligations
outstanding at such date in respect of any Synthetic Leases, excluding
therefrom, however, any debts, liabilities or obligations under the DR Holdings
Lease up to a maximum thereof of Twenty-Eight Million Dollars ($28,000,000), it
being understood and agreed that, subject to such limitation, no debts,
liabilities or obligations (including any constituting Guaranteed Obligations)
under the DR Holdings Lease shall be included in the definition of Total Funded
Debt.
"Transferee" has the meaning set forth in Section 9.8.4.
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"Unfunded Vested Liabilities" means, with respect to any Plan at any time,
the amount (if any) by which (i) the present value of all vested nonforfeitable
benefits under such Plan exceeds (ii) the fair market value of all Plan assets
allocable to such benefits, all determined as of the then most recent valuation
date for such Plan, but only to the extent that such excess represents a
potential liability of a member of the Controlled Group to the PBGC or the Plan
under Title IV of ERISA.
"Unused Commitment" means at any date, with respect to any Bank, an amount
equal to its Commitment less the aggregate outstanding principal amount of its
Revolving Loans.
"Voluntary Store Closing" shall mean any voluntary closing by the Borrower
or any Subsidiary of any franchised restaurant location in the ordinary course
of its business which does not cause, or result in, the forfeiture, suspension,
loss, rejection, disclaimer, impairment, curtailment, alteration of, or other
adverse effect on, any Franchise Rights with respect to the operation or
development of any other existing or future franchised restaurant location or
locations.
"Wachovia" means Wachovia Bank, National Association, a national banking
associa tion, and its successors.
SECTION 1.2. Accounting Terms and Determinations.
Unless otherwise specified herein, all terms of an accounting character
used herein shall be interpreted, all accounting determinations hereunder shall
be made, and all financial statements required to be delivered hereunder shall
be prepared in accordance with GAAP, applied on a basis consistent (except for
changes concurred with by the Borrower's independent public ac countants or
otherwise required by a change in GAAP) with the then most recent audited
consolidated financial statements of the Borrower and its Consolidated
Subsidiaries delivered to the Banks; provided, however, that upon any change in
GAAP material to Borrower occurring hereafter, the Banks shall have the right to
require either that conforming adjustments be made to any financial covenants
hereafter set forth, or the components thereof, affected by such change or that
the Borrower report its financial condition based on GAAP as in effect
immediately prior to such change occurring.
SECTION 1.3. References.
Unless otherwise indicated, references in this Agreement to "Articles,"
"Exhibits," "Schedules," "Sections" and other Subdivisions are references to
articles, exhibits, schedules, sections and other subdivisions hereof.
SECTION 1.4. Use of Defined Terms.
All terms defined in this Agreement shall have the same defined meanings
when used in any of the other Loan Documents, unless otherwise defined therein
or unless the context shall re quire otherwise.
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SECTION 1.5. Terminology.
All personal pronouns used in this Agreement, whether used in the
masculine, feminine or neuter gender, shall include all other genders; the
singular shall include the plural, and the plural shall include the singular.
Titles of Articles and Sections in this Agreement are for convenience only, and
neither limit nor amplify the provisions of this Agreement.
ARTICLE 2. THE CREDIT
SECTION 2.1. Commitments to Lend.
Each Bank severally agrees, on the terms and conditions set forth herein,
to make Re volving Loans to the Borrower from time to time before the
Termination Date; provided that, im mediately after each such Revolving Loan is
made, (i) the aggregate principal amount of Revolving Loans by such Bank shall
not exceed the amount of its Commitment, and (ii) the aggregate principal amount
of Revolving Loans by all Banks shall not exceed Thirty Million Dollars
($30,000,000), until the Announcement Date, and Seventy Million Dollars
($70,000,000) thereafter. Each Borrowing under this Section shall be in an
aggregate principal amount of One Million Dollars ($1,000,000) or any larger
multiple of Five Hundred Thousand Dollars ($500,000), in the case of Base Rate
Loans, and in an aggregate principal amount of Two Million Dollars ($2,000,000)
or any larger multiple of One Million Dollars ($1,000,000), in the case of
Euro-Dollar Rate Loans (except that any such Borrowing may be in the aggregate
amount of the Unused Commitments), and shall be made from the several Banks
ratably in proportion to their respective Commitments. Within the foregoing
limits, the Borrower may borrow under this Section, repay or, to the extent
permitted by Section 2.8, prepay Revolving Loans and reborrow under this Section
at any time or from time to time before the Termination Date.
SECTION 2.2. Method of Borrowing.
2.2.1. Notice to Agent. The Borrower shall give the Agent notice (a "Notice
of Borrowing"), which shall be substantially in the form of Exhibit C, not later
than 11:00 a.m. (Atlanta, Georgia time) on the Domestic Business Day of each
Base Rate Borrowing and not later than 11:00 a.m. (Atlanta, Georgia time) at
least three (3) Euro-Dollar Business Days before each Euro-Dollar Borrowing,
specifying:
(a) the date of such Borrowing, which shall be a Domestic Business Day in
the case of a Base Rate Borrowing or a Euro-Dollar Business Day in the case of a
Euro-Dollar Borrowing,
(b) the aggregate amount of such Borrowing,
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(c) whether the Revolving Loans comprising such Borrowing are to be Base
Rate Loans or Euro-Dollar Rate Loans, and
(d) the duration of the Interest Period applicable thereto, subject to the
provisions of the definition of Interest Period.
2.2.2 Notice to Banks. Upon receipt of a Notice of Borrowing, the Agent
shall promptly notify each Bank of the contents thereof and of such Bank's
ratable share of such Bor rowing and such Notice of Borrowing shall not
thereafter be revocable by the Borrower.
2.2.3 When Revolving Loans Made. Not later than 1:00 P.M. (Atlanta, Georgia
time) on the date of each Base Rate Borrowing and not later than 11:00 A.M.
(Atlanta, Georgia time) on the date of each Euro-Dollar Borrowing, each Bank
shall (except as provided in Section 2.2.4) make available its ratable share of
such Borrowing, in federal or other funds immediately available in Atlanta,
Georgia, to the Agent at the Agent's address. Unless the Agent determines that
any applicable condition specified in Article 3 has not been satisfied, the
Agent will make the funds so received from the Banks available to the Borrower
at the Agent's Address. Unless the Agent receives notice from a Bank, at the
Agent's Address, no later than 12:00 noon (Atlanta, Georgia time) on the date of
a Base Rate Borrowing and no later than 4:00 P.M. (Atlanta, Georgia time) on the
Domestic Business Day before the date of a Euro-Dollar Rate Borrowing stating
that such Bank will not make a Revolving Loan in connection with such Borrowing,
the Agent shall be entitled to assume that such Bank will make a Revolving Loan
in connection with such Borrowing and, in reliance on such assumption, the Agent
may (but shall not be obligated to) make available such Bank's ratable share of
such Borrowing to the Borrower for the account of such Bank on the date of such
Borrowing. If the Agent makes such Bank's ratable share available to the
Borrower and such Bank does not in fact make its ratable share of such Borrowing
available on such date, the Agent shall be entitled to recover such Bank's
ratable share from such Bank or the Borrower (and for such purpose shall be
entitled to charge such amount to any account of the Borrower maintained with
the Agent), together with interest thereon for each day during the period from
the date of such Borrowing until such sum shall be paid in full at a rate per
annum equal to the rate at which the Agent determines that it obtained (or could
have obtained) overnight Federal funds to cover such amount for each such day
during such period, provided that any such payment by the Borrower of such
Bank's ratable share and interest thereon shall be without prejudice to any
rights that the Borrower may have against such Bank. If the Agent does not
exercise its option to advance funds for the account of such Bank, it shall
forthwith notify the Borrower of such decision.
2.2.4 Application of Certain Proceeds. If any Bank makes a Revolving Loan
hereunder on a day on which the Borrower is to repay all or any part of an
outstanding Revolving Loan from such Bank, such Bank shall apply the proceeds of
its new Revolving Loan to make such repayment and only an amount equal to the
difference (if any) between the amount being borrowed and the amount being
repaid shall be made available by such Bank to the Agent as provided in Section
2.2.3, or remitted by the Borrower to the Agent, as the case may be.
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2.2.5 No Borrowing Upon Default. Notwithstanding anything to the contrary
contained in this Agreement, no Borrowing may be made if there shall have
occurred a Default, which Default shall not have been cured or waived.
2.2.6 Certain Payments Deemed Made. If the Borrower is otherwise entitled
under this Agreement to repay any Revolving Loans maturing at the end of an
Interest Period applicable thereto with the proceeds of a new Borrowing, and the
Borrower fails to repay such Revolving Loans using its own moneys and fails to
give a Notice of Borrowing in connection with such new Borrowing, the Banks, at
their election (and without obligation) may deem that a new Base Rate Borrowing
shall have been made on the date such Revolving Loans mature in an amount equal
to the principal amount of the Revolving Loans so maturing, with an Interest
Period of not greater than one (1) month.
2.2.7 Limitation on Borrowings. Notwithstanding anything to the contrary
contained herein, there shall not be more than six (6) Euro-Dollar Rate
Borrowings outstanding at any given time.
SECTION 2.3. Notes.
2.3.1 Single Notes. The Revolving Loans of each Bank shall be evidenced by
a single Revolving Loan Note payable to the order of such Bank for the account
of its Lending Office in an amount equal to the original principal amount of
such Bank's Commitment.
2.3.2 Endorsements to Notes. Upon receipt of each Bank's Note pursuant to
Section 3.1.2, the Agent shall deliver such Note to such Bank. Each Bank may
record and, prior to any transfer of its Note shall, endorse on the schedule
forming a part thereof appropriate notations to evidence the date, amount and
maturity of each Revolving Loan made by it, the date and amount of each payment
of principal made by the Borrower with respect thereto and whether such
Revolving Loan is a Base Rate Loan or Euro-Dollar Rate Loan, and such schedule
shall constitute rebuttable presumptive evidence of the principal amount owing
and unpaid on such Bank's Note; provided that the failure of any Bank to make
any such recordation or endorsement shall not affect the obligation of the
Borrower hereunder or under the Notes. Each Bank is hereby irrevocably
authorized by the Borrower so to endorse its Notes and to attach to and make a
part of any Note a continuation of any such schedule as and when required.
SECTION 2.4. Maturity of Revolving Loans.
Each Revolving Loan included in any Borrowing shall mature, and the
principal amount thereof shall be due and payable, on the last day of the
Interest Period applicable to such Borrowing.
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SECTION 2.5. Interest Rates.
Subject to the terms of Section 8.1:
2.5.1 Base Rate Loans. Each Base Rate Loan shall bear interest on the out
standing principal amount thereof, for the Interest Period applicable thereto,
at a rate per annum equal to the Base Rate, as it may change from time to time
during such Interest Period, plus the Applicable Margin. Such interest shall be
payable monthly, in arrears, on the last day of each calendar month, in respect
of interest accrued in such month (or portion thereof), commencing on October
31, 1997 (with the first payment date to cover the period from the Closing Date
until October 31, 1997), until maturity and thereafter on demand. Any overdue
principal of and, to the extent permitted by applicable law, overdue interest on
any Base Rate Loan shall bear interest, payable on demand, for each day until
paid at a rate per annum equal to the Default Rate.
2.5.2 Euro-Dollar Rate Loans. Each Euro-Dollar Rate Loan shall bear
interest on the outstanding principal amount thereof, for the Interest Period
applicable thereto, at the Euro-Dollar Rate for such Interest Period. Such
interest shall be payable for each Interest Period on the last day thereof;
provided, however, if any Interest Period is for a period of more than three (3)
months, accrued interest shall also be due and payable at the end of each
consecutive three (3) month period within such Interest Period, commencing with
the first day thereof, as well as on the last day thereof. Any overdue principal
of and, to the extent permitted by law, overdue interest on any Euro- Dollar
Rate Loan shall bear interest, payable on demand, for each day until paid at a
rate per annum equal to the Default Rate; provided that the mere application of
the Default Rate to these Revolving Loans shall not give rise to the breakage of
an Interest Period, but only an increased margin applicable to these Revolving
Loans.
2.5.3 Agent to Determine. The Agent shall determine each interest rate ap
plicable to the Revolving Loans hereunder. The Agent shall give prompt notice to
the Borrower and the Banks by telecopier of each rate of interest so determined,
and its determination thereof shall be conclusive in the absence of manifest
error.
2.5.4 Savings Clause. In no contingency or event whatsoever, whether by
reason of advancement of the proceeds hereof or otherwise, shall the amount paid
or agreed to be paid to the Banks for the use, forbearance or detention of money
advanced hereunder exceed the highest lawful rate permissible under any law
which a court of competent jurisdiction may deem applicable hereto. In the event
that such a court determines that any Bank has charged or received interest
hereunder in excess of the highest applicable rate, such rate shall
automatically be reduced to the maximum rate permitted by applicable law and
such Bank shall promptly refund to the Borrower any interest received by such
Bank in excess of the maximum lawful rate or, if so requested by the Borrower,
shall apply such excess to the principal balance of that Bank's Note. It is the
intent hereof that the Borrower not pay or contract to pay, and that the Banks
not receive or contract to receive, directly or indirectly in any manner
whatsoever, interest in excess of that which may be paid by the Borrower under
applicable law.
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SECTION 2.6. Fees.
2.6.1 Upfront Fee. On the Closing Date, the Banks shall have earned an
upfront fee of Two Hundred Thousand Dollars ($200,000), which shall be paid as
follows: (i) a portion of such fee, equal to Forty Thousand Dollars ($40,000),
shall be credited to Borrower's account and deemed paid on the Closing Date,
provided that, by such date, the Borrower has paid in full the upfront fee
payable pursuant to Section 2.6.1 of the Prior Credit Agreement; (ii) a portion
of such fee, equal in amount, to Thirty-Five Thousand Dollars ($35,000), shall
be paid to the Agent on the Closing Date for the account of each Bank; and (iii)
the remainder of such fee, equal in amount to One Hundred Twenty-Five Thousand
Dollars ($125,000), shall be due and payable to the Agent for the account of the
Banks on the Announcement Date.
2.6.2 Commitment Fees. The Borrower shall pay to the Agent for the account
of each Bank an unused commitment fee calculated at the per annum rate described
below on the average daily amount of such Bank's Unused Commitment. Such
commitment fees shall accrue from and including the Closing Date and be due and
payable quarterly in arrears, commencing on December 31, 1997 and continuing on
each succeeding December 31, March 31, June 30 and September 30 thereafter. The
per annum rate applicable to the payment of the foregoing commitment fees shall
be thirty hundredths of one percent (.30%) per annum plus the BumpUp (if any).
2.6.3 Other Fees. The Borrower shall pay to the Agent, for the account and
sole benefit of the Agent, such fees and other amounts at such times as set
forth in any present or subsequent agreement made between the Borrower and the
Agent.
SECTION 2.7. Termination or Reduction of Commitments.
2.7.1 Termination of Commitments. The Commitments shall terminate on that
date (the "Termination Date"), which is the earlier to occur of: (i) March 31,
1998, or (ii) the date on which the Borrower or any of its Consolidated
Subsidiaries incurs any indebtedness for borrowed money (howsoever denominated,
created or incurred, and whether direct or indirect, or as maker, surety,
endorser, guarantor or otherwise) not in existence on, or contracted for, as of
the Closing Date; or (iii) the date on which the Applebee's Spinoff is
consummated. For purposes of clause (ii) above, (A) any increase subsequent to
the Closing Date in credit lines or credit facilities, of whatsoever sort,
existing on the Closing Date, or (B) any refinancing (other than any where
Wachovia is the agent and a lender) of indebtedness under the credit agreement
described in Section 6.1.14 shall be considered new indebtedness for borrowed
money, triggering a Termination Date.
2.7.2 Voluntary Ratable Reductions of Commitments. The Borrower shall have
the further right to reduce ratably the Commitments of the Banks at any time or
from time to time, in the minimum amount of Five Million Dollars ($5,000,000)
per reduction and integral multiples of One Million Dollars ($1,000,000) beyond
such minimum amount, provided that (i) the Borrower shall have given the Agent
at least three (3) Domestic Business Days' advance written notice of such
election, (ii) as necessary, the Borrower shall have reduced, by repayment or
prepayment in accordance with the terms of Section 2.9, as the case may be, its
Borrowings by that amount necessary to cause total Borrowings then outstanding
not to exceed the aggregate amount
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of the reduced Commitments and (iii any Commitments once so reduced shall
not be reinstated by the Banks.
SECTION 2.8. Optional Prepayments.
The Borrower may, on any Business Day, upon giving notice to the Agent by
not later than 11:00 A.M. (Atlanta, Georgia time) on such Business Day, and
making payment to the Agent, for the ratable benefit of the Banks, on such
Business Day of any compensation required by Section 8.6, prepay any Base Rate
Borrowing in whole at any time, or from time to time in part in amounts
aggregating at least One Million Dollars ($1,000,000) and integral multiples of
Five Hundred Thousand Dollars ($500,000), by paying the principal amount to be
prepaid together with accrued interest thereon to the date of prepayment. Each
such optional prepayment shall be applied to prepay ratably the Revolving Loans
of the several Banks included in such Borrowing. Upon receipt of a no tice of
prepayment pursuant to this Section 2.8, the Agent shall promptly notify each
Bank of the con tents thereof and of such Bank's ratable share of such
prepayment and such notice shall not thereafter be revocable by the Borrower.
SECTION 2.9. Mandatory Prepayments.
On each date, if any, on which the Commitments are terminated or reduced
pursuant to Section 2.7, the Borrower shall repay or prepay such principal
amount of the outstanding Revolving Loans, if any, as may be necessary so that
after such payment the aggregate unpaid principal amount of the Revolving Loans
is reduced to zero, in the case of any termination, or does not exceed the
aggregate amount of the Commitments as then reduced, in the case of any
reduction, plus, in each case, accrued interest thereon to the date of
prepayment and any compensation required by Section 8.6.
SECTION 2.10. General Provisions as to Payments.
2.10.1 Timing. The Borrower shall make each payment of principal of, and
interest on, the Revolving Loans and of commitment and other fees hereunder, not
later than 11:00 A.M. (Atlanta, Georgia time) on the date when due, in federal
or other funds immediately available in Atlanta, Georgia, to the Agent's
Address. The Agent will promptly distribute to each Bank its rat able share of
each such payment received by the Agent for the account of the Banks.
2.10.2 Next Banking Day. Whenever any payment of principal of, or interest
on, any Base Rate Loans or of commitment or other fees shall be due on a day
which is not a Domestic Business Day, the date for payment thereof shall be
extended to the next succeeding Domestic Business Day. Whenever any payment of
principal of or interest on, the Euro-Dollar Rate Loans shall be due on a day
which is not a Euro-Dollar Business Day, the date for payment thereof shall be
extended to the next succeeding Euro-Dollar Business Day unless such Euro-Dollar
Business Day falls in another calendar month, in which case the date for payment
thereof shall be the next preceding Euro-Dollar Business Day.
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SECTION 2.11. Computation of Interest and Fees.
Interest on the Revolving Loans shall be computed on the basis of a year of
360 days and paid for the actual number of days elapsed, calculated as to each
Interest Period from and including the first day thereof to but excluding the
last day thereof. Commitment fees and any other fees payable hereunder on a per
annum basis shall be computed on the basis of a year of 360 days and paid for
the actual number of days elapsed (including the first day but excluding the
last day).
ARTICLE 3. CONDITIONS TO BORROWINGS
SECTION 3.1. Conditions to First Borrowing.
The obligation of each Bank to make a Revolving Loan on the occasion of the
first Borrowing is subject to the satisfaction of the conditions set forth in
Section 3.2 and receipt by the Agent of the following in a sufficient number of
counterparts (except as to the Notes) for delivery of a counterpart to each Bank
and retention of one counterpart by the Agent):
3.1.1 This Agreement. From each of the parties hereto of either (i) a duly
executed counterpart of this Agreement signed by such party or (ii) a facsimile
transmission stating that such party has duly executed a counterpart of this
Agreement and sent such counterpart to the Agent;
3.1.2 Notes. A duly executed Note for the account of each Bank complying
with the provisions of Section 2.3;
3.1.3 Opinion. An opinion (together with any opinions of local counsel
relied on therein) of legal counsel for the Borrower, dated as of the Closing
Date, substantially in the form of Exhibit D and covering such additional
matters relating to the transactions contemplated hereby as the Agent or any
Bank may reasonably request;
3.1.4 Closing Certificate. A certificate ("Closing Certificate"), dated as
of the Closing Date, substantially in the form of Exhibit E, signed by the chief
financial officer of the Borrower, to the effect that (i) no Default has
occurred and is continuing on the date of the first Borrowing and (ii) the
representations and warranties of the Borrower contained in Article 4 are true
on and as of the Closing Date;
3.1.5 Other Documents. All documents which the Agent or any Bank may
reasonably request relating to the existence of the Borrower, the corporate
authority for and the validity of this Agreement, the Notes and the other Loan
Documents, and any other matters relevant hereto, all in form and substance
satisfactory to the Agent, including, without limitation, a certificate of
incumbency of the Borrower, signed by the Secretary or an Assistant Secretary of
the Borrower, in substantially the form of Exhibit F, certifying as to the
names, true signatures and incumbency of
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the officer or officers of the Borrower authorized to execute and deliver the
Loan Documents and the action taken by the Board of Directors of the Borrower
authorizing the Borrower's execution, delivery and performance of this
Agreement.
3.1.6 Borrowing Notice. A Notice of Borrowing.
In addition, the credit facility created pursuant to the credit agreement
described in the first sentence of Section 5.11 below shall have been terminated
in conjunction with, and as part of, the refinancing of the existing
indebtedness of Borrower thereunder on the Closing Date.
SECTION 3.2. Conditions to All Borrowings.
The obligation of each Bank to make a Revolving Loan on the occasion of
each Borrowing is subject to the satisfaction of the following conditions:
3.2.1 Notice. Receipt by the Agent of a Notice of Borrowing;
3.2.2 No Default. The fact that, immediately before and after such
Borrowing, no Default shall have occurred and be continuing;
3.2.3 Truth of Representations. The fact that the representations and
warranties of the Borrower contained in Article 4 of this Agreement shall be
true on and as of the date of such Borrowing; and
3.2.4 Not Overadvance. The fact that, immediately after such Borrowing, the
aggregate outstanding principal amount of the Revolving Loans of each Bank will
not exceed the amount of its Commitment.
Each Borrowing hereunder shall be deemed to be a representation and warranty by
the Borrower on the date of such Borrowing as to the facts specified in Sections
3.2.2, 3.2.3 and 3.2.4.
ARTICLE 4. REPRESENTATIONS AND WARRANTIES
The Borrower represents and warrants that:
SECTION 4.1. Corporate Existence and Power.
Each of the Borrower and each Subsidiary is a corporation duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
incorporation, is duly qualified to transact business in every jurisdiction
where, by the nature of its business, such qualification is necessary, and has
all corporate powers and all governmental licenses, authorizations, consents and
approvals required to carry on its business as now conducted, except where the
failure to so qualify,
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or obtain such licenses, authorizations, consents or approvals could not be
reasonably expected to have or cause a Material Adverse Effect.
SECTION 4.2. Corporate and Governmental Authorization; No Contravention.
The execution, delivery and performance by the Borrower of this Agreement,
the Notes and the other Loan Documents (i) are within the Borrower's corporate
powers, (ii) have been duly authorized by all necessary corporate action, (iii)
require no action by or in respect of or filing with, any governmental body,
agency or official, (iv) do not contravene, or constitute a default under, any
provision of applicable law or regulation or of the articles of incorporation or
by-laws of the Borrower or, to the best of the Borrower's knowledge, of any
material agreement, judgment, injunction, order, decree or other instrument
binding upon the Borrower or any of its Subsidiaries, and (v) do not result in
the creation or imposition of any Lien on any asset of the Borrower or any of
its Subsidiaries.
SECTION 4.3. Binding Effect.
This Agreement constitutes a valid and binding agreement of the Borrower
enforceable in accordance with its terms, and the Notes and the other Loan
Documents, when executed and delivered in accordance with this Agreement, will
constitute valid and binding obligations of the Bor rower enforceable in
accordance with their respective terms, provided that the enforceability hereof
and thereof is subject in each case to general principles of equity and to
bankruptcy, insolvency and similar laws affecting the enforcement of creditors'
rights generally.
SECTION 4.4. Financial Information; No Material Adverse Effect.
The audited balance sheet of the Borrower and its Consolidated Subsidiaries
as of the Fiscal Year ended closest to December 31, 1996, and the related
consolidated audited statements of income, shareholders' equity and cash flows
of the Borrower and its Consolidated Subsidiaries for the Fiscal Year then
ended, copies of which have been delivered to each of the Banks, and the
unaudited financial statements of the Borrower and its Consolidated Subsidiaries
as of and for the Fiscal Quarter ended closest to June 30, 1997, copies of which
have been delivered to each of the Banks, fairly present, in conformity with
GAAP, the financial position of the Borrower and its Consolidated Subsidiaries
as of such dates and the results of its operations and cash flow for such
periods stated; provided, that, (i) the interim statements remain subject to
normal year-end audit adjustments and (ii) during the term of this Agreement
after the Closing Date, future representations as to the matters set forth in
this sentence shall be deemed to refer to the most recent financial statements
delivered pursuant to Sections 5.1.1 and 5.1.2. Since December 31, 1996, there
has been no event, act, condition or occurrence having or which could be
expected to have a Material Adverse Effect, except for matters disclosed in the
quarterly financial statements referred to above; provided that during the term
of this Agreement following the Closing Date, future representations as to
matters set forth in this sentence shall be deemed to refer to the last day of
the most recent audited financial statements delivered by the Borrower pursuant
to Section 5.1.1.
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SECTION 4.5. No Litigation.
There is no action, suit or proceeding pending, or to the knowledge of the
Borrower threatened, against or affecting the Borrower or any of its
Subsidiaries before any court or arbitrator or any governmental body, agency or
official which could have a Material Adverse Effect or which in any manner draws
into question the validity of, or could impair the ability of the Borrower to
perform its obligations under, this Agreement, the Notes or any of the other
Loan Documents.
SECTION 4.6. Compliance with Laws Generally; Compliance with ERISA.
The Borrower and each Subsidiary are in compliance in all material respects
with applicable laws (including, but not limited to, ERISA), regulations and
similar requirements of gov ernmental authorities (including, but not limited
to, PBGC), noncompliance with which could have or cause a Material Adverse
Effect, except where the necessity of such compliance is being contested in good
faith through appropriate proceedings. To the best of the Borrower's knowledge,
(i) the Bor rower and each member of the Controlled Group have fulfilled their
respective obligations under the minimum funding standards of ERISA and the Code
with respect to each Plan and are in compliance in all material respects with
the presently applicable provisions of ERISA and the Code, and have not incurred
any liability to the PBGC or a Plan under Title IV of ERISA; and (ii) neither
the Borrower nor any member of the Controlled Group is or ever has been
obligated to contribute to any Multiemployer Plan.
SECTION 4.7. Taxes.
There have been filed on behalf of the Borrower and its Subsidiaries all
federal, state and local income, excise, property and other tax returns which
are required to be filed by them and all taxes due pursuant to such returns or
pursuant to any assessment received by or on behalf of the Borrower or any
Subsidiary have been paid, except for amounts that either are immaterial or are
being disputed in good faith and by appropriate proceedings. The charges,
accruals and reserves on the books of the Borrower and its Subsidiaries in
respect of taxes or other governmental charges are, in the opinion of the
Borrower, adequate.
SECTION 4.8. Subsidiaries.
As of the Closing Date, the Borrower has no Subsidiaries, except for the
Subsidiaries set forth on Schedule 4.8, all of which are Consolidated
Subsidiaries.
SECTION 4.9. Not a Holding Company, Public Utility, Investment Company,
Investment Adviser.
Neither the Borrower nor any Subsidiary is a "holding company," or a
"subsidiary company" of a "holding company," or an "affiliate" of a "holding
company" or of a "subsidiary
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company" of a "holding company," or a "public utility," within the meaning of
the Public Utility Holding Company Act of 1935, as amended; or a "public
utility" within the meaning of the Federal Power Act, as amended; or an
"investment company" or a company "controlled" by an "investment company" within
the meaning of the Investment Company Act of 1940, as amended; or an "investment
adviser" within the meaning of the Investment Advisers Act of 1940, as amended.
SECTION 4.10. Ownership of Property; Liens.
The Borrower owns Properties, or interests in Properties, sufficient for
the conduct of its business; and none of such Properties is subject to any Lien
except as permitted in Section 5.8.
SECTION 4.11. No Default.
Neither the Borrower nor any of its Subsidiaries is in default under or
with respect to any agreement, instrument or undertaking to which it is a party
or by which it or any of its property is bound which could have or cause a
Material Adverse Effect. No Default has occurred and is con tinuing.
SECTION 4.12. Full Disclosure.
All written information and, to the best of the Borrower's knowledge, all
other information, heretofore furnished by the Borrower to the Agent or any Bank
for purposes of or in connection with this Agreement or any transaction
contemplated hereby is, and all such information hereafter furnished by the
Borrower to the Agent or any Bank will be, true, accurate and complete in every
material respect or based on reasonable estimates on the date as of which such
information is stated or certified. The Borrower has disclosed to the Banks in
writing any and all facts which could reasonably be expected to have or cause a
Material Adverse Effect.
SECTION 4.13. Environmental Matters.
To the best of the Borrower's knowledge, (i) neither the Borrower nor any
Subsidiary is subject to any Environmental Liability which could have or cause a
Material Adverse Effect and neither the Borrower nor any Subsidiary has been
designated as a potentially responsible party under CERCLA or under any state
statute similar to CERCLA. None of the Properties located in the United States,
owned by either the Borrower or a Subsidiary, has been identified on any current
or proposed (A) National Priorities List under 40 C.F.R. ss. 300, (B) CERCLIS
list or (C) any list arising from a state statute similar to CERCLA; (ii) to the
best of the Borrower's knowledge, no Hazardous Materials have been or are being
used, produced, manufactured, processed, treated, recycled, gener ated, stored,
disposed of, managed or otherwise handled at, or shipped or transported to or
from the Properties or are otherwise present at, in or under the Properties,
owned or operated by either the Borrower or a Subsidiary, or, to the best of the
knowledge of the Borrower, at or from any adjacent site or facility, except for
Hazardous Materials, such as cleaning solvents, pesticides and other materi als
used, produced, manufactured, processed, treated, recycled, generated, stored,
disposed of,
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managed, or otherwise handled in the ordinary course of business in compliance
with all applicable Environmental Requirements; and (iii) to the best of the
Borrower's knowledge, the Borrower and its Subsidiaries are in compliance with
all Environmental Requirements in connection with the ownership, use and
operation of the Properties and the Borrower's and such Subsidiary's respective
businesses.
SECTION 4.14. Capital Stock.
All Capital Stock, debentures, bonds, notes and all other securities of the
Borrower and its Subsidiaries presently issued and outstanding are validly and
properly issued in accordance with all applicable laws, including but not
limited to, the "Blue Sky" laws of all applicable states and the federal
securities laws.
SECTION 4.15. Margin Stock.
Neither the Borrower nor any of its Subsidiaries is engaged principally, or
as one of its important activities, in the business of purchasing or carrying
any Margin Stock, and no part of the proceeds of any Revolving Loan will be used
to purchase or carry any Margin Stock or to extend credit to others for the
purpose of purchasing or carrying any Margin Stock, or be used for any purpose
which violates, or which is inconsistent with the provisions of, Regulations G,
T, U or X.
SECTION 4.16. Solvency.
After giving effect to the execution and delivery of the Loan Documents and
the making of the Revolving Loans under this Agreement, the Borrower will be
Solvent.
SECTION 4.17. Possession of Franchises, Licenses, Etc.
The Borrower and its Subsidiaries possess to the extent material all
franchises, certificates, licenses, permits and other authorizations from
governmental and political subdivisions or regulatory authorities, and all
patents, trademarks, service marks, trade names, copyrights, franchises,
licenses and other rights that are necessary for ownership, maintenance and
operation of any of their respective material Properties and assets, and neither
the Borrower nor any of its Subsidiaries is in violation of any thereof, which,
individually or in the aggregate, would or might have or cause a Material
Adverse Effect. Without limiting the generality of the foregoing, and, in any
event, the Borrower and its Subsidiaries possess all Franchise Rights necessary
for the ownership, operation and development of its (or their) franchised
restaurant business as conducted, or contemplated to be conducted, by the
Borrower and such Subsidiaries, including, without limitation, in the case of
"Applebee's" restaurants, franchise agreements for each franchised restaurant
location and exclusive development rights for each designated area in which
franchised restaurants are located or contemplated to be located.
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SECTION 4.18. Insurance.
The Borrower and each of its Subsidiaries maintains adequate insurance on,
and in respect of the ownership and operation of, its Properties in at least
such amounts and against at least such risks as are usually insured against in
the same general area by companies of established repute engaged in the same or
similar business.
ARTICLE 5. COVENANTS
The Borrower agrees that, so long as any Bank has any Commitment hereunder
or any amount payable hereunder or under any Note remains unpaid:
SECTION 5.1. Information.
The Borrower will deliver to each of the Banks:
5.1.1 Annual Audit. As soon as available and in any event within ninety
(90) days after the end of each Fiscal Year, a consolidated balance sheet of the
Borrower and its Con solidated Subsidiaries as of the end of such Fiscal Year
and the related consolidated statements of income, shareholders' equity and cash
flows for such Fiscal Year, setting forth in each case in comparative form the
figures for the previous fiscal year, all certified by independent public
accountants of nationally recognized standing, with such certification to be
free of any material exceptions and qualifications; provided that, the
information required by this paragraph may be satis fied by delivery of
information pursuant to Section 5.1.5 or Section 5.1.6;
5.1.2 Interim Statements. As soon as available and in any event within
fifty (50) days after the end of each of the first three (3) Fiscal Quarters of
each Fiscal Year, a con solidated balance sheet of the Borrower and its
Consolidated Subsidiaries as of the end of such Fiscal Quarter and the related
statement of income and statement of cash flows for such quarter and for the
portion of the Fiscal Year ended at the end of such quarter, setting forth in
each case in comparative form the figures for the corresponding quarter and the
corresponding portion of the previous Fiscal Year, all certified (subject to
normal year-end adjustments) as to fairness of presentation, GAAP and
consistency by the chief financial officer of the Borrower; provided that the
information required by this paragraph may be satisfied by delivery of
information pursuant to Section 5.1.5 or Section 5.1.6;
5.1.3 Compliance Certificates. Simultaneously with the delivery of each set
of financial statements referred to in Sections 5.1.1 and 5.1.2, a certificate,
substantially in the form of Exhibit G (a "Compliance Certificate"), of the
chief financial officer of the Borrower (i) setting forth in reasonable detail
the calculations required to establish whether the Borrower was in compliance
with the requirements of Sections 5.3, 5.4, 5.5, 5.6 and 5.19 on the date of
such financial statements and (ii) stating whether any Default exists on the
date of such certificate and, if any
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Default then exists, setting forth the details thereof and the action which the
Borrower is taking or proposes to take with respect thereto;
5.1.4 Default Notice. Promptly (and, in any event, within five (5) Domestic
Business Days) after the Borrower becomes aware of the occurrence of any
Default, a certificate of the chief financial officer of the Borrower setting
forth the details thereof and the action which the Borrower is taking or
proposes to take with respect thereto;
5.1.5 Proxy. Promptly upon the mailing thereof to the shareholders of the
Borrower generally, copies of all financial statements, reports and proxy
statements so mailed;
5.1.6 Registration Statements. Promptly upon the filing thereof, copies of
all registration statements and annual, quarterly or monthly reports which the
Borrower shall have filed with the Securities and Exchange Commission;
5.1.7 ERISA Notices. If and when any member of the Controlled Group (i)
gives or is required to give notice to the PBGC of any reportable event (as
defined in Section 4043 of ERISA) with respect to any Plan which might
constitute grounds for a termination of such Plan under Title IV of ERISA, or
knows that the plan administrator of any Plan has given or is required to give
notice of any such reportable event, a copy of the notice of such reportable
event given or required to be given to the PBGC; (ii) receives notice of
complete or partial withdrawal liability under Title IV of ERISA, a copy of such
notice; or (iii) receives notice from the PBGC under Title IV of ERISA of an
intent to terminate or appoint a trustee to administer any Plan, a copy of such
notice; and
5.1.8 Other Reports. From time to time such additional information
regarding the financial position or business of the Borrower and its
Subsidiaries as the Agent, at the request of any Bank, may reasonably request.
SECTION 5.2. Inspection of Property, Books and Records.
The Borrower will keep, and require each Subsidiary to keep, proper books
of record and account in which full, true and correct entries in conformity with
GAAP (or, in the case of any non-domestic Subsidiary, such other accounting
standards, rules, regulations and practices applicable to businesses operating
in the locality in which each such Person operates); and permit, and cause each
Subsidiary to permit, representatives of any Bank at such Bank's expense prior
to the occurrence of a Default and at the Borrower's expense after the
occurrence and during the continuance of a Default to visit and inspect any of
their respective properties, to examine and make abstracts from any of their
respective books and records and to discuss their respective affairs, finances
and accounts with their respective officers, employees and independent public
accountants. The Borrower agrees to cooperate and assist in such visits and
inspections in each case at such reasonable times and as often as may reasonably
be desired.
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SECTION 5.3. Adjusted Funded Debt/Adjusted Capitalization Ratio.
The Adjusted Funded Debt/Adjusted Capitalization Ratio will not at any time
exceed .65:1.
SECTION 5.4. Minimum Stockholders' Equity.
Stockholders' Equity will at no time be less than the sum of (i)
$180,000,000, as of the Fiscal Quarter ended closest to December 31, 1996 (the
"Base Fiscal Quarter"), plus (ii) fifty percent (50%) of Consolidated Net Income
(if positive) for each Fiscal Quarter subsequent to the Base Fiscal Quarter;
plus, without duplication, (iii) seventy-five percent (75%) of any net proceeds
received by Borrower from any offering of equity securities (other than
Redeemable Preferred Stock) by Borrower subsequent to the Closing Date; plus,
without duplication, (iv) seventy-five percent (75%) of any net proceeds
received by Borrower from any conversion of debt into equity subsequent to the
Closing Date; plus, without duplication, (v) seventy-five percent (75%) of any
adjustment to equity due to any pooling of interests occurring subsequent to
December 31, 1996; plus, without duplication, (vi) seventy-five percent (75%) of
any increase in Stockholders' Equity resulting from the issuance or exchange of
any equity securities in furtherance of any acquisition constituting a permitted
investment under Section 5.19.
SECTION 5.5. Fixed Charge Coverage Ratio.
Borrower's Fixed Charge Coverage Ratio, measured on a rolling four (4)
Fiscal Quar ters' basis as of the end of each Fiscal Quarter, commencing with
the Fiscal Quarter ended closest to December 31, 1996, shall be not less than
2:1.
SECTION 5.6. Total Funded Debt/Cash Flow Coverage Ratio.
The ratio which (i) the Total Funded Debt of the Borrower and its
Consolidated Subsidiaries at the end of any Fiscal Quarter, commencing with the
Fiscal Quarter ended closest to December 31, 1996, bears to (ii) the Cash Flow
of the Borrower and its Consolidated Subsidiaries, measured on a rolling four
(4) Fiscal Quarters' basis as of the end of such Fiscal Quarter, commencing with
the Fiscal Quarter ended closest to December 31, 1996, shall be less than 4.5:1.
SECTION 5.7. Negative Pledge.
The Borrower will not, nor will the Borrower permit any Subsidiary to,
create, assume or suffer to exist any Lien on any asset now owned or hereafter
acquired by it, except: (i) those Liens, if any, described on Schedule 5.7,
concerning existing debt of the Borrower, to be set forth and described more
particularly therein, together with any Lien arising out of the refinancing,
extension, renewal or refunding of any debt secured by any such Lien, provided
that such debt is not secured by any additional assets, and the amount of such
debt secured by any such Lien is not increased; (ii) Liens incidental to the
conduct of its business or the ownership of its Properties which (A) do not
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secure debt and (B) do not in the aggregate materially detract from the value of
its Properties or materially impair the use thereof or the operation of its
business, including, without limitation, easements, rights of way, restrictive
covenants, zoning and other similar restrictions on real property; (iii)
materialmen's mechanics', warehousemen's carriers', landlords' and other similar
statutory Liens which secure debt or other obligations that are not past due,
or, if past due are being contested in good faith by the Borrower or the
appropriate Subsidiary by appropriate proceedings; (iv) Liens for taxes not
delinquent or taxes being contested in good faith and by appropriate
proceedings; (v) pledges or deposits in connection with worker's compensation,
unemployment insurance and other social security legislation; (vi) deposits to
secure performance of bids, trade contracts, leases, statutory obligations (to
the extent not excepted elsewhere herein); (vii) grants of security and rights
of setoff in accounts, securities and other properties held at banks or
financial institutions to secure the payment or reimbursement under overdraft,
letter of credit, acceptance and other credit facilities; (viii) rights of
setoff, banker's liens and other similar rights arising solely by operation of
law; (ix) Pur chase Money Liens; (x) Liens on any Properties acquired by
Borrower or any Subsidiary subsequent to the Closing Date, to the extent that
(A) such Liens are existing at the time of acquisition, (B) the debt secured
thereby is not secured by any other Properties of Borrower or such Subsidiary
except the acquired Properties, (C) the amount of such debt so secured thereby
is not increased at or subse quent to the acquisition and (D) the total amount
of all such debt secured by all such acquired Properties does not exceed at any
time, in aggregate amount, fifteen percent (15%) of Tangible Net Worth; together
with any Lien arising out of the refinancing, extension, renewal or refunding of
any debt secured by any such Lien, provided that such debt is not secured by any
additional assets, and the amount of such debt secured by any such Lien is not
increased; (xi) capital leases made in the ordinary course of business (but
excluding, however, sale-leaseback transactions in any event) in which there is
no provision for title to the leased Property to pass to the Borrower or such
Subsidiary at the expiration of the lease term or as to which no bargain
purchase option exists; and (xii) rights of lessors in respect of Properties
leased to the Borrower or its Subsidiaries under operating leases.
SECTION 5.8. Maintenance of Existence.
Except as permitted in Section 5.10, the Borrower shall, and shall cause
each Subsidiary to, maintain its corporate existence and carry on its business
in substantially the same manner and in substantially the same fields as such
business is now carried on and maintained. Without limiting the generality of
the foregoing, the Borrower shall, and shall cause each Subsidiary to, maintain
at all times in full force and effect all Franchise Rights necessary to the
ownership, operation and development of all franchised restaurant business
conducted, or contemplated to be conducted, by the Borrower and such
Subsidiaries, except with respect to Voluntary Store Closings.
SECTION 5.9. Dissolution.
Neither the Borrower nor any of its Subsidiaries shall suffer or permit
dissolution or liquidation either in whole or in part, except through corporate
reorganization to the extent permitted by Section 5.10.
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SECTION 5.10. Consolidations, Mergers and Sales of Assets.
The Borrower will not, nor will it permit any Subsidiary to, consolidate or
merge with or into, or sell, lease or otherwise transfer all or any substantial
part of its assets to, any other Person, or discontinue or eliminate any
business line or segment, provided that, subject at all times to Section 5.19,
the Borrower or any Subsidiary may merge with another Person (which is not the
Borrower or such Subsidiary) if (i) such Person was organized under the laws of
the United States of America or one of its states (ii) the Borrower or such
Subsidiary (as the case may be) is the corporation surviving such merger and
(iii) immediately after giving effect to such merger, no Default shall have
occurred and be continuing; and, provided, further, that any Subsidiaries of the
Borrower may (i) merge or consolidate with each other or with the Borrower (so
long as the Borrower is the corporation surviving such merger), or (ii) sell
assets to each other or to the Borrower. Notwithstanding the foregoing, however,
the Applebee's Spinoff, if made on the terms set forth within the definition
thereof, and if all obligations of the Borrower arising under this Agreement are
then fully paid and satisfied with the net proceeds therefrom, shall be exempted
from the prohibition on asset dispositions of such size set forth hereinabove.
To facilitate the foregoing, the Borrower shall provide the Agent on the
Announcement Date with a copy of the press release and letter of intent,
agreement in principle or like arrangement described in the "Announcement Date"
definition in respect of the Applebee's Spinoff.
SECTION 5.11. Use of Proceeds.
The proceeds of the initial Revolving Loan shall be used to pay in full all
obligations of the Borrower under the Prior Credit Agreement outstanding on the
Closing Date. The proceeds of any subsequent Revolving Loans will be used by the
Borrower solely for working capital, and for no other purpose. Without
limitation of the foregoing, no portion of the proceeds of the Revolving Loans
will be used by the Borrower (i) in connection with, whether directly or
indirectly, any tender offer for, or other acquisition of, stock of any
corporation with a view towards obtaining control of such other corporation,
(ii) directly or indirectly, for the purpose, whether immediate, incidental or
ultimate, of purchasing or carrying any Margin Stock, (iii) generally, to
finance investments, even if such investments are otherwise permitted hereunder,
(iv) for any other purpose in violation of any term of this Agreement or of any
applicable law or regulation.
SECTION 5.12. Compliance with Laws; Payment of Taxes.
The Borrower will, and will cause each of its Subsidiaries and each member
of the Controlled Group to, comply in all material respects with applicable laws
(including but not limited to ERISA), regulations and similar requirements of
governmental authorities (including but not limited to PBGC), except where the
necessity of such compliance is being contested in good faith through
appropriate proceedings. The Borrower will, and will cause each of its
Subsidiaries to, pay promptly when due all taxes, assessments governmental
charges, claims for labor, supplies, rent and other obligations which, if
unpaid, might become a Lien against the Property of the Borrower or any
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Subsidiary, except liabilities being contested in good faith and against which,
if requested by the Agent, the Borrower will set up reserves in accordance with
GAAP.
SECTION 5.13. Insurance.
The Borrower will maintain, and will cause each of its Subsidiaries to
maintain (either in the name of the Borrower or in such Subsidiary's own name),
with financially sound and reputable insurance companies, insurance on, and in
respect of the ownership and operation of, its Properties in at least such
amounts and against at least such risks as are usually insured against in the
same general area by companies of established repute engaged in the same or
similar business.
SECTION 5.14. Change in Fiscal Year.
The Borrower will not change its Fiscal Year without the consent of the
Required Banks.
SECTION 5.15. Maintenance of Property.
The Borrower shall, and shall cause each Subsidiary to, maintain all of its
Properties in good condition, repair and working order, ordinary wear and tear
excepted.
SECTION 5.16. Environmental Notices.
The Borrower shall furnish to the Agent, promptly after the Borrower
becomes aware thereof, written notice of all Environmental Liabilities, pending,
threatened Environmental Proceedings, Environmental Notices, Environmental
Judgments and Orders and Environmental Re leases, at, on, in, under or in any
way affecting the Properties or any adjacent property and all facts, events, or
conditions that could reasonably be expected to lead to any of the foregoing.
SECTION 5.17. Environmental Matters.
The Borrower will not, and will not permit any Third Party to, use,
produce, manufac ture, process, treat, recycle, generate, store, dispose of,
manage at, or otherwise handled or ship or transport to or from the Properties
any Hazardous Materials except for Hazardous Materials such as cleaning
solvents, pesticides and other similar materials used, produced, manufactured,
processed, treated, recycled, generated, stored, disposed, managed, or otherwise
handled in the ordinary course of business in compliance with all applicable
Environmental Requirements.
SECTION 5.18. Environmental Releases.
The Borrower agrees that upon the occurrence of an Environmental Release
(except for any Environmental Release which (x) occurred in compliance with all
Environmental Requirements and (y) could not reasonably be expected to have or
cause a Material Adverse Effect),
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it will act immediately to investigate the extent of, and to take appropriate
remedial action to eliminate, such Environmental Release, whether or not ordered
or otherwise directed to do so by any Environmental Authority.
SECTION 5.19. Investments.
The Borrower will not make (nor will the Borrower permit any Subsidiary to
make) any investment in any Person or Property (which term "investment," for
purposes hereof, shall mean and include, without limitation, the acquisition of
any property, the issuance, acquisition or exchange of any capital stock, debt
or other obligations or security to, from or with any Person, the making of any
loan, advance, extension of credit, credit accommodation, Guarantee or capital
contribution to or on behalf of any Person, and the leasing or subleasing of any
property to any Person), provided, however, that, notwithstanding the foregoing,
the Borrower (or any Subsidiary) may, from time to time, undertake the
following, without the necessity of obtaining the Required Lenders' prior
written consent thereto:
(i) Current Assets. Acquire current assets for use in, or arising from, the
sale of goods or services in the ordinary course of its business (including, for
this purpose, but without limitation, credit card receivables);
(ii) Capital Expenditures. Make capital expenditures in the ordinary course
of its business;
(iii) Franchise Fees. Pay franchisee fees and royalties to its franchisors
in the ordinary course of its business;
(iv) Escrow Deposits. Make or maintain escrow deposits for the payment of
taxes, rents, utilities, insurance or like matters in the ordinary course of its
business;
(v) Bank Accounts. Make and maintain deposits of cash in demand deposit
accounts of banks in the ordinary course of its business, and make endorsements
of checks, drafts or other in struments in connection therewith;
(vi) Surplus Cash. Consistent at all times with the Borrower's internal
Statement of Investment Policy, invest surplus cash in (A) obligations of, or
guaranteed by, the United States of America or any agency thereof, (B)
short-term certificates of deposit issued by, and time deposits with, any Bank
or any other financial institution domiciled in the United States of America
with assets of at least $500,000,000, (C) short-term commercial paper rated at
least "A1" by Standard & Poors or "P1" by Moody's, and (D) fixed or adjustable
rate corporate debt securities with a credit rating of at least double A (Aa/AA)
by either Moody's or Standard & Poors, provided that any fixed rate debt
securities have a maturity of one year or less;
(vii) Subsidiaries. Make investments in those Consolidated Subsidiaries of
the Borrower which are wholly-owned, directly or indirectly, by the Borrower, in
the ordinary course of, and pursuant to the reasonable requirements of, the
Borrower's and such Subsidiaries' respective businesses, provided that the
aggregate amount of such investments which may be outstanding at any one time
hereafter, as to all such Subsidiaries, shall not exceed, in any event, (A) ten
percent (10%) of consolidated total assets of Borrower and its Consolidated
Subsidiaries at any time prior to December 30, 1997, (B) seven and one-half
percent (7-1/2%) of consolidated total assets of Borrower and its Consolidated
Subsidiaries on or at any time after December 31, 1997, but prior to June 30,
1998, and (C) five percent (5%) of consolidated total assets of Borrower and its
Consolidated Subsidiaries on or after June 30, 1998; it being understood and
agreed that (a) there shall be excluded from such calculation any investment
deemed made by the Borrower in DF&R Restaurants, Inc., a Texas corporation which
is a wholly-owned, Consolidated Subsidiary of the Borrower, pursuant to the
accounting for the prior acquisition of such corporation by the Borrower as a
pooling of interests; (b) there shall be deducted in any event from the amount
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of investments in Subsidiaries which may be made pursuant to this clause (vii)
the aggregate amount of Capitalized Lease Obligations of all Subsidiaries which
are at any time outstanding, if and to the extent not already counted against
such amount as an investment of Borrower; i.e., as a Capitalized Lease
Obligation owing to Borrower as lessor or sublessor; and (c) the provisions of
this clause (vii) shall be the exclusive means by which the Borrower (or any
Subsidiary) may make investments in any Subsidiaries (whether or not
wholly-owned Subsidiaries) and shall override any other provisions of this
Section 5.19 (including, particularly, clauses (x), (xi) and (xii) below) which
may be construed otherwise to permit such investments.
(viii) Travel Advances. Make travel and similar advances to employees from
time to time in the ordinary course of business;
(ix) Special Life Insurance Program. The Borrower may invest up to Eight
Hundred Fifty Thousand Dollars ($850,000) per Fiscal Year in the making of
annual premiums payable on the split dollar joint survivor life insurance
program implemented, or to be implemented, covering the lives of Tom E. DuPree,
Jr. and his spouse Anne DuPree, with an initial death benefit of Fifty Million
Dollars ($50,000,000), provided, however, that (i) such investments are made
over a period not to exceed ten (10) Fiscal Years and (ii) Borrower maintains at
all times during the effective period of the program a security interest in
policy proceeds and cash values of policies issued as part of the program equal
in amount to not less than its then cumulative premium investments;
(x) Applebee's Franchisees. Make investments in franchisees of "Applebee's"
restaurants, but no investment in Applebee's International, Inc. (or any Person
which subsequent hereto shall become the franchisor of "Applebee's" restaurants)
shall be permitted to be made subsequent to the Closing Date, notwithstanding
this clause (x) or any other provision of this Section, except with the prior
written consent of the Required Lenders;
(xi) Other Restaurant Concepts. Make investments in other restaurant
concepts, besides "Applebee's," so long as the total amount of each such
investment (either considered in dividually or as part of a series of related,
concurrent investments), does not exceed ten percent (10%) of Borrower's
consolidated total assets immediately before such investment (or the last in a
series of related, concurrent investments) is made; or
(xii) Other Investments Generally. Make other investments, not described in
clauses (i) through (xi) above, provided that all such investments, in the
aggregate, do not exceed at any one time ten percent (10%) of Stockholders'
Equity.
The Borrower shall notify the Agent from time to time, but not less
frequently than quarterly, or at any time at Agent's request, of the nature and
amount of any investments made pursuant to clauses (x), (xi) and (xii) hereof
which, individually or in the aggregate, exceed One Hundred Thousand Dollars
($100,000).
In the event that, and to the extent that, as of the Closing Date, any of
the terms or conditions set forth in this Section 5.19 (or in Section 5.20
below) shall operate to restrict the ability of any Consolidated Subsidiary to
(i) pay dividends or make distributions permitted under applicable law on any
capital stock of such Subsidiary owned by the Borrower or any other Consolidated
Subsidiary, (ii) pay any indebtedness or other obligation owed to the Borrower
or any other Consolidated Subsidiary, (iii) make loans or advances to the
Borrower or any other Consolidated Subsidiary, or (iv) transfer any of its
property or assets to Borrower or any other Consolidated Subsidiary (the
"Subsidiary Activities"), and the imposition of such restriction on any such
Subsidiary Activities pursuant hereto is expressly prohibited under, or
constitutes an event of default under, the terms of the Borrower's existing
indenture for its 9-3/4% senior notes of due June 1, 2006, then, notwithstanding
the foregoing, such Subsidiary Activities shall be permitted.
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SECTION 5.20. Subsidiary Debt.
Except solely to the extent expressly permitted in clause (vii) of Section
5.19 of this Agreement, the Borrower will not permit any Consolidated Subsidiary
of the Borrower which is a wholly-owned Subsidiary, directly or indirectly, of
the Borrower, to create, incur or suffer to exist any of the following: (i)
indebtedness for borrowed funds; (ii) Capitalized Lease Obligations, provided,
however, that DF&R Restaurants, Inc. and its Subsidiaries may incur Capitalized
Lease Obligations in an aggregate amount not to exceed Ten Million Dollars
($10,000,000) at any one time outstanding; (iii) Guarantees; (iv) debts,
liabilities or obligations to any seller incurred to pay the deferred purchase
price of property or services having a deferred purchase price of One Million
Dollars ($1,000,000) or more, excepting, in any event, trade accounts payable
arising in the ordinary course of business and purchase options prior to their
exercise; and (v) debts, liabilities or obligations in respect of Synthetic
Leases.
ARTICLE 6. DEFAULTS
SECTION 6.1. Events of Default.
If one or more of the following events ("Events of Default") shall have
occurred and be continuing:
6.1.1 Non-Payment. The Borrower (i) shall fail to pay when due any
principal of any Revolving Loan or (ii) shall fail to pay any interest on any
Revolving Loan within five (5) Domestic Business Days after such interest shall
become due, or (iii) shall fail to pay any fee or other amount payable hereunder
or under any Loan Document within five (5) Domestic Business Days after such fee
or other amount becomes due; or
6.1.2 Failure to Observe Certain Covenants. The Borrower shall fail to
observe or perform any covenant contained in Sections 5.3 through 5.9, 5.10,
5.11, 5.12, 5.15 or 5.19, inclusive; or
6.1.3 Failure to Observe Covenants Generally. The Borrower shall fail to
observe or perform any covenant or agreement contained or incorporated by
reference in this Agreement (other than those covered by Sections 6.1.1 and
6.1.2) and such failure shall not have been cured within ten (10) days after the
earlier to occur of (i) written notice thereof has been given to the Borrower by
the Agent at the request of any Bank or (ii) an executive, senior financial or
accounting officer of the Borrower otherwise becomes aware of any such failure;
or
6.1.4 Misrepresentation. Any representation, warranty, certification or
statement made by the Borrower in Article IV of this Agreement or in any
certificate, financial statement or other document delivered pursuant to this
Agreement shall prove to have been incorrect or misleading in any material
respect when made (or deemed made); or
6.1.5 Cross-Default. The Borrower or any Subsidiary shall fail to make any
payment in respect of any debt, liability or obligation outstanding individually
or in the aggregate with all other such debts, liabilities or obligations, equal
to or in excess of Five Hundred Thousand Dollars ($500,000), other than the
Notes, when due or within any applicable grace period; or any event or condition
shall occur which results in the acceleration of the maturity of any such debt,
liability or obligation outstanding of the Borrower or any Subsidiary
individually or in the aggregate with all other such debts, liabilities or
obligations equal to or in excess of Five Hundred Thousand Dollars ($500,000) or
the mandatory prepayment or purchase of any such debt, liability or obligation
by the Borrower (or its designee) or such Subsidiary (or its designee)
individually or in the aggregate with all other such debts, liabilities or
obligations equal to or in excess of Five Hundred Thousand Dollars ($500,000)
prior to the scheduled maturity thereof, or enables (or, with the giving of
notice or lapse of time or both, would enable) the holders of any such debt,
liability or obligation individually or in the aggregate with all other such
debts, liabilities or obligations equal to or in excess of Five Hundred Thousand
Dollars ($500,000) or any Person acting on such holders' behalf to accelerate
the maturity thereof or require the mandatory prepayment or purchase thereof
prior to the scheduled maturity thereof, without regard to whether such holders
or other Person shall have exercised or waived their right to do so; or
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6.1.6 Voluntary Bankruptcy. The Borrower or any Subsidiary shall commence a
voluntary case or other proceeding seeking liquidation, reorganization or other
relief with respect to itself or its debts under any bankruptcy, insolvency or
other similar law now or hereafter in effect or seeking the appointment of a
trustee, receiver, liquidator, custodian or other similar official of it or any
substantial part of its property, or shall consent to any such relief or to the
appointment of or taking possession by any such official in an involuntary case
or other proceeding commenced against it, or shall make a general assignment for
the benefit of creditors, or shall fail generally to pay its debts as they
become due, or shall take any corporate action to authorize any of the
foregoing; or
6.1.7 Involuntary Bankruptcy. An involuntary case or other proceeding shall
be commenced against the Borrower or any Subsidiary seeking liquidation,
reorganization or other relief with respect to it or its debts under any
bankruptcy, insolvency or other similar law now or hereafter in effect or
seeking the appointment of a trustee, receiver, liquidator, custodian or other
similar official of it or any substantial part of its property, and such
involuntary case or other proceeding shall remain undismissed and unstayed for a
period of sixty (60) days; or an order for relief shall be entered against the
Borrower or any Subsidiary under the federal bankruptcy laws as now or hereafter
in effect; or
6.1.8 ERISA. The Borrower or any member of the Controlled Group shall fail
to pay when due any material amount which it shall have become liable to pay to
the PBGC or to a Plan under Title IV of ERISA; or notice of intent to terminate
a Plan or Plans shall be filed under Title IV of ERISA by the Borrower, any
member of the Controlled Group, any plan administrator or any combination of the
foregoing; or the PBGC shall institute proceedings under Title IV of ERISA to
terminate or to cause a trustee to be appointed to administer any such Plan or
Plans or a proceeding shall be instituted by a fiduciary of any such Plan or
Plans to enforce Section 515 or 4219(c)(5) of ERISA and such proceeding shall
not have been dismissed within thirty (30) days thereafter; or a condition shall
exist by reason of which the PBGC would be entitled to obtain a decree
adjudicating that any such Plan or Plans must be terminated; or
6.1.9 Judgments. One or more judgments or orders for the payment of money
in an aggregate amount equal to or greater than Five Hundred Thousand Dollars
($500,000) shall be rendered against the Borrower or any Subsidiary and such
judgment or order shall continue unsatisfied and unstayed for a period of thirty
(30) days; or
6.1.10 Tax Liens. A federal tax Lien shall be filed against the Borrower
under Section 6323 of the Code or a Lien of the PBGC shall be filed against the
Borrower or any Subsidiary under Section 4068 of ERISA and in either case such
Lien shall remain undischarged for a period of thirty (30) days after the date
of filing; or
6.1.11 Change of Control. Tom E. DuPree, Jr. shall cease to own and
control, beneficially and with power to vote, at least fifteen percent (15%) of
the outstanding shares of the voting common stock of the Borrower; or any Person
(other than Tom E. DuPree, Jr.) or two
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or more Persons acting in concert shall have acquired beneficial ownership
(within the meaning of Rule 13d-3 of the Securities and Exchange Commission
under the Securities Exchange Act of 1934) of twenty percent (20%) or more of
the outstanding shares of the voting common stock of the Bor rower; or as of any
date, a majority of the Board of Directors of the Borrower consists of
individuals who were not either (A) directors of the Borrower as of the
corresponding date of the previous year, (B) selected or nominated to become
directors by a Board of Directors of the Borrower of which a majority consisted
of individuals described in clause (A), or (C) selected or nominated to become
di rectors by the Board of Directors of the Borrower of which a majority
consisted of individuals described in clause (A) and individuals described in
clause (B); or
6.1.12 Loss of Franchise Rights. If any of the Franchise Rights of the
Borrower or its Subsidiaries shall be forfeited, suspended, lost, rejected,
disclaimed, impaired, curtailed or otherwise adversely altered or affected in
any manner, in whole or in any material part, for any reason whatsoever, whether
or not related to the Borrower's or such Subsidiary's performance of its duties
and obligations as franchisee at any time hereafter except with respect to any
Voluntary Store Closing; or there shall occur any default by the Borrower or any
such Subsidiary in the payment, performance or observance of any terms,
covenants or conditions of any franchise or development agreements giving rise
to the existence and/or continuation of any such Franchise Rights, and any grace
or cure period relative thereto granted therein shall have expired without such
default being waived or cured; or
6.1.13 Material Adverse Effect. The occurrence of any event, act,
occurrence, or condition which the Required Banks determine either does or has a
reasonable probability of causing, or resulting in, a Material Adverse Effect;
or
6.1.14 Other Wachovia Credit Agreement. An "Event of Default" (as that term
is defined therein) shall occur and be continuing under that certain Amended and
Restated Credit Agreement, dated as of September 9, 1997, among the Borrower,
the Agent, Wachovia and certain other banks listed therein, as it may be
modified or amended from time to time.
then, and in every such event, the Agent shall (i) if requested by the Required
Banks, by notice to the Borrower terminate the Commitments and they shall
thereupon terminate, and (ii) if requested by the Required Banks, by notice to
the Borrower declare the Notes (together with accrued interest thereon) to be,
and the Notes shall thereupon become, immediately due and payable without
presentment, demand, protest or other notice of any kind, all of which are
hereby waived by the Borrower, together with interest at the Default Rate
accruing on the principal amount thereof from and after the date of such Event
of Default; provided that if any Event of Default specified in Sections 6.1.6 or
6.1.7 above occurs with respect to the Borrower or any Subsidiary, without any
notice to the Borrower or any other acts by the Agent or the Banks, the
Commitments shall thereupon terminate and the Notes (together with accrued
interest thereon) shall become immediately due and payable without presentment,
demand, protest or other notice of any kind, all of which are hereby waived by
the Borrower, together with interest thereon at the Default Rate accruing on the
principal amount thereof from and after the date of such Event of Default.
Notwithstanding the foregoing, the Agent shall
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have available to it all other remedies at law or equity, and shall exercise any
one or all of them at the request of the Required Banks.
SECTION 6.2. Notice of Default.
The Agent shall give notice to the Borrower of any Default under Section
6.1.3 promptly upon being requested to do so by any Bank and shall thereupon
notify all the Banks thereof.
ARTICLE 7. THE AGENT
SECTION 7.1. Appointment; Powers and Immunities.
Each Bank hereby irrevocably appoints and authorizes the Agent to act as
its agent hereunder and under the other Loan Documents with such powers as are
specifically delegated to the Agent by the terms hereof and thereof, together
with such other powers as are reasonably incidental thereto. The Agent: (a)
shall have no duties or responsibilities except as expressly set forth in this
Agreement and the other Loan Documents, and shall not by reason of this
Agreement or any other Loan Document be a trustee for any Bank; (b) shall not be
responsible to the Banks for any recitals, statements, representations or
warranties contained in this Agreement or any other Loan Document, or in any
certificate or other document referred to or provided for in, or received by any
Bank under, this Agreement or any other Loan Document, or for the validity,
effectiveness, genuineness, enforceability or sufficiency of this Agreement or
any other Loan Document or any other document referred to or provided for herein
or therein or for any failure by the Borrower to perform any of its obligations
hereunder or thereunder; (c) shall not be required to initiate or conduct any
litigation or collection proceedings hereunder or under any other Loan Document
except to the extent requested by the Required Banks, and then only on terms and
conditions satisfactory to the Agent; and (d) shall not be responsible for any
action taken or omitted to be taken by it hereunder or under any other Loan
Document or any other document or instrument referred to or provided for herein
or therein or in connection herewith or therewith, except for its own gross
negligence or willful misconduct. The Agent may employ agents and
attorneys-in-fact and shall not be responsible for the negligence or misconduct
of any such agents or attorneys-in-fact selected by it with reasonable care. The
provi sions of this Article VII are solely for the benefit of the Agent and the
Banks, and the Borrower shall not have any rights as a third party beneficiary
of any of the provisions hereof. In performing its functions and duties under
this Agreement and under the other Loan Documents, the Agent shall act solely as
agent of the Banks and does not assume and shall not be deemed to have assumed
any obligation towards or relationship of agency or trust with or for the
Borrower. The duties of the Agent shall be ministerial and administrative in
nature, and the Agent shall not have by reason of this Agreement or any other
Loan Document a fiduciary relationship in respect of any Bank.
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SECTION 7.2. Reliance by Agent.
The Agent shall be entitled to rely upon any certification, notice or other
com munication (including any thereof by telephone, telefax, telegram or cable)
believed by it to be genu ine and correct and to have been signed or sent by or
on behalf of the proper Person or Persons, and upon advice and statements of
legal counsel, independent and accountants or other experts selected by the
Agent. As to any matters not expressly provided for by this Agreement or any
other Loan Document, the Agent shall in all cases be fully protected in acting,
or in refraining from acting, hereunder and thereunder in accordance with
instructions signed by the Required Banks, and such instructions of the Required
Banks in any action taken or failure to act pursuant thereto shall be binding on
all of the Banks.
SECTION 7.3. Defaults.
The Agent shall not be deemed to have knowledge of the occurrence of a
Default or an Event of Default (other than the nonpayment of principal of or
interest on the Revolving Loans) unless the Agent has received notice from a
Bank or the Borrower specifying such Default or Event of Default and stating
that such notice is a "Notice of Default". In the event that the Agent receives
such a notice of the occurrence of a Default or an Event of Default, the Agent
shall give prompt notice thereof to the Banks. The Agent shall give each Bank
prompt notice of each nonpayment of principal of or interest on the Revolving
Loans whether or not it has received any notice of the occur rence of such
nonpayment. The Agent shall (subject to Section 9.6) take such action hereunder
with respect to such Default or Event of Default as shall be directed by the
Required Banks, provided that, unless and until the Agent shall have received
such directions, the Agent may (but shall not be obligated to) take such action,
or refrain from taking such action, with respect to such Default or Event of
Default as it shall deem advisable in the best interests of the Banks.
SECTION 7.4. Rights of Agent as a Bank.
With respect to the Revolving Loans made by it, Wachovia in its capacity as
a Bank hereunder shall have the same rights and powers hereunder as any other
Bank and may exercise the same as though it were not acting as the Agent, and
the term "Bank" or "Banks" shall, unless the context otherwise indicates,
include Wachovia in its individual capacity. The Agent may (without having to
account therefor to any Bank) accept deposits from, lend money to and generally
engage in any kind of banking, trust or other business with the Borrower (and
any of its Affiliates) as if it were not acting as the Agent, and the Agent may
accept fees and other consideration from the Bor rower (in addition to any
agency fees and arrangement fees heretofore agreed to between the Bor rower and
the Agent) for services in connection with this Agreement or any other Loan
Document or otherwise without having to account for the same to the Banks.
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SECTION 7.5. Indemnification.
Each Bank severally agrees to indemnify the Agent, to the extent the Agent
shall not have been reimbursed by the Borrower, ratably in accordance with its
Commitment, for any and all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses (including, without
limitation, counsel fees and disbursements) or disbursements of any kind and
nature whatsoever which may be imposed on, incurred by or asserted against the
Agent in any way relating to or arising out of this Agreement or any other Loan
Document or any other documents con templated by or referred to herein or
therein or the transactions contemplated hereby or thereby (excluding, unless an
Event of Default has occurred and is continuing, the normal administrative costs
and expenses incident to the performance of its agency duties hereunder) or the
enforcement of any of the terms hereof or thereof or any such other documents;
provided, however that no Bank shall be liable for any of the foregoing to the
extent they arise from the gross negligence or willful misconduct of the Agent.
If any indemnity furnished to the Agent for any purpose shall, in the opinion of
the Agent, be insufficient or become impaired, the Agent may call for additional
indemnity and cease, or not commence, to do the acts indemnified against until
such additional indemnity is furnished.
SECTION 7.6. Payee of Note Treated as Owner.
The Agent may deem and treat the payee of any Note as the owner thereof for
all purposes hereof unless and until a written notice of the assignment or
transfer thereof shall have been filed with the Agent and the provisions of
Section 9.8 have been satisfied. Any requests, authority or consent of any
Person who at the time of making such request or giving such authority or
consent is the holder of any Note shall be conclusive and binding on any
subsequent holder, transferee or assignee of that Note or of any Note or Notes
issued in exchange therefor or replacement thereof.
SECTION 7.7. Nonreliance on Agent and Other Banks.
Each Bank agrees that it has, independently and without reliance on the
Agent or any other Bank, and based on such documents and information as it has
deemed appropriate, made its own credit analysis of the Borrower and decision to
enter into this Agreement and that it will, independently and without reliance
upon the Agent or any other Bank, and based on such documents and information as
it shall deem appropriate at the time, continue to make its own analysis and
decisions in taking or not taking action under this Agreement or any of the
other Loan Documents. The Agent shall not be required to keep itself informed as
to the performance or observance by the Borrower of this Agreement or any of the
other Loan Documents or any other document referred to or provided for herein or
therein or to inspect the properties or books of the Borrower or any other
Person. Except for notices, reports and other documents and information
expressly required to be furnished to the Banks by the Agent hereunder or under
the other Loan Documents, the Agent shall not have any duty or responsibility to
provide any Bank with any credit or other information concerning the affairs,
financial condition or business of the Borrower or any other Person (or any of
their Affiliates) which may come into the possession of the Agent.
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SECTION 7.8. Failure to Act.
Except for action expressly required of the Agent hereunder or under the
other Loan Documents, the Agent shall in all cases be fully justified in failing
or refusing to act hereunder and thereunder unless it shall receive further
assurances to its satisfaction by the Banks of their indemnification obligations
under Section 7.5 against any and all liability and expense which may be
incurred by the Agent by reason of taking, continuing to take, or failing to
take any such action.
SECTION 7.9. Resignation of Agent.
Subject to the appointment and acceptance of a successor Agent as provided
below, the Agent may resign at any time by giving notice thereof to the Banks.
Upon any such resignation, the Required Banks shall have the right to appoint a
successor Agent. If no successor Agent shall have been so appointed by the
Required Banks and shall have accepted such appointment within thirty (30) days
after the retiring Agent's notice of resignation, then the retiring Agent may,
on behalf of the Banks, appoint a successor Agent. Upon the acceptance of any
appointment as Agent hereunder by a successor Agent, such successor Agent shall
thereupon succeed to and become vested with all the rights, powers, privileges
and duties of the retiring Agent, and the retiring Agent shall be discharged
from its duties and obligations hereunder. After any retiring Agent's
resignation or removal hereunder as Agent, the provisions of this Article 7
shall continue in effect for its benefit in respect of any actions taken or
omitted to be taken by it while it was acting as the Agent hereunder.
ARTICLE 8. CHANGE IN CIRCUMSTANCES; COMPENSATION
SECTION 8.1. Basis for Determining Interest Rate Inadequate or Unfair.
If on or prior to the first day of any Interest Period, the Agent
determines that deposits in Dollars (in the applicable amounts) are not being
offered in the relevant market for such Interest Period, or the Required Banks
advise the Agent that the Adjusted LIBOR Rate, as determined by the Agent, will
not adequately and fairly reflect the cost to such Banks of funding the relevant
Euro-Dollar Rate Loans for such Interest Period, then, the Agent shall forthwith
give notice thereof to the Borrower and the Banks, whereupon until the Agent
notifies the Borrower that the circumstances giving rise to such suspension no
longer exist, the obligations of the Banks to make the Euro-Dollar Rate Loans
specified in such notice shall be suspended. Unless the Borrower notifies the
Agent at least two (2) Domestic Business days before the date of any Borrowing
of such Euro-Dollar Rate Loans for which a Notice of Borrowing has previously
been given that it elects not to borrow on such date, such Borrowing shall
instead be made as a Base Rate Borrowing.
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SECTION 8.2. Illegality.
If, after the date hereof, the adoption of any applicable law, rule or
regulation, or any change therein, or any change in the interpretation or
administration thereof by any governmental authority, central bank or comparable
agency charged with the interpretation or administration thereof (any such
agency being referred to as an "Authority" and any such event being referred to
as a "Change of Law"), or compliance by any Bank (or its Lending Office) with
any request or directive (whether or not having the force of law) of any
Authority shall make it unlawful or impossible for any Bank (or its Lending
Office) to make, maintain or fund its Euro-Dollar Rate Loans and such Bank shall
so notify the Agent, the Agent shall forthwith give notice thereof to the other
Banks and the Borrower, whereupon until such Bank notifies the Borrower and the
Agent that the circumstances giving rise to such suspension no longer exist, the
obligation of such Bank to make Euro-Dollar Rate Loans shall be suspended.
Before giving any notice to the Agent pursuant to this Section, such Bank shall
designate a different Lending Office if such designation will avoid the need for
giving such notice and will not, in the judgment of such Bank, be otherwise
disadvantageous to such Bank, in any re spect deemed material by such Bank. If
such Bank shall determine that it may not lawfully continue to maintain and fund
any of its outstanding Euro-Dollar Rate Loans to maturity and shall so specify
in such notice, the Borrower shall immediately prepay in full the then
outstanding principal amount of each Euro-Dollar Rate Loan of such Bank,
together with accrued interest thereon. Concurrently with prepaying each such
Euro-Dollar Rate Loan, the Borrower shall borrow, pursuant to Sec tion 2.2.3, a
Base Rate Loan in an equal principal amount from such Bank (on which interest
and principal shall be payable contemporaneously with the related Euro-Dollar
Rate Loans of the other Banks), and such Bank shall make such a Base Rate Loan.
SECTION 8.3. Increased Cost and Reduced Return.
8.3.1 Change of Law. If after the date hereof, a Change of Law or
compliance by any Bank (or its Lending Office) with any request or directive
(whether or not having the force of law) of any Authority either: (i) shall
subject any Bank (or its Lending Office) to any tax, duty or other charge with
respect to its Revolving Loans, its Note or its obligation to make Revolving
Loans, or shall change the basis of taxation of payments to any Bank (or its
Lending Office) of the principal of or interest on its Revolving Loans or any
other amounts due under this Agreement in respect of its Revolving Loans or its
obligation to make Revolving Loans (except for changes in the rate of tax on the
overall net income of such Bank or its Lending Office imposed by the
jurisdiction in which such Bank's principal executive office or Lending Office
is located); or (ii) shall impose, modify or deem applicable any reserve,
special deposit insurance or similar requirement (including, without limitation,
any such requirement imposed by the Board of Governors of the Federal Reserve
System, but excluding any such requirement included in an applicable Euro-Dollar
Reserve Percentage) against assets of, deposits with or for the account of, or
credit extended by, any Bank (or its Lending Office); or (iii) shall impose on
any Bank (or its Lending Office) or the London Interbank Market any other
similar condition affecting its Revolving Loans, its Notes or its obligation to
make Revolving Loans; and the result of any of the foregoing is to increase the
cost to such Bank (or its Lending Office) of making or maintaining any Revolving
Loan, or to reduce the amount of any such received
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or receivable by such Bank (or its Lending Office) under this Agreement or under
its Notes with respect thereto, by an amount deemed by such Bank to be material,
then, within fifteen (15) days after demand by such Bank (with a copy to the
Agent), the Borrower shall pay to such Bank such additional amount or amounts as
will compensate such Bank for such increased cost or reduction.
8.3.2 Capital Adequacy. If any Bank shall have determined that after the
date hereof the adoption of any applicable law, rule or regulation regarding
capital adequacy, or any change therein, or any change in the interpretation or
administration thereof, or compliance by any Bank (or its Lending Office) with
any request or directive regarding capital adequacy (whether or not having the
force of law) of any Authority, has or would have the effect of reducing the
rate of return on such Bank's capital as a consequence of its obligations
hereunder to a level below that which such Bank could have achieved but for such
adoption, change or compliance (taking into consideration such Bank's policies
with respect to capital adequacy), by an amount deemed by such Bank to be
material, then from time to time, within fifteen (15) days after demand by such
Bank, the Borrower shall pay to such Bank such additional amount or amounts as
will compensate such Bank for such reduction.
8.3.3 Notice of Determination. Each Bank will promptly notify the Borrower
and the Agent of any event of which it has knowledge, occurring after the date
hereof, which will en title such Bank to compensation pursuant to this Section
and will designate a different Lending Office if such designation will avoid the
need for, or reduce the amount of, such compensation and will not, in the
judgment of such Bank, be otherwise disadvantageous to such Bank, in any respect
deemed material by such Bank. A certificate of any Bank claiming compensation
under this Section and setting forth the additional amount or amounts to be paid
to it hereunder shall be conclusive in the absence of manifest error. In
determining such amount, such Bank may use any reasonable averaging and
attribution methods.
8.3.4 Assignees Covered. The provisions of this Section 8.3 shall be ap
plicable with respect to any Assignee or other Transferee (excluding any
Participants), and any calculations required by such provisions shall be made
based upon the circumstances of such Assignee or other Transferee.
SECTION 8.4. Base Rate Loans Substituted for Affected Euro-Dollar Rate Loans.
If (i) the obligation of any Bank to make or maintain Euro-Dollar Rate
Loans has been suspended pursuant to Section 8.2 or (ii) any Bank has demanded
compensation under Section 8.3.1, and the Borrower shall, by at least five (5)
Euro-Dollar Business Days' prior notice to such Bank through the Agent, have
elected that the provisions of this Section shall apply to such Bank, then,
unless and until such Bank notifies the Borrower that the circumstances giving
rise to such suspension or demand for compensation no longer apply: (i) all
Revolving Loans which would otherwise be made by such Bank as Euro-Dollar Rate
Loans, shall be made instead as Base Rate Loans (in all cases interest and
principal on such Revolving Loans shall be payable contemporaneously with the
related Euro-Dollar Rate Loans of the other Banks), and (ii) after each of its
Euro-Dollar Rate Loans has
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been repaid, all payments of principal which would otherwise be applied to repay
such Euro-Dollar Rate Loans shall be applied to repay its Base Rate Loans
instead.
SECTION 8.5. Replacement of a Lender.
In addition to the foregoing, if (i) the obligation of any Bank (but not
all Banks) to make or maintain Euro-Dollar Rate Loans has been suspended
pursuant to Section 8.2 or (ii) any Bank (but not all Banks) has demanded
compensation under Section 8.3, then, in either such case, the Borrower shall
have the right, at its option, upon giving at least five (5) Euro-Dollar
Business Days' prior notice to such Bank through the Agent, either: (i)
notwithstanding any term of Section 2.7.3 to the contrary, to reduce the
Commitment of such Bank to zero, in which case the Borrower shall reduce, by
repayment or prepayment, as the case may be, its Borrowings from such Bank to
zero effective upon such Commitment reduction becoming effective, and the
Commitment of each remaining Bank shall remained unchanged; or (ii) to obtain
one or more Banks or Assignees willing to replace such Bank, in which case the
Bank which is being replaced shall execute and deliver to such Bank or Assignee
an Assignment and Acceptance in accordance with Section 9.8.3 with respect to
such Bank's entire interest under this Agreement and the Notes.
SECTION 8.6. Compensation.
Upon the request of any Bank, delivered to the Borrower and the Agent, the
Borrower shall pay to such Bank such amount or amounts as shall compensate such
Bank for any loss, cost or expense incurred by such Bank (in connection with the
relevant Interest Period) as a result of: (i) any payment or prepayment (whether
pursuant to Section 8.2 or otherwise) of a Euro-Dollar Rate Loan on a date other
than the last day of an Interest Period for such Euro-Dollar Rate Loan; or (ii)
any fail ure by the Borrower to prepay a Euro-Dollar Rate Loan on the date for
such prepayment specified in the relevant notice of prepayment hereunder; or
(iii) any failure by the Borrower to borrow a Euro- Dollar Rate Loan on the date
for the Euro-Dollar Borrowing of which such Euro-Dollar Rate Loan is a part
specified in the applicable Notice of Borrowing delivered pursuant to Section
2.2. Such compensation shall include, without limitation, an amount equal to the
excess, if any, of (x) the amount of interest which would have accrued on the
amount so paid or prepaid or not prepaid or borrowed for the period from the
date of such payment, prepayment or failure to prepay or borrow to the last day
of the then current Interest Period for such Euro-Dollar Rate Loan (or, in the
case of a failure to prepay or borrow, the Interest Period for such Euro-Dollar
Rate Loan which would have commenced on the date of such failure to prepay or
borrow) at the applicable rate of interest for such Euro-Dollar Rate Loan
provided for herein (excluding, however, therefrom the amount thereof
attributable to the imposition of the Applicable Margin) over (y) the amount of
interest (as reasonably determined by such Bank) such Bank would have paid on
deposits in Dollars of comparable amounts having terms comparable to such period
placed with it by leading banks in the London Interbank Market.
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ARTICLE 9. MISCELLANEOUS
SECTION 9.1. Notices.
All notices, requests and other communications to any party hereunder or
under any Loan Document shall be in writing (including bank wire, telecopier or
similar writing) and shall be given to such party at its address or telecopier
number set forth on the signature pages hereof or such other address or
telecopier number as such party may hereafter specify for the purpose by notice
to each other party. Each such notice, request or other communication shall be
effective (i) if given by telecopier, when such telecopy is transmitted to the
telecopier number specified in this Section and the appropriate confirmation is
received, (ii) if given by mail, seventy-two (72) hours after such communication
is deposited in the United States mails with first class postage prepaid,
addressed as aforesaid or (iii) if given by any other means, when delivered at
the address specified in this Section; provided that notices to the Agent under
Article 2 or Article 8 shall not be effective until received.
SECTION 9.2. No Waivers.
No failure or delay by the Agent or any Bank in exercising any right, power
or privilege hereunder or under any Note shall operate as a waiver thereof nor
shall any single or partial exercise thereof preclude any other or further
exercise thereof or the exercise of any other right, power or privilege. The
rights and remedies herein provided shall be cumulative and not exclusive of any
rights or remedies provided by law.
SECTION 9.3. Expenses; Documentary Taxes.
The Borrower shall pay (i) all out-of-pocket expenses of the Agent,
including fees and disbursements of special counsel for the Banks and the Agent,
in connection with the preparation of this Agreement and the other Loan
Documents, any waiver or consent hereunder or thereunder or any amendment hereof
or thereof or any Default or alleged Default hereunder or thereunder and (ii) if
a Default occurs, all out-of-pocket expenses incurred by the Agent and any Bank,
including fees and disbursements of counsel (including a reasonable allocation
of the cost of internal counsel), in con nection with such Default and
collection and other enforcement proceedings resulting therefrom, in cluding
out-of-pocket expenses incurred in enforcing this Agreement, the Notes and other
Loan Documents. The Borrower shall indemnify the Agent and each Bank against any
transfer taxes, docu mentary taxes, assessments or charges made by any Authority
by reason of the execution and delivery of this Agreement, the Notes or the
other Loan Documents.
SECTION 9.4. Indemnification.
The Borrower shall indemnify the Agent, the Banks and each affiliate
thereof and their respective directors, officers, employees and agents from, and
hold each of them harmless against, any and all losses, liabilities, claims or
damages to which any of them may become subject, insofar as such losses,
liabilities, claims or damages arise out of or result from any actual or
proposed use by the Borrower of the proceeds of any extension of credit by any
Bank hereunder or breach by the
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Borrower of this Agreement, the Notes or any other Loan Document or from any
investigation, litigation or other proceeding (including any threatened
investigation or proceeding) relating to the foregoing, and the Borrower shall
reimburse the Agent and each Bank, and each affiliate thereof and their
respective directors, officers, employees and agents, upon demand for any
expenses (including, without limitation, legal fees) incurred in connection with
any such investigation or proceeding; but excluding any such losses,
liabilities, claims, damages or expenses incurred by reason of the gross
negligence or willful misconduct of the Person to be indemnified. The
indemnification provisions (including, without limitation, provisions for
default interest, to the extent that this Section 9.4 might be construed as
duplicating the Borrower's obligation to pay interest at the Default Rate as
required elsewhere in this Agreement) set forth in this Section 9.4 are meant to
be without duplication of any other indemnification provisions set forth in this
Agreement.
SECTION 9.5. Sharing of Setoffs.
Each Bank agrees that if it shall, by exercising any right of setoff or
counterclaim or otherwise, receive payment of a proportion of the aggregate
amount of principal and interest owing with respect to the Note held by it which
is greater than the proportion received by any other Bank in respect of the
aggregate amount of all principal and interest owing with respect to the Note
held by such other Bank, the Bank receiving such proportionately greater payment
shall purchase such participations in the Notes held by the other Banks owing to
such other Banks, and such other adjustments shall be made, as may be required
so that all such payments of principal and interest with respect to the Notes
held by the Banks owing to such other Banks shall be shared by the Banks pro
rata; provided that (i) nothing in this Section shall impair the right of any
Bank to exercise any right of setoff or counterclaim it may have and to apply
the amount subject to such exercise to the payment of indebtedness of the
Borrower other than its indebtedness under the Notes, and (ii) if all or any
portion of such payment received by the purchasing Bank is thereafter recovered
from such purchasing Bank, such purchase from each other Bank shall be rescinded
and such other Bank shall repay to the purchasing Bank the purchase price of
such participation to the extent of such recovery together with an amount equal
to such other Bank's ratable share (according to the proportion of (x) the
amount of such other Bank's required repayment to (y) the total amount so
recovered from the purchasing Bank) of any interest or other amount paid or
payable by the purchasing Bank in respect of the total amount so recovered. The
Borrower agrees, to the fullest extent it may effectively do so under applicable
law, that any holder of a participation in a Note, acquired pursuant to the
foregoing arrangements, may exercise rights of setoff or counterclaim and other
rights with re spect to such participation as fully as if such holder of a
participation were a direct creditor of the Borrower in the amount of such
participation.
SECTION 9.6. Amendments and Waivers.
Any provision of this Agreement, the Notes or any other Loan Documents may
be amended or waived if, but only if, such amendment or waiver is in writing and
is signed by the Borrower and the Required Banks (and, if the rights or duties
of the Agent are affected thereby, by the Agent); provided that, no such
amendment or waiver shall, unless signed by all Banks, (i) except as otherwise
provided in Section 8.5, change the Commitment of any Bank or subject any Bank
to any additional obligation, (ii) change the principal of or rate of interest
on any Revolving Loan or any fees or other amounts payable hereunder, (iii)
change the date fixed for any payment of principal of or interest on any
Revolving Loan or any fees hereunder, (iv) change the amount of principal,
interest, fees or other amounts payable hereunder due on any date fixed for the
payment thereof, (v) change the percentage of the Commitments or of the
aggregate unpaid amount of the Notes, or the percentage of Banks, which shall be
required for the Banks or any of them to take any action under this Section or
any other provision of this Agreement, (vi) change the manner of application of
any payments made under this Agreement or the Notes, (vii) release or substitute
all or any substantial part of the collateral (if any) held as security for the
Revolving Loans, (viii) release any Guarantee given to support payment of the
Revolving Loans; (ix) change any terms of clause (vii) of Section 5.19; or (x)
change any terms of Section 5.20. In connection with the
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foregoing, the Borrower will not solicit, request or negotiate for or with
respect to any proposed waiver or amendment of any of the provisions of this
Agreement unless each Bank shall be informed thereof by the Borrower or the
Agent and shall be afforded an opportunity of considering the same and shall be
supplied by the Borrower with sufficient information to enable it to make an
informed decision with respect thereto. Executed or true and correct copies of
any waiver or consent effected pursuant to the provisions of this Agreement
shall be delivered by the requisite percentage of Banks. The Borrower will not,
directly or indirectly, pay or cause to be paid any remuneration, whether by way
of supplemental or additional interest, fee or otherwise, to any Bank (in its
capacity as a Bank) as consideration for or as an inducement to the entering
into by such Bank of any waiver or amendment of any of the terms and provisions
of this Agreement unless such remuneration is concurrently paid, on the same
terms, ratably to all such Banks.
SECTION 9.7. No Margin Stock Collateral.
Each of the Banks represents to the Agent, the Borrower and each of the
other Banks that it in good faith is not, (i) directly or indirectly (by
negative pledge or otherwise), relying upon any Margin Stock as collateral in
the extension or maintenance of the credit provided for in this Agreement or
(ii) entering into this Agreement with an immediate intention to resell its
Commitment or Revolving Loans.
SECTION 9.8. Successors and Assigns.
9.8.1 No Assignment by Borrower. The provisions of this Agreement shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors and assigns; provided that the Borrower may not assign or otherwise
transfer any of its rights under this Agreement.
9.8.2 Participation. Any Bank may, without the consent of the Borrower, at
any time sell to one or more Persons (each a "Participant") participating
interests in any Revolving Loan owing to such Bank, any Note held by such Bank,
any Commitment of such Bank hereunder or any other interest of such Bank
hereunder. In the event of any such sale by a Bank of a par ticipating interest
to a Participant, such Bank's obligations under this Agreement shall remain un
changed, such Bank shall remain solely responsible for the performance thereof,
such Bank shall remain the holder of any such Note for all purposes under this
Agreement, and the Borrower and the Agent shall continue to deal solely and
directly with such Bank in connection with such Bank's rights and obligations
under this Agreement. In no event shall a Bank that sells a participation be
obligated to the Participant to take or refrain from taking any action hereunder
except that such Bank may agree that it will not (except as provided below),
without the consent of the Participant, agree to (i) the change of any date
fixed for the payment of principal of or interest on the related Revolving Loan
or Revolving Loans, (ii) the change of the amounts of any principal, interest or
fees due on any date fixed for the payment thereof with respect to the related
Revolving Loan or Revolving Loans, (iii) the change of the principal or the
related Revolving Loan or Revolving Loans, (iv) any change in the rate at which
either interest is payable thereon or (if the Participant is entitled to any
part thereof) a commitment fee is payable hereunder from the rate at which the
Participant is entitled to receive interest or a commitment fee (as the case may
be) in respect of such participation, (v) the release or substitution of all or
any substantial part of the collateral (if any) held as security for the
Revolving Loans, or (vi) the release of any Guarantee given to support payment
of the Revolving Loans. Each Bank selling a participating interest in any
Revolving Loan, Note, Commitment or other interest under this Agreement shall,
within ten (10) Domestic Business Days of such sale, provide the Borrower and
the Agent with written notification stating that such sale has occurred and
identifying the Participant and the interest purchased by such Participant.
Except as otherwise expressly provided in Article 8, the Agent, the Banks and
the Borrower agree that each Participant shall be entitled to the benefits of
Article 8 with respect to its participation in Revolving Loans outstanding from
time to time, but only to the extent that such Bank which sold the relevant
participation would have been entitled thereto pursuant to the terms of this
Agreement.
9.8.3 Assignments. Any Bank may at any time assign to one or more banks or
financial institutions (each an "Assignee") all, or a proportionate part of all,
of its rights and obligations under this Agreement and the Notes, and such
Assignee shall assume all such rights and obligations, pursuant to an Assignment
and Acceptance, executed by such Assignee, such transferor Bank and the Agent
(and, in the case of an Assignee that is not then a Bank, by the Borrower);
provided that (i) no interest may be sold by a Bank pursuant to this Section
unless the Assignee shall agree to assume ratably equivalent portions of the
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transferor Bank's Commitment, (ii) the amount of the Commitment of the
transferor Bank subject to such assignment (determined as of the effective date
of the assignment) shall be equal to at least Five Million Dollars ($5,000,000),
(iii) no interest may be sold by a Bank pursuant to this Section to any Assignee
that is not then a Bank or an Affiliate of a Bank without the consent of the
Borrower and the Agent (which consent shall not be unreason ably withheld),
except after the occurrence of, and during the continuance of, an Event of
Default, and (iv) during the term of this Agreement, a Bank may not have more
than two Assignees that are not then Banks at any one time. Upon (A) execution
of the Assignment and Acceptance by such transferor Bank, such Assignee, the
Agent and (if applicable) the Borrower, (B) delivery of an executed copy of the
Assignment and Acceptance of the Borrower and the Agent, (C) payment by such
Assignee to such transferor Bank of an amount equal to the purchase price agreed
between such transferor Bank and such Assignee, and (D) payment of a processing
and recordation fee of Two Thousand Five Hundred Dollars ($2,500) to the Agent,
such Assignee shall for all purposes be a Bank party to this Agreement and shall
have all the rights and obligations of a Bank under this Agreement to the same
extent as if it were an original party hereto with a Commitment as set forth in
such instrument of assumption, and the transferor Bank shall be released from
its future obligations hereunder to a corresponding extent, and no further
consent or action by the Borrower, the Banks or the Agent shall be required.
Upon the consummation of any transfer to an Assignee pursuant to this Section
9.8.3, the transferor Bank, the Agent and the Borrower shall make appropriate
arrangements so that, if required, a new Note is issued to such Assignee.
9.8.4 Disclosures. Subject to the provisions of Section 9.9, the Borrower
authorizes each Bank to disclose to any Participant, Assignee or other
transferee (each a "Transferee") and any prospective Transferee any and all
information in such Bank's possession concerning the Borrower which has been
delivered to such Bank by the Borrower pursuant to this Agreement or which has
been delivered to such Bank by the Borrower in connection with such Bank's
credit evaluation prior to entering into this Agreement.
9.8.5 Status of Transferee. No Transferee shall be entitled to receive any
greater payment under Section 8.3 than the transferor Bank would have been
entitled to receive with respect to the rights transferred, unless such transfer
is made with the Borrower's prior written consent or by reason of the provisions
of Section 8.2 or 8.3 requiring such Bank to designate a different Lending
Office under certain circumstances or at a time when the circumstances giving
rise to such greater payment did not exist.
SECTION 9.9. Confidentiality.
Each Bank and the Agent agrees to exercise its best efforts (and, in any
event, with at least the same degree of care as it ordinarily exercises with
respect to confidential information of its other customers) to keep any
information delivered or made available by the Borrower to it, including,
without limitation, information obtained by the Agent or such Bank by reason of
a visit or investigation by any Person contemplated in Section 5.2, confidential
from any one other than persons employed or retained by such Bank who are or are
expected to become engaged in evaluating, approving, structuring or
administering the Revolving Loans; provided, however that nothing herein shall
prevent any Bank from disclosing such information (i) to the Agent or any other
Bank, (ii) upon the order of any court or administrative agency, (iii) upon the
request or demand of any regulatory agency or authority having jurisdiction over
such Bank, (iv) which has been publicly disclosed other than by an act or
omission of the Agent or any Bank except as permitted herein, (v) to the extent
reasonably required in connection with any litigation (with respect to this
Agreement, any of the other Loan Documents, in connection with any of the
foregoing, or any other obligations of the Borrower or any Subsidiary owing to
the Agent or any Bank) to which the Agent, any Bank or their respective
Affiliates may be a party, (vi) to the extent reasonably required in connection
with the exercise of any remedy hereunder, (vii) to such Bank's legal counsel
and independent auditors and (viii) to any actual or proposed Participant,
Assignee or other Transferee of all or part of its rights hereunder which has
agreed in writing to be bound by the provisions of this Section 9.9.
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SECTION 9.10. Representation by Banks.
Each Bank hereby represents that it is a commercial lender or financial
institution which makes Revolving Loans in the ordinary course of its business
and that it will make its Revolv ing Loans hereunder for its own account in the
ordinary course of such business; provided, however that, subject to Section
9.8, the disposition of a Note or the Notes held by that Bank shall at all times
be within its exclusive control.
SECTION 9.11. Obligations Several.
The obligations of each Bank hereunder are several, and no Bank shall be
responsible for the obligations or commitment of any other Bank hereunder.
Nothing contained in this Agreement and no action taken by Banks pursuant hereto
shall be deemed to constitute the Banks to be a partnership, an association, a
joint venture or any other kind of entity. The amounts payable at any time
hereunder to each Bank shall be a separate and independent debt, and each Bank
shall be entitled to protect and enforce its rights arising out of this
Agreement or any other Loan Document and it shall not be necessary for any other
Bank to be joined as an additional party in any proceeding for such purpose.
SECTION 9.12. GEORGIA LAW.
THIS AGREEMENT, EACH NOTE AND EACH OTHER LOAN DOCUMENT SHALL BE CONSTRUED
IN ACCORDANCE WITH AND GOVERNED BY THE LAW OF THE STATE OF GEORGIA.
SECTION 9.13. Interpretation.
No provision of this Agreement or any of the other Loan Documents shall be
construed against or interpreted to the disadvantage of any party hereto by any
court or other governmental or judicial authority by reason of such party having
or being deemed to have structured or dictated such provision.
SECTION 9.14. CONSENT TO JURISDICTION.
THE BORROWER, AND EACH OF THE BANKS AND THE AGENT IR REVOCABLY (A) SUBMITS
TO THE NONEXCLUSIVE PERSONAL JURISDICTION IN THE STATE OF GEORGIA, THE COURTS
THEREOF AND THE UNITED STATES DISTRICT COURTS SITTING THEREIN, FOR THE
ENFORCEMENT OF THIS AGREEMENT, THE NOTES AND THE OTHER LOAN DOCUMENTS, (B)
WAIVES ANY AND ALL PERSONAL RIGHTS UNDER THE LAW OF ANY JURISDICTION TO OBJECT
ON ANY BASIS (INCLUDING, WITHOUT LIMITATION, INCONVENIENCE OF FORUM) TO
JURISDICTION OR VENUE WITHIN THE STATE OF GEORGIA FOR THE PURPOSE OF LITIGATION
TO ENFORCE THIS AGREEMENT, THE NOTES OR THE OTHER LOAN DOCUMENTS, AND (C) AGREES
THAT SERVICE OF PROCESS MAY BE MADE UPON IT IN THE MANNER PRESCRIBED IN SECTION
9.1
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FOR THE GIVING OF NOTICE TO THE BORROWER. NOTHING HEREIN CONTAINED, HOWEVER,
SHALL PREVENT THE AGENT FROM BRINGING ANY ACTION OR EXERCISING ANY RIGHTS
AGAINST ANY SECURITY AND AGAINST THE BORROWER PERSONALLY, AND AGAINST ANY ASSETS
OF THE BORROWER, WITHIN ANY OTHER STATE OR JURISDICTION.
SECTION 9.15. Counterparts.
This Agreement may be signed in any number of counterparts, each of which
shall be an original, with the same effect as if the signatures thereto and
hereto were upon the same instrument.
SECTION 9.16. Survival.
All representations, warranties and covenants made herein shall survive the
execution and delivery of all of the Loan Documents. The terms and provisions of
this Agreement shall continue in full force and effect until the payment of the
Notes and termination of the Commitments.
SECTION 9.17. Entire Agreement; Amendment; Severability.
This Agreement shall constitute the entire agreement among the parties
hereto with respect to the subject matter hereof. Neither this Agreement nor any
provision hereof may be changed, waived, discharged, modified or terminated
orally, but only by an instrument in writing in accordance with Section 9.6. If
any provision of any of the Loan Documents or the application thereof to any
party thereto or circumstances shall be invalid or unenforceable to any extent,
the remainder of such Loan Documents and the application of such provisions to
any other party thereto or circumstance shall not be affected thereby and shall
be enforced to the greatest extent permitted by law.
SECTION 9.18. TIME OF THE ESSENCE.
TIME IS OF THE ESSENCE IN THIS AGREEMENT, THE NOTES AND THE OTHER LOAN
DOCUMENTS.
SECTION 9.19. Banks Not a Joint Venturer.
Neither this Agreement nor any agreements, instruments, documents or
transactions contemplated hereby (including the Loan Documents), shall in any
respect be interpreted, deemed or construed as making any Bank or the Agent a
partner or joint venturer with the Borrower or as creating any similar
relationship or entity.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed, under seal, by their respective authorized officers, as of the
day and year first above written.
"BORROWER"
APPLE SOUTH, INC.
(SEAL)
By:_________________________________
Erich J. Booth, Chief Financial
Officer and Treasurer
Attest:_____________________________
Tonya Benjamin, Assistant Secretary
Apple South, Inc.
Corporate Headquarters
Hancock at Washington
Madison, Georgia 30650
Attn: Erich J. Booth,
Chief Financial Officer
Telecopier Number: (706) 342-4057
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"BANKS"
WACHOVIA BANK, NATIONAL
ASSOCIATION, as the Agent and as
a Bank
(SEAL)
By:________________________________
W. Tompkins Rison, Vice President
Lending Office:
Wachovia Bank, N.A.
191 Peachtree Street, N.E.
30th Floor
Atlanta, Georgia 30303-1757
Attention: Georgia Corporate
Commercial Group
Telecopier Number: (404) 332-6920
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EXHIBIT A
FORM OF ASSIGNMENT AND ACCEPTANCE
ASSIGNMENT AND ACCEPTANCE
Dated ________ __, 19__
Reference is made to the Credit Agreement dated as of December 10, 1997
(together with all amendments and modifications thereto, the "Credit Agreement"
among Apple South, Inc., a Georgia corporation (the "Borrower"), the Banks (as
defined in the Credit Agreement) and Wachovia Bank, National Association, as
Agent (the "Agent"). Terms defined in the Credit Agree ment are used herein with
the same meaning.
________________________________________ (the "Assignor") and
________________________________________ (the "Assignee") agree
as follows:
1. The Assignor hereby sells and assigns to the Assignee, and the Assignee
hereby purchases and assumes from the Assignor, a ________% interest in and to
all of the Assignor's rights and obligations under the Credit Agreement as of
the Effective Date (as defined below) (including, without limitation, a _____%
interest (which on the Effective Date hereof is $__________) in the Assignor's
Commitment and a _____ interest (which on the Effective Date hereof is
$__________) in the Revolving Loans owing to the Assignor (which on the
Effective Date hereof is $__________).
2. The Assignor (i) makes no representation or warranty and assumes no
responsibility with respect to any statements, warranties or representations
made in or in connection with the Credit Agreement or the execution, legality,
validity, enforceability, genuineness, sufficiency or value of the Credit
Agreement or any other instrument or document furnished pursuant thereto, other
than that it is the legal and beneficial owner of the interest being assigned by
it hereunder, that such interest is free and clear of any adverse claim and that
as of the date hereof its Commitment (without giving effect to assignments
thereof which have not yet become effective) is $__________ and the aggregate
outstanding principal amount of Revolving Loans owing to it (without giving
effect to assignments thereof which have not yet become effective) is
$__________; (ii) makes no representation or warranty and assumes no
responsibility with respect to the financial condition of the Borrower or the
performance or observance by the Borrower of any of its obligations under the
Credit Agreement or any other instrument or document furnished pursuant thereto;
and (iii) attaches the Note(s) referred to in paragraph 1 above and requests
that the Agent exchange such Note(s) for [a new Note dated __________, ____ in
the principal amount of $__________ payable to the order of the Assignee) (new
Notes as follows: a Note dated __________, ____ in the principal amount of
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$__________ payable to the order of the Assignor and a Note dated __________,
____ in the principal amount of $__________ payable to the order of the
Assignee].
3. The Assignee (i) confirms that it has received a copy of the Credit
Agreement, together with copies of the financial statements referred to in
Section 4.4.1 thereof (or any more recent financial statements of the Borrower
delivered pursuant to Sections 5.1.1 or 5.1.2 thereof) and such other documents
and information as it has deemed appropriate to make its own credit analysis and
decision to enter into this Assignment and Acceptance; (ii) agrees that it will,
independently and without reliance upon the Agent, the Assignor or any other
Bank and based on such documents and information as it shall deem appropriate at
the time, continue to make its own credit decisions in taking or not taking
action under the Credit Agreement; (iii) confirms that it is a bank or financial
institution; (iv) appoints and authorizes the Agent to take such action as agent
on its behalf and to exercise such powers under the Credit Agreement as are
delegated to the Agent by the terms thereof, together with such powers as are
reasonably incidental thereto; (v) agrees that it will perform in accordance
with their terms all of the obligations which by the terms of the Credit
Agreement are required to be performed by it as a Bank; (vi) specifies as its
Lending Office (and address for notices) the office set forth beneath its name
on the signature pages hereof, (vii) represents and warrants that the execution,
delivery and performance of this Assignment and Acceptance are within its
corporate powers and have been duly authorized by all necessary corporate
action, and (viii) attaches the forms prescribed by the Internal Revenue Service
of the United States certifying as to the Assignee's status for purposes of
determining exemption from United States withholding taxes with respect to all
payments to be made to the Assignee under the Credit Agreement and the Notes or
such other documents as are necessary to indicate that all such payments are
subject to such taxes at a rate reduced by an applicable tax treaty.
4. The Effective Date for this Assignment and Acceptance shall be (the
"Effective Date"). Following the execution of this Assignment and Acceptance, it
will be delivered to the Agent for execution and acceptance by the Agent (and to
the Borrower for execution by the Borrower. If Assignee is organized under the
laws of a jurisdiction outside the United States.
5. Upon such execution and acceptance by the Agent and execution by the
Borrower, if the Assignee is not a Bank prior to the Effective Date, from and
after the Effective Date, (i) the Assignee shall be a party to the Credit
Agreement and, to the extent rights and obligations have been transferred to it
by this Assignment and Acceptance, have the rights and obligations of a Bank
thereunder and (ii) the Assignor shall, to the extent its rights and obligations
have been transferred to the Assignee by this Assignment and Acceptance,
relinquish its rights (other than under Section 8.3 of the Credit Agreement) and
be released from its obligations under the Credit Agreement.
6. Upon such execution and acceptance by the Agent and execution by the
Borrower, if the Assignee is not a Bank prior to the Effective Date, from and
after the Effective Date, the Agent shall make all payments in respect of the
interest assigned hereby to the Assignee. The
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Assignor and Assignee shall make all appropriate adjustments in payments for
periods prior to such acceptance by the Agent directly between themselves.
7. This Assignment and Acceptance shall be governed by, and construed in
accordance with, the laws of the State of Georgia.
[NAME OF ASSIGNOR]
By:
Title:
[NAME OF ASSIGNEE]
By:
Title:
Lending Office:
[Address]
WACHOVIA BANK, NATIONAL
ASSOCIATION, as Agent
By:
Title:
APPLE SOUTH, INC.
If the Assignee is not a
Bank prior to the Effective
Date.
By:
Title:
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<PAGE>
EXHIBIT B
FORM OF REVOLVING LOAN NOTE
REVOLVING LOAN NOTE
Atlanta, Georgia
December 10, 1997
For value received, APPLE SOUTH, INC., a Georgia corporation (the
"Borrower"), promises to pay to the order of WACHOVIA BANK, N.A. (the "Bank"),
for the account of its Lending Office, the principal sum of up to Seventy
Million Dollars ($70,000,000), or such lesser amount as shall equal the unpaid
principal amount of each Revolving Loan made by the Bank to the Borrower
pursuant to the Credit Agreement referred to below, on the dates and in the
amounts provided in the Credit Agreement. The Borrower promises to pay interest
on the unpaid principal amount of this Revolving Loan Note on the dates and at
the rate or rates provided for in the Credit Agreement referred to below.
Interest on any overdue principal of and, to the extent permitted by law,
overdue interest on the principal amount hereof shall bear interest at the
Default Rate, as pro vided for in the Credit Agreement. All such payments of
principal and interest shall be made in lawful money of the United States in
Federal or other immediately available funds at the office of Wachovia Bank,
National Association, 191 Peachtree Street, N.E., Atlanta, Georgia 30303-1757,
or such other address as may be specified from time to time pursuant to the
Credit Agreement.
All Revolving Loans made by the Bank, the respective maturities thereof,
the interest rates from time to time applicable thereto, and all repayments of
the principal thereof may be recorded by the Bank and, prior to any transfer
hereof, endorsed by the Bank on the schedule attached hereto, or on a
continuation of such schedule attached to and made a part hereof; provided that
the failure of the Bank to make any such recordation or endorsement shall not
affect the obligations of the Borrower hereunder or under the Credit Agreement.
This Revolving Loan Note is one of the Notes referred to in the Credit
Agreement dated as of December 10, 1997, among the Borrower, the Banks listed on
the signature pages thereof and Wachovia Bank, National Association, as Agent
(as the same may be amended and modified from time to time, the "Credit
Agreement"). Terms defined in the Credit Agreement are used herein with the same
meanings. Reference is made to the Credit Agreement for the provisions for the
optional and mandatory prepayment and the repayment hereof and the acceleration
of the maturity hereof.
IN WITNESS WHEREOF, the Borrower has caused this Revolving Loan Note to be
duly executed, under seal, by its duly authorized officer as of the day and year
first above written.
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APPLE SOUTH, INC. (SEAL)
By:_______________________________
Erich J. Booth, Chief Financial
Officer and Treasurer
Attest:___________________________
Tonya Benjamin, Assistant
Secretary
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Revolving Loan Note (cont'd)
REVOLVING LOANS AND PAYMENTS OF PRINCIPAL
Base Rate Amount Amount of
or Euro- of Principal Maturity Notation
Date Dollar Loan Revolving Loan Repaid Date Made By
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
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EXHIBIT C
FORM OF NOTICE OF BORROWING
NOTICE OF BORROWING
________________, 199_
Wachovia Bank, National
Association, as Agent
191 Peachtree Street, N.W.
Atlanta, Georgia 30303-1757
Attention: Commercial Group
Re: Credit Agreement (as amended or modified from time to time,
the "Credit Agreement") dated as of December 10, 1997, by and
among Apple South, Inc., Wachovia Bank, National Association,
as a Bank and as the Agent, and the other Banks from time to
time party thereto.
Ladies and Gentlemen:
Unless otherwise defined herein, capitalized terms used herein shall
have the meanings attributable thereto in the Credit Agreement.
This Notice of Borrowing is delivered to you pursuant to Section 2.2 of
the Credit Agreement.
The Borrower hereby requests a Borrowing in the aggregate principal
amount of $________________ to be made on ______________, 199__, and for
interest to accrue thereon at the rate established by the Credit Agreement for
(check one):
1. _____ Base Rate Loans
2. _____ Euro-Dollar Rate Loans
The duration of the Interest Period with respect thereto in the case of
Euro-Dollar Rate Loans shall be (check one):
1. _____ 1 month
2. _____ 2 months
3. _____ 3 months
4. _____ 6 months
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If, immediately after the Borrowing requested herein, the outstanding
balance of the Revolving Loans following such Borrowing will be in excess of the
aggregate outstanding principal balance of the Revolving Loans immediately
preceding such Borrowing, the Borrower hereby represents and warrants that on
the date the Borrowing requested hereunder is made (both before and after giving
effect to the making of such and after giving effect to the application,
directly or indirectly, of the proceeds thereof):
(a) no Default has occurred and is continuing; and
(b) the representations and warranties of the Borrower
contained in Article IV of the Credit Agreement are true.
The Borrower has caused this Notice of Borrowing to be executed and
delivered by its duly authorized officer as of this ____ day of __________,
199__.
APPLE SOUTH, INC.
By:
Title:
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EXHIBIT D
FORM OF OPINION OF
COUNSEL FOR THE BORROWER
December 10, 1997
To the Banks and the Agent
Referred to below
c/o Wachovia Bank,
National Association, as Agent
191 Peachtree Street, N.E.
Atlanta, Georgia 30303-1757
Ladies and Gentlemen:
We have acted as legal counsel to Apple South, Inc. (the "Borrower") in
connection with the Credit Agreement (the "Credit Agreement") dated as of
December 10, 1997, among the Borrower, the Banks from time to time parties
thereto, and Wachovia Bank, National Association, as Agent. Terms defined in the
Credit Agreement are used herein as therein defined.
We have examined original or copies, certified or otherwise identified to
our satisfaction, of such documents, corporate records, certificates of public
officials and other instruments and have conducted such other investigations of
fact and law as we have deemed necessary or advisable for purposes of this
opinion. We have assumed for purposes of our opinions set forth below that the
executed and delivery of the Credit Agreement by each Bank and by the Agent have
been duly authorized by each Bank and by the Agent.
When facts relevant to these opinions were not independently established by
us, we have relied upon the certificate of the Secretary of the Borrower. We
have assumed the genuineness of all signatures, the authenticity of all
documents delivered to us as originals, the legal capacity of natural persons,
the conformity to original documents of all documents submitted to us as
certified or photostatic copies and the authenticity of the originals of such
letter documents.
Upon the basis of the foregoing, and subject to the further qualifications
and assumptions set forth below, we are of the opinion that:
1. The Borrower is a corporation duly incorporated, validly existing and in
good standing under the laws of the State of Georgia and has all corporate
powers required to carry on its business as now conducted.
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2. The execution, delivery and performance by the Borrower of the Credit
Agreement, the Notes and the Other Agreements (i) are within the Borrower's
corporate powers, (ii) have been duly authorized by all necessary corporate
action, (iii) require no action by or in respect of, or filing with, any
governmental body, agency or official, (iv) do not contravene, or constitute a
default under, any provision of (A) applicable law or regulation or (B) the
certificate of incorporation or by-laws of the Borrower or (C) any material
judgment, injunction, order or decree which to our knowledge is binding upon the
Borrower or (D) any material indenture, mortgage, deed of trust, loan agreement
or other financial agreement or instrument (but not including leases) known to
us which to our knowledge is binding on the Borrower and (V) do not, to our
knowledge, result in the creation or imposition of any Lien on any asset of the
Borrower.
3. The Credit Agreement, the Notes and the Other Agreements constitutes a
valid and binding agreement of the Borrower, enforceable against the Borrower in
accordance with its terms, except as such enforceability may be limited: (i) by
bankruptcy, insolvency, reorganization, fraudulent conveyance, voidable
preference, moratorium or similar laws applicable to creditors' rights or the
collection of debtors' obligations generally and (ii) by general principles of
equity (including, without limitation, the availability of equitable remedies).
4. To our knowledge, there is no action, suit or proceeding pending, or
threatened, against or affecting the Borrower or any of its Subsidiaries before
any court or arbitrator or any governmental body, agency or official in which
there is a reasonable possibility of an adverse decision which could materially
adversely affect the business, consolidated financial position or consolidated
results of operations of the Borrower and its Consolidated Subsidiaries,
considered as a whole, or which in any manner questions the validity or
enforceability of the Credit Agreement or any Note.
5. The Borrower is not an "investment company" within the meaning of the
Investment Company Act of 1940, as amended.
We are qualified to practice law in the State of Georgia and do not purport
to be experts on any laws other than the federal laws of the United States and
the laws of the State of Georgia, and this opinion is rendered only with respect
to such laws. We have made no investigation of the laws of any other
jurisdiction.
Very truly yours,
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EXHIBIT E
FORM OF CLOSING CERTIFICATE
APPLE SOUTH, INC.
CLOSING CERTIFICATE
Reference is made to the Credit Agreement ("the Credit Agreement") dated as
of December 10, 1997, among Apple South, Inc., the Banks listed therein, and
Wachovia Bank, N.A., as Agent. Capitalized terms used herein have the meanings
ascribed thereto in the Credit Agreement.
Pursuant to Section 3.1.4 of the Credit Agreement, the undersigned, Erich
J. Booth, the duly authorized Chief Financial Officer and Treasurer of Apple
South, Inc., in his aforesaid official capacity and not personally, hereby
certifies to the Agent and the Banks on behalf of the Borrower that (i) no
Default has occurred and is continuing as of the date hereof, and (ii) the
representations and warranties contained in Article IV of the Credit Agreement
are true on and as of the date hereof.
IN WITNESS WHEREOF, the undersigned has executed this Certificate in his
aforesaid official capacity as Chief Financial Officer and not personally as of
December 10, 1997.
By:
Erich J. Booth, as Chief
Financial Officer and
Treasurer, for and on
behalf of Apple
South, Inc.
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EXHIBIT F
FORM OF SECRETARY'S CERTIFICATE
SECRETARY'S CERTIFICATE
The undersigned, being the duly elected, qualified and acting Secretary of
APPLE SOUTH, INC., a Georgia corporation (the "Corporation"), and, in such
capacity, being duly authorized and empowered to issue this certificate on its
behalf, does hereby certify that:
1. On or prior to the date hereof, by unanimous consent of the Board of
Directors of the Corporation, obtained in accordance with and pursuant to the
Articles of Incorporation and By-Laws of the Corporation, the resolutions set
forth and described on Exhibit A were unanimously adopted and, being the only
effective resolutions adopted by the Board of Directors of this Corporation (or
any committee thereof) with respect to the matters referred to therein, remain
unmodified and in full force and effect as of the date hereof;
2. The following are the names of the duly elected officers of this
Corporation now holding the respective offices indicated, and that the signature
set forth opposite the name of each such officer is the true and genuine
signature of such officer (complete as applicable):
Erich J. Booth, Chief Financial _____________________________
Officer and Treasurer (Signature)
Tonya Benjamin, Assistant Secretary _____________________________
(Signature)
IN WITNESS WHEREOF, I have hereunto set my hand as Assistant Secretary and
the seal of the Corporation as of the 10th day of December, 1997.
[CORPORATE SEAL] ________________________________
Tonya Benjamin, Assistant Secretary
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EXHIBIT G
FORM OF COMPLIANCE CERTIFICATE
COMPLIANCE CERTIFICATE
Reference is made to that certain Credit Agreement dated as of December 10,
1997 (as modified and supplemented and in effect from time to time, the "Credit
Agreement") among Apple South, Inc., the Banks from time to time party thereto,
and Wachovia Bank, National Association, as a Bank and as Agent as ascribed
thereto in the Credit Agreement.
Pursuant to Section 5.1.3 of the Credit Agreement, the undersigned, the
[Chief Financial Officer/Chief Accounting Officer] of the Borrower, hereby
certifies that (i) attached hereto as Annex 1 are the true and accurate
calculations required to establish whether the Borrower was in compliance with
Sections 5.3, 5.4, 5.5, 5.6 and 5.19 of the Credit Agreement as of the end of
the Fis cal [Quarter/Year] ended __________, 19__, each determined in accordance
with the requirements of the Credit Agreement and (ii) [no Default exists on the
date hereof] [the following Defaults (including the details thereof) exist and
the Borrower is taking or proposes to take the following actions with respect
thereto]:
======================
======================
IN WITNESS WHEREOF, the undersigned has executed this Certificate in his
capacity as [Chief Financial Officer] and not personally as of the ____ day of
__________, 199___.
By:_________________________________
_______________________,
as _________________,
for and on behalf of
Apple South, Inc.
-1-
<PAGE>
SCHEDULE 4.8
A. Apple South of Maryland, Inc.
Hancock at Washington
Madison, Georgia 30650
B. Apple South of Prince George's County, Inc.
Hancock at Washington
Madison, Georgia 30650
C. DF&R Restaurants, Inc.
2350 Airport Freeway
Suite 505
Bedford, Tarrant County, Texas 76022
D. DF&R Operating Company, Inc.
2350 Airport Freeway
Suite 505
Bedford, Tarrant County, Texas 76022
E. DF&R Ohio, Inc.
2350 Airport Freeway
Suite 505
Bedford, Tarrant County, Texas 76022
F. Harry N. Don's Liquor Corp.
2350 Airport Freeway
Suite 505
Bedford, Tarrant County, Texas 76022
G. DF&R Restaurants of Texas, L.P.
2350 Airport Freeway
Suite 505
Bedford, Tarrant County, Texas 76022
-1-
<PAGE>
SCHEDULE 5.7
APPLE SOUTH, INC.
DEBT SCHEDULE
Monthly
Description Short-Term Long-Term Total Payment Maturity Security
- ----------- ---------- --------- ----- ------- -------- --------
[TO BE COMPLETED BY APPLE SOUTH, INC.]
<TABLE>
Five-Year Summary of Selected Financial Data
Apple South, Inc.
(Dollars in thousands, except per share data)
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
5-year Compound
Annual Growth Rate 1997 1996 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Restaurant sales:
Applebee's 34.7% $454,127 379,042 300,928 201,359 150,921
Don Pablo's 63.1% 196,457 133,261 88,820 57,192 31,132
McCormick & Schmick's - 67,373 - - - -
Hops - 49,511 - - - -
Canyon Cafes - 18,577 - - - -
Harrigan's (3.3)% 19,560 21,991 22,781 23,021 23,044
Other (20.7)% 2,715 11,728 27,661 18,987 12,658
- ------------------------------------------------------------------------------------------------------------------------------------
Total restaurant sales 39.8% 808,320 546,022 440,190 300,559 217,755
- ------------------------------------------------------------------------------------------------------------------------------------
Restaurant operating expenses:
Food and beverage 38.2% 225,302 150,090 120,630 84,910 63,329
Payroll and benefits 41.7% 249,356 162,017 129,424 87,236 62,425
Depreciation and amortization 44.8% 31,441 22,509 17,662 11,119 7,483
Other operating expenses 37.9% 187,781 125,781 98,850 69,483 51,636
- ------------------------------------------------------------------------------------------------------------------------------------
Total restaurant operating expenses 39.6% 693,880 460,397 366,566 252,748 184,873
- ------------------------------------------------------------------------------------------------------------------------------------
Income from restaurant operations 41.2% 114,440 85,625 73,624 47,811 32,882
14.2% 15.7% 16.7% 15.9% 15.1%
General and administrative expenses 38.0% 39,617 26,329 22,298 15,359 11,584
Merger and asset revaluation charges - - 27,700 9,997 - -
- ------------------------------------------------------------------------------------------------------------------------------------
Operating income 43.0% 74,823 31,596 41,329 32,452 21,298
- ------------------------------------------------------------------------------------------------------------------------------------
9.3% 5.8% 9.4% 10.8% 9.8%
Other income (expense):
Interest expense 56.5% (20,575) (11,417) (6,189) (3,131) (2,205)
Distributions on preferred securities - (6,412) - - - -
Interest income (17.3)% 71 69 638 789 590
Other, primarily goodwill amortization 57.3% (5,834) (2,024) (1,349) (150) (490)
- ------------------------------------------------------------------------------------------------------------------------------------
Total other income (expense) 65.8% (32,750) (13,372) (6,900) (2,492) (2,105)
- ------------------------------------------------------------------------------------------------------------------------------------
Earnings before income taxes 33.6% 42,073 18,224 34,429 29,960 19,193
5.2% 3.3% 7.8% 10.0% 8.8%
Income taxes 29.6% 13,625 6,550 14,150 10,900 7,250
- ------------------------------------------------------------------------------------------------------------------------------------
Net earnings 35.8% $ 28,448 11,674 20,279 19,060 11,943
====================================================================================================================================
3.5% 2.1% 4.6% 6.3% 5.5%
Basic earnings per common share 27.3% $ 0.74 0.30 0.54 0.54 0.36
====================================================================================================================================
Diluted earnings per common share 27.1% $ 0.73 0.30 0.52 0.54 0.36
====================================================================================================================================
Restaurants open at end of period:
Applebee's 31.2% 264 231 187 120 90
Don Pablo's 58.8% 91 63 44 33 17
McCormick & Schmick's - 17 - - - -
Hops - 30 - - - -
Canyon Cafes - 16 - - - -
Harrigan's - 11 12 12 12 12
Other - - 10 31 23 14
Total 33.5% 429 316 274 188 133
Annual sales growth 39.8% 48.0% 24.0% 46.5% 38.0% 43.9%
Net earnings growth 35.8% 143.7% (42.4)% 6.4% 59.6% 93.8%
Diluted earnings per share growth 27.1% 143.3% (42.3)% (3.7)% 50.0% 63.6%
Working capital (excluding assets held for sale) - $(33,989) (21,439) (17,778) 2,200 6,175
Total assets 61.0% $804,289 457,827 369,138 226,087 137,201
Long-term obligations 83.8% $381,843 215,891 118,726 70,190 32,227
Convertible preferred securities - $115,000 - - - -
Shareholders' equity 50.2% $220,782 191,429 203,221 120,341 79,899
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Management's Discussion and Analysis
of Financial Condition and Results of Operations
Apple South, Inc.
For an understanding of the significant factors that influenced the
performance of Apple South, Inc. (the "Company") during the past three fiscal
years, the following discussion should be read in conjunction with the
consolidated financial statements appearing elsewhere in this annual report.
Business Combinations and Divestitures
Apple South's continued focus to enhance shareholder value over the
long-term by deploying human and financial capital in high-return businesses
resulted in several pivotal changes during 1997. During the first seven months
of the year, the Company completed three business combinations. McCormick &
Schmick Holding Corp. ("McCormick & Schmick's") was acquired for $68.3 million.
McCormick & Schmick's operated 16 full-service, upper-end casual seafood
restaurants in four states plus Washington, D.C. at the time of acquisition. The
Company also acquired Hops Restaurant Bar & Brewery ("Hops") for $58.4 million.
Hops operated 21 full-service, casual dining restaurants in four states at the
time of acquisition. Additionally, the Company completed the acquisition of
Canyon Cafes, Inc. ("Canyon Cafes") for $46.3 million. At the time of
acquisition, Canyon Cafes operated 13 full-service, casual dining restaurants
emphasizing an authentic Southwestern theme, in six states plus Washington, D.C.
All three 1997 acquisitions were accounted for as purchase business
combinations.
On December 23, 1997, the Company announced its decision to sell its
franchised Applebee's Neighborhood Grill & Bar restaurants in order to focus on
the continued development of its proprietary restaurant concepts and the
acquisition of new proprietary concepts. The Company expects to substantially
complete its divestiture during 1998 and believes that net proceeds, after
selling expenses and income taxes, will be approximately $400 million.
In furtherance of its divestiture strategy, the Company entered into an
Asset Purchase Agreement (the "Agreement") with Applebee's International, Inc.
("AII") whereby the Company has agreed to sell 31 of its existing Applebee's
restaurants and one restaurant under construction to AII for a purchase price of
$93.4 million in cash. The restaurants and development territories to be sold to
AII are located in the Charlottesville, Norfolk, Richmond and Roanoke, Virginia
areas. The Agreement provides that the Company will use its reasonable best
efforts to dispose of all its remaining Applebee's restaurants by the end of
1999, and AII has agreed to cooperate in accomplishing the disposition. The
Company has an option to put up to 15 remaining restaurants to AII at a
predetermined formula through 1999. Thereafter, AII will have an option to
acquire all of the Company's remaining Applebee's restaurants. Existing
covenants not to compete with the Applebee's concept, which are contained in
franchise and development agreements with AII, will be eliminated by the end of
1998. In addition, the Company has agreed to open 16 restaurants in 1998, but
will be released from all other restaurant development requirements.
The Company has also executed letters of intent with eight purchasers for
the sale of 140 Applebee's restaurants and related territorial development
rights for approximately $249 million in cash. These transactions are contingent
upon completion and signing of definitive purchase agreements and satisfaction
of customary closing conditions, including purchaser financing.
In April 1997, the Company completed the sale of its 10 Hardee's
restaurants for approximately $2.5 million. The Hardee's division was not a
significant division of the Company, contributing less than 1% of sales in 1997
and less than 2% of sales in 1996.
The Company has also entered into a letter of intent to sell the business
operations of its Harrigan's division to Pinnacle Restaurant Group, LLC
("Pinnacle") for $3 million in cash plus a $4 million note. In addition, the
Company would receive a 25% equity interest in Pinnacle. The Company would
retain ownership of certain real estate relating to two Harrigan's locations
which would be leased to Pinnacle.
<PAGE>
Subsequent to year end, the Company acquired a 20% interest in Belgo Group,
PLC ("Belgo"), a public restaurant company based in the United Kingdom that owns
and operates two Belgo restaurants in London, for $6.1 million. In addition, the
Company and Belgo have established two 50/50 joint ventures: one for the initial
development of the Company's proprietary brands in Europe and the other for the
development of Belgo restaurants in the Western Hemisphere.
Results of Operations
The following table sets forth, for the periods indicated, the percentages
which certain items of income and expense bear to total restaurant sales:
Dec. 28, Dec. 29, Dec. 31,
For the years ended 1997 1996 1995
- --------------------------------------------------------------------------------
Restaurant sales:
Applebee's 56.2% 69.4% 68.3%
Don Pablo's 24.3 24.4 20.2
McCormick & Schmick's 8.3 - -
Hops 6.1 - -
Canyon Cafes 2.3 - -
Harrigan's 2.4 4.0 5.2
Other 0.4 2.2 6.3
- --------------------------------------------------------------------------------
Total restaurant sales 100.0 100.0 100.0
- --------------------------------------------------------------------------------
Restaurant operating expenses:
Food and beverage 27.9 27.5 27.4
Payroll and benefits 30.8 29.7 29.4
Depreciation and amortization 3.9 4.1 4.0
Other operating expenses 23.2 23.0 22.5
- --------------------------------------------------------------------------------
Total restaurant operating expenses 85.8 84.3 83.3
- --------------------------------------------------------------------------------
Income from restaurant operations 14.2 15.7 16.7
General and administrative expenses 4.9 4.8 5.1
Merger and asset revaluation charges - 5.1 2.2
- --------------------------------------------------------------------------------
Operating income 9.3 5.8 9.4
- --------------------------------------------------------------------------------
Other income (expense):
Interest expense (2.6) (2.1) (1.4)
Distributions on preferred securities (0.8) - -
Interest income - - 0.1
Other, primarily goodwill amortization (0.7) (0.4) (0.3)
- --------------------------------------------------------------------------------
Total other income (expense) (4.1) (2.5) (1.6)
- --------------------------------------------------------------------------------
Earnings before income taxes 5.2 3.3 7.8
Income taxes 1.7 1.2 3.2
- --------------------------------------------------------------------------------
Net earnings 3.5% 2.1% 4.6%
================================================================================
Comparison of Historical Results - Fiscal Years 1997, 1996 and 1995
Restaurant Sales
Restaurant sales for 1997 increased 48% to $808.3 million from $546.0
million in 1996 primarily due to increases in the number of restaurant operating
weeks through both restaurant openings and acquisitions, as well as increases in
average weekly sales over the prior year. For 1997, operating weeks increased by
19% at Applebee's and 47% at Don Pablo's as compared to the prior year. The
increase in operating weeks is due to a full-year's sales from 45 Applebee's and
19 Don Pablo's restaurants opened in 1996 and a partial-year's sales from 34
Applebee's and 28 Don Pablo's restaurants opened in 1997. In addition, 1997
revenues included ten months of operations related to McCormick & Schmick's and
Hops and six months of operations related to Canyon Cafes. The sales increases
resulting from the opening of new restaurants and acquisitions were slightly
offset by sales related to 21 Tomato Rumba's restaurants closed in 1996. In
addition, during 1997 the Company completed the sale of its 10-unit Hardee's
division and closed one Harrigan's restaurant. One Applebee's restaurant was
closed in each of 1997 and 1996. Average weekly sales at base restaurants (those
open for a full 12 months at the beginning of 1997) were approximately 4% higher
at Don Pablo's and 3% higher at Applebee's in 1997 as compared with 1996.
<PAGE>
Management believes that the sales increases in its Don Pablo's division
are primarily attributable to increased concept recognition and awareness
achieved through a combination of market penetration and television advertising.
The market penetration strategy, which was initiated in 1996 and has continued
throughout 1997, has greatly improved the efficiency and effectiveness of the
Don Pablo's advertising programs. Additional sales increases in the Don Pablo's
division are attributable to 1997 menu price increases of approximately 2%.
Sales increases in the Applebee's division are attributable to (i) initiatives
begun in 1996 to enhance operations and to improve guest satisfaction, which
included increased staffing levels and the addition of experienced multi-unit
managers and (ii) increased advertising coupled with a third quarter menu price
increase of approximately 2%.
Restaurant sales for 1996 increased 24% to $546.0 million from $440.2
million in 1995 primarily due to a full-year's sales from 67 Applebee's and 11
Don Pablo's restaurants opened or acquired in 1995 and a partial-year's sales
from 45 Applebee's and 19 Don Pablo's restaurants opened in 1996. This sales
increase was partially offset by the closure of 21 restaurants in the Tomato
Rumba's division and one Applebee's restaurant in 1996. For restaurants that
were open during all of 1995 and 1996, average weekly volumes from 1995 to 1996
decreased 3% at Applebee's and increased 8% at Don Pablo's.
In November 1995, Apple South merged with DF&R Restaurants, Inc. ("DF&R"),
owner of Don Pablo's and Harrigan's restaurants, in a pooling-of-interests
transaction. The merger was effected through the exchange of 1.5 shares of Apple
South common stock for each share of DF&R common stock, which resulted in the
issuance of approximately 9.3 million shares of Apple South common stock. The
fair market value of the shares issued was approximately $190.0 million at the
date of merger.
Also in 1995, the Company acquired certain assets including 26 operating
Applebee's restaurants and the exclusive Applebee's development rights for most
of Iowa and Wisconsin, northern Illinois, including the Chicago metropolitan
area, and contiguous areas in Missouri, Minnesota and Michigan in two
acquisitions (the "Midwest" acquisitions) totaling approximately $65.5 million.
The results of operations from the acquired restaurants are included in
consolidated operating results from the time of acquisition.
Restaurant Operating Expenses
Restaurant operating expenses as a percent of sales increased to 85.8% in
1997 from 84.3% in 1996. The resulting 1997 decrease in restaurant operating
margins is principally due to (i) an increase in cost in the Applebee's division
generated by the impending divestiture of the division, (ii) higher costs in the
divisions acquired in 1997 and (iii) an increase in other operating costs in the
Don Pablo's division. The following discussion of restaurant operating expenses
focuses on the percentages which certain items of expense bear to total
restaurant sales for (i) the Company's ongoing "Core" brands which include Don
Pablo's, McCormick & Schmick's, Hops and Canyon Cafes and (ii) the Company's
brands which have been or are expected to be discontinued which include
Applebee's, Harrigan's, Tomato Rumba's and Hardee's.
Core Brands
Dec. 28, Dec. 29, Dec. 31,
For the years ended 1997 1996 1995
- --------------------------------------------------------------------------------
Restaurant sales:
Don Pablo's 59.2% 100.0 100.0
McCormick & Schmick's 20.3 - -
Hops 14.9 - -
Canyon Cafes 5.6 - -
- --------------------------------------------------------------------------------
Total restaurant sales 100.0 100.0 100.0
- --------------------------------------------------------------------------------
Restaurant operating expenses:
Food and beverage 27.7 26.0 26.4
Payroll and benefits 29.8 29.0 29.9
Depreciation and amortization 3.7 4.6 5.0
Other operating expenses 23.0 22.6 20.7
- --------------------------------------------------------------------------------
Total restaurant operating expenses 84.2 82.2 82.0
- --------------------------------------------------------------------------------
Income from restaurant operations 15.8% 17.8% 18.0%
================================================================================
<PAGE>
Restaurant operating expenses as a percent of sales for the core brands
increased to 84.2% in 1997 from 82.2% in 1996 and 82.0% in 1995. The
corresponding decrease in 1997 restaurant operating margins was principally due
to (i) higher cost of goods and payroll expenses in the divisions acquired
during 1997 relative to Don Pablo's, (ii) a shift towards leased versus owned
retaurants in newly acquired divisions which increased rent in "other operating
expenses" and reduced depreciation and amortization as a percent of sales and
(iii) higher payroll and training costs in Don Pablo's associated primarily with
new hourly kitchen positions which were created to improve operating efficiency
and decrease management labor in the long term. These increases were offset
somewhat by a decrease in advertising expense in Don Pablo's attributable
primarily to economies of scale and a decrease in occupancy cost related to the
Company's tendency of owning versus leasing restaurant locations.
The increase in restaurant operating expenses from 1995 to 1996 is
primarily attributable to advertising expenses related to the Don Pablo's
marketing initiative which began in 1996. This increase was largely offset by
(i) a decrease in food and beverage costs related to a new distribution supply
contract and (ii) a decrease in payroll and benefits related to efficiencies
gained in worker's compensation and insurance through the Company's consolidated
risk management program.
Discontinued Brands
Dec. 28, Dec. 29, Dec. 31,
For the years ended 1997 1996 1995
- --------------------------------------------------------------------------------
Restaurant sales:
Applebee's 95.3% 91.8% 85.6%
Harrigan's 4.1 5.3 6.5
Tomato Rumba's - 0.9 5.5
Hardee's 0.6 2.0 2.4
- --------------------------------------------------------------------------------
Total restaurant sales 100.0 100.0 100.0
- --------------------------------------------------------------------------------
Restaurant operating expenses:
Food and beverage 28.0 27.9 27.7
Payroll and benefits 31.6 29.9 29.1
Depreciation and amortization 4.0 3.9 3.7
Other operating expenses 23.4 23.2 23.1
- --------------------------------------------------------------------------------
Total restaurant operating expenses 87.0 84.9 83.6
- --------------------------------------------------------------------------------
Income from restaurant operations 13.0% 15.1% 16.4%
================================================================================
Restaurant operating expenses as a percent of sales for the discontinued
brands increased to 87.0% in 1997 from 84.9% in 1996 and 83.6% in 1995. The
resulting 1997 decrease in restaurant operating margins is principally due to
payroll and benefits which escalated in anticipation of the Company's exit of
the Applebee's business. These increases are primarily attributable to (i)
increased staffing at the hourly and management levels related to the
accelerated implementation of project "Exceed" (a program initiated by the
franchisor to enhance the performance of the Applebee's system) and (ii) an
increase in management turnover and operating costs which often escalate during
divestiture periods. In addition, payroll and benefits expense increased during
the first portion of 1997 as a result of a customer focus initiative which was
implemented during the third quarter of 1996. Also, advertising expense in the
Applebee's division increased by 1.4% of sales in 1997 as compared to 1996.
These increases were offset by (i) a decrease in training and preopening as a
result of a decrease in the number of new Applebee's restaurant openings in 1997
as a percentage of existing restaurants, (ii) a decrease in insurance expenses
generated by risk management initiatives implemented during 1997 and (iii) a
decrease in occupancy cost as a result of the Company's ongoing strategy of
owning versus leasing restaurant locations.
<PAGE>
Decreases in 1996 in restaurant operating margins were principally due to
(i) higher food and beverage costs as a percent of sales at Applebee's, (ii)
lower average unit volumes in the Applebee's division which reduced operating
leverage on fixed costs and (iii) an increase in labor costs in Applebee's
related to the staffing initiatives begun in the third quarter of 1996. These
1996 margin reductions were partially offset by lower preopening and training
costs as a percent of sales.
General and Administrative Expenses
General and administrative expenses as a percent of sales were 4.9% as
compared with 4.8% in 1996 and 5.1% in 1995. The 1997 increase is primarily due
to the divisions acquired in 1997 which have higher expenses as a percent of
revenue, due primarily to lower leverage on the fixed costs required to support
these higher growth concepts. The increases at the new divisions were
substantially offset by a continued decrease in general and administrative
expenses in the Don Pablo's and Applebee's divisions as the Company gains
leverage from absolute size and higher average unit volumes.
Merger and Asset Revaluation Charges
Merger and asset revaluation charges are non-recurring costs related to
organizational changes made in 1996 and 1995. In April 1995, the Company changed
the name of the Gianni's Little Italy concept to Tomato Rumba's Pastaria Grill
to avoid trademark conflicts in certain markets. During 1995, all but three
restaurants in this division were opened as, or converted to, Tomato Rumba's.
However, during 1996, the division was not meeting the Company's expectations
and all 21 restaurants were closed. Also during 1996, the Company accelerated
its efforts to sell the Hardee's division. These decisions regarding the Tomato
Rumba's and Hardee's divisions prompted an evaluation of the fair value of the
assets in each of these divisions. Fair value of the assets was determined in
accordance with Statement of Financial Accounting Standards ("SFAS") No. 121,
"Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to be
Disposed of," by comparing expected future cash flows to the carrying value of
these assets. The resulting impairment, along with the write-off of other
specific assets and certain operating losses of these divisions, totaled $27.7
million and is included in merger and asset revaluation charges. In 1997, the
Hardee's division and several Tomato Rumba's locations were sold, several
additional locations were converted to other brands and the remaining assets are
expected to be redeployed. In 1995, merger and revaluation charges included
professional fees and other costs related to the DF&R merger. Also in 1995,
these expenses included conversion costs such as decor and menu changes, the
write-off of specific assets and certain operating losses related to the
Gianni's Little Italy restaurants prior to conversion to Tomato Rumba's Pastaria
Grill.
Interest and Other Expenses
Interest expense increased to $20.6 million in 1997 from $11.4 million in
1996 and $6.2 million in 1995 due to higher average borrowings. Financing the
construction of new restaurants and the acquisition of new concepts led to
higher debt levels under revolving credit facilities and the $125 million, 9.75%
senior notes, issued in March 1996. The Company's weighted average interest rate
on borrowings was approximately 7.9% in 1997 as compared to 8.1% in 1996 and
7.3% in 1995.
Distributions on preferred securities reflect expenses associated with the
1997 issuance of $115.0 million, 7% term convertible securities.
Other expenses increased in 1997 compared to 1996 primarily due to the
amortization of goodwill and other intangible assets associated with the three
1997 acquisitions. Other expenses increased in 1996 compared to 1995 primarily
due to a full-year of amortization of goodwill associated with the Midwest
acquisitions in 1996 compared to a partial-year in 1995.
Income Tax Expense
Income tax expense as a percent of earnings before income taxes was 32.4%
in 1997, 35.9% in 1996 and 41.1% in 1995. The decrease in effective tax rate for
1997 compared with 1996 is due primarily to the impact of the FICA tip credit
and the allocation of earnings among states associated with the 1997
acquisitions. The decrease in the effective tax rate for 1996 compared with 1995
is due to certain non-deductible costs associated with the DF&R merger in 1995.
<PAGE>
Net Earnings
Net earnings as a percent of sales was 3.5% in 1997, 2.1% in 1996 and 4.6%
in 1995. The decrease from 1995 to 1996 and increase from 1996 to 1997 was
primarily a result of $27.7 million of asset revaluation charges recorded in
1996. The resulting increase in 1997 was partially offset by (i) higher interest
expense and intangible amortization related to the 1997 acquisitions, (ii)
distributions related to the convertible preferred securities and (iii) a
decrease in operating margins associated with the Company's Applebee's division.
Liquidity and Capital Resources
The Company's historical and projected future growth cause it to be a net
user of cash, even after a significant amount of expansion financing is
internally generated from operations. Principal financing sources in 1997
consisted of (i) additional borrowings under revolving credit agreements ($165.5
million), (ii) net proceeds from convertible preferred securities ($111.3
million) and (iii) cash flow from operations ($62.7 million). The primary uses
of funds consisted of (i) costs associated with expansion, principally land,
building and equipment associated with the construction of new restaurants
($173.0 million), (ii) acquisitions of McCormick & Schmick's, Hops and Canyon
Cafes ($146.4 million), (iii) the purchase of 1.7 million shares of treasury
stock ($23.0 million) and (iv) additions of other assets ($4.8 million).
Since substantially all sales in the Company's restaurants are for cash and
accounts payable are generally due in 15 to 45 days, the Company operates with
negative working capital.
The increases in accounts receivable, inventory, prepaid expenses and
other, accounts payable and accrued liabilities are principally due to the three
1997 acquisitions and additional new restaurants which were opened during 1997.
The increase in other assets is principally due to deferred costs related to the
issuance of convertible preferred securities and the annual increase in cash
surrender value on an officer's life insurance policy. Further increases in
current asset and liability accounts are expected as the Company continues its
restaurant development program. These increases will be offset by changes in
assets and liability accounts resulting from the divestiture of the Company's
Applebee's division.
The Company's 1997 capital expenditures provided for the opening of 34
Applebee's, 28 Don Pablo's, nine Hops, three Canyon Cafes, one McCormick &
Schmick's and one Harrigan's restaurant, as well as new office facilities for
the Don Pablo's division and ongoing refurbishments of existing restaurants.
The following table presents anticipated restaurant openings for the
Company's core brands for 1998 and 1999:
1998 1999
- --------------------------------------------------------------------------------
Don Pablo's 35-40 50-55
McCormick & Schmick's 4 3-4
Hops 12 18
Canyon Cafes 8-10 12-15
- --------------------------------------------------------------------------------
Total 59-66 83-92
================================================================================
<PAGE>
The capital requirement for new construction of core restaurants is
expected to approximate $130 million to $140 million in 1998 and $195 million to
$210 million in 1999. A portion of these capital requirements will be funded
through cash generated from operations in addition to the Company's $70 million
master equipment lease. In addition, at December 28, 1997, the Company had
revolving credit agreements aggregating $300 million, of which $45 million was
unused and available.
Net proceeds from the sales of the Applebee's division will be used to fund
new 1998 restaurants and to repay amounts outstanding on revolving credit
facilities. Surplus proceeds will be carried forward into 1999 to fund new
restaurants. The remaining 1999 capital requirements will be financed through
borrowings under revolving credit facilities.
The Company's Board of Directors, from time to time and depending on market
conditions, authorizes the Company to purchase shares of its common stock,
through open market transactions, to satisfy obligations under stock option and
employee stock ownership plans. As of December 28, 1997, the Company had
purchased an aggregate 3.1 million shares of its common stock for an aggregate
purchase price of $53.0 million (average price of $16.99 per share). On January
9, 1998, the Company announced the approval by its Board of Directors of the
purchase of up to two million additional shares of its common stock. The Company
has not purchased a significant number of shares pursuant to this approval.
Effect of Inflation
Management believes that inflation has not had a material effect on
earnings during the past several years. Inflationary increases in the cost of
labor, food and other operating costs could adversely affect the Company's
restaurant operating margins. In the past, however, the Company generally has
been able to modify its operations to offset increases in its operating costs.
Federal law was enacted during 1996 which increased the hourly minimum wage
by $0.50 to $4.75 on October 1, 1996 and by another $0.40 to $5.15 on September
1, 1997. The legislation, however, froze the wages of tipped employees at $2.13
per hour if the difference is earned in tip income. Although the Company
experienced a slight increase in hourly labor costs during 1997, the effect of
the increase in minimum wage was significantly diluted due to the fact that the
majority of the Company's hourly employees are tipped and the Company's
non-tipped employees have historically earned wages greater than the federal
minimum. As such, the Company's increases in hourly labor costs were not
proportionate to the increases in minimum wage rates. The impact of minimum wage
increases is expected to slightly increase hourly labor costs in 1998.
Forward-Looking Information
Certain information contained in this annual report, particularly
information regarding the timing and sales price of the disposition of
Applebee's restaurants, future economic performance and finances, restaurant
development plans, capital requirements and objectives of management, is forward
looking. In some cases, information regarding certain important factors that
could cause actual results to differ materially from any such forward-looking
statement appear together with such statement. In addition, the following
factors, in addition to other possible factors not listed, could affect the
Company's actual results and cause such results to differ materially from those
expressed in forward-looking statements. These factors include competition
within the casual dining restaurant industry, which remains intense; changes in
economic conditions such as inflation or a recession; consumer perceptions of
food safety; weather conditions; changes in consumer tastes; labor and benefit
costs; legal claims; the continued ability of the Company to obtain suitable
locations and financing for new restaurant development; government monetary and
fiscal policies; laws and regulations; governmental initiatives such as minimum
wage rates and taxes; retention of Applebee's division employees while sales are
pending; the availability of qualified buyers for the Applebee's restaurants and
their ability to obtain required financing; and the satisfaction of closing
conditions for prospective transactions subject to outstanding contracts or
letters of intent. Other factors that may cause actual results to differ from
the forward-looking statements contained in this release and that may affect the
Company's prospects in general are described in Exhibit 99.1 to the Company's
Form 10-Q for the fiscal quarter ended June 29, 1997, and the Company's other
filings with the Securities and Exchange Commission.
<PAGE>
Year 2000
The Company has implemented plans to address the potential exposures
related to the impact on its computer systems of the Year 2000. Key financial,
information and operational systems have been assessed and detailed plans have
been developed to address systems modifications required by December 31, 1999.
The Company expenses all costs associated with these systems changes as the
costs are incurred. The financial impact of making the required systems changes
is not expected to be material to the Company's consolidated financial position
or results of operations.
New Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive
Income." SFAS 130, which will be effective for the Company's fiscal 1998,
establishes standards for reporting and display of comprehensive income and its
components in a full set of general-purpose financial statements. Comprehensive
income is defined as the change in equity of a business enterprise during a
period from transactions and other events and circumstances from nonowner
sources. It includes all changes in equity during a period, except those
resulting from investments by owners and distributions to owners. The Company
expects that implementation of SFAS 130 will have no material effect on its
consolidated financial position or results of operations.
The American Institute of Certified Public Accountants has proposed a
Statement of Position, "Reporting on the Costs of Start-Up Activities," which
will require all entities to expense the costs of start-up activities as
incurred. This statement is expected to be issued during 1998 and effective for
fiscal 1999. The Company, however, plans to early adopt the statement in 1998.
Implementation of this change in accounting policy, from expensing in the first
full month of a restaurant's operations to expensing as incurred, is expected to
result in a change in accounting principle charge of approximately $2.0 million
in 1998.
<PAGE>
<TABLE>
Consolidated Statements of Earnings
Apple South, Inc.
(In thousands, except per share data)
<CAPTION>
December 28, December 29, December 31,
For the years ended 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Restaurant sales:
Applebee's $454,127 379,042 300,928
Don Pablo's 196,457 133,261 88,820
McCormick & Schmick's 67,373 - -
Hops 49,511 - -
Canyon Cafes 18,577 - -
Harrigan's 19,560 21,991 22,781
Other 2,715 11,728 27,661
- ------------------------------------------------------------------------------------------------------------------------------------
Total restaurant sales 808,320 546,022 440,190
- ------------------------------------------------------------------------------------------------------------------------------------
Restaurant operating expenses:
Food and beverage 225,302 150,090 120,630
Payroll and benefits 249,356 162,017 129,424
Depreciation and amortization 31,441 22,509 17,662
Other operating expenses 187,781 125,781 98,850
- ------------------------------------------------------------------------------------------------------------------------------------
Total restaurant operating expenses 693,880 460,397 366,566
- ------------------------------------------------------------------------------------------------------------------------------------
General and administrative expenses 39,617 26,329 22,298
Merger and asset revaluation charges - 27,700 9,997
- ------------------------------------------------------------------------------------------------------------------------------------
Operating income 74,823 31,596 41,329
- ------------------------------------------------------------------------------------------------------------------------------------
Other income (expense):
Interest expense (20,575) (11,417) (6,189)
Distributions on preferred securities (6,412) - -
Interest income 71 69 638
Other, primarily goodwill amortization (5,834) (2,024) (1,349)
- ------------------------------------------------------------------------------------------------------------------------------------
Total other expense (32,750) (13,372) (6,900)
- ------------------------------------------------------------------------------------------------------------------------------------
Earnings before income taxes 42,073 18,224 34,429
Income taxes 13,625 6,550 14,150
- ------------------------------------------------------------------------------------------------------------------------------------
Net earnings $ 28,448 11,674 20,279
====================================================================================================================================
Basic earnings per common share $ 0.74 0.30 0.54
====================================================================================================================================
Diluted earnings per common share $ 0.73 0.30 0.52
====================================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
Consolidated Balance Sheets
Apple South, Inc.
(In thousands, except share data)
<CAPTION>
December 28, December 29,
1997 1996
- ------------------------------------------------------------------------------------------------------------------------------------
<S>
Assets <C> <C>
Current assets:
Cash and cash equivalents $ 2,503 3,923
Short-term investments 37 52
Accounts receivable 8,983 4,568
Inventories 10,732 6,364
Prepaid expenses and other 9,047 3,835
Assets held for sale 331,104 5,945
- ------------------------------------------------------------------------------------------------------------------------------------
Total current assets 362,406 24,687
Premises and equipment, net 283,839 380,523
Franchise costs, net - 5,880
Goodwill, net 138,403 36,351
Other assets 19,641 10,386
- ------------------------------------------------------------------------------------------------------------------------------------
$ 804,289 457,827
====================================================================================================================================
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 24,819 16,688
Accrued liabilities 40,266 22,887
Current installments of long-term debt 206 286
Income taxes - 320
- ------------------------------------------------------------------------------------------------------------------------------------
Total current liabilities 65,291 40,181
Long-term debt 381,843 215,891
Deferred income taxes 14,231 10,326
Other long-term liabilities 7,142 -
- ------------------------------------------------------------------------------------------------------------------------------------
Total liabilities 468,507 266,398
- ------------------------------------------------------------------------------------------------------------------------------------
Company-obligated mandatorily redeemable preferred securities of
Apple South Financing I, a subsidiary holding solely Apple South, Inc.
7% convertible subordinated debentures due March 1, 2027 115,000 -
Shareholders' equity:
Preferred stock, $0.01 par value. Authorized 10,000,000 shares; none issued - -
Common stock, $0.01 par value. Authorized 75,000,000 shares;
40,478,760 issued in 1997 and 39,124,925 issued in 1996 405 391
Additional paid-in capital 145,269 132,976
Retained earnings 97,905 70,981
Treasury stock at cost; 1,662,812 shares in 1997 and 677,508 shares in 1996 (22,797) (12,919)
- ------------------------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 220,782 191,429
- ------------------------------------------------------------------------------------------------------------------------------------
$ 804,289 457,827
====================================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
Consolidated Statements of Shareholders' Equity
Apple South, Inc.
(In thousands, except per share data)
<CAPTION>
Additional Total
Common Stock Paid-in Retained Treasury Shareholders'
Shares Amount Capital Earnings Stock Equity
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1994 34,300 $343 $ 79,172 $40,826 - $120,341
Net earnings - - - 20,279 - 20,279
Sale of common stock 4,076 41 57,307 - - 57,348
Common stock issued to ESOP and ESPP 57 - 665 - - 665
Exercise of options 646 7 1,798 - - 1,805
Tax effect of exercise of options by employees - - 3,413 - - 3,413
Cash dividends ($0.022 per share) - - - (630) - (630)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1995 39,079 391 142,355 60,475 - 203,221
Net earnings - - - 11,674 - 11,674
Purchase of common stock - - - - $(30,048) (30,048)
Common stock issued to ESOP and ESPP - - 197 - 487 684
Exercise of options 46 - (14,111) - 16,642 2,531
Tax effect of exercise of options by employees - - 4,535 - - 4,535
Cash dividends ($0.030 per share) - - - (1,168) - (1,168)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at December 29, 1996 39,125 391 132,976 70,981 (12,919) 191,429
Net earnings - - - 28,448 - 28,448
Purchase of common stock - - - - (22,995) (22,995)
Issuance of common stock for acquisitions 1,298 13 16,323 - - 16,336
Issuance of treasury stock for acquisitions - - (922) - 6,078 5,156
Common stock issued to ESOP and ESPP 46 1 688 - - 689
Exercise of options 10 - (4,814) - 7,039 2,225
Tax effect of exercise of options by employees - - 1,018 - - 1,018
Cash dividends ($0.038 per share) - - - (1,524) - (1,524)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at December 28, 1997 40,479 $405 $145,269 $97,905 $(22,797) $220,782
====================================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
Consolidated Statements of Cash Flows
Apple South, Inc.
(In thousands)
<CAPTION>
December 28, December 29, December 31,
For the years ended 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings $ 28,448 11,674 20,279
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization 39,972 26,250 19,946
Deferred income taxes 3,905 300 5,050
Loss on disposal of premises and equipment 54 107 97
Asset revaluation charges - 27,700 -
(Increase) in assets:
Accounts receivable (2,441) (1,062) (1,601)
Inventories (2,592) (1,488) (1,435)
Prepaid expenses and other (1,980) (1,837) (1,403)
Increase (decrease) in liabilities:
Accounts payable 703 3,199 2,394
Accrued liabilities (1,447) (4,958) 7,527
Income taxes (2,050) 4,668 2,241
Other long-term liabilities 164 - -
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 62,736 64,553 53,095
- ------------------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Capital expenditures (172,963) (124,623) (124,066)
Acquisition of businesses, net of cash acquired (146,444) - (52,059)
Proceeds from sale of premises and equipment 5,798 429 2,209
Decrease in short-term investments 15 325 2,480
Additions to franchise costs (900) (1,302) (1,205)
Additions to other assets (4,776) (3,388) (1,795)
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (319,270) (128,559) (174,436)
- ------------------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Net proceeds from (repayment of) revolving credit agreements 165,500 (11,000) 56,000
Net proceeds from issuance of preferred securities 111,261 - -
Net proceeds from issuance of long-term debt 823 121,880 -
Principal payments on long-term debt (865) (19,756) (9,628)
Proceeds from issuance of common stock 2,914 3,215 59,818
Dividends declared and paid (1,524) (1,168) (630)
Purchase of treasury stock (22,995) (30,048) -
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 255,114 63,123 105,560
- ------------------------------------------------------------------------------------------------------------------------------------
Net decrease in cash and cash equivalents (1,420) (883) (15,781)
Cash and cash equivalents at the beginning of the period 3,923 4,806 20,587
- ------------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at the end of the period $ 2,503 3,923 4,806
====================================================================================================================================
Supplemental disclosures:
- ------------------------------------------------------------------------------------------------------------------------------------
Interest paid $ 20,452 10,728 6,878
- ------------------------------------------------------------------------------------------------------------------------------------
Distributions on preferred securities $ 5,944 - -
- ------------------------------------------------------------------------------------------------------------------------------------
Income taxes paid $ 9,022 1,415 6,859
- ------------------------------------------------------------------------------------------------------------------------------------
Business acquisitions, net of cash acquired:
Fair value of assets acquired, other than cash $ 63,261 - 13,639
Liabilities assumed (34,704) - (373)
Merger consideration payable (1,890) - -
Stock issued (21,492) - -
Purchase price in excess of the net assets acquired 141,269 - 38,793
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash used for acquisitions $146,444 - 52,059
====================================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
Notes to Consolidated Financial Statements
Apple South, Inc.
Note 1 - Summary of Significant Accounting Policies
Apple South, Inc., including its wholly owned subsidiaries (the "Company"),
is a multi-concept restaurant company owning and operating restaurants in 30
states plus the District of Columbia. At December 28, 1997, the Company operated
264 Applebee's Neighborhood Grill & Bar restaurants, 91 Don Pablo's Mexican
Kitchen restaurants, 30 Hops Restaurant Bar & Brewery restaurants, 17 McCormick
& Schmick's seafood dinner houses plus one catering facility, 16 Canyon Cafe
restaurants and 11 Harrigan's Grill & Bar restaurants. The Company owns all of
its brands on a proprietary basis except Applebee's which is franchised.
Basis of Presentation - The consolidated financial statements include the
accounts of Apple South, Inc. and its wholly owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated in consolidation.
Use of Estimates - Preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions related to the reported amount of assets and liabilities and the
disclosure of contingent assets and liabilities. Actual results may ultimately
differ from estimates.
Fiscal Year - The Company's fiscal year is a 52 or 53-week year ending on
the Sunday closest to December 31. Accordingly, the accompanying consolidated
financial statements are as of and for the years ended December 28, 1997,
December 29, 1996 and December 31, 1995. All general references to years relate
to fiscal years unless otherwise noted.
Cash Equivalents - Cash equivalents include all highly liquid investments,
which have original maturities of three months or less.
Short-Term Investments - Short-term investments, which have original
maturities of greater than three months, are stated at cost plus accrued
interest, which approximates market value.
Inventories - Inventories consist primarily of food, beverages and supplies
and are stated at the lower of cost (using the first-in, first-out method) or
market.
Assets Held for Sale - Assets held for sale are stated at the lower of cost
or estimated net realizable value and include certain premises and equipment,
franchise costs and goodwill related primarily to the Company's Applebee's
division (Note 3). In accordance with Statement of Financial Accounting
Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets
and Long-Lived Assets to be Disposed Of," the Company does not recognize
depreciation or amortization expense during the period in which the assets are
being held for sale.
Premises and Equipment - Premises and equipment are stated at cost.
Depreciation of premises and equipment is calculated using the straight-line
method over the estimated useful lives of the related assets, which approximates
25 years for buildings and seven years for equipment. Leasehold improvements are
depreciated using the straight-line method over the shorter of the lease term,
including renewal periods, or the estimated useful life of the asset.
<PAGE>
Franchise Costs - The costs related to the acquisition of Applebee's
franchises are amortized over their estimated useful lives, principally 20
years, using the straight-line method. Accumulated amortization of Applebee's
franchise costs amounted to $1.7 million at December 28, 1997 and $1.3 million
at December 29, 1996. At December 28, 1997 franchise costs are included as a
component of assets held for sale in the consolidated balance sheet (Note 3).
The franchise agreements for the Applebee's restaurants also require royalty
fees equal to 4% of sales and advertising fees equal to 1 1/2% of sales. Such
fees are expensed as incurred. Total royalty and advertising fees paid under
franchise agreements were $25.0 million in 1997, $21.4 million in 1996 and $16.9
million in 1995.
Goodwill - Goodwill represents the excess of purchase price over fair value
of net assets acquired and is being amortized over the expected period to be
benefited, ranging from 20 to 40 years, using the straight-line method. The
Company assesses the recoverability of this intangible asset by determining
whether the amortization of the goodwill balance over its remaining life can be
recovered through undiscounted future operating cash flows of the acquired
operations. The amount of goodwill impairment, if any, is measured based on
projected discounted future operating cash flows using a discount rate
reflecting the Company's average cost of funds. Accumulated amortization of
goodwill amounted to $7.9 million at December 28, 1997 and $ 3.5 million at
December 29, 1996. At December 28, 1997, goodwill related to the Applebee's
division was classified as a component of assets held for sale (Note 3).
Development Costs - Certain direct and indirect costs are capitalized in
conjunction with acquiring and developing new restaurant sites and amortized
over the life of the related building. Development costs were capitalized as
follows: $4.7 million in 1997, $4.0 million in 1996 and $3.0 million in 1995.
Preopening Costs - Preopening costs are incurred before a restaurant is
opened and consist primarily of wages and salaries, hourly employee recruiting,
license fees, meals, lodging and travel plus the cost of hiring and training the
management teams. Preopening costs are expensed in the first full month of a
restaurant's operations.
Advertising - The Company generally expenses advertising over the period
covered by the related promotions. Total advertising expense included in other
operating expenses was $26.1 million in 1997, $13.2 million in 1996 and $9.1
million in 1995, in addition to amounts paid to franchisors.
Stock-Based Compensation - Stock-based compensation is determined using the
intrinsic value method prescribed in Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees," and related Interpretations.
Accordingly, compensation cost for stock options is measured as the excess, if
any, of the quoted market price of the Company's stock at the date of the grant
over the amount an employee must pay to acquire the stock (Note 11).
Earnings Per Share - Effective for fiscal year ending December 28, 1997,
the Company adopted Statement of Financial Accounting Standards ("SFAS") No.
128, "Earnings Per Share." SFAS 128 requires all entities to provide dual
disclosure of earnings per share, basic and diluted. Basic earnings per share
equals net earnings divided by the weighted average number of common shares
outstanding and does not include the dilutive effects of stock options. Diluted
earnings per share is computed by giving effect to dilutive stock options and by
adjusting both net earnings and shares outstanding as if the Convertible
Preferred Securities (Note 6) had been converted at the date of issuance. In
accordance with SFAS 128, all prior-period earnings per share have been
restated. In addition, the weighted average number of shares and per share data
have been retroactively adjusted to give effect to various stock splits,
effected as stock dividends. The adoption of SFAS 128 did not have a material
impact on earnings per share in any of the periods presented. The following
table presents a reconciliation of weighted average shares and earnings per
share amounts (amounts in thousands, except per share data):
<PAGE>
1997 1996 1995
- --------------------------------------------------------------------------------
Average number of common
shares used in basic calculation 38,620 38,731 37,698
Net additional shares issuable
pursuant to employee stock option
plans at period-end market price 206 686 1,328
Shares issuable on assumed conversion
of Convertible Preferred Securities 6,101 - -
- --------------------------------------------------------------------------------
Average number of common
shares used in diluted calculation 44,927 39,417 39,026
================================================================================
Net earnings for computation of
basic earnings per common share $28,448 11,674 20,279
Distribution savings on assumed
conversion of Convertible Preferred
Securities, net of income taxes 4,336 - -
- --------------------------------------------------------------------------------
Net earnings for computation of
diluted earnings per common share $32,784 11,674 20,279
================================================================================
Basic earnings per common share $ 0.74 0.30 0.54
================================================================================
Diluted earnings per common share $ 0.73 0.30 0.52
================================================================================
Interest Rate Contracts - Interest rate contracts are used by the Company
principally for the management of its interest rate exposures. Differentials to
be received or paid under contracts designated as hedges are recognized in
income over the life of the contracts as adjustments to interest expense.
Certain interest rate swap contracts are used for trading purposes. These
contracts are carried at fair value. Fair value for interest rate swap contracts
is based on pricing models intended to approximate the amounts that would be
received from or paid to a third party in settlement of the contracts. Factors
taken into consideration include credit spreads, market liquidity,
concentrations, and funding and administrative costs incurred over the life of
the instruments.
The Company is exposed to credit losses in the event of nonperformance by
the counterparties to its interest rate swaps. The Company anticipates, however,
that counterparties will be able to satisfy their obligations under the
contracts. The Company does not obtain collateral to support financial
instruments but monitors the credit standing of the counterparties.
Income Taxes - Income taxes are accounted for under the asset and liability
method. Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
Reclassifications - Certain accounts have been reclassified in the 1996 and
1995 financial statements to conform with the 1997 classifications.
<PAGE>
Note 2 - Acquisitions and Conversions
In July 1997, the Company acquired Dallas-based Canyon Cafes, Inc. ("Canyon
Cafes") for $46.3 million, including $41.1 million in cash and the issuance of
357,600 shares of the Company's common stock. The cash portion of the merger
consideration included $30.8 million paid to the stockholders of Canyon Cafes,
plus additional amounts relating primarily to the exercise of an option to
purchase certain property. At the time of acquisition, Canyon Cafes operated 13
full-service casual dining restaurants in six states plus Washington, D.C.
In March 1997, the Company acquired Hops Restaurant Bar & Brewery ("Hops")
for $58.4 million, which included $45.2 million in cash and the issuance of 1.05
million shares of the Company's common stock. The accompanying consolidated
financial statements reflect minority interest equal to the proportionate share
of the subsidiary's net assets not owned by the Company. This minority interest
is included in other long-term liabilities in the accompanying consolidated
balance sheet. Minority interest expense is included in other expense in the
accompanying consolidated statement of earnings. The Florida-based company
operated 21 full-service casual dining restaurants in four states at the time of
acquisition.
In March 1997, the Company acquired McCormick & Schmick Holding Corp.
("McCormick & Schmick's"), an Oregon-based restaurant company, for $68.3
million, including $65.1 million in cash and the issuance of 248,139 shares of
the Company's common stock. McCormick & Schmick's operated 16 full-service
upper-end casual seafood restaurants in four states plus Washington, D.C. at the
time of acquisition.
All three 1997 acquisitions were accounted for using the purchase method of
accounting. Accordingly, a portion of the purchase consideration was allocated
to the net assets acquired based on their estimated fair values. At December 28,
1997, the Company had not finalized its evaluation of the fair value of tangible
and intangible assets acquired and liabilities assumed. Based on the preliminary
estimates, the aggregate fair value of tangible assets acquired and liabilities
assumed was $66.4 million and $34.7 million, respectively. The remaining
estimated excess of purchase price over net assets acquired, $141.3 million, was
recorded as goodwill and is being amortized on a straight-line basis over 40
years.
The following unaudited pro forma financial information gives effect to all
of the three foregoing acquisitions as if the acquisitions had occurred as of
the beginning of the periods presented. This pro forma financial information
reflects certain adjustments such as: expensing rather than capitalizing and
amortizing preopening expenses, amortization of goodwill, interest expense on
the proceeds of the Convertible Preferred Securities (Note 6), elimination of
interest on a portion of the acquisition debt assumed, and the related income
tax effects (amounts in thousands, except per share data):
1997 1996
- --------------------------------------------------------------------------------
(unaudited) (unaudited)
Total restaurant sales: $ 842,785 672,927
Net earnings $ 26,759 6,536
Basic earnings per common share $ 0.67 0.16
Diluted earnings per common share $ 0.67 0.16
These pro forma results are not necessarily indicative of what actually
would have occurred if the acquisitions had taken place as of the beginning of
the periods presented, nor do they reflect the purchase price that might have
been negotiated at these earlier periods.
<PAGE>
In November 1995, the Company exchanged 9.3 million newly issued shares of
its common stock for all of the outstanding shares of DF&R Restaurants, Inc.
("DF&R"). The fair market value of the shares issued was approximately $190.0
million at the date of merger. At the time of the exchange, DF&R operated 56
full-service, casual dining restaurants, including 44 Mexican restaurants
operating under the name Don Pablo's and 12 Harrigan's restaurants.
In 1995, the Company acquired certain assets including 26 operating
Applebee's restaurants and the exclusive Applebee's development rights for most
of Iowa and Wisconsin, northern Illinois, including the Chicago metropolitan
area, and contiguous areas in Missouri, Minnesota and Michigan in two
acquisitions (the "Midwest" acquisitions) totaling approximately $65.5 million.
The results of operations from the acquired restaurants are included in
consolidated operating results from the time of acquisition.
Merger and asset revaluation charges in 1995 are non-recurring costs
related to the merger with DF&R Restaurants, Inc. and the conversion of Gianni's
Little Italy restaurants to Tomato Rumba's Pastaria Grill in 1995.
Note 3 - Assets Held for Sale and Asset Impairments
On December 23, 1997, the Company announced its decision to sell its
franchised Applebee's Neighborhood Grill & Bar restaurants in order to focus on
the continued development of its proprietary restaurant concepts and the
acquisition of new proprietary concepts.
In furtherance of its divestiture strategy, the Company entered into an
Asset Purchase Agreement (the "Agreement") with Applebee's International, Inc.
("AII") whereby the Company has agreed to sell 31 of its existing Applebee's
restaurants and one restaurant under construction to AII for a purchase price of
$93.4 million in cash. The restaurants and development territories to be sold to
AII are located in the Charlottesville, Norfolk, Richmond and Roanoke, Virginia
areas. The Agreement provides that the Company will use its reasonable best
efforts to dispose of all its remaining Applebee's restaurants by the end of
1999, and AII has agreed to cooperate in accomplishing the disposition. The
Company has an option to put up to 15 remaining restaurants to AII at a
predetermined formula through the end of 1999. Thereafter, AII will have an
option to acquire all of the Company's remaining Applebee's restaurants.
Existing covenants not to compete with the Applebee's concept, which are
contained in franchise and development agreements with AII, will be eliminated
by the end of 1998. In addition, the Company has agreed to open 16 restaurants
in 1998, but will be released from all other restaurant development
requirements.
The Company has also executed letters of intent with eight purchasers for
the sale of 140 Applebee's restaurants and related territorial development
rights for approximately $249 million in cash. These transactions are contingent
upon completion and signing of definitive purchase agreements and satisfaction
of customary closing conditions, including purchaser financing.
The Company expects to substantially complete its divestiture during 1998
and believes that net proceeds, after selling expenses and income taxes, will be
approximately $400 million. Net assets of the division, included in assets held
for sale, were $329.4 million at December 28, 1997. Such assets included
premises and equipment, goodwill and franchise costs, net of accumulated
depreciation and amortization, of $289.2 million, $34.0 million and $6.2
million, respectively. Operating income from the Applebee's division amounted to
$44.2 million in 1997, $42.0 million in 1996 and $50.3 million in 1995.
Depreciation and amortization on the long-lived assets of the Applebee's
division were suspended on December 16, 1997, when management finalized the
decision to dispose of the division.
<PAGE>
In April 1997, the Company completed the sale of its 10 Hardee's
restaurants for approximately $2.5 million. The Hardee's division was not a
significant division of the Company, contributing less than 1% of sales in 1997
and less than 2% of sales in 1996.
The Company has also entered into a letter of intent to sell the business
operations of its Harrigan's division to Pinnacle Restaurant Group, LLC
("Pinnacle") for $3 million in cash plus a $4 million note. In addition, the
Company would receive a 25% equity interest in Pinnacle. The Company would
retain ownership of certain real estate relating to two Harrigan's locations
which would be leased to Pinnacle.
In 1996, the Company closed its 18 Tomato Rumba's and three Gianni's
restaurants and dissolved the operating division. During 1996, the Company also
accelerated efforts to sell its 10 Hardee's restaurants. These decisions,
combined with the implementation of SFAS 121, resulted in an asset revaluation
charge of $27.7 million which consisted primarily of the asset impairment loss
and included certain operating losses related to those divisions. Fair value of
the assets in the Tomato Rumba's and Hardee's divisions was determined by
comparing expected future cash flows to the carrying amount of these assets.
Assets related to Hardee's and certain Tomato Rumba's locations, included as a
component of assets held for sale in the consolidated balance sheet, were $1.7
million and $5.9 million at December 28, 1997 and December 29, 1996,
respectively.
Note 4 - Premises and Equipment
A summary of premises and equipment at December 28, 1997 and December 29,
1996 follows (amounts in thousands):
1997 1996
- --------------------------------------------------------------------------------
Land $ 42,166 80,912
Buildings 123,901 208,008
Equipment 87,043 127,860
Leasehold improvements 59,584 24,092
Construction in progress 19,234 16,639
- --------------------------------------------------------------------------------
Total premises and equipment 331,928 457,511
Less accumulated depreciation
and amortization 48,089 76,988
- --------------------------------------------------------------------------------
Premises and equipment, net $283,839 380,523
================================================================================
Note 5 - Long-Term Debt
Long-term debt at December 28, 1997 and December 29, 1996 consisted of the
following (amounts in thousands):
1997 1996
- --------------------------------------------------------------------------------
Revolving credit agreements, unsecured,
with variable rate interest
(7.0% at December 28, 1997)
due in 1999-2000 $255,000 89,500
Senior notes, unsecured, with interest
at 9.75%, payable semi-annually;
due in 2006 125,000 125,000
Other 2,049 1,677
- --------------------------------------------------------------------------------
Total long-term debt 382,049 216,177
Less current installments 206 286
- --------------------------------------------------------------------------------
Long-term debt, excluding
current installments $381,843 215,891
================================================================================
<PAGE>
Based on the borrowing rates currently available to the Company for loans
with similar terms and average maturities, the fair value of long-term debt
approximates the book value recorded.
The aggregate annual maturities of long-term debt for the years subsequent
to December 28, 1997 are as follows: 1998 - $0.2 million; 1999 - $55.3 million;
2000 - $200.3 million; 2001 - $0.3 million; 2002 - $0.2 million; and thereafter
- - $125.7 million. At December 28, 1997, the Company had revolving credit
agreements aggregating $300 million, of which $45 million was unused and
available.
Terms of the Company's senior notes and revolving credit agreements include
various provisions which, among other things, require the Company to (i)
maintain defined net worth and coverage ratios, (ii) limit the incurrence of
certain liens or encumbrances in excess of defined amounts and (iii) maintain
defined leverage ratios. The Company was not in compliance with certain ratio
provisions at December 28, 1997. Subsequent to year end, these provisions were
retroactively amended to December 28, 1997. The Company was in compliance with
the amended provisions.
During 1997 and 1996, the Company was party to various interest rate swap
agreements with notional amounts ranging from $75 million to $100 million. At
December 28, 1997, the Company was party to two interest rate swap agreements
each with $100 million notional amounts. The first agreement is a hedge of the
Company's U.S. LIBOR obligations relating to its revolving credit facilities.
Under the terms of the agreement, the Company pays an average of certain foreign
LIBOR-based variable rates (5.82% at December 28, 1997) and receives a U.S.
LIBOR-based variable rate (5.81% at December 28, 1997). At December 28, 1997,
the Company estimates that it would have paid approximately $1.8 million to
terminate this agreement. Amounts received on interest rate swap agreements
accounted for as hedges totaled $1.9 million in 1997 and $1.1 million in 1996.
The remaining swap agreement relates to the Company's 7.0% fixed interest
obligation on the Convertible Preferred Securities (Note 6). Under the
agreement, the Company pays an average of certain foreign LIBOR-based variable
rates (5.77% at December 28, 1997) and receives a 7.0% fixed rate. The Company
has not accounted for this swap agreement as a hedge. Accordingly, changes in
the fair market value are recognized as adjustments to interest expense in the
period incurred. The value of this interest rate contract at December 28, 1997
was approximately $0.2 million.
Note 6 - Convertible Preferred Securities
During the first quarter of 1997, Apple South Financing I (the "Trust")
issued 2,300,000, $3.50 term convertible securities, Series A (the "Convertible
Preferred Securities"), having a liquidation preference of $50 per security. The
Trust, a statutory business trust, is a wholly owned, consolidated subsidiary of
the Company with its sole asset being $115.0 million aggregate principal amount
of 7% convertible subordinated debentures due March 1, 2027 of Apple South, Inc.
(the "Convertible Debentures").
The Convertible Preferred Securities are convertible until 2027 at an
initial rate of 3.3801 shares of Apple South common stock for each security
(equivalent to a conversion price of $14.793 per share). The Company has
executed a guarantee with regard to the Convertible Preferred Securities. The
guarantee, when taken together with the Company's obligations under the
Convertible Debentures, the indenture pursuant to which the Convertible
Debentures were issued, and the declaration of trust of Apple South Financing I,
provides a full and unconditional guarantee of amounts due under the Convertible
Preferred Securities.
Proceeds, after deducting underwriters' fees and other offering expenses of
approximately $3.7 million, of $111.3 million were used to repay revolving loan
advances used for the acquisition of McCormick & Schmick's and to finance the
acquisition of Hops Restaurant Bar & Brewery including, in each case, retirement
of acquired Company debt.
<PAGE>
Note 7 - Leases
The Company has various leases for restaurant land, buildings, equipment
and office facilities. Land and building lease terms range from 10 to 20 years,
with renewal options ranging from five to 20 years. Equipment lease terms
generally range from four to eight years. In the normal course of business, some
leases are expected to be renewed or replaced by leases on other properties.
Future minimum lease payments do not include amounts payable by the Company for
maintenance costs, real estate taxes, insurance, etc., or contingent rentals
payable based on a percentage of sales in excess of stipulated amounts for
restaurant facilities.
In 1997, the Company entered into a $70 million master equipment lease
agreement. This agreement provides for the rental of up to $70 million in
restaurant equipment for a five-year period, subject to renewal at the Company's
option. Pursuant to terms of the agreement, the Company acts as purchasing agent
for the lessor. Equipment is procured for new restaurants, with payment coming
from the lessor. This agreement has been accounted for as an operating lease for
financial reporting purposes. At December 28, 1997, $1.1 million of the $70
million rental commitment had been utilized.
In 1995, the Company entered into a $30 million leveraged lease agreement.
The lease is structured as a series of individual operating leases for financial
reporting purposes. During 1995, the entire $30 million commitment was utilized
for the development and acquisition of Applebee's restaurants. In connection
with the expected divestiture of the Applebee's division (Note 3), the lessor
has agreed to sell to the respective buyers, at its original cost, the
individual leased properties commensurate with the closing of Applebee's sales
transactions, thereby releasing the Company from any obligations or guarantees
under the original lease agreement.
Future minimum lease payments under noncancelable operating leases at
December 28, 1997 are as follows (amounts in thousands):
1998 $ 25,208
1999 25,264
2000 24,445
2001 23,829
2002 22,827
Later years 125,250
- --------------------------------------------------------------------------------
Total minimum lease payments $246,823
================================================================================
Total rental expense related to cancelable and noncancelable operating
leases was $24.3 million in 1997, $15.6 million in 1996 and $13.6 million in
1995. Rental expense included contingent rentals of $1.0 million in 1997 and
$0.9 million in 1996 and 1995.
Note 8 - Accrued Liabilities
A summary of accrued liabilities at December 28, 1997 and December 29, 1996
follows (amounts in thousands):
1997 1996
- --------------------------------------------------------------------------------
Payroll and related benefits $15,060 8,624
Acquisition costs 5,327 -
Property taxes 4,293 3,039
Insurance 4,219 3,110
Gift certificates 3,926 1,966
Franchisor fees 1,299 2,115
Other 6,142 4,033
- --------------------------------------------------------------------------------
$40,266 22,887
================================================================================
<PAGE>
Note 9 - Income Taxes
The components of the provision for income taxes for the years ended
December 28, 1997, December 29, 1996 and December 31, 1995 are as follows
(amounts in thousands):
Current Deferred Total
- --------------------------------------------------------------------------------
1997:
Federal $8,090 3,850 11,940
State 1,630 55 1,685
- --------------------------------------------------------------------------------
Total $9,720 3,905 13,625
================================================================================
1996:
Federal $5,200 250 5,450
State 1,050 50 1,100
- --------------------------------------------------------------------------------
Total $6,250 300 6,550
================================================================================
1995:
Federal $7,300 4,450 11,750
State 1,800 600 2,400
- --------------------------------------------------------------------------------
Total $9,100 5,050 14,150
================================================================================
A reconciliation of the Federal statutory income tax rate to the effective
income tax rate applied to earnings before income taxes in the accompanying
consolidated statements of earnings for the years ended December 28, 1997,
December 29, 1996 and December 31, 1995 follows:
1997 1996 1995
- --------------------------------------------------------------------------------
Tax at Federal statutory rate 35.0% 35.0% 35.0%
Increase (decrease) in
taxes due to:
Rate differential - (0.7) -
State income tax, net of
Federal benefit 4.0 3.9 4.5
FICA tip and targeted
jobs tax credits (10.1) (2.2) (3.3)
Nondeductible merger and
conversion expenses - - 5.1
Nondeductible goodwill 2.0 - -
Other, net 1.5 (0.1) (0.2)
- --------------------------------------------------------------------------------
Effective tax rate 32.4% 35.9% 41.1%
================================================================================
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December 28,
1997 and December 29, 1996 are presented below (amounts in thousands):
1997 1996
- --------------------------------------------------------------------------------
FICA tip credits not yet taken for
Federal tax purposes $ 5,772 -
Asset impairment charges recorded
for financial statement purposes
but not yet taken for tax purposes 6,618 7,597
Other 589 439
- --------------------------------------------------------------------------------
Total deferred tax assets 12,979 8,036
- --------------------------------------------------------------------------------
Depreciation taken for tax purposes
in excess of depreciation taken for
financial reporting purposes (25,713) (17,259)
Other (1,497) (1,103)
- --------------------------------------------------------------------------------
Deferred tax liability $(14,231) (10,326)
================================================================================
<PAGE>
The Company has not recorded a valuation allowance for deferred tax assets
as of December 28, 1997 or December 29, 1996. In assessing the realizability of
deferred tax assets, management considers whether it is more likely than not
that some portion or all of the deferred tax assets will not be realized. The
ultimate realization of deferred tax assets is dependent upon the generation of
future taxable income during the periods in which those temporary differences
become deductible. Management considers the scheduled reversal of deferred tax
liabilities, projected future taxable income, and tax planning strategies in
making this assessment. Based upon these factors, management believes it is more
likely than not the Company will realize the benefits of the deductible
differences.
Note 10 - Interest Expense
The following is a summary of interest cost incurred and interest cost
capitalized as a component of the cost of construction in progress (amounts in
thousands):
1997 1996 1995
- --------------------------------------------------------------------------------
Interest cost capitalized $ 2,509 1,572 1,074
Interest cost expensed 20,575 11,417 6,189
- --------------------------------------------------------------------------------
Total $23,084 12,989 7,263
================================================================================
Note 11 - Stock Option Plans
The Company's 1988 stock option plan (the "Stock Option Plan") and the 1993
and 1995 Stock Incentive Plans (the "Stock Incentive Plans") provide for the
granting of nonqualified and incentive options for up to 1,974,375 shares,
450,000 shares and 2,700,000 shares, respectively, of common stock of the
Company to key officers, directors and employees. Generally, options awarded
under the Company's Stock Option Plan and Stock Incentive Plans are granted at
prices which equate to fair market value on the date of the grant, are
exercisable over three to 10 years, and expire 10 years subsequent to award.
The 1992 DF&R Stock Option Plan (the "DF&R Option Plan") provides for the
granting of 1,000,000 shares of the Company's common stock to key officers,
directors and employees. Options awarded under the DF&R Option Plan prior to the
merger were adjusted based on the exchange ratio of 1.5 shares of Apple South
common stock for each share of DF&R common stock. Options awarded under the DF&R
Option Plan are generally granted at prices which equate to fair market value on
the date of grant. With limited exceptions, all options are generally
exercisable beginning one year from the date of grant with annual vesting
periods and terminate not later than five years from the date of grant.
Management does not anticipate granting any additional options under the DF&R
Option Plan.
The Company applies Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees," and related Interpretations in accounting for
its stock option plans. Accordingly, no compensation expense has been recognized
for its stock-based compensation plans. Had compensation cost for the Company's
stock option plans been determined based upon the fair value methodology
prescribed under Statement of Financial Accounting Standards ("SFAS") No. 123,
"Accounting for Stock-Based Compensation," the Company's net earnings and
earnings per share would have been reduced by approximately $2.3 million, or
approximately $0.06 per share in 1997 and reduced by approximately $2.1 million,
or approximately $0.05 per share in 1996. The effects of either recognizing or
disclosing compensation cost under SFAS 123 may not be representative of the
effects on reported net earnings for future years. The fair value of the options
granted during 1997 is estimated as $8.90 on the date of grant using the
Black-Scholes option-pricing model with the following assumptions: dividend
yield 0.28%, volatility of 58%, risk-free interest rate of 5.8%, and an expected
life of 6.7 years.
<PAGE>
As of December 28, 1997, options to purchase 273,339 shares were
exercisable at a weighted average exercise price of $14.38. Further information
relating to total options is as follows:
Average
Shares Price
- --------------------------------------------------------------------------------
Outstanding at December 31, 1994 1,983,336 $ 5.13
Granted in 1995 1,479,382 19.90
Exercised in 1995 (646,184) 2.80
Canceled in 1995 (25,861) 15.51
- --------------------------------------------------------------------------------
Outstanding at December 31, 1995 2,790,673 13.44
Granted in 1996 726,587 19.72
Exercised in 1996 (779,198) 3.25
Canceled in 1996 (243,870) 21.48
- --------------------------------------------------------------------------------
Outstanding at December 29, 1996 2,494,192 17.66
Granted in 1997 1,412,694 14.46
Exercised in 1997 (334,296) 6.66
Canceled in 1997 (574,460) 19.15
- --------------------------------------------------------------------------------
Outstanding at December 28, 1997 2,998,130 $17.04
================================================================================
The following table summarizes information concerning currently outstanding
and exercisable options:
Options Outstanding Options Exercisable
------------------------------------- ---------------------
Weighted Weighted Weighted
Range of Average Average Average
Exercise Number Remaining Exercise Number Exercise
Prices Outstanding Life Price Exercisable Price
- -------------------------------------------------------------------------------
$ 5.01 - $10.00 22,875 0.7 $ 8.44 22,875 $ 8.44
$10.01 - $15.00 1,293,178 9.0 13.43 88,641 13.07
$15.01 - $20.00 976,885 7.0 18.24 161,823 15.94
$20.01 - $25.00 532,886 8.1 21.23 - -
$25.01 - $30.00 172,306 8.2 25.49 - -
- --------------------------------------------------------------------------------
2,998,130 273,339
========== ========
Note 12 - Employee Benefit Plans
The Company has a noncontributory Employee Stock Ownership Plan (the
"Plan") covering substantially all full-time employees. In accordance with the
terms of the Plan, the Company may make contributions to the Plan in amounts as
determined by the Board of Directors. Participants become 20% vested in their
accounts after three years of service, escalating 20% each year thereafter until
they are fully vested. The Company recognized no contribution expense in 1997
and approximately $300,000 in 1996 and $250,000 in 1995.
The Company has established the Apple South, Inc. Profit Sharing Plan and
Trust in accordance with Section 401(k) of the Internal Revenue Code, which
allows eligible participating employees to defer receipt of a portion of their
compensation and contribute such amount to one or more investment funds.
Employee contributions are matched by the Company dollar for dollar for the
first 2% of the employee's income deferred. Company matching funds vest at the
rate of 20% each year, beginning after three years of service. Company
contributions were $514,000 in 1997, $422,000 in 1996 and $300,000 in 1995.
<PAGE>
Note 13 - Shareholders' Equity
The Company's Board of Directors, from time to time and depending on market
conditions, authorizes the Company to purchase shares of its common stock,
through open market transactions, to satisfy obligations under stock option and
employee stock ownership plans. As of December 28, 1997, the Company had
purchased an aggregate 3.1 million shares of its common stock for an aggregate
purchase price of $53.0 million (average price of $16.99 per share). On January
9, 1998, the Company announced the approval by its Board of Directors of the
purchase of up to two million additional shares of its common stock. The Company
has not purchased a significant number of shares pursuant to this approval.
Pursuant to a direct placement of common stock on June 30, 1995, the
Company sold 900,000 shares at $18.50. Pursuant to a registered public offering
on March 3, 1995, the Company sold 3.2 million shares of common stock at $13.75.
After deducting expenses of these offerings, proceeds to the Company amounted to
approximately $16.2 million in the June offering and $41.0 million in the March
offering.
Note 14 - Commitments and Contingencies
Under the Company's insurance programs, coverage is obtained for
significant exposures as well as those risks required to be insured by law or
contract. It is the Company's preference to retain a significant portion of
certain expected losses related primarily to workers' compensation, physical
loss to property and comprehensive general liability. Provisions for losses
expected under these programs are recorded based upon the Company's estimates of
the aggregate liability for claims incurred.
The Company is contingently liable for letters of credit and a guarantee of
the indebtedness of others aggregating approximately $12.3 million. The Company
does not expect circumstances to arise that would result in the disbursement of
funds under these guarantees.
During 1997, two lawsuits were filed by persons seeking to represent a
class of shareholders of the Company who purchased shares of the Company's
common stock between May 26, 1995 and September 24, 1996. Each plaintiff named
the Company and certain of its officers and directors as defendants. The
complaints alleged acts of fraudulent misrepresentation by the defendants which
induced the plaintiffs to purchase the Company's common stock and alleged
illegal insider trading by certain of the defendants, each of which allegedly
resulted in losses to the plaintiffs and similarly situated shareholders of the
Company. The complaints each seek damages and other relief. Although the
ultimate outcome of these lawsuits cannot be determined at this time, based on
its preliminary analysis the Company believes that the allegations therein are
without merit and intends to vigorously defend itself.
The Company is involved in various other claims and legal actions arising
in the ordinary course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse effect on the
Company's consolidated financial position or results of operations.
<PAGE>
Note 15 - Quarterly Financial Data
(unaudited)
First Second Third Fourth Total
Quarter Quarter Quarter Quarter Year
- --------------------------------------------------------------------------------
1997:
Restaurant sales $171,453 202,889 215,739 218,239 808,320
Gross profit* $ 71,269 85,940 90,549 85,904 333,662
Net earnings $ 7,268 10,224 10,660 296 28,448
Basic earnings
per share $ 0.19 0.27 0.28 0.01 0.74
Diluted earnings
per share $ 0.19 0.25 0.26 0.01 0.73
1996:
Restaurant sales $126,333 136,945 139,796 142,948 546,022
Gross profit* $ 53,443 60,259 58,616 61,597 233,915
Net earnings
(loss) $ (5,487) 9,777 1,188 6,196 11,674
Basic earnings
(loss) per share $ (0.14) 0.25 0.03 0.16 0.30
Diluted earnings
(loss) per share $ (0.14) 0.24 0.03 0.16 0.30
- --------------------------------------------------------------------------------
* The Company defines gross profit as total restaurant sales less the
cost of food and beverage and payroll and benefits. These costs represent
the expenses associated directly with providing the Company's products and
services.
Note 16 - Subsequent Events
On January 14, 1998 the Company acquired a 20% interest in Belgo Group, PLC
("Belgo"), a public restaurant company based in the United Kingdom that owns and
operates two Belgo restaurants in London, for $6.1 million. The Company will
account for its investment in Belgo under the equity method of accounting. In
addition, the Company and Belgo have established two 50/50 joint ventures: one
for the initial development of the Company's proprietary brands in Europe and
the other for the development of Belgo restaurants in the Western Hemisphere.
<PAGE>
Report of Management
Apple South, Inc.
The management of Apple South, Inc. has prepared the consolidated financial
statements and all other financial information appearing in this Annual Report,
and is responsible for their integrity. The consolidated financial statements
were prepared in conformity with generally accepted accounting principles, and,
accordingly, include certain amounts based on management's best judgments and
estimates.
Management maintains a system of internal accounting controls and
procedures designed to provide reasonable assurance, at an appropriate
cost/benefit relationship, regarding the reliability of the published
consolidated financial statements and the safeguarding of assets against
unauthorized acquisition, use or disposition.
The independent auditors, KPMG Peat Marwick LLP, were recommended by the
Audit Committee of the Board of Directors and that recommendation was ratified
by the Company's shareholders. The Audit Committee, which is composed solely of
directors who are not officers of the Company, meets periodically with the
independent auditors and management to ensure that they are fulfilling their
obligations and to discuss internal accounting controls, auditing and financial
reporting matters. The Audit Committee also reviews with the independent
auditors the scope and results of the audit effort. The independent auditors
periodically meet alone with the Audit Committee and have full and unrestricted
access to the Audit Committee at any time.
The recommendations of the independent auditors are reviewed by management.
Control procedures have been implemented or revised as appropriate to respond to
these recommendations. No material control weaknesses have been brought to the
attention of management.
The Company assessed its internal control system as of December 28, 1997,
in relation to criteria for effective internal control over financial reporting
described in "Internal Control Integrated Framework" issued by the Committee of
Sponsoring Organizations of the Treadway Commission. Based on its assessment,
the Company believes that, as of December 28, 1997, its system of internal
control over financial reporting and over safeguarding of assets against
unauthorized acquisition, use or disposition, met those criteria.
/s/ Tom E. DuPree, Jr.
- --------------------------
Tom E. DuPree, Jr.,
Chairman of the Board
/s/ Erich J. Booth
- -------------------------
Erich J. Booth,
Chief Financial Officer
<PAGE>
Independent Auditors' Report
The Board of Directors
Apple South, Inc.
We have audited the accompanying consolidated balance sheets of Apple
South, Inc. as of December 28, 1997 and December 29, 1996, and the related
consolidated statements of earnings, shareholders' equity and cash flows for
each of the years in the three-year period ended December 28, 1997. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Apple South, Inc. at December 28, 1997 and December 29, 1996, and the
consolidated results of its operations and its cash flows for each of the years
in the three-year period ended December 28, 1997, in conformity with generally
accepted accounting principles.
As discussed in Note 3 to the consolidated financial statements, in 1996
the Company adopted the provisions of Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of."
KPMG Peat Marwick LLP
Atlanta, Georgia
January 23, 1998
<PAGE>
Corporate and Shareholder Information
Apple South, Inc.
Corporate Headquarters
Apple South, Inc.
Hancock at Washington
Madison, Georgia 30650
Telephone: 706-342-4552
Independent Auditors
KPMG Peat Marwick LLP
303 Peachtree Street, N.E.
Suite 2000
Atlanta, Georgia 30308
Transfer Agent and Registrar
SunTrust Bank, Atlanta
Corporate Trust Division
P.O. Box 4625
Atlanta, Georgia 30302
Annual Meeting
The Annual Meeting of Shareholders is scheduled at 11 a.m., Tuesday, April 28,
1998, to be held at the Madison-Morgan Cultural Center in Madison, Georgia.
Form 10-K
A copy of the Company's Annual Report on Form 10-K for the fiscal year
ended December 28, 1997 is filed electronically with the Securities and Exchange
Commission and is available on the SEC web site. Copies will be sent to any
shareholder upon request to Investor Relations.
Investor Relations
Erich J. Booth, Chief Financial Officer
Keri L. Kiger, Investor Relations Analyst
Hancock at Washington
Madison, Georgia 30650
Telephone: (706) 342-4552
Hotline: (706) 343-2091
Facsimile: (706) 342-9283
E-mail: [email protected]
Investor Information
The Company's common stock is traded on the Nasdaq Stock Market (National
Market) under the symbol "APSO." Apple South is also a corporate member of the
National Association of Investors Corporation (NAIC). A list of the brokerage
firms publishing research on Apple South is available upon request by calling
the Investor Relations Hotline or writing Investor Relations.
Shareholder Information
As of March 2, 1998, there were approximately 20,000 shareholders of the
Company's common stock, based on the number of record holders and the estimated
number of individual participants represented by security position listings.
Shareholder of Record
Shares are held in the shareholder's name which means the holder is
registered directly on the books of the Company as a shareholder of record.
Stock may be in the form of a traditional stock certificate, or it may be
confirmed by a Company statement reflecting ownership in shares that have been
deposited or transferred to your ESOP or employee stock purchase account.
<PAGE>
Street Name Shareholder
Shares are held for the shareholder in a "street name" account by a broker
chosen by the shareholder. Proxy material is mailed by the broker which always
takes a little more time than if Apple South were able to mail directly to the
shareholder. The Company would like to encourage all street name shareholders to
consider becoming a shareholder of record by registering their stock
certificates in their own name so communications with you are direct and more
expedient.
Stock Price Performance
A summary of the high and low sales prices per share for the Company's
common stock is presented below.
1996 High Low
- --------------------------------------------------------------------------------
First Quarter $24.50 $17.13
Second Quarter $28.25 $22.13
Third Quarter $27.25 $13.00
Fourth Quarter $15.00 $11.38
1997 High Low
- --------------------------------------------------------------------------------
First Quarter $15.13 $11.75
Second Quarter $16.00 $12.25
Third Quarter $19.25 $13.69
Fourth Quarter $19.94 $13.38
Dividends
The following table indicates cash dividends declared per share on the Company's
common stock for the years ended December 28, 1997, December 29, 1996 and
December 31, 1995.
Quarter ended 1997 1996 1995
- --------------------------------------------------------------------------------
March $0.008 0.006 0.004
June 0.010 0.008 0.006
September 0.010 0.008 0.006
December 0.010 0.008 0.006
- --------------------------------------------------------------------------------
Total $0.038 0.030 0.022
================================================================================
The Board of Directors
Apple South, Inc.
We consent to incorporation by reference in the registration statements
(No. 33-49748, No. 33-68978, No. 333-3764, and No. 333-3736) on Form S-8 and the
registration statements (No. 333-02958, No. 333-37345, and No. 333-25205) on
Form S-3 of Apple South, Inc. of our report dated January 23, 1998, relating to
the consolidated balance sheets of Apple South, Inc. as of December 28, 1997 and
December 29, 1996, and the related consolidated statements of earnings,
shareholders' equity, and cash flows for each of the years in the three-year
period ended December 28, 1997, which report appears in the December 28, 1997
annual report on Form 10-K of Apple South, Inc.
KPMG Peat Marwick LLP
Atlanta, Georgia
March 23, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
(THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM
10-K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS)
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<CIK> 0000849101
<NAME> Apple South, Inc.
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> Dec-28-1997
<PERIOD-START> Dec-30-1996
<PERIOD-END> Dec-28-1997
<CASH> 2,503
<SECURITIES> 37
<RECEIVABLES> 8,983
<ALLOWANCES> 0
<INVENTORY> 10,732
<CURRENT-ASSETS> 362,406
<PP&E> 283,839
<DEPRECIATION> 0
<TOTAL-ASSETS> 804,289
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<BONDS> 381,843
115,000
0
<COMMON> 405
<OTHER-SE> 220,377
<TOTAL-LIABILITY-AND-EQUITY> 804,289
<SALES> 808,320
<TOTAL-REVENUES> 808,320
<CGS> 225,302
<TOTAL-COSTS> 693,880
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 20,575
<INCOME-PRETAX> 42,073
<INCOME-TAX> 13,625
<INCOME-CONTINUING> 28,448
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