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 January 3, 1999 Commission File No. 0-19542
AVADO BRANDS, 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
(Title of Class)
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 30 , 1999, the aggregate market value of the common stock of
the registrant held by non-affiliates of the registrant, as determined by the
last sales price, was $134,773,000.
As of March 30, 1999, the number of shares of common stock outstanding was
29,068,586.
DOCUMENTS INCORPORATED BY REFERENCE:
(1) Annual Report to Shareholders for the fiscal year ended January 3, 1999
(Part II of Form 10-K).
(2) Definitive Proxy Statement for use in connection with the 1999 Annual
Meeting of Shareholders (Part III of Form 10-K).
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PART I
Item 1. Business
General
Avado Brands, Inc. (formerly Apple South, Inc.), including its wholly owned
subsidiaries (the "Company" or "Avado Brands"), is a multi-concept restaurant
company owning and operating restaurants in 29 states plus the District of
Columbia. 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, acquisitions and
divestitures. At January 3, 1999, the Company operated 123 Don Pablo's Mexican
Kitchen restaurants, 47 Hops Restaurant Bar & Brewery restaurants, 23 McCormick
& Schmick's seafood dinner houses, 19 Canyon Cafe restaurants as well as 44
Applebee's Neighborhood Grill & Bar restaurants which were held for sale. All
brands are owned on a proprietary basis except Applebee's, which is franchised.
For the year ended January 3, 1999, total restaurant sales were $862.7 million.
Avado Brands also owns a 20-percent equity interest in Belgo Group PLC, a
ten-unit United Kingdom restaurant company, and a 25-percent equity interest in
11 Harrigans Grill and Bar restaurants.
In November 1995, 44 Don Pablo's restaurants and 12 Harrigans restaurants
were acquired through a pooling of interests transaction with DF&R Restaurants,
Inc. During 1997, three purchase business combinations were completed which
included the acquisition of 16 McCormick & Schmick's restaurants, 21 Hops
restaurants and 13 Canyon Cafe restaurants. Also in 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. During 1998, the divestiture was substantially completed
with the sale of 233 of 279 Applebee's locations and the closing of two
additional locations. Gross proceeds from the sale transactions totaled $434.8
million including $6.8 million in notes and other amounts due. Also during 1998,
the Company divested its Harrigans restaurants, retaining a 25-percent ownership
in the ongoing business, and acquired a 20-percent interest in Belgo. 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. In January of 1999, the first Belgo
restaurant in the United States was opened in New York City. In February of
1999, the Company announced the establishment of a new, 50/50 joint venture with
London-based PizzaExpress PLC for the North American development of the upscale
PizzaExpress brand. The joint venture's first U.S. restaurant opened in March of
1999 in Philadelphia under the name San Marzano.
The Company's strategy includes the acquisition, development, operation and
growth of niche-leading restaurant brands within a unique organizational
structure that rewards entrepreneurial decision-making. Each brand functions on
a decentralized basis with its own executive management, real estate
development, purchasing, recruiting, training, marketing, accounting, and
restaurant operations. This consumer-based operating philosophy allows Avado
Brands to gain competitive advantage by sharing best practices and centralizing
non-brand critical processes such as human resources, finance, treasury and
capital formation. During 1999, a total of 40 restaurants, including 20 Hops, 15
Don Pablo's, four McCormick & Schmick's and one Canyon Cafe, are expected to be
opened.
On October 13, 1998, the Company changed its corporate name from "Apple
South, Inc." to "Avado Brands, Inc." The name change was made to reflect the
evolution of the nature and character of the business, including the divestiture
of the Company's Applebee's brand, and the emphasis on a multi-brand strategy.
In connection with the corporate name change, the Company changed the Nasdaq
National Market trading symbol of its common stock from "APSO" to "AVDO."
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Avado Brands' Restaurant Concepts
Don Pablo's
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 1998, the cost of a typical meal, including beverages, was
$8.00 to $9.50 for lunch and $9.50 to $11.50 for dinner. In addition to its
regular menu, Don Pablo's offers 15 lunch specials priced from $4.49 to $7.19
each and a lower- priced children's menu. Full bar service is also provided.
Alcoholic beverage sales accounted for approximately 19% of sales in 1998.
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 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. In 1998, 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 $1,275,000; preopening expenses, which 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, averaged $185,000.
Field Management. Management is shared by 36 district and area managers who
report to two Regional Vice Presidents of Operations. The 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 advertising and marketing strategy
combines the use of television and radio advertising in core markets with a
focus on local efforts and community involvement at all locations. In 1998,
advertising contributed to a 1% increase in annual sales for those restaurants
open for all of 1997 and 1998 as well as benefitting new restaurant openings.
Current strategies are expected to continue in 1999 with a focus on efforts,
such as Manager's Specials and other promotions, designed to increase traffic
counts and check average.
Hops Restaurant Bar & Brewery
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
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restaurant features an on-premises microbrewery. Tom Schelldorf, co-founder of
of the concept, is the current Chief Executive Officer of the brand.
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, plus a variety of
blends of these beers, 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 typically the only beers
served. Full bar service is also available at each restaurant. Alcoholic
beverages accounted for approximately 16% of sales in 1998.
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 $1,525,000 in 1998, excluding land and preopening costs but
including approximately $160,000 in microbrewery equipment. Land costs ranged
from $675,000 to $1,000,000 and preopening costs averaged $170,000.
Field Management. Management is shared by seven operating partners and
three area managers 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' advertising and marketing strategy has
historically focused primarily on grassroots efforts utilizing special
promotions in local markets and special event equipment designed to increase
customer awareness and name recognition. During 1998, advertising and marketing
efforts were expanded primarily through the use of radio advertising, outdoor
boards and print media in regional editions of national publications. Increased
efforts are expected to continue into 1999 with the use of television
advertising in core markets and the continued use of radio and print media as
well as grassroots efforts.
McCormick & Schmick's
McCormick & Schmick's was established in the early 1970's by co-founders
William P. McCormick and Douglas L. Schmick, current Chairman and Chief
Executive Officer, respectively. 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 represented
approximately 27% of sales in 1998. Restaurants are operated under the names
McCormick & Schmick's, McCormick's Fish House, Harborside, Jake's, M&S Grill and
McCormick & Kuleto'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.
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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 was
approximately $2,450,000 in 1998, including leasehold improvements, fixtures and
equipment. All restaurant real estate is leased. Additionally, preopening
expenses average $300,000.
Field Management. Management is shared by seven multi-unit senior managers,
three of which have regional responsibility, 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 80 to 90 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. Each region utilizes the services of a public relations
firm and makes full use of media events targeting the local market. Advertising
strategies focus on existing and local customers, but also emphasize out-of-town
travelers as a key customer component. Marketing begins in each restaurant with
daily printed menus and other local efforts. A primary focus is to expand name
and location awareness through the use of promotional discount certificates and
periodic contact with organizations in the travel/convention industry such as
hotels, travel agents and convention centers.
Canyon Cafe
Canyon Cafe restaurants operate under the names Canyon Cafe, Desert Fire
and Sam's Cafe. The first restaurant was opened in Dallas, Texas in 1989. Canyon
Cafe 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 Chicken. A variety of more
traditional items including chicken tacos and grilled chicken salad are also
offered. During 1998, the cost of a typical meal, including beverages, was $9.00
to $14.00 for lunch and $14.00 to $20.00 for dinner. Full bar service is also
provided. Alcoholic beverages accounted for approximately 18% of sales in 1998.
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 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.
All locations typically have a minimum of 190 interior dining seats, an average
of 26 bar seats and 45-50 patio seats.
Unit Economics. In 1998, the cost of developing and opening a restaurant
averaged $1,400,000 for in-line/mall locations and $1,600,000 for freestanding
locations, excluding land costs and preopening expenses. In 1998, one land site
was purchased at a cost of $947,000. Preopening expenses averaged $151,000.
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. All managers are
eligible to receive bonuses based on individual restaurant operating
performance.
Advertising and Marketing. Advertising and marketing strategy relies
on grassroots efforts focused on developing a strong brand identity and
strong core-customer recommendations. Advertising and marketing efforts
include local radio, media appearances, event involvement and billboards as
well as direct mail and other print media.
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Additional local efforts, such as a system-wide "neighborhood networking"
program, are utilized to develop a direct relationship with targeted customers.
Other Restaurant Operational Functions
Quality Control. All levels of management are responsible for ensuring that
restaurants are operated in accordance with strict quality standards. 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 brand 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 brands' 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.
Purchasing. Avado Brands strives to obtain consistent quality items at
competitive prices from reliable sources for all of its brands. 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 brand, which, with the exception of McCormick &
Schmick's, uses one primary distributor for food products other than produce,
which is typically purchased locally. At McCormick & Schmick's, 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. 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 brands' headquarters. A point-of-sale
reporting system is utilized in each restaurant. Restaurant management submits
to brand 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 brand and corporate personnel.
Trademarks and Licenses
Avado Brands has registered the principal trademarks and service marks used
by its restaurant brands with the United States Patent and Trademark Office. The
Company believes that its trademarks and service marks are integral and
important factors in establishing the identity and marketing of its restaurant
brands. Although the Company is aware of certain marks used by other persons in
certain geographical areas which may be similar in certain respects to the
Company's marks, the Company believes that these other marks will not adversely
affect the Company or its business.
The restaurant concepts for the Company's joint ventures with Belgo Group
PLC and PizzaExpress PLC are licensed from these joint venturers or their
affiliates. Such licenses are essential for the operation of these joint
ventures and include the licensing of related trademarks and service marks.
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, county and
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
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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. Hops 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, all 50 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.
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 Avado Brands. Some of the Company's
competitors have been in existence for a substantially longer period than Avado
Brands 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 Avado
Brands' restaurants in particular.
Employees
As of January 3, 1999, Avado Brands employed approximately 20,300 persons
in 29 states plus the District of Columbia. Of those employees, approximately
280 held management or administrative positions, 1,500 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 industry, Avado Brands
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.
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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 have served as the Company's corporate and Applebee's
headquarters. In 1997, the Company completed construction of a new 44,100 square
foot facility in Bedford, Texas, to house the Don Pablo's headquarters. The
headquarters for McCormick & Schmick's is located in approximately 12,000 square
feet of leased space in Portland, Oregon. The headquarters for Hops is located
in approximately 15,000 square feet of leased space in Tampa, Florida and the
headquarters for Canyon Cafe is located in approximately 7,500 square feet of
leased space in Dallas, Texas. The Company believes that its corporate and brand
headquarters are sufficient for its present needs.
In selecting restaurant 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 brand's development department, subject to executive
officer approval. Within the target market areas, the brands 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 March 1, 1999, the Company operated 248 restaurants. The Company
leases the underlying real estate on which 99 of the restaurants are located and
leases both the buildings and underlying real estate for an additional 60
restaurants. The remaining 89 restaurants and related real estate are owned by
the Company. The following table presents restaurant locations by brand:
<TABLE>
<CAPTION>
Don McCormick Canyon
Pablo's Hops & Schmick's Cafe Sub-total Applebee's Total
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Florida 18 27 45 45
Texas 15 5 20 20
Ohio 15 15 15
Indiana 10 10 1 11
California 7 2 9 9
North Carolina 4 5 9 9
Tennessee 5 3 1 9 9
Georgia 4 2 2 8 8
Michigan 8 8 8
Minnesota 7 1 8 8
Pennsylvania 8 8 1 9
Virginia 7 1 8 9 17
Colorado 5 1 1 7 7
Arizona 3 3 6 6
Kentucky 4 2 6 7 13
South Carolina 2 4 6 6
Washington 4 2 6 6
Maryland 4 1 5 10 15
Oregon 5 5 5
New York 4 4 4
Oklahoma 4 4 4
Washington D.C. 2 2 2
Illinois 1 1 2 2
Missouri 2 2 2
New Jersey 2 2 2
Alabama 1 1 1
Iowa 1 1 1
Nevada 1 1 1
Delaware 2 2
West Virginia 1 1
- -------------------------------------------------------------------------------------------------------------------
Totals 127 49 23 18 217 31 248
===================================================================================================================
</TABLE>
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Item 3. Legal Proceedings
In 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 sought damages and other relief. In 1998, one of these suits
(Artel Foam Corporation Pension Trust, et al. v. Apple South, Inc., et al.,
Civil Action No. CV-97-6189) was dismissed. Although the ultimate outcome of the
remaining lawsuit cannot be determined at this time, 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 January 3, 1999.
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
January 3, 1999, the relevant portion 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
January 3, 1999, the relevant portion 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 January 3, 1999, the relevant portion of which is attached as
Exhibit 13.1 hereto.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Information in response to this item is incorporated by reference to page
22 of the Company's Annual Report to Shareholders for the fiscal year ended
January 3, 1999, the relevant portion of which is attached as Exhibit 13.1
hereto.
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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 January 3, 1999, the relevant portion of which is attached as
Exhibit 13.1 hereto.
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
information contained under the headings "Nominees for Director" , "Executive
Officers", and "Section 16(a) Beneficial Ownership Reporting Compliance" in the
Company's definitive Proxy Statement for use in connection with the 1999 Annual
Meeting of Shareholders, filed with the Commission on March 31, 1999.
Item 11. Executive Compensation
Information in response to this item is incorporated by reference to the
information contained under the heading "Compensation of Executive Officers" in
the Company's definitive Proxy Statement for use in connection with the 1999
Annual Meeting of Shareholders, filed with the Commission on March 31, 1999. In
no event shall the information contained in the Proxy Statement under the
heading "Comparison of Five-Year Cumulative Shareholder Return" be deemed
incorporated herein by such reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Information in response to this item is incorporated by reference to the
information contained under the heading "Voting Securities and Principal Holders
Thereof" in the Company's definitive Proxy Statement for use in connection with
the 1999 Annual Meeting of Shareholders, filed with the Commission on March 31,
1999.
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 death of the survivor of Tom E.
DuPree, Jr., 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 provided in fiscal 1998 totaled $2,308. There were no
reimbursements due to the Company from the Trust at January 3, 1999.
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
11
<PAGE>
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.
In 1998, the Board of Directors approved loans to certain executive
officers of the Company. At January 3, 1999, the Company held three notes
receivable from Tom E. DuPree, Jr., the Chairman of the Board and Chief
Executive Officer of the Company, totaling $7,851,500. The notes are due in
November and December of 2000 or earlier upon demand of the Company and bear
interest at 7.0% with interest payment due at maturity. The Company also holds
notes receivable from Erich J. Booth, Chief Financial Officer and Treasurer,
totaling $107,000 and from Margaret E. Waldrep, Chief Administrative Officer,
totaling $41,500. The notes are due in October and November of 1999 and bear
interest at 5.06% with interest payment due at maturity.
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
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
January 3, 1999, the relevant portion of which is attached as Exhibit 13.1
hereto:
Consolidated Statements of Earnings for the years ended January 3, 1999,
December 28, 1997 and December 29, 1996
Consolidated Balance Sheets as ofJanuary 3, 1999 and December 28, 1997
Consolidated Statements of Shareholders' Equity and Comprehensive Income
for the years ended January 3, 1999, December 28, 1997 and December 29,
1996
Consolidated Statements of Cash Flows for the years ended January 3, 1999,
December 28, 1997 and December 29, 1996
Notes to Consolidated Financial Statements
Report of Management Independent
Auditors' Report
2. Financial Statement Schedules
None
3. Exhibits
2.1 Agreement and Plan of Merger, dated August 15, 1995, by and among the
Company, SALSA Acquisition Corp., and DF&R Restaurants, Inc. (4)
2.2 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. (7)
2.3 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. (7)
2.4 Agreement and Plan of Merger among Apple South, Inc., Coyote
Acquisition Corp., and Canyon Cafes, Inc., et. al., dated June 19, 1997. (8)
12
<PAGE>
2.5 Asset Purchase Agreement dated December 23, 1997 by and among
Applebee's International, Inc. and Apple South, Inc. (9)
2.6 Asset Purchase Agreement dated March 16, 1998 by and among Quality
Restaurant Concepts, L.L.C., and Apple South, Inc. (11)
2.7 Asset purchase agreement dated April 23, 1998, by an among Apple South,
Inc. and Whit-Mart, Inc. (13)
2.8 Asset purchase agreement dated May 1, 1998, by and among Apple South,
Inc. and T.S.S.O., Inc., and Lois Sedowicz. (13)
2.9 Asset purchase agreement dated May 4, 1998, by and among Apple South,
Inc. and Florida Apple North, LLC.,Florida Apple South, LLC., Florida Apple
West, LLC., and Wigel Partnership. (13)
2.10 Asset purchase agreement dated June 19, 1998, by and among Apple
South, Inc. and U.S. Restaurant Properties Operating LP. (13)
2.11 Asset purchase agreement dated June 19, 1998, by and among Apple
South, Inc. and Darrel L. Rolph. (13)
2.12 Asset purchase agreement dated July 31, 1998, by and among Apple
South, Inc. Delta Bluff , LLC. (14)
2.13 Asset purchase agreement dated August 20, 1998, by and among Apple
South, Inc. and WHG Real Estate South, LLC. and Wisconsin Hospitality Group,
LLC. (15)
2.14 Asset purchase agreement dated August 20, 1998, by and among Apple
South, Inc. and WHG Real Estate East, LLC. and Wisconsin Hospitality Group, LLC.
(15)
2.15 Asset purchase agreement dated April 6, 1998, by and among Apple
South, Inc. and Woodland Group, Inc. (15)
2.16 Asset purchase agreement dated May 15, 1998, by and among Apple South,
Inc. and Bloomin' Apple, LLC. (15)
2.17 Asset purchase agreement dated June 26, 1998, by and among Apple
South, Inc. and Apple J, L.P. (15)
2.18 Asset purchase agreement dated September 15, 1998, by and among Apple
South, Inc., and WHG Real Estate North, LLC and Wisconsin Hospitality Group,
LLC.
3.1 Amended and Restated Articles of Incorporation of the Company, as
amended October 13, 1998. (3)
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) (3)
4.2 Indenture dated May 1, 1996, between the Company and SunTrust Bank,
Atlanta, as Trustee. (5)
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.(10)
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. (10)
13
<PAGE>
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. (10)
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. (10)
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. (10)
4.10 Solicitation of Consents to Proposed Amendments to 9.75% Senior Notes
due 2006 of Apple South, Inc. (13)
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) (6)
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 Apple South, Inc. Employee Stock Ownership Plan and Trust. (1) (6)
10.6 Apple South, Inc. Profit Sharing Plan and Trust. (1) (6)
10.7 Amendment No. 2 to the Apple South, Inc. Employee Stock Ownership Plan
and Trust, dated November 22, 1993. (2)
10.8 Apple South, Inc. [Restated] Profit Sharing Plan and Trust dated
October 26, 1993. (2)
10.9 Amended form of Stock Option Agreement under the Apple South, Inc.
1988 Stock Option Plan. (2)
10.10 Apple South, Inc. 1993 Stock Incentive Plan. (2)
10.11 Form of Stock Option Agreement under the Apple South, Inc. 1993 Stock
Incentive Plan. (2)
10.12 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. (11)
10.13 Participation Agreement (Apple South Trust No. 97-1), dated 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. (11)
10.14 First amendment, dated as of March 27, 1998, to Participation
Agreement (Apple South Trust No 97-1), dated 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. (12)
14
<PAGE>
10.15 Second amendment, dated as of August 14, 1998, to Participation
Agreement (Apple South Trust No 97-1), dated 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.
10.16 Third amendment, dated as of November 13, 1998, to Participation
Agreement (Apple South Trust No 97-1), dated 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.
10.17 Fourth amendment, dated as of February 22, 1999, to Participation
Agreement (Apple South Trust No 97-1), dated 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.
10.18 $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. (11)
10.19 $100 million Credit Agreement, dated April 1, 1998, among Apple
South, Inc., Wachovia Bank, National Association, as agent for the banks, and
the banks listed as parties thereto. (12)
10.20 First amendment, dated as of June 1, 1998, to $100 million Credit
Agreement, dated April 1, 1998, among Apple South, Inc., Wachovia Bank, National
Association, as agent for the banks, and the banks listed as parties thereto.
10.21 Second amendment, dated as of October 15, 1998, to $100 million
Credit Agreement, dated April 1, 1998, among Apple South, Inc., Wachovia Bank,
National Association, as agent for the banks, and the banks listed as parties
thereto.
10.22 Third amendment, dated as of January 22, 1999, to $100 million Credit
Agreement, dated April 1, 1998, among Apple South, Inc., Wachovia Bank, National
Association, as agent for the banks, and the banks listed as parties thereto.
10.23 $30 million Credit Agreement, dated May 8, 1998, among Apple South,
Inc. as borrower and First Union National Bank as lender.
10.24 First amendment, dated as of June 28, 1998, to $30 million Credit
Agreement, dated May 8, 1998, among Apple South, Inc. as borrower and First
Union National Bank as lender.
10.25 Second amendment, dated as of November 17, 1998, to $30 million
Credit Agreement, dated May 8, 1998, among Apple South, Inc. as borrower and
First Union National Bank as lender.
10.26 Third amendment, dated as of February 26, 1999, to $30 million Credit
Agreement, dated May 8, 1998, among Apple South, Inc. as borrower and First
Union National Bank as lender.
10.27 $30 million Supplemental Credit Facility Agreement, dated December
24, 1998, among Avado Brands, Inc. and Wachovia Capital Investments, Inc.
10.28 Addendum 1, dated as of February 26, 1999, to $30 million
Supplemental Credit Facility Agreement, dated December 24, 1998, among Avado
Brands, Inc. and Wachovia Capital Investments, Inc.
10.29 Addendum 2, dated as of March 8, 1999, to $30 million Supplemental
Credit Facility Agreement, dated December 24, 1998, among Avado Brands, Inc. and
Wachovia Capital Investments, Inc.
15
<PAGE>
13.1 Excerpts from Annual Report to Shareholders for the fiscal year ended
January 3, 1999.
22.1 Subsidiaries of the Registrant.
23.1 Consent of KPMG LLP.
27.1 Financial Data Schedule (EDGAR version only).
99.1 Safe harbor under the Private Securities Litigation Reform Act of
1995. (8)
---------------------------------------------------------------------------
(1) Incorporated by reference to the corresponding exhibit number filed
with the registrant's Registration Statement on Form S-1, File No. 33-42662.
(2) Incorporated by reference to the registrant's Annual Report on Form
10-K for its fiscal year ended December 31, 1993.
(3) Incorporated by reference to the registrant's Current Report on Form
8-K dated October 13, 1998.
(4) Incorporated by reference to the registrant's Quarterly Report on Form
10-Q for its fiscal quarter ended October 1, 1995.
(5) Incorporated by reference to the registrant's registration statement on
Form S-3, File No. 333-02958.
(6) Incorporated by reference to the registrant's Annual Report on Form
10-K for the fiscal year ended December 31, 1995.
(7) Incorporated by reference to the registrant's Quarterly Report on Form
10-Q for its fiscal quarter ended March 30, 1997.
(8) Incorporated by reference to the registrant's Quarterly Report on Form
10-Q for its fiscal quarter ended June 29, 1997.
(9) Incorporated by reference to the registrant's Report on Form 8-K dated
January 15, 1998.
(10) Incorporated by reference to the registrants's registration statement
on Form S-3, File No. 333-25205.
(11) Incorporated by reference to the registrant's Annual Report on form
10-K for the fiscal year ended December 28, 1997.
(12) Incorporated by reference to the registrant's Quarterly Report on Form
10-Q for its fiscal quarter ended March 29, 1998.
(13) Incorporated by reference to the registrant's Quarterly Report on Form
10-Q for its fiscal quarter ended June 28, 1998.
(14) Incorporated by reference to the registrant's Quarterly Report on Form
10-Q for its fiscal quarter ended September 27, 1998.
(15) Incorporated by reference to the registrant's Report on Form 8-K dated
September 14, 1998.
(b) Reports on Form 8-K
Form 8-K dated October 13, 1998, reporting the Company's name change.
16
<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.
AVADO BRANDS, INC.
By: /s/ Tom E. DuPree, Jr.
---------------------------
Tom E. DuPree, Jr.
Chief Executive Officer and
Chairman of the Board
March 16, 1999
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 16, 1999
- ------------------------ Directors and Chief Executive
Tom E. DuPree, Jr. Officer (principal executive officer)
/s/ Erich J. Booth Director and Chief Financial March 16, 1999
- ------------------------ Officer (principal financial officer)
Erich J. Booth
/s/ John G. McLeod, Jr. Senior Vice President - Human March 16, 1999
- ------------------------ Resources, and Secretary
John G. McLeod, Jr.
/s/ Margaret E. Waldrep Chief Administrative Officer March 16, 1999
- ------------------------
Margaret E. Waldrep
/s/ Louis J. Profumo Chief Accounting Officer March 16, 1999
- ------------------------ (principal accounting officer)
Louis J. Profumo
/s/ Thomas R. Williams Director March 16, 1999
- ------------------------
Thomas R. Williams
/s/ James W. Rowe Director March 16, 1999
- ------------------------
James W. Rowe
/s/ Dr. Ruth G. Shaw Director March 16, 1999
- ------------------------
Dr. Ruth G. Shaw
/s/ John L. Moorhead Director March 16, 1999
- ------------------------
John L. Moorhead
17
<PAGE>
Exhibit Index
Exhibit Number
2.1 Agreement and Plan of Merger, dated August 15, 1995, by and among the
Company, SALSA Acquisition Corp., and DF&R Restaurants, Inc. (4)
2.2 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. (7)
2.3 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. (7)
2.4 Agreement and Plan of Merger among Apple South, Inc., Coyote
Acquisition Corp., and Canyon Cafes, Inc., et. al., dated June 19, 1997. (8)
2.5 Asset Purchase Agreement dated December 23, 1997 by and among
Applebee's International, Inc. and Apple South, Inc. (9)
2.6 Asset Purchase Agreement dated March 16, 1998 by and among Quality
Restaurant Concepts, L.L.C., and Apple South, Inc. (11)
2.7 Asset purchase agreement dated April 23, 1998, by an among Apple South,
Inc. and Whit-Mart, Inc. (13)
2.8 Asset purchase agreement dated May 1, 1998, by and among Apple South,
Inc. and T.S.S.O., Inc., and Lois Sedowicz. (13)
2.9 Asset purchase agreement dated May 4, 1998, by and among Apple South,
Inc. and Florida Apple North, LLC.,Florida Apple South, LLC., Florida Apple
West, LLC., and Wigel Partnership. (13)
2.10 Asset purchase agreement dated June 19, 1998, by and among Apple
South, Inc. and U.S. Restaurant Properties Operating LP. (13)
2.11 Asset purchase agreement dated June 19, 1998, by and among Apple
South, Inc. and Darrel L. Rolph. (13)
2.12 Asset purchase agreement dated July 31, 1998, by and among Apple
South, Inc. Delta Bluff , LLC. (14)
2.13 Asset purchase agreement dated August 20, 1998, by and among Apple
South, Inc. and WHG Real Estate South, LLC. and Wisconsin Hospitality Group,
LLC. (15)
2.14 Asset purchase agreement dated August 20, 1998, by and among Apple
South, Inc. and WHG Real Estate East, LLC. and Wisconsin Hospitality Group, LLC.
(15)
2.15 Asset purchase agreement dated April 6, 1998, by and among Apple
South, Inc. and Woodland Group, Inc. (15)
2.16 Asset purchase agreement dated May 15, 1998, by and among Apple South,
Inc. and Bloomin' Apple, LLC. (15)
2.17 Asset purchase agreement dated June 26, 1998, by and among Apple
South, Inc. and Apple J, L.P. (15)
2.18 Asset purchase agreement dated September 15, 1998, by and among Apple
South, Inc., and WHG Real Estate North, LLC and Wisconsin Hospitality Group,
LLC.
3.1 Amended and Restated Articles of Incorporation of the Company, as
amended October 13, 1998. (3)
18
<PAGE>
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) (3)
4.2 Indenture dated May 1, 1996, between the Company and SunTrust Bank,
Atlanta, as Trustee. (5)
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.(10)
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. (10)
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. (10)
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. (10)
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. (10)
4.10 Solicitation of Consents to Proposed Amendments to 9.75% Senior Notes
due 2006 of Apple South, Inc. (13)
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) (6)
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 Apple South, Inc. Employee Stock Ownership Plan and Trust. (1) (6)
10.6 Apple South, Inc. Profit Sharing Plan and Trust. (1) (6)
10.7 Amendment No. 2 to the Apple South, Inc. Employee Stock Ownership Plan
and Trust, dated November 22, 1993. (2)
10.8 Apple South, Inc. [Restated] Profit Sharing Plan and Trust dated
October 26, 1993. (2)
10.9 Amended form of Stock Option Agreement under the Apple South, Inc.
1988 Stock Option Plan. (2)
10.10 Apple South, Inc. 1993 Stock Incentive Plan. (2)
19
<PAGE>
10.11 Form of Stock Option Agreement under the Apple South, Inc. 1993 Stock
Incentive Plan. (2)
10.12 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. (11)
10.13 Participation Agreement (Apple South Trust No. 97-1), dated 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. (11)
10.14 First amendment, dated as of March 27, 1998, to Participation
Agreement (Apple South Trust No 97-1), dated 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. (12)
10.15 Second amendment, dated as of August 14, 1998, to Participation
Agreement (Apple South Trust No 97-1), dated 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.
10.16 Third amendment, dated as of November 13, 1998, to Participation
Agreement (Apple South Trust No 97-1), dated 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.
10.17 Fourth amendment, dated as of February 22, 1999, to Participation
Agreement (Apple South Trust No 97-1), dated 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.
10.18 $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. (11)
10.19 $100 million Credit Agreement, dated April 1, 1998, among Apple
South, Inc., Wachovia Bank, National Association, as agent for the banks, and
the banks listed as parties thereto. (12)
10.20 First amendment, dated as of June 1, 1998, to $100 million Credit
Agreement, dated April 1, 1998, among Apple South, Inc., Wachovia Bank, National
Association, as agent for the banks, and the banks listed as parties thereto.
10.21 Second amendment, dated as of October 15, 1998, to $100 million
Credit Agreement, dated April 1, 1998, among Apple South, Inc., Wachovia Bank,
National Association, as agent for the banks, and the banks listed as parties
thereto.
10.22 Third amendment, dated as of January 22, 1999, to $100 million Credit
Agreement, dated April 1, 1998, among Apple South, Inc., Wachovia Bank, National
Association, as agent for the banks, and the banks listed as parties thereto.
10.23 $30 million Credit Agreement, dated May 8, 1998, among Apple South,
Inc. as borrower and First Union National Bank as lender.
10.24 First amendment, dated as of June 28, 1998, to $30 million Credit
Agreement, dated May 8, 1998, among Apple South, Inc. as borrower and First
Union National Bank as lender.
10.25 Second amendment, dated as of November 17, 1998, to $30 million
Credit Agreement, dated May 8, 1998, among Apple South, Inc. as borrower and
First Union National Bank as lender.
20
<PAGE>
10.26 Third amendment, dated as of February 26, 1999, to $30 million Credit
Agreement, dated May 8, 1998, among Apple South, Inc. as borrower and First
Union National Bank as lender.
10.27 $30 million Supplemental Credit Facility Agreement, dated December
24, 1998, among Avado Brands, Inc. and Wachovia Capital Investments, Inc.
10.28 Addendum 1, dated as of February 26, 1999, to $30 million
Supplemental Credit Facility Agreement, dated December 24, 1998, among Avado
Brands, Inc. and Wachovia Capital Investments, Inc.
10.29 Addendum 2, dated as of March 8, 1999, to $30 million Supplemental
Credit Facility Agreement, dated December 24, 1998, among Avado Brands, Inc. and
Wachovia Capital Investments, Inc.
13.1 Excerpts from Annual Report to Shareholders for the fiscal year ended
January 3, 1999.
22.1 Subsidiaries of the Registrant.
23.1 Consent of KPMG LLP.
27.1 Financial Data Schedule (EDGAR version only).
99.1 Safe harbor under the Private Securities Litigation Reform Act of
1995. (8)
---------------------------------------------------------------------------
(1) Incorporated by reference to the corresponding exhibit number filed
with the registrant's Registration Statement on Form S-1, File No. 33-42662.
(2) Incorporated by reference to the registrant's Annual Report on Form
10-K for its fiscal year ended December 31, 1993.
(3) Incorporated by reference to the registrant's Current Report on Form
8-K dated October 13, 1998.
(4) Incorporated by reference to the registrant's Quarterly Report on Form
10-Q for its fiscal quarter ended October 1, 1995.
(5) Incorporated by reference to the registrant's registration statement on
Form S-3, File No. 333-02958.
(6) Incorporated by reference to the registrant's Annual Report on Form
10-K for the fiscal year ended December 31, 1995.
(7) Incorporated by reference to the registrant's Quarterly Report on Form
10-Q for its fiscal quarter ended March 30, 1997.
(8) Incorporated by reference to the registrant's Quarterly Report on Form
10-Q for its fiscal quarter ended June 29, 1997.
(9) Incorporated by reference to the registrant's Report on Form 8-K dated
January 15, 1998.
(10) Incorporated by reference to the registrants's registration statement
on Form S-3, File No. 333-25205.
(11) Incorporated by reference to the registrant's Annual Report on form
10-K for the fiscal year ended December 28, 1997.
(12) Incorporated by reference to the registrant's Quarterly Report on Form
10-Q for its fiscal quarter ended March 29, 1998.
(13) Incorporated by reference to the registrant's Quarterly Report on Form
10-Q for its fiscal quarter ended June 28, 1998.
(14) Incorporated by reference to the registrant's Quarterly Report on Form
10-Q for its fiscal quarter ended September 27, 1998.
(15) Incorporated by reference to the registrant's Report on Form 8-K dated
September 14, 1998.
21
AMENDED AND RESTATED
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT, dated as of September 15, 1998, by and among
APPLE SOUTH, INC., a Georgia corporation ("Seller"), WHG REAL ESTATE NORTH, LLC,
a Wisconsin limited liability company ("Purchaser") and WISCONSIN HOSPITALITY
GROUP, LLC, a Wisconsin limited liability company ("Hospitality").
W I T N E S S E T H :
WHEREAS, Seller and Purchaser are parties to that certain Asset
Purchase Agreement dated as of July 24, 1998 (the "Original Agreement") pursuant
to which Seller agreed to sell to Purchaser certain Applebee's Neighborhood
Grill & Bar ("Applebee's") franchise restaurants and related property, and
Purchaser agreed to purchase such assets, all on the terms and subject to the
conditions set forth in the Original Agreement; and
WHEREAS, Hospitality will provide certain management services to
Purchaser after such sale and purchase, and in connection therewith, Hospitality
desires to make certain agreements with Seller as set forth herein; and
WHEREAS, the parties hereto desire to amend and restate the Original
Agreement in its entirety as 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 Rending 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.
"ADIs" shall mean Arbitron Rating Areas of Dominant Influence.
"ADI Personnel" shall have the meaning set forth in Section 4.4.
"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 the Restaurants
or on the Real Property, including, but not limited to, equipment, appliances,
machinery, tables, chairs, other furniture, bars, tableware, cookware, utensils,
furnishings, signage, leasehold improvements, fixtures, uniforms, supplies, food
and beverage inventory (including beer, liquor, and wine inventory), and
advertising and promotional materials; as set forth in Schedule 1.1(i).
(ii) $1,500 cash in each Restaurant;
(iii) all prepaid items relating exclusively to the Business;
(iv) all assignable Permits;
(v) all assignable rights under egress or implied warranties of
manufacturers, distributors, or retailers relating, to the Assets;
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(vi) all of Seller's supplier lists, demographic, statistical, and other
information related exclusively to the Business,
(vii) the Contracts;
(viii) the Real Property; and
(ix) all records and files related to the Real Property such as purchase
agreements, deeds, construction documents, title reports, environmental and
engineering reports, appraisals, surveys, etc.
"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.
"Assumed Liabilities" shall mean (i) all obligations of Seller that accrue
after the Closing under the terms of the Contracts, (ii) all obligations of
Seller under the Contracts 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, (vii) accrued but unvested vacation of ADI Personnel
assumed pursuant to Section 6.3(c), and (viii) all obligations assumed by
Purchaser with respect to Seller's development sites under Section 4.7 not
otherwise assumed hereunder or covered by an increase in the purchase price
pursuant to Section 2.3. 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; (ii) except as provided in clauses (ii) or (iv) above, liabilities or
obligations of Seller under any of the Contracts or with respect to the Real
Property or other Assets that accrue in any such case prior to the Closing;
(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; (vii) any liability, obligations 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 but unvested vacation assumed pursuant to
Section 6.3(c)); (viii) any liability or obligation of Seller arising out of the
negotiation, execution, or performance of this Agreement, including fees and
expenses of attorneys and accountants, except as otherwise expressly provided
herein, and (ix) any liability or obligation of the Seller which accrues in
connection with the litigation set forth on Schedule 3.10.
"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 Real Property) will be transferred and assigned to Purchaser at the
Closing and pursuant to which Purchaser will assume the Assumed Liabilities.
"Business" shall mean the business of owning and operating the Restaurants
and developing and opening new Applebee's Neighborhood Grill & Bar 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.
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"Closing Date" shall mean the time and date that the Closing occurs.
"Code" shall mean the United States Internal Revenue Code of 1986, as
emended, 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, 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 without
resulting in any default 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 or limited warranty deeds to
convey good and marketable fee simple title to the Real Property, with the
warranty of title contained therein limited to the claims of Persons claiming
by, through or under Seller, but not otherwise
"Development Costs" shall mean all of Seller's out-of-pocket costs paid in
connection with the development and acquisition of the new restaurant sites in
the Territory set forth in Schedule 4.7 capitalized in accordance with generally
accepted accounting principles and Seller's historical practices including, but
not limited to legal fees, engineering fees, surveys, transfer taxes, title
policies, and the like; environmental investigation costs, the cost of permits,
approvals, variances, or rezoning; construction period insurance, and (ii)
Seller's internal costs capitalized in connection with such development efforts
in accordance with Seller's historic practices.
"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.
"DR Holdings Tracts" shall mean the two parcels of real property located at
2221 Stewart Avenue, Wausau, Wisconsin (Restaurant No. 1166) and 4745 Golf Road,
Eau Claire, Wisconsin ( Restaurant No. 1160) which are subject to leases, but
which Seller shall cause to be conveyed to Purchaser in fee simple at the
Closing.
"Effective Time" shall have the meaning set forth in Section 2.5 hereof.
"Employee Records" shall mean copies of Seller's employee records of those
current employees of Seller who are employed by Hospitality as of the Closing.
"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
emissions, discharges, releases, or threatened releases 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, transport, or handing 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, simulations, certificates of authorization, and other operating
authorizations, entered, promulgated, or approved thereunder.
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"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 my 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.
"Knowledge of Seller" (or words of like effect) when used to qualify a
representation, warranty, or other statement shall mean the actual knowledge of
Seller's directors of operations for the Territory and all management of Seller
senior thereto after due inquiry of the Restaurant managers in the Territory;
provided that Seller shall have no knowledge of any condition or circumstance
which would cause Seller to modify its representations and warranties.
"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 without penalty or liquidated damages,
a list of which are set forth on Schedule 1.1D.
"Minor Contracts" shall mean all Contracts that are not Material Contracts.
"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.
"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 and any other encumbrances of
record as of the effective date of the Title Commitments, (ii) ordinances
(municipal and zoning), (iii) survey matters, and (iv) such easements,
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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, to the extent that such encumbrances could not reasonably be
expected to materially interfere with or impair Purchaser's use of the Real
Property for Applebee's Neighborhood Grill & Bar Restaurants or that 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. Notwithstanding the
foregoing, Permitted Encumbrances shall not include (i) any judgments for money
against Seller relating to the Real Property nor (ii) any judgments for money
relating to the Real Property, which becomes matters of public record or are
known to the Seller prior to the Closing
"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 those tracts, and parcels of land owned by
Seller on which a Restaurant is located (all of which tracts and parcels are
described in Schedule 1.1C) and all buildings, fixtures, signs, parking
facilities, and other improvements located thereon and appurtenances thereto.
For purposes of this Agreement, "Real Property" will include the DR Holdings
Tracts.
"Restaurants" shall mean the 4 Applebee's Neighborhood Grill & Bar
restaurants operated by Seller at the locations set forth on Schedule 1.1A.
"Schedules" shall mean the numbered sections of the Disclosure Memorandum.
"Seller Plans" shall have the meaning set forth on Schedule 3.15.
"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 October 8, 1998.
"Territory" shall mean those ADIs consisting of Lacrosse-Eau Claire,
Wisconsin and Wausau-Rhinelander, Wisconsin, as more particularly set forth on
Schedule 1.1E.
"Title Commitments" shall have the meaning set forth in Section 7.1(a).
"Title Policies" shall mean the Owner'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, at the Closing Seller shall sell, transfer, and assign
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
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any other Person, of any nature whatsoever, whether known or unknown, absolute
or contingent, due or to become due. Seller covenants and agrees to pay and
discharge all liabilities and obligations of the Seller and/or the Business
which are not specifically assumed by the Purchaser hereunder.
2.3 Purchase Price. The purchase price for the Assets (the "Purchase
Price") shall be $7,800,000 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
that pertain 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 after the Closing; (iv) an amount equal to Seller's cost of those
Assets consisting of food, beverage (including beer, wine, and liquor), new
uniforms, paper, and supplies inventory as determined by the parties' joint
inventory at the close of business on the day prior to the Closing Date provided
that the cost of such inventory shall not exceed $15,000 per restaurant; and (v)
if the Purchaser elects to acquire the development sites for new restaurants set
forth in Schedule 4.7 (the "Development Sites"), the amount of Seller's
Development Costs.
(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 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, and (iii) the cost of unused vacation accrued but unvested as of
the Closing Date by ADI Personnel hired by Hospitality the cost of which is
being assumed by Purchaser pursuant to Section 6.3(c).
(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) Notwithstanding the foregoing, the parties agree that with respect to
Property Taxes, such Property Taxes shall be prorated between Seller and
Purchaser in accordance with the amount of Property Taxes due for the same
period in 1997, as set forth in the taxes bills received by Seller from the
relevant governmental authorities. The parties agree to make any adjustments
necessary to ensure that the Property Taxes have been allocated in accordance
with clauses (a)(i) and (b)(i) above as soon as practicable upon receipt of
bills received from the relevant government authorities, for Property Taxes due
with respect to the Assets for 1998.
The foregoing adjustments shall be calculated by the parties and set forth
on Exhibit B which shall be signed by both parties at Closing. The Purchase
Price shall be paid by Purchaser on the Closing Date by wire transfer of
immediately available funds to an account designated by Seller.
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 as though
made on and as of the Closing Date and that Seller shall have performed in all
respects the covenants of the Seller contained in this Agreement required to be
performed on or prior to the Closing;
(ii) A certificate of the Secretary or an Assistant Secretary of Seller,
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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 C hereto;
(iv) The Bill of Sale and Assignment Agreement, duly executed by Seller;
(v) The Consents;
(vi) The Deeds, duly executed by Seller or in the case of the two DR
Holdings Tracts by the owner thereof;
(vii) Transfer returns for Wisconsin real estate transfers;
(viii) A non-foreign Status Affidavit duly executed by Seller;
(ix) An Owner's Affidavit duly executed bar Seller;
(x) A Gap Affidavit duly executed by Seller;
(xi) A Cross-Receipt acknowledging receipt of the Purchase Price duly
executed by Seller; and
(xii) Any other documents that Purchaser may reasonably request at least
three days prior to the Closing in order to effectuate the transactions
contemplated hereby.
(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 Purchase Price;
(iv) The Bill of Sale and Assignment Agreement, duly executed by Purchaser;
(v) The opinion of Godfrey & Kahn, S.C., counsel to Purchaser,
substantially the form of Exhibit D hereto;
(vi) A Cross-Receipt acknowledging receipt of the Assets duly executed by
Purchaser; and
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(vii) Any other documents that Seller may reasonably request at least three
days prior to the Closing.
(c) At the Closing, Seller shall deliver to Hospitality the Employee
Records, subject to execution of a release by each affected employee allowing
for the disclosure of such files.
(d) At the Closing, Hospitality shall deliver to Seller:
(i) A certificate executed by Hospitality, 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; and
(ii) A certificate of the Secretary or an Assistant Secretary of
Hospitality, dated as of the Closing Date, certifying in such detail as Seller
may request, (a) that attached hereto is a true and complete copy of resolutions
adopted by the Board of Directors of Hospitality authorizing the execution,
delivery and performance of this Agreement, and that all such resolutions are
still in full force and affect 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 Hospitality 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 certificate by
another officer of Hospitality as to the incumbency and signature of the officer
signing such certificate.
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 injures 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 Godfrey & Kahn, S.C., 780
North Water Street, Milwaukee, Wisconsin, at 10:00 a.m. on September 28, 1998,
or on such other date and time as may be mutually agreed upon by the parties
hereto.
2.7 Allocation of Purchase Price. The Purchase Price shall be allocated
among the various Assets as set forth on Exhibit E hereof. The allocation
contained in Exhibit E shall be subject to adjustments mutually agreed upon by
Purchaser and Seller at closing to reflect adjustments to the Purchase Price.
Each party hereby agrees that it will not take a position on any income tax
return, 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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2.9 Post-Closing Adjustments. As soon as possible after the Closing (but
not later than the first anniversary thereof), the parties shall reconcile the
actual amount of perorations that were estimated at Closing as well as the
accrued but unvested vacation time of Seller's employees assumed by Purchaser
hereunder that has actually vested with the estimated amounts thereof. To the
extent that the actual amounts differ from the amounts estimated on Exhibit B
(Adjustment to Purchase Price) or prorations or adjustments other than those
reflected on Exhibit B are discovered after the Closing, the parties agree to
remit the correct amount of such items to the appropriate party within 15 days
after the same are determined. If Purchaser shall elect to acquire any
Development Site after the Closing, then Purchaser shall pay to Seller the
Development Costs therefor within 15 days after such election.
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, 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. Seller has the corporate power
and authority to execute, deliver, and perform this Agreement, the Bill of Sale
and Assignment Agreement, the Deeds, 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, and all
other agreements, documents, certificates, and other papers contemplated to be
delivered by Seller pursuant to this Agreement have been duly authorized by the
Board of Directors of Seller.
3.3 Non-Contravention. Subject to obtaining the consents to assignment of
the Material Contracts set forth on Schedule 3.3, 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, result in a breach of any
agreement or other instrument to which Seller is a party (except for defaults
under Minor Contacts where the consent of the other party or parties to such
contract to the assignment thereof will not be obtained) or violate any law or
any order, rule, or regulation applicable to Seller of any Forum 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 Forum 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
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. When the Bill of Sale, Assignment
Agreement and the Deeds 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 their terms.
3.5 Assets.
(a) Seller has good and valid title to all of the Assets constituting
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personal 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 and with the historic practices of the Seller.
(c) There are no assets or property of any nature which are not being
transferred to Purchaser hereunder that have been customarily used exclusively
in the operation or ownership of ache Restaurants other than Permits and
software licenses that are not assignable.
(d) Each Asset constituting tangible personal property is in good operating
condition consistent with its age, subject to normal wear and tear and has been
maintained in accordance with standard practices.
(e) The inventory on hand: (i) is sufficient for the operation of the
Business in the ordinary course based on current levels of Operation; (ii) has
been purchased in the ordinary course of business consistent in quality and
quantity with past practices of the Business, and (iii) is substantially useable
and salable.
3.6 Contracts.
(a) Each Material Contract is a valid and subsisting agreement, without any
default of Seller thereunder, and to the knowledge of Seller, without any
default on the part of my 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. A true and
correct list of each Material Contract and every amendment thereto or other
agreement or document relating thereto is set forth as Schedule 3.6 to this
Agreement. True and correct copies of the Material Contracts (and any amendments
thereto) have been provided to Purchaser. At the time of Closing, Seller shall
have made all payments and performed all obligations due through the Closing
Date under each Contract, except to the extent that any payment due is set forth
on Exhibit B and deducted in calculating the Purchase Price pursuant to Section
2.3.
(b) No Contract has been assigned by Seller or any interest granted therein
by Seller to any third party, or is subject to any mortgage, pledge,
hypothecation, security interest, lien, or other encumbrance or claim.
(c) The Contracts have been entered into in the ordinary course of Seller's
business and, to Seller's knowledge, contain commercially reasonable terms.
3.7 Real Property.
(a) Schedule 3.7(a) sets forth with respect to each Restaurant, its
location, 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 the present access from each parcel of Real Property to such utility services
and other facilities.
(c) Seller, or the owner of the DR Holdings Tracts, 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.
(d) Neither Seller nor the holder of the DR Holdings Tracts has received
any notice that any Government having the power of eminent domain over any
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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 with all laws and
regulations (including zoning laws and ordinances) of all Governments having
jurisdiction over the Real Property and all recorded covenants or restrictions,
and Seller has received no notice from any Government alleging that the Real
Property or any improvements erected or situated thereon, or the uses conducted
thereon or therein, violate any regulations of any Government having
jurisdiction over the Real Property.
(f) To the knowledge of Seller, 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. No notice from any Government has been served upon the Real Property or
received by Seller, 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.
(g) Seller holds all Environmental Permits necessary for conducting the
Business and has conducted, and is presently conducting, the Business in
compliance with all applicable Environmental Laws and Environmental Permits held
by it, including, without limitation, all record keeping and filing
requirements. 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 Properly 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, nor is Seller subject to any
liability for any such past or ongoing violation caused by Seller. Matters
referenced above of which Seller has knowledge are referenced on Schedule
3.7(g).
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
the three fiscal months prior to the date hereof for which such statements are
available (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 ale 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 and such returns and reports properly
reflect or will properly reflect the tax liability of the Seller. 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 and withholding amounts, 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 or levied. There are no
audits, suits, actions claims, investigation, 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, fees, fees, or duties been
received by or assessed against Seller that in any such case affect the Assets.
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The Seller has not requested any extension of time within which to file returns
in respect of any taxes. No tax deficiencies have been proposed or assessed
against Seller. For purposes hereof, "tax" or "taxes' means all federal, state,
county, local, foreign and other taxes or assessments including, without
limitation, income, estimated income, business, occupation, franchise, property
(real and personal), sales employment, gross receipts, use, transfer, ad
valorem, profits, license, capital, payroll, employee withholding, unemployment,
excise, goods and services, severance, stamp and including interest, penalties
and additions in connection therewith for which the Seller is or may be liable.
3.10 Litigation. Except as set forth on Schedule 3.10, there is no Action
or Order pending or, to the knowledge of Seller, threatened against or affecting
Seller that pertains to the Restaurants or Business, or any of the Assets before
any court or by or before any Forum. The Seller is not subject to any order,
writ, judgment, injunction or decree of any governmental authority or
instrumentality or any court which would limit or restrict the Seller's right to
enter into and carry out this Agreement or the documents or agreements to be
entered into in connection herewith or to consummate the transactions
contemplated hereby or which would otherwise adversely affect the Business or
the Assets.
3.11 Permits. Seller has all Permits as are necessary to operate the
Restaurants and such Permits as set forth on Schedule 3.11 are and will be as of
the Closing current and effective. Seller has fulfilled and performed all of its
obligations with respect to such Permits, and to the knowledge of the 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.
3.12 Compliance with Health and Safety Laws. 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 including, but not
limited 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 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 concede, 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, provision
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
pertain to any of the ADI Personnel:
(i) "employee welfare benefit plans" and "employee pension benefit plans,"
as defined in Section 3(1) and 3(2), respectively, of the Employee Retirement
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Income Security Act of 1914, 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, formal or informal which Seller 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").
(b) Seller does not presently contribute and has never contributed or been
obligated to contribute to a multiemployer plan as defined in section 3(37)(A)
of ERISA.
(c) No Seller Plan is subject to Title IV of ERISA.
3.16 Accuracy of Schedules, Certificates and Documents. All information
concerning Seller contained in this Agreement or in any certificate furnished to
Purchaser pursuant to this Agreement or in the Disclosure Memorandum is or will
be when furnished both complete and accurate in all material respects, and 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.
3.17 Conduct of Business. Since the end of fiscal year 1997, Seller has
conducted the operations of the Business in the ordinary course of business and
substantially in accordance with past practice, and has not taken any action
that, if taken after the date hereof, would violate Section 4.5.
3.18 Insurance. The Seller maintains policies of fire and casualty,
liability and other forms of insurances and bonds in such amounts, with such
deductibles, and against such risks and losses as are reasonable for the
Business and the Assets. Each such insurance policy and bond is in full force
and effect and Seller has not received notice and is not otherwise aware of any
cancellation or threat of cancellation of such insurance or bond.
3.19 Undisclosed Commitments or Liabilities. There are no commitments or
liabilities or obligations relating to the Business, whether accrued, absolute,
contingent or otherwise including, but not limited to, guarantees by Seller of
the liabilities of third parties for which specific and adequate provisions have
not been made on the Financial Statements, except those incurred in or as a
result of the ordinary course of business since the end of fiscal year 1997
(none of which ordinary course obligations have had or will have a material
adverse effect on the Assets or the Business).
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
Material Contracts, where the failure to do so would have a material adverse
affect on the operations of a Restaurant.
4.2 Transfer of Licenses and Permits. Seller shall use commercially
reasonable efforts to cooperate in assisting Purchaser with the assumption,
transfer, or reissuance of any and all Permits required for the operation of the
Restaurants, including without limitation making available ADI Personnel
required therefor.
4.3 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.
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4.4 Agreements Respecting Employees of Seller.
(a) Prior to the Effective Time without the prior written approval of
Purchaser and Hospitality, 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 or Hospitality 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 or Hospitality.
(b) Seller shall be solely responsible for any severance amounts due or
granted by Seller to any ADI Personnel.
(c) Seller, Purchaser and Hospitality shall cooperate in the transition of
coverage of ADI Personnel from Seller's health, medical, life insurance and
other welfare plans to plans maintained by Hospitality.
4.5 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 commercially reasonable 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 their 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) maintain the Assets consistent with past practices and in good
operating condition consistent with their age;
(ii) 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,
(iii) 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:
(i) change in any material manner the ownership of the Assets; or directly
or indirectly, solicit or entertain any offer from or negotiate with or in any
manner engage, discuss, accept or consider any proposal from any other person
relating to the acquisition 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 which will be paid within
six weeks after the end of the month in which the Closing occurs;
(iii) mortgage, pledge, or subject to lien (except in connection with
development efforts pursuant to Section 4.7 in the ordinary course of business)
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;
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(vi) other than in the ordinary course of business, cancel or terminate or
consent to or accept any cancellation or termination of any Material Contract,
amend or otherwise modify any of its material terms or waive any breach of any
of its material terms or provisions or take any over action in correction with
any Material Contract that would materially impair the interests or rights of
Seller to be transferred to Purchaser hereunder.
(vii) Cancel or terminate or permit to be canceled or terminated its
current insurance (or reinsurance) policies or permit any of the coverage
thereunder to lapse, unless simultaneously with such termination, cancellation
or lapse, replacement policies providing coverage equal to or greater than the
coverage under the canceled, terminated, or lapsed policies are in full force
and effect.
4.6 Access to Information. Seller shall afford Purchaser and Hospitality,
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 and Hospitality
such additional financial and operating data and other information as Seller may
possess and as Purchaser or Hospitality may reasonably request, subject to
Purchaser's and Hospitality'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 or Hospitality with Seller and
will be scheduled in a manner and with a frequency calculated to cause the
minimum disruption of the business of Seller.
4.7 Development Efforts. Seller shall use commercially reasonable efforts
to maintain the current results of its development activities for the
Development Sites set forth on Schedule 4.7 for the benefit of Purchaser until
Purchaser's election pursuant to Section 6.5 hereto.
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 with 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 15 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, operations, business, prospects or condition (financial or otherwise) of
the Restaurants 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.
(e) Promptly after discovery, information in respect of any representation
or warranty made by Seller in this Agreement which was when made, or has
subsequently become, untrue. 4.9 Cooperation. Insofar as such conditions are
within its reasonable control or influence, Seller will use commercially
reasonable 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 respect to any Minor Contract even if the
failure to so obtain a consent to assignment may result in a default or
termination thereunder.
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4.10 Subsequent Contracts. From the date of this Agreement to the Closing
Date, Seller shall use commercially reasonable 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
provide 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 and/or
Hospitality restaurant accounting, POS system support, and other services
related to the Restaurants as mutually agreed upon between Seller and Purchaser
(the "Services"). Purchaser shall give Seller 45 days advance written notice of
the Services requested. The Services shall be provided promptly as requested and
shall be provided in the same manner and with the same or similar personnel as
Seller previously utilized.
(b) Purchaser or Hospitality will pay for the Services which they
respectively receive on a monthly basis, after receipt of an invoice from
Seller, at Seller's direct personnel cost incurred in connection with providing
the requested Service, plus an amount of reasonable overhead agreed to in
advance not to exceed 85% of the base salaries of the personnel providing the
Services. Seller's invoice shall detail the personnel used, the amount of time
spent, and its calculation of the cost thereof. Direct personnel cost shall
include only base salary and benefits normally paid to Seller employees in such
capacities.
(c) Seller is not required to maintain the employment of any specific
personnel in connection with providing the Services, provided, however, that if
requested by Purchaser or Hospitality, Seller shall offer to specifically
designated personnel a bonus incentive to retrain for the three month period.
The amount of such bonus shall be at the discretion of Purchaser. Such bonus, if
accepted by the employee, shall be paid by Purchaser at the end of the
three-month period, or for such shorter period as Purchaser may determine.
4.12 Delivery of Real Estate Documents. (a) Seller has previously provided
to Purchaser legal descriptions of the Real Property and copies of all surveys,
title policies, and environmental reports pertaining to the Real Property in
Seller's possession. (b) Seller has previously provided to Purchaser current
surveys and title insurance commitments with respect to the Real Property
("Title Commitments") pursuant to which the Title Company will agree to issue at
Closing owner's policies of title insurance ("Title Policies") on American Land
Title Association standard Form B-1990, without exceptions except as shown in
the Title Commitments, to be issued by Chicago Title Insurance Company ("Title
Company") in an amount in the case of each parcel equal to the purchase price
allocated to such parcel of the Real Property pursuant to Section 2.7. The 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 Real Property, subject only to the
Permitted Encumbrances or arising out of acts of the insured.
4.13 Risk of Loss. Seller shall give Purchaser notice of the occurrence of
damage or destruction of or the commencement of condemnation proceedings
affecting the Real Property. If any portion of the Real Property is condemned or
is damaged or destroyed by fire or other casualty prior to the Closing,
Purchaser shall have the option to (i) eliminate that tract from the Agreement
and receive a deduction in the purchase price based on that portion of the
purchase price allocated to such tract, or (ii) proceed to Closing and receive
the insurance or condemnation proceeds associated therewith. Purchaser's
election shall be made within 20 days following receipt of Seller's notice.
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ARTICLE V - REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser and Hospitality hereby represents and warrants to Sellers as
follows:
5.1 Organization, Corporate Power, Authorization. Each of Purchaser and
Hospitality is a limited liability company duly organized, validly existing and
in good standing under the laws of the State of Wisconsin and in each other
jurisdiction in which it is lawfully required to qualify to conduct business.
Each of Purchaser and Hospitality has the corporate power and authority to
execute and deliver this Agreement and the Bill of Sale and Assignment
Agreement, and to consummate the transactions contemplated hereby. All corporate
action on the part of Purchaser and Hospitality necessary for the authorization,
execution, and delivery of this Agreement and the Bill of Sale and Assignment
Agreement, and performance of their respective obligations thereunder have been
duly taken.
5.2 Non-Contravention. The execution and delivery of this Agreement and the
Bill of Sale and Assignment Agreement by Purchaser and Hospitality do not and
the consummation by Purchaser and Hospitality of the transactions contemplated
hereby and thereby will not violate any provision of their respective articles
of organization or operating agreement.
5.3 Validity. This Agreement has been duly executed and delivered by
Purchaser and Hospitality, and constitutes the legal, valid, and binding
obligation of Purchaser and Hospitality, enforceable against Purchaser and
Hospitality 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 has been executed and
delivered in accordance with this Agreement, it will constitute the legal,
valid, and binding obligation of Purchaser, 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.
5.4 Litigation Relating to the Agreement. Neither Purchaser nor Hospitality
is 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 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.
6.2 Confidentiality. In connection with the negotiation of this Agreement,
Seller may disclose Confidential Information, as defined below, to Purchaser
and/or Hospitality. Purchaser and Hospitality agrees that if the transactions
contemplated herein are not consummated, each of Purchaser and Hospitality will
return to Seller all documents and other written information furnished to it.
Purchaser and Hospitality further agree to maintain the confidentiality of any
and all Confidential Information of Seller and not disclose any Confidential
Information to any Person other than such Person to whom Confidential
Information must be disclosed to effect the transactions and who are bound by
appropriate non-disclosure agreement or obligations. Purchaser and Hospitality
shall not use such Confidential Information for financial gain or in any manner
adverse to Seller. The foregoing obligations shall not apply to (i) any
information which was known by Purchaser or Hospitality prior to its disclosure
by Seller; (ii) any information which was in the public domain prior to the
disclosure thereof; (iii) any information which comes into the public domain
through no fault of Purchaser or Hospitality; (iv) any information which is
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disclosed to Purchaser or Hospitality 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 or Hospitality and (b) derives economic value, actual or potential,
from 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. Purchaser and Hospitality agree
to execute a confidentiality agreement with respect to all information received
in connection with due diligence.
6.3 Seller Employees.
(a) Hospitality shall offer employment to all ADI Personnel upon terms and
conditions substantially equivalent to those provided by Seller; however,
Hospitality shall not be required to provide stock options or any stock purchase
rights. For a period of twelve months following the Closing, neither Purchaser
nor Hospitality shall hire any person who was an employee of Seller or any
subsidiary of Seller within the previous three months (other than ADI
Personnel), and for a period of eighteen months following the Closing, neither
Purchaser nor Hospitality shall solicit for employment any person who is an
employee of Seller or any subsidiary of Seller.
(b) Hospitality shall maintain employee records transferred to Hospitality
hereunder for a period of not less than four years and during that period will
afford Seller reasonable access to such records during Hospitality's normal
business hours. Hospitality shall maintain the confidentiality of such records
and limit access thereto in a manner consistent with Hospitality's treatment of
its employee records.
(c) Hospitality agrees, with respect to ADI Personnel hired by Hospitality,
to provide compensation and benefits to such ADI Personnel substantially
equivalent to current levels, excluding stock options and the stock purchase
program, and agrees (i) to give such employees credit under Hospitality's
benefits plans, programs, and arrangements, include credit for accrued but
unvested vacation which has been charged to Seller under Section 2.3, for such
employees' period of service with Seller, provided that such credit shall only
be taken into account under any tax-qualified plan maintained by Hospitality 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 Hospitality'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, each of Purchaser and Hospitality shall use commercially
reasonable 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, (i) Purchaser
will use commercially reasonable efforts to obtain a commitment letter for
financing the transactions contemplated hereby (the "Financing Commitment") upon
terms and conditions substantially similar to the financing provided to WHG Real
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Estate South, LLC ("South") and WHG Real Estate East, LLC ("East"), Purchaser's
affiliates, in connection with the consummation of the transactions contemplated
under those respective certain Asset Purchase Agreements dated as of May 11,
1998, as amended, by and among Seller, Hospitality and South or East, as
applicable (the "Affiliate Agreements"), (ii) Purchaser and Hospitality will
promptly provide Franchisor with all information required by Franchisor to
determine whether Hospitality will be approved as a developer with respect to
the Territory and whether Purchaser will be approved as a franchisee with
respect to the Territory, (iii) Purchaser and Hospitality will actively pursue
an agreement with Franchisor as to the principal terms of franchise and
development agreements with respect to the Territory, and (iv) Purchaser will
file all documents required to obtain approval of the transactions contemplated
hereby under the HSR Act within 15 days of the date hereof.
6.5 Development Sites. Purchaser shall notify Seller no later than
September 7, 1998 of its election (if any) to acquire any of the results of
Seller's development activities for the development Sites set forth on Schedule
4.7, and Purchaser's failure to provide such notice to Seller by such date shall
constitute a waiver by Seller of any rights to acquire any Development Sites.
ARTICLE VII - CONDITIONS PRECEDENT TO THE CLOSING
7.1 Title Examination and Property Inspection.
(a) Purchaser shall have until August 31, 1998 (the "The Inspection
Period") to review the Title Commitments. Purchaser shall have until the end of
the Title Inspection Period in which to furnish Seller a written statement of
reasonable objections to exceptions, including any encumbrances or Surveys,
which, in Purchaser reasonable judgment, would materially interfere with or
impair Purchaser's use of the Real Property for the operation of Applebee's
restaurants or which would result in a material decrease in the value of the
Real Property ("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 objections and elect to close,
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 shall be deemed
waived by Purchaser and shall be a Permitted Encumbrance.
(b) Property Inspection.
(A) 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 and its compliance with laws;
provided, however, that (i) 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 material manner
whatsoever; (ii) in the event the Real Property is altered or disturbed in any
manner in connection with any Purchaser's Activities, Purchaser shall
immediately return the Real Property to the condition existing prior to
Purchaser's Activities; (iii) 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 (iv)
Purchaser shall indemnify, defend, and hold Seller harmless from and against any
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and all clams, liabilities, damages, losses, costs, and expenses of any kind or
nature whatsoever (including, without limitation, attorneys' fees, and expenses
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 tests 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.
(B) Purchaser shall have until August 31, 1998 (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 and the Assets located thereon are suitable and satisfactory,
to Purchaser and can be used for Applebee's franchise restaurants. In the event
Purchaser shall determine that the Real Property and the Assets located thereon
are not reasonably 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).
(C) Prior to any entry by Purchaser or any of Purchaser's Designees onto
the Real Property, Purchaser shall (i) 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 the $1,000,000.00; and (ii) deliver to
Seller a Certificate of Insurance, evidencing that such insurance is in force
and effect, and evidencing that Seller 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 (i) the termination of this Agreement and the conclusion of all
Purchaser's Activities, or (ii) Closing.
(D) 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 and Hospitality's Conditions to Closing. The obligations of
Purchaser and Hospitality 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 or Hospitality, be waived:
(a) Subject to the matters disclosed in the Disclosure Memorandum as
supplemented by Seller from time to time, 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.
(d) Seller shall have obtained and delivered to Purchaser all Consents
necessary to transfer and assign the Assets (except for Minor Contracts) to
Purchaser.
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(e) Purchaser and Franchisor shall have entered into a franchise agreement
with respect to each Restaurant in the Territory. Hospitality and Franchisor
shall have entered into development agreements with respect to each ADI in the
Territory.
(f) Purchaser and Hospitality shall have obtained, either from Seller or
directly from the issuing authority, all permits, licenses, including liquor
licenses and beer permits, 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 with form and substance reasonably acceptable to Purchaser and
Seller.
(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 financing upon terms and conditions
substantially similar to the financing provided to South and East, Purchaser's
affiliates, in connection with the consummation of the transactions contemplated
under the Affiliate Agreements, or other financing reasonably acceptable to
Purchaser.
(i) Purchaser shall have been issued the Title Policies.
(j) Seller shall have delivered the items required by Section 2.4(a).
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 and Hospitality shall have
delivered to Seller a certificate to such effect dated as of the Closing Date.
(b) Purchaser and Hospitality shall have performed and complied in all
material respects with Purchaser and Hospitality's obligations under this
Agreement which are to be performed or complied with by Purchaser or Hospitality
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.
(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 VII - INDEMNIFICATION
8.1 Purchaser Claims.
(a) Seller shall indemnify and hold harmless Purchaser and Hospitality, and
their respective successors and assigns, against, and in respect of:
(i) Any and all damages, losses, liabilities, costs, and expenses incurred
or suffered by Purchaser and Hospitality that result from, relate to, or arise
out of:
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(A) any and all liabilities and obligations of Seller of any nature
whatsoever except for the Assumed Liabilities;
(B) any failure by Seller to carry out any covenant or agreement contained
in this Agreement;
(C) any misrepresentation or breach of warranty by Seller contained in this
Agreement, the Disclosure Memorandum, or any certificate, furnished to Purchaser
or Hospitality by Seller pursuant hereto; or
(D) any claim by any Person for any brokerage or finder's fee or commission
in respect of the transactions contemplated hereby as a result of Seller's
dealings, agreement, or arrangement with such person.
(ii) Any and all actions, suits, claims, proceedings, investigations,
demands, assessments, audits, fines, judgments, costs, and other expenses
(including, without limitation, reasonable legal fees and expenses) incident to
any of the foregoing including all such expenses reasonably incurred in
mitigating any damages resulting to Purchaser or Hospitality from any matter set
forth in subsection (i) above.
(b) Notwithstanding the foregoing, Seller shall have no liability for
indemnification or otherwise with respect to Section 8.1(a)(i)(C) (and Section
8.1(a)(ii) to the extent the items covered thereby relate back to Section
8.1(a)(i)(C)) until the aggregate liability of Seller thereunder exceeds $78,000
and then only to the extent that the aggregate liability of Seller thereunder
exceeds such amount; provided, however, that liabilities arising with respect to
Sections 3.1 through 3.4 and Sections 3.5(a), 3.5(d), 3.7(g), and 3.9 hereof
shall not be subject to the foregoing threshold and any liabilities arising with
respect to such matters shall not be taken into account in computing aggregate
liabilities for the purpose of apply such threshold amount to liabilities
arising under other Sections subject thereto, provided, however, that Seller
shall have no liability for indemnification or otherwise with respect to Section
8.1(a)(i)(C) to the extent it relates to Section 3.5(d) (and Section 8.1(a)(ii)
to the extent the items covered thereby relate back to Section 8.l(a)(i)(C)'s
applicability to Section 3.5(d)) until the aggregate liability of Seller
thereunder relating to a particular Restaurant exceeds $5,000 for such
Restaurant and then only to the extent that the aggregate liability of Seller
thereunder exceeds such amount. In no event shall the aggregate liability of
Seller under Section 8.1(a)(i)(C) (and Section 8.1(a)(ii) to the extent the
items covered thereby relate back to Section 8.1(a)(i)(C)) exceed $1,560,000,
provided, however, that liabilities arising with respect to Sections 3.1 through
3.4 and Sections 3.5(a), 3.5(d), and 3.9 hereof shall not be subject to the
foregoing cap and any liabilities arising with respect to such matters shall not
be taken into account in computing aggregate liabilities for the purpose of
applying such cap to liabilities arising under other sections subject thereto.
(c) The amount of any liability of Seller under this Section 8.1 shall be
computed net of any tax benefit to Purchaser and Hospitality from the matter
giving rise to the claim for indemnification hereunder and net of any insurance
proceeds received by Purchaser or Hospitality with respect to the matter out of
which such liability arose.
(d) The representations and warranties of Seller contained in this
Agreement, the Disclosure Memorandum, or any certificate delivered by or on
behalf of Seller pursuant to this Agreement or in connection with the
transactions contemplated herein shall survive the consummation of the
transactions contemplated herein and shall continue in full force and effect for
the periods specified below ("Survival Period"):
(i) the representations and warranties contained in Section 3.5(d) shall be
of no further force and effect after 60 days from the date of the Closing;
(ii) the representations and warranties contained in Sections 3.1 through
3.4 and Sections 3.5(a), 3.7(g) and 3.9 shall survive until the expiration of
any applicable statues of limitation provided by law; and
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(iii) all other representations and vales of Seller shall be of no further
force and effect after 18 months from the date of the Closing.
Anything to the contrary notwithstanding, the Survival Period shall be
extended automatically to include any time period necessary to resolve a written
claim for indemnification which was made in reasonable detail before expiration
of the Survival Period but not resolved prior to its expiration, and any such
extension shall apply only as to the claims so asserted and not so resolved
within the Survival Period. Liability for any such item shall continue until
such claim shall have been finally settled, decided, or adjudicated.
(e) Except for claims under Sections 4.1, 4.3, 4.4, 4.5, 4.11, and 4.13
which shall survive the Closing, Purchaser and Hospitality may not assert any
claim against Seller for breach of any covenant contained in Article IV and all
such claims shall be deemed to be waived as a result of the Closing.
(f) Purchaser and Hospitality shall provide written notice to Seller of any
claim for indemnification under this Article as soon as practicable; provided,
however, that failure to provide such notice on a timely basis shall not bar
Purchaser's or Hospitality's ability to assert any such claim except to the
extent that Seller is actually prejudiced thereby. Purchaser and Hospitality
shall more commercially reasonable efforts to mitigate any damages, expenses,
etc. resulting from any matter giving rise to liability of Seller under this
Article.
(g) Notwithstanding any other provision of this Article VIII, the aggregate
principal amount of the obligation of Seller under this Article VIII shall not
exceed the gross proceeds actually received by the Seller in connection with
this Agreement and the transaction contemplated hereby.
8.2 Defense of Third Party Claims. With respect to any claim by Purchaser
or Hospitality under Section 8.1, relating to a third party claim or demand,
Purchaser or Hospitality shall provide Seller with prompt written notice thereof
in accordance with Section 10.4 and Seller may defend, in good faith and at its
expense by legal counsel chosen by it and reasonably acceptable to Purchaser and
Hospitality any such claim or demand, and Purchaser and Hospitality, at their
expense, shall have the right to participate in the defense of any such third
party claim. So long as Seller is defending in good faith any such third party
claim, Purchaser and Hospitality shall not settle or compromise such third party
claim. In any event, Purchaser and Hospitality shall cooperate in the settlement
or compromise of or defense against, any such asserted claim. Notwithstanding
the foregoing, Seller shall obtain the consent of Purchaser and Hospitality,
which consent shall not be unreasonably withheld, prior to setting any such
third party claim. In the event the Seller shall notify the Purchaser and
Hospitality that it disputes any claim made by the Purchaser or Hospitality
and/or it shall fail to defend such claim actively and in good faith, then the
Purchaser and Hospitality shall have the right to conduct a defense against such
claim and shall have the right to settle and compromise such claim without the
consent of the Seller. Once the amount of such claim is liquidated and the claim
is finally determined, the Purchaser and Hospitality shall be entitled to pursue
each and every remedy available to it at law or in equity (through the procedure
specified in Section 8.5) to enforce the indemnification provisions of this
Article VIII and, in the event it is determined, or the Seller agrees, that it
is obligated to indemnify the Purchaser and Hospitality for such claim, the
Seller agrees to pay all costs, expenses and fees, including all reasonable
attorneys' fees, which may be incurred by Purchaser or Hospitality in attempting
to enforce indemnification under this Article VIII.
8.3 Seller Claims. Purchaser and Hospitality shall indemnify and hold
harmless Seller against, and in respect of, any and all damages, claims, losses,
liabilities, and expenses, including without limitation, legal, accounting and
other expenses, which may arise out of: (i) any breach or violation by Purchaser
or Hospitality of any covenant set forth herein or any failure to fulfill any
obligation set forth herein, including, but not limited to, the obligation to
satisfy the Assumed Liabilities, (ii) any breach of any of the representations
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or warranties made in this Agreement by Purchaser or Hospitality; or (iii) any
claim by any Person for any brokerage or finder's fee or commission in respect
of the transactions contemplated hereby as a result of Purchaser's or
Hospitality's dealings, agreement, or arrangement with such Person.
8.4 Exclusive Remedies. The rights and remedies of the parties under this
Article VIII shall be the sole and exclusive rights and remedies that either
party may seek for any misrepresentation, breach of warranty, or failure to
fulfill any covenant or agreement under this Agreement, except that either party
may seek specific performance or injunctive relief.
8.5 Settlement of Disputes.
(a) Arbitration. All disputes with respect to any claim for indemnification
under this Article VIII and all other disputes and controversies of every kind
and nature between the parties hereto arising out of or in connection with this
Agreement 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 ("ADA"). 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 Milwaukee, Wisconsin (in the
case of arbitration initiated by Seller) or in Atlanta, Georgia (in the case of
arbitration initiated by Purchaser or Hospitality) or in a location mutually
agreeable to Seller, Purchaser and Hospitality; or if Purchaser, Seller and
Hospitality are unable to agree then 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 Wisconsin (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 8.5 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 8.5 to the
contrary, any 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.
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(a) This Agreement may be terminated as follows:
(i) At any time by the mutual consent of Seller, Purchaser and Hospitality;
(ii) By Purchaser pursuant to Section 7.1;
(iii) By Seller if (i) Purchaser shall not have obtained and provided a
copy of a Financing Commitment to Seller on or before September 18, 1998, (ii)
Purchaser shall not been approved hereof as a franchisee with respect to the
Territory by Franchisor on or before September 18, 1998 or has not reached
agreement with Franchisor as to the material terms of franchise agreements with
respect to the Territory on or before September 18, 1998, (iii) Hospitality
shall not have reached agreement with Franchisor as to a development schedule
and other material terms of franchise and development agreements with respect to
the Territory on or before September 18, 1998;
(iv) By either Seller, Purchaser or Hospitality, at its sole election, at
any time after the Termination Date, if the Closing shall not have occurred on
or prior to such date;
(v) By Purchaser, if Seller makes any amendment or modification of, or
addition or supplement to, the Disclosure Memorandum the subject of which has,
had or could reasonably be expected to have a material adverse effect upon the
financial condition, properties, liabilities, business, results or operations of
the Business.
(b) In the event of the termination of this Agreement pursuant to
subparagraph (a)(iv) above because Seller, Purchaser or Hospitality, as the case
may be, shall have willingly failed to fulfill its obligations hereunder, the
other party shall, subject to Section 8.5, 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 pursuant to this Section 9.1, subject
to Section 9.1(b) above, all further obligations of the parties under or
pursuant to this Agreement shall terminate without further liability of either
party to the other, provided that, Section 6.2, Article VIII, and Article X
hereof shall survive the termination of this Agreement
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) Seller and Purchaser shall split equally the costs of all filing fees
required under the HSR Act.
(c) Purchaser shall pay the costs of obtaining title insurance with respect
to the Real Property. Seller shall pay the costs of all transfer, intangible,
recording, and documentary taxes, stamps, and fees with respect to the transfer
of the Real Property. Purchaser shall 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) Seller and Purchaser 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.
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(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
forth the entire understanding of the parties hereto with respect to the
transactions contemplated hereby and 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 Memorandums or
any certificate delivered pursuant to this Agreement.
10.3 Assignment and Binding Effect. Purchaser may assign the right to
receive any of the Assets at Closing to any affiliate or other third party
reasonably acceptable to Seller and acceptable to Franchisor, provided that no
such assignment shall affect Purchaser's liability hereunder. 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:
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:
WHG Real Estate North, LLC Godfrey & Kahn, S.C.
2500 N. Mayfair Road 780 N. Water Street
Suite G-117 Milwaukee, Wisconsin 53202
Wauwatosa, WI 53226 Attention: Kelley Falkner
Fax: (414) 778-2025 Fax: (414) 273-5198
If to Hospitality: With a required copy to:
Wisconsin Hospitality Group, LLC Godfrey & Kahn, S.C.
2500 N. Mayfair Road 780 N. Water Street
Suite G-117 Milwaukee, Wisconsin 53202
Wauwatosa, WI 53226 Attention: Kelley Falkner
(414) 778-2025 Fax: (414) 273-5198
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 WISCONSIN LAW TO GOVERN. THIS AGREEMENT SHALL BE GOVERNED BY AND
INTERPRETED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF WISCONSIN
WITHOUT REGARD TO CONFLICT OF LAW PRINCIPLES.
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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 any
other jurisdiction.
10.9 Public Announcements. Purchaser, Seller and Hospitality 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 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(8)(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 EXCEPT TO THE EXTENT OF SELLER'S REPRESENTATIONS
AND WARRANTIES MADE HEREIN. SELLER SHALL SELL AND CONVEY TO PURCHASER, AND
PURCHASER SHALL ACCEPT, THE ASSETS "AS IS," "WHERE IS," AND WITH ALL FAULTS,
EXCEPT TO THE EXTENT OF SELLER'S REPRESENTATIONS AND WARRANTIES MADE HEREIN, AND
THERE ARE NO ORAL AGREEMENTS, WARRANTIES OR REPRESENTATIONS, COLLATERAL TO OR
AFFECTING THE ASSETS BY SELLER. 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 HAZARDOUS MATERIAL EXCEPT TO THE EXTENT OF
SELLER'S REPRESENTATIONS AND WARRANTIES HEREIN. THE TERMS AND CONDITIONS OF THIS
SECTION 10.10 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. THE LIMITATIONS SET FORTH IN THIS SECTION
SHALL IN NO WAY LIMIT ANY WARRANTY FROM ANY THIRD PARTY.
10.11 Time. Time is and shall be of the essence of this Agreement.
27
<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:
WHG REAL ESTATE NORTH, LLC
By: Mark Dillon, Manager
HOSPITALITY:
WISCONSIN HOSPITALITY GROUP, LLC
By: Mark Dillon, President
28
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DISCLOSURE MEMORANDUM
Table of Contents
Schedule Title
1.1(i) Tangible Personal Property located in the Restaurants
1.1A Restaurants by Address
1.1C Legal Description of Real Property
1.1D Material Contracts
1.1E Territory
3.3 Consents Required to Assign Material Contracts
3.6 List of Material Contracts and amendments thereto
3.7(a) Location and Ownership of Restaurants
3.7(g) List of Environmental Reports and Matters
3.8 Financial Statements
3.10 Litigation
3.11 Permits
3.15 Seller Plans
4.7 Development Sites
29
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EXHIBIT TABLE OF CONTENTS
Exhibit Title
A Bill of Sale and Assignment Agreement
B Adjustment to Purchase Price
C Opinion of Seller's Counsel
D Opinion of Purchaser's Counsel
E Allocation of Purchase Price
Exhibits and schedules to this agreement are not filed pursuant to Item
601(b)(2) of SEC Regulation S-K. By the filing of this Form 10-K, the Registrant
hereby agrees to furnish supplementally a copy of any omitted exhibit or
schedule to the Commission upon request.
30
SECOND AMENDMENT TO PARTICIPATION AGREEMENT
THIS SECOND AMENDMENT TO PARTICIPATION AGREEMENT (this "Amendment"), is
entered into as of August 14, 1998, 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) STI CREDIT CORPORATION, a Nevada corporation, as
assignee of SunTrust Bank, Atlanta, 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 parties to the Participation Agreement (as defined
below) as Lenders (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, the Lessee, the Owner Trustee, the Holder, the Lenders and the
Administrative Agent are parties to that certain Participation Agreement, dated
as of September 24, 1997, as amended by the First Amendment to the Participation
Agreement, dated as of March 27, 1998 (as so amended, the "Participation
Agreement");
WHEREAS, the Lessee, the Owner Trustee, the Holder, the Lenders and the
Administrative Agent have agreed to amend the Participation Agreement in certain
respects, as described more particularly below;
NOW, THEREFORE, in consideration of the sum of TEN DOLLARS ($10.00), the
foregoing premises, to induce the Holder and the Lenders to amend the
Participation Agreement and to continue to perform their obligations thereunder,
and for other good and valuable consideration, the sufficiency and receipt of
all of which are acknowledged, the Lessee, the Owner Trustee, the Holder, the
Lenders and the Administrative Agent agree as follows:
A. DEFINITIONS
Unless the context otherwise requires, all capitalized terms used herein
and not otherwise defined herein shall have the meanings set forth in Appendix A
to the Participation Agreement for all purposes of this Amendment. The General
Provisions of Appendix A to the Participation Agreement are hereby incorporated
by reference herein.
B. AMENDMENTS
1. Section 5.11 of the Participation Agreement is amended by deleting
clause (g) thereof in its entirety and substituting in its place the following
revised clause (g):
(g) Subsidiaries. Make investments in Consolidated Subsidiaries of 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, other than any which are Subsidiary
Guarantors (as to which no limitation shall apply), shall not exceed five
percent (5%) of consolidated total assets of Lessee and its Consolidated
Subsidiaries; it being understood and agreed that (a) there shall be excluded
1
<PAGE>
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; (b) 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, if and to the
extent not already counted against such amount as an investment of Lessee; i.e.,
as a Capitalized Lease Obligation owing to Lessee as lessor or sublessor; and
(c) the provisions of this clause (g) 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.
2. Section 5.19 of the Participation Agreement is amended by adding thereto
immediately after the words "any of the following" and before the colon in the
fourth line thereof, these words:
, unless such Subsidiary has executed and delivered to the Administrative
Agent a Subsidiary Guaranty and all related documents required by Section 5.27
such that Section 5.19, as so amended, shall read in its entirety as follows:
SECTION 5.19. Subsidiary Debt.
Except 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, unless such
Subsidiary has executed and delivered to the Administrative Agent a Subsidiary
Guaranty and all other Subsidiary Guaranty Documents required by Section 5.27:
(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.
3. The Participation Agreement is further amended by adding the following
as a new Section 5.27 thereto:
SECTION 5.27 Subsidiary Guaranties.
Effective as of August 14, 1998, Lessee shall cause each Consolidated
Subsidiary of the Lessee which is a wholly owned Subsidiary, directly or
indirectly, of Lessee then existing or thereafter acquired or coming into
existence (excepting therefrom any having total assets of less than Ten Thousand
Dollars ($10,000)) to execute a Subsidiary Guaranty, together with all other
such documents which the Administrative Agent may reasonably request in
connection therewith, including a secretary's certificate, confirming the
existence of enabling authorization in respect of such Subsidiary Guarantor and
signing officer incumbency, and an opinion of counsel, confirming that such
Subsidiary Guaranty is a valid, binding and enforceable obligation of the
Subsidiary party thereto, subject to customary assumptions, exceptions and
limitations acceptable to Administrative Agent (herein called, collectively,
together with the Subsidiary Guaranties, the "Subsidiary Guaranty Documents").
As to all such Subsidiaries in existence on August 14, 1998, Lessee shall cause
all such Subsidiary Guaranty Documents in respect thereof to have been executed
and delivered as soon as practicable but in any event by August 14, 1998. As to
all such Subsidiaries acquired or coming into existence subsequent to August 14,
1998, Lessee shall cause all such Subsidiary Guaranty Documents in respect
2
<PAGE>
thereof to have been executed and delivered as soon as practicable after, but in
any event within thirty (30) days after, its acquisition or creation.
4. Appendix A of the Participation Agreement is amended by adding the
following definitions to Appendix A in proper alphabetical order:
"Subsidiary Guarantor" shall mean any wholly-owned Subsidiary of Lessee
which has executed a Subsidiary Guaranty pursuant to Section 5.27.
"Subsidiary Guaranty" shall mean a guaranty, in substantially the form of
Exhibit A attached hereto, pursuant to which a wholly-owned Subsidiary of Lessee
shall guarantee all debts, liabilities and obligations of the Lessee hereunder,
all in accordance with Section 5.27.
C. MISCELLANEOUS
1. Upon the Administrative Agent's receipt of executed signature pages from
all parties to this Amendment, all amendments to the Participation Agreement
made herein shall become effective as of August 14, 1998; provided, however,
that the following shall have been executed and delivered to the Administrative
Agent on or before such date, in form and substance satisfactory to the Owner
Trustee, the Holder, the Lenders and the Administrative Agent, to-wit: (i) a
Secretary's (or Assistant Secretary's) Certificate for the Lessee; (ii) this
Amendment; (iii) Subsidiary Guaranties and corresponding Subsidiary Guaranty
Documents for each wholly-owned Subsidiary of Lessee existing on the date of
this Amendment.
2. Except as expressly set forth herein, this Amendment shall be deemed not
to waive or modify any provision of the Participation Agreement or the other
Operative Agreements, and all terms of the Participation Agreement, as amended
hereby, shall be and shall remain in full force and effect and shall constitute
a legal, valid, binding and enforceable obligations of the Lessee, the Owner
Trustee, the Holder, the Lenders and the Administrative Agent. All references to
the Participation Agreement shall hereinafter be references to the Participation
Agreement as amended by this Amendment. To the extent any terms and conditions
in any of the Operative Agreements shall contradict or be in conflict with any
terms or conditions of the Participation Agreement, after giving effect to this
Amendment, such terms and conditions are hereby deemed modified and amended
accordingly to reflect the terms and conditions of the Participation Agreement
as modified and amended hereby. It is not intended by the parties that this
Amendment constitute, and this Amendment shall not constitute, a novation or
accord and satisfaction.
3. To induce the Owner Trustee, the Holder, the Lenders and the
Administrative Agent to enter into this Amendment (A) Lessee hereby restates and
renews each and every representation and warranty heretofore made by it under,
or in connection with, the execution and delivery of, the Participation
Agreement; (B) Lessee hereby restates, ratifies and reaffirms each and every
term and condition set forth in the Participation Agreement, as amended hereby,
and in the Operative Agreements as amended hereby, and in the Operative
Agreements, effective as of the date hereof; and (C) Lessee hereby certifies
that no Lease Event of Default has occurred and is continuing.
4. THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH,
THE LAWS OF THE STATE OF GEORGIA AND ALL APPLICABLE LAWS OF THE UNITED STATES OF
AMERICA.
5. This Amendment may be executed in one or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same document.
6. This Amendment shall be binding on, and shall inure to the benefit of,
the successors and assigns of the parties hereto.
7. In the event that any part of this Agreement shall be found to be
3
<PAGE>
illegal or in violation of public policy, or for any reason unenforceable at
law, such finding shall not invalidate any other part thereof.
8. TIME IS OF THE ESSENCE UNDER THIS AGREEMENT.
9. The parties agree that their signatures by telecopy or facsimile shall
be effective and binding upon them as though executed in ink on paper but that
the parties shall exchange original ink signatures promptly following any such
delivery by telecopy or facsimile.
10. Lessee agrees to pay all costs and expenses of Administrative Agent
incurred in connection with the preparation, execution, delivery and enforcement
of this Amendment and all other Operative Agreements executed in connection
herewith, including the reasonable fees and out-of-pocket expenses of
Administrative Agent's counsel.
11. This Amendment shall constitute a Operative Agreement for all purposes
of the Participation Agreement and shall be governed accordingly.
4
<PAGE>
IN WITNESS WHEREOF, the Lessee, the Owner Trustee, the Holder, each Lender
and the Administrative Agent have set their hands as of the day and year first
above written.
"LESSEE"
APPLE SOUTH, INC.
By:_________________________________
Erich J. Booth, Chief Financial
Officer and Treasurer
Attest:_____________________________
Tonya Benjamin, Assistant Secretary
"OWNER TRUSTEE"
FIRST SECURITY BANK, N.A.
By:_________________________________
Name:____________________________
Title:_____________________________
"HOLDER"
STI CREDIT CORPORATION
By:_________________________________
Name:____________________________
Title:_____________________________
"LENDERS"
SUNTRUST BANK, ATLANTA, as the Administrative
Agent and as a Lender
By:_________________________________
Name:____________________________
Title:_____________________________
By:_________________________________
Name:____________________________
Title:_____________________________
BANCBOSTON LEASING, INC.
By:_________________________________
Name:____________________________
Title:_____________________________
SOUTHTRUST BANK, N.A.
By:_________________________________
Name:____________________________
Title:________________
5
THIRD AMENDMENT TO PARTICIPATION AGREEMENT
THIS THIRD AMENDMENT TO PARTICIPATION AGREEMENT (hereinafter, as it may be
modified, amended or supplemented from time to time, called this "Amendment"),
made and entered into as of November 13, 1998, among (i) AVADO BRANDS, INC.
formerly known as 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)
STI CREDIT CORPORATION, a Nevada corporation, as assignee of SunTrust Bank,
Atlanta, 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
parties to the Participation Agreement (as defined below) as Lenders (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, the Lessee, the Owner Trustee, the Holder, the Lenders and the
Administrative Agent are parties to that certain Participation Agreement, dated
as of September 24, 1997, as amended by the First Amendment to the Participation
Agreement, dated as of March 27, 1998 and as amended by the Second Amendment to
the Participation Agreement, dated as of August 14, 1998 (as so amended, the
"Participation Agreement");
WHEREAS, the Lessee, the Owner Trustee, the Holder, the Lenders and the
Administrative Agent have agreed to amend the Participation Agreement in certain
respects, as described more particularly below;
NOW, THEREFORE, in consideration of the sum of TEN DOLLARS ($10.00), the
foregoing premises, to induce the Holder and the Lenders to amend the
Participation Agreement and to continue to perform their obligations thereunder,
and for other good and valuable consideration, the sufficiency and receipt of
all of which are acknowledged, the Lessee, the Owner Trustee, the Holder, the
Lenders and the Administrative Agent agree as follows:
A. DEFINITIONS
Unless the context otherwise requires, all capitalized terms used herein
and not otherwise defined herein shall have the meanings set forth in Appendix A
to the Participation Agreement for all purposes of this Amendment. The General
Provisions of Appendix A to the Participation Agreement are hereby incorporated
by reference herein.
B. AMENDMENTS:
1. Amendment to Existing Section 5.11. Existing Section 5.11 shall be
amended by placing "; or" at the end of existing clause (l) thereof, and adding
a new clause (m) thereof, to read as follows:
(m) Other Advances. Make loans or advances to Affiliates, shareholders,
directors, officers or employees, in addition to those described in clauses (a)
through (l) hereinabove, in an aggregate amount, as to all such loans and
advances at any one time outstanding to all such Persons, not to exceed Eight
Million Dollars ($8,000,000), so long as, and provided that, (A) no Event of
Default then exists and (B) each such loan or advance is repaid, in full, not
later than two (2) years from the date of its disbursement.
1
<PAGE>
C. MISCELLANEOUS
1. Upon the Administrative Agent's receipt of executed signature pages from
all parties to this Amendment, all amendments to the Participation Agreement
made herein shall become effective as of October 15, 1998. Pursuant to Section
10.1 (a) of the Trust Agreement, the Holder authorizes and request that the
Owner Trustee execute this Amendment.
2. Except as expressly set forth herein, this Amendment shall be deemed not
to waive or modify any provision of the Participation Agreement or the other
Operative Agreements, and all terms of the Participation Agreement, as amended
hereby, and all other Operative Agreements shall be and remain in full force and
effect and shall constitute a legal, valid, binding and enforceable obligations
of the Lessee. All references to the Participation Agreement shall hereinafter
be references to the Participation Agreement as amended by this Amendment. To
the extent any terms and conditions in any of the Operative Agreements shall
contradict or be in conflict with any terms or conditions of the Participation
Agreement, after giving effect to this Amendment, such terms and conditions are
hereby deemed modified and amended accordingly to reflect the terms and
conditions of the Participation Agreement as modified and amended hereby. It is
not intended by the parties that this Amendment constitute, and this Amendment
shall not constitute, a novation or accord and satisfaction.
3. To induce the Owner Trustee, the Holder, the Lenders and the
Administrative Agent to enter into this Amendment (A) Lessee hereby restates and
renews each and every representation and warranty heretofore made by it under,
or in connection with, the execution and delivery of, the Participation
Agreement; (B) Lessee hereby restates, ratifies and reaffirms each and every
term and condition set forth in the Participation Agreement, as amended hereby,
and in the Operative Agreements as amended hereby, and in the Operative
Agreements, effective as of the date hereof; and (C) Lessee hereby certifies
that no Lease Event of Default has occurred and is continuing.
4. THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH,
THE LAWS OF THE STATE OF GEORGIA AND ALL APPLICABLE LAWS OF THE UNITED STATES OF
AMERICA.
5. This Amendment may be executed in one or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same document.
6. This Amendment shall be binding on, and shall inure to the benefit of,
the successors and assigns of the parties hereto.
7. In the event that any part of this Agreement shall be found to be
illegal or in violation of public policy, or for any reason unenforceable at
law, such finding shall not invalidate any other part thereof.
8. TIME IS OF THE ESSENCE UNDER THIS AGREEMENT.
9. The parties agree that their signatures by telecopy or facsimile shall
be effective and binding upon them as though executed in ink on paper but that
the parties shall exchange original ink signatures promptly following any such
delivery by telecopy or facsimile.
10. Lessee agrees to pay all costs and expenses of Administrative Agent
incurred in connection with the preparation, execution, delivery and enforcement
of this Amendment and all other Operative Agreements executed in connection
herewith, including the reasonable fees and out-of-pocket expenses of
Administrative Agent's counsel.
11. This Amendment shall constitute a Operative Agreement for all purposes
of the Participation Agreement and shall be governed accordingly.
[Signatures set forth on next page.]
2
<PAGE>
[SIGNATURE PAGE TO THIRD AMENDMENT TO
PARTICIPATION AGREEMENT]
IN WITNESS WHEREOF, the Lessee, the Owner Trustee, the Holder, each Lender
and the Administrative Agent have set their hands as of the day and year first
above written.
"LESSEE"
AVADO BRANDS, INC. formerly known as
Apple South, Inc.
By:_________________________________
Erich J. Booth, Chief Financial
Officer and Treasurer
Attest:_____________________________
Tonya Benjamin, Assistant Secretary
"OWNER TRUSTEE"
FIRST SECURITY BANK, N.A.
By:_________________________________
Name:____________________________
Title:_____________________________
"HOLDER"
STI CREDIT CORPORATION
By:_________________________________
Name:____________________________
Title:_____________________________
"LENDERS"
SUNTRUST BANK, ATLANTA, as the Administrative
Agent and as a Lender
By:_________________________________
Name:____________________________
Title:_____________________________
By:_________________________________
Name:____________________________
Title:_____________________________
BANCBOSTON LEASING, INC.
By:_________________________________
Name:____________________________
Title:_____________________________
SOUTHTRUST BANK, N.A.
By:_________________________________
Name:____________________________
Title:_____________________________
3
FOURTH AMENDMENT TO PARTICIPATION AGREEMENT
THIS FOURTH AMENDMENT TO PARTICIPATION AGREEMENT (hereinafter, as it may be
modified, amended or supplemented from time to time, called this "Amendment"),
made and entered into as of February 22, 1999, among (i) AVADO BRANDS, INC.
formerly known as 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)
STI CREDIT CORPORATION, a Nevada corporation, as assignee of SunTrust Bank,
Atlanta, 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
parties to the Participation Agreement (as defined below) as Lenders (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, the Lessee, the Owner Trustee, the Holder, the Lenders and the
Administrative Agent are parties to that certain Participation Agreement, dated
as of September 24, 1997, as amended by the First Amendment to the Participation
Agreement, dated as of March 27, 1998, as amended by the Second Amendment to the
Participation Agreement, dated as of August 14, 1998, and as amended by the
Third Amendment to the Participation Agreement, dated as of November 13, 1998
(as so amended, the "Participation Agreement");
WHEREAS, the Lessee, the Owner Trustee, the Holder, the Lenders and the
Administrative Agent have agreed to amend the Participation Agreement in certain
respects, as described more particularly below;
NOW, THEREFORE, in consideration of the sum of TEN DOLLARS ($10.00), the
foregoing premises, to induce the Holder and the Lenders to amend the
Participation Agreement and to continue to perform their obligations thereunder,
and for other good and valuable consideration, the sufficiency and receipt of
all of which are acknowledged, the Lessee, the Owner Trustee, the Holder, the
Lenders and the Administrative Agent agree as follows:
A. DEFINITIONS
Unless the context otherwise requires, all capitalized terms used herein
and not otherwise defined herein shall have the meanings set forth in Appendix A
to the Participation Agreement for all purposes of this Amendment. The General
Provisions of Appendix A to the Participation Agreement are hereby incorporated
by reference herein.
B. AMENDMENTS:
1. Amendment to Existing Section 5.4: Effective as of September 27, 1998,
existing Section 5.4 of the Participation Agreement shall be deleted in its
entirety and the following revised Section 5.4 shall replace same:
Stockholder's Equity will at no time be less than the sum of (i)
$210,000,000, beginning with the last day of the Fiscal Quarter ended closest to
September 30, 1998.
1
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2. Amendment to Existing Section 5.11:Section 5.11 of the Participation
Agreement is amended by deleting subsection (k) of such Section in its entirety
and substituting in is place the following revised subsection (k):
(k) Other Restaurant Concepts:Make investments in other restaurant
concepts, besides "Applebee's," so long as the total amount of all such
investments made subsequent to April 1, 1998 does not exceed Twelve Million Five
Hundred Thousand Dollars ($12,500,00);
3. Amendment to Existing Section 5.11:Section 5.11 of the Participation
Agreement is amended by deleting subsection (m) of such Section in its entirety
and substituting in its place the following revised subsection (m):
(m) Other Advances: Make loans or advances to Affiliates, shareholders,
directors, officers or employees, in addition to those described in clauses (a)
through (l) hereinabove, in an aggregate amount, as to all such loans and
advances at any one time outstanding to all such Persons, not to exceed Twelve
Million Dollars ($12,000,000), so long as and provided that, (A) no Event of
Default then exists and (B) each such loan or advance is repaid, in full, not
later than two (2) years from the date of its disbursement.
4. Amendment to Existing Article 5: The Participation Agreement is further
amended by adding the following as a new Section 5.28:
5.28 Stock Purchases, Etc. The Lessee will not, and will not permit any
Consolidated Subsidiary of the Lessee, to purchase any Capital Stock of the
Lessee, whether in a "spot" transaction pursuant to an Equity Forward Contract
or otherwise, except in respect of shares of Capital Stock which are subject to
Equity Forward Contracts pending settlement as of December 31, 1998; nor will
Lessee enter into or permit any Consolidated Subsidiary to enter into, any
Equity Forward Contract or amend or modify any Equity Forward Contract in effect
on December 31, 1998 so as to increase the amount of, or price of any shares of
Capital Stock which are subject to Equity Forward Contracts pending settlement
as of December 31, 1998.
4. Amendment to Existing Article 5: The Participation Agreement is further
amended by adding the following as a new Section 5.29:
5.29 Prepayment of Senior Debt.The Lessee will not prepay, and will not
permit any Consolidated Subsidiary to prepay, the principal amount of any of the
Lessee's 9-3/4% Senior Notes, due 2006, heretofore issued by the Lessee in the
aggregate principal amount of $125,000,000.
5. Amendment to Appendix A: The definition of "Stockholder Equity" in
Appendix A of the Participation Agreement is amended by adding the following to
the end of such definition:
In determining "Stockholder's Equity," however, the amount of any Equity
Forward Contracts, pending settlement, shall be excluded therefrom.
6. Amendment to Appendix A: The definition of "Total Funded Debt" in
Appendix A of the Participation Agreement is amended by adding the following to
the end of such definition:
In determining "Total Funded Debt," however, the amount of any Equity
Forward Contracts, pending settlement, shall be excluded therefrom.
7. Amendment to Appendix A: Appendix A of the Participation Agreement is
amended by adding the following definition to Appendix A in the proper
alphabetical order:
"Equity Forward Contract" shall mean any contract, whether now or hereafter
existing, whereby the Lessee or any of its Consolidated Subsidiaries agrees,
directly or indirectly, to purchase Capital Stock of the Lessee on any future
date at a fixed price.
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C. MISCELLANEOUS
1. In consideration of, and to induce their entry into this Amendment,
Lessee shall remit to the Administrative Agent, for the ratable benefit of the
Lenders and the Holder based on their respective Commitments, an amendment fee
of $15,000 (the "Amendment Fee"). Upon the Administrative Agent's receipt of
executed signature pages from all parties to this Amendment and the Amendment
Fee, all amendments to the Participation Agreement made herein shall become
effective as of the date hereof unless expressly stated to become effective as
of any other date. Pursuant to Section 10.1 (a) of the Trust Agreement, the
Holder authorizes and request that the Owner Trustee execute this Amendment.
2. Except as expressly set forth herein, this Amendment shall be deemed not
to waive or modify any provision of the Participation Agreement or the other
Operative Agreements, and all terms of the Participation Agreement, as amended
hereby, and all other Operative Agreements shall be and remain in full force and
effect and shall constitute a legal, valid, binding and enforceable obligations
of the Lessee. All references to the Participation Agreement shall hereinafter
be references to the Participation Agreement as amended by this Amendment. To
the extent any terms and conditions in any of the Operative Agreements shall
contradict or be in conflict with any terms or conditions of the Participation
Agreement, after giving effect to this Amendment, such terms and conditions are
hereby deemed modified and amended accordingly to reflect the terms and
conditions of the Participation Agreement as modified and amended hereby. It is
not intended by the parties that this Amendment constitute, and this Amendment
shall not constitute, a novation or accord and satisfaction.
3. To induce the Owner Trustee, the Holder, the Lenders and the
Administrative Agent to enter into this Amendment (A) Lessee hereby restates and
renews each and every representation and warranty heretofore made by it under,
or in connection with, the execution and delivery of, the Participation
Agreement; (B) Lessee hereby restates, ratifies and reaffirms each and every
term and condition set forth in the Participation Agreement, as amended hereby,
and in the Operative Agreements as amended hereby, and in the Operative
Agreements, effective as of the date hereof; and (C) Lessee hereby certifies
that no Lease Event of Default has occurred and is continuing.
4. THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH,
THE LAWS OF THE STATE OF GEORGIA AND ALL APPLICABLE LAWS OF THE UNITED STATES OF
AMERICA.
5. This Amendment may be executed in one or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same document.
6. This Amendment shall be binding on, and shall inure to the benefit of,
the successors and assigns of the parties hereto.
7. In the event that any part of this Agreement shall be found to be
illegal or in violation of public policy, or for any reason unenforceable at
law, such finding shall not invalidate any other part thereof.
8. TIME IS OF THE ESSENCE UNDER THIS AGREEMENT.
9. The parties agree that their signatures by telecopy or facsimile shall
be effective and binding upon them as though executed in ink on paper but that
the parties shall exchange original ink signatures promptly following any such
delivery by telecopy or facsimile.
10. Lessee agrees to pay all costs and expenses of Administrative Agent
incurred in connection with the preparation, execution, delivery and enforcement
of this Amendment and all other Operative Agreements executed in connection
herewith, including the reasonable fees and out-of-pocket expenses of
Administrative Agent's counsel.
11. This Amendment shall constitute a Operative Agreement for all purposes
of the Participation Agreement and shall be governed accordingly.
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[SIGNATURE PAGE TO FOURTH AMENDMENT TO
PARTICIPATION AGREEMENT]
IN WITNESS WHEREOF, the Lessee, the Owner Trustee, the Holder, each Lender
and the Administrative Agent have set their hands as of the day and year first
above written.
"LESSEE"
AVADO BRANDS, INC. formerly known as
Apple South, Inc.
By:_________________________________
Erich J. Booth
Chief Financial Officer and Treasurer
Attest:_____________________________
Tonya Benjamin
Assistant Secretary
"OWNER TRUSTEE"
FIRST SECURITY BANK, N.A.
By:_________________________________
Name:____________________________
Title:_____________________________
"HOLDER"
STI CREDIT CORPORATION
By:_________________________________
Name:____________________________
Title:_____________________________
"LENDERS"
SUNTRUST BANK, ATLANTA, as the Administrative
Agent and as a Lender
By:_________________________________
Name:____________________________
Title:_____________________________
By:_________________________________
Name:____________________________
Title:_____________________________
BANCBOSTON LEASING, INC.
By:_________________________________
Name:____________________________
Title:_____________________________
SOUTHTRUST BANK, N.A.
By:_________________________________
Name:____________________________
Title:_____________________________
4
FIRST AMENDMENT TO CREDIT AGREEMENT
THIS FIRST AMENDMENT TO CREDIT AGREEMENT (hereinafter, as it may be
modified, amended or supplemented from time to time, called this "Amendment"),
made and entered into as of June 1, 1998, by and among APPLE SOUTH, INC., a
Georgia corporation ("Borrower"); the financial institutions from time to time
party to the "Credit Agreement" defined and described below and identified as
the "Banks" therein (collectively, the "Banks" or, individually, a "Bank"); and
WACHOVIA BANK, NATIONAL ASSOCIATION, a national banking association,
successor-by-merger to WACHOVIA BANK OF GEORGIA, NATIONAL ASSOCIATION, acting as
agent for the Banks (Wachovia, when acting in such capacity, herein sometimes
called the "Agent").
WHEREAS, heretofore, Borrower, Banks and Agent made and entered into a
certain Credit Agreement, dated as of April 1, 1998 (which, as amended pursuant
hereto, is called herein the "Credit Agreement"); and
WHEREAS, Borrower, Banks and Agent have agreed to amend the Credit
Agreement in certain respects, as described more particularly below;
NOW, THEREFORE, in consideration of the sum of TEN DOLLARS ($10.00), the
foregoing premises, to induce Banks to amend the Credit Agreement and extend the
credit provided for therein, and for other good and valuable consideration, the
sufficiency and receipt of all of which are acknowledged, Banks, the Agent and
Borrower agree as follows:
1. DEFINITIONS, TERMS AND REFERENCES.
1.1 Terms Incorporated by Reference. Capitalized terms used in this
Amendment but not otherwise expressly defined herein shall have the same
meanings as given to such terms in the Credit Agreement.
1.2 New Terms. The following shall be deemed added to Section 1.1 of the
Credit Agreement in the appropriate alphabetical order:
"Subsidiary Guarantor" shall mean any wholly-owned Subsidiary of Borrower
which has executed a Subsidiary Guaranty pursuant to Section 5.21.
"Subsidiary Guaranty" shall mean a guaranty, in substantially the form of
Exhibit H attached hereto, pursuant to which a wholly-owned Subsidiary of
Borrower shall guarantee all debts, liabilities and obligations of the Borrower
hereunder, all in accordance with Section 5.21.
2. Amendment to Existing Section 5.19. Clause (vii) of existing Section
5.19 of the Credit Agreement is amended by deleting said clause (vii) in its
entirety and substituting in its place the following revised clause (vii):
(vii) Subsidiaries. Make investments in Consolidated Subsidiaries of 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, other than any which are Subsidiary
Guarantors (as to which no limitation shall apply), shall not exceed five
percent (5%) of consolidated total assets of Borrower and its Consolidated
Subsidiaries; 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
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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.
3. Amendment to Existing Section 5.20. Existing Section 5.20 of the Credit
Agreement is amended by adding thereto immediately after the words "any of the
following" and before the colon in the fourth line thereof, these words:
,unless such Subsidiary has executed and delivered to the Agent a
Subsidiary Guaranty and all related documents required by Section 5.21 such that
Section 5.20, as so amended, shall read in its entirety as follows:
SECTION 5.20. Subsidiary Debt.
Except 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, unless such
Subsidiary has executed and delivered to the Agent a Subsidiary Guaranty and all
other Subsidiary Guaranty Documents required by Section 5.21: (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.
4. Addition of New Section 5.21. A new Section 5.21 shall be added to the
Credit Agreement:
SECTION 5.21 Subsidiary Guaranties.
Effective as of June 1, 1998, Borrower shall cause each Consolidated
Subsidiary of the Borrower which is a wholly-owned Subsidiary, directly or
indirectly, of Borrower then existing or thereafter acquired or coming into
existence (excepting therefrom any having total assets of less than Ten Thousand
Dollars ($10,000)) to execute a Subsidiary Guaranty, together with all other
such documents which the Agent may reasonably request in connection therewith,
including a secretary's certificate, confirming the existence of enabling
authorization in respect of such Subsidiary Guarantor and signing officer
incumbency, and an opinion of counsel, confirming that such Subsidiary Guaranty
is a valid, binding and enforceable obligation of the Subsidiary party thereto,
subject to customary assumptions, exceptions and limitations acceptable to Agent
(herein called, collectively, together with the Subsidiary Guaranties, the
"Subsidiary Guaranty Documents"). As to all such Subsidiaries in existence on
June 1, 1998, Borrower shall cause all such Subsidiary Guaranty Documents in
respect thereof to have been executed and delivered as soon as practicable but
in any event by June 30, 1998. As to all such Subsidiaries acquired or coming
into existence subsequent to June 1, 1998, Borrower shall cause all such
Subsidiary Guaranty Documents in respect thereof to have been executed and
delivered as soon as practicable after, but in any event within thirty (30) days
after, its acquisition or creation.
5. EFFECTIVE DATE; CONDITIONS TO EFFECTIVENESS. All amendments to the
Credit Agreement made herein shall become effective as of June 1, 1998;
provided, however, that the following shall have been executed and/or delivered
to the Agent on or before such date, in form and substance satisfactory to the
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Banks, to-wit: (i) a Secretary's (or Assistant Secretary's) Certificate for the
Borrower; (ii) this Amendment; (iii) Subsidiary Guaranties and corresponding
Subsidiary Guaranty Documents for each wholly-owned Subsidiary of Borrower
existing on the date of this Amendment.
6. EFFECT OF AMENDMENT. Except as set forth expressly herein, all terms of
the Credit Agreement, as amended hereby, and the other Loan Documents, shall be
and remain in full force and effect and shall constitute the legal, valid,
binding and enforceable obligations of Borrower to Banks and Agent. To the
extent any terms and conditions in any of the Loan Documents shall contradict or
be in conflict with any terms or conditions of the Credit Agreement, after
giving effect to this Amendment, such terms and conditions are hereby deemed
modified and amended accordingly to reflect the terms and conditions of the
Credit Agreement as modified and amended hereby. It is not intended by the
parties that this Amendment constitute, and this Amendment shall not constitute,
a novation or accord and satisfaction.
7. RESTATEMENT OF REPRESENTATIONS AND WARRANTIES. To induce Banks and Agent
to enter into this Amendment (A) Borrower hereby restates and renews each and
every representation and warranty heretofore made by it under, or in connection
with, the execution and delivery of, the Credit Agreement; (B) Borrower hereby
restates, ratifies and reaffirms each and every term and condition set forth in
the Credit Agreement, as amended hereby, and in the Loan Documents, as amended
hereby, and in the Loan Documents, effective as of the date hereof; and (C)
Borrower hereby certifies that no Event of Default or Default Condition has
occurred and is continuing.
8. GOVERNING LAW. This Amendment shall be governed by, and construed in
accordance with, the laws of the State of Georgia and all applicable federal
laws of the United States of America.
9. COSTS AND EXPENSES. Borrower agrees to pay all costs and expenses of
Agent incurred in connection with the preparation, execution, delivery and
enforcement of this Amendment and all other Loan Documents executed in
connection herewith, including the reasonable fees and out-of-pocket expenses of
Agent's counsel.
10. LOAN DOCUMENT. This Amendment shall constitute a Loan Document for all
purposes of the Credit Agreement, and be governed accordingly.
IN WITNESS WHEREOF, Borrower, the Agent, and each Bank have set their hands
as of the day and year first above written.
"BORROWER"
APPLE SOUTH, INC.
By:_________________________________
Erich J. Booth, Chief Financial
Officer and Treasurer
Attest:_____________________________
Tonya Benjamin, Assistant Secretary
"BANKS"
WACHOVIA BANK, NATIONAL
ASSOCIATION, as the Agent and as a Bank
By:________________________________
W. Tompkins Rison, Vice President
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<PAGE>
SUNTRUST BANK, ATLANTA
By:_________________________________
Name:____________________________
Title:_____________________________
By:_________________________________
Name:____________________________
Title:_____________________________
COOPERATIEVE CENTRALE
RAIFFEISEN-BOERENLEENBANK B.A.,
"RABOBANK NEDERLAND,"
NEW YORK BRANCH
By:_________________________________
Name:____________________________
Title:_____________________________
By:_________________________________
Name:____________________________
Title:_____________________________
BANKBOSTON, N.A.
By:_________________________________
Name:____________________________
Title:_____________________________
COMERICA BANK
By:_________________________________
Name:____________________________
Title:_____________________________
4
SECOND AMENDMENT TO CREDIT AGREEMENT
THIS SECOND AMENDMENT TO CREDIT AGREEMENT (hereinafter, as it may be
modified, amended or supplemented from time to time, called this "Amendment"),
made and entered into as of October 15, 1998, by and among AVADO BRANDS, INC.
f/k/a APPLE SOUTH, INC., a Georgia corporation ("Borrower"); the financial
institutions from time to time party to the "Credit Agreement" defined and
described below and identified as the "Banks" therein (collectively, the "Banks"
or, individually, a "Bank"); and WACHOVIA BANK, NATIONAL ASSOCIATION, a national
banking association, successor-by-merger to WACHOVIA BANK OF GEORGIA, NATIONAL
ASSOCIATION, acting as agent for the Banks (Wachovia, when acting in such
capacity, herein sometimes called the "Agent").
WHEREAS, heretofore, Borrower, Banks and Agent made and entered into a
certain Credit Agreement, dated as of April 1, 1998 (which, as amended pursuant
hereto, is called herein the "Credit Agreement"); and
WHEREAS, Borrower, Banks and Agent have agreed to amend the Credit
Agreement in certain respects, as described more particularly below;
NOW, THEREFORE, in consideration of the sum of TEN DOLLARS ($10.00), the
foregoing premises, to induce Banks to amend the Credit Agreement and extend the
credit provided for therein, and for other good and valuable consideration, the
sufficiency and receipt of all of which are acknowledged, Banks, the Agent and
Borrower agree as follows:
1. DEFINITIONS, TERMS AND REFERENCES.
1.1 Terms Incorporated by Reference. Capitalized terms used in this
Amendment but not otherwise expressly defined herein shall have the same
meanings as given to such terms in the Credit Agreement.
2. Amendment to Existing Section 5.19. Existing Section 5.19 shall be
amended by placing "; or" at the end of existing clause (xii) thereof, and
adding a new clause (xiii) thereof, to read as follows:
(xiii) Other Advances. Make loans or advances to Affiliates, shareholders,
directors, officers or employees, in addition to those described in clauses (i)
through (xii) hereinabove, in an aggregate amount, as to all such loans and
advances at any one time outstanding to all such Persons, not to exceed Eight
Million Dollars ($8,000,000), so long as, and provided that, (A) no Event of
Default then exists and (B) each such loan or advance is repaid, in full, not
later than two (2) years from the date of its disbursement.
3. EFFECTIVE DATE; CONDITIONS TO EFFECTIVENESS. All amendments to the
Credit Agreement made however, that the following shall have been executed
and/or delivered to the Agent on or before such date, in form and substance
satisfactory to the Banks, to-wit: (i) a Secretary's (or Assistant Secretary's)
Certificate for the Borrower; and (ii) this Amendment.
4. EFFECT OF AMENDMENT. Except as set forth expressly herein, all terms of
the Credit Agreement, as amended hereby, and the other Loan Documents, shall be
and remain in full force and effect and shall constitute the legal, valid,
binding and enforceable obligations of Borrower to Banks and Agent. To the
extent any terms and conditions in any of the Loan Documents shall contradict or
be in conflict with any terms or conditions of the Credit Agreement, after
giving effect to this Amendment, such terms and conditions are hereby deemed
modified and amended accordingly to reflect the terms and conditions of the
Credit Agreement as modified and amended hereby. It is not intended by the
parties that this Amendment constitute, and this Amendment shall not constitute,
a novation or accord and satisfaction.
5. RESTATEMENT OF REPRESENTATIONS AND WARRANTIES. To induce Banks and Agent
to enter into this Amendment (A) Borrower hereby restates and renews each and
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every representation and warranty heretofore made by it under, or in connection
with, the execution and delivery of, the Credit Agreement; (B) Borrower hereby
restates, ratifies and reaffirms each and every term and condition set forth in
the Credit Agreement, as amended hereby, and in the Loan Documents, as amended
hereby, and in the Loan Documents, effective as of the date hereof; and (C)
Borrower hereby certifies that no Event of Default or Default Condition has
occurred and is continuing.
6. GOVERNING LAW. This Amendment shall be governed by, and construed in
accordance with, the laws of the State of Georgia and all applicable federal
laws of the United States of America.
7. COSTS AND EXPENSES. Borrower agrees to pay all costs and expenses of
Agent incurred in connection with the preparation, execution, delivery and
enforcement of this Amendment and all other Loan Documents executed in
connection herewith, including the reasonable fees and out-of-pocket expenses of
Agent's counsel.
8. LOAN DOCUMENT. This Amendment shall constitute a Loan Document for all
purposes of the Credit Agreement, and be governed accordingly.
IN WITNESS WHEREOF, Borrower, the Agent, and each Bank have set their hands
as of the day and year first above written.
"BORROWER"
AVADO BRANDS, INC. f/k/a
APPLE SOUTH, INC.
By:_________________________________
Erich J. Booth, Chief Financial
Officer and Treasurer
Attest:_____________________________
Tonya Benjamin, Assistant Secretary
"BANKS"
WACHOVIA BANK, NATIONAL
ASSOCIATION, as the Agent and as a Bank
By:________________________________
W. Tompkins Rison, Vice President
SUNTRUST BANK, ATLANTA
By:_________________________________
Name:____________________________
Title:_____________________________
By:_________________________________
Name:____________________________
Title:_____________________________
COOPERATIEVE CENTRALE
RAIFFEISEN-BOERENLEENBANK B.A.,
"RABOBANK NEDERLAND," NEW YORK BRANCH
By:_________________________________
Name:____________________________
Title:_____________________________
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By:_________________________________
Name:____________________________
Title:_____________________________
BANKBOSTON, N.A.
By:_________________________________
Name:____________________________
Title:_____________________________
COMERICA BANK
By:_________________________________
Name:____________________________
Title:_____________________________
3
THIRD AMENDMENT TO CREDIT AGREEMENT
THIS THIRD AMENDMENT TO CREDIT AGREEMENT (hereinafter, as it may be
modified, amended or supplemented from time to time, called this "Amendment"),
made and entered into as of January 22, 1999, by and among AVADO BRANDS, INC.
f/k/a APPLE SOUTH, INC., a Georgia corporation ("Borrower"); the financial
institutions from time to time party to the "Credit Agreement" defined and
described below and identified as the "Banks" therein (collectively, the "Banks"
or, individually, a "Bank"); and WACHOVIA BANK, NATIONAL ASSOCIATION, a national
banking association, successor-by-merger to WACHOVIA BANK OF GEORGIA, NATIONAL
ASSOCIATION, acting as agent for the Banks (Wachovia, when acting in such
capacity, herein sometimes called the "Agent").
WHEREAS, heretofore, Borrower, Banks and Agent made and entered into a
certain Credit Agreement, dated as of April 1, 1998 (which, as amended, is
called herein the "Credit Agreement"); and
WHEREAS, Borrower, Banks and Agent have agreed to amend further the Credit
Agreement in certain respects, as described more particularly below;
NOW, THEREFORE, in consideration of the sum of TEN DOLLARS ($10.00), the
foregoing premises, to induce Banks to amend the Credit Agreement and extend the
credit provided for therein, and for other good and valuable consideration, the
sufficiency and receipt of all of which are acknowledged, Banks, the Agent and
Borrower agree as follows:
1. DEFINITIONS, TERMS AND REFERENCES.
1.1 Terms Incorporated by Reference. Capitalized terms used in this
Amendment but not otherwise expressly defined herein shall have the same
meanings as given to such terms in the Credit Agreement.
1.2 Changed Terms.
(a) The defined term "Applicable Margin," set forth in Section 1.1 of the
Credit Agreement, shall be redefined, in its entirety, effective as of January
1, 1999, to read as follows:
"Applicable Margin" means: (i) for any Base Rate Loan, zero percent (0%)
per annum; and (ii) for any Euro-Dollar Rate Loan, two and one-fourth of one
percent (2-1/4) per annum.
(b) The defined term "Stockholders' Equity," set forth in Section 1.1 of
the Credit Agreement, shall be redefined by adding thereto, at the end thereof,
the following:
In determining "Stockholders' Equity," however, the amount of any Equity
Forward Contracts, pending settlement, shall be excluded therefrom.
(c) The defined term "Total Funded Debt," set forth in Section 1.1 of the
Credit Agreement, shall be redefined by adding thereto, at the end thereof, the
following:
In determining "Total Funded Debt," however, the amount of any Equity
Forward Contracts, pending settlement, shall be excluded therefrom.
1.3 New Terms. There shall be added to Section 1.1 of the Credit Agreement
a new defined term, "Equity Forward Contract," to read as follows:
"Equity Forward Contract" shall mean any contract, whether now or hereafter
existing, whereby the Borrower or any of its Consolidated Subsidiaries agrees,
directly or indirectly, to purchase Capital Stock of the Borrower on any future
date at a fixed price.
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2. MINIMUM STOCKHOLDERS' EQUITY. Effective as of September 27, 1998,
existing Section 5.4 of the Credit Agreement shall be deleted in its entirety,
and the following revised Section 5.4 shall replace same:
SECTION 5.4. Minimum Stockholders' Equity.
Stockholders' Equity will at no time be less than the sum of (i)
$210,000,000, beginning with the last day of the Fiscal Quarter ended closest to
September 30, 1998.
3. OTHER RESTAURANT CONCEPTS. Existing clause (xi) of Section 5.19 of the
Credit Agreement shall be amended by deleting same, in its entirety, and
replacing it with the following revised clause (xi):
(xi) Other Restaurant Concepts. Make investments in other restaurant
concepts, besides "Applebee's," so long as the total amount of all such
investments made subsequent to the Closing Date does not exceed Twelve Million
Five Hundred Thousand Dollars ($12,500,000).
4. OTHER ADVANCES. Existing clause (xiii) to Section 5.19 of the Credit
Agreement shall be amended by deleting same, in its entirety, and replacing it
with the following revised clauses (xiii):
(xiii) Other Advances. Make loans or advances to Affiliates, shareholders,
directors, officers or employees, in addition to those described in clauses (i)
through (xii) hereinabove, in an aggregate amount, as to all such loans and
advances at any one time outstanding to all such Persons, not to exceed Twelve
Million Dollars ($12,000,000), so long as, and provided that, (A) no Event of
Default then exists and (B) each such loan or advance is repaid, in full, not
later than two (2) years from the date of its disbursement.
5. STOCK PURCHASES. There shall be added to Article 5, Covenants, the
following additional Section 5.21:
5.21 Stock Purchases, Etc. The Borrower will not, and will not permit any
Consolidated Subsidiary of the Borrower, to purchase any Capital Stock of the
Borrower, whether in a "spot" transaction, pursuant to an Equity Forward
Contract or otherwise, except in respect of shares of Capital Stock which are
subject to Equity Forward Contracts pending settlement as of December 31, 1998;
nor will Borrower enter into, or permit any Consolidated Subsidiary to enter
into, any Equity Forward Contract or amend or modify any Equity Forward Contract
in effect on December 31, 1998 so as to increase the amount of, or price of, any
shares of Capital Stock which are subject to Equity Forward Contracts pending
settlement as of December 31, 1998.
6. DEBT PREPAYMENTS. There shall also be added to Article 5, Covenants, the
following additional Section 5.22:
5.22 Prepayment of Senior Debt. The Borrower will not prepay, and will not
permit any Consolidated Subsidiary to prepay, the principal amount of any of the
Borrower's 9-3/4% Senior Notes, due 2006, heretofore issued by the Borrower in
the aggregate principal amount of $125,000,000.
7. EFFECTIVE DATE; CONDITIONS TO EFFECTIVENESS. Except as otherwise
expressly set forth herein, all amendments to the Credit Agreement made herein
shall become effective as of the date hereof; provided, however, that (a) the
following shall have been executed and/or delivered to the Agent on or before
such date, in form and substance satisfactory to the Banks, to-wit: (i) a
Secretary's (or Assistant Secretary's) Certificate for the Borrower; and (ii)
this Amendment; and (b) the fees prescribed in Section 9 below shall have been
remitted to the Banks and the Agent.
8. EFFECT OF AMENDMENT. Except as set forth expressly herein, all terms of
the Credit Agreement, as amended hereby, and the other Loan Documents, shall be
and remain in full force and effect and shall constitute the legal, valid,
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binding and enforceable obligations of Borrower to Banks and Agent. To the
extent any terms and conditions in any of the Loan Documents shall contradict or
be in conflict with any terms or conditions of the Credit Agreement, after
giving effect to this Amendment, such terms and conditions are hereby deemed
modified and amended accordingly to reflect the terms and conditions of the
Credit Agreement as modified and amended hereby. It is not intended by the
parties that this Amendment constitute, and this Amendment shall not constitute,
a novation or accord and satisfaction.
9. AMENDMENT FEE. In consideration of, and to induce, their entry into this
Amendment, the Borrower shall remit (i) to each of the Banks on the date hereof
its share of an amendment fee of $50,000, each such Bank's share to be pro rata
based on the amounts of its respective Commitment, and (ii) to Agent a fee in
the amount described in Agent's supplemental fee letter of even date herewith,
addressed to the Borrower.
10. RESTATEMENT OF REPRESENTATIONS AND WARRANTIES. To induce Banks and
Agent to enter into this Amendment (A) Borrower hereby restates and renews each
and every representation and warranty heretofore made by it under, or in
connection with, the execution and delivery of, the Credit Agreement; (B)
Borrower hereby restates, ratifies and reaffirms each and every term and
condition set forth in the Credit Agreement, as amended hereby, and in the Loan
Documents, as amended hereby, and in the Loan Documents, effective as of the
date hereof; and (C) Borrower hereby certifies that no Event of Default or
Default Condition has occurred and is continuing.
11. GOVERNING LAW. This Amendment shall be governed by, and construed in
accordance with, the laws of the State of Georgia and all applicable federal
laws of the United States of America.
12. COSTS AND EXPENSES. Borrower agrees to pay all costs and expenses of
Agent incurred in connection with the preparation, execution, delivery and
enforcement of this Amendment and all other Loan Documents executed in
connection herewith, including the reasonable fees and out-of-pocket expenses of
Agent's counsel.
13. LOAN DOCUMENT. This Amendment shall constitute a Loan Document for all
purposes of the Credit Agreement, and be governed accordingly.
IN WITNESS WHEREOF, Borrower, the Agent, and each Bank have set their hands
as of the day and year first above written.
"BORROWER"
AVADO BRANDS, INC. f/k/a
APPLE SOUTH, INC.
By:_________________________________
Name:____________________________
Title:_____________________________
Attest:______________________________
Name:________________________
Title:_________________________
"BANKS"
WACHOVIA BANK, NATIONAL
ASSOCIATION, as the Agent and as a Bank
By:________________________________
W. Tompkins Rison, Vice President
3
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SUNTRUST BANK, ATLANTA
By:_________________________________
Name:____________________________
Title:_____________________________
By:_________________________________
Name:____________________________
Title:_____________________________
COOPERATIEVE CENTRALE
RAIFFEISEN-BOERENLEENBANK B.A.,
"RABOBANK NEDERLAND," NEW YORK BRANCH
By:_________________________________
Name:____________________________
Title:_____________________________
By:_________________________________
Name:____________________________
Title:_____________________________
BANKBOSTON, N.A.
By:_________________________________
Name:____________________________
Title:_____________________________
COMERICA BANK
By:_________________________________
Name:____________________________
Title:_____________________________
4
$30,000,000
CREDIT AGREEMENT
DATED AS OF
MAY 8, 1998
BETWEEN
APPLE SOUTH, INC.,
AS BORROWER
AND
FIRST UNION NATIONAL BANK
AS LENDER
1
<PAGE>
Table of Contents
ARTICLE 1. DEFINITIONS..................................................6
SECTION 1.1. Definitions.........................................6
SECTION 1.2. Accounting Terms and Determinations................15
SECTION 1.3. References.........................................15
SECTION 1.4. Use of Defined Terms...............................15
SECTION 1.5. Terminology........................................15
ARTICLE 2. THE CREDIT..................................................15
SECTION 2.1. Commitment to Lend.................................15
SECTION 2.2. Method of Borrowing................................16
2.2.1. Notice to Bank............................16
2.2.2. When Revolving Loans Made.................16
2.2.3. Application of Certain Proceeds...........16
2.2.4. No Borrowing Upon Default.................16
SECTION 2.3. Note...............................................16
2.3.1. Single Note...............................16
2.3.2. Endorsement to Note.......................16
SECTION 2.4. Maturity of Revolving Loans........................16
SECTION 2.5. Interest Rates.....................................16
2.5.1. Base Rate Loans...........................16
2.5.2. LIBOR Market Index Rate Loans.............17
2.5.3. Euro-Dollar Rate Loans....................17
2.5.4. Bank to Determine.........................17
2.5.5. Savings Clause............................17
SECTION 2.6. Closing Fee........................................17
SECTION 2.7. Termination or Reduction of Commitment.............17
2.7.1. Termination of Commitments................17
2.7.2. Mandatory Reduction and Reinstatement
of Commitment.............................18
SECTION 2.8. Optional Prepayments...............................18
SECTION 2.9. Mandatory Prepayments..............................18
SECTION 2.10. General Provisions as to Payments..................18
2.10.1. Timing....................................18
2.10.2. Next Banking Day..........................18
SECTION 2.11. Computation of Interest............................18
ARTICLE 3. CONDITIONS TO BORROWINGS....................................19
SECTION 3.1. Conditions to First Borrowing......................19
3.1.1. This Agreement............................19
3.1.2. Note......................................19
3.1.3. Opinion...................................19
3.1.4. Closing Certificate.......................19
3.1.5. Other Documents...........................19
3.1.6. Borrowing Notice..........................19
SECTION 3.2. Conditions to All Borrowings.......................19
3.2.1. Notice....................................19
3.2.2. No Default................................19
3.2.3. Truth of Representations..................19
3.2.4. Not Overadvance...........................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..21
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.......................................21
SECTION 4.9. Not a Holding Company, Public Utility, Investment
Company, Investment Adviser........................21
SECTION 4.10. Ownership of Property; Liens.......................21
SECTION 4.11. No Default.........................................21
SECTION 4.12. Full Disclosure....................................22
2
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SECTION 4.13. Environmental Matters..............................22
SECTION 4.14. Capital Stock......................................22
SECTION 4.15. Margin Stock.......................................22
SECTION 4.16. Solvency...........................................22
SECTION 4.17. Possession of Franchises, Licenses, Etc............23
SECTION 4.18. Insurance..........................................23
ARTICLE 5. COVENANTS...................................................23
SECTION 5.1. Information........................................23
5.1.1. Annual Audit..............................23
5.1.2. Interim Statements........................23
5.1.3. Compliance Certificates...................23
5.1.4. Default Notice............................24
5.1.5. Proxy.....................................24
5.1.6. Registration Statements...................24
5.1.7. ERISA Notices.............................24
5.1.8. Credit Agreements.........................24
5.1.9. Other Reports.............................24
SECTION 5.2. Inspection of Property, Books and Records..........24
SECTION 5.3. Adjusted Funded Debt/Adjusted Capitalization Ratio.24
SECTION 5.4. Minimum Shareholders' Equity.......................25
SECTION 5.5. Fixed Charge Coverage Ratio........................25
SECTION 5.6. Negative Pledge....................................25
SECTION 5.7. Maintenance of Existence...........................26
SECTION 5.8. Dissolution........................................26
SECTION 5.9. Consolidation, Mergers, and Sales of Assets........26
SECTION 5.10. Use of Proceeds....................................26
SECTION 5.11. Compliance with Laws; Payment of Taxes.............27
SECTION 5.12. Insurance..........................................27
SECTION 5.13. Change is Fiscal Year..............................27
SECTION 5.14. Maintenance of Property............................27
SECTION 5.15. Environmental Notices..............................27
SECTION 5.16. Environmental Matters..............................27
SECTION 5.17. Environmental Releases.............................27
SECTION 5.18. Investments........................................28
5.18.1. Current Assets............................28
5.18.2. Capital Expenditures......................28
5.18.3. Franchise Fees............................28
5.18.4. Escrow Deposits...........................28
5.18.5. Bank Accounts.............................28
5.18.6. Surplus Cash..............................28
5.18.7. Subsidiaries..............................28
5.18.8. Travel Advances...........................28
5.18.9. Special Life Insurance Program............29
5.18.10. Reserved..................................29
5.18.11. Other Restaurant Concepts.................29
5.18.12. Other Investments Generally...............29
SECTION 5.19. Subsidiary Debt....................................29
SECTION 5.20. Total Funded Debt/EBITDA Ratio.....................29
SECTION 5.21. Year 2000 Compatibility............................30
SECTION 5.22. Liquidity Facility.................................30
ARTICLE 6. DEFAULTS....................................................33
SECTION 6.1. Events of Default..................................30
6.1.1. Non-Payment...............................30
6.1.2. Failure to Observe Certain Covenants......30
6.1.3. Failure to Observe Covenants Generally....30
6.1.4. Misrepresentation.........................30
6.1.5. Cross-Default.............................30
6.1.6. Voluntary Bankruptcy......................31
6.1.7. Involuntary Bankruptcy....................31
6.1.8. ERISA.....................................31
6.1.9. Judgments.................................31
6.1.10. Tax Liens.................................32
6.1.11. Change of Control.........................32
6.1.12. Loss of Franchise Rights..................32
6.1.13. [Intentionally Omitted]...................32
6.1.14. Material Adverse Effect...................32
3
<PAGE>
ARTICLE 7. CHANGE IN CIRCUMSTANCES; COMPENSATION.......................32
SECTION 7.1. Basis for Determining Interest Rate Inadequate
or Unfair..........................................32
SECTION 7.2. Illegality.........................................33
SECTION 7.3. Increased Cost and Reduced Return..................33
7.3.1. Change of Law.............................33
7.3.2. Capital Adequacy..........................34
7.3.3. Notice of Determination...................34
7.3.4. Assignees Covered.........................34
SECTION 7.4. Base Rate Loans Substituted for Affected
Euro-Dollar Rate Loans.............................34
SECTION 7.5. Compensation.......................................34
ARTICLE 8. MISCELLANEOUS...............................................34
SECTION 8.1. Notices.....................................................34
SECTION 8.2. No Waivers.........................................35
SECTION 8.3. Expenses; Documentary Taxes........................35
SECTION 8.4. Indemnification....................................35
SECTION 8.5. Amendments and Waivers.............................35
SECTION 8.6. Successors and Assigns.............................36
8.6.1. No Assignment by Borrower.................36
8.6.2. Participation.............................36
8.6.3. Assignments...............................36
8.6.4. Disclosures...............................36
8.6.5. Status of Transferee......................36
SECTION 8.7. Confidentiality....................................36
SECTION 8.8. GEORGIA LAW........................................37
SECTION 8.9. Interpretation.....................................37
SECTION 8.10. CONSENT TO JURISDICTION............................37
SECTION 8.11. Counterparts.......................................37
SECTION 8.12. Survival...........................................37
SECTION 8.13. Entire Agreement: Amendment; Severability..........37
SECTION 8.14. TIME OF THE ESSENCE................................37
SECTION 8.15. Arbitration........................................38
SECTION 8.16. Preservation and Limitation of Remedies............38
SECTION 8.17. Bank Not a Joint Venturer..........................38
4
<PAGE>
EXHIBITS
EXHIBIT A Form of Notice of Borrowing
EXHIBIT B Form of Compliance Certificate
SCHEDULES
SCHEDULE 4.8 Existing Subsidiaries
SCHEDULE 5.6 Existing Permitted Liens
5
<PAGE>
CREDIT AGREEMENT
THIS CREDIT AGREEMENT, dated as of May __, 1998, is made between APPLE
SOUTH, INC., as Borrower; and FIRST UNION NATIONAL BANK, as Lender.
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
Subsidiaries 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 effective), 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 Monthly Interest Period, means
that interest rate per annum determined by the Bank to be equal to the quotient
obtained (rounded upwards, if necessary, to the next higher 1/100th of 1%) by
dividing (i) the applicable LIBOR Rate for such Monthly 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 Person 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.
"Agreement" means this Credit Agreement, together with all amendments and
modifications hereto.
"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 the Borrower of
all, or substantially all, of the Applebee's Neighborhood Grill & Bar
6
<PAGE>
restaurants owned by the Borrower for an aggregate amount of not less than Three
Hundred Fifty Million Dollars ($350,000,000), of which not less than Three
Hundred Forty Million Dollars ($340,000,000) shall be paid in cash and not more
than Ten Million Dollars ($10,000,000) may be paid by the issuance of purchase
money debt to the Borrower, 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.
"Assignee" has the meaning set forth in Section 8.6.3.
"Authority" has the meaning set forth in Section 7.2.
"Bank" means First Union National Bank (formerly known as First Union
National Bank of Georgia), a national banking association organized under the
laws of the United States of America, and its successors and permitted assigns.
"Bank's Address" means the address of the Bank referred to or specified in
Section 8.1.
"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 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 a Revolving Loan made
to the Borrower by the Bank pursuant to Article II. A Borrowing is a "Base Rate
Borrowing" if such Revolving Loan is a Base Rate Loan, a "LIBOR Market Index
Rate Borrowing" if such Revolving Loan is a LIBOR Market Index Rate Loan or a
"Euro-Dollar Rate Borrowing" if such Revolving Loan is a Euro-Dollar Rate Loan.
"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.
"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 7.2.
"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.
7
<PAGE>
"Commitment" means $30,000,000, as such amount is subject to further
reduction as provided in Section 2.7.
"Compliance Certificate" has the meaning set forth in Section 5.1.3.
"Consolidated Net Income," for any period, means the net income of the
Borrower and its Consolidated Subsidiaries for such period, determined on a
consolidated basis in accordance with GAAP, excluding, however, (i) any
extraordinary items and (ii) any equity interest of the Borrower or any
Consolidated Subsidiary in the unremitted earnings of any Person which is not a
Subsidiary, in each case as likewise determined on a consolidated basis in
accordance with GAAP.
"Consolidated Subsidiary" means at any date any Subsidiary or other entity
the accounts of which, in accordance with GAAP, would be consolidated with those
of the Borrower in its consolidated financial statements as of such date.
"Controlled Group" means all members of a controlled group of corporations
and all trades or businesses (whether or not incorporated) under common control
which, together with the Borrower, are treated as a single employer under
Section 414 of the Code.
"Default" means any condition or event which constitutes an Event of
Default or which with the giving of notice or lapse of time or both would,
unless cured or waived, become an Event of Default.
"Default Rate" means, with respect to any Revolving Loan, on any day, the
sum of two percent (2%) per annum in excess of the interest rate otherwise then
or thereafter payable on such Revolving Loan, but, in any event, not less than
two percent (2%) per annum in excess of the Base Rate.
"Dollars" or "$" means dollars in lawful currency of the United States of
America.
"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 Consolidated Net Income of the Borrower and its
Consolidated Subsidiaries for such period (considered 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
8
<PAGE>
Environmental Authority or any other entity, arising from or in any way
associated with any Environmental Requirement, whether or not incorporated 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 Requirement, 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.
"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 Monthly Interest Period, means that
interest rate per annum equal to the sum of (i) the Adjusted LIBOR Rate for such
Monthly Interest Period, plus (ii) one and one-quarter percent (1.25%). Each
such Euro-Dollar Rate shall remain in effect for the applicable Monthly Interest
Period and shall be adjusted to a new Euro-Dollar Rate as of the first day of
the next Monthly Interest Period.
"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 Reserve 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 the 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
9
<PAGE>
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 Bank on such day on such
transactions, as determined by the Bank.
"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 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
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 purposes 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
10
<PAGE>
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 with respect to each Borrowing, the period
commencing on the date of such Borrowing and ending on the date on which such
Borrowing is fully paid or converted to a Borrowing of a different type;
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 the Bank's office located at its address set forth
on the signature page hereof or such other office in the United States as the
Bank may hereafter designate as its Lending Office by notice to the Borrower.
"LIBOR Market Index Rate" means, for any day, is the rate per annum
(rounded to the next higher 1/100 of 1%) for 1 month U.S. dollar deposits as
reported on Telerate page 3750 as of 11:00 a.m., London time, on such day, or if
such day is not a London business day, then the immediately preceding London
business day (or if not so reported, then as determined by Bank from another
recognized source or interbank quotation), plus one and one quarter percent
(1.25%).
"LIBOR Market Index Rate Loan" means a Revolving Loan made at the LIBOR
Market Index Rate pursuant to Section 2.1.
"LIBOR Rate" means, for any Euro-Dollar Rate Loan for each Monthly Interest
Period, the rate per annum determined 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 Monthly
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
Banker's Association for the purpose of displaying London interbank offered
rates for U.S. dollar deposits), determined as of 10:00 A.M., New York City
time, on the first day of such Monthly Interest 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 Monthly 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 Bank, at
approximately 10:00 A.M., New York City time, on the first day of such Monthly
Interest Period, for deposits in Dollars offered to leading European banks for a
period comparable to such Monthly 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.
"Liquidity Agreement" shall mean the Credit Agreement, dated as of April 1,
1998, among Wachovia, as agent, the Borrower and the other lenders that are a
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party thereto, as amended, modified, supplemented or restated from time to time.
"Loan Documents" means this Agreement, the Note, any Subsidiary Guaranty,
any other documents evidencing or relating to the Revolving Loans, and any other
document, instrument, certificate or agreement delivered in connection with this
Agreement, the Note 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.
"Master Lease Agreement" shall mean the Master Equipment Lease Agreement,
dated as of September 24, 1997, between First Security Bank, National
Association, as owner trustee, and Borrower, as lessee, all "Operative
Documents" (as used in such agreement), and all modifications and amendments
thereto from time to time.
"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 the Borrower and its Consolidated Subsidiaries taken as a whole,
(b) the rights and remedies of the Bank 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, the Note or any Loan Document.
"Monthly Interest Period" shall mean, with respect to Euro-Dollar Rate
Borrowings, the period beginning on the first day of a calendar month and ending
on the last day of such calendar month.
"Multiemployer Plan" shall have the meaning set forth in Section 4001(a)(3)
of ERISA.
"Note" shall mean the promissory note, dated of even date herewith, from
the Borrower to the Bank in the original principal amount of $30,000,000,
together with all amendments, consolidations, modifications, renewals, and
supplements thereto, which note evidences all of the Revolving Loans.
"Notice of Borrowing" has the meaning set forth in Section 2.2.1.
"Participant" has the meaning set forth in Section 8.6.2.
"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 then 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 the
Bank from time to time as an interest rate basis for borrowings. The Prime Rate
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is but one of several interest rate bases used by the Bank. The Bank lends at
interest rates 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.
"Revolving Loan" means a Base Rate Loan or a Euro-Dollar Rate Loan made by
the Bank pursuant to Section 2.1.
"Sale-Leaseback Transaction" means any sale-leaseback transaction involving
the sale of any assets or properties of the Borrower or any Subsidiary to any
other Person and the leasing back of such asset or property by the Borrower or
any Subsidiary.
"Senior Note Indenture" means the Indenture of Trust, dated as of May 1,
1996, between SunTrust Bank and the Borrower, and including all applicable
covenants with respect to the Senior Notes contained in the Prospectus, dated as
of May 6, 1996, as supplemented May 23, 1996, for the Senior Notes.
"Senior Notes" means the Borrower's $125,000,000 9.75% Senior Notes due
June 1, 2006.
"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
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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.
"Termination Date" has the meaning set forth in Section 2.7.1.
"Third Parties" means all leases, subleases, 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 indebtedness 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 ($28,000,000.00),
it being understood and agreed that, subject to such limitation, no debts,
liabilities or obligations (including any constituting Guaranteed Obligations)
under the DR Holding Lease shall be included in the definition of Total Funded
Debt.
"Transferee" has the meaning set forth in Section 8.6.4.
"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.
"Unused Commitment" means at any date an amount equal to the Commitment
less the aggregate outstanding principal amount of the 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.
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"Wachovia" means Wachovia Bank of Georgia, National Association, a national
banking association, and its successors.
"Wachovia Credit Agreement" shall mean that certain Second Amended and
Restated Credit Agreement dated as of March 1, 1998, among Borrower, Wachovia,
as agent, and the other banks and financial institutions that are parties
thereto, as the same may be amended, restated, and supplemented from time to
time, and any loan or credit agreement executed in connection with the
refinancing of all or any substantial portion of the indebtedness outstanding
under such Second Amended and Restated Credit Agreement, as such loan or credit
agreement may be amended, restated, and supplemented from time to time.
SECTION 1.2. Accounting Terms and Determinations.
Unlike 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 accountants 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 Bank; provided, however, that upon any change in
GAAP material to Borrower occurring hereafter, the Bank 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 require 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 CREDIT
SECTION 2.1. Commitment to Lend.
The Bank agrees, on the terms and conditions set forth herein, to make
Revolving Loans to the Borrower from time to time before the Termination Date;
provided that, immediately after each such Revolving Loan is made, the aggregate
principal amount of Revolving Loans shall not exceed the amount of the
Commitment, as the same may be reduced from time to time pursuant to Section
2.7. Each Borrowing under this Section shall be in an aggregate principal amount
of One Million Dollars ($1,000,000.00) or any larger multiple of Five Hundred
Thousand Dollars ($500,000.00) (except that any such Borrowing may be in the
aggregate amount of the Unused Commitment). 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.
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SECTION 2.2. Method of Borrowing.
2.2.1. Notice to Bank. The Borrower shall give the Bank notice (a "Notice
of Borrowing"), which shall be substantially in the form of Exhibit A, not later
than 11:00 a.m. (Atlanta, Georgia time) on the day of each Borrowing,
specifying:
(1) the date of such Borrowing,
(2) the aggregate amount of such Borrowing, and
(3) whether such Borrowing is to be a Base Rate Loan, a LIBOR Market Index
Rate Loan or Euro-Dollar Rate Loan.
2.2.2. When Revolving Loans Made. Not later than 1:00 p.m. (Atlanta,
Georgia time) on the date of each Borrowing, the Bank shall (except as provided
in Section 2.2.3) make available such Borrowing, in Federal or other funds
immediately available in Atlanta, Georgia, to the Borrower at the Bank's Address
unless the Bank determines that any applicable condition specified in Article 3
has not been satisfied.
2.2.3. Application of Certain Proceeds. If the 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, the 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 to the Borrower as provided in Section 2.2.2.
2.2.4. 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.
SECTION 2.3. Note.
2.3.1. Single Note. The Revolving Loans shall be evidenced by the Note,
payable to the order of the Bank for the account of its Lending Office, in an
amount equal to the original principal amount of the Commitment.
2.3.2. Endorsement to Note. The Bank may record and, prior to any transfer
of the Note shall, endorse on the schedule forming a part thereof appropriate
notations to evidence the date, amount and maturity of each Revolving Loan, 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 the Note; provided that the failure of the
Bank to make any such recordation or endorsement shall not affect the obligation
of the Borrower hereunder or under the Note. The Bank is hereby irrevocably
authorized by the Borrower so to endorse the Note and to attach to and make a
part of the 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.
SECTION 2.5. Interest Rates.
Subject to the terms of Section 7.1:
2.5.1. Base Rate Loans. Each Base Rate Loan 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. Such interest shall be payable monthly, in
arrears, on the tenth day after the last day of each calendar month, in respect
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of interest accrued in such month (or portion thereof), commencing on June 10,
1998 (with the first payment date to cover the principal balance outstanding
during the period from the date hereof until May 31, 1998), 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. LIBOR Market Index Rate Loans. Each LIBOR Market Index Rate Loan
shall bear interest on the outstanding principal amount thereof, for the
Interest Period applicable thereto, at a rate per annum equal to the LIBOR
Market Index Rate, as it may change from day to day during such Interest Period.
Such interest shall be payable monthly, in arrears, on the tenth day after the
last day of each calendar month, in respect of interest accrued in such month
(or portion thereof), commencing on June 10, 1998 (with the first payment date
to cover the principal balance outstanding during the period from the date
hereof until May 31, 1998), until maturity and thereafter on demand. Any overdue
principal of and, to the extent permitted by applicable law, overdue interest on
any LIBOR Market Index Rate Loan shall bear interest, payable on demand, for
each day until paid at a rate per annum equal to the Default Rate.
2.5.3. Euro-Dollar Rate Loans. Each Euro-Dollar Rate Loan shall bear
interest on the outstanding principal amount thereof at the Euro-Dollar Rate for
such Monthly Interest Period (or portion thereof during which it is
outstanding). If a Euro-Dollar Rate Loan shall be outstanding during more than
one calendar month, the interest rate thereon shall be adjusted to the new
Euro-Dollar Rate as of the first day of the next succeeding Monthly Interest
Period during which it is outstanding. Such interest shall be payable for each
Interest Period on the tenth day after 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.
2.5.4. Bank to Determine. The Bank shall determine each interest rate
applicable to the Revolving Loans hereunder. The Bank shall give prompt notice
to the Borrower by telecopier of each rate of interest so determined, and its
determination thereof shall be conclusive in the absence of manifest error.
2.5.5. 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 Bank 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 the 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 the
Bank shall promptly refund to the Borrower any interest received by the Bank in
excess of the maximum lawful rate or, if so requested by the Borrower, shall
apply such excess to the principal balance of the Note. It is the intent hereof
that the Borrower not pay or contract to pay, and that the Bank 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.
SECTION 2.6. Closing Fee.
The Borrower shall pay to the Bank on the Closing Date a fully earned,
non-refundable closing fee of $7,500.
SECTION 2.7. Termination or Reduction of Commitment.
2.7.1. Termination of Commitments. The Commitment shall terminate on the
earlier of (i) March 1, 1999 or (ii) the occurrence of an Event of Default
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hereunder (the "Termination Date"), and any Revolving Loans then outstanding
(together with accrued interest thereon) shall be due and payable on such date.
In addition to the foregoing, the Borrower shall have the right to terminate the
Commitment at any time if no Borrowings are then outstanding or all Borrowings
are repaid or prepaid in accordance with the terms of Section 2.9, as the case
may be, on or prior to such early termination, provided that (i) the Borrower
shall have given at least one (1) Domestic Business Day's advance written notice
to the Bank of such election and (ii) any such notice of termination shall be
irrevocable once made.
2.7.2. Mandatory Reduction and Reinstatement of Commitment. If at any time
the Borrower's "Consolidated Fixed Charge Coverage Ratio" (as defined in the
Senior Note Indenture) is equal to or less than 2.5:1.0, the Commitment shall be
automatically and without further action on the part of the Bank, the Borrower
or any other Person, reduced to $20,000,000. At such time as the Borrower
provides a written certification to the Bank that the "Consolidated Cash Flow
Coverage Ratio" (as defined in the Senior Note Indenture) exceeds 2.5:1.0, the
Commitment shall thereafter be increased to $30,000,000 without any further
action on the part of the Bank, the Borrower or any other Person.
SECTION 2.8. Optional Prepayments.
The Borrower may, on any Business Day, upon giving notice to the Bank by
not later than 11:00 A.M. (Atlanta, Georgia time) on such Business Day, and
making payment to the Bank, on such Business Day of any compensation required by
Section 7.5, 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 the
Revolving Loans.
SECTION 2.9. Mandatory Prepayments.
On each date, if any, on which the Commitment is 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 Commitment 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 7.5.
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 any fees hereunder, not later than 2:00
P.M. (Atlanta, Georgia time) on the date when due, in Federal or other funds
immediately available in Atlanta, Georgia, to the Bank's Address.
2.10.2. Next Banking Day. Whenever any payment of principal of, or interest
on, any Loans or of any 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.
SECTION 2.11. Computation of Interest.
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.
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ARTICLE 3. CONDITIONS TO BORROWINGS
SECTION 3.1. Conditions to First Borrowing.
The obligation of the Bank to make the initial 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 Bank of the following:
3.1.1. This Agreement. A duly executed counterpart of this Agreement signed
by the Borrower;
3.1.2. Note. The duly executed Note 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, in form and substance satisfactory to the Bank;
3.1.4. Closing Certificate. A certificate ("Closing Certificate"), dated as
of the Closing Date, in form and substance satisfactory to the Bank, 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 Bank may reasonably request
relating to the existence of the Borrower, the corporate authority for and the
validity of this Agreement, the Note and the other Loan Documents, and any other
matters relevant hereto, all in form and substance satisfactory to the Bank,
including, without limitation, a certificate of incumbency of the Borrower,
signed by the Secretary or an Assistant Secretary of the Borrower, 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 Note and the other Loan Documents to which the Borrower is a
party;
3.1.6. Borrowing Notice. A Notice of Borrowing.
SECTION 3.2. Conditions to All Borrowings.
The obligation of the 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 Bank 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 will not
exceed the amount of the 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.
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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 and each Subsidiary
which is party thereto of this Agreement, the Note and the other Loan Documents
(i) are within the Borrower's and such Subsidiary'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 such Subsidiary 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 Note and the other Loan
Documents, when executed and delivered in accordance with this Agreement, will
constitute valid and binding obligations of the Borrower and each Subsidiary
party thereto 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 December 31, 1997, 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 the Bank, and the unaudited financial statements of the Borrower and its
Consolidated Subsidiaries as of and for the Fiscal Quarter ended closest to
March 31, 1998, copies of which have been delivered to the Bank, 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,
1995, 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 Note 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 governmental authorities (including, but not limited to,
PBGC), non-compliance 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 Borrower 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 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 5.7.
SECTION 4.11. No Default.
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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 continuing.
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 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 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 Bank 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, 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 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 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 (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.
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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.
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 areas by companies of established repute engaged in the same or
similar business.
ARTICLE 5. COVENANTS
The Borrower agrees that, so long as the Bank has any Commitment hereunder
or any amount payable hereunder or under the Note remains unpaid:
SECTION 5.1. Information.
The Borrower will deliver to the Bank:
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 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 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 satisfied 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 consolidated 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 B (a "Compliance
Certificate"), of the chief financial officer of the Borrower (i) setting forth
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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, and 5.18 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 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 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 coy 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. Credit Agreements. Promptly upon the occurrence thereof, (x) notice
of any "default" or "event of default" under, or amendment of, (i) the Wachovia
Agreement, (ii) the Master Lease Agreement, the (iii) Liquidity Agreement, or
(iv) the Senior Notes or the Senior Note Indenture pursuant to which such Senior
Notes were issued and (y) notice that the Borrower's "Consolidated Fixed Charge
Coverage Ratio" (as defined in the Senior Note Indenture) does not exceed
2.5:1.0.
5.1.9. Other Reports. From time to time such additional information
regarding the financial position or business of the Borrower and its
Subsidiaries as the 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 the Bank at the 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
accounts. 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.
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SECTION 5.4. Minimum Shareholders' Equity.
Stockholders' Equity will at no time be less than the sum of (i)
$180,000,000, as of the Fiscal Quarter ended closes 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 5.18.
SECTION 5.5. Fixed Charge Coverage Ratio.
Borrower's Fixed Charge Coverage Ratio, measured on a rolling four (4)
Fiscal Quarters' basis as of the end of such Fiscal Quarter, commencing with the
Fiscal Quarter ending closest to December 31, 1997, shall be (i) not less than
1.80:1.0 for the Fiscal Quarter ending closest to December 31, 1997, March 31,
1998 and June 30, 1998, (ii) not less than 1.90:1.0 for the Fiscal Quarter
ending closest to September 30, 1998 and (iii) 2.0:1.0 for each Fiscal Quarter
ending thereafter.
SECTION 5.6. 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 5.6,
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 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 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 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, 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
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business (but excluding, however, Sale-Leaseback Transactions to the extent not
permitted by Section 5.9) 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 5.7. Maintenance of Existence.
Except as permitted in Section 5.9, 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 5.8. 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 5.9.
SECTION 5.9. Consolidation, Mergers, and Sales of Assets.
The Borrower will not, nor will it permit any Subsidiary to, consolidated
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 5.18, 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
or Event of Default shall have occurred and be continuing; 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; and
provided, further, that the Borrower may, upon giving at least two (2) Business
Days' written notice to the Lender thereof, consummate an Applebee's Spinoff, if
made on the terms set forth within the definition thereof, and provided that the
Net Cash Proceeds therefrom, to the extent not used to repay, in full or in
part, the indebtedness of Borrower then existing under the Wachovia Agreement
are used either (i) to make an optional prepayment of any Borrowings then
outstanding hereunder, or (ii) to make investments permitted under Section 5.18
or (iii) for working capital in Borrower's business; but for no other purposes.
SECTION 5.10. Use of Proceeds.
The proceeds of Revolving Loans will be used by the Borrower solely for
working capital purposes, and for no other purposes. Without limiting the
generality 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 if a
majority or controlling interest of the officers, directors or shareholders of
such corporation shall be opposed to such acquisition by the Borrower, (ii)
directly or indirectly, for the purpose, whether immediate, incidental or
ultimate, of purchasing or carrying any Margin Stock, or (iii) for any purpose
in violation of any term of this Agreement or of any applicable law or
regulation.
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SECTION 5.11. 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 Bank, the Borrower will set up reserves in accordance with
GAAP.
SECTION 5.12. 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 5.13. Change is Fiscal Year.
The Borrower will not change its Fiscal Year without the consent of the
Bank.
SECTION 5.14. 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 5.15. Environmental Notices.
The Borrower shall furnish to the Bank, promptly after the Borrower becomes
aware thereof, written notice of all Environmental Liabilities, pending,
threatened Environmental Proceedings, Environmental Notices, Environmental
Judgements and Orders and 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.
SECTION 5.16. Environmental Matters.
The Borrower 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.
SECTION 5.17. 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.
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SECTION 5.18. 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, 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 Borrower (or any Subsidiary) may, from time
to time, undertake the following, without the necessity of obtaining the Bank's
prior written consent thereto:
5.18.1. 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);
5.18.2. Make capital expenditures in the ordinary course of its business;
5.18.3. Pay franchisee fees and royalties to its franchisors in the
ordinary course of its business;
5.18.4. Make or maintain escrow deposits for the payment of taxes, rents,
utilities, insurance or like matters in the ordinary course of its business;
5.18.5. 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;
5.18.6. 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, the 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 lest "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;
5.18.7. 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 the
consolidated total assets of Borrower and its Consolidated Subsidiaries at any
time prior to December 30, 1997, and (B) seven and one-half percent (7-1/2%) of
the consolidated total assets of Borrower and its Consolidated Subsidiaries on
or at any time after December 31, 1997, but prior to the Termination Date; 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; and (c) the
provisions of this clause (vii) henceforth 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 5.18 (including, particularly, clauses (x), (xi) and
(xii) below) which may be construed otherwise to permit such investments.
5.18.8. Make travel and similar advances to employees from time to time in
the
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ordinary course of business.
5.18.9. 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;
5.18.10. (10) Reserved
5.18.11. Make investments in new restaurant concepts, 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
Borrower's consolidated total assets immediately before such investment (or the
last in a series of related, concurrent investments) is made; or
5.18.12. 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 Bank from time to time, but not less
frequently than quarterly, or at any time at the Bank's request, of the nature
and amount of any investments made pursuant to clauses (xi) and (xii) hereof
which, individually or in the aggregate, exceed One Hundred Thousand Dollars
($100,000).
Notwithstanding anything in this Section 5.18 to the contrary, no
Subsidiary shall be required to comply with, and Borrower shall not be required
to cause any Subsidiary to comply with, any part of clause (vii), (xi) and (xii)
of this Section 5.18 to the extent it would cause a violation of any term of the
Senior Notes or the Senior Note Indenture.
SECTION 5.19.Subsidiary Debt
Except solely to the extent expressly permitted in clause (vii) of Section
5.18 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.
SECTION 5.20.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) EBITDA of the
Borrower and its Consolidated Subsidiaries, measure on a rolling four (4) Fiscal
Quarters' basis as of the end of such Fiscal Quarter, shall be (i) no more than
3.8:1.0 for the Fiscal Quarters ending closest to December 31, 1997 and March
31, 1998 and (ii) no more than 3.50:1.0 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,
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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 matter which the Borrower shall
determine, but subject to prior review with, and approval by, the Lender.
SECTION 5.21.Year 2000 Compatibility
Borrower shall take all action necessary to assure that Borrower and its
Subsidiaries computer based systems are able to operate and effectively process
data including dates on and after January 1, 2000, and at the request of Bank,
Borrower shall provide to Bank assurances acceptable to Bank of Borrower's Year
2000 compatibility.
SECTION 5.22.Liquidity Facility
The Borrower shall maintain at all times, in addition to its senior
revolving credit facility under the Wachovia Agreement, a liquidity facility in
a principal amount of at least $100,000,000, with a maturity date no earlier
than July 1, 1999, on an unsecured basis and with representations, warranties,
covenants and defaults that are no more restrictive than the representations,
warranties, covenants and defaults set forth in this Agreement.
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. 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. The Borrower shall fail to observe or perform any covenant contained
in Sections 5.3 through 5.8, 5.9, 5.10, 5.11, 5.14, or 5.18, inclusive; or
6.1.3. 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 Bank or (ii) an executive, senior
financial or accounting officer of the Borrower otherwise becomes aware of any
such failure; or
6.1.4. 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. The Borrower or any Subsidiary shall fail to make any payment in
respect of the Wachovia Credit Agreement, the Master Lease Agreement, the Senior
Notes, the Liquidity Agreement or any other debt, liability or obligation
outstanding individually or in the aggregate with all other such debts,
liabilities or
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obligations, equal to or in excess of Five Hundred Thousand Dollars ($500,000),
other than the Note, when due or within any applicable grace period; or any
event or condition shall occur which results in the acceleration of the maturity
of the debt evidenced by the Wachovia Credit Agreement, the Master Lease
Agreement, the Senior Notes, the Liquidity Agreement or any other 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 the debt evidenced by the Wachovia
Credit Agreement, the Master Lease Agreement, the Senior Notes, the Liquidity
Agreement or any such other 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) Wachovia (as agent under the Wachovia Credit Agreement), the
"Owner Trustee" (as used in the Master Lease Agreement), or any assignee or
agent on behalf of such Owner Trustee, the holders of the Senior Notes, Wachovia
(as agent under the Liquidity Agreement) or the holders of any such other 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. 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. 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. 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. 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
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6.1.10. 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. 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
Borrower; 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 directors 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. 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. .13. [Intentionally Omitted]
6.1.14. The occurrence of any event, act, occurrence, or condition which
the Bank determines either does or has a reasonable probability of causing, or
resulting in, a Material Adverse Effect;
then, and in every such event, the Bank may by notice to the Borrower
terminate the Commitment and it shall thereupon terminate, and (ii) by notice to
the Borrower declare the Note (together with accrued interest thereon) to be,
and the Note 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 Bank, the Commitment shall
thereupon terminate and the Note (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 Bank shall have available to it all other remedies at law or
equity, and may exercise any one or all of them at its discretion.
ARTICLE 7. CHANGE IN CIRCUMSTANCES; COMPENSATION
SECTION 7.1.Basis for Determining Interest Rate Inadequate or Unfair
If on or prior to the first day of any Interest Period, the Bank determines
that deposits in Dollars (in the applicable amounts) are not being offered in
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the relevant market for such Interest Period, or the Bank determines that the
Adjusted LIBOR Rate, as determined by the Bank, will not adequately and fairly
reflect the cost to the Bank of funding the relevant Euro-Dollar Rate Loans for
such Interest Period, then, the Bank shall forthwith give notice thereof to the
Borrower, whereupon until the Bank notifies the Borrower that the circumstances
giving rise to such suspensions no longer exist, the obligations of the Bank to
make the Euro-Dollar Rate Loans specified in such notice shall be suspended.
Unless the Borrower notifies the Bank 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.
SECTION 7.2.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 the 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 the Bank (or its Lending
Office) to make, maintain or fund its Euro-Dollar Rate Loans, the Bank shall
forthwith give notice thereof to the Borrower, whereupon until the Bank notifies
the Borrower that the circumstances giving rise to such suspension no longer
exist, the obligation of the Bank to make Euro-Dollar Rate Loans shall be
suspended. If the 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, together
with accrued interest thereon. Concurrently with prepaying each such Euro-Dollar
Rate Loan, the Borrower shall borrow, pursuant to Section 2.2.2, a Base Rate
Loan in an equal principal amount (on which interest and principal shall be
payable contemporaneously with the related Euro-Dollar Rate Loans), and the Bank
shall make such a Base Rate Loan.
SECTION 7.3.Increased Cost and Reduced Return
7.3.1. If after the date hereof, a Change of Law or compliance by the 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 the Revolving
Loans, the Note or its obligation to make Revolving Loans, or shall change the
basis of taxation of payments to the Bank (or its Lending Office) of the
principal of or interest on the Revolving Loans or any other amounts due under
this Agreement in respect of the Revolving Loans or its obligation to make
Revolving Loans (except for changes in the rate of tax on the overall net income
of the Bank or its Lending Office imposed by the jurisdiction in which the
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 requirements
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,
the Bank (or its Lending Office); or (iii) shall impose on the Bank (or its
Lending Office) or the London Interbank Market any other similar condition
affecting the Revolving Loans, the Note or its obligation to make Revolving
Loans; and the result of any of the foregoing is to increase the cost to the
Bank (or its Lending Office) of making or maintaining any Revolving Loan, or to
reduce the amount of any such received or receivable by the Bank (or its Lending
Office) under this Agreement or under the Note with respect thereto, by an
amount deemed by the Bank to be material, then, within fifteen (15) days after
demand by the Bank the Borrower shall pay to the Bank such additional amount or
amounts as will compensate the Bank for such increased cost or reduction.
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7.3.2. If the 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 the 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
the Bank's capital as a consequence of its obligations hereunder to a adoption,
change or compliance (taking into consideration the Bank's policies with respect
to capital adequacy), by an amount deemed by the Bank to be material, then from
time to time, within fifteen (15) days after demand by the Bank, the Borrower
shall pay to the Bank such additional amount or amounts as will compensate the
Bank for such reduction.
7.3.3. The Bank will promptly notify the Borrower of any event of which it
has knowledge, occurring after the date hereof, which will entitle the 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 the Bank, be otherwise
disadvantageous to the Bank, in any respect deemed material by the Bank. A
certificate of the 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, the
Bank may use any reasonable averaging and attribution methods.
7.3.4. The provisions of this Section 7.3 shall be applicable 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 7.4.Base Rate Loans Substituted for Affected Euro-Dollar Rate Loans
If (i) the obligation of the Bank to make or maintain Euro-Dollar Rate
Loans has been suspended pursuant to Section 7.2 or (ii) any Bank has demanded
compensation under Section 7.3.1, and the Borrower shall, by at least five (5)
Euro-Dollar Business Days' prior notice to the Bank have elected that the
provisions of this Section shall apply to the Bank, then, unless and until the
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 the Bank as Euro-Dollar Rate Loans, shall be made instead
as Base Rate Loans and (ii) after each of the Euro-Dollar Rate Loans has 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 7.5.Compensation
Upon the request of the Bank, delivered to the Borrower, the Borrower shall
pay to the Bank such amount or amounts as shall compensate the Bank for any
actual out of pocket loss, cost or expense incurred by the Bank (in connection
with the relevant Interest Period) as a result of: (i) any payment or prepayment
(whether pursuant to Section 7.2 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 failure 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.
ARTICLE 8. MISCELLANEOUS
SECTION 8.1.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
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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 the 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 Bank under
Article 2 shall not be effective until received.
SECTION 8.2.No Waivers
No failure or delay by the 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 8.3.Expenses; Documentary Taxes
The Borrower shall pay (i) all out-of-pocket expenses of the Bank,
including fees and disbursements of special counsel for the Bank, 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 Bank, including fees and
disbursements of counsel (including a reasonable allocation of the cost of
internal counsel), in connection with such Default and collection and other
enforcement proceedings resulting therefrom, including out-of-pocket expenses
incurred in enforcing this Agreement, the Note and other Loan Documents. The
Borrower shall indemnify the Bank against any transfer taxes, documentary taxes,
assessments or charges made by any Authority by reason of the execution and
delivery of this Agreement, the Note or the other Loan Documents.
SECTION 8.4.Indemnification
The Borrower shall indemnify the Bank 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 the Bank hereunder or breach by
the Borrower of this Agreement, the Note 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 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 8.4
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 8.4 are meant to be without duplication of any other indemnification
provisions set forth in this Agreement.
SECTION 8.5.Amendments and Waivers
Any provision of this Agreement, the Note 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 Bank.
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SECTION 8.6.Successors and Assigns
8.6.1. The provisions of this Agreement shall be binding upon and insure 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.
8.6.2 The 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, the Note, the Commitment hereunder or any other interest of the
Bank hereunder. In the event of any such sale by the Bank of a participating
interest to a Participant, the Bank's obligations under this Agreement shall
remain unchanged, the Bank shall remain solely responsible for the performance
thereof, the Bank shall remain the holder of the Note for all purposes under
this Agreement, and the Borrower shall continue to deal solely and directly with
the Bank in connection with the Bank's rights and obligations under this
Agreement. The Bank, if it sells a participating interest in the Revolving Loan,
Note, Commitment or other interest under this Agreement, shall, within ten (10)
Domestic Business Days of such sale, provide the Borrower with written
notification stating that such sale has occurred and identifying the Participant
and the interest purchased by such Participant. The Bank and the Borrower agree
that each Participant shall be entitled to the benefits of Article 7 with
respect to its participation in Revolving Loans outstanding from time to time,
but only to the extent that the Bank would have been entitled thereto pursuant
to the terms of this Agreement.
8.6.3. The 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 Note, and such Assignee
shall assume all such rights and obligations.
8.6.4. Subject to the provisions of Section 8.7, the Borrower authorizes
the Bank to disclose to any Participant, Assignee or other transferee (each a
"Transferee") and any prospective Transferee any and all information in the
Bank's possession concerning the Borrower which has been delivered to the Bank
by the Borrower pursuant to this Agreement or which has been delivered to the
Bank by the Borrower in connection with the Bank's credit evaluation prior to
entering into this Agreement.
8.6.5. No Transferee shall be entitled to receive any greater payment under
Section 7.3 than the 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 7.2 or 7.3 requiring
the 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 8.7.Confidentiality
The Bank 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 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 the 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 the Bank
from disclosing such information (i) upon the order of any court or
administrative agency, (ii) upon the request or demand of any regulatory agency
or authority having jurisdiction over the Bank, (iii) which has been publicly
disclosed other than by an act or omission of the Bank except as permitted
herein, (iv) 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
36
<PAGE>
Subsidiary owing to the Bank) to which the Bank or its Affiliates may be a
party, (v) to the extent reasonably required in connection with the exercise of
any remedy hereunder, (vi) to the Bank's legal counsel and independent auditors
and (vii) 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 8.7.
SECTION 8.8.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 8.9.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 8.10.CONSENT TO JURISDICTION
THE BORROWER AND THE BANK IRREVOCABLY (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 NOTE AND THE OTHER LOAN DOCUMENTS, (B) WAIVE 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 NOTE OR THE
OTHER LOAN DOCUMENTS, AND (C) AGREES THAT SERVICE OF PROCESS MAY BE MADE UPON IT
IN THE MANNER PRESCRIBED IN SECTION 8.1 FOR THE GIVING OF NOTICE TO THE
BORROWER. NOTHING HEREIN CONTAINED, HOWEVER, SHALL PREVENT THE BANK 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 8.11.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 8.12.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
Note and termination of the Commitment.
SECTION 8.13.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 8.5. 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 circumstances shall not be affected thereby and shall
be enforced to the greatest extent permitted by law.
SECTION 8.14.TIME OF THE ESSENCE
TIME IS OF THE ESSENCE IN THIS AGREEMENT, THE NOTE AND THE OTHER LOAN
DOCUMENTS.
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SECTION 8.15.Arbitration
Upon demand of any party hereto, whether made before or after institution
of any judicial proceeding, any dispute, claim or controversy arising out of,
connected with, or relating to this Agreement and other Loan Documents
("Disputes") between or among parties to this Agreement shall be resolved by
binding arbitration as provided herein. Institution of a judicial proceeding by
a party does not waive the right of that party to demand arbitration hereunder.
Disputes may include, without limitation, tort claims, counterclaims, disputes
as to whether a matter is subject to arbitration, claims brought as class
actions, claims arising from Loan Documents executed in the future, or claims
arising out of or connected with the transaction reflected by this Agreement.
Arbitration shall be conducted under and governed by the Commercial
Financial Disputes Arbitration Rules (the "Arbitration Rules") of the American
Arbitration Association (the "AAA") and Title 9 of the U.S. Code. All
arbitration hearings shall be conducted in the city in which the office of
Lender first stated above is located. The expedited procedures set forth in Rule
51 et seq. of the Arbitration Rules shall be applicable to claims of less than
$1,000,000. All applicable statutes of limitation shall apply to any Dispute. A
judgment upon the award may be entered in any court having jurisdiction. The
panel from which all arbitrators are selected shall be comprised of licensed
attorneys. The single arbitrator selected for expedited procedure shall be a
retired judge from the highest court of general jurisdiction, state or federal,
of the estate where the hearing will be conducted or if such person is not
available to serve, the single arbitrator may be a licensed attorney.
Notwithstanding the foregoing, this arbitration provision does not apply to
disputes under or related to swap agreements.
SECTION 8.16.Preservation and Limitation of Remedies
Notwithstanding the preceding binding arbitration provisions, Bank and
Borrower agree to preserve, without diminution, certain remedies that any party
hereto may employ or exercise freely, independently or in connection with an
arbitration proceeding or after an arbitration action is brought. Bank and
Borrower shall have the right to proceed in any court of proper jurisdiction or
by self-help to exercise or prosecute the following remedies, as applicable; (i)
all rights to foreclose against any real or personal property or other security
by exercising a power of sale granted under Loan Documents or under applicable
law or by judicial foreclosure and sale, including a proceeding to confirm the
sale; (ii) all rights of self-help including peaceful possession of personal
property; (iii) obtaining provisional or ancillary remedies including injunctive
relief, sequestration, garnishment, attachment, appointment of receiver and
filing an involuntary bankruptcy proceeding; and (iv) when applicable, a
judgment by confession of judgment. Preservation of these remedies does not
limit the power of an arbitrator to grant similar remedies that may be requested
by a party in a Dispute.
Bank and Borrower agree that they shall not have a remedy of punitive or
exemplary damages against the other in any Dispute and hereby waive any right or
claim to punitive or exemplary damages they have now or which may arise in the
future in connection with any Dispute whether the Dispute is resolved by
arbitration or judicially.
SECTION 8.17.Bank 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 the Bank a partner or
joint venturer with the Borrower or as creating any similar relationship or
entity.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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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:
Title:______________________________
Attest:
Title:_______________________________
Apple South, Inc.
Corporate Headquarters
Hancock at Washington
Madison, Georgia 30650
Attn: Erich J. Booth,
Chief Financial Officer
Telecopier Number: (706) 342-4057
"BANK"
FIRST UNION NATIONAL BANK
By:
Title:
Lending Office:
First Union National Bank
999 Peachtree Street, N.E.
12th Floor
Atlanta, Georgia 30309
Attention: Georgia Corporate Banking
Telecopier Number: 404/225-4255
39
AMENDMENT TO CREDIT AGREEMENT
This Amendment to Credit Agreement (this "Amendment") is made and entered
into as of the 28th day of June, 1998 between Apple South, Inc. (the "Borrower")
and First Union National Bank (the "Lender").
W I T N E S S E T H:
WHEREAS, the Borrower and the Lender have made and entered into that
certain Credit Agreement, dated as of May 8, 1998 (as amended, modified,
supplemented, or restated from time to time, the "Credit Agreement"; capitalized
terms used herein and not otherwise defined shall have the meanings assigned
thereto in the Credit Agreement);
WHEREAS, pursuant to the Credit Agreement, the Lender has extended to the
Borrower a revolving loan facility in the principal amount of up to $30,000,000;
WHEREAS, the Borrower wishes to amend certain provisions of the Credit
Agreement, as set forth herein;
WHEREAS, the Lender is willing to agree to the foregoing on the terms as
set forth herein;
NOW THEREFORE, for and in consideration of the foregoing and for ten
dollars ($10.00) and other good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties hereto agree as follows:
ARTICLE 1
Existing Definitions
Capitalized terms not otherwise defined herein shall have the meaning or
meanings ascribed to them in the Credit Agreement.
ARTICLE 2
Amendments to Credit Agreement
Section 2.1 Section 1.1 of the Credit Agreement is hereby amended by adding
the following new definitions:
"Subsidiary Guarantor" shall mean any wholly-owned Subsidiary of Borrower
which has executed a Subsidiary Guaranty pursuant to Section 5.23 hereof.
"Subsidiary Guaranty" shall mean a guaranty, in substantially the form of
Exhibit C attached hereto, pursuant to which a wholly-owned Subsidiary of
Borrower shall guarantee all debts, liabilities and obligations of the Borrower
hereunder, all in accordance with Section 5.23.
Section 2.2 Clause (vii) of Section 5.18 of the Credit Agreement is hereby
amended in its entirety to read as follows:
(vii) Subsidiaries. Make investments in Consolidated Subsidiaries of 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, other than any which are Subsidiary
Guarantors (as to which no limitation shall apply), shall not exceed five
percent (5%) of consolidated total assets of Borrower and its Consolidated
Subsidiaries; 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
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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 5.18 (including, particularly, clauses (x),
(xi) and (xii) below) which may be construed otherwise to permit such
investments.
Section 2.3 Section 5.19 of the Credit Agreement is hereby amended in its
entirety to read as follows:
SECTION 5.19. Subsidiary Debt.
Except as to the extent expressly permitted in clause (vii) of Section 5.18
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, unless such
Subsidiary has executed and delivered to the Lender a Subsidiary Guaranty and
all other Subsidiary Guaranty Documents required by Section 5.21: (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) Guaranties; (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.
Section 2.4 The Credit Agreement is hereby amended by adding a new Section
5.23 to read in its entirety as follows:
SECTION 5.21. Subsidiary Guaranties.
Effective as of June 1, 1998, Borrower shall cause each Consolidated
Subsidiary of the Borrower which is a wholly-owned Subsidiary, directly or
indirectly, of Borrower then existing or thereafter acquired or coming into
existence (excepting therefrom any having total assets of less than Ten Thousand
Dollars ($10,000) to execute a Subsidiary Guaranty, together with all other such
documents which the Lender may reasonably request in connection therewith,
including a secretary's certificate, confirming the existence of enabling
authorization in respect of such Subsidiary Guarantor and signing officer
incumbency, and an opinion of counsel, confirming that such Subsidiary Guaranty
is a valid, binding and enforceable obligation of the Subsidiary party thereto,
subject to customary assumptions, exceptions and limitations acceptable to Agent
(herein called, collectively, together with the Subsidiary Guaranties, the
"Subsidiary Guaranty Documents"). As to all such Subsidiaries in existence on
June 1, 1998, Borrower shall cause all such Subsidiary Guaranty Documents in
respect thereof to have been executed and delivered as soon as practicable but
in any event by July 15, 1998. As to all such Subsidiaries acquired or coming
into existence subsequent to June 1, 1998, Borrower shall cause all such
Subsidiary Guaranty Documents in respect thereof to have been executed and
delivered as soon as practicable after, but in any event within thirty (30) days
after, its acquisition or creation.
Section 2.5 The Credit Agreement is hereby amended by adding a new Exhibit
C to read in its entirety as set forth in Exhibit C to this Amendment.
Section 2.6 Schedule 4.8 to the Credit Agreement is hereby amended in its
entirety to read as set forth in Schedule 4.8 hereto.
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<PAGE>
ARTICLE 3
Conditions to Effectiveness
Section 3.1 Effective Date. The amendments to the Credit Agreement set
forth in this Amendment shall become effective as of the date first written
above (the "Effective Date"), after all the conditions set forth in Sections 3.2
through 3.6 shall have been satisfied.
Section 3.2 Execution of this Amendment. This Amendment shall have been
executed and delivered by the Borrower.
Section 3.3 Amendment of Liquidity Agreement , Wachovia Credit Agreement
and Senior Notes and Senior Note Indenture. Borrower shall have entered into
amendments to the Liquidity Agreement, Wachovia Credit Agreement and Senior
Notes and Senior Note Indenture effecting substantially the same changes as are
effected to the Credit Agreement by Article 2 hereof, true and correct copies of
which shall have been provided to the Lender, and which shall be satisfactory in
form, scope and substance to Lender.
Section 3.4 Subsidiary Guaranties. The Lender shall have received
Subsidiary Guaranties from each of the Borrower's Subsidiaries listed on
Schedule 4.8 hereto, together with all applicable Subsidiary Guaranty Documents,
each of which shall be satisfactory in form, scope and substance to Lender.
Section 3.5 Satisfaction of Other Conditions. The Lender shall have
received counterparts or evidence of each of the following, in form, scope and
substance satisfactory to the Lender and its counsel:
(a) A secretarial and incumbency certificate for the Borrower, including
evidence of the approval of Borrower's board (or an executive committee
thereof);
(b) The certificate described in Section 3.6 below from the Borrower; and
(c) Borrower shall have paid to Lender an amendment fee of $7,500.
Section 3.6 Compliance with Warranties No Default
(a) As of the Effective Date, the representations and warranties set forth
in the Credit Agreement, and the representations and warranties set forth in
each of the Loan Documents shall be true and correct in all material respects;
(b) As of the Effective Date, no Default or Event of Default shall have
occurred and be continuing;
(c) Lender shall have received from the Borrower a certificate, dated the
Effective Date, certifying matters set forth in subsections (a) and (b) of this
Section 3.6.
ARTICLE 4
Miscellaneous
Section 4.1 Entire Agreement. This Amendment, together with the Loan
Documents, reflects the entire understanding of the parties with respect to the
subject matter contained herein, and, other than the Loan Documents, supersedes
any prior agreements, whether written or oral.
Section 4.2 Cross References. References in this Amendment to any article
or section are, unless otherwise specified, to such article or section of this
Amendment.
Section 4.3 No Cure or Waiver. This Amendment is not intended to be, and
shall not be deemed or construed to be, a satisfaction, novation or release of
the Credit Agreement or any of the other Loan Documents.
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<PAGE>
Section 4.4 Governing Law. This Amendment shall be construed and enforced
in accordance with and governed by all of the provisions of the Uniform
Commercial Code of Georgia and by the other internal laws (as opposed to
conflicts of law provisions) of the State of Georgia.
Section 4.5 Costs. Borrower shall pay all costs and expenses of Lender in
connection with the preparation, negotiation and documentation of this Amendment
and any other documents executed in connection herewith, including all fees and
expenses of Lender's counsel. Borrower authorizes Lender to pay any such costs
as a Revolving Loan advance if not paid reasonably promptly by Borrower upon
receipt of an invoice therefor (notwithstanding any limitation on the minimum
size of any such advance).
Section 4.6 Captions. Titles or captions of articles and sections hereof
are for convenience only and neither limit nor amplify the provisions hereof.
Section 4.7 No Other Changes. Except as expressly amended hereby, all
representations, warranties, terms, covenants and conditions of the Credit
Agreement and the other Loan Documents shall remain unamended and unwaived and
shall continue in full force and effect.
Section 4.8 Successors and Assigns. This Amendment shall be binding upon
and inure to the benefit of the parties hereto and their respective successors
and assigns.
WITNESS the hand and seal of each of the undersigned as of the date first
written above.
"Borrower"
APPLE SOUTH, INC.
By:
Its authorized officer
Attest:
Its authorized officer
[SEAL]
"Lender"
FIRST UNION NATIONAL BANK
By:
Its authorized officer
4
SECOND AMENDMENT TO CREDIT AGREEMENT
This Second Amendment to Credit Agreement (this "Amendment") is made and
entered into as of November 17, 1998 between Avado Brands, Inc. (formerly known
as Apple South, Inc.) (the "Borrower") and First Union National Bank (the
"Lender").
W I T N E S S E T H:
WHEREAS, the Borrower and the Lender have made and entered into that
certain Credit Agreement, dated as of May 8, 1998, as amended (as further
amended, modified, supplemented, or restated from time to time, the "Credit
Agreement"; capitalized terms used herein and not otherwise defined shall have
the meanings assigned thereto in the Credit Agreement);
WHEREAS, pursuant to the Credit Agreement, the Lender has extended to the
Borrower a revolving loan facility in the principal amount of up to $30,000,000;
WHEREAS, the Borrower wishes to amend certain provisions of the Credit
Agreement, as set forth herein;
WHEREAS, the Lender is willing to agree to the foregoing on the terms as
set forth herein;
NOW THEREFORE, for and in consideration of the foregoing and for ten
dollars ($10.00) and other good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties hereto agree as follows:
ARTICLE 1
Existing Definitions
Capitalized terms not otherwise defined herein shall have the meaning or
meanings ascribed to them in the Credit Agreement.
ARTICLE 2
Amendments to Credit Agreement
Section 2.1 Section 5.18 of the Credit Agreement is hereby amended by
adding the following new subsection (xiii) to read in its entirety as follows:
(xiii) Other Advances: Make loans or advances to Affiliates, shareholders,
directors, officers or employees, in addition to those described in clauses (i)
through (xii) hereinabove, in an aggregate amount, as to all such loans and
advances at any one time outstanding to all such Persons, not to exceed Eight
Million Dollars ($8,000,000), so long as, and provided that, (A) no Event of
Default then exists and (B) each such loan or advance is repaid, in full, not
later than two (2) years from the date of its disbursement.
ARTICLE 3
Conditions to Effectiveness
Section 3.1 Effective Date. The amendments to the Credit Agreement set
forth in this Amendment shall become effective as of the date first written
above (the "Effective Date"), after all the conditions set forth in Sections 3.2
through 3.4 shall have been satisfied.
Section 3.2 Execution of this Amendment. This Amendment shall have been
executed and delivered by the Borrower.
Section 3.3 Amendment of Liquidity Agreement , Wachovia Credit Agreement
and Senior Notes and Senior Note Indenture. Borrower shall have entered into
amendments to the Liquidity Agreement, and the Master Lease Agreement effecting
substantially the same changes as are effected to the Credit Agreement by
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Article 2 hereof, true and correct copies of which shall have been provided to
the Lender, and which shall be satisfactory in form, scope and substance to
Lender.
Section 3.4 Compliance with Warranties No Default
(a) As of the Effective Date, the representations and warranties set forth
in the Credit Agreement, and the representations and warranties set forth in
each of the Loan Documents shall be true and correct in all material respects;
(b) As of the Effective Date, no Default or Event of Default shall have
occurred and be continuing;
(c) Lender shall have received from the Borrower a certificate, dated the
Effective Date, certifying matters set forth in subsections (a) and (b) of this
Section 3.4.
ARTICLE 4
Miscellaneous
Section 4.1 Entire Agreement. This Amendment, together with the Loan
Documents, reflects the entire understanding of the parties with respect to the
subject matter contained herein, and, other than the Loan Documents, supersedes
any prior agreements, whether written or oral.
Section 4.2 Cross References. References in this Amendment to any article
or section are, unless otherwise specified, to such article or section of this
Amendment.
Section 4.3 No Cure or Waiver. This Amendment is not intended to be, and
shall not be deemed or construed to be, a satisfaction, novation or release of
the Credit Agreement or any of the other Loan Documents.
Section 4.4 Governing Law. This Amendment shall be construed and enforced
in accordance with and governed by all of the provisions of the Uniform
Commercial Code of Georgia and by the other internal laws (as opposed to
conflicts of law provisions) of the State of Georgia.
Section 4.5 Costs. Borrower shall pay all costs and expenses of Lender in
connection with the preparation, negotiation and documentation of this Amendment
and any other documents executed in connection herewith, including all fees and
expenses of Lender's counsel. Borrower authorizes Lender to pay any such costs
as a Revolving Loan advance if not paid reasonably promptly by Borrower upon
receipt of an invoice therefor (notwithstanding any limitation on the minimum
size of any such advance).
Section 4.6 Captions. Titles or captions of articles and sections hereof
are for convenience only and neither limit nor amplify the provisions hereof.
Section 4.7 No Other Changes. Except as expressly amended hereby, all
representations, warranties, terms, covenants and conditions of the Credit
Agreement and the other Loan Documents shall remain unamended and unwaived and
shall continue in full force and effect.
Section 4.8 Successors and Assigns. This Amendment shall be binding upon
and inure to the benefit of the parties hereto and their respective successors
and assigns.
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<PAGE>
WITNESS the hand and seal of each of the undersigned as of the date first
written above.
"Borrower"
AVADO BRANDS, INC. (formerly known as APPLE SOUTH, INC.)
By:
Its authorized officer
Attest:
Its authorized officer
[SEAL]
"Lender"
FIRST UNION NATIONAL BANK
By:
Its authorized officer
3
THIRD AMENDMENT TO CREDIT AGREEMENT
This Third Amendment to Credit Agreement (this "Amendment") is made and
entered into as of February 26, 1999 between Avado Brands, Inc. (formerly known
as Apple South, Inc.) (the "Borrower") and First Union National Bank (the
"Lender").
W I T N E S S E T H:
WHEREAS, the Borrower and the Lender have made and entered into that
certain Credit Agreement, dated as of May 8, 1998, as amended (as further
amended, modified, supplemented, or restated from time to time, the "Credit
Agreement"; capitalized terms used herein and not otherwise defined shall have
the meanings assigned thereto in the Credit Agreement);
WHEREAS, pursuant to the Credit Agreement, the Lender has extended to the
Borrower a revolving loan facility in the principal amount of up to $30,000,000;
WHEREAS, the Borrower wishes to extend the termination date of the
revolving loan facility and to amend certain provisions of the Credit Agreement,
as set forth herein;
WHEREAS, the Lender is willing to agree to the foregoing on the terms as
set forth herein;
NOW THEREFORE, for and in consideration of the foregoing and for ten
dollars ($10.00) and other good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties hereto agree as follows:
ARTICLE 1
Existing Definitions
Capitalized terms not otherwise defined herein shall have the meaning or
meanings ascribed to them in the Credit Agreement.
ARTICLE 2
Amendments to Credit Agreement
Section 2.1 The definitions of "Note," "Stockholder's Equity," and "Total
Funded Debt" in Section 1.1 of the Credit Agreement is hereby amended in its
entirety to read in its entirety as follows:
"Note" shall mean the renewal promissory note, dated as of February 26,
1999, from the Borrower to the Bank in the original principal amount of
$30,000,000, together with all amendments, consolidations, modifications,
renewals, and supplements thereto, which note evidences all of the Revolving
Loans.
"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. In
determining "Stockholders' Equity," however, the amount of any Equity Forward
Contracts, pending settlement, shall be excluded therefrom.
"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
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duplication) of: (i) all indebtedness 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 ($28,000,000.00),
it being understood and agreed that, subject to such limitation, no debts,
liabilities or obligations (including any constituting Guaranteed Obligations)
under the DR Holding Lease shall be included in the definition of Total Funded
Debt. In determining "Total Funded Debt," however, the amount of any Equity
Forward Contracts, pending settlement, shall be excluded therefrom.
Section 2.2 The definition of "Equity Forward Contract" is hereby added to
Section 1.1 of the Credit Agreement to read in its entirety as follows:
"Equity Forward Contract" shall mean any contract, whether now or hereafter
existing, whereby the Borrower or any of its Consolidated Subsidiaries agrees,
directly or indirectly, to purchase Capital Stock of the Borrower on any future
date at a fixed price.
Section 2.3 The reference in Section 2.7.1(i) of the Credit Agreement to
"March 1, 1999" is hereby amended to read "May 1, 1999" and all references in
the Loan Documents to the "Termination Date" shall be deemed to be references to
May 1, 1999.
Section 2.4 Section 5.4 of the Credit Agreement is hereby amended in its
entirety (effective as of January 3, 1999) to read in its entirety as follows:
SECTION 5.4. Minimum Stockholders' Equity.
Stockholders' Equity will at no time be less than the sum of (i)
$210,000,000, beginning with the last day of the Fiscal Quarter ended closest to
January 4, 1999.
Section 2.5 Section 5.18(xi) of the Credit Agreement is hereby amended in
its entirety to read in its entirety as follows:
(xi) Other Restaurant Concepts. Make investments in other restaurant
concepts, besides "Applebee's," so long as the total amount of all such
investments made subsequent to the Closing Date does not exceed Twelve Million
Five Hundred Thousand Dollars ($12,500,000).
Section 2.6 Section 5.18(xiii) of the Credit Agreement is hereby amended in
its entirety to read in its entirety as follows:
(xiii) Other Advances. Make loans or advances to Affiliates, shareholders,
directors, officers or employees, in addition to those described in clauses (i)
through (xii) hereinabove, in an aggregate amount, as to all such loans and
advances at any one time outstanding to all such Persons, not to exceed Twelve
Million Dollars ($12,000,000), so long as, and provided that, (A) no Event of
Default then exists and (B) each such loan or advance is repaid, in full, not
later than two (2) years from the date of its disbursement.
Section 2.7 The following new Sections 5.23 and 5.24 are hereby added to
the Credit Agreement to read in their entirety as follows:
5.23 Stock Purchases, Etc. The Borrower will not, and will not permit any
Consolidated Subsidiary of the Borrower, to purchase any Capital Stock of the
2
<PAGE>
Borrower, whether in a "spot" transaction, pursuant to an Equity Forward
Contract or otherwise, except in respect of shares of Capital Stock which are
subject to Equity Forward Contracts pending settlements as of December 31, 1998;
nor will Borrower enter into, or permit any Consolidated Subsidiary to enter
into, any Equity Forward Contract or amend or modify any Equity Forward Contract
in effect on December 31, 1998 so as to increase the amount of, or price of, any
shares of Capital Stock which are subject to Equity Forward Contracts pending
settlement as of December 31, 1998.
5.24 Prepayment of Senior Debt. The Borrower will not prepay, and will not
permit any Consolidated Subsidiary to prepay, the principal amount of any of the
Borrower's Senior Notes.
ARTICLE 3
Conditions to Effectiveness
Section 3.1 Effective Date. The amendments to the Credit Agreement set
forth in this Amendment shall become effective as of the date first written
above, other than Section 2.4, which shall be effective as of January 3, 1999
(the "Effective Date"), after all the conditions set forth in Sections 3.2
through 3.5 shall have been satisfied.
Section 3.2 Execution of this Amendment. This Amendment shall have been
executed and delivered by the Borrower.
Section 3.3 Amendment of Liquidity Agreement and Master Lease Agreement.
Borrower shall have entered into amendments to the Liquidity Agreement and
Master Lease Agreement effecting substantially the same changes as are effected
to the Credit Agreement by Article 2 hereof, true and correct copies of which
shall have been provided to the Lender, and which shall be satisfactory in form,
scope and substance to Lender.
Section 3.4 Wachovia Credit Agreement Reduction. Borrower shall have
provided to Lender evidence that the balance of the Wachovia Credit Agreement
has been reduced to $1.00 and that Borrower is entitled to no further borrowings
thereunder.
Section 3.5 Compliance with Warranties No Default
(a) As of the Effective Date, the representations and warranties set forth
in the Credit Agreement, as amended by this Amendment, and the representations
and warranties set forth in each of the Loan Documents shall be true and correct
in all material respects;
(b) As of the Effective Date, no Default or Event of Default shall have
occurred and be continuing;
(c) Lender shall have received from the Borrower a certificate, dated the
Effective Date, certifying matters set forth in subsections (a) and (b) of this
Section 3.5.
ARTICLE 4
Miscellaneous
Section 4.1 Entire Agreement. This Amendment, together with the Loan
Documents, reflects the entire understanding of the parties with respect to the
subject matter contained herein, and, other than the Loan Documents, supersedes
any prior agreements, whether written or oral.
Section 4.2 Cross References. References in this Amendment to any article
or section are, unless otherwise specified, to such article or section of this
Amendment.
Section 4.3 No Cure or Waiver. This Amendment is not intended to be, and
shall not be deemed or construed to be, a satisfaction, novation or release of
3
<PAGE>
the Credit Agreement or any of the other Loan Documents.
Section 4.4 Governing Law. This Amendment shall be construed and enforced
in accordance with and governed by all of the provisions of the Uniform
Commercial Code of Georgia and by the other internal laws (as opposed to
conflicts of law provisions) of the State of Georgia.
Section 4.5 Costs. Borrower shall pay all costs and expenses of Lender in
connection with the preparation, negotiation and documentation of this Amendment
and any other documents executed in connection herewith, including all fees and
expenses of Lender's counsel. Borrower authorizes Lender to pay any such costs
as a Revolving Loan advance if not paid reasonably promptly by Borrower upon
receipt of an invoice therefor (notwithstanding any limitation on the minimum
size of any such advance).
Section 4.6 Captions. Titles or captions of articles and sections hereof
are for convenience only and neither limit nor amplify the provisions hereof.
Section 4.7 No Other Changes. Except as expressly amended hereby, all
representations, warranties, terms, covenants and conditions of the Credit
Agreement and the other Loan Documents shall remain unamended and unwaived and
shall continue in full force and effect.
Section 4.8 Successors and Assigns. This Amendment shall be binding upon
and inure to the benefit of the parties hereto and their respective successors
and assigns.
4
<PAGE>
WITNESS the hand and seal of each of the undersigned as of the date first
written above.
"Borrower"
AVADO BRANDS, INC. (formerly known as APPLE SOUTH, INC.)
By:
Its authorized officer
Attest:
Its authorized officer
[SEAL]
"Lender"
FIRST UNION NATIONAL BANK
By:
Its authorized officer
5
SUPPLEMENTAL CREDIT FACILITY AGREEMENT
Atlanta, Georgia
December 24, 1998
Avado Brands, Inc.
f/k/a Apple South, Inc.
Corporate Headquarters
Hancock at Washington
Madison, Georgia 30650
Attn: Erich J. Booth,
Chief Financial Officer
Gentlemen:
At your request, we, Wachovia Capital Investments, Inc. (the "Lender"),
hereby establish a supplemental, non-revolving, short term credit facility of
$30,000,000 in your favor (the "Credit Facility").
The Credit Facility is being established entirely separate and apart from
the credit facility previously established in your favor by Wachovia Bank, N.A.
(the "Bank"), among others, pursuant to that certain Credit Agreement, dated as
of April 1, 1998, between them and you (herein, as it has been, or may be,
modified or amended from time to time, called the "$100,000,000 Credit
Agreement"). Capitalized terms used hereinbelow, but not expressly defined
hereinbelow, shall have the meanings given to such terms in the $100,000,000
Credit Agreement. The Credit Facility is being offered subject to the following
terms and conditions:
1. The Credit Facility shall be fully disbursed to you (or your order) in
one (1) disbursement, on today's date, in the amount of $30,000,000. No portion
of the Credit Facility may be re-borrowed, once repaid; i.e., this is not a
revolving credit line. The outstanding Debt under the Credit Facility is herein
called your "Borrowing." The entire proceeds of the Borrowing shall be used by
you, when received, to fund (together with your own funds, as necessary), the
aggregate settlement amount associated with an Equity Forward Agreement dated
June 24, 1998 between the Company and the Bank (the "Equity Forward Contract"),
including applicable fees, charges and accrued interest associated therewith.
2. Your Debt shall be evidenced by a single promissory note, dated of even
date herewith, in the principal amount of $30,000,000, issued by the Borrower to
the order of the Lender (the "Supplemental Credit Facility Note").
3. The Credit Facility shall terminate, and your Borrowing shall become due
and payable in full, on March 1, 1999 (the "Maturity Date"). Prior to the
Maturity Date, however, (a) the Borrowing may be voluntarily prepaid, in whole
or in part (subject to the terms of the $100,000,000 Credit Agreement in respect
of voluntary prepayments generally), and (b) the Borrowing shall be subject to
mandatory prepayment (i) in full, if any Event of Default occurs, (ii) in an
amount equal to 100% of all debt or equity issuances made subsequent to the date
hereof, but excluding issuances of debt under the Borrower's lines of credit
existing on today's date, excluding any financings under the Borrower's lease
facility with SunTrust Bank, Atlanta, existing on today's date, and excluding
issuances of equity, subsequent to today's date, consisting of the issuance of
stock options to employees, officers or directors of the Borrower or consisting
of the issuance of any common stock of Borrower upon the exercise of any stock
options held by employees, officers or directors of Borrower, and (iii) in an
amount equal to the entire net proceeds received by you from "Identified Asset
Sales" (as hereinafter defined), upon the closing of each such "Identified Asset
Sale." For purposes hereof, "Identified Asset Sales" means your sale of any
Applebee's restaurants previously identified by you to us as the "West Virginia
1
<PAGE>
Properties," "Louisville Properties," and the "Washington, D.C. Properties."
4. The unpaid principal amount of the Borrowing from time to time
outstanding shall bear interest, payable at the expiration of each Interest
Period (except for Base Rate Borrowings, which shall be due and payable at
maturity), and on demand on maturity, at an interest rate equal to the Base Rate
plus one percent (1%) per annum or, at the Borrower's option, the Adjusted LIBOR
Rate established by the Lender for each applicable Interest Period plus three
and one-half percent (3-1/2%) per annum; provided, however, that after a Credit
Line Event of Default occurs and during its continuation, the Borrowing shall,
at the Lender's option, bear interest instead at the Default Rate.
5. You shall pay the Lender a nonrefundable, transaction fee of $300,000 on
January 4, 1999 as compensation for its arranging the Credit Facility.
6. The following shall constitute "Credit Line Events of Default"
hereunder: (i) you shall fail to pay the Borrowing, when due, or any interest or
fee, within five (5) Domestic Business Days after its due date; or (ii) any
breach by you of Paragraph 7 hereof; or (iii) any Event of Default occurring
under the $100,000,000 Credit Agreement (except under Section 5.4 of the Credit
Agreement until such time as such provision is amended by the parties thereto).
Upon the occurrence of any Event of Default, all existing Credit Line Borrowings
shall become immediately due and payable, at the Lender's option.
7. All representations, warranties and covenants (including affirmative,
negative and financial covenants) set forth in the $100,000,000 Credit Agreement
shall be deemed incorporated by reference herein and made an integral part
hereof, as if fully set forth herein. In addition to the foregoing, and without
limitation thereof, you further agree not (i) to prepay any Debt (except for
prepayments made in respect of borrowings under lines of credit existing on
today's date), or (ii) make any additional common stock repurchases hereafter
(except with respect to the Equity Forward Agreement), so long as any part of
the Borrowing remains outstanding and unpaid.
8. This Agreement is intended by the parties hereto to survive any
termination of the $100,000,000 Credit Agreement. In such event, however, all
terms of the $100,000,000 Credit Agreement shall be deemed to continue in
existence and remain applicable hereto until the Borrowing is fully paid and
satisfied.
9. This Agreement shall be governed by, and construed in accordance with,
the laws of the State of Georgia and all applicable federal laws of the United
States of America.
10. You agree to pay all costs and expenses of the Lender incurred in
connection with the preparation, execution, delivery and enforcement of this
Agreement and all other loan documents executed in connection herewith,
including the reasonable fees and out-of-pocket expenses of Bank's counsel.
AVADO BRANDS, INC.
f/k/a APPLE SOUTH, INC., as Borrower
By:_________________________________
Erich J. Booth, Chief Financial
Officer and Treasurer
Attest:_____________________________
John McLeod, Secretary
Accepted and Agreed:
WACHOVIA CAPITAL INVESTMENTS, INC., as Lender
By:________________________________
Name:___________________________
Title:____________________________
2
<PAGE>
SUPPLEMENTAL CREDIT FACILITY NOTE
Atlanta, Georgia
December 24, 1998
For value received, AVADO BRANDS, INC., f/k/a APPLE SOUTH, INC., a Georgia
corporation (the "Borrower"), promises to pay to the order of WACHOVIA CAPITAL
INVESTMENTS, INC. (the "Lender"), the principal sum of Thirty Million and No/100
Dollars ($30,000,000.00), or so much thereof as shall be disbursed and remain
outstanding under the Credit Facility established pursuant to the Credit
Agreement (defined below), on the Credit Facility Maturity Date. The Borrower
promises to pay interest on the unpaid principal amount of this Note on the
dates and at the interest rate 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 the Lender at 191
Peachtree Street, N.E., Atlanta, Georgia 30303-1757.
This Note is the "Supplemental Credit Facility Note" referred to in the
Supplemental Credit Facility Agreement dated as of December 24, 1998, between
the Borrower and the Lender (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.
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.
AVADO BRANDS, INC.,
f/k/a APPLE SOUTH, INC. (SEAL)
By:_______________________________
Erich J. Booth, Chief Financial
Officer and Treasurer
Attest:___________________________
John McLeod, Secretary
3
SUPPLEMENTAL CREDIT FACILITY AGREEMENT/ADDENDUM
February 26, 1999
Avado Brands, Inc.
Corporate Headquarters
Hancock at Washington
Madison, Georgia 30650
Attn: Erich J. Booth,
Chief Financial Officer
Gentlemen:
We refer to our Supplemental Credit Facility Agreement, dated as of
December 24, 1998, with you. This Addendum will confirm our agreement with you
to extend the "Credit Facility Termination Date" therein contained from "March
1, 1999" to "March 15, 1999" upon our receipt of this Addendum countersigned by
you.
Sincerely yours,
WACHOVIA CAPITAL INVESTMENTS, INC.
By:
Authorized Officer
Acknowledged and Agreed:
AVADO BRANDS, INC.
By:
Authorized Officer
SUPPLEMENTAL CREDIT FACILITY AGREEMENT/
ADDENDUM NO. 2
March 8, 1999
Avado Brands, Inc.
Corporate Headquarters
Hancock at Washington
Madison, Georgia 30650
Attn: Erich J. Booth,
Chief Financial Officer
Gentlemen:
We refer to our Supplemental Credit Facility Agreement, dated as of
December 24, 1998, with you, as amended by a Supplemental Credit Facility
Agreement/Addendum dated as of February 26, 1999 ("Supplemental Credit Facility
Agreement"). Capitalized terms used herein and not defined herein shall have the
meanings assigned to them in the Supplemental Credit Facility Agreement.
This Addendum will confirm our agreements with you as follows:
(a) On the date hereof we will make a single disbursement to you under the
Credit Facility in such amount as will cause the outstanding Debt under the
Credit Facility to equal $23,675,017. Such disbursement will be used by you for
the purposes specified on Exhibit A attached hereto.
(b) The Credit Facility will continue to be a non-revolving facility and
you shall have no right to obtain any further disbursements thereunder.
(c) The disbursement under the Credit Facility made pursuant hereto shall
bear interest, payable at maturity, at an interest rate equal to the Base Rate
plus one percent (1%) per annum.
(d) Your Debt under the Credit Facility, as increased hereby, will continue
to be evidenced by the Supplemental Credit Facility Note.
(e) The Maturity Date of the Credit Facility shall be extended from March
15, 1999 to March 31, 1999, on which date the Credit Facility shall terminate
and the entire Borrowing thereunder, together with all accrued and unpaid
interest thereon, shall be due and payable in full.
(f) In consideration of our making to you of the disbursement contemplated
hereby, you shall pay to us on the date hereof, a fee in the amount of $75,000.
By your execution of this Addendum below, you hereby (i) represent and
warrant that no Credit Line Event of Default, or event which with notice or the
passage of time, or both, would constitute a Credit Line Event of Default, has
occurred and is continuing and (ii) ratify and reaffirm all provisions of the
Supplemental Credit Facility Agreement, the Supplemental Credit Facility Note
and all related documents, instruments and agreements (collectively,
"Supplemental Credit Facility Documents").
As amended hereby, all provisions of the Supplemental Credit Facility
Documents shall continue in full force and effect.
Sincerely yours,
WACHOVIA CAPITAL INVESTMENTS, INC.
By:____________________________________
Authorized Officer
Acknowledged and agreed:
AVADO BRANDS, INC.
By:___________________________
Authorized Officer
Five-Year Summary of Selected Financial Data
Avado Brands, Inc.
<TABLE>
<CAPTION>
(In thousands, except per share data) 1998 1997 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Consolidated statement of earnings data
Total restaurant sales $ 862,692 808,320 546,022 440,190 300,559
Operating income $ 72,631 74,823 31,596 41,329 32,452
Net earnings $ 66,283 28,448 11,674 20,279 19,060
- ---------------------------------------------------------------------------------------------------------
Per share data
Basic earnings per common share $ 1.81 0.74 0.30 0.54 0.54
Diluted earnings per common share $ 1.62 0.73 0.30 0.52 0.54
Cash dividends per common share $ 0.048 0.038 0.030 0.022 0.015
- ---------------------------------------------------------------------------------------------------------
Consolidated balance sheet data
Total assets $ 670,597 804,289 457,827 369,138 226,087
Working capital (excluding assets held for sale) $(210,947) (33,989) (21,439) (17,778) 2,200
Long-term obligations $ 116,978 381,843 215,891 118,726 70,190
Convertible preferred securities $ 115,000 115,000 - - -
Shareholders' equity $ 112,029 220,782 191,429 203,221 120,341
- ---------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Avado Brands, Inc.
For an understanding of the significant factors that influenced the
performance of Avado Brands, 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. The
Company acquired McCormick & Schmick Holding Corp. ("McCormick & Schmick's") and
Hops Restaurant Bar & Brewery ("Hops") in March 1997 and Canyon Cafes, Inc.
("Canyon Cafe") in July 1997. The pro forma information presented herein assumes
that these acquisitions had been completed at the beginning of the respective
periods. The Company's fiscal year is a 52- or 53-week year ending on the Sunday
closest to December 31. Accordingly, the following discussion is for the 53
weeks ended January 3, 1999 and the 52-week periods ended December 28, 1997 and
December 29, 1996.
Consolidated Overview of 1998
During 1998, Avado Brands, Inc. (formerly Apple South, Inc.) continued to
develop and implement strategies designed to enhance long-term returns. The
Company substantially completed the divestiture of its franchised Applebee's
Neighborhood Grill & Bar ("Applebee's") restaurants, completed the sale of its
Harrigans Grill and Bar ("Harrigans") operations, retaining a 25% ownership in
the ongoing business, and acquired a 20% interest in United Kingdom-based Belgo
Group PLC ("Belgo"). These pivotal changes have provided Avado Brands the focus,
flexibility and resources to expand operations at its "Core" brands, which
include Don Pablo's, Hops, McCormick & Schmick's and Canyon Cafe, and to seek
new investment opportunities.
Comparison of Historical Results - Fiscal Years 1998, 1997 and 1996
Restaurant Sales
Restaurant sales for 1998 increased 7% to $862.7 million from $808.3
million in 1997 reflecting increased core brand sales which were offset by
declining revenues associated with the divestitures of the Applebee's and
Harrigans brands. In core brands, sales increased 59% to $527.4 million from
$331.9 million in 1997. A full-year's sales attributable to the brands acquired
in 1997, new unit growth, increased average unit volumes in Hops and McCormick &
Schmick's and a 53-week fiscal 1998 compared to a 52-week fiscal 1997
contributed to the increase in core brand sales. Operating weeks increased by
60% in core brands due to a full-year's operations from 50 restaurants acquired
and 41 restaurants opened in 1997 and a partial-year's operations from 59
restaurants opened in 1998, partially offset by two Canyon Cafe restaurants
closed in 1998. Average weekly sales at base restaurants (those open for a full
12 months at the beginning of 1998) were approximately 6% higher at Hops, 4%
higher at Canyon Cafe, 2% higher at McCormick & Schmick's and 1% higher at Don
Pablo's as compared with 1997. On a pro forma basis, core brand restaurant sales
increased by 44% and operating weeks increased by 47% over 1997.
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 was due to a full-year's operations from 45
Applebee's and 19 Don Pablo's restaurants opened in 1996 and a partial-year's
operations from 34 Applebee's and 28 Don Pablo's restaurants opened in 1997. In
addition, 1997 sales included ten months of operations related to McCormick &
Schmick's and Hops and six months of operations related to Canyon Cafe. 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, in 1997 the Company completed the sale of its ten-unit
Hardee's brand and closed one Harrigans restaurant. 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>
Restaurant Operating Expenses
Restaurant operating expenses as a percent of sales increased to 85.9% in
1998 from 85.8% in 1997. The resulting 1998 decrease in restaurant operating
margins of ten basis points is principally due to an increase in cost in
Applebee's generated by the ongoing divestiture of the brand and an increase in
core brand expenses due primarily to costs associated with opening new
restaurants. These increases were partially offset by depreciation related to
Applebee's which was suspended in December 1997 when the related assets were
classified as assets held for sale.
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 core brands and (ii) the Company's brands which have been or
are being discontinued which include Applebee's, Harrigans, Tomato Rumba's and
Hardee's.
Core Brands
Fiscal 1998 1997 1996
- --------------------------------------------------------------------------------
Restaurant sales:
Don Pablo's 51.3% 59.2% 100.0%
Hops 20.2 14.9 -
McCormick & Schmick's 19.4 20.3 -
Canyon Cafe 9.1 5.6 -
- --------------------------------------------------------------------------------
Total restaurant sales 100.0 100.0 100.0
- --------------------------------------------------------------------------------
Restaurant operating expenses:
Food and beverage 28.0 27.8 26.0
Payroll and benefits 30.4 29.8 29.0
Depreciation and amortization 3.2 3.7 4.6
Other operating expenses 23.4 22.9 22.6
- --------------------------------------------------------------------------------
Total restaurant operating expenses 85.0 84.1 82.2
- --------------------------------------------------------------------------------
Income from restaurant operations 15.0% 15.9% 17.8%
- --------------------------------------------------------------------------------
Core restaurant operating expenses for 1998 were 85.0% of sales compared to
84.1% in 1997 (84.9% on a pro forma basis). Don Pablo's higher margins were
offset by lower margins from smaller, developing brands which were acquired in
1997, resulting in lower reported margins in 1998. These lower margins were
primarily attributable to (i) an increase in payroll and benefit costs related
to an increase in the number of new unit openings which typically experience
higher labor costs during the first several months of operations, (ii) an
increase in food and beverage costs primarily related to an increase in Hops'
sales as a percentage of total core brand sales compared to prior year (Hops
experiences higher food and beverage costs due to a larger percentage of beef
sales and a smaller percentage of alcoholic beverage sales as compared to the
other brands), (iii) an increase in other operating expenses related primarily
to an increase in advertising in Don Pablo's and Hops and (iv) other operating
costs also associated with an increase in the number of new unit openings
coupled with the policy of expensing preopening costs as incurred which was
adopted at the beginning of 1998. Restaurant operating margins for all core
restaurants were also negatively impacted by seven underperforming Don Pablo's
restaurants which opened in 1997. Excluding the operations of these seven
restaurants, total 1998 core brand income from restaurant operations was 15.4%.
Restaurant operating expenses as a percent of sales for the core brands
increased to 84.1% in 1997 from 82.2% in 1996. The corresponding decrease in
1997 restaurant operating margins was principally due to (i) higher cost of
goods and payroll expenses in the brands acquired during 1997, (ii) higher
occupancy costs in the newly acquired brands due to restaurant locations which
<PAGE>
are predominantly leased and (iii) higher payroll and training costs in Don
Pablo's associated primarily with new hourly kitchen positions. These increases
were offset somewhat by a decrease in advertising expense in Don Pablo's and a
decrease in occupancy cost generated by the Company's tendency of owning versus
leasing restaurant locations.
Discontinued Brands
Fiscal 1998 1997 1996
- --------------------------------------------------------------------------------
Restaurant sales:
Applebee's 100.0% 95.3% 91.8%
Harrigans - 4.1 5.3
Tomato Rumba's - - 0.9
Hardee's - 0.6 2.0
- --------------------------------------------------------------------------------
Total restaurant sales 100.0 100.0 100.0
- --------------------------------------------------------------------------------
Restaurant operating expenses:
Food and beverage 28.0 28.0 27.9
Payroll and benefits 35.5 31.6 29.9
Depreciation and amortization - 4.0 3.9
Other operating expenses 23.7 23.4 23.2
- --------------------------------------------------------------------------------
Total restaurant operating expenses 87.2 87.0 84.9
- --------------------------------------------------------------------------------
Income from restaurant operations 12.8% 13.0% 15.1%
- --------------------------------------------------------------------------------
Restaurant operating expenses as a percent of sales for discontinued brands
increased to 87.2% in 1998 from 87.0% in 1997 and 84.9% in 1996. The resulting
decrease in 1998 restaurant operating margins is principally due to increased
payroll and benefits resulting from performance-based, pay-to-stay bonus
programs implemented to control management turnover and operating costs during
the Applebee's divestiture period.
The 1997 decrease in restaurant operating margins was principally due to
payroll and benefits which escalated in anticipation of the Company's exit of
the Applebee's business. These increases were 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
the period prior to announcement of a divestiture.
General and Administrative Expenses
General and administrative expenses as a percent of sales were 5.3% as
compared with 4.9% in 1997 and 4.8% in 1996. The 1998 increase is primarily due
to the brands acquired in 1997 which have higher expenses as a percentage of
revenue, due primarily to lower leverage on the fixed costs required to support
these smaller, higher-growth concepts. The increases at the new brands were
offset by a continued decrease in Don Pablo's as it gained leverage from
absolute size. General and administrative expenses related to core brands were
6.5% of total core brand sales in 1998 compared to 7.7% on a pro forma basis for
1997. Core brand general and administrative expenses are expected to approximate
6.0% of sales in 1999.
Asset Revaluation and Other Special Charges
In the fourth quarter of 1998, programs were initiated at Don Pablo's,
Canyon Cafe and the Company's corporate headquarters to reorganize management
and reduce overhead costs. A pre-tax charge of $2.9 million was recorded, the
components of which related primarily to employee termination and severance
costs.
<PAGE>
In 1996, the Tomato Rumba's operating brand was dissolved, and efforts to
sell Hardee's were accelerated. These decisions, combined with the
implementation of Statement of Financial Accounting Standards ("SFAS") No. 121,
"Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to Be
Disposed Of," resulted in an asset revaluation charge of $27.7 million. During
1998 and 1997, the Hardee's brand and several Tomato Rumba's locations were
sold, several additional locations were converted to other company brands, and
the remaining assets were redeployed.
Interest and Other Expenses
Interest expense increased to $25.3 million in 1998 from $20.5 million in
1997 and $11.3 million in 1996 due to higher average borrowings. Financing the
construction of new restaurants and the 1997 acquisition of new brands, in
excess of cash generated by operations, led to higher average debt levels under
revolving credit facilities. These uses of funds were partially offset by
proceeds from various divestitures, a significant portion of which were used to
reduce revolving debt obligations. The Company's weighted average interest rate
on borrowings was approximately 8.0% in 1998 as compared to 7.9% in 1997 and
8.1% in 1996.
Distributions on preferred securities reflect expenses associated with the
1997 issuance of $115.0 million, 7% term convertible securities which were
outstanding for the full-year in 1998.
Gain on disposal of assets primarily reflects the gain recognized on the
Applebee's divestiture. The unsold premises and equipment and franchise cost
related to the brand are included in "Assets held for sale" in the consolidated
balance sheets.
Income from investments carried at equity reflects the Company's pro rata
share of earnings from its 20% equity interest in Belgo and 25% equity interest
in Harrigans.
Other expenses relate primarily to amortization of goodwill. Total 1998
other expenses were comparable to 1997 as a result of increases in amortization
expense resulting from a full-year of goodwill amortization from the brands
acquired in 1997 which was offset by goodwill amortization related to Applebee's
which was suspended in December 1997 when the related assets were classified as
assets held for sale. 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.
Income Tax Expense
Income tax expense as a percent of earnings before income taxes was 36.7%
in 1998 compared to 32.4% in 1997 and 35.9% in 1996. The increase in the
effective tax rate for 1998 compared with 1997 is due primarily to an increase
in taxable income generated primarily by the gain on sale of assets and a
corresponding decrease in the impact of FICA tip credits. The decrease in
effective tax rate for 1997 compared with 1996 was due primarily to an increased
impact of FICA tip credits and the allocation of earnings among states
associated with the 1997 acquisitions.
Net Earnings
Net earnings as a percent of sales was 7.7% in 1998, 3.5% in 1997 and 2.1%
in 1996. The increase from 1997 to 1998 was primarily a result of the $72.5
million pre-tax gain on disposal of assets. This increase was partially offset
by (i) a $4.8 million increase in interest expense, (ii) a $1.8 million increase
in distributions on preferred securities and (iii) a $2.2 million decrease in
operating income resulting from a combination of increased core brand operating
income and a decline in Applebee's operating income. The increase from 1996 to
1997 was primarily a result of the $27.7 million pre-tax asset revaluation
charge recorded in 1996. The resulting increase in 1997 was partially offset by
<PAGE>
(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 Applebee's
division.
Liquidity and Capital Resources
The Company's historical and projected growth and its preference to own its
real estate 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 1998 consisted of proceeds from the divestiture of
Applebee's and cash generated from operations of $41.0 million. As of January 3,
1999, the Company had sold 233 of its 279 Applebee's restaurants for total gross
proceeds of $434.8 million including $6.8 million in notes and other amounts
due. Sale of the remaining restaurants is expected to be completed early in 1999
with estimated gross proceeds of $79.0 million.
The principal uses of funds during 1998 consisted of (i) capital
expenditures of $142.8 million, (ii) treasury stock purchases of $92.0 million,
(iii) net repayment of revolving credit facilities of $114.7 million, (iv)
equity investments of $15.1 million and (v) the retirement of $8.5 million of
the Company's 9.75% Senior Notes.
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. Increases in accounts receivable, prepaid expenses and
other, inventory, accounts payable and accrued liabilities occurred during 1998
primarily as a result of new restaurant openings. These increases were
substantially offset by decreases resulting from divested Applebee's
restaurants. Further increases in current asset and liability accounts are
expected as the Company continues its restaurant development program. The
increase in other assets is principally due to (i) equity investments, (ii)
loans to the Chief Executive Officer and certain other executive officers, (iii)
certain properties retained in connection with the Applebee's divestiture which
are being leased to several buyers, (iv) bondholder consent fees paid in
connection with treasury stock repurchases and (v) the annual increase in cash
surrender value on an officer's life insurance policy.
Capital expenditures during 1998 provided for the opening of 32 Don
Pablo's, 17 Hops, five McCormick & Schmick's and five Canyon Cafes in addition
to ongoing refurbishments of existing restaurants. In addition, the Company
completed the construction of and opened 15 Applebee's restaurants.
The following table presents anticipated restaurant openings for the core
brands for 1999 and 2000:
1999 2000
- --------------------------------------------------------------------------------
Don Pablo's 15 27
Hops 20 24
McCormick & Schmick's 4 5
Canyon Cafe 1 4
- --------------------------------------------------------------------------------
Total 40 60
================================================================================
Capital requirements for the construction of new core restaurants are
expected to approximate $200 million in 1999 through 2000, over half of which is
expected to be generated internally. A portion of these capital requirements
will be funded through remaining commitments of $3.7 million under a $30.0
million master equipment lease. The remaining funds are expected to be available
on existing revolving credit facilities, renewals and expansion of which are
currently being negotiated.
<PAGE>
The Board of Directors, from time to time and depending on market
conditions, authorizes the purchase of common shares. In connection with these
programs, consent was obtained from the holders of the 9.75% Senior Notes due
2006 to amend certain covenants contained in the Indenture dated May 1, 1996,
relating to the notes (the "Indenture"). Bondholder consent was finalized on
July 1, 1998 and the Company paid $4.2 million to the consenting holders. During
1998, a total of 7.3 million shares was repurchased.
In 1998, third parties purchased a total of 8.3 million shares of the
Company's common stock at an average price per share of $13.36 (or a total
acquisition cost of $110.9 million) pursuant to four equity forward contracts.
Upon expiration of the contracts, the Company has the option to (i) acquire the
shares at the third parties' average acquisition cost as described above or (ii)
instruct the third parties to sell the shares in the market and settle in cash
any appreciation or depreciation in the market value of the stock at the sale
date compared to the acquisition cost described above. Any such appreciation or
depreciation in the value of the shares will be reflected in equity and will not
impact net earnings. One of these contracts for 2.0 million shares was settled
in December 1998, and the Company exercised its option to acquire the related
shares for $29.9 million. At January 3, 1999, three equity forward contracts
covering 6.3 million shares were pending settlement. The third parties' total
acquisition price for these shares of $81.8 million, net of a $10.7 million
collateral deposit made by the Company with a third party, is reflected as
"Temporary equity, net" in the 1998 consolidated balance sheet. In March 1999,
one of the remaining contracts covering 2.5 million shares was settled for $32.4
million. The remaining two contracts expire, unless renewed, in June and July of
1999.
Acquisition of the shares represented by the remaining equity forward
contracts is contingent on the Company's ability to obtain financing and
maintain compliance with various provisions of its Senior Notes and revolving
credit agreements. Management believes that the Company will be able to acquire
all shares pending settlement and that credit availability under existing,
renewed, or new credit facilities and cash flow from operations will be
sufficient to satisfy the Company's obligations upon expiration of the remaining
contracts.
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 1998 and 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.
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. Furthermore, the following
<PAGE>
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 employees while sales are pending;
the availability of qualified buyers for the remaining 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.
Year 2000
Historically, certain computer programs were written and certain computer
chips were designed using two-digit year designations. These programs and chips
may experience problems handling dates beyond 1999. Incomplete or untimely
resolution of these problems by the Company, by its critical suppliers, or by
governmental entities could have a material adverse effect on the Company's
consolidated financial position or results of operations. Work on Year 2000
related issues began in 1997 with executive awareness programs and the
engagement of outside consultants to assist in developing a consistent Year 2000
methodology, time line and project plan. An inventory and assessment of
information technology ("IT") systems as well as non-IT systems was completed
during 1998, and the solution implementation and testing phases have been
substantially completed. As the Company has invested primarily in licensed
software rather than developing it internally, remediation efforts and related
expenditures have not been material. An evaluation of key suppliers to determine
the status of their Year 2000 compliance programs is also in process. Currently,
management does not anticipate any adverse effects related to the Year 2000.
Contingency plans, however, are being developed to address all aspects of
operation level functionality and vendor management in the event unforeseen
circumstances arise.
Quantitative and Qualitative Disclosures About Market Risk
The Company is exposed to market risk from changes in interest rates and
changes in commodity prices. Exposure to interest rate risk relates primarily to
variable rate U.S. LIBOR obligations on revolving credit agreements. Interest
rate swap agreements are utilized to manage overall borrowing costs and reduce
exposure to adverse fluctuations in interest rates. Two interest rate swap
agreements are currently in place under which the Company pays an average of
certain foreign LIBOR-based variable rates. These agreements also contain
interest rate caps which further limit interest rate exposures. If interest
rates related to the Company's U.S. LIBOR obligations increased by 100 basis
points over the rates in effect at January 3, 1999, interest expense, after
considering the effects of interest rate swap agreements, would increase by
approximately $1.4 million in 1999. If an additional 100 basis point interest
rate increase occurred in the Company's foreign LIBOR-based obligations,
interest expense in 1999 would increase by an additional $1.2 million. These
amounts were determined by considering the impact of hypothetical interest rates
on the Company's borrowing cost and interest rate swap agreements. The analyses
do not consider the effects of the overall reduced debt levels anticipated in
1999. Further, in the event of a change of such magnitude, management would
likely take actions to further mitigate its interest rate exposures.
The Company purchases certain commodities such as beef, chicken, flour and
cooking oil. Purchases of these commodities are generally based on vendor
<PAGE>
agreements which often contain contractual features that limit the price paid by
establishing price floors or caps. As commodity price aberrations are generally
short term in nature and have not historically had a significant impact on
operating performance, financial instruments are not used to hedge commodity
price risk.
New Accounting Pronouncements
AICPA Statement of Position 98-5, "Reporting the Cost of Start-Up
Activities," was adopted at the beginning of 1998. This statement requires
entities to expense the costs of start-up activities as incurred. As a result of
the adoption of this change in accounting policy, from expensing preopening
costs in the first full month of a restaurant's operations to expensing them as
incurred, a cumulative effect charge from the change in accounting principle of
$2.2 million ($1.5 million net of tax benefit) was recorded in the first quarter
of 1998.
Also at the beginning of fiscal 1998, AICPA Statement of Position 98-1,
"Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use," was adopted. This statement requires that certain costs related
to the development or purchase of internal-use software be capitalized and
amortized over the estimated useful life of the software. The adoption of this
statement did not have a material effect on the Company's consolidated financial
position or results of operations in 1998.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive
Income." SFAS 130, which is 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. Total comprehensive income
for the year ended January 3, 1999 included net earnings as reported in the
consolidated statement of earnings plus the foreign currency translation
adjustment related to the equity investment in Belgo (see the consolidated
statements of shareholders' equity and comprehensive income).
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 131, "Disclosures about Segments of
an Enterprise and Related Information." SFAS 131, which is effective for the
Company's fiscal 1998, establishes standards for reporting certain information
about operating segments, their products and services, geographic areas of
operations and major customers. The Company believes it meets the aggregation
criteria for reportable segments, since the segments exhibit similar economic
characteristics and the nature of the products and services, processes,
customers and distribution methods are similar.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS 133, which is effective for the
Company's first quarter financial statements in fiscal 2000, establishes
standards for the accounting and reporting of derivative instruments and hedging
activities. The Company has not completed its evaluation of the impact, if any,
that adoption of this statement will have on its consolidated financial position
or results of operations.
<PAGE>
<TABLE>
Consolidated Statements of Earnings
Avado Brands, Inc.
(In thousands, except per share data)
<CAPTION>
For the fiscal years ended 1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Restaurant sales:
Don Pablo's $270,399 196,457 133,261
Hops 106,329 49,511 -
McCormick & Schmick's 102,489 67,373 -
Canyon Cafe 48,187 18,577 -
Applebee's 335,288 454,127 379,042
Other - 22,275 33,719
- ---------------------------------------------------------------------------------------------------------------------------------
Total restaurant sales 862,692 808,320 546,022
- ---------------------------------------------------------------------------------------------------------------------------------
Restaurant operating expenses:
Food and beverage 241,689 225,302 150,090
Payroll and benefits 279,274 249,356 162,017
Depreciation and amortization 17,014 31,441 22,509
Other operating expenses 202,994 187,781 125,781
- ---------------------------------------------------------------------------------------------------------------------------------
Total restaurant operating expenses 740,971 693,880 460,397
- ---------------------------------------------------------------------------------------------------------------------------------
General and administrative expenses 46,150 39,617 26,329
Asset revaluation and other special charges 2,940 - 27,700
- ---------------------------------------------------------------------------------------------------------------------------------
Operating income 72,631 74,823 31,596
- ---------------------------------------------------------------------------------------------------------------------------------
Other income (expense):
Interest expense, net (25,313) (20,504) (11,348)
Distributions on preferred securities (8,205) (6,412) -
Gain on disposal of assets 72,547 - -
Income from investments carried at equity 1,025 - -
Other, primarily goodwill amortization (5,641) (5,834) (2,024)
- ---------------------------------------------------------------------------------------------------------------------------------
Total other income (expense) 34,413 (32,750) (13,372)
- ---------------------------------------------------------------------------------------------------------------------------------
Earnings before income taxes and cumulative effect
of change in accounting principle 107,044 42,073 18,224
Income taxes 39,300 13,625 6,550
- ---------------------------------------------------------------------------------------------------------------------------------
Earnings before cumulative effect of change in accounting principle 67,744 28,448 11,674
Cumulative effect of change in accounting principle, net of tax benefit 1,461 - -
- ---------------------------------------------------------------------------------------------------------------------------------
Net earnings $ 66,283 28,448 11,674
=================================================================================================================================
Basic earnings per common share:
Basic earnings before cumulative effect of change
in accounting principle $ 1.85 0.74 0.30
Cumulative effect of change in accounting principle (0.04) - -
- ---------------------------------------------------------------------------------------------------------------------------------
Basic earnings per common share $ 1.81 0.74 0.30
=================================================================================================================================
Diluted earnings per common share:
Diluted earnings before cumulative effect of change
in accounting principle $ 1.65 0.73 0.30
Cumulative effect of change in accounting principle (0.03) - -
- ---------------------------------------------------------------------------------------------------------------------------------
Diluted earnings per common share $ 1.62 0.73 0.30
=================================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
Consolidated Balance Sheets
Avado Brands, Inc.
(In thousands, except share data)
<CAPTION>
Fiscal year end 1998 1997
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 7,216 2,503
Short-term investments 27 37
Accounts receivable 9,124 8,983
Inventories 8,599 10,732
Prepaid expenses and other 3,205 9,047
Assets held for sale 72,814 331,104
- ---------------------------------------------------------------------------------------------------------------------------------
Total current assets 100,985 362,406
Premises and equipment, net 367,587 283,839
Goodwill, net 138,005 138,403
Investments carried at equity 16,106 -
Other assets 47,914 19,641
- ---------------------------------------------------------------------------------------------------------------------------------
$ 670,597 804,289
=================================================================================================================================
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 28,474 24,819
Accrued liabilities 42,053 40,266
Current installments of long-term debt 140,500 206
Income taxes 28,091 -
- ---------------------------------------------------------------------------------------------------------------------------------
Total current liabilities 239,118 65,291
- ---------------------------------------------------------------------------------------------------------------------------------
Long-term debt 116,978 381,843
Deferred income taxes 8,200 14,231
Other long-term liabilities 8,177 7,142
- ---------------------------------------------------------------------------------------------------------------------------------
Total liabilities 372,473 468,507
- ---------------------------------------------------------------------------------------------------------------------------------
Company-obligated mandatorily redeemable preferred securities of
Avado Financing I, a subsidiary holding solely Avado Brands, Inc.
7% convertible subordinated debentures due March 1, 2027 115,000 115,000
Temporary equity, net 71,095 -
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 1998 and 1997 405 405
Additional paid-in capital 63,431 145,269
Retained earnings 162,411 97,905
Accumulated other comprehensive income 24 -
Treasury stock at cost; 8,910,174 shares in 1998 and 1,662,812 shares in 1997 (114,242) (22,797)
- ---------------------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 112,029 220,782
- ---------------------------------------------------------------------------------------------------------------------------------
$ 670,597 804,289
=================================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
Consolidated Statements of Shareholders' Equity and Comprehensive Income
Avado Brands, Inc.
<CAPTION>
Accumulated
Additional Other Total
Common Stock Paid-in Retained Comprehensive Treasury Shareholders'
(In thousands, except per share data) Shares Amount Capital Earnings Income Stock Equity
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
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
- ------------------------------------------------------------------------------------------------------------------------------------
Comprehensive income:
Net earnings - - - 66,283 - - 66,283
Foreign currency translation adjustment - - - - $24 - 24
- ------------------------------------------------------------------------------------------------------------------------------------
Total comprehensive income - - - 66,283 24 - 66,307
- ------------------------------------------------------------------------------------------------------------------------------------
Purchase of common stock - - - - - (92,028) (92,028)
Common stock issued to ESOP and ESPP - - 36 - - 370 406
Exercise of options - - (65) - - 213 148
Temporary equity - - (81,809) - - - (81,809)
Cash dividends ($0.0475 per share) - - - (1,777) - - (1,777)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at January 3, 1999 40,479 $405 $ 63,431 $162,411 $24 $(114,242) $112,029
====================================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
Consolidated Statements of Cash Flows
Avado Brands, Inc.
(In thousands)
<CAPTION>
For the fiscal years ended 1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings $ 66,283 28,448 11,674
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization 23,221 39,972 26,250
Deferred income taxes (6,031) 3,905 300
(Gain) loss on disposal of assets (72,547) 54 107
Income from investments carried at equity (1,025) - -
Asset revaluation charges - - 27,700
(Increase) decrease in assets:
Accounts receivable (141) (2,441) (1,062)
Inventories (2,260) (2,592) (1,488)
Prepaid expenses and other 4,187 (1,980) (1,837)
Increase (decrease) in liabilities:
Accounts payable 3,655 703 3,199
Accrued liabilities (4,725) (1,447) (4,958)
Income taxes 28,091 (2,050) 4,668
Other long-term liabilities 2,309 164 -
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 41,017 62,736 64,553
- ------------------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Capital expenditures (142,841) (172,963) (124,623)
Acquisition of businesses, net of cash acquired (2,658) (146,444) -
Proceeds from disposal of assets, net 373,814 5,798 429
Decrease in short-term investments 10 15 325
Additions to investments carried at equity (15,057) - -
Additions to other assets (21,975) (5,676) (4,690)
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities 191,293 (319,270) (128,559)
- ------------------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Net proceeds from (repayment of) revolving credit agreements (114,726) 165,500 (11,000)
Proceeds from issuance of preferred securities, net of issue costs - 111,261 -
Proceeds from issuance of long-term debt - 823 121,880
Principal payments on long-term debt (8,500) (865) (19,756)
Proceeds from issuance of common stock 148 2,914 3,215
Dividends declared and paid (1,777) (1,524) (1,168)
Purchase of treasury stock (92,028) (22,995) (30,048)
Collateral payments on equity forward contracts (10,714) - -
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash (used in) provided by financing activities (227,597) 255,114 63,123
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 4,713 (1,420) (883)
Cash and cash equivalents at the beginning of the period 2,503 3,923 4,806
- ------------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at the end of the period $ 7,216 2,503 3,923
====================================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
Notes to Consolidated Financial Statements
Avado Brands, Inc.
Note 1 - Summary of Significant Accounting Policies
Avado Brands, Inc. (formerly Apple South, Inc.), including its wholly owned
subsidiaries (the "Company"), is a multi-concept restaurant company operating
restaurants in 29 states plus the District of Columbia. At January 3, 1999, the
Company operated 123 Don Pablo's Mexican Kitchen restaurants, 47 Hops Restaurant
Bar and Brewery restaurants, 23 McCormick & Schmick's seafood dinner houses, 19
Canyon Cafe restaurants as well as 44 Applebee's Neighborhood Grill & Bar
restaurants which were held for sale. The Company owns all of its brands on a
proprietary basis except Applebee's, which is franchised. Avado Brands also owns
a 20% equity interest in Belgo Group PLC, a ten-unit United Kingdom restaurant
company, and a 25% equity interest in 11 Harrigans Grill and Bar restaurants.
Basis of Presentation - The consolidated financial statements include the
accounts of Avado Brands, Inc. and its wholly owned subsidiaries. Investments in
20% to 50% owned affiliates and partnerships are accounted for on the equity
method. All significant intercompany accounts and transactions are 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 53 weeks ended January 3, 1999
("fiscal 1998") and the 52-week periods ended December 28, 1997 ("fiscal 1997")
and December 29, 1996 ("fiscal 1996"). 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 brand
(Note 2). 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
30 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.
Franchise Costs - In 1997 and 1996, the costs related to acquisition of
Applebee's franchises were amortized over their estimated useful lives,
principally 20 years, using the straight-line method. At January 3, 1999 and
<PAGE>
December 28, 1997, franchise costs are included as a component of assets held
for sale in the consolidated balance sheets (Note 2). The franchise agreements
for the Applebee's restaurants require royalty fees equal to 4% of sales and
advertising fees equal to 11/2% of sales. Such fees are expensed as incurred.
Total royalty and advertising fees paid under franchise agreements were $18.4
million in 1998, $25.0 million in 1997 and $21.4 million in 1996.
Goodwill - Goodwill represents the excess of purchase price over fair value
of net assets acquired and is amortized over the expected period to be
benefitted, typically 40 years, using the straight-line method. Recoverability
of this intangible asset is determined by assessing 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 $5.9 million at
January 3, 1999 and $2.9 million at December 28, 1997.
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: $5.0 million in 1998, $4.7 million in 1997 and $4.0 million in 1996.
Preopening Costs - Preopening costs 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. AICPA Statement of
Position 98-5, "Reporting the Cost of Start-Up Activities," was adopted at the
beginning of 1998. This statement requires entities to expense the costs of
start-up activities as incurred. As a result of the adoption of this change in
accounting policy, from expensing preopening costs in the first full month of a
restaurant's operations to expensing them as incurred, a cumulative effect
charge from the change in accounting principle of $2.2 million ($1.5 million net
of tax benefit) was recorded in the first quarter of 1998.
Advertising - Advertising is expensed over the period covered by the
related promotions. Total advertising expense included in other operating
expenses was $32.6 million in 1998, $29.0 million in 1997 and $15.0 million in
1996, in addition to amounts paid to the franchisor of Applebee's.
Foreign Currency Translation - Investments in foreign affiliates are
translated into U.S. dollars at the period-end exchange rate, while net earnings
are translated at the average exchange rate during the period. The resulting
translation adjustments are recorded as a separate component of shareholders'
equity and comprehensive income.
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 14).
Interest Rate Contracts - Interest rate contracts are used principally for
the management of 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. At January 3, 1999, no interest rate swap contracts were
classified as trading instruments.
<PAGE>
Counterparties to interest rate contracts are major financial institutions
with which the Company also has other financial relationships. Exposure to
credit loss exists in the event of nonperformance by these counterparties.
However, the Company does not anticipate nonperformance by the other parties,
and no material loss would be expected from their nonperformance.
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 1997 and
1996 financial statements to conform with the 1998 classifications.
Note 2 - Applebee's Divestiture
In December 1997, the Company announced the decision to sell its franchised
Applebee's restaurants in order to focus on the development of proprietary
restaurant concepts. During 1998, the divestiture was substantially completed
with the sale of 233 of 279 Applebee's locations and the closing of two
additional locations. Gross proceeds in 1998 totaled $434.8 million including
$6.8 million in notes and other amounts due. The notes, net of a $2.6 million
allowance, are included in "Other assets" in the accompanying 1998 consolidated
balance sheet.
"Gain on disposal of assets" in the accompanying 1998 consolidated
statement of earnings primarily reflects the gain recognized on the Applebee's
divestiture. The unsold premises and equipment and franchise cost related to the
brand are included in "Assets held for sale" in the accompanying consolidated
balance sheets. Depreciation and amortization on these long-lived assets were
suspended in December 1997, when management finalized the decision to dispose of
the brand. Sale of the remaining restaurants is expected to be completed in
early 1999.
Note 3 - Asset Revaluation and Other Special Charges
In the fourth quarter of 1998, programs were initiated at Don Pablo's,
Canyon Cafe and the Company's corporate headquarters to reorganize management
and reduce overhead costs. A pre-tax charge of $2.9 million was recorded, the
components of which related primarily to employee termination and severance
costs. At January 3, 1999, the unpaid portion of these charges ($1.8 million)
was included in "Accrued liabilities" in the accompanying 1998 consolidated
balance sheet.
In 1996, the Tomato Rumba's operating brand was dissolved and efforts to
sell Hardee's were accelerated. These decisions, combined with the
implementation of Statement of Financial Accounting Standards ("SFAS") No. 121,
"Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to Be
Disposed Of," resulted in an asset revaluation charge of $27.7 million. Assets
related to these brands, included as a component of assets held for sale in the
consolidated balance sheets, were $0.5 million and $1.7 million at January 3,
1999 and December 28, 1997, respectively. During 1998 and 1997, Hardee's and
several Tomato Rumba's locations were sold, several additional locations were
converted to other company brands, and the remaining assets were redeployed.
Note 4 - Investments and Acquisitions
In January 1998, the Company acquired, for $6.1 million, a 20% interest in
Belgo Group PLC ("Belgo"), a public restaurant company based in the United
Kingdom that owned two Belgo restaurants in London. In 1998, Belgo completed two
transactions for the acquisition of five additional restaurants. In connection
<PAGE>
with these acquisitions, the Company invested an additional $8.8 million to
maintain its 20% equity interest. At January 3, 1999, the fair value of the
Company's investment in Belgo was approximately $31.0 million. Also in 1998, the
Company and Belgo entered into two 50/50 joint ventures: one to develop one of
the Company's proprietary brands in Europe and the other to develop Belgo
restaurants in the Western Hemisphere. In January 1999, the first Belgo
restaurant in the United States was opened in New York City.
In April 1998, the Company sold its Harrigans brand, receiving $3.0 million
in cash plus a $4.0 million note and retaining a 25% equity interest in the
ongoing business. The transaction resulted in a $0.6 million gain with an
additional $4.0 million gain, related to the note, being deferred. The
investment is accounted for using the equity method of accounting.
In July 1997, the Company acquired Canyon Cafes, Inc. ("Canyon Cafe") for
$46.3 million, including $33.6 million in cash, the issuance of 357,600 shares
of common stock and the assumption of approximately $7.5 million in debt.
In March 1997, the Company acquired Hops Restaurant Bar & Brewery ("Hops")
for $58.4 million, which included $16.3 million in cash, the issuance of 1.05
million shares of common stock and the assumption of approximately $28.9 million
in debt.
In March 1997, the Company acquired McCormick & Schmick Holding Corp.
("McCormick & Schmick's") for $68.3 million, including $50.1 million in cash,
the issuance of 248,139 shares of common stock and the assumption of
approximately $15.0 million in debt.
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. The aggregate
fair value of identifiable assets acquired and liabilities assumed was $68.0
million and $37.5 million, respectively. The remaining estimated excess of
purchase price over net assets acquired of $142.5 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 7), 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>
Note 5 - Premises and Equipment
(Amounts in thousands)
For fiscal year end 1998 1997
- --------------------------------------------------------------------------------
Land $ 69,154 42,166
Buildings 161,501 123,901
Equipment 79,371 87,043
Leasehold improvements 88,270 59,584
Construction in progress 23,628 19,234
- --------------------------------------------------------------------------------
Total premises and equipment 421,924 331,928
Less accumulated depreciation and amortization 54,337 48,089
- --------------------------------------------------------------------------------
Premises and equipment, net $367,587 283,839
================================================================================
Note 6 - Long-Term Debt
(Amounts in thousands)
For fiscal year end 1998 1997
- --------------------------------------------------------------------------------
Revolving credit agreements, unsecured, with
variable rate interest (7.3% at January 3, 1999) $140,500 255,000
Senior notes, unsecured 116,500 125,000
Other 478 2,049
- --------------------------------------------------------------------------------
Total long-term debt 257,478 382,049
Less current maturities 140,500 206
- --------------------------------------------------------------------------------
Long-term debt, excluding current maturities $116,978 381,843
================================================================================
At January 3, 1999, revolving credit agreements aggregated $162.0 million
of which $21.5 million was unused and available. The agreements expire in March
through July of 1999, and as such, the $140.5 million of revolving obligations
have been classified as current maturities. The Company anticipates reducing
these obligations with proceeds received from Applebee's divestiture
transactions expected to be completed in 1999. Remaining revolving obligations
are expected to be replaced prior to their expiration with the renewal and
expansion of long-term revolving credit agreements.
In 1996, $125.0 million of 9.75% senior notes were issued under a $200.0
million shelf registration. The notes are due March 2006 with interest payable
semi-annually. In 1998, the Company repurchased $8.5 million of these notes.
Based on the borrowing rates currently available to the Company for loans
with similar terms and average maturities, the fair value of revolving credit
agreements and other long-term debt approximates the book value recorded. Fair
value of the senior notes at January 3, 1999 was estimated as $109.8 million,
based on quoted market prices of the notes.
The aggregate annual maturities of long-term debt for the years subsequent
to January 3, 1999 are as follows: 1999-$140.5 million and 2001-$0.5 million.
The $116.5 million senior notes are due in 2006.
Terms of the 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. As amended, the Company was in compliance with the loan
provisions.
<PAGE>
During 1998 and 1997, the Company was party to various interest rate swap
agreements with notional amounts ranging from $75.0 million to $115.0 million.
At January 3, 1999, two interest rate swap agreements with $100.0 million and
$115.0 million notional amounts were in place. The first agreement is a hedge of
U.S. LIBOR obligations relating to revolving credit facilities. Under the terms
of the agreement, the Company pays an average of certain foreign LIBOR-based
variable rates (6.0% at January 3, 1999) and receives a U.S. LIBOR-based
variable rate (5.2% at January 3, 1999). At January 3, 1999, the Company
estimates that it would have paid approximately $1.0 million to terminate this
swap agreement. The other swap agreement relates to the 7.0% fixed interest
obligation on the Convertible Preferred Securities (Note 7). Under the
agreement, the Company pays an average of certain foreign LIBOR-based variable
rates (5.9% at January 3, 1999) and receives a 7.0% fixed rate. At January 3,
1999, the Company estim ates that it would have paid approximately $2.8 million
to terminate this swap agreement. Under the terms of the agreement, however, the
swap terminates upon conversion of the Convertible Preferred Securities with no
amounts due from either party. Amounts received on interest rate swap agreements
accounted for as hedges totaled $0.1 million in 1998 and $1.9 million in 1997.
Note 7 - Convertible Preferred Securities
In 1997, Avado Financing I (formerly 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 Avado Brands,
Inc. (the "Convertible Debentures").
The Convertible Preferred Securities are convertible until 2027 at an
initial rate of 3.3801 shares of Avado Brands common stock for each security
(equivalent to a conversion price of $14.793 per share). A guarantee has been
executed with regard to the Convertible Preferred Securities. The guarantee,
when taken together with the obligations under the Convertible Debentures, the
indenture pursuant to which the Convertible Debentures were issued, and the
declaration of trust of Avado 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.
Note 8 - Leases
Various leases are utilized for restaurant land, buildings, equipment and
office facilities. Land and building lease terms typically 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 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 $70.0 million (amended to $30.0 million
in 1998) master equipment lease agreement. The agreement provides for the rental
of 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 January 3, 1999, $3.7
million of the $30.0 million commitment was unused and available.
<PAGE>
Future minimum lease payments under noncancelable operating leases at
January 3, 1999 are as follows (amounts in thousands):
1999 $ 20,192
2000 21,036
2001 20,854
2002 20,621
2003 20,436
Later years 105,169
- --------------------------------------------------------------------------------
Total minimum payments $208,308
================================================================================
Total rental expense related to cancelable and noncancelable operating
leases was $27.5 million in 1998, $24.3 million in 1997 and $15.6 million in
1996. Rental expense included contingent rentals of $2.3 million in 1998, $1.0
million in 1997 and $0.9 million in 1996.
Note 9 - Accrued Liabilities
(Amounts in thousands)
For fiscal year end 1998 1997
- --------------------------------------------------------------------------------
Payroll and related benefits $13,584 15,060
Insurance 6,615 4,219
Gift certificates 4,797 3,926
Applebee's divestiture 2,948 -
Acquisition costs 2,830 5,327
Property taxes 2,659 4,293
Other 8,620 7,441
- --------------------------------------------------------------------------------
$42,053 40,266
================================================================================
Note 10 - Supplemental Cash Flow Information
The following supplements the consolidated statements of cash flows
(amounts in thousands):
1998 1997 1996
- --------------------------------------------------------------------------------
Interest paid $25,739 20,452 10,728
- --------------------------------------------------------------------------------
Distributions on preferred securities 8,050 5,944 -
- --------------------------------------------------------------------------------
Income taxes paid 14,487 9,022 1,415
- --------------------------------------------------------------------------------
Business acquisitions, net of cash acquired:
Fair value of assets acquired, other than cash - 64,861 -
Liabilities assumed 1,274 (37,504) -
Merger consideration payable - (1,890) -
Stock issued - (21,492) -
Purchase price in excess of the net
assets acquired 1,384 142,469 -
- --------------------------------------------------------------------------------
Net cash used for acquisitions $ 2,658 146,444 -
================================================================================
The 1998 business acquisition reflects the buyout of several of Hops' joint
venture partners. As discussed in Note 2, in 1998 the Company sold 233
Applebee's restaurants. The accompanying consolidated balance sheets reflect
changes in asset and liability accounts related to the divestiture of these
restaurants as follows: decrease in assets held for sale of $281.3 million,
decreases in assets not classified as held for sale of $5.5 million and
increases in accrued liabilities of $2.9 million.
<PAGE>
Note 11 - Earnings Per Share Information
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
7) had been converted at the date of issuance. In accordance with SFAS 128, all
prior-period earnings per share have been restated. The following table presents
a reconciliation of weighted average shares and earnings per share amounts
(amounts in thousands, except per share data):
1998 1997 1996
- --------------------------------------------------------------------------------
Average number of common shares used
in basic calculation 36,612 38,620 38,731
Additional shares issuable pursuant to employee
stock option plans at period-end market price 9 206 686
Shares issuable on assumed conversion of
Convertible Preferred Securities 7,774 6,101 -
- --------------------------------------------------------------------------------
Average number of common shares used
in diluted calculation 44,395 44,927 39,417
================================================================================
Earnings before cumulative effect of
change in accounting principle $67,744 28,448 11,674
Cumulative effect of change in accounting
principle, net of tax 1,461 - -
- --------------------------------------------------------------------------------
Net earnings 66,283 28,448 11,674
Distribution savings on assumed conversion
of Convertible Preferred Securities, net
of income taxes 5,415 4,336 -
- --------------------------------------------------------------------------------
Net earnings for computation of diluted
earnings per common share $71,698 32,784 11,674
================================================================================
Basic earnings before cumulative effect of
change in accounting principle $ 1.85 0.74 0.30
Cumulative effect of change in accounting
principle (0.04) - -
- --------------------------------------------------------------------------------
Basic earnings per common share $ 1.81 0.74 0.30
================================================================================
Diluted earnings before cumulative effect of
change in accounting principle $ 1.65 0.73 0.30
Cumulative effect of change in accounting
principle (0.03) - -
- --------------------------------------------------------------------------------
Diluted earnings per common share $ 1.62 0.73 0.30
================================================================================
<PAGE>
Note 12 - Income Taxes
The components of the provision for income taxes for the years ended
January 3, 1999, December 28, 1997 and December 29, 1996 before change in
accounting principle are as follows (amounts in thousands):
Current Deferred Total
- --------------------------------------------------------------------------------
1998:
Federal $36,035 (3,861) 32,174
State 9,296 (2,170) 7,126
- --------------------------------------------------------------------------------
Total $45,331 (6,031) 39,300
================================================================================
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
================================================================================
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 January 3, 1999,
December 28, 1997 and December 29, 1996 follows:
1998 1997 1996
- --------------------------------------------------------------------------------
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 4.1 4.0 3.9
FICA tip and targeted jobs tax credits (3.4) (10.1) (2.2)
Nondeductible goodwill 1.0 2.0 -
Other, net - 1.5 (0.1)
- --------------------------------------------------------------------------------
Effective tax rate 36.7% 32.4% 35.9%
================================================================================
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at January 3,
1999 and December 28, 1997 are presented below (amounts in thousands):
1998 1997
- --------------------------------------------------------------------------------
FICA tip credits not yet taken for federal
tax purposes $ 2,392 5,772
Asset impairment and other charges recorded
for financial statement purposes but not
yet taken for tax purposes 10,311 6,618
Other 7,092 589
- --------------------------------------------------------------------------------
Total deferred tax assets 19,795 12,979
- --------------------------------------------------------------------------------
Depreciation and amortization taken for tax
purposes in excess of amounts taken for
financial reporting purposes (25,499) (25,713)
Other (2,496) (1,497)
- --------------------------------------------------------------------------------
Deferred tax liability $ (8,200) (14,231)
================================================================================
<PAGE>
A valuation allowance for deferred tax assets has not been recorded as of
January 3, 1999 or December 28, 1997. 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 13 - Interest Expense
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):
1998 1997 1996
- --------------------------------------------------------------------------------
Interest cost capitalized $ 1,426 2,509 1,572
Interest cost expensed 25,313 20,504 11,348
- --------------------------------------------------------------------------------
Total interest incurred $26,739 23,013 12,920
================================================================================
Note 14 - Stock Option Plans
The 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 3,600,000 shares, respectively, of common stock of the Company to key
officers, directors and employees. Generally, options awarded under the 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 ten years,
and expire ten 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 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 the Company's 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.
<PAGE>
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
diluted earnings per share would have been reduced by $0.6 million or $0.01 per
share in 1998, $2.3 million or $0.05 per share in 1997 and $2.1 million or $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 1998 is
estimated as $7.37 on the date of grant using the Black-Scholes option-pricing
mod el with the following assumptions: dividend yield 0.33%, volatility of 50%,
risk-free interest rate of 5.0% and an expected life of 6.7 years. Further
information relating to total options is as follows:
Average
Shares Price
- --------------------------------------------------------------------------------
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
Granted in 1998 183,425 13.15
Exercised in 1998 (15,885) 9.42
Canceled in 1998 (1,149,880) 17.10
- --------------------------------------------------------------------------------
Outstanding at January 3, 1999 2,015,790 $16.60
================================================================================
The following table summarizes information concerning currently outstanding
and exercisable options:
Options Outstanding Options Exercisable
---------------------------------- -------------------------
Average Average Average
Exercise Remaining Exercise Exercise
Price Range Shares Life Price Shares Price
- --------------------------------------------------------------------------------
$ 5.01-$10.00 9,375 9.5 years $ 8.63 375 $ 8.33
$10.01-$15.00 937,013 8.0 years 13.45 45,653 12.77
$15.01-$20.00 694,390 5.6 years 18.23 116,300 17.26
$20.01-$25.00 334,464 7.0 years 21.18 27,847 21.16
$25.01-$30.00 40,548 7.0 years 25.48 900 25.25
- --------------------------------------------------------------------------------
Total 2,015,790 7.0 years $16.60 191,075 $16.78
================================================================================
Note 15 - Employee Benefit Plans
A noncontributory Employee Stock Ownership Plan (the "Plan") covers
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. Contribution expense related to the Plan was $0.5 million in 1998, $0 in
1997 and $0.3 million in 1996.
<PAGE>
The Avado Brands, Inc. Profit Sharing Plan and Trust, established in
accordance with Section 401(k) of the Internal Revenue Code, 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. Matching funds vest at the rate of 20% each year, beginning
after three years of service. Company contributions were $0.4 million in 1998,
$0.5 million in 1997 and $0.4 million in 1996.
Note 16 - Shareholders' Equity
The Board of Directors, from time to time and depending on market
conditions, authorizes the purchase of common shares. In 1998, the Company
purchased 7.3 million shares of its common stock for $92.0 million, including
one of the equity forward contracts discussed below.
In 1998, third parties purchased a total of 8.3 million shares of the
Company's common stock at an average price per share of $13.36 (or a total
acquisition cost of $110.9 million) pursuant to four equity forward contracts.
Upon expiration of the agreements, the Company has the option to (i) acquire the
shares at the third parties' average acquisition cost as described above or (ii)
instruct the third parties to sell the stock in the market and settle in cash
any appreciation or depreciation in the market value of the stock at the sale
date compared to the acquisition cost described above. Any such appreciation or
depreciation in the value of the shares will be reflected in equity and will not
impact net earnings. One of these contracts for 2.0 million shares was settled
in December 1998, and the Company exercised its option to acquire the related
shares for $29.9 million. At January 3, 1999, three equity forward contracts
covering 6.3 million shares were pending settlement. The third parties' total
acquisition price for these shares of $81.8 million, net of a $10.7 million
collateral deposit made by the Company with a third party, is reflected as
"Temporary equity, net" in the 1998 consolidated balance sheet. The remaining
contracts expire in March through July of 1999.
Note 17 - 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 on estimates of the aggregate
liability for claims incurred.
The Company is contingently liable for letters of credit aggregating
approximately $4.3 million and is co-guarantor of a $5.0 million revolving
credit facility relating to one of its joint ventures with Belgo. At January 3,
1999, $1.0 million was outstanding under this facility.
In connection with Applebee's divestiture transactions completed during
1998, the Company remains contingently liable for lease obligations relating to
67 restaurants. Assuming that each respective purchaser became insolvent, an
event management believes to be highly unlikely, the Company could be liable for
lease payments extending through 2035 with minimum lease payments totaling $48.0
million. In the event of default, the franchisor has the contractual right to
assume the obligations under the leases. In the event the Company becomes liable
for any such obligations, it may have certain rights to the leased properties.
Management believes that the ultimate disposition of these contingent
liabilities should not have a material adverse effect on the Company's
consolidated financial position or results of operations.
In 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
<PAGE>
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 sought damages and other relief. In 1998, one of these suits was
dismissed. Although the ultimate outcome of the remaining lawsuit cannot be
determined at this time, 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 should not have a material adverse effect on the
Company's consolidated financial position or results of operations.
Note 18 - Related Party Transactions
In 1998, the Board of Directors approved loans to certain executive
officers of the Company. At January 3, 1999, the Company held notes receivable
from the Chief Executive Officer, totaling $7.9 million. The principal balances
of the notes are due in November and December of 2000 or earlier upon demand of
the Company and bear interest at 7.0% per annum with interest payment due at
maturity. The Company also holds notes receivable from two other executive
officers totaling $0.1 million. The notes are due in October and November of
1999 and bear interest at 5.06% per annum with interest payment due at maturity.
Note 19 - Quarterly Financial Data (unaudited)
(In thousands except First Second Third Fourth Total
per share data) Quarter Quarter Quarter Quarter Year
- --------------------------------------------------------------------------------
1998:
Restaurant sales $241,676 239,843 204,442 176,731 862,692
Gross profit(1) $ 95,711 95,136 79,965 70,917 341,729
Net earnings (loss)(2) $ 38,539 6,325 24,438 (1,558) 67,744
Basic earnings (loss)
per share(2) $ 0.99 0.17 0.67 (0.05) 1.85
Diluted earnings (loss)
per share(2) $ 0.85 0.17 0.58 (0.05) 1.65
1997:
Restaurant sales $171,453 202,889 215,739 218,239 808,320
Gross profit(1) $ 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
- --------------------------------------------------------------------------------
(1) 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.
(2)Amounts are presented before the cumulative effect of change in
accounting principle related to preopening expenses.
<PAGE>
Report of Management
Avado Brands, Inc.
The management of Avado Brands, 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 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 weaknesses in internal controls have been
brought to the attention of management.
The Company assessed its internal control system as of January 3, 1999, 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 January 3, 1999, 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
and Chief Executive Officer
/s/ Erich J. Booth
- ---------------------------
Erich J. Booth
Chief Financial Officer
and Corporate Treasurer
<PAGE>
Independent Auditors' Report
The Board of Directors
Avado Brands, Inc.
We have audited the accompanying consolidated balance sheets of Avado
Brands, Inc. as of January 3, 1999 and December 28, 1997, and the related
consolidated statements of earnings, shareholders' equity and comprehensive
income and cash flows for each of the years in the three-year period ended
January 3, 1999. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated 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 financial position of Avado
Brands, Inc. at January 3, 1999 and December 28, 1997, and the results of their
operations and their cash flows for each of the years in the three-year period
ended January 3, 1999, in conformity with generally accepted accounting
principles.
As discussed in Note 1 to the consolidated financial statements, in 1998
the Company adopted the provisions of AICPA Statement of Position 98-5,
"Reporting the Cost of Start-Up Activities."
KPMG LLP
Atlanta, Georgia
January 29, 1999
<PAGE>
Corporate and Shareholder Information
Avado Brands, Inc.
Corporate Headquarters
Avado Brands, Inc.
Hancock at Washington
Madison, GA 30650
Telephone: (706) 342-4552
Independent Auditors
KPMG LLP
303 Peachtree Street, N.E.
Suite 2000
Atlanta, GA 30308
Transfer Agent and Registrar
SunTrust Bank, Atlanta
Corporate Trust Division
P.O. Box 4625
Atlanta, GA 30302
Annual Meeting
The Annual Meeting of Shareholders is scheduled at 11:00 a.m., Tuesday, May 4,
1999, to be held at the offices of the Company in Madison, Georgia.
Form 10-K
A copy of the Company's Annual Report on Form 10-K for the fiscal year ended
January 3, 1999 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
Tony Shaffer, Director of Investor Relations
Hancock at Washington
Madison, GA 30650
Telephone: (706) 342-4552
Facsimile: (706) 342-9283
E-mail: [email protected]
Investor Information
The Company's common stock and convertible preferred securities are traded on
the Nasdaq Stock Market (National Market) under the symbols "AVDO" and
"AVDOP," respectively. A list of the brokerage firms publishing research on
Avado Brands is available upon request by calling the Investor Relations
department or writing Investor Relations.
Shareholder Information
As of March 1, 1999, there were approximately 17,000 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.
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 Avado Brands 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 your stock certificates
in your own name so communications with you are direct and more expedient.
<PAGE>
Stock Price Performance
A summary of the high and low sales prices per share for the Company's common
stock is presented below.
High Low
- --------------------------------------------------------------------------------
1998
First Quarter $15.44 $10.50
Second Quarter $16.00 $12.44
Third Quarter $15.44 $10.88
Fourth Quarter $11.13 $ 7.00
1997
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 shows cash dividends declared per share on the Company's
common stock:
Quarter ended 1998 1997 1996
- --------------------------------------------------------------------------------
March $0.0100 0.008 0.006
June 0.0125 0.010 0.008
September 0.0125 0.010 0.008
December 0.0125 0.010 0.008
- --------------------------------------------------------------------------------
Total $0.0475 0.038 0.030
================================================================================
List of Subsidiaries:
<TABLE>
<CAPTION>
State of
Subsidiary Organization Doing Business As
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Don Pablo's Holding Corp. Delaware Don Pablo's Holding Corp.
Don Pablo's Operating Corp. Ohio Don Pablo's
Don Pablo's Limited, Inc. Ohio Don Pablo's Limited, Inc.
Don Pablo's of Texas, LP Texas Don Pablo's
Don Pablo's TX Liquor, Inc. Texas Don Pablo's TX Liquor, Inc.
Don Pablo's of Prince George's County, Inc. Maryland Don Pablo's
Don Pablo's of Howard County, Inc. Maryland Don Pablo's
Don Pablo's of Baltimore County, Inc. Maryland Don Pablo's
McCormick & Schmick Holding Corp. Delaware McCormick & Schmick Holding Corp.
McCormick & Schmick Operating Corp. Georgia McCormick & Schmick's
McCormick & Schmick of Montgomery County, Inc. Georgia McCormick & Schmick's
McCormick & Schmick TX General, Inc. Georgia McCormick & Schmick TX General, Inc.
McCormick & Schmick Limited, Inc. Georgia McCormick & Schmick Limited, Inc.
McCormick & Schmick of Texas, LP Texas McCormick & Schmick's
McCormick & Schmick TX Liquor, Inc. Texas McCormick & Schmick TX Liquor, Inc.
McCormick & Schmick's SCP VIII, Inc. Oregon McCormick & Schmick's
McCormick & Schmick's RMP III, Inc. Oregon McCormick & Schmick's
Cypress Coast Construction Corporation Florida Cypress Coast Construction Corporation
Hops Marketing, Inc. Florida Hops Marketing, Inc.
Hops of Southwest Florida, Inc. Florida Hops Restaurant Bar & Brewery
Hops of the Ohio Valley, Inc. Florida Hops Restaurant Bar & Brewery
Hops Grill & Bar, Inc. Florida Hops Restaurant Bar & Brewery
HNEF Area Manager II, Ltd. Florida Hops Restaurant Bar & Brewery
The Hops Northeast Florida Joint Venture No. I Florida Hops Restaurant Bar & Brewery
The Hops Northeast Florida Joint Venture No. II Florida Hops Restaurant Bar & Brewery
The Hops Northeast Florida Joint Venture No. III Florida Hops Restaurant Bar & Brewery
Hops of Altamonte Springs, Ltd. Florida Hops Restaurant Bar & Brewery
Hops of Atlanta, Ltd. Florida Hops Restaurant Bar & Brewery
Hops of Atlanta II, Ltd. Florida Hops Restaurant Bar & Brewery
Hops of Baltimore County, LLC Florida Hops Restaurant Bar & Brewery
Hops of Bowling Green, Ltd. Florida Hops Restaurant Bar & Brewery
Hops of Boynton Beach, Ltd. Florida Hops Restaurant Bar & Brewery
Hops of Bradenton, Ltd. Florida Hops Restaurant Bar & Brewery
Hops of the Carolinas, Ltd. Florida Hops Restaurant Bar & Brewery
Hops of the Carolinas II, Ltd. Florida Hops Restaurant Bar & Brewery
Hops of Cherry Creek, Ltd. Florida Hops Restaurant Bar & Brewery
Hops of Colorado Springs, Ltd. Florida Hops Restaurant Bar & Brewery
Hops of Connecticut, Ltd. Florida Hops Restaurant Bar & Brewery
Hops of Coral Springs, Ltd. Florida Hops Restaurant Bar & Brewery
Hops of Florida Mall, Ltd. Florida Hops Restaurant Bar & Brewery
Hops of the Gold Coast, Ltd. Florida Hops Restaurant Bar & Brewery
Hops of Greater Orlando, Ltd. Florida Hops Restaurant Bar & Brewery
Hops of Greater Orlando II, Ltd. Florida Hops Restaurant Bar & Brewery
Hops of Idaho, Ltd. Florida Hops Restaurant Bar & Brewery
Hops of Indiana, Ltd. Florida Hops Restaurant Bar & Brewery
Hops of Kansas, Ltd. Florida Hops Restaurant Bar & Brewery
Hops of Lakeland, Ltd. Florida Hops Restaurant Bar & Brewery
Hops of Louisiana, Ltd. Florida Hops Restaurant Bar & Brewery
Hops of Matthews, Ltd. Florida Hops Restaurant Bar & Brewery
Hops of Minnesota, Ltd. Florida Hops Restaurant Bar & Brewery
Hops of Ohio, Ltd. Florida Hops Restaurant Bar & Brewery
Hops of the Ohio Valley, Ltd. Florida Hops Restaurant Bar & Brewery
Hops of the Rockies, Ltd. Florida Hops Restaurant Bar & Brewery
Hops of the Rockies II, Ltd. Florida Hops Restaurant Bar & Brewery
Hops of South Carolina, Ltd. Florida Hops Restaurant Bar & Brewery
Hops of Southeast Florida, Ltd. Florida Hops Restaurant Bar & Brewery
Hops of South Florida, Ltd. Florida Hops Restaurant Bar & Brewery
Hops of Southwest Florida, Ltd. Florida Hops Restaurant Bar & Brewery
Hops of Southwest Florida II, Ltd. Florida Hops Restaurant Bar & Brewery
Hops of Stuart, Ltd. Florida Hops Restaurant Bar & Brewery
Hops of Virginia, Ltd. Florida Hops Restaurant Bar & Brewery
Hops of Virginia II, Ltd. Florida Hops Restaurant Bar & Brewery
1
<PAGE>
Canyon Cafe Operating Corp. Georgia Canyon Cafe
Canyon Cafe TX General, Inc. Georgia Canyon Cafe TX General, Inc.
Canyon Cafe Limited, Inc. Georgia Canyon Cafe Limited, Inc.
Canyon Cafe of Texas, LP Texas Canyon Cafe; Sam's Cafe
SMAS, Inc. Texas SMAS, Inc.
Apple South of Allegany County, Inc. Maryland Applebee's Neighborhood Grill & Bar
Apple South of Calvert County, Inc. Maryland Applebee's Neighborhood Grill & Bar
Apple South of Frederick County, Inc. Maryland Applebee's Neighborhood Grill & Bar
Apple South of Maryland, Inc. Georgia Applebee's Neighborhood Grill & Bar
Apple South of Montgomery County, Inc. Maryland Applebee's Neighborhood Grill & Bar
Apple South of Prince George's County, Inc. Georgia Applebee's Neighborhood Grill & Bar
Apple South of St. Mary's County, Inc. Maryland Applebee's Neighborhood Grill & Bar
Avado Properties, Inc. Georgia Avado Properties, Inc.
Avado Ventures, Inc. Georgia Avado Ventures, Inc.
</TABLE>
2
The Board of Directors
Avado Brands, Inc.
We consent to the 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 Avado Brands, Inc. (formerly Apple South, Inc.) of our report dated
January 29, 1999, relating to the consolidated balance sheets of Avado Brands,
Inc. as of January 3, 1999 and December 28, 1997 and the related consolidated
statements of earnings, shareholders' equity and comprehensive income, and cash
flows for each of the years in the three-year period ended January 3, 1999,
which report appears in the January 3, 1999 annual report on Form 10-K of Avado
Brands, Inc.
KPMG LLP
Atlanta, Georgia
March 30, 1999
<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)
</LEGEND>
<CIK> 0000849101
<NAME> Avado Brands, Inc.
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> Jan-03-1999
<PERIOD-START> Dec-29-1997
<PERIOD-END> Jan-03-1999
<CASH> 7,216
<SECURITIES> 27
<RECEIVABLES> 9,124
<ALLOWANCES> 0
<INVENTORY> 8,599
<CURRENT-ASSETS> 100,985
<PP&E> 367,587
<DEPRECIATION> 0
<TOTAL-ASSETS> 670,597
<CURRENT-LIABILITIES> 239,118
<BONDS> 116,978
115,000
0
<COMMON> 405
<OTHER-SE> 111,624
<TOTAL-LIABILITY-AND-EQUITY> 670,597
<SALES> 862,692
<TOTAL-REVENUES> 862,692
<CGS> 241,689
<TOTAL-COSTS> 740,971
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 25,313
<INCOME-PRETAX> 107,044
<INCOME-TAX> 39,300
<INCOME-CONTINUING> 67,744
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 1,461
<NET-INCOME> 66,283
<EPS-PRIMARY> 1.81
<EPS-DILUTED> 1.62
</TABLE>
