SECURITIES AND EXCHANGE
COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or
15(d) of the Securities Exchange
Act of 1934 For the Quarterly Period
Ended June 28, 1997
[ ] Transition report pursuant to Section 13 or
15(d) of the Securities
Exchange Act of 1934
Commission File Number 000-22006
DavCo Restaurants, Inc.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation or
organization)
52-1633813
(I.R.S. Employer Incorporation
Identification Number)
1657 Crofton Boulevard, Crofton Maryland
(Address of principal executive offices)
21114
(Zip code)
Registrant's telephone number, including area code
(410) 721-3770
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
than the Registrant was
required to file such reports), and (2) has been
subject to such filing
requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of
the registrant's classes of common stock, as of
August 7, 1997.
Class: Common Stock, $.001 par value Number of Shares: 6,428,821
DAVCO RESTAURANTS, INC.
INDEX
Page
PART I. FINANCIAL INFORMATION Number
Item 1. Financial Statements
Consolidated Statements of Operations for
the 13 weeks and 39 weeks ended
June 28, 1997 and June 29, 1996. 2
Consolidated Balance Sheets as of
June 28, 1997 and September 28, 1996 3
Consolidated Statements of Cash Flows for
the 39 weeks ended June 28, 1997 and
June 29, 1996 4
Notes to Unaudited Consolidated Financial
Statements 5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 7
PART II. OTHER INFORMATION
Items 1 through 5 have been omitted since the
items are either inapplicable or the
answer is negative.
Item 6 . Exhibits and Reports on Form 8-K 11
Signatures 11
DAVCO RESTAURANTS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in 000's except per share data)
<TABLE>
<CAPTION>
For the 13 For the 39
weeks ended weeks ended
_____________________ ___________________
June 28, June 29, June 28, June 29,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Restaurant Sales $60,706 $54,491 $163,185 $148,701
Costs and Expenses:
Cost of restaurant sales 35,895 32,706 99,404 91,323
Restaurant operating expenses 11,724 10,872 33,038 30,890
Franchise royalties 2,432 2,179 6,536 5,950
General and administrative 2,339 1,675 6,355 5,434
Depreciation and amortization 2,179 2,236 6,527 6,565
54,569 49,668 151,860 140,162
Operating Income 6,137 4,823 11,325 8,539
Interest expense (1,196) (1,295) (3,710) (3,862)
Interest income 9 9 25 22
Other income, net 101 150 577 594
Income (Loss) before Provision for I 5,051 3,687 8,217 5,293
(Provision) Benefit for Income Taxes (2,102) (1,449) (3,482) (2,137)
Net Income (Loss) $2,949 $2,238 $4,735 $3,156
Earnings (Loss) per Common Share -
Assuming Full Dilution (Note 2) $0.42 $0.32 $0.68 $0.45
Weighted Average Shares Outstanding -
Assuming Full Dilution (Note 2) 6,976 7,054 6,974 7,085
See notes to unaudited consolidated financial statements.
</TABLE>
DAVCO RESTAURANTS, INC.
CONSOLIDATED BALANCE SHEETS
(in 000's except per share data)
<TABLE>
<CAPTION>
June 28, September 28,
1997 1996
(Unaudited)
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 1,003 $ 1,948
Receivables 741 652
Refundable income taxes 12 12
Inventories 1,489 1,421
Prepaid expenses 1,211 1,377
Deferred tax asset 1,008 1,004
----------- -----------
Total Current Assets 5,464 6,414
----------- -----------
Property and equipment, net 54,931 49,521
----------- -----------
Leased properties, net 35,229 37,918
----------- -----------
Other Assets:
Franchise rights, net 3,323 3,551
Goodwill, net 18,210 18,730
Deferred tax asset 1,156 1,144
Other 165 280
----------- -----------
Total Other Assets 22,854 23,705
------------ ------------
Total Assets $ 118,478 $ 117,558
Current Liabilities:
Accounts payable $ 5,347 $ 5,615
Accrued advertising and royalty fees 2,337 2,588
Accrued salaries and wages 3,340 2,732
Accrued expenses 9,024 7,997
Short-term borrowings 4,755 6,768
Current portion of long-term debt 2,056 3,055
Current portion of capital lease
obligations 3,085 3,174
Income taxes payable 1,880 -
----------- -----------
Total Current Liabilities 31,824 31,929
Long-term debt, less current portion 10,544 11,699
Capital lease obligations, less current
portion 26,085 28,404
___________ ___________
Total Liabilities 68,453 72,032
Commitments and Contingencies
Stockholders' Equity:
Common stock, $.001 par value;
11,400,000 shares authorized
and 6,587,628 issued 7 7
Treasury stock, at cost, 158,807
and 132,107 shares, respectively (1,320) (1,084)
Additional paid-in capital 31,101 31,101
Warrants outstanding 3,000 3,000
Retained earnings 17,237 12,502
___________ ___________
Total Stockholders' Equity 50,025 45,526
Total Liabilities and Stockholders'
Equity $ 118,478 $ 117,558
See notes to unaudited consolidated financial statements.
</TABLE>
DAVCO RESTAURANTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in 000's)
<TABLE>
<CAPTION>
For the 39
weeks ended
____________________
June 28, June 29,
1997 1996
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 4,735 $ 3,156
Adjustments to reconcile net income to net
cash flows provided by operating activities-
Depreciation and amortization 6,527 6,565
Loss on disposition of assets 145 68
Deferred tax (benefit) provision (16) 1,351
Net change in assets and liabilities 2,950 628
Net Cash Flows Provided By Operating Activities 14,341 11,768
CASH FLOWS FROM INVESTING ACTIVITIES:
Increase in other assets (13) (481)
Property and equipment acquired and constructed (8,462) (11,651)
Net Cash Flows Used In Investing Activities (8,475) (12,132)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of capital lease obligations (2,408) (2,281)
Repayments of long-term debt, net (2,154) (3,003)
Purchase of treasury stock (236) (890)
Short-term borrowings, net (2,013) 8,644
Net Cash Flows (Used In) Provided by Financing Act (6,811) 2,470
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (945) 2,106
CASH AND CASH EQUIVALENTS, beginning of period 1,948 331
CASH AND CASH EQUIVALENTS, end of period $ 1,003 $ 2,437
Supplemental Cash Flow Information:
Cash paid for interest $ 3,710 $ 4,117
Cash paid for income taxes, net of refunds $ 1,619 $ 239
Cash paid for income taxes, net of refunds
</TABLE>
DAVCO RESTAURANTS, INC. NOTES TO UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS June 28, 1997
1. DESCRIPTION OF BUSINESS AND BASIS
OF PRESENTATION
DavCo Restaurants, Inc., a Delaware corporation (the
"Company"), operates 229 "Wendy's Old Fashioned
Hamburgers" restaurants, making it the world's largest
franchisee of Wendy's International, Inc. ("Wendy's".)
The Company maintains exclusive franchise territories
in metropolitan Baltimore, Washington, D.C., the
eastern shore of Maryland and portions of northern
Virginia (the "Mid-Atlantic"), where it operates 138
Wendy's restaurants. The Company also operates 53
Wendy's restaurants in metropolitan St. Louis and
central Illinois (the "Midwest") through a wholly-owned
subsidiary, MDF, Inc. and 38 Wendy's
restaurants in metropolitan Nashville, Tennessee (the
"South"). The Company does not maintain exclusive
franchise territories in the Midwest or the South.
DavCo's wholly owned subsidiary FriendCo
Restaurants, Inc ("FriendCo") signed agreements,
mainly a purchase and development agreement, with
Friendly's Ice Cream Corporation and Friendly's
Restaurant Franchise, Inc. on July 10 ,1997, effective
July 14, 1997, hence there is no financial information
related to FriendCo included in this Form 10-Q. For
further information relating to the agreements
reference Form 8-K filed on July 25, 1997.
In management's opinion, the accompanying interim
consolidated financial statements of the Company
include all adjustments, consisting only of normal,
recurring adjustments necessary for a fair presentation
of the Company's financial position at June 28, 1997
and the results of its operations and its cash flows for
the periods ended June 28, 1997 and June 29, 1996.
These statements are presented in accordance with the
rules and regulations of the Securities and Exchange
Commission. Certain information and footnote
disclosures normally included in the Company's annual
consolidated financial statements have been omitted
from these statements, as permitted under the
applicable rules and regulations. Readers of these
statements should refer to the consolidated financial
statements and notes thereto as of September 28, 1996
and for the year then ended. The results of operations
presented in the accompanying financial statements are
not necessarily representative of operations for an
entire year.
Certain reclassifications have been made to the prior
year's balances in order to conform to current year
presentation.
The Company maintains its accounts on a 52/53 week
fiscal year. Both the fiscal 1997 and 1996 periods
contained 13 weeks and 39 weeks, respectively.
2. EARNINGS PER COMMON SHARE
Earnings per common share is computed based on the
weighted average number of common and common
equivalent shares outstanding during the periods.
Common stock equivalents include options and
warrants to purchase common stock which are
assumed to be exercised using the treasury stock
method. The weighted average number of shares
reflected includes treasury stock acquired pursuant to
the Stock Repurchase Program.
In March 1997, the Financial Accounting Standard
Board released SFAS 128 " Earnings per Share". The
new statement is effective December 15, 1997 and
early adoption is not permitted. When adopted, SFAS
128 will require the restatement of prior periods and
disclosure of basic and diluted earnings per share and
related computations. At the present time,
management believes that the adoption of SFAS 128
will not materially affect the Company's consolidated
financial statements.
3. COMMITMENTS AND CONTINGENCIES
Litigation
The Company is party to a number of legal
proceedings which are considered by management to
be customary and incidental to its business. In the
opinion of management, after consulting with legal
counsel, the ultimate disposition of these lawsuits will
not have a material adverse effect on the Company's
financial position or results of operations.
Letters of Credit
As of June 28, 1997, the Company was contingently
liable for outstanding letters of credit relating to
liability insurance, workers' compensation collateral
and Wendy's current royalty requirements, aggregating
approximately $4,670,000.
4. GOODWILL
The company's excess of cost over the fair value of
net assets acquired (or goodwill) is amortized on a
straight-line basis over 30 years. The carrying amount
of goodwill is reviewed if facts and circumstances
suggest that it may be impaired. If this review
indicates that goodwill will not be recoverable, as
determined based on the estimated undiscounted cash
flows of the entity acquired over the remaining
amortization period, the carrying amount of the
goodwill is reduced by the estimated shortfall of cash
flows.
5. TREASURY STOCK
On May 2, 1996, the Company announced that its
Board of Directors had authorized management to
repurchase up to 1,000,000 shares of its common
stock on the open market and in privately negotiated
transactions during the following twenty four months.
As of June 28, 1997, the Company had purchased
158,807 shares of its common stock for $1,319,505.
The Company is accounting for the treasury stock at
cost.
PART I.
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Components of Revenues and Expenses
The Company's revenues consist of restaurant sales.
Any additional amounts of income are minor and are
included in Other Income, Net. Restaurant operating
profit is computed by subtracting cost of restaurant
sales and restaurant operating expenses from
restaurant sales. Cost of restaurant sales consists of
the Company's expenditures for food, supplies
(primarily paper goods) and direct labor.
Restaurant operating expenses include all other direct
costs, including occupancy costs, advertising expense,
expenditures for repairs and maintenance, area and
regional management expenses, and workers'
compensation, casualty and general liability insurance
costs. In addition to franchise royalty payments, the
Company is also required to contribute 4.0% of its
restaurant sales to advertising, which consists of an
amount (2.5% of sales) for the Wendy's National
Advertising Program, Inc. and the remainder for local
advertising.
Franchise royalties, as required by the Company's
franchise agreement with Wendy's, have remained
constant at 4.0% of restaurant sales throughout the
periods presented. General and administrative
expenses consist of corporate expenses, including
executive and administrative compensation, office
expenses and professional fees.
Results of Operations
The following table presents certain items in the
Company's Consolidated Statements of Operations
as a percentage of restaurant sales for the interim
periods indicated.
<TABLE>
<CAPTION>
For the 13 Weeks Ended For the 39 Weeks Ended
June 28, June 29, June 28, June 29,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Statements of Operations Data:
Restaurant Sales 100.0% 100.0% 100.0% 100.0%
Cost of Restaurant Sales 59.1 60.0 60.9 61.4
Restaurant Operating Expenses 19.3 19.9 20.3 20.8
______ ______ ______ ______
Restaurant Operating Profit 21.6 20.1 18.8 17.8
Franchise Royalties 4.0 4.0 4.0 4.0
General and Administrative 3.9 3.1 3.9 3.7
Depreciation and Amortization 3.6 4.1 4.0 4.4
______ ______ ______ ______
Operating Income 10.1% 8.9% 6.9% 5.7%
</TABLE>
Revenues. Company restaurant sales increased 11.4% for the 13 weeks ended
June 28, 1997 compared to the 13 weeks ended June 29, 1996.
Company restaurant sales increased 9.7% for
the 39 weeks ended June 28, 1997 compared to the 39 weeks ended
June 29, 1996. The overall increase is sales is related to sales
growth in all of the company's divisions during the third quarter of
fiscal year 1997. Same store sales for the 13 weeks ended
June 28, 1997 compared to the 13 weeks ended June 29, 1996
for the Mid-Atlantic division increased 7.8%, for the Southern
division increased 5.7%, and for the Mid-West division
increased 4.6%. Consolidated same store sales increased 6.9% for
the third quarter of fiscal 1997 compared to the third
quarter of fiscal 1996. Same store sales for the
39 weeks ended June 28, 1997 compared to the respective
period in fiscal year 1996 for the Mid-Atlantic
division increased 4.9%, for the Southern division
increased 8.1% and for the Mid-West division
decreased 1.6%. Consolidated same store sales for the
39 weeks ended June 28, 1997 increased
4.4% over the 39 weeks ended June 29, 1996.
The positive same store sales growth during the
fiscal year 1997 third quarter is related to improved
operations, renewed focus on the Super Value
Menu, and the successful roll-out of the "Fresh Stuffed PITA"
sandwiches. The "Fresh Stuffed PITA" sandwich roll-out increased
and is expected to continue to help increase customer traffic. Same
store sales on a year to date basis were also positively impacted
for comparison purposes by the lower sales reported for the fiscal 1996
periods due to a harsh winter. The slight decrease in same store
sales for the Mid-West division for the respective 39 week
periods can be attributed to increased competition and harsh winter
weather experienced this year. Company wide sales were also
positively impacted by the 8 new stores opened since June 29, 1996.
The company is constantly working on improving sales by improving
operations, continuing to satisfy guests and new product innovations.
The weighted average number of restaurants open for the 13 weeks
ended June 28, 1997 was 228.3 compared to 224.1 for the relative
period in fiscal year 1996. The weighted average number of
restaurants open for the 39 weeks ended June 28, 1997 was
227.9 compared to 219.9 for the relative period in fiscal year 1996.
The reason for the increase over fiscal year 1996 is primarily related to
the increase in the number of units in the Mid-Atlantic division.
Average sales per company restaurant for the Mid-Atlantic division
increased 9.4% to $306,700 for the third quarter and
increased 6.0% to $821,400 for the 39 weeks ended June 28, 1997.
Average sales per company restaurant increased by 6.6% to $170,500
for the third quarter and declined 0.1% to $452,400 for
the 39 weeks ended June 28, 1997 in the Mid-West division.
The Southern division realized increases in average sales per
restaurant of 5.7% to $252,400 for the third quarter and 7.3% to $719,600
for the 39 weeks ended June 28, 1997. These changes in average sales
per company restaurant are directly related to the above mentioned
reasons for changes in sales and same store sales.
Average guest count per company restaurant was 79,900 and 217,800
for the third quarter and 39 weeks ended June 28, 1997,
respectively. Average guest check was $3.33 for the third quarter
and $3.29 for the 39 weeks ended June 28, 1997. These figures are
not comparable to the respective periods in 1996 due to changes in
the product mix such as the addition of the $.99 Chicken Nuggets,
which is a value added menu item and an increase of strategically
selected menu items.
Costs and Expenses. Cost of restaurant sales declined as a percentage
of sales for the 13 weeks and 39 weeks ended June 28, 1997 when compared
to the respective fiscal 1996 periods. Cost of restaurant sales for
the third quarter of fiscal 1997 was 59.1% of sales compared to 60.0% of
sales for the third quarter of fiscal 1996. Cost of restaurant sales
for the 39 week period in fiscal 1997 was 60.9% of sales compared to 61.4%
of sales for the 1996 period. Cost of restaurant sales is
comprised of food, supplies, payroll and benefits expense.
Cost of food and supplies was consistent, 33.4%,
as a percentage of sales for the 39 weeks in fiscal 1997 when compared
to the fiscal 1996 period. Cost of food and supplies as a percentage
of sales was positively impacted during the third quarter of
FY 1997, 33.1% compared to 33.4% for the prior year's quarter by
management working to reduce spoilage, obtain more favorable food cost,
and strategically increasing certain menu prices. The "Fresh Stuffed PITA"
sandwich also had a positive impact on food cost during the quarter. The
reduction of cost of restaurants sales as a percentage of sales can
also be related to a slight reduction of payroll and benefit cost as a
percentage of sales. Payroll and benefits cost percentage improved
due to the leveraging effect of increased sales as discussed above.
(Note: there is a certain level of this expense which is not dependent
on sales, such as a manager's salary). This improvement
more than offset the negative impact of the increase in the
Federal Minimum wage.
Restaurant operating expenses decreased as a percentage of sales for
both the 13 weeks and 39 weeks ended June 28, 1997 when compared to the
respective periods in fiscal year 1996.
Restaurant operating expenses dropped from 19.9% of sales for the
third quarter of fiscal 1996 to 19.3% of sales for the third quarter of
fiscal 1997 and from 20.8% of sales to 20.3% of sales for the respective
39 weeks periods in fiscal 1996 and 1997. The Mid-Atlantic and Southern
division's restaurant operating expenses decrease as a percent of revenue
more than offset the Mid-West division increase. The Mid-West division
increase as a percent of sales was caused by the leveraging effect of lower
sales for the 39 week period. Both the Mid-Atlantic and the Southern
division's decrease in restaurant operating expenses as a percentage of
sales was due to the saving of certain expenses related to the severe
weather experienced in the 1996 periods, such as increased utilities and
snow removal. The leveraging effect of higher sales was also a factor.
Franchise royalties remained constant at 4% of sales and is expected to
remain 4% of sales. General and Administrative cost increased
$664,000 and $921,000 during the 13 weeks and 39 weeks ended
June 28, 1997 respectively when compared to the respective
period in fiscal 1996. This increase was attributable to incentive
type expenses, such as bonuses, incurred due to the improved Company's
performance when compared to fiscal 1996.
Depreciation and amortization expense remained relatively constant in
terms of dollars for both periods presented. Depreciation and Amortization
dropped as a percentage of sales due to the leveraging effects of higher
sales. The additional depreciation and amortization related to new
assets acquired since June 29, 1996 was offset by the reduction related to
asset write offs in the fourth quarter of fiscal year 1996 of
approximately $5.5 million resulting from the implementation of
SFAS No. 121 "Accounting for the Impairment of Long-Lived Assets and
Long-Lived Assets to be Disposed Of ".
Non-Operating Charges. Interest expense, interest income and the income
remained relatively constant for all periods presented. The Company's
effective tax rate for fiscal 1997 has increased due
to the Illinois unitary tax, and other non-deductible expenses.
Liquidity and Capital Resources
The Company has historically financed its business activities
primarily from cash generated from operations and from long-term debt
and sale/leasebacks. The Company's policy is to review
whether leasing its new restaurants or owning certain properties
is in the Company's best interest. Accordingly, during the 39 weeks ended
June 28, 1997, the Company purchased the land and/or
buildings for certain of its new restaurants. The Company plans to
continue this policy during the remainder of fiscal year 1997.
Cash flow provided by operating activities was $14.3 million for the
39 weeks ended June 28, 1997. Net cash used in investing
activities was $8.5 million for the fiscal
1997 period, which consisted primarily of capital expenditures and
related land acquisitions for new Company restaurants
opened during the period, and for additional restaurants under construction.
Financing activities during the 39 weeks ended June 28, 1997 used net cash of
$6.8 million, which reflected short-term borrowings offset by capital lease and
debt repayments. The net change in cash and cash equivalents during
the 39 weeks ended June 28, 1997 was a decrease of $945,000.
The Company anticipates that its future capital requirements will be
primarily for the development of new restaurants, upgrading of
existing restaurants and possible acquisitions. On July 15, 1997
the Company signed an agreement to combine the revolving line of
credit for $13 million and the $5 million credit facility to form an
$18 million revolving credit facility. Also, on July 15, 1997, the
Company's wholly own subsidiary FriendCo Restaurants, Inc. signed a
$10 million term loan facility which was mainly used to fund the purchase
price and start up cost for the Friendly's transaction which was
disclosed on Form 8-K filed on July 25, 1997. Management anticipates
that cash provided by operating activities, cash on hand, the revolving
line of credit facility of $18 million, and the term loans will enable
the Company to meet its cash requirements through the remainder of fiscal
1997. The Company may take advantage of opportunities to finance some
of its new restaurant development with more permanent debt or
sale/leaseback financing, if such financing is available
at attractive rates and terms.
PART II.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit No. Description
10.58 Agreement dated July 15, 1997 between
DavCo Restaurants, Inc. and
First National Bank of Maryland
10.59 $10 million term loan facility between
FriendCo Restaurants, Inc. and
First National Bank of Maryland, dated
July 15, 1997
11.1 Computation of Earnings Per Share Schedule
(b) Reports on Form 8-K:
The Company filed a report on Form 8-K on June 10, 1997
disclosing the Letter of Intent which set forth the terms of the new
Master Franchise Agreement which was entered into by DavCo and
Wendy's International, Inc. The Company also filed a report on
Form 8-K on July 25, 1997 disclosing the agreements between
DavCo's wholly owned subsidiary FriendCo Restaurants, Inc. and
Friendly's Ice Cream Corporation and Friendly's
Restaurants Franchise, Inc. No other reports on Form 8-K were filed
during the 13 weeks ended June 28, 1997.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act or 1934,
the Registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
DAVCO RESTAURANTS, INC.
August 7, 1997 /S/Ronald D. Kirstien
______________________
Ronald D. Kirstien
President and Director
August 7, 1997 /S/ Charles C. McGuire, III
___________________________
Charles C. McGuire, III
Vice President of Finance
REVOLVING CREDIT NOTE
$18,000,000 July 14, 1997
Baltimore, Maryland
FOR VALUE RECEIVED, DAVCO
RESTAURANTS, INC., a corporation
organized and existing under the
laws of the State of Delaware
("DavCo"), SOUTHERN HOSPITALITY
CORPORATION, a corporation organ-
ized and existing under the laws of
the State of Tennessee ("SHC"),
MDF, Inc., a corporation organized
and existing under the laws of the
State of Delaware ("MDF") and
FRIENDCO RESTAURANTS, INC., a
corporation organized under the
laws of the State of Maryland
("Friendco"; each of DavCo, SHC,
MDF and Friendco a "Borrower" and
collectively, the "Borrowers"),
jointly and severally, promise to
pay to the order of THE FIRST
NATIONAL BANK OF MARYLAND, a
national banking association (the
"Lender") the principal sum of
$18,000,000 (the "Principal Sum"),
or such sums thereof as are
outstanding from time to time
pursuant to the Financing Agreement
(hereinafter defined) under the
Revolving Credit Facility (as that
term is defined in the Financing
Agreement) with interest thereon as
provided below. Interest and
principal shall be payable in
lawful money of the United States,
which shall be legal tender in
payment of all debts and dues,
public and private, at the time of
payment.
The term "Financing Agreement"
means the Financing Agreement dated
the same date as this Revolving
Credit Note (as the Financing
Agreement may be amended, modified,
restated, substituted, extended and
renewed at any time and from time
to time), among the Borrowers and
the Lender. Capitalized terms used
herein and not otherwise defined
shall have the same meanings as set
forth in the Financing Agreement.
This Note is the "Line of Credit
Note" defined in the Financing
Agreement and is subject to all of
the terms and conditions contained
therein.
Interest on the outstanding
principal balance of this Note at
the Floating Rate and/or at any
Fixed Rate in effect from time to
time shall be payable monthly on
the fifth day of each month in each
calendar year. The entire unpaid
principal balance and any accrued
but unpaid interest shall be due
and payable in full on the
Revolving Credit Facility
Expiration Date.
The unpaid principal balance
of this Note shall bear interest at
the Floating Rate, except during
any period of time in which the
Fixed Rate has been selected in
accordance with the Financing
Agreement. Subject to the
conditions set forth in the
Financing Agreement, the Floating
Rate and up to five (5) Fixed Rates
may be applicable to portions of
the Principal Sum at any one time.
Interest shall be charged
based on a 360-day year factor
applied to actual days elapsed.
The fact that the principal
balance of this Note may be reduced
to zero from time to time will not
affect the continuing validity of
this Note or the Financing
Agreement, and such balance may be
increased to the full Principal Sum
after any such reduction to zero.
If a Default occurs and
continues beyond the applicable
cure periods (if any) set forth in
the Financing Agreement, the unpaid
principal balance of this Note
shall bear interest thereafter at a
rate of two percent (2%) per annum
in excess of the rate or rates of
interest otherwise applicable to
the principal of this Note (or
portions thereof if more than one
(1) interest rate is applicable)
until the Default is cured. In
addition, any payment received more
than fifteen (15) days after its
due date will be subject to a late
charge in an amount equal to five
percent (5%) of the payment.
All payments under this Note
will be made to the Lender as
provided in the Financing
Agreement. All such payments
received by the Lender shall be
applied in accordance with the
Financing Agreement.
Any portion of the Principal
Sum accruing interest at the
Floating Rate may be prepaid in
whole or in part at any time
without premium or penalty. Any
portion of the Principal Sum
accruing interest at a Fixed Rate
may be prepaid in whole or in part
but subject to payment of the
prepayment fee described in the
Financing Agreement.
If a Default occurs and
continues beyond the applicable
cure periods (if any) set forth in
the Financing Agreement, the unpaid
balance of the Principal Sum
together with interest thereon
shall, at the option of the Lender,
at once become and be due and
payable.
If this Note is forwarded to
an attorney for collection after
the occurrence of an Event of
Default, the Borrowers shall pay
all reasonable costs of collection,
including, without limitation,
court costs and reasonable
attorney's fees.
Upon the occurrence of a
Default under the Financing
Agreement, the Borrowers hereby
jointly and severally authorize and
empower at any time thereafter the
clerk of court or any attorney of
any court of record within the
State of Maryland to appear for the
Borrowers, or any of them, in any
court in one or more proceedings or
before any clerk or any other
officer thereof and to confess
judgment against the Borrowers, or
any of them, in favor of the Lender
and/or any subsequent holder of
this Note for an amount equal to
the total of (a) the then unpaid
principal balance of this Note
(whether then due or not), (b)
interest accrued thereon and any
premiums, (c) costs of suit, and
(d) attorney's fees of $250,000.
The authority and power to confess
judgment herein contained shall not
be exhausted by one or more
exercises thereof, or by an
imperfect exercise thereof, and
shall not be extinguished by any
judgment entered pursuant thereto.
Such authority and power may be
exercised on one or more occasions,
from time to time, in the same or
different jurisdictions, as often
as the Lender or any subsequent
holder shall deem necessary or
desirable for all of which this
Note shall be sufficient warrant.
In the event that any
provision (or any part of any
provision) contained in this Note
shall for any reason be held to be
invalid, illegal or unenforceable
in any respect, such invalidity,
illegality or unenforceability
shall not affect any other
provision (or remaining part of the
affected provision) of this Note,
but this Note shall be construed as
if such invalid, illegal or
unenforceable provision (or part
thereof) had never been contained
herein but only to the extent it is
invalid, illegal or unenforceable.
The Borrowers waive
presentment, protest and demand,
notice of protest, notice of demand
and of dishonor and non-payment of
this Note (provided that, this
paragraph shall in no manner limit
or affect any notice and cure
period the Borrowers are entitled
to under the Financing Agreement),
and expressly agree that this Note
or any payment hereunder may be
extended from time to time without
in any way affecting the liability
of the Borrowers.
Time is of the essence of this
Note.
This Note shall be governed
by, and construed in accordance
with, the Laws of the State of
Maryland.
WITNESS the signatures and
seals of the Borrowers as of the
day and year first above written.
WITNESS OR ATTEST: DAVCO RESTAURANTS, INC.
/S/ David J. Norman By: /S/ Charles C. McGuire III (Seal)
Name:
Title:
WITNESS OR ATTEST: SOUTHERN HOSPITALITY CORPORATION
/S/ David J. Norman By: /S/ Charles C. McGuire III (Seal)
Name:
Title:
WITNESS OR ATTEST: MDF, INC.
/S/ David J. Norman By: /S/ Charles C. McGuire III (Seal)
Name:
Title:
WITNESS OR ATTEST: FRIENDCO RESTAURANTS, INC.
/S/ David J. Norman By: /S/ Charles C. McGuire III (Seal)
Name:
Title:
FINANCING AGREEMENT
THIS FINANCING AGREEMENT (this
"Agreement") is made as of the 14th
day of July, 1997, by and among
DAVCO RESTAURANTS, INC., a
corporation organized and existing
under the laws of the State of
Delaware ("DavCo"), and its
Subsidiaries signing below, jointly
and severally (each of DavCo and
those Subsidiaries, individually
and collectively, the "Borrower"),
jointly and severally, and THE
FIRST NATIONAL BANK OF MARYLAND, a
national 42
banking association (the "Lender").
R E C I T A L S :
1. The Borrower has
requested that the Lender establish
a $18,000,000 revolving credit
facility for the Borrower.
2. The Lender has agreed to
do so subject to the terms and
conditions set forth in this
Agreement.
NOW, THEREFORE in
consideration of the premises and
of the mutual covenants and
conditions contained herein, the
Borrower and the Lender agree as
follows:
ARTICLE 1
DEFINITIONS
SECTION 1.1 Certain Defined
Terms. As used in this Agreement,
the terms defined in the Preamble
and Recitals hereto shall have the
respective meanings specified
therein, and the following terms
shall have the following meanings:
"Adjusted Libor Rate" has
the meaning set forth in Section
2.1.6(f).
"Affiliate" means, with
respect to the Borrower, any
Person, directly or indirectly
controlling, directly or indirectly
controlled by, or under direct or
indirect common control with the
Borrower or any Subsidiary.
"Agreement" means this
Financing Agreement and all amend-
ments, modifications and
supplements hereto which may from
time to time become effective in
accordance with the provisions of
Section 7.1 hereof.
"Applicable Margin" has
the meaning set forth in Section
2.1.6(b).
"Applicable Rate" has the
meaning set forth in Section
2.1.7(b).
"Assessment Rate" has the
meaning set forth in Section
2.1.6(f).
"Bankruptcy Code" means
the United States Bankruptcy Code,
as amended from time to time.
"Business Day" means any
day other than a Saturday, Sunday
or other day on which commercial
banks in the State of Maryland are
authorized or required to close.
"Closing Date" means the
date of this Agreement.
"Commitment" means the
commitment of the Lender to provide
the Revolving Credit Facility,
subject to the sublimits
established under the Revolving
Credit Facility.
"Commonly Controlled
Entity" means an entity, whether or
not incorporated, which is under
common control with the Borrower
within the meaning of Section
414(b) or (c) of the Internal
Revenue Code.
"CP Capital Leases" means
the current portion of the
Borrower's capital leases,
determined in accordance with GAAP
consistently applied to the
Borrower.
"CPLTD" means the current
portion of the Borrower's long term
debt, determined in accordance with
GAAP consistently applied to the
Borrower.
"Credit Facilities" means
the collective reference to each of
the credit accommodations under the
Revolving Credit Facility
including, without limitation, the
Line of Credit, the Letter of
Credit facility, and the FILM
facility, and to each advance and
extension of credit thereunder.
"Default" has the meaning
described in Article 6.
"Enforcement Costs" means
all expenses, charges, costs and
fees whatsoever (including, without
limitation, reasonable attorney's
fees and expenses) of any nature
whatsoever paid or incurred by or
on behalf of the Lender in
connection with the collection or
enforcement of any or all of the
Obligations, this Agreement, the
Notes, and/or any of the other
Financing Documents, and (b) the
monitoring, administration,
processing or servicing of any or
all of the Obligations.
"ERISA" means the
Employee Retirement Income Security
Act of 1974, as amended from time
to time.
"Event of Default" means
an event which, with the giving of
notice or lapse of time, or both,
could or would constitute a Default
under the provisions of this
Agreement.
"Fees" means collectively
the letter of credit fees described
in Section 2.1.4(c) and the Loan
Fee, the non-usage fees, and the
Cancellation Fees described in
Sections 5.1.17, 5.1.18 and 5.1.19,
respectively.
"FILM" has the meaning
set forth in Section 2.1.5.
"FILM Promissory Note"
shall have the meaning described in
Section 2.1.5.
"Financing Documents"
means at any time collectively this
Agreement, the Notes, the Pledge
Agreement and any other instrument,
agreement or document previously,
simultaneously or hereafter
executed and delivered by the
Borrower, and/or any other Person,
singly or jointly with another
Person or Persons, evidencing,
securing, guarantying or in
connection with any of the Obliga-
tions and/or in connection with
this Agreement, the Notes, and/or
the Credit Facilities.
"Fixed or Capital Assets"
of a Person at any time means all
assets of such Person which would,
in accordance with GAAP, be
classified as property, plant and
equipment at such date.
"Fixed Rate" has the
meaning set forth in Section 2.1.6.
"Floating Rate" has the
meaning set forth in Section 2.1.6.
"GAAP" means generally
accepted accounting principles in
the United States of America in
effect from time to time.
"Governmental Authority"
means any nation or government, any
state or other political
subdivision thereof and any entity
exercising executive, legislative,
judicial, regulatory or
administrative functions of or
pertaining to government.
"Hazardous Materials"
means (a) any "hazardous waste" as
defined by the Resource
Conservation and Recovery Act of
1976, as amended from time to time,
and regulations promulgated there-
under; (b) any "hazardous
substance" as defined by the
Comprehensive Environmental
Response, Compensation and
Liability Act of 1980, as amended
from time to time, and regulations
promulgated thereunder; (c) any
substance the presence of which on
any property now or hereafter owned
or acquired by the Borrower or any
Subsidiary is prohibited by any Law
similar to those set forth in
clauses (a) or (b) of this defini-
tion; and (d) any other substance
which by Law requires special
handling in its collection,
storage, treatment or disposal;
provided that "Hazardous Materials"
does not include substances
commonly used in the operation of a
restaurant so long as such
substances are stored, used and
disposed of in accordance with all
applicable laws and regulations.
"Hazardous Materials
Contamination" means the contamin-
ation (whether presently existing
or occurring after the date of this
Agreement) by Hazardous Materials
of any property owned, operated or
controlled by the Borrower or any
Subsidiary or for which the
Borrower or any Subsidiary has
responsibility, including, without
limitation, improvements,
facilities, soil, ground water, air
or other elements on, or of, any
property now or hereafter owned or
acquired by the Borrower or any
Subsidiary, and any other
contamination by Hazardous
Materials for which the Borrower or
any Subsidiary is, or is claimed to
be, responsible.
"Indebtedness" of a
Person, at any time, means the
total liabilities of such Person at
such time determined in accordance
with GAAP.
"Indebtedness for
Borrowed Money" of a Person, at any
time means the sum at such time of
(a) indebtedness of such Person for
borrowed money or for the deferred
purchase price of property or
services, (b) any obligations of
such Person in respect of letters
of credit, banker's or other
acceptances or similar obligations
issued or created for the account
of such Person, (c) Lease
Obligations of such Person which
have been or should be, in
accordance with GAAP, capitalized
on the books of such Person, (d)
all liabilities secured by any Lien
on any property owned by such
Person, to the extent attached to
such Person's interest in such
property, even though such Person
has not assumed or become liable
for the payment thereof, and (e)
any obligation of such Person or a
Commonly Controlled Entity to a
Multiemployer Plan; but excluding
trade and other accounts payable in
the ordinary course of business in
accordance with customary trade
terms and which are not overdue (as
determined in accordance with
customary trade practices) or which
are being disputed in good faith by
such Person and for which adequate
reserves are being provided on the
books of such Person in accordance
with GAAP.
"Index" has the meaning
described in Section 2.1.6(f).
"Interest Period" has the
meaning set forth in Section
2.1.6(c).
"Internal Revenue Code"
means the Internal Revenue Code of
1986, as amended from time to time,
and the Income Tax Regulations
issued and proposed to be issued
thereunder.
"Laws" means all
ordinances, statutes, rules,
regulations, orders, injunctions,
writs, or decrees of any
Governmental Authority or political
subdivision or agency thereof, or
any court or similar entity
established by any thereof.
"Lease Obligations" of a
Person for a particular period
means the aggregate amount of
payments required to be made by
such Person for such period under
leases for real and/or personal
property (net of rent from
subleases thereof, but including
taxes, insurance, maintenance and
similar expenses which the lessee
is obligated to pay under the terms
of said leases, except to the
extent that such taxes, insurance,
maintenance and similar expenses
are payable by sublessees),
including any such payments under
leases that should be, in
accordance with GAAP, capitalized.
"Letters of Credit" means
letters of credit issued pursuant
to Section 2.1.4(a) of this
Agreement.
"Liabilities" means, at
any time, all liabilities that
should, in accordance with GAAP
consistently applied, be classified
as liabilities on a consolidated
balance sheet of the Borrower and
its Subsidiaries.
"Libor Index Rate" has
the meaning set forth in Section
2.1.6(f).
"Libor Rate" has the
meaning set forth in Section
2.1.6(f).
"Lien" means any
mortgage, deed of trust, deed to
secure debt, grant, pledge,
security interest, assignment,
encumbrance, judgment, lien or
charge of any kind, whether
perfected or unperfected, avoidable
or unavoidable, including, without
limitation, any conditional sale or
other title retention agreement,
any lease in the nature thereof,
and the filing of or agreement to
give any financing statement under
the Uniform Commercial Code of any
jurisdiction, excluding the
precautionary filing of any
financing statement by any lessor
in a true lease transaction, by any
bailor in a true bailment
transaction or by any consignor in
a true consignment transaction
under the Uniform Commercial Code
of any jurisdiction or the
agreement to give any financing
statement by any lessee in a true
lease transaction, by any bailee in
a true bailment transaction or by
any consignee in a true consignment
transaction.
"Line of Credit" has the
meaning set forth in Section 2.1.3.
"Line of Credit Note" has
the meaning set forth in Section
2.1.3.
"Loan" means an advance
under the Line of Credit or the
FILM facility and "Loans" means all
such advances.
"Loan Fee" has the
meaning set forth in Section
5.1.17.
"Loan Notice" has the
meaning described in Section
2.1.10.
"Multiemployer Plan"
means a Plan which is a
multiemployer plan as defined in
Section 4001(a)(3) of ERISA.
"Note" means the Line of
Credit Note, each FILM Promissory
Note, or any other promissory note
which may from time to time
evidence all or any part of the
Obligations, as the case may be,
and "Notes" means collectively the
Line of Credit Note, each FILM
Promissory Note, and all other
promissory notes which may from
time to time evidence all or any
part of the Obligations.
"Obligations" means all
present and future debts,
obligations, and liabilities,
whether now existing or
contemplated or hereafter arising,
of the Borrower to the Lender
under, arising pursuant to, in
connection with and/or on account
of the provisions of this Agree-
ment, the Notes and any of the
other Financing Documents, any of
the Loans, any of the Letters of
Credit, and the Credit Facilities
including, without limitation, the
principal of, and interest on, the
Notes, late charges, Enforcement
Costs, and prepayment penalties (if
any).
"PBGC" means the Pension
Benefit Guaranty Corporation.
"Permitted Liens" means:
(a) Liens for Taxes not delinquent
or which are being diligently
contested in good faith and by
appropriate proceedings, provided,
that, the Borrower shall have set
aside on its books adequate
reserves therefor; (b) deposits or
pledges to secure obligations under
workers' compensation, social
security or similar laws, or under
unemployment insurance; (c)
statutory Liens under Articles 2 or
4 of the Uniform Commercial Code of
any jurisdiction; (d) judgment
Liens to the extent the entry of
such judgment does not constitute
an Event of Default under the terms
of this Agreement; (e) attachments
on original process to the extent
that such attachments are
discharged or dismissed in a prompt
and commercially reasonable manner;
(f) leases and subleases of
property to third parties; (g)
liens arising by statute or common
law so long as payment or
performance of the obligation
secured is not in default; (h)
grants of customary easements and
rights-of-way; (i) mortgages and
deeds of trust covering real
property owned by the Borrower and
its Subsidiaries (to the extent not
in violation of other provisions of
this Agreement); (j) liens created
in connection with the acquisition
of properties (to the extent not
resulting in violation of other
provisions of this Agreement); and
(k) such other Liens, if any, as
are set forth on EXHIBIT "A"
attached hereto and made a part
hereof.
"Person" means an
individual, a corporation, a part-
nership, a joint venture, a trust,
an unincorporated association, a
government or political subdivision
or agency thereof or any other
entity.
"Plan" means any pension
plan which is covered by Title IV
of ERISA and in respect of which
the Borrower or a Commonly
Controlled Entity is an "employer"
as defined in Section 3 of ERISA.
"Pledge Agreement" shall
have the meaning set forth in
Section 5.1.22.
"Post-Default Rate" means
the floating rate equal at all
times to two percent (2%) per annum
in excess of the Index.
"Prime Rate" has the
meaning set forth in Section
2.1.6(f).
"Reportable Event" means
any of the events set forth in
Section 4043(b) of ERISA or the
regulations thereunder.
"Reserve Percentage" has
the meaning set forth in Section
2.1.6(f).
"Responsible Officer"
means the chief executive officer
of the Borrower or the president or
any executive vice president of the
Borrower or, with respect to
financial matters, the chief
financial officer of the Borrower.
"Revolving Credit
Facility" has the meaning set forth
in Section 2.1.1 of this Agreement.
"Revolving Credit
Facility Expiration Date" means
January 1, 2001, provided that the
expiration date shall extend
automatically for successive
periods of one (1) fiscal year of
the Borrower each unless the Lender
in the exercise of its sole and
absolute discretion has previously
notified the Borrower that the
Lender will not extend the
Revolving Credit Facility.
"Subsidiary" means any
corporation the majority of the
voting shares of which at the time
are owned directly by the Borrower
and/or by one or more Subsidiaries
of the Borrower; "Subsidiaries"
mean each Subsidiary of the
Borrower.
"Taxes" means all taxes
and assessments whether general or
special, ordinary or extraordinary,
or foreseen or unforeseen, of every
character (including all penalties
or interest thereon), which at any
time may be assessed, levied,
confirmed or imposed by any
Governmental Authority on the
Borrower or any of its properties
or assets or any part thereof or in
respect of any of its franchises,
businesses, income or profits.
"Wholly Owned Subsidiary"
means any domestic United States
corporation all the shares of stock
of all classes of which (other than
directors' qualifying shares) at
the time are owned directly or
indirectly by the Borrower and/or
one or more Wholly Owned
Subsidiaries of the Borrower.
SECTION 1.2 Accounting Terms
and Other Definitional Provisions.
Unless otherwise defined herein, as
used in this Agreement and in any
certificate, report or other
document made or delivered pursuant
hereto, accounting terms not
otherwise defined herein, and
accounting terms only partly
defined herein, to the extent not
defined, shall have the respective
meanings given to them under GAAP.
Unless otherwise defined herein,
all terms used herein which are
defined by the Maryland Uniform
Commercial Code shall have the same
meanings as assigned to them by the
Maryland Uniform Commercial Code
unless and to the extent varied by
this Agreement. The words
"hereof", "herein" and "hereunder"
and words of similar import when
used in this Agreement shall refer
to this Agreement as a whole and
not to any particular provision of
this Agreement, and section,
subsection, schedule and exhibit
references are references to
sections or subsections of, or
schedules or exhibits to, as the
case may be, this Agreement unless
otherwise specified. As used
herein, the singular number shall
include the plural, the plural the
singular and the use of the
masculine, feminine or neuter
gender shall include all genders,
as the context may require.
Reference to any one or more of the
Financing Documents and any of the
Financing Documents shall mean the
same as the foregoing may from time
to time be amended, restated,
substituted, extended, renewed,
supplemented or otherwise modified.
Without implying any limitation on
the foregoing, any reference to the
"Borrower" in provision of this
Agreement or any of the other
Financing Documents shall be deemed
to refer to each and any one or
more of the corporations included
in that term, jointly and
severally.
ARTICLE 2
THE CREDIT FACILITIES
SECTION 2.1 Terms of the Credit Facilities.
Section 2.1.1 Revolving
Credit Facility. Subject to and
upon the provisions of this Agree-
ment, the Lender establishes a
revolving credit facility in favor
of the Borrower (the "Revolving
Credit Facility"). The outstanding
principal balance of the Revolving
Credit Facility (including, without
limitation, the amount of all
Obligations with respect to Letters
of Credit and the FILM Promissory
Note) shall at no time exceed
$18,000,000 in the aggregate. The
Revolving Credit Facility will be
made available under the Line of
Credit, the Letter of Credit
facility and the FILM facility
described below. The Lender's
obligation to make advances under
the Revolving Credit Facility shall
terminate on the Revolving Credit
Facility Expiration Date, and
following a Default or an Event of
Default under this Agreement, may
be limited, suspended or terminated
at the Lender's sole and absolute
discretion exercised from time to
time. In the event the aggregate
outstanding principal balance of
the Line of Credit and the FILM
facility plus the aggregate face
amount of Letters of Credit exceeds
the Commitment, or in the event any
one or more of the Line of Credit,
the FILM facility, or the Letter of
Credit exceeds its applicable
sublimit, the excess shall be due
and payable to the Lender ON
DEMAND.
Section 2.1.2 Use of
Revolving Credit Facility. The
Revolving Credit Facility may be
used by the Borrower for general
working capital purposes, equipment
purchases, construction and
completed restaurant costs,
advances under the Lender's FILM
program, and letter of credit needs
of the Borrower.
Section 2.1.3 Line of
Credit Sublimit. Under the
Revolving Credit Facility, the
Lender hereby establishes a line of
credit in the aggregate amount of
$18,000,000 (the "Line of Credit").
Each advance under the Line of
Credit must be in the minimum
amount of $500,000. Advances may
be obtained under the Line of
Credit up to and including the
business date preceding the
Revolving Credit Facility
Expiration Date. Advances under
the Line of Credit shall be made
based on (i) written notice or (ii)
telephonic notice followed by
written notice (which may be by
facsimile transmission) signed by a
Responsible Officer no later than
one (1) day prior to the date of
the requested funding. The maximum
principal amount of the Revolving
Credit Facility will be reduced by
the aggregate outstanding principal
amount of all Line of Credit
advances. Advances under the Line
of Credit shall be deposited to the
demand deposit account of DavCo
with the Lender or shall be
otherwise applied as directed by
the Borrower, which direction the
Lender may require to be in
writing. The Borrower's obligation
to repay the Line of Credit is
evidenced by a promissory note
dated the same date as this
Agreement (as amended, modified,
restated, substituted, extended and
renewed at any time and from time
to time, the "Line of Credit Note")
in substantially the form attached
to this Agreement as EXHIBIT "A-1"
and in the principal amount of the
Line of Credit having a maturity
date, repayment terms and interest
rate as set forth in the Line of
Credit Note and this Agreement.
Section 2.1.4 Letter of Credit Sublimit.
(a) Under the
Revolving Credit Facility, the
Lender hereby establishes a
sublimit for letters of credit (the
"Letters of Credit") in the
aggregate amount of $8,000,000 (the
"Letter of Credit Sublimit").
(b) Letters of
Credit will be issued for the
account of the Borrower and (i) for
the benefit of Wendy's
International, Inc. for franchise
and royalty fees, (ii) in
connection with the Borrower's
self-insurance program, and (iii)
for other needs as they arise.
Presently outstanding Letters of
Credit issued for the Borrower and
identified on EXHIBIT "B" attached
hereto and made a part hereof shall
be part of this Letter of Credit
Sublimit. Letters of Credit shall
expire by their terms no later than
the business day preceding the
Revolving Credit Facility
Expiration Date.
(c) In
connection with the Letters of
Credit, the Borrower shall pay the
Lender (i) an annual fee for each
Letter of Credit of 5/8% per annum
of the Letter of Credit amount;
with such fee to be paid annually
in advance commencing on the date a
Letter of Credit is issued and on
each anniversary of such date, and
(ii) such standard charges for
amendments, drawings, transfers and
other matters related to the
Letters of Credit as the Lender
imposes from time to time.
(d) Drawings
under the Letters of Credit shall
be funded by advances under the
Line of Credit; except that, if a
drawing is made as a consequence of
the Borrower's failure to perform
its obligations under any franchise
or other agreement with Wendy's
International, Inc., such drawing
shall be payable on demand and the
Lender, at its option, may declare
an Event of Default under the
Revolving Credit Facility.
(e) In
connection with the Letters of
Credit, the Borrower must execute
and deliver the Lender's standard
application and agreement for
commercial letter of credit. The
maximum available principal amount
of the Revolving Credit Facility
will be reduced by the aggregate
stated amount of all outstanding
Letters of Credit.
Section 2.1.5 FILM
Sublimit. Under the Revolving
Credit Facility, the Lender hereby
establishes a sublimit for advances
under the Lender's First Investment
Loan Manager program ("FILM") in
the aggregate amount of $5,000,000.
Advances under the FILM sublimit
shall be made in accordance with
the terms and conditions set forth
in the Lender's FILM Investment
Agency Agreement and FILM
Promissory Note (the "Film
Promissory Note"), each as may be
in effect from time to time.
Advances may be obtained under the
FILM sublimit up to and including
the business date preceding the
Revolving Credit Facility
Expiration Date. The maximum
available principal amount of the
Revolving Credit Facility will be
reduced by the aggregate
outstanding principal amount of all
FILM advances.
Section 2.1.6 Interest Rates.
(a) Amounts
outstanding under the Line of
Credit shall bear interest at
either: (i) a floating rate per
annum (the "Floating Rate") equal
at all times to the Index
(hereinafter defined), or (ii) a
fixed rate (the "Fixed Rate") equal
to the Adjusted LIBOR Rate, plus
the Applicable Margin (determined
and defined in the manner set forth
in subparagraph (b) below) in
effect at the commencement of the
respective Interest Period
(hereinafter defined).
(b) The
"Applicable Margin" shall be 135
basis points per annum or, if the
Borrower's EBITDA to Liabilities
Ratio (defined in and determined in
accordance with Section 5.1.15 of
this Agreement) for any fiscal
quarter of the Borrower is less
than .33 to 1.0 for the quarter,
the Applicable Margin shall be 155
basis points per annum.
The Applicable Margin
shall be subject to adjustment
quarterly based on the Borrower's
then most recent quarterly
financial information furnished to
the Lender in compliance with
Section 5.1.1 below and shall be
computed in detail in a certificate
signed by the chief financial
officer as part of the Borrower's
quarterly compliance certificate
referred to in Section 5.1.1 below.
Any change in the Applicable Margin
shall be effective five (5)
business days after the Lender
receives the financial information
and certificate and, until a
further change in the Applicable
Margin is required, shall apply to
those Interest Periods commencing
thereafter, but shall not change
Interest Periods then in effect.
(c) The
Borrower may elect to have a Fixed
Rate apply to portions of the Line
of Credit of $500,000 or more. A
Fixed Rate may be in effect for a
period of 1, 2, 3, or 6 months (an
"Interest Period"). Each election
of the Fixed Rate must be made in
writing or by telephonic notice
followed by written notice (which
may be by facsimile transmission)
signed by a Responsible Officer,
must be received by the Lender no
less than one (1) business day
prior its effective date, and must
specify the Interest Period for
which the applicable Fixed Rate
will be in effect. No more than
five (5) Fixed Rates may be in
effect at any one time.
(d) Amounts
outstanding under the FILM sublimit
shall bear interest at the LIBOR
Index Rate.
(e) Obligations under
the Revolving Credit Facility
which do not bear
interest at a Fixed Rate shall bear
interest at a Floating Rate. The
Floating Rate shall be the Prime
Rate, except that the Borrower may
elect no later than the first
business day of each month to have
the LIBOR Index Rate apply to
$500,000 portions of the Line of
Credit. Such election shall be
effective as of the fifth day of
that month up to and including the
fourth day of the following month.
(f) As used in
this Agreement, the following terms
have the meanings indicated:
"Adjusted LIBOR
Rate" means the LIBOR Rate as
adjusted in accordance with,
and pursuant to, the following
formula:
LIBOR Rate + Assessment Rate,
100% - Reserve Percentage
"Assessment Rate"
means the rate (expressed as a
percentage) as determined by
the Lender to be the net
annual assessment rate
(rounded upward, if necessary
to the next 1/100 of 1%)
payable to the Federal Deposit
Insurance Corporation (or any
successor agency or entity
performing substantially the
same or similar functions) for
insuring non-personal deposits
of institutions insured by the
Federal Deposit Insurance
Corporation.
"Index" means the
LIBOR Index Rate or the Prime
Rate, as elected by the
Borrower from time to time.
"LIBOR Index Rate"
means the floating rate per
annum equal at all times to
the Applicable Margin in
excess of the Adjusted LIBOR
Rate for a 30 day Interest
Period, determined and
adjusted daily.
"LIBOR Rate" means
the London Interbank Offered
Rate as quoted by the Lender
for the period corresponding
to the term of the Interest
Period selected by the
Borrower two (2) business days
prior to the date the Interest
Period in question will
commence.
"Prime Rate" means
the rate announced by the
Lender from time to time as
its "prime rate" (which does
not represent the lowest rate
charged by the Lender to any
borrower or class of
borrowers).
"Reserve Percentage"
means the total of the maximum
reserve percentages (expressed
as a percentage), including
but not limited to, marginal,
emergency, supplemental,
special and other reserve
percentages, as determined by
the Lender to be prescribed by
the Board of Governors of the
Federal Reserve System under
Regulation D or otherwise in
determining the reserves to be
maintained by member banks of
the Federal Reserve System for
"Eurocurrency Liabilities"
(the Lender acknowledges that
current regulations do not
require reserves against
"Eurocurrency Liabilities").
Section 2.1.7 Prepayment.
(a) Any
portion of the Revolving Credit
Facility bearing interest at the
Floating Rate may be prepaid in
whole or in part at any time
without premium or other charge
whatsoever.
(b) The
Borrower may also prepay any
portion of the Revolving Credit
Facility bearing interest at a
Fixed Rate in whole or in part,
provided all of the following
conditions are satisfied: (i) the
Borrower gives the Lender five (5)
Business Days (A) prior written
notice of the prepayment or (B)
telephonic notice followed by
written notice (which may be by
facsimile transmission), signed by
a Responsible Officer, and (ii) the
Borrower pays a prepayment fee to
the Lender together with the
prepayment, with such prepayment
fee computed as set forth below,
and, in addition, the Borrower pays
the Lender an administrative charge
of $300 per prepayment, and (iii)
only one prepayment for any
individual advance in whole or in
part may be made during any
Interest Period.
The prepayment fee shall
be due and payable in connection
with all such prepayments in whole
or in part, from whatever sources,
including, but not limited to,
payments made at the voluntary
election of the Borrower, payments
made as a result of the
acceleration of the Revolving
Credit Facility by the Lender, or
payments made as a result of the
sale of any collateral securing the
Loan. There shall be no prepayment
fee if prepayment is made on the
last day of an Interest Period.
The prepayment fee shall
be equal to (x) if the Base Rate
(hereinafter defined) is less than
the Fixed Rate then in effect (the
"Applicable Rate"), an amount equal
to the Rate Differential
(hereinafter defined) multiplied by
the amount being prepaid, divided
by 360, multiplied by the number of
days between the date of the
receipt of such prepayment and the
end of the applicable Interest
Periods for which the Fixed Rate in
question will be in effect, or (y)
if the Base Rate is greater than
the Applicable Rate, an amount
equal to one percent (1%) of the
amount being prepaid.
As used herein, the term:
"Base Rate" means a
per annum rate of interest
equal to the yield to maturity
of non-callable debt
obligations of the United
States Treasury offered the
day preceding any prepayment
made hereunder, and having a
maturity date nearest in time
to the end of the applicable
Interest Period, plus two
percent (2%) per annum. The
maturity date and yield to
maturity of the applicable
United States Treasury
obligation shall be determined
on the basis of quotations
published in The Wall Street
Journal on the date of such
prepayment, or from such other
source as the Lender, in its
sole discretion, shall deem
appropriate.
"Rate Differential"
means the difference between
the Applicable Rate and the
Base Rate.
The prepayment fee is not a
penalty but indemnification and
fair compensation to the Lender for
loss suffered by the Lender by
reason of such prepayment.
Section 2.1.8 Payments.
(a) Interest
on the Revolving Credit Facility
shall be payable monthly on the
fifth day of each month after the
date of the Closing. The Lender
will debit the Borrower's operating
account for interest as of the
fifth day of each month.
(b) At the
time of each advance under the Line
of Credit, the Borrower shall elect
a principal payment method for the
advance, which shall be either:
(i)
level monthly payments of
principal, specified by the
Borrower at the time of the
advance, sufficient to
amortize the advance in full
no later than the earlier of
(A) two years after the then
scheduled Revolving Credit
Facility Expiration Date, or
(B) five 5) years from the
date of the advance; or
(ii) no
principal payments until the
earlier of (A) four (4) years
from the date of the advance
at which time the advance
shall be payable in full, or
(B) the Revolving Credit
Facility Expiration Date,
followed by level monthly
payments of principal
sufficient to amortize the
advance in full in twenty-four
(24) months or five (5) years
from the date of the advance,
whichever is earlier.
(c) Any FILM
advances outstanding shall be
repaid on the Revolving Credit
Facility Expiration Date.
Section 2.1.9 Committed
Credit Facility. Subject to and in
accordance with the provisions of
this Agreement, the Lender agrees
from time to time from the Closing
Date to the Business Day preceding
the Revolving Credit Facility
Expiration Date to provide the
credit accommodations under the
Credit Facilities; provided that,
the Lender will be under no
obligation or commitment to provide
the credit accommodations under the
Credit Facilities if:
(a) after giving
effect to the Borrower's request
for such credit accommodation, the
aggregate amount of the Revolving
Credit Facility then outstanding
would exceed the maximum principal
amount of the Revolving Credit
Facility or the aggregate amount of
the sublimits applicable to the
Line of Credit, the Letters of
Credit or the FILM advances; or
(b) a Default or
Event of Default has occurred and
is continuing.
Subject to and in
accordance with the provisions of
this Agreement, the Borrower may
borrow, repay and reborrow
hereunder, from the date of this
Agreement until the Business Day
preceding the Revolving Credit
Facility Expiration Date.
Section 2.1.10 Procedure
for Loans; Lender Protection Loans.
(a) The Borrower may borrow under
the Line of Credit on any Business
Day. The Borrower shall give the
Lender telephonic notice followed
by written notice (which may be by
facsimile transmission) signed by a
Responsible Officer (a "Loan
Notice") of the amount of the
proposed borrowing and, if
requested by the Lender, the
specific purpose of the proposed
borrowing. A Loan Notice must be
given at least one (1) Business Day
prior to any requested advance of
the Line of Credit. The Lender
shall not consider making a Loan
unless the Lender shall have
received and approved with respect
to such Loan a Loan Notice.
(b) Subject to the
conditions of this paragraph, the
Lender is hereby irrevocably
authorized by the Borrower to make
Loans at any time and from time to
time to the Borrower, without
request from the Borrower, which
the Lender, in its sole and
absolute discretion, deems neces-
sary or appropriate to protect the
Lender's interests under this
Agreement and the Financing
Documents, including, without
limitation, Loans made to cover
Enforcement Costs, prior to, on, or
after the Revolving Credit Facility
Expiration Date, regardless of
whether the aggregate amount of the
Loans which the Lender may make
hereunder exceeds the Commitment.
Section 2.1.11 Loan
Accounts. The Lender will
establish and maintain loan
accounts on its books (the "Loan
Accounts") to which the Lender will
debit (a) the principal amount of
each Loan made under the Line of
Credit by the Lender as of the date
made, (b) the amount of any
interest accrued on such Loans as
and when due, and (c) any other
amounts due and payable by the
Borrower to the Lender from time to
time under the provisions of this
Agreement in connection with the
Line of Credit, respectively,
including, without limitation,
Enforcement Costs and late charges,
as and when due and payable, and to
which the Lender will credit all
payments made by the Borrower to
the Lender on account of the Line
of Credit, respectively, as of the
date made if received prior to 2:00
p.m. or as of the next succeeding
Business Day if received after 2:00
p.m. The Lender may charge the
Loan Accounts for the amount of any
item of payment which is returned
to the Lender unpaid. All credit
entries to the Loan Accounts are
conditional and shall be readjusted
as of the date made if final
payment is not received by the
Lender in cash or solvent credits.
The Lender may, at any time or
times, send to the Borrower a
statement or reconciliation of the
Loan Accounts and all such state-
ments or reconciliations, and the
information contained therein,
shall be presumed conclusively to
be correct and shall constitute an
account stated between the Lender
and the Borrower.
SECTION 2.2 General Financing Provisions.
Section 2.2.1 Borrower's
Representatives. The Lender is
hereby irrevocably authorized by
the Borrower to provide the credit
accommodations under the Credit
Facilities to the Borrower pursuant
to the provisions of this Agreement
upon the written request of any one
of the Persons who is from time to
time a Responsible Officer of any
Borrower under the provisions of
the most recent certificate of
corporate resolutions of the
Borrower on file with the Lender.
The Lender assumes no
responsibility or liability for any
errors, mistakes, and/or
discrepancies in the oral,
telephonic, written or other trans-
missions of any instructions,
orders, requests and confirmations
between the Lender and the Borrower
in connection with the Credit
Facilities, any Loan or any other
transaction in connection with the
provisions of this Agreement.
Section 2.2.2 Computation
of Interest. Unless otherwise
expressly set forth herein, all
interest and fees shall be calcu-
lated on the basis of a year of
three hundred and sixty (360) days
for the actual number of days
elapsed. Any change in the inter-
est rate on any of the Obligations
resulting from a change in the
Index shall become effective as of
the opening of business on the day
on which such change in the Index
is announced.
Section 2.2.3 Payments.
All payments of the Obligations
shall be paid by the Borrower
without setoff or counterclaim to
the Lender at the Lender's office
specified in Section 7.3 hereof in
immediately available funds not
later than 2:00 p.m. (Baltimore,
Maryland time) on the due date of
such payment. Alternatively, at
its sole discretion, the Lender may
charge any deposit account of the
Borrower at any of the Lender's
offices or any affiliate's offices
with all or any part of any amount
due hereunder to the extent that
the Borrower has not otherwise
tendered payment to the Lender;
provided that, so long as no Event
of Default has occurred, the Lender
will not charge any such accounts
until a period of ten (10) days has
elapsed from the date the payment
in question was due. Unless
expressly provided to the contrary
in the Notes, all payments shall be
first applied to any late charges,
second to any Enforcement Costs,
third to any prepayment fees,
fourth to any and all accrued and
unpaid interest on the applicable
Obligations, and then to principal
of the applicable Obligations, all
in such order and manner as shall
be determined by the Lender in its
sole and absolute discretion.
Prepayments of the Notes shall be
applied first to the balloon
payment (if any) due at maturity
and, thereafter, to the principal
installments in the inverse order
of their maturity. The Borrower
hereby authorizes the Lender at any
time and from time to time to set
off, appropriate and apply any of
the Borrower's items on deposit
with the Lender to cover principal
of, and/or interest on any of the
Credit Facilities, Fees and/or
Enforcement Costs, all as when due
and payable.
Section 2.2.4 Designated Borrower.
(a) Each
Borrower hereby represents and
warrants to the Lender that it will
derive substantial benefits, either
directly or indirectly, from the
proceeds of each Loan and other
credit accommodations under the
Revolving Credit Facility, both in
its individual capacity as a member
of the integrated group of to which
it belongs and which constitutes
the Borrower, because the
successful operation of the
integrated group is dependent upon
the continued successful
performance of the function of the
integrated group as a whole.
(b) Without
implying any limitation on the
provisions of Section 2.2.1 above,
the corporations included in the
Borrower, in the discretion of
their respective managements, are
to agree among themselves as to the
allocation of the proceeds of the
Loans and the other benefits of the
Credit Facilities and the purposes
for which such benefits and
proceeds will be used, provided
that no allocation, purpose or use
shall be in violation of this
Agreement. For administrative
convenience, each Borrower
irrevocably (without the Lender's
agreement) directs the Lender that
all advances under this Agreement
shall be made at the sole request
and the direction of DavCo. Each
Borrower (other than DavCo) hereby
appoints DavCo, by such officers,
agents and employees of DavCo as
DavCo may decide, its attorney-in-fact
to act (in DavCo's name alone
or in the other Borrower by DavCo
or by those officers, agents and
employees, with or without
designating the status of attorney-in-fact
and notwithstanding the
fact that another status may be
indicated) on its behalf with
respect to all matters pertaining
to the Credit Facilities and the
Financing Documents (including,
without limitation, the receipt of
all notices with respect thereto).
All actions taken by DavCo in
connection with the Loans, other
credit accommodations under the
Revolving Credit Facility and the
Financing Documents shall be
conclusively presumed to be the
joint and several actions of the
Borrower even though DavCo may act
from time to time in its name
alone. This appointment is coupled
with an interest and is irrevocable
without the prior written consent
of the Lender.
(c) Each
Borrower hereby irrevocably
authorizes the Lender to provide
credit accommodations under the
Credit Facilities to any or all of
the corporations included in the
Borrower pursuant to the provisions
of this Agreement upon the written,
oral or telephone request of any
one of the Persons who is from time
to time a Responsible Officer of
Davco under the provisions of the
most recent "Certificate" of corpo-
rate resolutions of Davco on file
with the Lender.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES
SECTION 3.1 Representations
and Warranties. The Borrower
represents and warrants to the
Lender as follows:
Section 3.1.1
Subsidiaries. The only
Subsidiaries of the Borrower (if
any) are those indicated on EXHIBIT
"C" attached hereto and made a part
hereof. Each Subsidiary is a
Wholly Owned Subsidiary unless
otherwise disclosed on EXHIBIT C,
which correctly indicates the
nature and amount of the Borrower's
ownership interests therein.
Section 3.1.2 Good
Standing. The Borrower and each of
its Subsidiaries is a corporation,
duly organized and existing, in
good standing, under the laws of
the state of its incorporation and
has the corporate power to own its
property and to carry on its bus-
iness as now being conducted and is
duly qualified to do business and
is in good standing in each
jurisdiction in which the character
of the properties owned or leased
by it therein or in which the
transaction of its business makes
such qualification necessary.
Section 3.1.3 Corporate
Authority. The Borrower has full
power and authority to enter into
this Agreement, to make the borrow-
ings hereunder, to execute and
deliver the Notes and the other
Financing Documents to which it is
a party and to incur the Obliga-
tions and perform the other
obligations provided for herein, in
the Notes, and in the other
Financing Documents to which it is
a party, all of which have been
duly authorized by all proper and
necessary corporate action. No
consent or approval of shareholders
of, or lenders to, the Borrower and
no consent, approval, filing or
registration with or notice to any
Governmental Authority on the part
of the Borrower is required as a
condition to the validity of this
Agreement or the Notes or the other
Financing Documents or the
performance by the Borrower of its
obligations hereunder or
thereunder.
Section 3.1.4 Binding
Agreements. This Agreement
constitutes, and the Notes and each
of the other Financing Documents,
when issued and delivered pursuant
hereto, will constitute, the valid
and legally binding obligations of
the Borrower enforceable against
the Borrower in accordance with
their respective terms, subject,
however, to applicable bankruptcy,
insolvency, reorganization,
moratorium and other similar laws
affecting creditors' rights
generally and the exercise of
judicial discretion in accordance
with general principles of equity.
Section 3.1.5
Litigation. Except as otherwise
disclosed to the Lender on EXHIBIT
"D" attached hereto and made a part
hereof, there are no proceedings or
investigations pending or, so far
as the officers of the Borrower
signing this Agreement know,
threatened before any court or
arbitrator or before or by any
Governmental Authority which, in
any one case or in the aggregate,
if determined adversely to the
interests of the Borrower, would
have a material adverse effect on
the business, properties, condition
(financial or otherwise) or opera-
tions, present or prospective, of
the Borrower.
Section 3.1.6 No
Conflicts. There is no statute,
regulation, rule, order or
judgment, no charter, by-law or
preference stock provision of the
Borrower, and no provision of any
mortgage, indenture, contract or
other agreement binding on the
Borrower or affecting its
properties, which would prohibit,
or cause a default under or in any
way prevent the execution,
delivery, or carrying out of the
terms of this Agreement or of the
Notes or of the other Financing
Documents to which the Borrower is
a party.
Section 3.1.7 Financial
Position. The audited,
consolidated and balance sheets and
notes thereto of the Borrower and
its Subsidiaries (if any), as of
September 28, 1996, together with
statements of profit and loss and
of surplus for the period then
ended heretofore delivered to the
Lender and the unaudited financial
statements for the six (6) month
period ended March 31, 1997, are
complete and correct and fairly
present the financial position of
the Borrower and its Subsidiaries
and the results of their operations
and transactions in their surplus
account(s) as of the date and for
the period referred to and have
been prepared in accordance with
GAAP applied on a consistent basis
throughout the period involved.
There are no Liabilities (of the
type required to be reflected on
balance sheets prepared in
accordance with GAAP), direct or
indirect, fixed or contingent, of
the Borrower or its Subsidiaries,
as of the date of such balance
sheet which are not reflected
therein or in the notes thereto.
There has been no material adverse
change in the financial condition
or operations of the Borrower or
its Subsidiaries, since the date of
such balance sheet (and to the
Borrower's knowledge, no such
material adverse change is pending
or threatened), and neither the
Borrower nor any Subsidiary has
guaranteed the obligations of, or
made any investment in or loans to,
any Person except as disclosed in
such balance sheet.
Section 3.1.8 No
Default. Neither the Borrower nor
any of its Subsidiaries is in
default under or with respect to
any obligation under any agreement
to which the Borrower or any
Subsidiary is a party in any
respect which could be materially
adverse to the business,
operations, property or financial
condition of the Borrower, or which
could materially adversely affect
the ability of the Borrower to
perform its obligations under this
Agreement, the Notes, or the other
Financing Documents, to which the
Borrower is a party. No Default or
Event of Default has occurred and
is continuing.
Section 3.1.9 Title to
Properties. The Borrower has good
and marketable title to its pro-
perties and assets. Such proper-
ties and assets are subject to no
Lien of any kind, except for
Permitted Liens (hereinafter
defined) and the Borrower has
legal, enforceable and uncontested
rights to use freely such property
and assets. Any and all obliga-
tions to pay royalties or other
charges with respect to such
properties and assets are properly
reflected on the financial
statements described in Section
3.1.7 hereof. "Permitted Liens"
means: (a) Liens for Taxes not
delinquent or which are being
diligently contested in good faith
and by appropriate proceedings,
provided, that, the Borrower shall
have set aside on its books
adequate reserves therefor; (b)
deposits or pledges to secure
obligations under workers' compen-
sation, social security or similar
laws, or under unemployment
insurance; (c) statutory Liens
under Articles 2 or 4 of the
Uniform Commercial Code of any
jurisdiction; (d) judgment Liens to
the extent the entry of such
judgment does not constitute an
Event of Default under the terms of
this Agreement; (e) attachments on
original process to the extent that
such attachments are discharged or
dismissed in a prompt and
commercially reasonable manner; (f)
this Agreement and the Pledge
Agreement; (g) leases and subleases
of property to third parties; (h)
liens arising by statute or common
law so long as payment or
performance of the obligation
secured is not in default; (i)
grants of customary easements and
rights-of-way; (j) mortgages and
deeds of trust covering real
property owned by any of the
Borrower or any of their
Subsidiaries (to the extent not in
violation of other provisions of
this Agreement); (k) liens created
in connection with the acquisition
of properties (to the extent not in
violation of other provisions of
this Agreement);and (l) such other
Liens, if any, as are set forth on
EXHIBIT A attached hereto and made
a part hereof.
Section 3.1.10 Taxes.
The Borrower and its Subsidiaries
have filed, or have obtained effec-
tive extensions for the filing of,
all Federal, state and other tax
returns which are required to be
filed, and have paid all taxes
shown as due on said returns and
all assessments, fees and other
amounts due, except to the extent
that such Taxes are being contested
in good faith and in an appropriate
manner. All tax liabilities of the
Borrower and its Subsidiaries were
as of the date of the financial
statements referred to in Section
3.1.7 hereof, and are now, ade-
quately provided for on the books
of the Borrower. No tax liability
has been asserted by the Internal
Revenue Service or any state or
local authority against the
Borrower for taxes in excess of
those already paid.
Section 3.1.11.
Regulations U and X and Use of
Credit Facilities. The Borrower is
not engaged principally, or as one
of its important activities, in the
business of extending credit for
the purpose of purchasing or
carrying margin stock (within the
meaning of Regulation U of the
Board of Governors of the Federal
Reserve System). No part of the
proceeds of the Loans or and other
credit accommodations under the
Revolving Credit Facility will be
used to purchase or carry any
margin stock or to extend credit to
others for such purpose if as a
result thereof there would be a
violation of said Regulation U or
Regulation X of such Board of
Governors.
Section 3.1.12
Investment Company Act. The
Borrower is not an investment
company within the meaning of the
Investment Company Act of 1940, as
amended, nor is it, directly or
indirectly, controlled by or acting
on behalf of any Person which is an
investment company within the
meaning of such Act.
Section 3.1.13 ERISA.
The Borrower has not incurred any
accumulated funding deficiency
within the meaning of ERISA which
is material or any material
liability to the PBGC in connection
with any employee benefit plan (as
defined in Section 3 of ERISA)
established or maintained by the
Borrower.
Section 3.1.14
Compliance with Laws. Neither the
Borrower nor any Subsidiary is in
violation of any applicable Laws of
any Governmental Authority (includ-
ing, without limitation, any Laws
relating to employment practices or
to environmental (except with
respect to the Borrower's Oak
Ridge, Tennessee location), occupa-
tional and health standards and
controls) or order of any court or
arbitrator, the violation of which,
considered in the aggregate, could
materially adversely affect the
business, operations or properties
of the Borrower.
Section 3.1.15. Patents,
Trademarks, Etc. The Borrower
owns, possesses, or has the right
to use all necessary patents,
patent rights, licenses,
trademarks, trademark rights, trade
names, trade name rights,
copyrights and franchises to
conduct its business as now
conducted, without known conflict
with any patent, patent right, li-
cense, trademark, trademark right,
trade name, trade name right,
copyright or franchise right of any
other Person.
Section 3.1.16 Full
Disclosure. Neither the financial
statements referred to in Section
3.1.7 nor any of the Financing
Documents, nor any certificate or
statement furnished by the Borrower
in connection with the Financing
Documents, contains any untrue
statement of a material fact or,
when such financial statements,
Financing Documents, statements,
reports and certificates are taken
in their entirety, omits to state a
material fact necessary to make the
statements contained therein or
herein not misleading as of the
date hereof. There is no fact
known to the Borrower or which
should be known to the Borrower
which the Borrower has not
disclosed to the Lender in writing
prior to the date of this Agreement
with respect to the transactions
contemplated by the Financing
Documents which materially and
adversely affects or in the future
could, in the reasonable opinion of
the Borrower materially adversely
affect the condition, financial or
otherwise, results of operations,
business, or assets of the
Borrower.
Section 3.1.17 Presence
of Hazardous Materials or Hazardous
Materials Contamination. Except
with respect to the Borrower's Oak
Ridge, Tennessee location: The
Borrower has not transferred,
stored or dumped Hazardous
Materials on any real property
owned or controlled by Borrower or
for which Borrower is responsible.
To the best of Borrower's
knowledge, no Hazardous Materials
are located on any real property
owned or controlled by the Borrower
or for which the Borrower is
responsible. To the best of
Borrower's knowledge, no such
property has ever been used as a
manufacturing, storage, or dump
site for Hazardous Materials nor is
any other property affected by
Hazardous Materials Contamination.
SECTION 3.2 Survival; Updates
of Representations and Warranties.
All representations and warranties
contained in or made under or in
connection with this Agreement and
the other Financing Documents shall
survive the Closing Date and any
Loan or other credit accommodations
under the Revolving Credit Facility
made hereunder.
ARTICLE 4
CONDITIONS PRECEDENT
SECTION 4.1 Conditions to the
Initial Loan. The making of the
initial Loan and other credit
accommodation under the Revolving
Credit Facility is subject to the
fulfillment of the following
conditions precedent in a manner
satisfactory to the Lender on or
before the Closing Date:
Section 4.1.1 Good
Standing etc. The Lender shall
have received a certificate of good
standing for the Borrower and its
Subsidiary certified by the
Secretary of State, or other
appropriate governmental authority,
of the state of incorporation of
the Borrower and such Subsidiary.
The Lender shall have received a
Certificate of Qualification to do
business for the Borrower and such
Subsidiary certified by the
Secretary of State or other govern-
mental authority of each state in
which the Borrower or such
Subsidiary conducts business.
Section 4.1.2 Corporate
Proceedings of the Borrower. The
Lender shall have received a copy,
certified as of the Closing Date by
the Secretary or an Assistant
Secretary of the Borrower of the
resolutions of its Board of
Directors authorizing (a) the
execution, delivery and performance
of the Financing Documents to which
the Borrower is a party and (b) the
borrowings by the Borrower
hereunder.
Section 4.1.3 Incumbency
Certificates. The Lender shall
have received a certificate from
the Borrower signed by a duly
authorized officer of the Borrower
dated as of the Closing Date, as to
the incumbency, authority and
signatures of the officers of the
Borrower authorized to sign on
behalf of the Borrower this
Agreement and the Financing
Documents to which the Borrower is
a party.
Section 4.1.4 Insurance
Certificate. The Lender shall have
received an insurance certificate
in accordance with the provisions
of Section 5.1.5.
Section 4.1.5 Consents,
Licenses, Approvals, Etc. The
Lender shall have received copies
of all consents, licenses and
approvals, required in connection
with the execution, delivery,
performance, validity and
enforceability of the Financing
Documents, and such consents,
licenses and approvals shall be in
full force and effect.
Section 4.1.6 Notes. The
Lender shall have received the
Notes conforming to the
requirements hereof and executed by
a duly authorized representative of
the Borrower.
Section 4.1.7 Opinion of
Counsel. The Lender shall have re-
ceived the favorable opinion of
counsel for the Borrower in form
satisfactory to the Lender.
Section 4.1.8 Stock
Certificates. The Lender shall
have received original stock
certificates representing 100% of
the issued stock of Southern
Hospitality Corporation ("SHC")
together with a stock power
executed in blank and attached to
each certificate.
Section 4.1.9 Other
Documents, Etc. The Lender shall
have received such other
certificates, opinions, documents
and instruments confirmatory of or
otherwise relating to the
transactions contemplated hereby as
may have been reasonably requested
by the Lender.
Section 4.1.9 Additional
Matters. All other documents and
legal matters in connection with
the transactions contemplated by
this Agreement and the other
Financing Documents shall be
satisfactory in form and substance
to the Lender and its counsel.
Section 4.1.10 Payment of
Fees. The Lender shall have
received payment of any Fees due on
or before the Closing Date.
SECTION 4.2 Conditions to all
Credit Facilities. The providing
of all advances and other
accommodations under the Credit
Facilities is subject to the
fulfillment of the following condi-
tions precedent in a manner
satisfactory to the Lender:
Section 4.2.1 Compliance.
The Borrower shall have complied
and shall then be in compliance
with all terms, covenants,
conditions and provisions of this
Agreement and the other Financing
Documents which are binding upon
it.
Section 4.2.2 Default.
There shall exist no Event of
Default or Default hereunder.
Section 4.2.3
Representations and Warranties.
The representations and warranties
of the Borrower contained among the
provisions of this Agreement shall
be true and with the same effect as
though such representations and
warranties had been made at the
time of each advance or other
credit accommodation under the
Credit Facilities except that the
representation and warranty
pertaining to financial statements
shall refer to the latest financial
statements furnished to the Lender
pursuant to the provisions of this
Agreement.
Section 4.2.4 Adverse
Change. No adverse change shall
have occurred in the financial
condition of the Borrower which
would, in the good faith judgment
of the Lender, materially impair
the ability of the Borrower to pay
the Obligations.
Section 4.2.5 Legal
Matters. All legal documents
incident to each of the Credit
Facilities shall be reasonably
satisfactory to counsel for the
Lender.
ARTICLE 5
COVENANTS OF THE BORROWER
SECTION 5.1 Affirmative
Covenants. So long as any of the
Obligations (or Commitment
therefor) shall be outstanding
hereunder, the Borrower agrees with
the Lender as follows:
Section 5.1.1 Financial
Statements. The Borrower will
furnish to the Lender:
(a) within ninety (90)
days after the close of each fiscal
year, annual consolidated and
consolidating financial statements
prepared and audited by an
independent certified public
accountant acceptable to the Lender
with an unqualified opinion
according to GAAP;
(b) within forty five
(45) days, after the end of each of
the first three quarters during the
fiscal year, quarterly financial
statements in form and substance
acceptable to the Lender;
(c) promptly upon the
filing or making thereof, at least
one (l) copy of all financial
statements, reports, notices and
proxy statements sent by any
Borrower to its stockholders, and
of all regular and other reports
filed by any Borrower with any
securities exchange or with the
Securities and Exchange Commission;
(d) a covenant
compliance certificate signed by
the chief financial officer of the
Borrower quarterly at the same time
as the financial statements
described in paragraphs (a) and (b)
above are delivered to the Lender;
(e) as soon as
available, but in no event later
than the close of each fiscal year
a budget for the following fiscal
year; and
(f) such other
information as is reasonably
requested by the Lender from time
to time.
All financial statements must be
certified as to accuracy by the
chief financial officer of the
Borrower.
Section 5.1.2
Recordkeeping, Rights of
Inspection, Field Examination, Etc.
The Borrower and its
Subsidiaries shall maintain (i) a
standard system of accounting in
accordance with GAAP, and (ii)
proper books of record and account
in which full, true and correct
entries are made of all dealings
and transactions in relation to its
properties, business and activ-
ities. The Borrower and its
Subsidiaries shall permit
authorized representatives of the
Lender to visit and inspect their
properties, to review, audit, check
and inspect their books of record
and account and to make abstracts
and photocopies thereof and to
discuss the affairs, finances and
accounts of the Borrower and its
Subsidiaries with their officers
and directors and their account-
ants, all at such times during
normal business hours and other
reasonable times and as often as
the Lender may reasonably request.
The Borrower will irrevocably
authorize and direct all
accountants and auditors employed
by the Borrower to exhibit and
deliver to the Lender copies of any
of the Borrower's financial state-
ments, trial balances, management
letters, or other accounting
records of any sort in the
accountant's or auditor's
possession, and to disclose to the
Lender any information they may
have concerning the Borrower's
financial status and business
operations. The Borrower hereby
authorizes all Governmental
Authorities to furnish to the
Lender copies of reports or
examinations relating to the
Borrower, whether made by the
Borrower or otherwise.
Section 5.1.3 Conduct of
Business and Maintenance of
Existence, Compliance with Laws,
Etc. The Borrower will, and will
cause each of its Subsidiaries to,
(a) do or cause to be done all
things necessary to preserve and to
keep in full force and effect their
corporate existence and material
rights and their franchises, trade
names, patents, trademarks and
permits which are necessary for the
continuance of their business, (b)
comply with all applicable Laws and
observe the valid requirements of
Governmental Authorities, the
noncompliance with or the nonobser-
vance of which might materially
interfere with the performance of
the Borrower's obligations
hereunder or the proper conduct of
its business.
Section 5.1.4
Preservation of Properties. The
Borrower will at all times (a)
maintain, preserve, protect and
keep its properties, whether owned
or leased, in good operating
condition, working order and repair
(ordinary wear and tear excepted),
and from time to time will make all
proper repairs, maintenance,
replacements, additions and
improvements thereto needed to
maintain such properties in good
operating condition, working order
and repair, and (b) satisfy all of
its Lease Obligations, and
otherwise comply in all material
respects with the provisions of all
material leases to which it is a
party or under which it occupies
property so as to prevent any loss
or forfeiture thereof or
thereunder.
Section 5.1.5 Insurance.
The Borrower currently maintains
insurance coverages of the types,
amounts and with the companies
identified on EXHIBIT "E" attached
hereto, all of which the Lender
acknowledges to be acceptable to
the Lender. The Borrower will, and
will cause each of its Subsidiaries
to, at all times maintain the same
or comparable insurance with insur-
ance companies rated "A-XI" or
better by Best's Insurance Guide
Rating and such other insurance as
is required by applicable Laws.
The Borrower shall deliver to the
Lender on the Closing Date (and
thereafter on each date there is a
material change in the insurance
coverage) a certificate of a
Responsible Officer of the Borrower
containing a detailed list of the
insurance then in effect and
stating the names of the insurance
companies, the types, the amounts
and rates of the insurance, dates
of the expiration thereof and the
properties and risks covered
thereby. Within thirty (30) days
after notice in writing from the
Lender, the Borrower will obtain
such additional insurance as the
Lender may reasonably request to
comply with the requirements of
this Section.
Section 5.1.6 Taxes.
Except to the extent that the
validity or amount thereof is being
contested in good faith and by
appropriate proceedings, the
Borrower and its Subsidiaries will
pay and discharge all Taxes prior
to the date when any interest or
penalty would accrue for the
nonpayment thereof.
Section 5.1.7 ERISA.
The Borrower and its Affiliates
will comply with the funding
requirements of ERISA with respect
to employee pension benefit plans
for its respective employees. The
Borrower will not permit with
respect to any employee benefit
plan or plans covered by Title IV
of ERISA (a) any prohibited
transaction or transactions under
ERISA or the Internal Revenue
Code, which results, or may result,
in any material liability of the
Borrower and Affiliates, or (b) any
reportable event under ERISA if,
upon termination of the plan or
plans with respect to which one or
more such reportable events shall
have occurred, there is or would be
any material liability of the
Borrower and Affiliates to the
PBGC. Upon the Lender's request,
the Borrower will deliver to the
Lender a copy of the most recent
actuarial report, financial
statements and annual report com-
pleted with respect to any "defined
benefit plan", as defined in ERISA.
Section 5.1.8
Litigation. The Borrower will
promptly notify the Lender of any
litigation instituted or threatened
against the Borrower or any
Subsidiary and of the entry of any
judgment or Lien against any of the
assets or properties of the
Borrower or any Subsidiary where
the claims against the Borrower or
any Subsidiary exceed Five Hundred
Thousand Dollars ($500,000.00) and
are not covered by insurance.
Section 5.1.9
Notification of Events of Default
and Adverse Developments. The
Borrower will promptly notify the
Lender upon obtaining knowledge of
the occurrence of:
(a) any Event of
Default;
(b) any Default;
(c) any event,
development or circumstance
whereby the
financial
statements
furnished
hereunder fail
in any material
respect to
present fairly,
in accordance
with GAAP, the
financial
condition and
operational
results of the
Borrower;
(d) any judicial,
administrative or arbitral
proceeding
pending against
the Borrower or
any Subsidiary
and any
judicial or
administrative
proceeding
known by the
Borrower to be
threatened
against it or
any Subsidiary
which, if
adversely
decided, could
materially
adversely
affect its
financial
condition or
operations
(present or
prospective);
and
(e) any other
development in the business or
affairs of the
Borrower or any
Subsidiary
which may be
materially
adverse;
in each case describing in detail
satisfactory to the Lender the
nature thereof and, in the case of
notification under clauses (a) and
(b), the action the Borrower
proposes to take with respect
thereto.
Section 5.1.10 Hazardous
Materials; Contamination. The
Borrower agrees to (i) give notice
to the Lender immediately upon the
Borrower's acquiring knowledge of
the presence of any Hazardous
Materials (hereinafter defined) on
any property owned or controlled by
the Borrower or for which the
Borrower or any Subsidiary is
responsible or of any Hazardous
Materials Contamination
(hereinafter defined) with a full
description thereof, the Lender
hereby acknowledging such notice
with respect to the Borrower's Oak
Ridge, Tennessee location; (ii)
except with respect to the
Borrower's Oak Ridge, Tennessee
location, promptly comply with any
Laws requiring the removal,
treatment or disposal of Hazardous
Materials or Hazardous Materials
Contamination and provide the
Lender with satisfactory evidence
of such compliance; and (iii)
defend, indemnify and hold harmless
the Lender and its agents,
employees, trustees, successors and
assigns from any and all claims
which may now or in the future
(whether before or after the
repayment of the Obligations) be
asserted as a result of the
presence of any Hazardous Materials
on any property owned or controlled
by the Borrower or any Subsidiary
for which the Borrower or any
Subsidiary is responsible for any
Hazardous Materials Contamination.
Section 5.1.11
Disclosure of Significant
Transactions. The Borrower shall
deliver to the Lender a written
report describing in detail each
transaction by it involving (a) the
purchase, sale, lease, or other
acquisition or disposition of an
interest in Fixed or Capital Assets
which exceeds Two Million Dollars
($2,000,000), or (b) the
acquisition, lease, sale, transfer
or closing of any store, said
reports to be delivered to the
Lender at the time the Borrower's
annual financial statements
described in Section 5.1.1(a),5.1.22 are to be
furnished to the Lender.
Section 5.1.12 Book
Value. The book value of the
Borrower's unencumbered Fixed or
Capital Assets (including, without
limitation, real estate and
equipment) on a consolidated basis
shall at all times exceed the
greater of (a) $18,000,000 or (b)
the maximum principal amount of the
Revolving Credit Facility.
Section 5.1.13 Tangible
Net Worth. The Borrower must
maintain a Tangible Net Worth
(hereinafter defined) at all times,
tested initially as of the end of
the second fiscal quarter in the
Borrower's 1997 fiscal year, of at
least (a) $24,000,000 and (b) forty
percent (40%) of the aggregate
cumulative amount of consolidated
net income of the Borrower (but not
deficit of loss) for each fiscal
year ending September 27, 1997 and
thereafter. The term "Tangible Net
Worth" means total stockholder's
equity less goodwill and other
intangibles as they arise,
calculated on a consolidated basis.
Section 5.1.14 Cash Flow
Coverage. The Borrower must
maintain on a consolidated basis,
tested on a rolling four-quarter
basis as of the last day of each
fiscal quarter, a Cash Flow
Coverage Ratio (hereinafter
defined) equal to or greater than
1.75 to 1.0. The Cash Flow
Coverage Ratio shall be calculated
as follows:
Net Income + Interest + Taxes + Depreciation + Amortization
____________________________________________________________
CPLTD + CP Capital Leases + Interest
provided that CPLTD shall not
include the balloon payment of the
Southern Hospitality Corporation, a
corporation organized and existing
under the laws of the State of
Tennessee ("SHC") term loan in the
original principal amount of
$18,250,000 due September 19, 1999
or any balloon payment due under the
Revolving Credit Facility.
Section 5.1.15 Ratio of
EBITDA to Liabilities. The
Borrower must maintain on a
consolidated basis, tested on a
rolling four-quarter basis as of
the last day of each fiscal
quarter, an EBITDA to Liabilities
Ratio (hereinafter defined) equal
to or greater than .25 to 1.0. The
EBITDA to Liabilities Ratio shall
be calculated as follows:
Net Income + Interest + Taxes+Depreciation + Amortization
_________________________________________________________
Liabilities
Section 5.1.16 Ratio of
Liabilities to Tangible Net Worth.
The Borrower must maintain on
a consolidated basis at all times
for each period indicated a ratio
of Liabilities divided by Tangible
Net Worth of no greater than 4.5 to
1.0.
Section 5.1.17 Loan Fee.
In consideration of the Lender's
providing the Revolving Credit
Facility, the Borrower shall pay
the Lender an annual loan fee (the
"Loan Fee") equal to 1/4 of 1% per
annum of the Revolving Credit
Facility committed amount. The
Loan Fee shall be due and payable
at Closing and on each anniversary
date of the Closing. The Loan Fee
shall be fully earned when due and
non-refundable upon payment. The
Lender agrees, however, to rebate
at Closing a pro rata portion of
the Borrower's current line of
credit fee.
Section 5.1.18 Non-Usage
Fees. In addition to the Loan Fee,
the Borrower shall pay the Lender
with respect to the Revolving
Credit Facility, quarterly, within
15 days after the end of each
calendar quarter, a "non-usage" fee
equal to 1/8 of 1% per annum of the
Unused Portion (hereinafter
defined) of the Revolving Credit
Facility for the calendar quarter
just ended. The term "Unused
Portion" means, as determined by
the Lender on an average daily
basis for each calendar quarter,
the sum which is equal to
$18,000,000 less the total of (i)
the outstanding principal balance
of the Line of Credit, plus (ii)
the stated amount of all
outstanding Letters of Credit, plus
(iii) the outstanding principal
balance of the FILM advances.
Section 5.1.19
Cancellation Fee. The Borrower
shall pay the Lender a
"Cancellation Fee" in the amount of
3/8 of 1% per annum, if the
Borrower cancels the Revolving
Credit Facility at a time when the
Lender has not notified the
Borrower that the Lender does not
intend to extend the Revolving
Credit Expiration Date; provided,
however, that no Cancellation Fee
shall be due if the Revolving
Credit Facility is retired with the
proceeds of a public offering of
equity securities or with a public
or private offering of debt
securities with a maturity equal to
or greater than five (5) years.
Section 5.1.20 Late
Charge; Default Interest. Upon the
occurrence and during the
continuance of an Event of Default
under the Credit Facilities, the
rate of interest applicable to the
Credit Facilities shall be
increased to a rate that is 2% per
annum in excess of the otherwise
applicable rate. In addition, the
Borrower shall pay a late charge
equal to 5% of any payment of
principal and/or interest
(including, without limitation, the
final installment of principal and
interest due at maturity) that is
not paid within 15 days of the date
due.
Section 5.1.21 Business
Operations. The primary business
of the Borrower and its
subsidiaries shall consist of the
operation of "Wendy's Restaurants"
and "Friendly's Restaurants".
Section 5.1.22 Pledge of
SHC Stock. The Obligations
shall be secured by an assignment
and pledge by Davco(the "Pledge
Agreement") of 100% of the now and
hereafter issued stock of SHC,
subject only to the existing pledge
agreement in favor of the Lender
and in substantially the same form
of that existing pledge agreement.
All original stock certificates,
together with a stock power for
each certificate executed in blank,
shall be held by the Lender.
SECTION 5.2 Negative
Covenants. So long as any of the
Obligations (or Commitment
therefore) shall be outstanding
hereunder, the Borrower agrees with
the Lender as follows:
Section 5.2.1 Merger,
Acquisition or Sale of Assets;
Subsidiaries. Without the prior
written consent of the Lender, the
Borrower will not enter into any
merger or consolidation or amalga-
mation, windup or dissolve itself
(or suffer any liquidation or
dissolution), acquire all or
substantially all of the assets or
business of any Person, or convey,
sell, lease, assign, lien, transfer
or otherwise dispose of its assets,
properties or business (including,
without limitation, transfers to
any Subsidiary or joint venture in
which the Borrower or any
Subsidiary has an interest), or
make other acquisitions, or permit
any Subsidiary to do any of the
foregoing, except with respect to
any such Subsidiary, in the
ordinary course of business;
provided, however, the Borrower may
make acquisitions or dispositions
provided that (a) the Borrower
shall have notified the Lender
prior to making any acquisition or
dispositions for a value of
$5,000,000 or more, and (b) the
Borrower shall have obtained the
Lender's prior consent, which
consent shall not be unreasonably
withheld, for each acquisition or
disposition for a value of
$7,500,000 or more.
Section 5.2.2
Prohibition on Hazardous Materials.
The Borrower shall not place,
manufacture or store or permit to
be placed, manufactured or stored
any Hazardous Materials on any
property owned or controlled by the
Borrower or for which the Borrower
is responsible, except to the
extent of the existing Oak Ridge,
Tennessee Hazardous Materials
Contamination.
Section 5.2.3 Business
Operations. The Borrower shall not
engage in any business other than
the operation of "Wendy's
Restaurants" or "Friendly's
Restaurants" without the prior
written consent of the Lender,
which consent shall not be
unreasonably withheld or delayed.
Section 5.2.4 Liens.
Except for Permitted Liens, the
Borrower will not create, incur,
assume or suffer to exist any Lien
upon any of its properties or
assets, whether now owned or
hereafter acquired and will not
agree with or for the benefit of
any person, other than the Lender,
that the Borrower will not create,
incur, assume or suffer to exist
any Lien upon any of their
properties or assets, whether now
owned or hereafter acquired, or
permit any Subsidiaries to do so.
Section 5.2.5
Subsidiaries. The Borrower shall
not create any subsidiaries (other
than SHC, MDF, Inc., Heron Realty
Corporation, Davco Oil Company and
Friendco Restaurants, Inc. and
future subsidiaries created to hold
title to real estate used as
"Wendy's Restaurants") without the
prior written consent of the
Lender, which consent will not be
unreasonably withheld or delayed.
All Subsidiaries formed by any of
the Borrower after the date hereof
shall become a Borrower under this
Agreement and shall execute such
documents as the Lender may require
to evidence their joinder in this
Agreement and the Obligations.
Without the Lender's prior written
consent, which consent shall not be
unreasonably withheld, the Borrower
shall not dispose of its interests
in any of its subsidiaries, except
MDF, and those subsidiaries, other
than MDF, shall not dispose of
substantially all of its assets.
Section 5.2.6. Unsecured
Indebtedness. The Borrower shall
not incur any "unsecured
indebtedness for borrowed money" in
excess of $18,000,000 (either
directly or through any permitted
Subsidiary) without the prior
written consent of the Lender.
Such $18,000,000 limit includes
outstanding balances under the Line
of Credit. A commitment to lend
shall not constitute the incurring
of unsecured indebtedness; rather,
unsecured indebtedness shall be
incurred only at such time as
moneys are actually borrowed by the
Borrower or any Subsidiary. The
Borrower agrees to give the Lender
notice prior to the date the
Borrower or any Subsidiary accepts
any commitment to provide unsecured
indebtedness. In the event the
Borrower desires to obtain a
committed unsecured credit facility
pursuant to which loans may be made
from time to time (as opposed to a
single loan advanced in full at its
closing), the provider of such
credit facility, if deemed
necessary by the Lender, must enter
into an intercreditor agreement
acceptable to the Lender prior to
the date the facility closes. In
addition, the following
restrictions shall apply with
respect to unsecured indebtedness
for borrowed money of any nature
(whether provided as a single loan,
a series of loans, as part of a
committed credit facility or
otherwise): (i) the outstanding
principal balance of the Line of
Credit shall at all times be at
least equal to the aggregate
outstanding principal balance of
all other unsecured indebtedness,
and (ii) in obtaining other
unsecured indebtedness, the
Borrower and its Subsidiaries will
not agree to terms with any other
lender that are more favorable to
such lender than the terms of the
Line of Credit or that would treat
any such lender on a preferred
basis, and (iii) with respect to a
single loan not obtained pursuant
to a commitment to lend as
described above, the Borrower must
notify the Lender of the amount of
the loan and the identity of the
lender within 30 days after
obtaining the loan. "Unsecured
indebtedness for borrowed money"
includes, without limitation, (i)
all indebtedness for borrowed money
which is not fully secured, and
(ii) any such indebtedness
guaranteed by the Borrower or for
which the Borrower is otherwise
contingently liable.
ARTICLE 6
DEFAULT AND RIGHTS AND REMEDIES
SECTION 6.1 Default. The
occurrence of any one or more of
the following events shall
constitute a default ("Default")
under the provisions of this
Agreement:
Section 6.1.1
Payment of Obligations. The
failure of the Borrower to pay any
of the Obligations as and when due
and payable in accordance with the
provisions of this Agreement, the
Notes and/or any of the other
Financing Documents.
Section 6.1.2 Perform,
etc. Certain Provisions of this
Agreement. The failure of the
Borrower to perform, observe or
comply with any of the provisions
of Sections 5.1.5, 5.1.9, 5.1.10,
5.1.11, 5.1.12, 5.1.13, 5.1.14,
5.1.15 or 5.1.16 hereof or of
Section 5.2 of this Agreement.
Section 6.1.3 Perform,
etc. Other Provisions of this
Agreement. The failure of the
Borrower to perform, observe or
comply with any of the provisions
of this Agreement other than those
covered by Section 6.1.1 and 6.1.2
hereof, and such failure is not
cured to the satisfaction of the
Lender within a period of thirty
(30) days after the date of written
notice thereof by the Lender to the
Borrower.
Section 6.1.4
Representations and Warranties. If
any representation and warranty
contained herein or in any
statement or representation made in
any officer's certificate or in any
other information at any time given
by or on behalf of the Borrower or
furnished in connection with this
Agreement or any of the other
Financing Documents shall prove to
be false or incorrect in any
material respect on the date made.
Section 6.1.5 Default
under Other Financing Documents.
The occurrence of a default under
the provisions of the Notes or any
of the other Financing Documents
which is not cured within appli-
cable cure periods, if any.
Section 6.1.6
Liquidation, Termination, Dissolu-
tion, etc. If the Borrower shall
liquidate, dissolve or terminate
its existence without the prior
written consent of the Lender.
Section 6.1.7 Default
under Other Indebtedness. If the
Borrower:
(a) defaults in any
payment of the principal of or
interest on any Indebtedness
for Borrowed Money having a
principal balance in excess of
$500,000 beyond the period of
grace, if any, provided in the
instrument or agreement under
which such Indebtedness was
created, or
(b) defaults in the
observance or performance of
any other agreement or
condition relating to any such
Indebtedness having a
principal balance in excess of
$500,000 or contained in any
instrument or agreement
evidencing, securing or
relating thereto, or any other
event shall occur the effect
of which default or other
event is to cause or to permit
the holder or holders of such
Indebtedness or beneficiary or
beneficiaries of such Indebt-
edness (or a trustee or agent
on behalf of such holder or
holders or beneficiary or
beneficiaries) to cause, with
the giving of notice, if
required, such Indebtedness to
become due prior to its stated
maturity.
Section 6.1.8 Inability
to Pay Debts, etc. If the Borrower
shall admit in writing its
inability generally to pay its
debts as they mature or shall make
any assignment for the benefit of
any of its creditors.
Section 6.1.9
Bankruptcy. If proceedings in
bankruptcy, or for reorganization
of the Borrower, or for the
readjustment of any of its debts,
under the Bankruptcy Code, as
amended, or any part thereof, or
under any other applicable laws,
whether state or federal, for the
relief of debtors, now or hereafter
existing, shall be commenced
against or by the Borrower and,
except with respect to any such
proceedings instituted by the
Borrower, shall not be discharged
within sixty (60) days of commence-
ment.
Section 6.1.10 Receiver,
etc. A receiver or trustee shall
be appointed for the Borrower or
for any substantial part of its
assets, or any proceedings shall be
instituted for the dissolution or
the full or partial liquidation of
the Borrower and, except with
respect to any such appointments
requested or instituted by the
Borrower, such receiver or trustee
shall not be discharged within
sixty (60) days of his appointment,
and, except with respect to any
such proceedings instituted by the
Borrower, such proceedings shall
not be discharged within sixty (60)
days of commencement.
Section 6.1.11
Financial Condition. The
occurrence of any change in the
financial condition of the Borrower
which in the good faith judgment of
the Lender is materially adverse.
Section 6.1.12 Wendy's
International, Inc.. Wendy's
International, Inc. declares a
default under any franchise,
operating or other agreement,
between the Borrower and Wendy's
International, Inc. and such
declared default remains uncured
for a period of thirty (30) days.
Section 6.1.13
Friendly's Ice Cream Corporation.
Friendly's Ice Cream Corporation
("FICC") declares a default under
any franchise, operating or other
agreement, between the Borrower and
FICC and such declared default
remains uncured for a period of
thirty (30) days or beyond any
other applicable cure period.
Section 6.1.14 Change in
Management. The persons holding the
positions of President and
Executive Vice President of each
Borrower as of the date of this
Agreement shall change without the
prior written consent of the Lender
and individuals satisfactory to the
Lender are not installed in such
office(s) within one hundred and
eighty (180) days of the date of
the original change.
Section 6.1.15 Default in
Other Obligations Owed to Lender.
The Borrower shall be in default
with respect to any obligations
owed to Lender, whether now in
existence or hereafter incurred.
SECTION 6.2 Rights and
Remedies, etc..
Section 6.2.1 General
Rights and Remedies. Upon the
occurrence of a Default specified
in Sections 6.1.9 and 6.1.10, the
Commitment shall immediately and
automatically terminate and the
unpaid principal amount of the
Notes (with accrued interest
thereon) and all other Obligations
then outstanding, shall immediately
become due and payable without
further action of any kind and
without presentment, demand,
protest or notice of any kind, all
of which are hereby expressly
waived by the Borrower. If any
other Default shall occur here-
under, then in each and every such
case, the Lender may at any time
thereafter while such Default is
continuing do any one or more of
the following:
(a) terminate the
Commitment or suspend or limit
the advances and/or extensions
of credit thereunder;
(b) declare without
notice to the Borrower the
unpaid principal amount of the
Notes (with accrued interest
thereon) and all other Obliga-
tions to be immediately due
and payable, whereupon the
same shall forthwith become
due and payable, without
presentment, demand, protest
or notice of any kind, all of
which the Borrower hereby
expressly waives; and/or
(c) exercise any
rights and remedies available
to the Lender under this
Agreement, the Notes the other
Financing Documents and appli-
cable Laws.
Section 6.2.2
Enforcement Costs and Proceeds.
The Borrower agrees to pay to the
Lender all Enforcement Costs paid
or incurred by the Lender in
exercising any of its rights and
remedies available under the
provisions of this Agreement, or
any of the other Financing
Documents and applicable Laws. All
Enforcement Costs, together with
interest thereon from the date
incurred or advanced until paid in
full shall accrue interest at a per
annum rate of interest equal at all
times to the Post- Default Rate and
shall be paid by the Borrower to
the Lender whenever demanded by the
Lender.
Any proceeds of the
collection of the Obligations will
be applied by the Lender to the
payment of Enforcement Costs, and
any balance of such proceeds will
be applied by the Lender to the
payment of the remaining
Obligations (whether then due or
not), at such time or times and in
such order and manner of
application as the Lender may from
time to time in its sole discretion
determine.
Section 6.2.3
Performance by Lender. If the
Borrower shall fail to pay the
Obligations or otherwise fail to
perform, observe or comply with any
of the conditions, covenants,
terms, stipulations or agreements
contained in this Agreement or any
of the other Financing Documents,
the Lender without notice to or
demand upon the Borrower and
without waiving or releasing any of
the Obligations or any Default, may
(but shall be under no obligation
to) at any time thereafter and
during the continuance of an Event
of Default, make such payment or
perform such act for the account
and at the expense of the Borrower,
and may enter upon the premises of
the Borrower for that purpose and
take all such action thereon as the
Lender may consider necessary or
appropriate for such purpose. The
Borrower hereby appoints the Lender
or the Lender's designee as its
attorney in fact for the purposes
of effecting during the continuance
of a Default, any or all of the
provisions of this Section in the
Lender's name or in the name of the
Borrower such appointment being
coupled with an interest and being
irrevocable. All acts of said
attorney are hereby ratified and
approved and said attorney or
designee shall not be liable for
any acts of omission or commission
nor for any error of judgment or
mistake, unless done maliciously.
All Enforcement Costs, together
with interest thereon from the date
of payment, advance or incurring
until paid in full at the Post-Default Rate,
shall be paid by the
Borrower to the Lender on demand
and shall constitute and become a
part of the Obligations.
Section 6.2.4 Other
Remedies. Upon the occurrence of
an Event of Default (and in
addition to all of its rights,
powers and remedies under this
Agreement), the Lender is
authorized to offset and apply to
all or any part of the Obligations
all moneys, credits and other
property of any nature whatsoever
of the Borrower now or at any time
hereafter in the possession of, in
transit to or from, under the
control or custody of, or on
deposit with, the Lender.
ARTICLE 7
MISCELLANEOUS
SECTION 7.1 Course of
Dealing; Amendment. No course of
dealing between the Borrower and
the Lender shall be effective to
amend, modify or change any
provision of this Agreement or the
other Financing Documents. The
Lender shall have the right at all
times to enforce the provisions of
this Agreement and the other
Financing Documents in strict
accordance with the terms hereof
and thereof, notwithstanding any
conduct or custom on the part of
the Lender in refraining from so
doing at any time or times. The
failure or delay of the Lender at
any time or times to enforce the
rights under such provisions,
strictly in accordance with the
same, shall not be construed as
having created a custom in any way
or manner contrary to specific
provisions of this Agreement or as
having in any way or manner
modified or waived the same. This
Agreement and the other Financing
Documents may not be amended,
modified, or changed in any respect
except by an agreement in writing
signed by the Lender and the
Borrower.
SECTION 7.2 Waiver,
Cumulative Remedies. The Lender
may, at any time and from time to
time, execute and deliver to the
Borrower a written instrument waiv-
ing, on such terms and conditions
as the Lender may specify in such
written instrument, any of the
requirements of this Agreement or
of the other Financing Documents or
any Default or Event of Default and
its consequences, provided, that
any such waiver shall be for such
period and subject to such condi-
tions as shall be specified in any
such instrument. In the case of
any such waiver, the Borrower and
the Lender shall be restored to
their former positions prior to
such Default or Event of Default
and shall have the same rights as
they had hereunder. No such waiver
shall extend to any subsequent or
other Default or Event of Default,
or impair any right consequent
thereto and shall be effective only
in the specific instance and for
the specific purpose for which
given. The rights, powers and
remedies provided in this Agreement
and in the other Financing Docu-
ments are cumulative, may be
exercised concurrently or separate-
ly, may be exercised from time to
time and in such order as the
Lender shall determine, and are in
addition to, and not exclusive of,
rights, powers and remedies
provided by applicable Laws.
Without limiting the generality of
the foregoing, the Lender may:
(a) without reducing or
impairing the obligation of the
Borrower and without notice,
release or compromise with any
guarantor or other Person liable
for all or any part of the
Obligations under the Financing
Documents or otherwise; and
(b) without reducing or
impairing the obligations of the
Borrower and without notice
thereof: (i) provide the credit
accommodations under the Credit
Facilities under this Agreement,
(ii) waive any provision of this
Agreement or the other Financing
Documents, (iii) exercise or fail
to exercise rights of set-off or
other rights, or (iv) accept
partial payments or extend from
time to time the maturity of all or
any part of the Obligations.
SECTION 7.3 Notices. All
notices, requests and demands to or
upon the parties to this Agreement
shall be deemed to have been given
or made when delivered by hand, or
five (5) days after the date when
deposited in the mail, postage
prepaid by registered or certified
mail, return receipt requested, or,
in the case of telegraphic notice,
when delivered to the telegraphic
company and when properly
transmitted, or when sent by
overnight courier when delivered to
such overnight courier, addressed
as follows or to such other address
as may be hereafter designated in
writing by one party to the other:
Borrower: 1657 Crofton Boulevard
Crofton, Maryland 21114
Attn: Charles M. McGuire
Lender: 25 South Charles Street
Baltimore, Maryland 21201
Attn: Christopher A. Padgett
Vice President
Mail Code 101-560
except in cases where it is
expressly herein provided that such
notice, request or demand is not
effective until received by the
party to whom it is addressed.
SECTION 7.4 Management and
Administration by Lender. The
Borrower agrees to pay on demand
all losses, costs and expenses,
(including reasonable counsel fees
and expenses) of the Lender, in
connection with all waivers,
consents and amendments of this
Agreement and the other Financing
Documents requested by the
Borrower. All of the advances,
expenditures, costs and expenses
described in this Section shall
bear interest payable on demand by
the Borrower from the date paid or
incurred until paid in full at the
Post-Default Rate.
SECTION 7.5
Consent to Jurisdiction, etc. The
Borrower irrevocably submits to the
jurisdiction of any state or
federal court sitting in the State
of Maryland over any suit, action
or proceeding arising out of or
relating to this Agreement, the
Notes or any of the other Financing
Documents. The Borrower
irrevocably waives, to the fullest
extent permitted by law, any
objection that it may now or
hereafter have to the laying of the
venue of any such suit, action or
proceeding brought in any such
court and any claim that any such
suit, action or proceeding brought
in any such court has been brought
in an inconvenient forum. Final
judgment in any such suit, action
or proceeding brought in any such
court shall be conclusive and
binding upon the Borrower and may
be enforced in any court to the
jurisdiction of which the Borrower
is subject, by a suit upon such
judgment, provided that service of
process is effected upon the
Borrower in one of the manners
specified in this Section or as
otherwise permitted by law. The
Borrower hereby irrevocably desig-
nates and appoints John B. Ward,
Jr., Esquire, Mason, Ketterman &
Morgan, 300 East Lombard Street,
Suite 1100, Baltimore, Maryland
21202, as the Borrower's authorized
agent to receive on the Borrower's
behalf service of any and all
process that may be served in any
suit, action or proceeding of the
nature referred to in this Section
in any state or federal court
sitting in the State of Maryland.
If such agent shall cease so to
act, the Borrower shall irrevocably
designate and appoint without delay
another such agent in the State of
Maryland satisfactory to the Lender
and shall promptly deliver to the
Lender evidence in writing of such
other agent's acceptance of such
appointment and its agreement that
such appointment shall be
irrevocable. The Borrower hereby
consents to process being served in
any suit, action or proceeding of
the nature referred to in this
Section by (a) the mailing of a
copy thereof by registered or
certified mail, postage prepaid,
return receipt requested, to the
Borrower at the Borrower's address
designated in or pursuant to
Section 7.3 hereof, and (b) serving
a copy thereof upon the agent, if
any, designated and appointed by
the Borrower as the Borrower's
agent for service of process by or
pursuant to this Section. The
Borrower irrevocably agrees that
such service shall be deemed in
every respect effective service of
process upon the Borrower in any
such suit, action or proceeding,
and shall, to the fullest extent
permitted by law, be taken and held
to be valid personal service upon
the Borrower. Nothing in this
Section shall affect the right of
the Lender to serve process in any
manner otherwise permitted by law
or limit the right of the Lender
otherwise to bring proceedings
against the Borrower in the courts
of any jurisdiction or juris-
dictions. Without implying any
limitation on the joint and several
nature of each Borrower's
agreements hereunder, under the
Notes and other the other Financing
Documents and of the Obligations in
general, each Borrower acknowledges
and agrees that the provisions of
this Section and the confessed
judgment provisions of the Notes
are intended to be, are and may be
enforced as joint and several
obligations of the Borrower.
SECTION 7.6 Waiver of Trial
by Jury. The Borrower and the
Lender hereby jointly and severally
waive trial by jury in any action
or proceeding to which the Borrower
and the Lender may be parties,
arising out of or in any way
pertaining to (a) this Agreement,
or (b) any of the Financing
Documents. This waiver constitutes
a waiver of trial by jury of all
claims against all parties to such
actions or proceedings, including
claims against parties who are not
parties to this Agreement.
This waiver is knowingly,
willingly and voluntarily made by
the Borrower and the Lender, and
the Borrower and the Lender hereby
represent that no representations
of fact or opinion have been made
by any individual to induce this
waiver of trial by jury or to in
any way modify or nullify its
effect. The Borrower and the
Lender further represent that they
have been represented in the
signing of this Agreement and in
the making of this waiver by
independent legal counsel, selected
of their own free will, and that
they have had the opportunity to
discuss this waiver with counsel.
SECTION 7.7 Costs and Expenses.
The Borrower agrees to pay:
(a) Upon being billed
therefor, all reasonable costs and
expenses of the Lender in
connection with the preparation,
execution and delivery of this
Agreement and the other Financing
Documents, including the reasonable
fees and out-of-pocket expenses of
counsel for the Lender.
(b) Upon demand any and
all stamp and other taxes and fees
payable or determined to be payable
in connection with the execution
and delivery of this Agreement, the
Note and the other Financing
Documents. The Borrower also
agrees to save the Lender harmless
from and against any and all
liabilities with respect to or
resulting from any delay in paying
or omission to pay such taxes or
fees.
All costs, expenses,
taxes and fees described in this
Section shall be part of the
Enforcement Costs and shall bear
interest, payable on demand by the
Borrower, from the date due until
paid in full at the Post-Default
Rate.
SECTION 7.8 Severability. In
case one or more provisions
contained in this Agreement or in
the other Financing Documents shall
be invalid, illegal or
unenforceable in any respect under
any law, the validity, legality and
enforceability of the remaining
provisions contained herein and in
the other Financing Documents shall
remain effective and binding on the
parties thereto and shall not be
affected or impaired thereby.
SECTION 7.9 Assignment, Etc.
The Lender may, without notice to,
or consent of, the Borrower, sell,
assign or transfer to or
participate with any Person or
Persons all or any part of the
Obligations (a "Transfer"), and
each such Person or Persons shall
have the right to enforce the
provisions of this Agreement, the
Note and any of the other Financing
Documents as fully as the Lender,
provided that the Lender shall
continue to have the unimpaired
right to enforce the provisions of
this Agreement, the Note and any of
the other Financing Documents as to
so much of the Obligations that the
Lender has not sold, assigned or
transferred and, provided further,
that the Lender shall not make a
Transfer if such Transfer would
result in an increase in the amount
of taxes or other costs incurred or
payable by the Borrower. In
connection with the foregoing, the
Lender shall have the right to
divulge to any such actual or
potential purchaser, assignee,
transferee or participant all
information, reports, financial
statements and documents obtained
in connection with this Agreement,
the Note and any of the other
Financing Documents or otherwise,
provided, the Lender obtains
assurances of confidential
treatment of such information from
officers and agents of prospective
purchasers of, or participants in,
the Loan.
SECTION 7.10. Survival. All
representations, warranties and
covenants contained among the
provisions of this Agreement shall
survive the execution and delivery
of this Agreement, the Note and the
other Financing Documents.
SECTION 7.11. Binding Effect.
This Agreement, the Note and all
other Financing Documents shall be
binding upon and inure to the
benefit of the Borrower and the
Lender and their respective
successors and assigns, except that
the Borrower shall not have the
right to assign its rights
hereunder or any interest herein
without the prior written consent
of the Lender, and any such
assignment without such consent
shall be void and, at the option of
the Lender, be deemed a default
hereunder.
SECTION 7.12. Applicable Law.
The Borrower acknowledges and
agrees that the Financing
Documents, including this
Agreement, shall be governed by the
laws of the State of Maryland.
SECTION 7.13. Duplicate
Originals and Counterparts. This
Agreement may be executed in any
number of duplicate originals or
counterparts, each of such
duplicate originals or counterparts
shall be deemed to be an original
and all taken together shall
constitute but one and the same
instrument.
SECTION 7.14. Exhibits and
Schedules. Any exhibits and
schedules attached to this
Agreement are an integral part
hereof and are hereby incorporated
herein and included in the term
"this Agreement".
SECTION 7.15. Headings.
Article, Section and subsection
headings in this Agreement are
included herein for convenience of
reference only, shall not
constitute a part of this Agreement
for any other purpose and shall not
be deemed to affect the meaning or
construction of any of the
provisions hereof.
SECTION 7.16. Termination of
Prior Commitment. The Borrower and
the Lender acknowledge and agree
that the "Credit Facilities"
described in the Financing
Agreement dated January 5, 1996, by
and between the Lender and DavCo
(the "1996 Financing Agreement")
are terminated. To the extent that
there are outstanding on the date
of this Agreement there are any
outstanding "Letters of Credit"
under the 1996 Financing Agreement,
such letters of credit are hereby
deemed to be part of and included
in the Letters of Credit under this
Agreement. To the extent that
there is outstanding on the date of
this Agreement there are any other
"Obligations" outstanding the 1996
Financing Agreement, such
obligations shall be repaid by an
advance under the Line of Credit on
the date of this Agreement without
the need for further authorization
by the Borrower.
IN WITNESS WHEREOF, each of
the parties hereto have executed
and delivered this Agreement under
their respective seals as of the
day and year first written above.
BORROWER:
WITNESS OR ATTEST: DAVCO RESTAURANTS, INC.
/S/ D.J. Norman By: /S/ Charles C. McGuire III (Seal)
Name:
Title:
WITNESS OR ATTEST: SOUTHERN HOSPITALITY CORPORATION
/S/ D. J. Norman By: /S/ Charles C. McGuire III (Seal)
Name:
Title:
WITNESS OR ATTEST: MDF, INC.
/S/ D.J. Norman By: /S/ Charles C. McGuire III (Seal)
Name:
Title:
WITNESS OR ATTEST: FRIENDCO RESTAURANTS, INC.
/S/ D.J. Norman By: /S/ Charles C. McGuire III (Seal)
Name:
Title:
LENDER:
WITNESS: THE FIRST NATIONAL BANK OF MARYLAND
/S/ Tom E. Flori By: /S/ Christopher A. Padgett (Seal)
Christopher A. Padgett
Vice President
EXHIBITS
Exhibit A Permitted Liens
Exhibit A-1 Line of Credit Note
Exhibit B List of Outstanding
Letters of Credit as of Closing
Exhibit C Subsidiaries
Exhibit D Litigation
Exhibit E Insurance
PLEDGE AGREEMENT
THIS PLEDGE AGREEMENT (this
"Agreement") is made this 14th day
of July, 1997, by DAVCO
RESTAURANTS, INC., a corporation
organized under the laws of the
State of Delaware (the "Pledgor")
for the benefit of THE FIRST
NATIONAL BANK OF MARYLAND, a
national banking association (the
"Lender").
RECITALS
A. The Pledgor and the other
below-referenced "Borrowers" have
applied to the Lender for a
Revolving Credit Facility in an
aggregate principal amount not to
exceed $18,000,000 (the "Revolving
Credit Facility"), which Revolving
Credit Facility is to be made
pursuant to the provisions of a
certain Financing Agreement of even
date herewith by and among the
Pledgor, its Subsidiaries as are
and may be signatories thereto from
time to time (collectively with the
Pledgor, the "Borrowers"), jointly
and severally, and the Lender (the
Financing Agreement, together with
any and all amendments and
modifications thereto, renewals and
extensions thereof and substitutes
therefor, is herein referred to as
the "Financing Agreement").
Advances under the Line of Credit
(as that term is defined in the
Financing Agreement) are to be
evidenced by, and repaid with
interest in accordance with the
provisions of, a Revolving Credit
Note of the Borrowers of even date
hereof in the principal amount of
$18,000,000 (together with any and
all amendments and modifications
thereto, renewals and extensions
thereof and substitutes therefor,
is herein referred to as the
"Note").
B. The Lender has required,
as a condition to the making of the
Revolving Credit Facility, that the
Pledgor secure the Revolving Credit
Facility by the execution of this
Agreement.
C. All capitalized terms
used in this Agreement and not
defined herein shall have the
meanings given to such terms in the
Financing Agreement.
NOW, THEREFORE, in order to
induce the Lender to make the
Revolving Credit Facility to the
Borrowers, the Pledgor covenants
and agrees with the Lender as
follows:
I. SECURITY
SECTION 1.01. The Collateral.
As security for the prompt and full
performance of the Obligations (as
that term is defined in the
Financing Agreement) and of all
other obligations of the Borrowers
to the Lender, the Pledgor hereby
pledges, assigns and grants to the
Lender a security interest in the
following property of the Pledgor
(collectively, the "Stock
Collateral"):
(a) 100% of the shares
of the capital stock (the "Stock")
of Southern Hospitality
Corporation, a Tennessee
corporation (the "Company"), all as
further described in EXHIBIT A
attached hereto and made a part
hereof;
(b) All stock rights,
rights to subscribe, dividends
(including, but not limited to,
cash dividends, stock dividends,
dividends paid in stock and
liquidating dividends) and any
other rights and property interests
including, but not limited to,
accounts, contract rights,
instruments and general intangibles
arising out of or relating to the
Stock;
(c) All other or
additional stock or other
securities or property (including
cash) paid or distributed in
respect of the Stock by way of
stock-split, spin-off, split-up,
reclassification, combination of
shares or similar corporate
rearrangement;
(d) All other or
additional stock or other
securities or property (including
cash) which may be paid or
distributed in respect of the Stock
by reason of any consolidation,
merger, exchange of stock,
conveyance of assets, liquidation
or similar corporate
reorganization; and
(e) All proceeds (both
cash and non-cash) of the
foregoing, whether now or hereafter
arising under the foregoing.
SECTION 1.02. Rights of the
Lender in the Stock Collateral.
The Pledgor agrees that with
respect to the Stock Collateral the
Lender shall have all the rights
and remedies of a secured party
under the Uniform Commercial Code,
as well as those provided by law
and/or in this Agreement. The
Pledgor covenants and agrees to
execute and deliver in recordable
form such financing statements and
other instruments and filings
(including blank stock powers) as
are necessary in the opinion of the
Lender to perfect such pledge,
assignments and security interests
in the Stock Collateral, with any
recordation of such financing
statements or assignments to be at
the expense of the Pledgor.
Notwithstanding the fact that the
proceeds of the Stock Collateral
constitute part of the Stock
Collateral, the Pledgor may not
dispose of the Stock Collateral, or
any part thereof.
SECTION 1.03. Rights of the
Pledgor in the Stock Collateral.
Except upon the occurrence of and
during the continuance of an Event
of Default occurs hereunder, the
Pledgor shall be entitled to
receive all dividends and other
distributions which may be paid on
any stock assigned hereunder and
which are not otherwise prohibited
by the Financing Documents. The
Pledgor agrees that no dividend or
distribution or other benefit with
respect to the Stock shall be
received, and no vote shall be cast
or shareholder's consent, waiver or
ratification given or action taken
by the Pledgor in the Pledgor's
capacity as shareholder of the
Stock, which would violate or be
inconsistent with any of the terms
and provisions of this Agreement,
the Financing Agreement or any of
the other Financing Documents or
which would materially impair the
position or interest of the Lender
in the Stock Collateral or dilute
the percentage of the stock of the
Company pledged to the Lender
hereunder. Any cash dividend or
distribution payable in respect of
the stock pledged to the Lender
hereunder which represents, in
whole or in part a return of
capital or is in violation of this
Agreement or the other Financing
Documents shall be received by the
Pledgor in trust for the Lender,
shall be paid immediately to the
Lender and shall be retained by the
Lender as part of the Stock
Collateral.
II. REPRESENTATIONS AND WARRANTIES
To induce the Lender to make
the Revolving Credit Facility to
the Borrowers pursuant to the
Financing Agreement, the Pledgor
represents and warrants to the
Lender as follows:
Section 2.01 The Stock
Collateral. (a) The Pledgor is the
sole owner of all of the Stock
Collateral, free and clear of all
security interests, pledges, voting
trusts, liens and claims
whatsoever, other than the security
interest, assignment and lien
granted under this Agreement and a
prior assignment granted to the
Lender to secure a term loan in the
original principal amount of
$18,250,000; (b) the stock assigned
as Collateral is subject to no
outstanding options, warrants or
other requirements with respect to
such stock; (c) the Pledgor has
good title to the Stock Collateral,
has full right, power and authority
to transfer the Stock Collateral
and perform all other obligations
required hereunder with respect to
the Stock Collateral and interests,
and has all voting rights in any
corporate matters as may be
represented by the Stock; and (d)
the stock assigned as Collateral
represents one hundred percent
(100%) of the stock of the Company.
Notwithstanding anything contained
in this Agreement to the contrary,
the Lender acknowledges that the
transfer of the Stock Collateral is
subject to certain restrictions as
set forth in the Consent to Pledge
of even date hereof among the
Pledgor, the Lender, the Company
and Wendy's International, Inc.
Section 2.02 Power and
Authority. The Pledgor has full
power and authority to execute and
deliver this Agreement and all
other documents, instruments and
certificates in connection with
this Agreement and the Obligations,
all of which have been duly
authorized by all proper and
necessary action. No consent or
approval or of any public authority
is required as a condition to the
validity or enforceability of this
Agreement or any of the other
Financing Documents executed and
delivered by the Pledgor.
Notwithstanding anything contained
in this Agreement to the contrary,
the Lender acknowledges that the
transfer of the Stock Collateral is
subject to certain restrictions as
set forth in the Consent to Pledge
of even date hereof among the
Pledgor, the Lender, the Company
and Wendy's International, Inc.
III. COVENANTS
Until payment in full and the
performance of all of the
Obligations of the Borrowers under
the Financing Documents and this
Agreement, the Pledgor covenants
and agrees with the Lender as
follows:
SECTION 3.01. Delivery of
Collateral. The Pledgor shall
deliver to the Lender (a) the
certificates representing the
shares of the Stock, (b)
immediately upon its receipt of any
additional shares of stock in the
Company, the certificates
representing such additional shares
of stock, and (c) executed
irrevocable stock powers for all of
the assigned shares of stock
conferring upon the Lender the
right to sell, assign and transfer,
any or all of such shares of stock
upon any Event of Default.
SECTION 3.02. Defense of
Title and Further Assurances. The
Pledgor shall defend, at its sole
expense, the title to the Stock
Collateral and any part thereof.
Further, the Pledgor shall
promptly, upon request by the
Lender, execute, acknowledge and
deliver any financing statement,
endorsement, renewal, affidavit,
deed, assignment, continuation
statement, security agreement,
certificate or other document as
may be required in order to
perfect, preserve, maintain,
protect, continue and/or extend the
lien and security interest of the
Lender under this Agreement and the
priority thereof. The Pledgor
shall pay to the Lender upon demand
all taxes and documented out-of-pocket
costs and expenses
(including but not limited to
reasonable attorney's fees)
incurred by the Lender in
connection with the preparation,
execution, recording and filing of
any such document or instrument
mentioned aforesaid.
IV. EVENTS OF DEFAULT
The occurrence of any one or
more of the following events
(herein sometimes referred to as
"Events of Default") shall
constitute a default hereunder, and
all such Events of Default are
individually and collectively
included in the term "default" as
used herein:
(a) If a Default (as
defined therein) has occurred under
the Financing Agreement;
(b) If the Pledgor shall
fail to duly perform, comply with
or observe any of the terms,
conditions or covenants of this
Agreement, and such failure
continues uncured for thirty (30)
days after written notice thereof
from the Lender; or
(c) If any
representation or warranty
contained herein or any statement
or representation made by the
Pledgor or on behalf of and with
the knowledge of the Pledgor in any
report, opinion, financial
statement or certificate shall
prove to be false or incorrect in
any material respect on the date as
of which made.
V. RIGHTS AND REMEDIES
If any one or more Events of
Default shall occur, then in each
and every such case, the Lender at
its option may (but is not
obligated to) at any time
thereafter exercise and/or enforce
any of the following rights and
remedies:
SECTION 5.0l. Legal
Proceedings. The Lender may
proceed to protect or enforce its
rights by an action or actions at
law or in equity or by any other
appropriate proceeding, whether for
the specific performance of any of
the covenants herein contained or
of any other agreement contained
herein, or for an injunction
against the violation of any of the
terms hereof, or in aid of the
exercise or execution of any right,
remedy or power granted herein or
by law.
SECTION 5.02. Rights of
Lender Concerning the Stock
Collateral. The Lender may, upon
the occurrence and during the
continuance of an Event of Default,
and the Pledgor hereby appoints
irrevocably the Lender its
attorney-in-fact therefor, with
power of substitution, in the name
of the Lender or in the name of the
Pledgor or otherwise, for the use
and benefit of the Lender, but at
the cost and expense of the Pledgor
and without notice to the Pledgor,
(a) take any action and execute any
instruments which such attorney-in-fact
may deem necessary or
advisable to accomplish the
purposes of this Agreement, (b)
settle, extend, renew, compromise,
compound, exchange or adjust claims
or security in respect of any of
the Stock Collateral or of any
legal proceedings brought with
regard thereto, (c) make any
agreement with respect to any of
the Stock Collateral and otherwise
deal with the Stock Collateral, (d)
take control in any manner of any
cash or non-cash items of payments,
and (e) endorse the name of the
Pledgor upon any items of payment
for the Stock Collateral or any
Proof of Claim in bankruptcy
against the Pledgor, or any other
obligor under any of the Stock
Collateral. This appointment as
attorney-in-fact is irrevocable and
coupled with an interest.
SECTION 5.03. Sale or Other
Disposition of Collateral. Upon
the occurrence and during the
continuance of an Event of Default,
the Lender may sell or redeem the
Stock or other Collateral, or any
part thereof, in one or more sales,
at public or private sale,
conducted by any officer or agent
of, or auctioneer or attorney for,
the Lender, at the Lender's place
of business or elsewhere, for cash,
upon credit or future delivery, and
at such price or prices as the
Lender shall, in its sole
discretion, determine, and the
Lender may be the purchaser of any
or all of the Stock or other
Collateral so sold. Further:
(a) The Pledgor
recognizes that the Lender may be
unable to effect a public sale of
all or a part of the Stock
Collateral by reason of certain
prohibitions contained in the
Securities Act of 1933, as amended,
and other applicable federal and
state statutes, rules and
regulations. The Lender may,
therefore, in its discretion, at
any sale of the Stock Collateral
restrict the prospective bidders or
purchasers as to their number,
nature of business and investment
intention, including, without
limitation, a requirement that the
persons making such purchases
represent and agree to the
satisfaction of the Lender that
they are purchasing the Stock or
other securities for their account,
for investment, and not with a view
to the distribution or resale of
any thereof. Upon any such sale or
redemption the Lender shall have
the right to deliver, assign and
transfer to the purchaser thereof
the Stock Collateral so sold.
(b) Each purchaser
(including the Lender) at any such
sale shall hold the Stock
Collateral so sold absolutely free
from any claim or right of
whatsoever kind of the Pledgor,
including, without limitation, any
equity or right of redemption of
the Pledgor, which the Pledgor
hereby specifically waives to the
extent it may lawfully do so.
(c) Any notice required
by law of any sale, public or
private, of all or any part of the
Stock Collateral shall be deemed in
all circumstances to have been
given in a commercially reasonable
manner if sent at least ten (10)
days prior to such sale by mail to
the Pledgor at its address last
known to the Lender. At any such
sale the Stock Collateral may be
sold in one lot as an entirety or
in separate parcels. The Lender
shall not be obligated to make any
sale pursuant to any such notice.
In case of any sale of all or any
part of the Stock Collateral on
credit or for future delivery, the
Stock Collateral so sold may be
retained by the Lender until the
selling price is paid by the
purchaser thereof, but the Lender
shall not incur any liability in
case of the failure of such
purchaser to take up and pay for
the Stock Collateral so sold, and
in case of any such failure, such
Collateral may again be sold under
and pursuant to the provisions
hereof. The Lender, as attorney-in-fact,
pursuant to Section 5.02
hereof, may, in the name and stead
of the Pledgor, make and execute
all conveyances, assignments and
transfers of the Stock Collateral
sold pursuant to this Section. The
Pledgor shall, if so requested by
the Lender, ratify and confirm any
sale or sales by executing and
delivering to the Lender, or to
such purchaser or purchasers, all
such documents as may, in the
judgment of the Lender, be
advisable for the purpose.
SECTION 5.04. Costs and
Expenses. The Pledgor shall pay on
demand all documented out-of-pocket
costs and expenses (including
actual attorney's fees reasonably
incurred), all of which shall be
deemed part of the Obligations,
incurred by and on behalf of the
Lender incident to any collection,
servicing, sale, disposition or
other action taken by the Lender
with respect to the Stock
Collateral or any portion thereof;
provided such action is authorized
hereunder.
SECTION 5.05. Application of
Proceeds of Sale. Any proceeds of
any sale or other disposition of
the Stock Collateral may be applied
by the Lender first to the payment
of all unpaid costs and expenses
mentioned in Section 5.04 above,
and the balance, if any, shall be
applied by the Lender to the
payment of the Obligations in such
order as the Lender in the exercise
of its sole discretion may elect.
The Pledgor shall continue to be
liable for any deficiency after
such application and shall be
entitled to any surplus.
SECTION 5.06. Receipt
Sufficient Discharge to Purchaser.
Upon any sale or other disposition
of the Stock Collateral or any part
thereof, the receipt of the Lender
or other person making the sale or
disposition shall be a sufficient
discharge to the purchaser for the
purchase money, and such purchaser
shall not be obligated to see to
the application thereof.
SECTION 5.07. Remedies, etc.
Cumulative. Each right, power and
remedy of the Lender as provided
for in this Agreement or in any of
the other Financing Documents or in
any related instrument or agreement
or now or thereafter existing at
law or in equity or by statute or
otherwise shall be cumulative and
concurrent and shall be in addition
to every other right, power or
remedy provided for in this
Agreement or in the other Financing
Documents or in any related
document, instrument or agreement
or now or hereafter existing at law
or in equity or by statute or
otherwise, and the exercise or
beginning of the exercise by the
Lender of any one or more of such
rights, powers or remedies shall
not preclude the simultaneous or
later exercise by the Lender of any
or all such other rights, powers or
remedies.
SECTION 5.08. No Waiver, etc.
No failure or delay by the Lender
to insist upon the strict
performance of any term, condition,
covenant or agreement of this
Agreement or of any of the other
Financing Documents or of any
related documents, instruments or
agreements, or to exercise any
right, power or remedy consequent
upon a breach thereof, shall
constitute a waiver of any such
term, condition, covenant or
agreement or of any such breach, or
preclude the Lender from exercising
any such right, power or remedy at
any later time or times. By
accepting payment after the due
date of any amount payable under
this Agreement or under any of the
other Financing Documents or under
any related document, instrument or
agreement, the Lender shall not be
deemed to waive the right either to
require prompt payment when due of
all other amounts payable under
this Agreement or under any other
of the Financing Documents, or to
declare a default for failure to
effect such prompt payment of any
such other amount.
VI. MISCELLANEOUS
SECTION 6.0l. Liability of
Lender. Except for gross
negligence or willful misconduct,
the Lender shall be under no
liability for, and the Pledgor
hereby releases the Lender from,
all claims for loss or damage
caused by (a) the Lender's failure
to perform or collect any of the
Stock Collateral, or (b) the
Lender's failure to preserve or
protect any rights of the Pledgor
under the Stock Collateral. In the
event the Lender enforces or seeks
to enforce any of the rights of a
shareholder under any of the Stock
Collateral, the Pledgor shall
immediately reimburse the Lender
for such costs and expenses
(including actual attorney's fees
reasonably incurred) so incurred
and payment of such sums shall be
secured by this Agreement.
SECTION 6.02 Terms Binding.
All of the terms, conditions,
stipulations, warranties,
representations and covenants of
this Agreement, shall apply to and
be binding upon, and shall inure to
the benefit of the Pledgor and the
Lender and their respective
successors and assigns.
SECTION 6.03 Subject to
Applicable Law. All rights, powers
and remedies provided in this
Agreement may be exercised only to
the extent that the exercise
thereof does not violate any
applicable provision of law, and
are intended to be limited to the
extend necessary so that they will
not render this Agreement invalid,
illegal or unenforceable under the
provisions of any applicable law.
If any term of this Agreement shall
be held to be invalid, illegal or
unenforceable, the validity of the
other terms of this Agreement shall
not be affected thereby.
SECTION 6.04 Gender, etc.
Whenever used herein, the singular
number shall include the plural,
the plural the singular and the use
of the masculine, feminine or
neuter gender shall include all
genders.
SECTION 6.05 Headings. The
Section headings in this Agreement
are for convenience only, and shall
not limit or otherwise affect any
of the terms hereof.
SECTION 6.06 Notice. Any
notice pursuant to this Agreement
shall be given in accordance with
Section 7.3 of the Financing
Agreement
SECTION 6.07 Cross
Reference. This Agreement is
one of the Financing Documents
referred to in the Financing
Agreement.
IN WITNESS WHEREOF, the
Pledgor has caused this Agreement
to be executed, sealed and
delivered, as of the day and year
first written above.
WITNESS OR ATTEST: DAVCO RESTAURANTS, INC.
/S/ D.J. Norman By: /S/ Charles C. McGuire III (SEAL)
Name:
Title:
EXHIBIT A
Name Shares of Capital Stock
SOUTHERN HOSPITALITY CORPORATION _______________________
FINANCING STATEMENT
TO BE RECORDED WITH THE MARYLAND
STATE DEPARTMENT OF ASSESSMENTS &
TAXATION
This Financing Statement is
presented to a Filing Officer
pursuant to the Maryland Uniform
Commercial Code.
1. NAME AND ADDRESS DAVCO RESTAURANTS, INC.
OF DEBTOR: 1657 Crofton Boulevard
Crofton, Maryland 21114
2. NAME AND ADDRESS THE FIRST NATIONAL BANK OF MARYLAND
OF SECURED PARTY, 25 South Charles Street
Baltimore, Maryland 21201
Attn: Christopher A. Padgett
Mail Code 101-560
3. Debtor's principal place
of business is in Anne Arundel
County, Maryland.
4. This Financing Statement
covers all right, title and
interest of the Debtor in and to
the following types (or items) of
property:
(a) 100% of the shares
of the capital stock (the
"Stock") of Southern
Hospitality Corporation, a
Tennessee corporation;
(b) All stock rights,
rights to subscribe, dividends
(including, but not limited
to, cash dividends, stock
dividends, dividends paid in
stock and liquidating
dividends) and any other
rights and property interests
including, but not limited to,
accounts, contract rights,
instruments and general
intangibles arising out of or
relating to the Stock;
(c) All other or
additional stock or other
securities or property
(including cash) paid or
distributed in respect of the
Stock by way of stock-split,
spin-off, split-up,
reclassification, combination
of shares or similar corporate
rearrangement;
(d) All other or
additional stock or other
securities or property
(including cash) which may be
paid or distributed in respect
of the Stock by reason of any
consolidation, merger,
exchange of stock, conveyance
of assets, liquidation or
similar corporate
reorganization; and
(e) All proceeds (both
cash and non-cash) of the
foregoing, whether now or
hereafter arising under the
foregoing.
5. The Debtor certifies that
no recordation tax is payable in
connection with the recording of
this Financing Statement.
DEBTOR:
DAVCO RESTAURANTS, INC.
By:/S/ Charles C. McGuire III
Name:
Title:
Filing Officer: After recordation,
please return this Financing
Statement to:
Kathleen M. Donahue, Esq.
Miles & Stockbridge
A Professional Corporation
10 Light Street, 8th Floor
Baltimore, Maryland 21202
PROMISSORY NOTE
$10,000,000 July 14, 1997
Baltimore, Maryland
FOR VALUE RECEIVED, FRIENDCO
RESTAURANTS, INC., a corporation
organized and existing under the
laws of the State of Maryland (the
"Borrower") promises to pay to the
order of THE FIRST NATIONAL BANK OF
MARYLAND, a national banking
association (the "Lender") the
principal sum of TEN MILLION
DOLLARS ($10,000,000) (the
"Principal Sum"), or such sums
thereof as are outstanding from
time to time pursuant to the
Financing Agreement (hereinafter
defined) with interest thereon as
provided below. Interest and
principal shall be payable in
lawful money of the United States,
which shall be legal tender in
payment of all debts and dues,
public and private, at the time of
payment.
The term "Financing Agreement"
means the Loan Agreement dated the
same date as this Promissory Note
(as the Loan Agreement may be
amended, modified, restated,
substituted, extended and renewed
at any time and from time to time),
among the Borrower and the Lender.
Capitalized terms used herein and
not otherwise defined shall have
the same meanings as set forth in
the Financing Agreement. This Note
is the "Note" defined in the
Financing Agreement and is subject
to all of the terms and conditions
contained therein.
Interest on the outstanding
principal balance of this Note at
the Floating Rate and/or at any
Fixed Rate in effect from time to
time shall be payable monthly on
the fifth day of each month in each
calendar year. The Principal Sum
shall be repaid in monthly
installments on the fifth day of
each month in accordance with the
provisions of the Financing
Agreement. In addition to monthly
payments of principal, the Borrower
shall make additional principal
payments in accordance with Section
2.1.5 of the Financing Agreement.
The outstanding principal balance
and all accrued and unpaid interest
thereon shall be due and payable in
full on July 13, 2002.
The unpaid principal balance
of this Note shall bear interest at
the Floating Rate, except during
any period of time in which the
Fixed Rate has been selected in
accordance with the Financing
Agreement.
Interest shall be charged
based on a 360-day year factor
applied to actual days elapsed.
If a Default occurs and
continues beyond the applicable
cure periods (if any) set forth in
the Financing Agreement, the unpaid
principal balance of this Note
shall bear interest thereafter at a
rate of two percent (2%) per annum
in excess of the Index. In
addition, any payment received more
than fifteen (15) days after its
due date will be subject to a late
charge in an amount equal to five
percent (5%) of the payment.
All payments under this Note
will be made to the Lender as
provided in the Financing
Agreement. All such payments
received by the Lender shall be
applied in accordance with the
Financing Agreement.
Any portion of the Principal
Sum accruing interest at the
Floating Rate may be prepaid in
whole or in part at any time
without premium or penalty. Any
portion of the Principal Sum
accruing interest at a Fixed Rate
may be prepaid in whole or in part
but subject to payment of the
prepayment fee described in the
Financing Agreement.
If a Default occurs and
continues beyond the applicable
cure periods (if any) set forth in
the Financing Agreement, the unpaid
balance of the Principal Sum
together with interest thereon
shall, at the option of the Lender,
at once become and be due and
payable.
If this Note is forwarded to
an attorney for collection after
the occurrence of an Event of
Default, the Borrower shall pay all
reasonable costs of collection,
including, without limitation,
court costs and reasonable
attorney's fees.
Upon the occurrence of a
Default under the Financing
Agreement, the Borrower hereby
authorizes and empowers at any time
thereafter the clerk of court or
any attorney of any court of record
within the State of Maryland to
appear for the Borrower in any
court in one or more proceedings or
before any clerk or any other
officer thereof and to confess
judgment against the Borrower in
favor of the Lender and/or any
subsequent holder of this Note for
an amount equal to the total of (a)
the then unpaid principal balance
of this Note (whether then due or
not), (b) interest accrued thereon
and any premiums, (c) costs of
suit, and (d) attorney's fees of
$250,000. The authority and power
to confess judgment herein
contained shall not be exhausted by
one or more exercises thereof, or
by an imperfect exercise thereof,
and shall not be extinguished by
any judgment entered pursuant
thereto. Such authority and power
may be exercised on one or more
occasions, from time to time, in
the same or different
jurisdictions, as often as the
Lender or any subsequent holder
shall deem necessary or desirable
for all of which this Note shall be
sufficient warrant.
In the event that any
provision (or any part of any
provision) contained in this Note
shall for any reason be held to be
invalid, illegal or unenforceable
in any respect, such invalidity,
illegality or unenforceability
shall not affect any other
provision (or remaining part of the
affected provision) of this Note,
but this Note shall be construed as
if such invalid, illegal or
unenforceable provision (or part
thereof) had never been contained
herein but only to the extent it is
invalid, illegal or unenforceable.
The Borrower waives
presentment, protest and demand,
notice of protest, notice of demand
and of dishonor and non-payment of
this Note (provided that, this
paragraph shall in no manner limit
or affect any notice and cure
period the Borrower is entitled to
under the Financing Agreement), and
expressly agree that this Note or
any payment hereunder may be
extended from time to time without
in any way affecting the liability
of the Borrower.
Time is of the essence of this
Note.
This Note shall be governed
by, and construed in accordance
with, the Laws of the State of
Maryland.
WITNESS the signature and seal
of the Borrower as of the day and
year first above written.
WITNESS OR ATTEST: FRIENDCO RESTAURANTS, INC.
/S/ D.J. Norman By: /S/ Charles C. McGuire III (Seal)
Name:
Title:
GUARANTY
THIS GUARANTY is dated
effective as of the 14th day of
July, 1997, by DAVCO RESTAURANTS,
INC., a Delaware corporation,
SOUTHERN HOSPITALITY CORPORATION, a
Tennessee corporation and MDF,
INC., a Delaware corporation,
jointly and severally (individually
a "Guarantor" and collectively, the
"Guarantors"), for the benefit of
THE FIRST NATIONAL BANK OF
MARYLAND, a national banking
association (the "Lender").
RECITALS
FRIENDCO RESTAURANTS, INC., a
Maryland corporation (the
"Borrower") has requested that the
Lender make a loan (the "Loan") to
it in the principal amount of
$10,000,000. The Loan will be
(a) evidenced by the Borrower's
Promissory Note of even date hereof
(the "Note"), (b) governed by, and
subject to the terms and conditions
of, a Loan Agreement of even date
hereof (the "Financing Agreement")
between the Borrower and the
Lender, and (c) secured by a Pledge
Agreement of even date hereof (the
"Pledge Agreement") executed by
Davco for the benefit of the
Lender. The Lender has agreed to
make the Loan, provided that, among
other things, the Guarantors
guarantee the repayment of the
Obligations (hereinafter defined)
by the execution of this Guaranty.
NOW THEREFORE, in order to
induce the Lender to make the Loan,
and in consideration of the sum of
$10,000 in hand paid receipt of
which is hereby acknowledged, the
Guarantors jointly and severally
agree and covenant with the Lender
as follows:
1. Guaranty. The Guarantors
jointly and severally hereby
unconditionally and irrevocably
guarantee to the Lender the full
and punctual payment and
performance of each and all of the
Obligations. The term
"Obligations" means all present and
future debts, obligations and
liabilities of the Borrower to the
Lender arising pursuant to, and/or
on account of, the provisions of
the Note, the Financing Agreement
and any of the other Financing
Documents (hereinafter defined),
including, without limitation, the
obligations to: (a) pay all
principal (including, without
limitation, any principal advanced
after the date of this Guaranty and
any principal that is repaid and
readvanced), interest, late charges
and prepayment premiums (if any)
due at any time under the Note, and
(b) perform, observe and comply
with all of the terms, covenants
and conditions, expressed or
implied, which the Borrower is
required by the Note, the Financing
Agreement and any of the other
Financing Documents, to perform,
observe or comply with.
2. Representations and
Warranties. The Guarantors jointly
and severally represent and warrant
to the Lender that:
(a) Review of Documents.
The Borrower or Guarantors, as the
case may be, have examined the
Note, the Financing Agreement, the
Pledge Agreement and all other
documents executed or to be
executed in conjunction with the
Loan (the Note, the Financing
Agreement, the Pledge Agreement and
such other documents are herein
sometimes called the "Financing
Documents").
(b) Binding Obligation.
This Guaranty constitutes the valid
and legally binding obligation of
the Guarantors and is fully
enforceable against the Guarantors
in accordance with its terms;
subject, however, to applicable
bankruptcy, insolvency, reorgan-
ization, moratorium and other
similar laws affecting creditors'
rights generally and the exercise
of judicial discretion in
accordance with general principles
of equity.
(c) Litigation. There
are no proceedings pending or, so
far as the Guarantors know,
threatened before any court or
administrative agency which would
materially adversely affect the
financial condition of the
Guarantors or the authority of the
Guarantors to enter into, or the
validity or enforceability of, this
Guaranty.
(d) No Conflicting
Agreements. There is (i) no
provision of any agreement or
contract binding on the Guarantors,
or any of them, or affecting any of
the property of the Guarantors, and
(ii) no law binding upon the
Guarantors, or any of them, or
affecting any of property of the
Guarantors, which would conflict
with or in any way prevent the
execution, delivery, or performance
of the terms of this Guaranty, or
which would be in default or
violated as a result of such
execution, delivery or performance.
(e) Tax Returns. The
Guarantors have filed all required
federal, state and local tax
returns and have paid all taxes as
shown on such returns as they have
become due. No claims have been
assessed and are unpaid with
respect to such taxes.
(f) Financial Condition.
The financial statements of the
Guarantors most recently submitted
to the Lender, if any, are true,
complete and correct in all
material respects, and fairly
represent the financial condition
of the Guarantors and the results
of the Guarantors' operations and
transactions as of the dates and
for the periods of such financial
statements, except for lack of
footnotes and subject to normal
year-end adjustments. There are no
liabilities, direct or indirect,
fixed or contingent, matured or
unmatured, known or unknown, of the
Guarantors which are not reflected
therein. There has been no
material adverse change in the
business, prospects, assets,
properties or condition (financial
or otherwise) of the Guarantors
between the date of such financial
statements and the date of this
Guaranty.
3. Subordination. Any
indebtedness of the Borrower to the
Guarantors of every kind and
nature, whether now existing or
hereafter created, due or to become
due, direct or contingent, is
hereby subordinated to the payment
to the Lender of the Obligations.
4. Guaranty Unconditional.
The obligations and liabilities of
the Guarantors under this Guaranty
shall be absolute and
unconditional, irrespective of the
genuineness, validity, priority,
regularity or enforceability of the
Note or any of the other Financing
Documents or any other circumstance
which might otherwise constitute a
legal or equitable discharge of a
surety or guarantor. The
Guarantors expressly agree that the
Lender may, in its sole and
absolute discretion, without notice
to or further assent of the
Guarantors and without in any way
releasing, affecting or in any way
impairing the obligations and
liabilities of the Guarantors
hereunder:
(a) waive compliance with, or
any defaults under, or grant any
other indulgences under or with
respect to any of the Financing
Documents;
(b) modify, amend, change or
terminate any provisions of any of
the Financing Documents;
(c) grant extensions or
renewals of or with respect to the
Note or any of the other Financing
Documents;
(d) effect any release,
subordination, compromise or
settlement in connection with any
of the Financing Documents;
(e) agree to the
substitution, exchange, release or
other disposition of any collateral
for the Loan or to the
subordination of any lien or
security interest therein;
(f) make advances for the
purpose of performing any term,
provision or covenant contained in
any of the Financing Documents with
respect to which the Borrower shall
then be in default;
(g) assign, pledge,
hypothecate or otherwise transfer
the Note, any of the other
Financing Documents or this
Guaranty or any interest therein;
(h) deal in all respects with
the Borrower as if this Guaranty
were not in effect; and
(i) effect any release,
compromise or settlement with any
other guarantor.
5. Guaranty of Payment.
This Guaranty is an absolute
guaranty of payment and not of
collectibility and is no way
conditioned or contingent: (a) upon
any attempt to collect from the
Borrower or any other person
primarily or secondarily liable for
the payment or performance of the
Obligations, and (b) upon recourse,
or attempted recourse, to or
against any security or collateral
for the Obligations. This Guaranty
shall continue to be effective or
be reinstated, as the case may be,
if at any time any payment is
rescinded or must otherwise be
returned by the holder of the Note
upon the insolvency, bankruptcy, or
reorganization of the Borrower or
otherwise, all as though such
payment had not been made.
6. Waiver of Presentment,
Demand, etc. Except for such
notices as are expressly provided
for herein or in the other
Financing Documents, the Guarantors
hereby waive presentment, demand
for payment, dishonor, notice of
non-payment and of dishonor of the
Obligations, notice of any default
under any of the Financing
Documents, notice of the creation
of the Obligations and notice of
acceptance of this Guaranty.
7. Subrogation. The
Guarantors shall, to the extent of
any payments made by the Guarantors
pursuant to this Guaranty, be
subrogated to all rights of the
Lender as to all Obligations
payable by others with respect to
which such payments shall be made
by the Guarantors, but such right
of subrogation on the part of the
Guarantors shall be in all respects
subordinate to all rights and
claims of the Lender for all
payments which shall be or become
due and payable under any of the
Financing Documents.
Notwithstanding any provision of
this paragraph to the contrary, if
any of the Guarantors is or becomes
an "insider" (as defined from time
to time in Section 101 of the
Federal Bankruptcy Code) with
respect to the Borrower, then such
Guarantor irrevocably and
absolutely waives any and all
rights of subrogation,
contribution, indemnification,
reimbursement or any similar rights
against the Borrower with respect
to this Guaranty, whether such
rights arise under an express or
implied contract or by operation of
law. It is the intention of the
parties hereto that none of the
Guarantors shall be deemed to be a
"creditor" (as defined in Section
101 of the Federal Bankruptcy Code)
of the Borrower by reason of the
existence of this Guaranty in the
event that the Borrower becomes a
debtor in any proceeding under the
Federal Bankruptcy Code.
8. Events of Default. The
existence or occurrence of one or
more of the following events (the
"Events of Default") shall
constitute an Event of Default
hereunder: (a) the Guarantors fail
to promptly pay to the Lender all
sums due and payable to the Lender
by the Guarantors under and by
reason of this Guaranty; (b) the
Guarantors fail to perform or
comply with any of the terms of
this Guaranty (other than the
payment obligation described in
clause (a) above), and such failure
continues uncured for 30 days after
Notice (hereinafter defined) from
the Lender; (c) any representation
or warranty contained in this
Guaranty or made pursuant hereto
proves to have been false or
incorrect in any material adverse
respect on the date as of which
made; or (d) an Event of Default as
defined in the Financing Agreement
occurs.
9. Remedies. Upon the
existence or occurrence of any
Event of Default, the entire unpaid
balance of the Obligations together
with any other sums due under this
Guaranty shall, at the Lender's
option, become immediately due and
payable. In addition, the Lender
may exercise any other rights and
remedies provided to it by this
Guaranty or by law.
10. Costs and Expenses. The
Guarantors shall pay to the Lender
on demand all reasonable documented
out-of-pocket costs and expenses
(including, without limitation,
reasonable attorney's fees and
court costs) incurred by or on
behalf of the Lender in endeavoring
to collect or enforce this
Guaranty; provided such endeavors
are authorized hereunder.
11. Confession of Judgment.
After an Event of Default
hereunder, the Guarantors jointly
and severally hereby authorize the
clerk of court or any attorney
designated by the Lender to appear
for the Guarantors in any court of
record and confess judgment against
the Guarantors for an amount equal
to the total of, (a) the amount of
the Obligations, (b) the costs and
expenses mentioned in Paragraph 10
above, (c) costs of suit, and
(d) attorney's fees of $250,000.
The authority and power to confess
judgment herein contained shall not
be exhausted by one or more
exercises thereof, or by an
imperfect exercise thereof, and
shall not be extinguished by any
judgment entered pursuant thereto.
Such authority and power may be
exercised on one or more occasions,
from time to time, in the same or
different jurisdictions, as often
as the Lender shall deem necessary
or desirable for all of which this
Guaranty shall be a sufficient
warrant.
12. Remedies Cumulative, etc.
Each right, power and remedy of the
Lender provided for in this
Guaranty or in any of the Financing
Documents or now or hereafter
existing at law or in equity or by
statute or otherwise shall be
cumulative and con-current and
shall be in addition to every other
right, power or remedy provided for
in this Guaranty or in any of the
Financing Documents or now or
hereafter existing at law or in
equity or by statute or otherwise,
and the exercise or beginning of
the exercise by the Lender of any
one or more of such rights, powers
or remedies shall not preclude the
simultaneous or later exercise by
the Lender of any or all such other
rights, powers or remedies.
13. No Waiver, etc. No
failure or delay by the Lender to
insist upon the strict performance
of any term or condition of this
Guaranty or of any of the Financing
Documents, or to exercise any
right, power or remedy consequent
upon a breach thereof, shall
constitute a waiver of any such
term or condition or of any such
breach, or preclude the Lender from
exercising any such right, power or
remedy at any later time or times.
By accepting payment after the due
date of any amount payable under
this Guaranty or under any of the
Financing Documents, the Lender
shall not be deemed to waive the
right either to require prompt
payment when due of all other
amounts payable under this Guaranty
or under any of the Financing
Documents or to declare a default
for failure to make prompt payment
of any such other amount.
14. Term of Guaranty. This
Guaranty shall continue in full
force and effect and shall not be
discharged or released until such
time as the Obligations and any
costs and expenses payable
hereunder by the Guarantors are
paid in full and the satisfaction
of such Obligations is not subject
to challenge or contest. If all or
any portion of the Obligations are
satisfied and the Lender is
required for any reason to pay to
any person the sums used to satisfy
the Obligations, the Obligations
shall remain in effect and
enforceable to the extent thereof.
15. Assignment of Guaranty.
The Lender may sell, assign or
transfer to any person or persons
all or any part of the Obligations,
and each such person or persons
shall have the right to enforce
this Guaranty as fully as the
Lender, provided that, the Lender
shall continue to have the right to
enforce this Guaranty as to so much
of the Obligations that it has not
sold, assigned or transferred.
16. Notices. Any notice
pursuant to this Agreement (a
"Notice") shall be given in
accordance with Section 7.3 of the
Financing Agreement.
17. Governing Law. This
Guaranty shall be deemed made in,
and shall be governed in accordance
with the laws of, the State of
Maryland.
18. Waiver of Trial by Jury.
Each of the Guarantors and the
Lender hereby mutually waive trial
by jury in any action or proceeding
to which any of the Guarantors and
the Lender may be parties, arising
out of or in any way pertaining to
(a) this Guaranty, (b) the Loan, or
(c) the interpretation or
enforcement of the Financing
Documents. It is agreed and
understood that this waiver
constitutes a waiver of trial by
jury of all claims against all
parties to such actions or
proceedings, including claims
against parties who are not parties
to this Guaranty. This waiver is
knowingly, willingly and
voluntarily made by the Guarantors,
and each of the Guarantors hereby
represents that no representations
of fact or opinion have been made
by any individual to induce this
waiver of trial by jury or to in
any way modify or nullify its
effect. Each of the Guarantors
further represents that the
Guarantors have been represented in
the signing of this Guaranty and in
the making of this waiver by
independent legal counsel, selected
of its own free will, and that it
has had the opportunity to discuss
this waiver with counsel.
19. Change, etc. Neither
this Guaranty nor any term,
condition, covenant or agreement
hereof may be changed, waived,
discharged or terminated orally,
but only by an instrument in
writing by the party against whom
enforcement of the change, waiver,
discharge or termination is sought.
20. Terms Binding. All of
the terms and conditions of this
Guaranty shall apply to, and be
binding upon, the Guarantors and
the Guarantors' respective
successors and permitted assigns.
21. Consent to Jurisdiction, etc.
Each of the Guarantors
irrevocably submits to the
jurisdiction of any state or
federal court sitting in the State
of Maryland over any suit, action
or proceeding arising out of or
relating to this Guaranty. Each of
the Guarantors irrevocably waives,
to the fullest extent permitted by
law, any objection that it may now
or hereafter have to the laying of
the venue of any such suit, action
or proceeding brought in any such
court and any claim that any such
suit, action or proceeding brought
in any such court has been brought
in an inconvenient forum. Final
judgment in any such suit, action
or proceeding brought in any such
court shall be conclusive and
binding upon the Guarantors and may
be enforced in any court to the
jurisdiction of which the
Guarantors are subject, by a suit
upon such judgment, provided that
service of process is effected upon
the Guarantors in one of the
manners specified in this Section
or as otherwise permitted by law.
Each of the Guarantors hereby
irrevocably designates and appoints
John B. Ward, Jr., Esquire, Mason,
Ketterman & Morgan, 300 East
Lombard Street, Suite 1100,
Baltimore, Maryland 21202, as the
Guarantors' authorized agent to
receive on the Guarantor's behalf
service of any and all process that
may be served in any suit, action
or proceeding of the nature
referred to in this Section in any
state or federal court sitting in
the State of Maryland. If such
agent shall cease so to act, the
Guarantors shall irrevocably
designate and appoint without delay
another such agent in the State of
Maryland satisfactory to the Lender
and shall promptly deliver to the
Lender evidence in writing of such
other agent's acceptance of such
appointment and its agreement that
such appointment shall be
irrevocable. Each of the
Guarantors hereby consents to
process being served in any suit,
action or proceeding of the nature
referred to in this Section by (a)
the mailing of a copy thereof by
registered or certified mail,
postage prepaid, return receipt re-
quested, to the Guarantors at the
Guarantors' address designated in
or pursuant to Section 7.3 of the
Financing Agreement, and (b)
serving a copy thereof upon the
agent, if any, designated and
appointed by the Guarantors as the
Guarantors' agent for service of
process by or pursuant to this
Section. Each of the Guarantors
irrevocably agrees that such
service shall be deemed in every
respect effective service of
process upon the Guarantor in any
such suit, action or proceeding,
and shall, to the fullest extent
permitted by law, be taken and held
to be valid personal service upon
the Guarantor. Nothing in this
Section shall affect the right of
the Lender to serve process in any
manner otherwise permitted by law
or limit the right of the Lender
otherwise to bring proceedings
against any of the Guarantors in
the courts of any jurisdiction or
jurisdictions.
22. Severability. If any
term or provision of this Guaranty
or the application thereof to any
person or circumstance shall to any
extent be invalid or unenforceable,
the remainder of this Guaranty, or
the application of such term or
provision to persons or
circumstances other than those as
to which it is invalid or
unenforceable, shall not be
affected thereby, and each term and
provision of this Guaranty shall be
valid and enforceable to the
fullest extent permitted by law.
23. Gender, etc. Whenever
used herein, the singular number
shall include the plural, the
plural the singular and the use of
the masculine, feminine or neuter
gender shall include all genders.
Whenever used herein, the word
"person" or "persons" shall mean
and include a corporation, an
association, a partnership, an
organization, a business, an
individual, a government or
political subdivision or agency
thereof, or an estate or trust.
24. Headings. The headings
in this Guaranty are for
convenience only, and shall not
limit or otherwise affect any of
the terms hereof.
25. Counterparts. This
Guaranty may be executed in any
number of counterparts, each of
which shall be an original but all
of which, together, shall
constitute one and the same
instrument.
IN WITNESS WHEREOF, the Guarantors have caused this Guaranty
to be signed, sealed and delivered on the day and year first written
above.
WITNESS OR ATTEST: DAVCO RESTAURANTS, INC.
/S/ D.J. Norman By: /S/ Charles C. McGuire III (Seal)
Name:
Title:
WITNESS OR ATTEST: SOUTHERN HOSPITALAITY CORPORATION
/S/ D.J. Norman By: /S/ Charles C. McGuire III (Seal)
Name:
Title:
WITNESS OR ATTEST: MDF, INC.
/S/ D.J. Norman By: /S/ Charles C. McGuire III (Seal)
Name:
Title:
PLEDGE AGREEMENT
THIS PLEDGE AGREEMENT (this
"Agreement") is made this 14th day
of July, 1997, by DAVCO
RESTAURANTS, INC., a corporation
organized under the laws of the
State of Delaware (the "Pledgor")
for the benefit of THE FIRST
NATIONAL BANK OF MARYLAND, a
national banking association (the
"Lender").
RECITALS
A. Friendco Restaurants,
Inc., a Maryland corporation (the
"Borrower") has applied to the
Lender for a Term Loan in the
principal amount of $10,000,000
(the "Term Loan"), which Term Loan
is to be made pursuant to the
provisions of a certain Loan
Agreement of even date herewith by
and among the Borrower and the
Lender (the Loan Agreement,
together with any and all
amendments and modifications
thereto, renewals and extensions
thereof and substitutes therefor,
is herein referred to as the
"Financing Agreement"). The Term
Loan is to be evidenced by, and
repaid with interest in accordance
with the provisions of, a
Promissory Note of the Borrower of
even date hereof in the principal
amount of $10,000,000 (together
with any and all amendments and
modifications thereto, renewals and
extensions thereof and substitutes
therefor, is herein referred to as
the "Note").
B. The Lender has required,
as a condition to the making of the
Loan, that the Pledgor, together
with others, guarantee the
repayment of all of the Borrower's
obligations under the Note and
Financing Agreement and that the
Pledgor further secure the Loan by
the execution of this Agreement.
C. All capitalized terms
used in this Agreement and not
defined herein shall have the
meanings given to such terms in the
Financing Agreement.
NOW, THEREFORE, in order to
induce the Lender to make the Term
Loan to the Borrower, the Pledgor
covenants and agrees with the
Lender as follows:
I. SECURITY
SECTION 1.01. The Collateral.
As security for the prompt and full
performance of the Obligations (as
that term is defined in the
Financing Agreement) and of all
other obligations of the Borrower
to the Lender, the Pledgor hereby
pledges, assigns and grants to the
Lender a security interest in the
following property of the Pledgor
(collectively, the "Stock
Collateral"):
(a) 100% of the shares
of the capital stock (the "Stock")
of the Borrower, all as further
described in EXHIBIT A attached
hereto and made a part hereof;
(b) All stock rights,
rights to subscribe, dividends
(including, but not limited to,
cash dividends, stock dividends,
dividends paid in stock and
liquidating dividends) and any
other rights and property interests
including, but not limited to,
accounts, contract rights,
instruments and general intangibles
arising out of or relating to the
Stock;
(c) All other or
additional stock or other
securities or property (including
cash) paid or distributed in
respect of the Stock by way of
stock-split, spin-off, split-up,
reclassification, combination of
shares or similar corporate
rearrangement;
(d) All other or
additional stock or other
securities or property (including
cash) which may be paid or
distributed in respect of the Stock
by reason of any consolidation,
merger, exchange of stock,
conveyance of assets, liquidation
or similar corporate
reorganization; and
(e) All proceeds (both
cash and non-cash) of the
foregoing, whether now or hereafter
arising under the foregoing.
SECTION 1.02. Rights of the
Lender in the Stock Collateral.
The Pledgor agrees that with
respect to the Stock Collateral the
Lender shall have all the rights
and remedies of a secured party
under the Uniform Commercial Code,
as well as those provided by law
and/or in this Agreement. The
Pledgor covenants and agrees to
execute and deliver in recordable
form such financing statements and
other instruments and filings
(including blank stock powers) as
are necessary in the opinion of the
Lender to perfect such pledge,
assignments and security interests
in the Stock Collateral, with any
recordation of such financing
statements or assignments to be at
the expense of the Pledgor.
Notwithstanding the fact that the
proceeds of the Stock Collateral
constitute part of the Stock
Collateral, the Pledgor may not
dispose of the Stock Collateral, or
any part thereof.
SECTION 1.03. Rights of the
Pledgor in the Stock Collateral.
Except upon the occurrence of and
during the continuance of an Event
of Default occurs hereunder, the
Pledgor shall be entitled to
receive all dividends and other
distributions which may be paid on
any stock assigned hereunder and
which are not otherwise prohibited
by the Financing Documents. The
Pledgor agrees that no dividend or
distribution or other benefit with
respect to the Stock shall be
received, and no vote shall be cast
or shareholder's consent, waiver or
ratification given or action taken
by the Pledgor in the Pledgor's
capacity as shareholder of the
Stock, which would violate or be
inconsistent with any of the terms
and provisions of this Agreement,
the Financing Agreement or any of
the other Financing Documents or
which would materially impair the
position or interest of the Lender
in the Stock Collateral or dilute
the percentage of the stock of the
Borrower pledged to the Lender
hereunder. Any cash dividend or
distribution payable in respect of
the stock pledged to the Lender
hereunder which represents, in
whole or in part a return of
capital or is in violation of this
Agreement or the other Financing
Documents shall be received by the
Pledgor in trust for the Lender,
shall be paid immediately to the
Lender and shall be retained by the
Lender as part of the Stock
Collateral.
II. REPRESENTATIONS AND WARRANTIES
To induce the Lender to make
the Term Loan to the Borrower
pursuant to the Financing
Agreement, the Pledgor represents
and warrants to the Lender as
follows:
Section 2.01 The Stock
Collateral. (a) The Pledgor is the
sole owner of all of the Stock
Collateral, free and clear of all
security interests, pledges, voting
trusts, liens and claims
whatsoever; (b) the stock assigned
as Collateral is subject to no
outstanding options, warrants or
other requirements with respect to
such stock; (c) the Pledgor has
good title to the Stock Collateral,
has full right, power and authority
to transfer the Stock Collateral
and perform all other obligations
required hereunder with respect to
the Stock Collateral and interests,
and has all voting rights in any
corporate matters as may be
represented by the Stock; and (d)
the stock assigned as Collateral
represents one hundred percent
(100%) of the stock of the
Borrower.
Section 2.02 Power and
Authority. The Pledgor has full
power and authority to execute and
deliver this Agreement and all
other documents, instruments and
certificates in connection with
this Agreement and the Obligations,
all of which have been duly
authorized by all proper and
necessary action. No consent or
approval or of any public authority
is required as a condition to the
validity or enforceability of this
Agreement or any of the other
Financing Documents executed and
delivered by the Pledgor.
III. COVENANTS
Until payment in full and the
performance of all of the
Obligations of the Borrower under
the Financing Documents and this
Agreement, the Pledgor covenants
and agrees with the Lender as
follows:
SECTION 3.01. Delivery of
Collateral. The Pledgor shall
deliver to the Lender (a) the
certificates representing the
shares of the Stock, (b)
immediately upon its receipt of any
additional shares of stock in the
Borrower, the certificates
representing such additional shares
of stock, and (c) executed
irrevocable stock powers for all of
the assigned shares of stock
conferring upon the Lender the
right to sell, assign and transfer,
any or all of such shares of stock
upon any Event of Default.
SECTION 3.02. Defense of
Title and Further Assurances. The
Pledgor shall defend, at its sole
expense, the title to the Stock
Collateral and any part thereof.
Further, the Pledgor shall
promptly, upon request by the
Lender, execute, acknowledge and
deliver any financing statement,
endorsement, renewal, affidavit,
deed, assignment, continuation
statement, security agreement,
certificate or other document as
may be required in order to
perfect, preserve, maintain,
protect, continue and/or extend the
lien and security interest of the
Lender under this Agreement and the
priority thereof. The Pledgor
shall pay to the Lender upon demand
all taxes and documented out-of-pocket
costs and expenses
(including but not limited to
reasonable attorney's fees)
incurred by the Lender in
connection with the preparation,
execution, recording and filing of
any such document or instrument
mentioned aforesaid.
IV. EVENTS OF DEFAULT
The occurrence of any one or
more of the following events
(herein sometimes referred to as
"Events of Default") shall
constitute a default hereunder, and
all such Events of Default are
individually and collectively
included in the term "default" as
used herein:
(a) If a Default (as
defined therein) has occurred under
the Financing Agreement;
(b) If the Pledgor shall
fail to duly perform, comply with
or observe any of the terms,
conditions or covenants of this
Agreement, and such failure
continues uncured for thirty (30)
days after written notice thereof
from the Lender; or
(c) If any
representation or warranty
contained herein or any statement
or representation made by the
Pledgor or on behalf of and with
the knowledge of the Pledgor in any
report, opinion, financial
statement or certificate shall
prove to be false or incorrect in
any material respect on the date as
of which made.
V. RIGHTS AND REMEDIES
If any one or more Events of
Default shall occur, then in each
and every such case, the Lender at
its option may (but is not
obligated to) at any time
thereafter exercise and/or enforce
any of the following rights and
remedies:
SECTION 5.0l. Legal
Proceedings. The Lender may
proceed to protect or enforce its
rights by an action or actions at
law or in equity or by any other
appropriate proceeding, whether for
the specific performance of any of
the covenants herein contained or
of any other agreement contained
herein, or for an injunction
against the violation of any of the
terms hereof, or in aid of the
exercise or execution of any right,
remedy or power granted herein or
by law.
SECTION 5.02. Rights of
Lender Concerning the Stock
Collateral. The Lender may, upon
the occurrence and during the
continuance of an Event of Default,
and the Pledgor hereby appoints
irrevocably the Lender its
attorney-in-fact therefor, with
power of substitution, in the name
of the Lender or in the name of the
Pledgor or otherwise, for the use
and benefit of the Lender, but at
the cost and expense of the Pledgor
and without notice to the Pledgor,
(a) take any action and execute any
instruments which such attorney-in-fact
may deem necessary or
advisable to accomplish the
purposes of this Agreement, (b)
settle, extend, renew, compromise,
compound, exchange or adjust claims
or security in respect of any of
the Stock Collateral or of any
legal proceedings brought with
regard thereto, (c) make any
agreement with respect to any of
the Stock Collateral and otherwise
deal with the Stock Collateral, (d)
take control in any manner of any
cash or non-cash items of payments,
and (e) endorse the name of the
Pledgor upon any items of payment
for the Stock Collateral or any
Proof of Claim in bankruptcy
against the Pledgor, or any other
obligor under any of the Stock
Collateral. This appointment as
attorney-in-fact is irrevocable and
coupled with an interest.
SECTION 5.03. Sale or Other
Disposition of Collateral. Upon
the occurrence and during the
continuance of an Event of Default,
the Lender may sell or redeem the
Stock or other Collateral, or any
part thereof, in one or more sales,
at public or private sale,
conducted by any officer or agent
of, or auctioneer or attorney for,
the Lender, at the Lender's place
of business or elsewhere, for cash,
upon credit or future delivery, and
at such price or prices as the
Lender shall, in its sole
discretion, determine, and the
Lender may be the purchaser of any
or all of the Stock or other
Collateral so sold. Further:
(a) The Pledgor
recognizes that the Lender may be
unable to effect a public sale of
all or a part of the Stock
Collateral by reason of certain
prohibitions contained in the
Securities Act of 1933, as amended,
and other applicable federal and
state statutes, rules and
regulations. The Lender may,
therefore, in its discretion, at
any sale of the Stock Collateral
restrict the prospective bidders or
purchasers as to their number,
nature of business and investment
intention, including, without
limitation, a requirement that the
persons making such purchases
represent and agree to the
satisfaction of the Lender that
they are purchasing the Stock or
other securities for their account,
for investment, and not with a view
to the distribution or resale of
any thereof. Upon any such sale or
redemption the Lender shall have
the right to deliver, assign and
transfer to the purchaser thereof
the Stock Collateral so sold.
(b) Each purchaser
(including the Lender) at any such
sale shall hold the Stock
Collateral so sold absolutely free
from any claim or right of
whatsoever kind of the Pledgor,
including, without limitation, any
equity or right of redemption of
the Pledgor, which the Pledgor
hereby specifically waives to the
extent it may lawfully do so.
(c) Any notice required
by law of any sale, public or
private, of all or any part of the
Stock Collateral shall be deemed in
all circumstances to have been
given in a commercially reasonable
manner if sent at least ten (10)
days prior to such sale by mail to
the Pledgor at its address last
known to the Lender. At any such
sale the Stock Collateral may be
sold in one lot as an entirety or
in separate parcels. The Lender
shall not be obligated to make any
sale pursuant to any such notice.
In case of any sale of all or any
part of the Stock Collateral on
credit or for future delivery, the
Stock Collateral so sold may be
retained by the Lender until the
selling price is paid by the
purchaser thereof, but the Lender
shall not incur any liability in
case of the failure of such
purchaser to take up and pay for
the Stock Collateral so sold, and
in case of any such failure, such
Collateral may again be sold under
and pursuant to the provisions
hereof. The Lender, as attorney-in-fact,
pursuant to Section 5.02
hereof, may, in the name and stead
of the Pledgor, make and execute
all conveyances, assignments and
transfers of the Stock Collateral
sold pursuant to this Section. The
Pledgor shall, if so requested by
the Lender, ratify and confirm any
sale or sales by executing and
delivering to the Lender, or to
such purchaser or purchasers, all
such documents as may, in the
judgment of the Lender, be
advisable for the purpose.
SECTION 5.04. Costs and
Expenses. The Pledgor shall pay on
demand all documented out-of-pocket
costs and expenses (including
actual attorney's fees reasonably
incurred), all of which shall be
deemed part of the Obligations,
incurred by and on behalf of the
Lender incident to any collection,
servicing, sale, disposition or
other action taken by the Lender
with respect to the Stock
Collateral or any portion thereof;
provided such action is authorized
hereunder.
SECTION 5.05. Application of
Proceeds of Sale. Any proceeds of
any sale or other disposition of
the Stock Collateral may be applied
by the Lender first to the payment
of all unpaid costs and expenses
mentioned in Section 5.04 above,
and the balance, if any, shall be
applied by the Lender to the
payment of the Obligations in such
order as the Lender in the exercise
of its sole discretion may elect.
The Pledgor shall continue to be
liable for any deficiency after
such application and shall be
entitled to any surplus.
SECTION 5.06. Receipt
Sufficient Discharge to Purchaser.
Upon any sale or other disposition
of the Stock Collateral or any part
thereof, the receipt of the Lender
or other person making the sale or
disposition shall be a sufficient
discharge to the purchaser for the
purchase money, and such purchaser
shall not be obligated to see to
the application thereof.
SECTION 5.07. Remedies, etc.
Cumulative. Each right, power and
remedy of the Lender as provided
for in this Agreement or in any of
the other Financing Documents or in
any related instrument or agreement
or now or thereafter existing at
law or in equity or by statute or
otherwise shall be cumulative and
concurrent and shall be in addition
to every other right, power or
remedy provided for in this
Agreement or in the other Financing
Documents or in any related
document, instrument or agreement
or now or hereafter existing at law
or in equity or by statute or
otherwise, and the exercise or
beginning of the exercise by the
Lender of any one or more of such
rights, powers or remedies shall
not preclude the simultaneous or
later exercise by the Lender of any
or all such other rights, powers or
remedies.
SECTION 5.08. No Waiver, etc.
No failure or delay by the Lender
to insist upon the strict
performance of any term, condition,
covenant or agreement of this
Agreement or of any of the other
Financing Documents or of any
related documents, instruments or
agreements, or to exercise any
right, power or remedy consequent
upon a breach thereof, shall
constitute a waiver of any such
term, condition, covenant or
agreement or of any such breach, or
preclude the Lender from exercising
any such right, power or remedy at
any later time or times. By
accepting payment after the due
date of any amount payable under
this Agreement or under any of the
other Financing Documents or under
any related document, instrument or
agreement, the Lender shall not be
deemed to waive the right either to
require prompt payment when due of
all other amounts payable under
this Agreement or under any other
of the Financing Documents, or to
declare a default for failure to
effect such prompt payment of any
such other amount.
VI. MISCELLANEOUS
SECTION 6.0l. Liability of
Lender. Except for gross
negligence or willful misconduct,
the Lender shall be under no
liability for, and the Pledgor
hereby releases the Lender from,
all claims for loss or damage
caused by (a) the Lender's failure
to perform or collect any of the
Stock Collateral, or (b) the
Lender's failure to preserve or
protect any rights of the Pledgor
under the Stock Collateral. In the
event the Lender enforces or seeks
to enforce any of the rights of a
shareholder under any of the Stock
Collateral, the Pledgor shall
immediately reimburse the Lender
for such costs and expenses
(including actual attorney's fees
reasonably incurred) so incurred
and payment of such sums shall be
secured by this Agreement.
SECTION 6.02 Terms Binding.
All of the terms, conditions,
stipulations, warranties,
representations and covenants of
this Agreement, shall apply to and
be binding upon, and shall inure to
the benefit of the Pledgor and the
Lender and their respective
successors and assigns.
SECTION 6.03 Subject to
Applicable Law. All rights, powers
and remedies provided in this
Agreement may be exercised only to
the extent that the exercise
thereof does not violate any
applicable provision of law, and
are intended to be limited to the
extend necessary so that they will
not render this Agreement invalid,
illegal or unenforceable under the
provisions of any applicable law.
If any term of this Agreement shall
be held to be invalid, illegal or
unenforceable, the validity of the
other terms of this Agreement shall
not be affected thereby.
SECTION 6.04 Gender, etc.
Whenever used herein, the singular
number shall include the plural,
the plural the singular and the use
of the masculine, feminine or
neuter gender shall include all
genders.
SECTION 6.05 Headings. The
Section headings in this Agreement
are for convenience only, and shall
not limit or otherwise affect any
of the terms hereof.
SECTION 6.06 Notice. Any
notice pursuant to this Agreement
shall be given in accordance with
Section 7.3 of the Financing
Agreement
SECTION 6.07 Cross
Reference. This Agreement is
one of the Security Documents
referred to in the Financing
Agreement.
IN WITNESS WHEREOF, the
Pledgor has caused this Agreement
to be executed, sealed and
delivered, as of the day and year
first written above.
WITNESS OR ATTEST: DAVCO RESTAURANTS, INC.
/S/ D.J. Norman By:/S/ Charles C. McGuire III (SEAL)
Name:
Title:
EXHIBIT A
Name Shares of Capital Stock
FRIENDCO RESTAURANTS, INC. _______________________
LOAN AGREEMENT
THIS LOAN AGREEMENT (this
"Agreement") is made this 14th day
of July, 1997, by and between
FRIENDCO RESTAURANTS, INC., a
corporation organized and existing
under the laws of the State of
Maryland (the "Borrower") and THE
FIRST NATIONAL BANK OF MARYLAND, a
national banking association (the
"Lender").
R E C I T A L S :
1. The Borrower has
requested that the Lender make a
loan to the Borrower in the
principal amount of $10,000,000
(the "Loan").
2. The Lender has agreed to
do so subject to the terms and
conditions set forth in this
Agreement.
NOW, THEREFORE in
consideration of the premises and
of the mutual covenants and
conditions contained herein, the
Borrower and the Lender agree as
follows:
ARTICLE I
DEFINITIONS
SECTION 1.1. Certain
Defined Terms. As used in this
Agreement, the terms defined in the
Preamble and Recitals hereto shall
have the respective meanings
specified therein, and the
following terms shall have the
following meanings:
"Adjusted Libor Rate" has
the meaning set forth in Section
2.1.4(d).
"Affiliate" means, with
respect to the Borrower, any
Person, directly or indirectly
controlling, directly or indirectly
controlled by, or under direct or
indirect common control with the
Borrower or any Subsidiary.
"Agreement" means this
Loan Agreement and all amendments,
modifications and supplements
hereto which may from time to time
become effective in accordance with
the provisions of Section 7.1
hereof.
"Applicable Margin" has
the meaning set forth in Section
2.1.4.(b).
"Applicable Rate" has the
meaning set forth in Section
2.1.6(b).
"Assessment Rate" has the
meaning set forth in Section
2.1.4(d).
"Bankruptcy Code" means
the United States Bankruptcy Code,
as amended from time to time.
"Business Day" means any
day other than a Saturday, Sunday
or other day on which commercial
banks in the State of Maryland are
authorized or required to close.
"Closing Date" means the
date of this Agreement.
"Commonly Controlled
Entity" means an entity, whether or
not incorporated, which is under
common control with the Borrower
within the meaning of Section
414(b) or (c) of the Internal
Revenue Code.
"Default" has the meaning
described in Article VI.
"Enforcement Costs" means
all documented out-of-pocket
expenses, charges, costs and fees
whatsoever (including, without
limitation, reasonable attorney's
fees and documented out-of-pocket
expenses) of any nature whatsoever
paid or incurred by or on behalf of
the Lender in connection with the
collection or enforcement of any or
all of the Obligations, this
Agreement, the Note, the Security
Documents and/or any of the other
Financing Documents, and (b) the
monitoring, administration,
processing or servicing of any or
all of the Obligations.
"ERISA" means the
Employee Retirement Income Security
Act of 1974, as amended from time
to time.
"Event of Default" means
an event which, with the giving of
notice or lapse of time, or both,
could or would constitute a Default
under the provisions of this
Agreement.
"Fees" means collectively
the Facility Fee, the Loan Fee and
the Agency Fee, as described in
Sections 5.1.15, 5.1.16 and 5.1.17,
respectively.
"Financing Documents"
means at any time collectively this
Agreement, the Note, the Guaranty,
the Security Documents and any
other instrument, agreement or
document previously, simultaneously
or hereafter executed and delivered
by the Borrower, and/or any other
Person, singly or jointly with
another Person or Persons, evidenc-
ing, securing, guarantying or in
connection with any of the Obliga-
tions and/or in connection with
this Agreement, the Note, and/or
the Loan.
"Fiscal Year" means each
twelve (12) month period ending on
the fourth Saturday in each
September of each calendar year, or
such other fiscal year period as
may be approved by the Lender.
"Fixed or Capital Assets"
of a Person at any time means all
assets of such Person which would,
in accordance with GAAP, be
classified as property, plant and
equipment at such date.
"Fixed Rate" has the
meaning set forth in Section 2.1.4.
"Floating Rate" has the
meaning set forth in Section 2.1.4.
"Friendly's" means
Friendly's Ice Cream Corporation, a
Massachusetts corporation, its
successors and assigns.
"GAAP" means generally
accepted accounting principles in
the United States of America in
effect from time to time.
"Governmental Authority"
means any nation or government, any
state or other political
subdivision thereof and any entity
exercising executive, legislative,
judicial, regulatory or
administrative functions of or
pertaining to government.
"Guarantors" means Davco
Restaurants, Inc., a Delaware
corporation, Southern Hospitality
Corporation, a Tennessee
corporation and MDF, Inc., a
Delaware corporation, their
respective successors and assigns.
"Guaranty" means the
Guaranty of the Loan of even date
hereof executed by the Guarantors.
"Hazardous Materials"
means (a) any "hazardous waste" as
defined by the Resource
Conservation and Recovery Act of
1976, as amended from time to time,
and regulations promulgated there-
under; (b) any "hazardous
substance" as defined by the
Comprehensive Environmental
Response, Compensation and
Liability Act of 1980, as amended
from time to time, and regulations
promulgated thereunder; (c) any
substance the presence of which on
any property now or hereafter owned
or acquired by the Borrower or any
Subsidiary is prohibited by any Law
similar to those set forth in
clauses (a) or (b) of this defini-
tion; and (d) any other substance
which by Law requires special
handling in its collection,
storage, treatment or disposal;
provided that "Hazardous Materials"
does not include substances
commonly used in the operation of a
restaurant so long as such
substances are stored, used and
disposed of in accordance with all
applicable laws and regulations.
"Hazardous Materials
Contamination" means the contamin-
ation (whether presently existing
or occurring after the date of this
Agreement) by Hazardous Materials
of any property owned, operated or
controlled by the Borrower or any
Subsidiary or for which the
Borrower or any Subsidiary has
responsibility, including, without
limitation, improvements,
facilities, soil, ground water, or
air or other elements on, or of,
any property now or hereafter owned
or acquired by the Borrower or any
Subsidiary, and any other
contamination by Hazardous
Materials for which the Borrower or
any Subsidiary is, or is claimed to
be, responsible.
"Indebtedness" of a
Person, at any time, means the
total liabilities of such Person at
such time determined in accordance
with GAAP.
"Indebtedness for
Borrowed Money" of a Person, at any
time means the sum at such time of
(a) indebtedness of such Person for
borrowed money or for the deferred
purchase price of property or
services, (b) any obligations of
such Person in respect of letters
of credit, banker's or other
acceptances or similar obligations
issued or created for the account
of such Person, (c) Lease
Obligations of such Person which
have been or should be, in
accordance with GAAP, capitalized
on the books of such Person, (d)
all liabilities secured by any Lien
on any property owned by such
Person, to the extent attached to
such Person's interest in such
property, even though such Person
has not assumed or become liable
for the payment thereof, and (e)
any obligation of such Person or a
Commonly Controlled Entity to a
Multiemployer Plan; but excluding
trade and other accounts payable in
the ordinary course of business in
accordance with customary trade
terms and which are not overdue (as
determined in accordance with
customary trade practices) or which
are being disputed in good faith by
such Person and for which adequate
reserves are being provided on the
books of such Person in accordance
with GAAP.
"Index" has the meaning
described in Section 2.1.4(d).
"Interest Period" has the
meaning set forth in Section
2.1.4(d).
"Internal Revenue Code"
means the Internal Revenue Code of
1986, as amended from time to time,
and the Income Tax Regulations
issued and proposed to be issued
thereunder.
"Laws" means all
ordinances, statutes, rules,
regulations, orders, injunctions,
writs, or decrees of any
Governmental Authority or political
subdivision or agency thereof, or
any court or similar entity
established by any thereof.
"Lease Obligations" of a
Person for a particular period
means the aggregate amount of
payments required to be made by
such Person for such period under
leases for real and/or personal
property (net of rent from
subleases thereof, but including
taxes, insurance, maintenance and
similar expenses which the lessee
is obligated to pay under the terms
of said leases, except to the
extent that such taxes, insurance,
maintenance and similar expenses
are payable by sublessees),
including any such payments under
leases that should be, in
accordance with GAAP, capitalized.
"Liabilities" means, at
any time, all liabilities that
should, in accordance with GAAP
consistently applied, be classified
as liabilities on a consolidated
balance sheet of the Borrower and
its Subsidiaries.
"Libor Index Rate" has
the meaning set forth in Section
2.1.4(d).
"Libor Rate" has the
meaning set forth in Section
2.1.4(d).
"Lien" means any
mortgage, deed of trust, deed to
secure debt, grant, pledge,
security interest, assignment,
encumbrance, judgment, lien or
charge of any kind, whether
perfected or unperfected, avoidable
or unavoidable, including, without
limitation, any conditional sale or
other title retention agreement,
any lease in the nature thereof,
and the filing of or agreement to
give any financing statement under
the Uniform Commercial Code of any
jurisdiction, excluding the
precautionary filing of any
financing statement by any lessor
in a true lease transaction, by any
bailor in a true bailment
transaction or by any consignor in
a true consignment transaction
under the Uniform Commercial Code
of any jurisdiction or the
agreement to give any financing
statement by any lessee in a true
lease transaction, by any bailee in
a true bailment transaction or by
any consignee in a true consignment
transaction.
"Line of Credit" has the
meaning set forth in Section 5.2.5.
"Multiemployer Plan"
means a Plan which is a
multiemployer plan as defined in
Section 4001(a)(3) of ERISA.
"Note" means the
Promissory Note evidencing the
Loan, a copy of which is attached
hereto as Exhibit "A."
"Obligations" means all
present and future debts,
obligations, and liabilities,
whether now existing or
contemplated or hereafter arising,
of the Borrower to the Lender
under, arising pursuant to, in
connection with and/or on account
of the provisions of this Agree-
ment, the Note, the Security
Documents and any of the other
Financing Documents, including,
without limitation, the principal
of, and interest on, the Note, late
charges, Enforcement Costs, and
prepayment penalties (if any).
"PBGC" means the Pension
Benefit Guaranty Corporation.
"Person" means an
individual, a corporation, a part-
nership, a joint venture, a trust,
an unincorporated association, a
government or political subdivision
or agency thereof or any other
entity.
"Plan" means any pension
plan which is covered by Title IV
of ERISA and in respect of which
the Borrower or a Commonly
Controlled Entity is an "employer"
as defined in Section 3 of ERISA.
"Pledge Agreement" means
the Pledge Agreement of even date
hereof executed by Davco
Restaurants, Inc. to secure the
Loan.
"Post-Default Rate" means
the floating rate equal at all
times to two percent (2%) per annum
in excess of the Index.
"Prime Rate" has the
meaning set forth in Section
2.1.4(d).
"Reportable Event" means
any of the events set forth in
Section 4043(b) of ERISA or the
regulations thereunder.
"Reserve Percentage" has
the meaning set forth in Section
2.1.4(d).
"Responsible Officer"
means the chief executive officer
of the Borrower or the president or
any executive vice president of the
Borrower or, with respect to
financial matters, the chief
financial officer of the Borrower.
"Security Documents"
means the Pledge Agreement and any
other documents now or hereafter
executed to secure the Loan.
"Science Center Advance"
has the meaning set forth in
Section 2.1.1.
"Subsidiary" means any
corporation the majority of the
voting shares of which at the time
are owned directly by the Borrower
and/or by one or more Subsidiaries
of the Borrower; "Subsidiaries"
mean each Subsidiary of the
Borrower.
"Taxes" means all taxes
and assessments whether general or
special, ordinary or extraordinary,
or foreseen or unforeseen, of every
character (including all penalties
or interest thereon), which at any
time may be assessed, levied,
confirmed or imposed by any
Governmental Authority on the
Borrower or any of its properties
or assets or any part thereof or in
respect of any of its franchises,
businesses, income or profits.
"Wholly Owned Subsidiary"
means any domestic United States
corporation all the shares of stock
of all classes of which (other than
directors' qualifying shares) at
the time are owned directly or
indirectly by the Borrower and/or
one or more Wholly Owned
Subsidiaries of the Borrower.
SECTION 1.2. Accounting
Terms and Other Definitional
Provisions. Unless otherwise
defined herein, as used in this
Agreement and in any certificate,
report or other document made or
delivered pursuant hereto,
accounting terms not otherwise
defined herein, and accounting
terms only partly defined herein,
to the extent not defined, shall
have the respective meanings given
to them under GAAP. Unless
otherwise defined herein, all terms
used herein which are defined by
the Maryland Uniform Commercial
Code shall have the same meanings
as assigned to them by the Maryland
Uniform Commercial Code unless and
to the extent varied by this
Agreement. The words "hereof",
"herein" and "hereunder" and words
of similar import when used in this
Agreement shall refer to this
Agreement as a whole and not to any
particular provision of this
Agreement, and section, subsection,
schedule and exhibit references are
references to sections or
subsections of, or schedules or
exhibits to, as the case may be,
this Agreement unless otherwise
specified. As used herein, the
singular number shall include the
plural, the plural the singular and
the use of the masculine, feminine
or neuter gender shall include all
genders, as the context may
require. Reference to any one or
more of the Financing Documents and
any of the Financing Documents
shall mean the same as the
foregoing may from time to time be
amended, restated, substituted,
extended, renewed, supplemented or
otherwise modified.
ARTICLE II
THE LOAN
SECTION 2.1. Terms of the Loan.
Section 2.1.1. Use of
Proceeds. The proceeds of the Loan
will be applied to payment of the
acquisition cost for operating
rights of 35 Friendly's restaurants
in Maryland, Delaware and Northern
Virginia. The Loan shall be
advanced as follows: (a) $9,250,000
shall be advanced as of the Closing
Date to be applied to payment of
the acquisition cost for the
operating rights of 34 Friendly's
restaurants in Maryland, Delaware
and Northern Virginia and (b)
$750,000 shall be advanced upon the
Lender receiving evidence
satisfactory to it that upon
payment of the acquisition costs,
the Borrower shall obtain the
operating rights to the Friendly's
restaurant situate in the Maryland
Science Center (the "Science Center
Advance"). Any additional moneys in
excess of Loan proceeds necessary
to pay any such acquisition costs
must be paid by the Borrower from
its own funds on the Closing Date
and on the date of acquisition of
the rights to the Maryland Science
Center location. Such additional
moneys must be paid from cash
sources of the Borrower and may not
be borrowed.
Section 2.1.2.
Collateral. The Loan is secured by
a first lien assignment of, and
pledge of, 100% of the stock of the
Borrower pursuant to the Pledge
Agreement.
Section 2.1.3 Guaranty.
The Loan is guaranteed by the
Guarantors pursuant to the
Guaranty.
Section 2.1.4. Interest
Rate.
(a) Upon election
made by the Borrower, amounts
outstanding under the Loan shall
bear interest at either: (i) a
floating rate per annum (the
"Floating Rate") equal at all times
to the Index (hereinafter defined),
or (ii) a fixed rate (the "Fixed
Rate") equal to the Adjusted LIBOR
Rate, plus the Applicable Margin
(determined and defined in the
manner set forth in subparagraph
(b) below) in effect at the
commencement of the respective
Interest Period (hereinafter
defined).
(b) The "Applicable
Margin" shall be (i) 150 basis
points per annum through July 1,
1998, and (ii) commencing July 2,
1998 and continuing thereafter for
the term of the Loan, (A) 125 basis
points per annum if the Borrower's
EBITDA to Liabilities Ratio
(defined in and determined in
accordance with Section 5.1.13 of
this Agreement as applied to the
Borrower individually and not on a
consolidated basis) for any fiscal
quarter of the Borrower is less
than .20 to 1.0 for the quarter, or
(B) 150 basis points per annum if
the Borrower's EBITDA to
Liabilities Ratio (defined in and
determined in accordance with
Section 5.1.13 of this Agreement as
applied to the Borrower
individually and not on a
consolidated basis) is equal to or
greater than .20 to 1.0.
The Applicable Margin
shall be subject to adjustment
quarterly based on the Borrower's
then most recent quarterly
financial information furnished to
the Lender in compliance with
Section 5.1.1 below and shall be
computed in detail in a certificate
signed by the chief financial
officer as part of the Borrower's
quarterly compliance certificate
referred to in Section 5.1.1 below.
Any change in the Applicable Margin
shall be effective five (5)
business days after the Lender
receives the financial information
and certificate and, until a
further change in the Applicable
Margin is required, shall apply to
those Interest Periods commencing
thereafter, but shall not change
Interest Periods then in effect.
(c) Obligations
under the Loan which do not bear
interest at a Fixed Rate shall bear
interest at a Floating Rate.
(d) As used in this
Agreement, the following terms have
the meanings indicated:
"Adjusted LIBOR Rate" means the LIBOR Rate as
adjusted in accordance with, and pursuant to, the following
formula:
LIBOR Rate + Assessment Rate,
____________________________
100% - Reserve Percentage
"Assessment Rate"
means the rate (expressed as a
percentage) as determined by
the Lender to be the net
annual assessment rate
(rounded upward, if necessary
to the next 1/100 of 1%)
payable to the Federal Deposit
Insurance Corporation (or any
successor agency or entity
performing substantially the
same or similar functions) for
insuring non-personal deposits
of institutions insured by the
Federal Deposit Insurance
Corporation.
"Index" means the
LIBOR Index Rate or the Prime
Rate, as elected by the
Borrower from time to time.
"Interest Period"
means a 1, 2, 3 or 6 month
period.
"LIBOR Index
Rate" means the floating
rate per annum equal at
all times to the
Applicable Margin in
excess of the Adjusted
LIBOR Rate for a 30 day
Interest Period,
determined and adjusted
daily.
"LIBOR Rate" means
the London Interbank Offered
Rate as quoted by the Lender
for the period corresponding
to the term of the Interest
Period selected by the
Borrower two (2) business days
prior to the date the Interest
Period in question will
commence.
"Prime Rate" means
the rate announced by the
Lender from time to time as
its "prime rate" (which does
not represent the lowest rate
charged by the Lender to any
borrower or class of
borrowers).
"Reserve Percentage"
means the total of the maximum
reserve percentages (expressed
as a percentage), including
but not limited to, marginal,
emergency, supplemental,
special and other reserve
percentages, as determined by
the Lender to be prescribed by
the Board of Governors of the
Federal Reserve System under
Regulation D or otherwise in
determining the reserves to be
maintained by member banks of
the Federal Reserve System for
"Eurocurrency Liabilities"
(the Lender acknowledges that
current regulations do not
require reserves against
"Eurocurrency Liabilities").
(e) The Borrower
may elect to have a Fixed Rate
apply to portions of the Loan of
$500,000 or more. Each election of
the Fixed Rate must be made in
writing or by telephonic notice
followed by written notice (which
may be by facsimile transmission)
signed by a Responsible Officer,
must be received by the Lender no
less than one (1) business day
prior its effective date, and must
specify the Interest Period for
which the applicable Fixed Rate
will be in effect. No more than
five (5) Fixed Rate may be in
effect at any one time.
Section 2.1.5 Payments.
Interest on the Loan shall be
payable monthly on the fifth day of
each month after the Closing Date.
Principal shall be repaid in
accordance with a ten year,
straight line amortization.
Principal payments shall be due and
payable monthly on the fifth day of
each month after the Closing Date
in the amount of $77,083.33 each
until such time as the Science
Center Advance is made, at which
time the principal payment amount
shall increase to $83,333.33. In
addition to such monthly principal
payments, the Borrower must pay to
the Lender the lesser of ten
percent (10%) of its Excess Cash
Flow (hereinafter defined) or
$750,000 for each of its Fiscal
Years for application as a
prepayment of the principal of the
Loan. Such payment of Excess Cash
Flow must be made within one
hundred twenty (120) days after the
end of each Fiscal Year. "Excess
Cash Flow", as calculated for each
Fiscal Year, means as to the
Borrower only, so long as the term
loan in the original principal
amount of $18,250,000 owed by DavCo
Restaurants, Inc. ("DavCo") to the
Lender remains outstanding and as
to the Borrower and the Guarantors
on a consolidated basis upon
repayment of all obligations
related to such loan: (Net Income
+ Depreciation + Amortization) -
(Current Portion of Long Term Debt
+ Current Portion of Capital
Leases). Since the portion of
Excess Cash Flow received by the
Lender will be applied as a
prepayment, except as provided in
the following sentence, there will
be no postponement of, or reduction
in, regularly scheduled monthly
principal payments as a consequence
of the receipt by the Lender of any
Excess Cash Flow. The Lender shall
apply ten percent (10%) of the
payment of Excess Cash Flow
received by the Lender for each
Fiscal Year as a credit against
regularly scheduled monthly
principal payments during the
following Fiscal Year, unless
otherwise instructed by the
Borrower.
Section 2.1.6 Prepayment.
(a) Any portion of
the Loan bearing interest at the
Floating Rate may be prepaid in
whole or in part at any time
without premium or other charge
whatsoever.
(b) The Borrower
may prepay any portion of the Loan
bearing interest at a Fixed Rate in
whole or in part, provided all of
the following conditions are
satisfied: (a) the Borrower gives
the Lender five (5) Business Days
(i) prior written notice of the
prepayment or (ii) telephonic
notice followed by written notice
(which may be facsimile
transmission), signed by a
Responsible Officer, and (b) the
Borrower pays a prepayment fee to
the Lender together with the
prepayment, with such prepayment
fee computed as set forth below,
and, in addition, the Borrower pays
the Lender an administrative charge
of $300 per prepayment, and (c)
only one prepayment in whole or in
part may be made during any
Interest Period.
The prepayment fee shall be
due and payable in connection with
all such prepayments in whole or in
part, from whatever sources,
including, but not limited to,
payments made at the voluntary
election of the Borrower, payments
made as a result of the
acceleration of the Loan by the
Lender, or payments made as a
result of the sale of any
collateral securing the Loan.
There shall be no prepayment fee if
prepayment is made on the last day
of an Interest Period.
The prepayment fee shall be
equal to (i) if the Base Rate
(hereinafter defined) is less than
the Fixed Rate then in effect (the
"Applicable Rate"), an amount equal
to the Rate Differential
(hereinafter defined) multiplied by
the amount being prepaid, divided
by 360, multiplied by the number of
days between the date of the
receipt of such prepayment and the
end of the applicable Interest
Periods for which the Fixed Rate in
question will be in effect, or (ii)
if the Base Rate is greater than
the Applicable Rate, an amount
equal to one percent (1%) of the
amount being prepaid.
As used herein, the term:
"Base Rate" means a per
annum rate of interest equal to the
yield to maturity of non-callable
debt obligation of the United
States Treasury offered the day
preceding any prepayment made
hereunder, and having a maturity
date nearest in time to the end of
the applicable Interest Period,
plus two percent (2%) per annum.
The maturity date and yield to
maturity of the applicable United
States Treasury obligation shall be
determined on the basis of
quotations published in The Wall
Street Journal on the date of such
prepayment, or from such other
source as the Lender, in its sole
discretion, shall deem appropriate.
"Rate Differential"
means the difference between the
Applicable Rate and the Base Rate.
The prepayment fee is not a
penalty but indemnification and
fair compensation to the Lender for
loss suffered by the Lender by
reason of such prepayment.
SECTION 2.2. General
Financing Provisions.
Section 2.2.1
Computation of Interest. Unless
otherwise expressly set forth
herein, all interest shall be
calculated on the basis of a year
of three hundred and sixty (360)
days for the actual number of days
elapsed. Any change in the inter-
est rate on any of the Obligations
resulting from a change in the
Index shall become effective as of
the opening of business on the day
on which such change in the Index
is announced.
Section 2.2.2 Payments.
All payments of the Obligations
shall be paid by the Borrower
without setoff or counterclaim to
the Lender at the Lender's office
specified in Section 7.3 hereof in
immediately available funds not
later than 2:00 p.m. (Baltimore,
Maryland time) on the due date of
such payment. Alternatively, at
its sole discretion, the Lender may
charge any deposit account of the
Borrower at any of the Lender's
offices or any affiliate's offices
with all or any part of any amount
due hereunder to the extent that
the Borrower has not otherwise
tendered payment to the Lender;
provided that, so long as no Event
of Default has occurred, the Lender
will not charge any such accounts
until a period of ten (10) days has
elapsed from the date the payment
in question was due. Unless
expressly provided to the contrary
in the Note, all payments shall be
first applied to any late charges,
second to any Enforcement Costs,
third to any prepayment fees,
fourth to any and all accrued and
unpaid interest on the applicable
Obligations, and then to principal
of the applicable Obligations, all
in such order and manner as shall
be determined by the Lender in its
sole and absolute discretion.
Prepayments of the Loan shall be
applied first to the balloon
payment due at maturity and,
thereafter, to the principal
installments in the inverse order
of their maturity. The Borrower
hereby authorizes the Lender at any
time and from time to time to set
off, appropriate and apply any of
the Borrower's items on deposit
with the Lender to cover principal
of, and/or interest on the Loan,
Fees and/or Enforcement Costs, all
as when due and payable.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
SECTION 3.1.
Representations and Warranties.
The Borrower represents and
warrants to the Lender as follows:
Section 3.1.1.
Subsidiaries. The only
Subsidiaries of the Borrower are
those indicated on EXHIBIT "B"
attached hereto and made a part
hereof. Each Subsidiary is a
Wholly Owned Subsidiary unless
otherwise disclosed on EXHIBIT B,
which correctly indicates the
nature and amount of the Borrower's
ownership interests therein.
Section 3.1.2. Good
Standing. The Borrower and each of
its Subsidiaries is a corporation,
duly organized and existing, in
good standing, under the laws of
the state of its incorporation and
has the corporate power to own its
property and to carry on its bus-
iness as now being conducted and is
duly qualified to do business and
is in good standing in each
jurisdiction in which the character
of the properties owned or leased
by it therein or in which the
transaction of its business makes
such qualification necessary.
Section 3.1.3. Corporate
Authority. The Borrower has full
power and authority to enter into
this Agreement, to make the borrow-
ings hereunder, to execute and
deliver the Note and the other
Financing Documents to which it is
a party and to incur the Obliga-
tions and perform the other
obligations provided for herein, in
the Note, and in the other
Financing Documents to which it is
a party, all of which have been
duly authorized by all proper and
necessary corporate action. No
consent or approval of shareholders
of, or lenders to, the Borrower and
no consent, approval, filing or
registration with or notice to any
Governmental Authority on the part
of the Borrower is required as a
condition to the validity of this
Agreement or the Note or the other
Financing Documents or the
performance by the Borrower of its
obligations hereunder or
thereunder.
Section 3.1.4. Binding
Agreements. This Agreement
constitutes, and the Note and each
of the other Financing Documents,
when issued and delivered pursuant
hereto, will constitute, the valid
and legally binding obligations of
the Borrower enforceable against
the Borrower in accordance with
their respective terms, subject,
however, to applicable bankruptcy,
insolvency, reorganization,
moratorium and other similar laws
affecting creditors' rights
generally and the exercise of
judicial discretion in accordance
with general principles of equity.
Section 3.1.5.
Litigation. Except as otherwise
disclosed to the Lender on EXHIBIT
"C" attached hereto and made a part
hereof, there are no proceedings or
investigations pending or, so far
as the officers of the Borrower
signing this Agreement know,
threatened before any court or
arbitrator or before or by any
Governmental Authority which, in
any one case or in the aggregate,
would reasonably be expected to
have a material adverse effect on
the business, properties, condition
(financial or otherwise) or opera-
tions, present or prospective, of
the Borrower or any Subsidiary.
Section 3.1.6. No
Conflicts. There is no statute,
regulation, rule, order or
judgment, no charter, by-law or
preference stock provision of the
Borrower, and no provision of any
mortgage, indenture, contract or
other agreement binding on the
Borrower or affecting its
properties, which would prohibit,
or cause a default under or in any
way prevent the execution,
delivery, or carrying out of the
terms of this Agreement or of the
Note or of the other Financing
Documents to which the Borrower is
a party.
Section 3.1.7. Financial
Position. The pro forma income
statement, balance sheets and notes
thereto of the Borrower and its
Subsidiaries, as of July 14, 1997
together with statements of profit
and loss and of surplus for the
period then ended heretofore
delivered to the Lender, are
complete and correct, in all
material respects, and fairly
present the financial position of
the Borrower and its Subsidiaries
and the results of their operations
and transactions in their surplus
account(s) as of the date and for
the period referred to and have
been prepared in accordance with
GAAP applied on a consistent basis
throughout the period involved,
except for lack of footnotes and
subject to normal year-end
adjustments. There are no
Liabilities (of the type required
to be reflected on balance sheets
prepared in accordance with GAAP),
direct or indirect, fixed or
contingent, of the Borrower or its
Subsidiaries, as of the date of
such balance sheet which are not
reflected therein or in the notes
thereto. There has been no
material adverse change in the
financial condition or operations
of the Borrower or its
Subsidiaries, since the date of
such balance sheet (and to the
Borrower's knowledge, no such
material adverse change is pending
or threatened), and neither the
Borrower nor any Subsidiary has
guaranteed the obligations of, or
made any investment in or loans to,
any Person except as disclosed in
such balance sheet.
Section 3.1.8. No
Default. Neither the Borrower nor
any of its Subsidiaries is in
default under or with respect to
any obligation under any agreement
to which the Borrower or any
Subsidiary is a party in any
respect which could reasonably be
expected to have a material adverse
effect on the business, operations,
property or financial condition of
the Borrower, or which could
reasonably be expected to have a
material adverse effect on the
ability of the Borrower to perform
its obligations under this
Agreement, the Note, or the other
Financing Documents, to which the
Borrower is a party. No Default or
Event of Default has occurred and
is continuing.
Section 3.1.9. Title to
Properties. The Borrower and each
of its Subsidiaries has good and
marketable title to its material
properties and assets. Such
properties and assets are subject
to no Lien of any kind, except for
Permitted Liens (hereinafter
defined) and the Borrower and each
of its Subsidiaries has legal,
enforceable and uncontested rights
to use freely such material
property and assets. Any and all
obligations to pay royalties or
other charges with respect to such
properties and assets are properly
reflected on the financial
statements described in Section
3.1.7 hereof. "Permitted Liens"
means: (a) Liens for Taxes not
delinquent or which are being
diligently contested in good faith
and by appropriate proceedings,
provided, that, the Borrower shall
have set aside on its books
adequate reserves therefor; (b)
deposits or pledges to secure
obligations under workers' compen-
sation, social security or similar
laws, or under unemployment
insurance; (c) statutory Liens
under Articles 2 or 4 of the
Uniform Commercial Code of any
jurisdiction; (d) judgment Liens to
the extent the entry of such
judgment does not constitute an
Event of Default under the terms of
this Agreement; (e) attachments on
original process to the extent that
such attachments are discharged or
dismissed in a prompt and
commercially reasonable manner; (f)
this Agreement and the Pledge
Agreement; (g) leases and subleases
of property to third parties; (h)
liens arising by statute or common
law so long as payment or
performance of the obligation
secured is not in default; (i)
grants of customary easements and
rights-of-way; (j) mortgages and
deeds of trust covering real
property owned by the Borrower and
its Subsidiaries (to the extent not
in violation of other provisions of
this Agreement); (k) liens created
in connection with the acquisition
of properties (to the extent not in
violation of other provisions of
this Agreement); and (l) such other
Liens, if any, as are set forth on
EXHIBIT "D" attached hereto and
made a part hereof.
Section 3.1.10. Taxes.
The Borrower and its Subsidiaries
have filed, or have obtained effec-
tive extensions for the filing of,
all Federal, state and other tax
returns which are required to be
filed, and have paid all taxes
shown as due on said returns and
all assessments, fees and other
amounts due, except to the extent
that such Taxes are being contested
in good faith and in an appropriate
manner. All tax liabilities of the
Borrower and its Subsidiaries were
as of the date of the financial
statements referred to in Section
3.1.7 hereof, and are now, ade-
quately provided for on the books
of the Borrower. No tax liability
has been asserted by the Internal
Revenue Service or any state or
local authority against the
Borrower for taxes in excess of
those already paid.
SECTION 3.1.11.
Regulations U and X and Use of
Loan. The Borrower is not engaged
principally, or as one of its
important activities, in the
business of extending credit for
the purpose of purchasing or
carrying margin stock (within the
meaning of Regulation U of the
Board of Governors of the Federal
Reserve System). No part of the
proceeds of the Loan will be used
to purchase or carry any margin
stock or to extend credit to others
for such purpose if as a result
thereof there would be a violation
of said Regulation U or Regulation
X of such Board of Governors.
Section 3.1.12.
Investment Company Act. The
Borrower is not an investment
company within the meaning of the
Investment Company Act of 1940, as
amended, nor is it, directly or
indirectly, controlled by or acting
on behalf of any Person which is an
investment company within the
meaning of such Act.
Section 3.1.13. ERISA.
The Borrower has not incurred any
accumulated funding deficiency
within the meaning of ERISA which
is material or any material
liability to the PBGC in connection
with any employee benefit plan (as
defined in Section 3 of ERISA)
established or maintained by the
Borrower.
Section 3.1.14.
Compliance with Laws. Neither the
Borrower nor any Subsidiary is in
violation of any applicable Laws of
any Governmental Authority (includ-
ing, without limitation, any Laws
relating to employment practices or
to environmental, occupational and
health standards and controls) or
order of any court or arbitrator,
the violation of which, considered
in the aggregate, could reasonably
be expected to have a material
adverse effect on the business,
operations or properties of the
Borrower.
SECTION 3.1.15. Patents,
Trademarks, Etc. The Borrower
owns, possesses, or has the right
to use the patents, patent rights,
licenses, trademarks, trademark
rights, trade names, trade name
rights, copyrights and franchises
currently used in conducting its
business, without known conflict
with any patent, patent right, li-
cense, trademark, trademark right,
trade name, trade name right,
copyright or franchise right of any
other Person.
Section 3.1.16. Full
Disclosure. Neither the financial
statements referred to in Section
3.1.07 nor any of the Financing
Documents, nor any certificate or
statement furnished by the Borrower
in connection with the Financing
Documents, contains any untrue
statement of a material fact or,
when such financial statements,
Financing Documents, statements,
reports and certificates are taken
in their entirety, omits to state a
material fact necessary to make the
statements contained therein or
herein not misleading as of the
date hereof. There is no fact
known to the Borrower or which
should be known to the Borrower
which the Borrower has not
disclosed to the Lender in writing
prior to the date of this Agreement
with respect to the transactions
contemplated by the Financing
Documents which materially and
adversely affects or in the future
could, in the reasonable opinion of
the Borrower materially adversely
affect the condition, financial or
otherwise, results of operations,
business, or assets of the
Borrower.
Section 3.1.17. Presence
of Hazardous Materials or Hazardous
Materials Contamination. Neither
Borrower nor any Subsidiary has
transferred, stored or dumped
Hazardous Materials on any real
property owned or controlled by
Borrower or such Subsidiary or for
which Borrower or such Subsidiary
is responsible. To the best of
Borrower's knowledge, no Hazardous
Materials are located on any real
property owned or controlled by the
Borrower or for which the Borrower
or any Subsidiary is responsible.
To the best of Borrower's
knowledge, no such property has
ever been used as a manufacturing,
storage, or dump site for Hazardous
Materials nor is any other property
affected by Hazardous Materials
Contamination.
SECTION 3.2. Survival;
Updates of Representations and
Warranties. All representations
and warranties contained in or made
under or in connection with this
Agreement and the other Financing
Documents shall survive the Closing
Date and the making of the Loan.
ARTICLE IV
CONDITIONS PRECEDENT
SECTION 4.1. Conditions
to the Loan. The making of the
Loan is subject to the fulfillment
of the following conditions
precedent in a manner satisfactory
to the Lender on or before the
Closing Date:
Section 4.1.1 Good
Standing etc. The Lender shall
have received a certificate of good
standing for the Borrower and its
Subsidiaries certified by the
Secretary of State, or other
appropriate governmental authority,
of the state of incorporation of
the Borrower and each Subsidiary.
The Lender shall have received a
Certificate of Qualification to do
business for the Borrower and each
Subsidiary certified by the
Secretary of State or other govern-
mental authority of each state in
which the Borrower or any such
Subsidiary conducts business.
Section 4.1.2 Corporate
Proceedings of the Borrower. The
Lender shall have received copies,
certified as of the Closing Date by
the Secretary or an Assistant
Secretary of the Borrower and of
the Guarantors of the resolutions
of its Board of Directors authoriz-
ing (a) the execution, delivery and
performance of the Financing
Documents to which the Borrower or
the Guarantors are a party and (b)
the borrowings by the Borrower
hereunder, and (c) the Guaranty.
Section 4.1.3 Incumbency
Certificates. The Lender shall
have received certificates from the
Borrower and the Guarantors signed
by a duly authorized officer of the
Borrower and the Guarantors dated
as of the Closing Date, as to the
incumbency, authority and
signatures of the officers of the
Borrower and the Guarantors
authorized to sign on behalf of the
Borrower and the Guarantors those
Financing Documents to which either
of them is a party respectively.
Section 4.1.4 Insurance
Certificate. The Lender shall have
received an insurance certificate
in accordance with the provisions
of Section 5.1.5.
Section 4.1.5 Consents,
Licenses, Approvals, Etc. The
Lender shall have received copies
of all consents, licenses and
approvals, required in connection
with the execution, delivery,
performance, validity and
enforceability of the Financing
Documents, and such consents,
licenses and approvals shall be in
full force and effect.
Section 4.1.6 Note;
Pledge Agreement and Guaranty. The
Lender shall have received
originals of this Agreement, the
Note, the Pledge Agreement and the
Guaranty.
Section 4.1.7 Opinion of
Counsel. The Lender shall have re-
ceived the favorable opinion of
counsel for the Borrower and the
Guarantors in form satisfactory to
the Lender.
Section 4.1.8 Stock
Certificates. The Lender shall
have received original stock
certificates representing 100% of
the issued stock of the Borrower
together with a stock power
executed in blank and attached to
each certificate.
Section 4.1.9 Other
Documents, Etc. The Lender shall
have received such other
certificates, opinions, documents
and instruments confirmatory of or
otherwise relating to the
transactions contemplated hereby as
may have been reasonably requested
by the Lender.
Section 4.1.10
Additional Matters. All other
documents and legal matters in
connection with the transactions
contemplated by this Agreement and
the other Financing Documents shall
be satisfactory in form and
substance to the Lender and its
counsel.
Section 4.1.11 Payment
of Fees. The Lender shall have
received payment of any Fees due on
or before the Closing Date.
ARTICLE V
COVENANTS OF THE BORROWER
SECTION 5.1. Affirmative
Covenants. So long as any of the
Obligations shall be outstanding
hereunder, the Borrower agrees with
the Lender as follows:
Section 5.1.1. Financial
Statements. The Borrower will
furnish to the Lender:
(a) within ninety (90)
days after the close of each fiscal
year, annual consolidated and
consolidating financial statements
of the Borrower and the Guarantors
audited by an independent certified
public accountant acceptable to the
Lender with an unqualified opinion
according to GAAP;
(b) within forty five
(45) days after the end of each of
the first three (3) quarters during
the fiscal year, quarterly
consolidated and consolidating
financial statements in form and
substance acceptable to the Lender;
(c) promptly upon the
filing or making thereof, at least
one (l) copy of all financial
statements, reports, notices and
proxy statements sent by the
Borrower and the Guarantors to
their stockholders, and of all
regular and other reports filed by
the Borrower and the Guarantors
with any securities exchange or
with the Securities and Exchange
Commission;
(d) a covenant
compliance certificate signed by
the chief financial officer of the
Borrower quarterly at the same time
as the financial statements
described in paragraphs (a) and (b)
above are delivered to the Lender;
and
(e) as soon as
available, but in no event later
than the close of each fiscal year
a consolidated and consolidating
income statement budget for the
following fiscal year; and
(f) such other
information as is reasonably
requested by the Lender from time
to time.
All financial statements must be
certified as to accuracy by the
chief financial officer of the
Borrower.
Section 5.1.2.
Recordkeeping, Rights of
Inspection, Field Examination, Etc.
The Borrower and its Subsidiaries
shall maintain (a) a standard
system of accounting in accordance
with GAAP, and (b) proper books of
record and account in which full,
true and correct entries are made
of all dealings and transactions in
relation to its properties,
business and activities. The
Borrower and its Subsidiaries shall
permit authorized representatives
of the Lender to visit and inspect
their properties, to review, audit,
check and inspect their books of
record and account and to make
abstracts and photocopies thereof
and to discuss the affairs,
finances and accounts of the
Borrower and its Subsidiaries with
their officers and directors and
their accountants, all at such
times during normal business hours
and other reasonable times and as
often as the Lender may reasonably
request. The Borrower hereby
irrevocably authorizes and directs
all accountants and auditors
employed by the Borrower to exhibit
and deliver to the Lender copies of
any of the Borrower's financial
statements, trial balances,
management letters, or other
accounting records of any sort in
the accountant's or auditor's
possession, and to disclose to the
Lender any information they may
have concerning the Borrower's
financial status and business
operations. The Borrower hereby
authorizes all Governmental
Authorities to furnish to the
Lender copies of reports or
examinations relating to the
Borrower, whether made by the
Borrower or otherwise.
Section 5.1.3. Conduct
of Business and Maintenance of
Existence, Compliance with Laws,
Etc. The Borrower will, and will
cause each of its Subsidiaries to,
(a) do or cause to be done all
things necessary to preserve and to
keep in full force and effect their
corporate existence and material
rights and their franchises, trade
names, patents, trademarks and
permits which are necessary for the
continuance of their business, (b)
comply with all applicable Laws and
observe the valid requirements of
Governmental Authorities, the
noncompliance with or the nonobser-
vance of which could reasonably be
expected to materially interfere
with the performance of the
Borrower's obligations hereunder
or the proper conduct of its
business.
Section 5.1.4.
Preservation of Properties. The
Borrower will, and will cause each
of its Subsidiaries to, at all
times (a) maintain, preserve,
protect and keep its properties,
whether owned or leased, in good
operating condition, working order
and repair (ordinary wear and tear
excepted), and from time to time
will make all proper repairs,
maintenance, replacements, addi-
tions and improvements thereto
needed to maintain such properties
in good operating condition,
working order and repair, and (b)
satisfy all of its Lease
Obligations and otherwise comply in
all material respects with the
provisions of all material leases
to which it is a party or under
which it occupies property so as to
prevent any loss or forfeiture
thereof or thereunder.
Section 5.1.5.
Insurance. The Borrower currently
maintains insurance coverages of
the types, amounts and with the
companies identified on Exhibit "E"
attached hereto, all of which the
Lender acknowledges to be
acceptable to the Lender. The
Borrower will, and will cause each
of its Subsidiaries to, at all
times maintain the same or
comparable insurance with insurance
companies rated "A-XI" or better by
Best's Insurance Guide Rating and
such other insurance as is required
by applicable Laws. The Borrower
shall deliver to the Lender on the
Closing Date (and thereafter on
each date there is a material
change in the insurance coverage) a
certificate of a Responsible
Officer of the Borrower containing
a detailed list of the insurance
then in effect and stating the
names of the insurance companies,
the types, the amounts and rates of
the insurance, dates of the
expiration thereof and the
properties and risks covered
thereby. Within thirty (30) days
after notice in writing from the
Lender, the Borrower will obtain
such additional insurance as the
Lender may reasonably request to
comply with the requirements of
this Section.
Section 5.1.6. Taxes.
Except to the extent that the
validity or amount thereof is being
contested in good faith and by
appropriate proceedings, the
Borrower and its Subsidiaries will
pay and discharge all Taxes prior
to the date when any interest or
penalty would accrue for the
nonpayment thereof.
Section 5.1.7. ERISA.
The Borrower and its Affiliates
will comply with the funding
requirements of ERISA with respect
to employee pension benefit plans
for its respective employees. The
Borrower will not permit with
respect to any employee benefit
plan or plans covered by Title IV
of ERISA (a) any prohibited
transaction or transactions under
ERISA or the Internal Revenue
Code, which results, or may result,
in any material liability of the
Borrower and Affiliates, or (b) any
reportable event under ERISA if,
upon termination of the plan or
plans with respect to which one or
more such reportable events shall
have occurred, there is or would be
any material liability of the
Borrower and Affiliates to the
PBGC. Upon the Lender's request,
the Borrower will deliver to the
Lender a copy of the most recent
actuarial report, financial
statements and annual report com-
pleted with respect to any "defined
benefit plan", as defined in ERISA.
Section 5.1.8.
Litigation. The Borrower will
promptly notify the Lender of any
litigation instituted or threatened
against the Borrower, the
Guarantors or any Subsidiary of any
of them and of the entry of any
judgment or Lien against any of the
assets or properties of the
Borrower or any Subsidiary where
the claims against the Borrower or
any Subsidiary exceed Five Hundred
Thousand Dollars ($500,000.00) and
are not covered by insurance.
Section 5.1.9.
Notification of Events of Default
and Adverse Developments. The
Borrower will promptly notify the
Lender upon obtaining knowledge of
the occurrence of:
(a) any Event of
Default;
(b) any Default;
(c) any event,
development or
circumstance
whereby the
financial
statements
furnished
hereunder fail
in any material
respect to
present fairly,
in accordance
with GAAP, the
financial
condition and
operational
results of the
Borrower;
(d) any judicial,
administrative
or arbitration
proceeding
pending against
the Borrower or
any Subsidiary
and any
judicial or
administrative
proceeding
known by the
Borrower to be
threatened
against it or
any Subsidiary
which could
reasonably be
expected to
have a material
adverse effect
on the finan-
cial condition
or operations
of the Borrower
or its
Subsidiaries
(present or
prospective);
and
(e) any other
development in
the business or
affairs of the
Borrower or any
Subsidiary
which could
reasonably be
expected to
have a material
adverse effect
on the
financial
condition or
operations of
the Borrower or
its
Subsidiaries
(present or
prospective);
in each case describing in detail
satisfactory to the Lender the
nature thereof and, in the case of
notification under clauses (a) and
(b), the action the Borrower
proposes to take with respect
thereto.
Section 5.1.10.
Hazardous Materials; Contamination.
The Borrower agrees to (a) give
notice to the Lender immediately
upon the Borrower's acquiring
knowledge of the presence of any
Hazardous Materials on any property
owned or controlled by the Borrower
or for which the Borrower or any
Subsidiary is responsible or of any
Hazardous Materials Contamination
with a full description thereof;
(b) promptly comply with any Laws
requiring the removal, treatment or
disposal of Hazardous Materials or
Hazardous Materials Contamination
and provide the Lender with
satisfactory evidence of such
compliance; and (c) defend,
indemnify and hold harmless the
Lender and its agents, employees,
trustees, successors and assigns
from any and all claims which may
now or in the future (whether
before or after the termination of
this Agreement) be asserted as a
result of the presence of any
Hazardous Materials on any property
owned or controlled by the Borrower
or any Subsidiary for which the
Borrower or any Subsidiary is
responsible for any Hazardous
Materials Contamination.
Section 5.1.11. Tangible
Net Worth. The Borrower must
maintain on a consolidated basis
with its parent corporation and all
subsidiaries of its parent
corporation, a Tangible Net Worth
(hereinafter defined) at all times,
tested initially as of the end of
the second fiscal quarter in the
Borrower's 1997 fiscal year, of at
least (a) $24,000,000 and (b) forty
percent (40%) of the aggregate
cumulative amount of consolidated
net income of the Borrower and the
Guarantors (but not deficit of
loss) for each fiscal year ending
September 27, 1997 and thereafter.
The term "Tangible Net Worth" means
total stockholder's equity less
goodwill and other intangibles as
they arise, calculated on a
consolidated basis for the Borrower
and the Guarantors. For the
purpose of calculation of this
covenant, franchise rights shall be
considered a tangible asset.
Section 5.1.12 Cash Flow
Coverage. The Borrower must
maintain on a consolidated basis
with its parent corporation and all
subsidiaries of its parent
corporation, tested on a rolling
four-quarter basis as of the last
day of each fiscal quarter, a Cash
Flow Coverage Ratio (hereinafter
defined) equal to or greater than
1.75 to 1.0. The Cash Flow
Coverage Ratio shall be calculated
as follows:
Net Income + Interest + Taxes + Depreciation + Amortization
___________________________________________________________
CPLTD + CP capital leases + Interest
all calculated on a
consolidated basis with
its parent corporation
and all subsidiaries of
its parent corporation,
provided that CPLTD shall
not include the balloon
payment of the Southern
Hospitality Corporation,
a corporation organized
and existing under the
laws of the State of
Tennessee ("SHC") term
loan in the original
principal amount of
$18,250,000 due September
19, 1999 or any balloon
payment due under the
Revolving Credit Facility
owed by the Guarantors
and the Borrower to the
Lender.
Section 5.1.13 Ratio of
EBITDA to Liabilities. The Borrower
must maintain on a consolidated
basis with its parent corporation
and all subsidiaries of its parent
corporation, tested on a rolling
four-quarter basis as of the last
day of each fiscal quarter, an
EBITDA to Liabilities Ratio
(hereinafter defined) equal to or
greater than .25 to 1.0. The
EBITDA to Liabilities Ratio shall
be calculated as follows:
Net Income + Interest + Taxes + Depreciation + Amortization
___________________________________________________________
Liabilities
Section 5.1.14 Ratio of
Liabilities to Tangible Net Worth.
The Borrower must maintain on a
consolidated basis with its parent
corporation and all subsidiaries of
its parent corporation at all times
for each period indicated a ratio
of Liabilities divided by Tangible
Net Worth of no greater than 4.5 to
1.0.
Section 5.1.15 Facility
Fee. In addition to the Loan Fee
described below, and as additional
consideration for the Lender's
providing the Loan, beginning on
and including the date which is one
(1) year from the Closing Date and
each and every year thereafter on
such date during the term of the
Loan, the Borrower shall pay the
Lender a facility fee equal to one
quarter of one percent (1/4%) of
the principal amount outstanding
under the Loan on such date (the
"Facility Fee").
Section 5.1.16 Loan
Fee. In consideration for the
Lender's providing the Loan, the
Borrower shall pay the Lender a
loan fee of $62,500 (the "Loan
Fee") on or before the date of
execution of this Agreement. The
Loan Fee is fully earned and is
non-refundable.
Section 5.1.17 Agency
Fee. Beginning on and including
the date which is one (1) year from
the Closing Date and each and every
year thereafter on such date during
the term of the Loan, the Borrower
shall pay the Lender an agency fee
(the "Agency Fee"). The Agency Fee
shall be equal to one-eighth of one
percent (1/8%) of the principal
amount outstanding under the Loan
on the date such Agency Fee is due.
Section 5.1.18 Late
Charge; Default Interest. Upon the
occurrence and during the
continuance of an Event of Default
under the Loan, the rate of
interest applicable to the Loan
shall be increased to a rate that
is two percent (2%) per annum in
excess of the otherwise applicable
rate. In addition, the Borrower
shall pay a late charge equal to
five percent (5%) of any payment of
principal and/or interest
(including, without limitation, the
final installment of principal and
interest due at maturity) that is
not paid within fifteen (15) days
of the date due.
Section 5.1.19 Business
of Borrower and Guarantors. The
primary business of the Borrower
shall consist of the operation of
"Friendly's Restaurants" and the
primary business of the Guarantors
shall consist of the operation of
"Wendy's Restaurants".
SECTION 5.2. Negative
Covenants. So long as any of the
Obligations shall be outstanding
hereunder, the Borrower agrees with
the Lender that neither the
Borrower nor any of the Guarantors
shall:
Section 5.2.1. Merger,
Acquisition or Sale of Assets;
Subsidiaries. Without the prior
written consent of the Lender, the
Borrower will not enter into any
merger or consolidation or amalga-
mation, windup or dissolve itself
(or suffer any liquidation or
dissolution), or acquire all or
substantially all of the assets or
business of any Person, or convey,
sell, lease, assign, lien, transfer
or otherwise dispose of its assets,
properties or business (including,
without limitation, transfers to
any Subsidiary or joint venture in
which the Borrower or any
Subsidiary has an interest), or
permit any Subsidiary to do any of
the foregoing, except with respect
to any such Subsidiary, in the
ordinary course of business;
provided, however, the Borrower may
make acquisitions or dispositions
provided that (a) the Borrower
shall have notified the Lender
prior to making any acquisition or
dispositions for a value of
$5,000,000 or more, and (b) the
Borrower shall have obtained the
Lender's prior consent, which
consent shall not be unreasonably
withheld, for each acquisition or
disposition for a value of
$7,500,000 or more.
Section 5.2.2.
Prohibition on Hazardous Materials.
The Borrower shall not place,
manufacture or store or permit to
be placed, manufactured or stored
any Hazardous Materials on any
property owned or controlled by the
Borrower or any Subsidiary or for
which the Borrower or any
Subsidiary is responsible.
Section 5.2.3.
Subsidiaries. The Borrower shall
not create any Subsidiaries without
the prior written consent of the
Lender, which consent will not be
unreasonably withheld or delayed.
Section 5.2.4. Liens.
Create, incur, assume or suffer to
exist any Lien upon any of its
properties or assets, whether now
owned or hereafter acquired or
agree with or for the benefit of
any person, other than the Lender,
that the Borrower will create,
incur, assume or suffer to exist
any Lien upon any of its properties
or assets, whether now owned or
hereafter acquired.
Section 5.2.5. Unsecured
Indebtedness. The Borrower shall
not incur any "unsecured
indebtedness for borrowed money" in
excess of $18,000,000 (either
directly or through any permitted
Subsidiary) without the prior
written consent of the Lender.
Such $18,000,000 limit includes
outstanding balances under the
revolving credit facility extended
by the Lender to the Borrower and
the Guarantors pursuant to a
Financing Agreement of even date
herewith by and between the
Borrower, the Guarantors and the
Lender (the "Line of Credit"). A
commitment to lend shall not
constitute the incurring of
unsecured indebtedness; rather,
unsecured indebtedness shall be
incurred only at such time as
moneys are actually borrowed by the
Borrower or any Subsidiary. The
Borrower agrees to give the Lender
notice prior to the date the
Borrower or its parent corporation
or any subsidiary of its parent
corporation accepts any commitment
to provide unsecured indebtedness.
In the event the Borrower desires
to obtain a committed unsecured
credit facility pursuant to which
loans may be made from time to time
(as opposed to a single loan
advanced in full at its closing),
the provider of such credit
facility, if deemed necessary by
the Lender, must enter into an
intercreditor agreement acceptable
to the Lender prior to the date the
facility closes. In addition, the
following restrictions shall apply
with respect to unsecured
indebtedness for borrowed money of
any nature (whether provided as a
single loan, a series of loans, as
part of a committed credit facility
or otherwise): (i) the outstanding
principal balance of the Line of
Credit shall at all times be at
least equal to the aggregate
outstanding principal balance of
all other unsecured indebtedness,
and (ii) in obtaining other
unsecured indebtedness, the
Borrower, its parent corporation
and the subsidiaries of its parent
corporation will not agree to terms
with any other lender that are more
favorable to such lender than the
terms of the Line of Credit or that
would treat any such lender on a
preferred basis, and (iii) with
respect to a single loan not
obtained pursuant to a commitment
to lend as described above, the
Borrower must notify the Lender of
the amount of the loan and the
identity of the lender within 30
days after obtaining the loan.
"Unsecured indebtedness for
borrowed money" includes, without
limitation, (i) all indebtedness
for borrowed money which is not
fully secured, and (ii) any such
indebtedness guaranteed by the
Borrower or for which the Borrower
is otherwise contingently liable.
ARTICLE VI
DEFAULT AND RIGHTS AND REMEDIES
SECTION 6.1. Default.
The occurrence of any one or more
of the following events shall
constitute a default ("Default")
under the provisions of this
Agreement:
Section 6.1.1.
Payment of Obligations. The
failure of the Borrower to pay any
of the Obligations as and when due
and payable in accordance with the
provisions of this Agreement, the
Note and/or any of the other
Financing Documents.
Section 6.1.2. Perform,
etc. Certain Provisions of this
Agreement. The failure of the
Borrower to perform, observe or
comply with any of the provisions
of Sections 5.1.9, 5.1.10, 5.1.11,
5.1.12, 5.1.13, 5.1.14 or 5.1.19
hereof or of Section 5.2 of this
Agreement.
Section 6.1.3. Perform,
etc. Other Provisions of this
Agreement. The failure of the
Borrower to perform, observe or
comply with any of the provisions
of this Agreement other than those
covered by Section 6.1.1 and 6.1.2
hereof, and such failure is not
cured to the satisfaction of the
Lender within a period of thirty
(30) days after the date of written
notice thereof by the Lender to the
Borrower.
Section 6.1.4.
Representations and Warranties. If
any representation and warranty
contained herein or in any
statement or representation made in
any officer's certificate or in any
other information at any time given
by or on behalf of the Borrower or
any Subsidiary or furnished in
connection with this Agreement or
any of the other Financing
Documents shall prove to be false
or incorrect in any material
respect on the date made.
Section 6.1.5. Default
under Other Financing Documents.
The occurrence of a default under
the provisions of the Note, the
Security Documents or any of the
other Financing Documents which is
not cured within applicable cure
periods, if any.
Section 6.1.6.
Liquidation, Termination, Dissolu-
tion, etc. If the Borrower or any
of the Guarantors shall liquidate,
dissolve or terminate its existence
without the prior written consent
of the Lender.
Section 6.1.7. Default
under Other Indebtedness. If the
Borrower or any of the Guarantors:
(a) defaults in any
payment of the principal of or
interest on any Indebtedness
for Borrowed Money having a
principal balance in excess of
$500,000 beyond the period of
grace, if any, provided in the
instrument or agreement under
which such indebtedness was
created, or
(b) defaults in the
observance or performance of
any other agreement or
condition relating to any such
Indebtedness having a
principal balance in excess of
$500,000 or contained in any
instrument or agreement
evidencing, securing or
relating thereto, or any other
event shall occur the effect
of which default or other
event is to cause or to permit
the holder or holders of such
indebtedness or beneficiary or
beneficiaries of such indebt-
edness (or a trustee or agent
on behalf of such holder or
holders or beneficiary or
beneficiaries) to cause, with
the giving of notice, if
required, such indebtedness to
become due prior to its stated
maturity.
Section 6.1.8. Inability
to Pay Debts, etc. If the Borrower
or any of the Guarantors shall
admit in writing its inability
generally to pay its debts as they
mature or shall make any assignment
for the benefit of any of its
creditors.
Section 6.1.9.
Bankruptcy. If proceedings in
bankruptcy, or for reorganization
of the Borrower or any of the
Guarantors, or for the readjustment
of any of its debts, under the
Bankruptcy Code, as amended, or any
part thereof, or under any other
applicable laws, whether state or
federal, for the relief of debtors,
now or hereafter existing, shall be
commenced against or by the
Borrower or any of the Guarantors
and, except with respect to any
such proceedings instituted by the
Borrower or any of the Guarantors,
shall not be discharged within
sixty (60) days of commencement.
Section 6.1.10.
Receiver, etc. A receiver or
trustee shall be appointed for the
Borrower or any of the Guarantors
or for any substantial part of its
assets, or any proceedings shall be
instituted for the dissolution or
the full or partial liquidation of
the Borrower or any of the
Guarantors and, except with respect
to any such appointments requested
or instituted by the Borrower or
any of the Guarantors, such
receiver or trustee shall not be
discharged within sixty (60) days
of his appointment, and, except
with respect to any such
proceedings instituted by the
Borrower or any of the Guarantors,
such proceedings shall not be
discharged within sixty (60) days
of commencement.
Section 6.1.11.
Friendly's Default. A default
exists under any franchise,
trademark licensing, software
licensing, development, management,
operating or other agreement,
between the Borrower and any entity
relating to the Borrower's
development, management and/or
operation of Friendly's restaurants
such default remains uncured for a
period of thirty (30) days.
Section 6.1.12. Guarantor
Obligations. An Event of Default
(as defined therein) or any other
default occurs under the Guaranty
or any other document evidencing or
securing any obligations of the
Guarantors, or any of them, to the
Lender, whether now in existence or
hereafter incurred.
Section 6.1.13.
Maintenance of Friendly's License
and Leases. If at any time (a) the
Borrower is prohibited from using
the "Friendly's" or "Friendly's
Restaurant" names or trademarks in
the Maryland, Delaware and Northern
Virginia area or (b) at any time
the Borrower's rights under
occupancy leases for any three (3)
restaurant locations purchased with
the Loan proceeds or any additional
location developed pursuant to the
development agreement by and
between the Borrower and Friendly's
or Friendly's Restaurants
Franchise, Inc. are terminated by
any Person or interfered with in
such a manner as to prohibit the
Borrower from operating a
"Friendly's Restaurant" at such
location.
Section 6.1.14 Change in
Management. The persons holding the
positions of President and
Executive Vice President of DavCo
as of the date of this Agreement
shall change without the prior
written consent of the Lender and
individuals satisfactory to the
Lender are not installed in such
office(s) within one hundred and
eighty (180) days of the date of
the original change.
Section 6.1.15 Default in
Other Obligations Owed to Lender.
The Borrower shall be in default
with respect to any obligations
owed to Lender, whether now in
existence or hereafter incurred.
SECTION 6.2. Rights and
Remedies, etc..
Section 6.2.1. General
Rights and Remedies. Upon the
occurrence of a Default specified
in Sections 6.1.9 and 6.1.10, the
unpaid principal amount of the Note
(with accrued interest thereon) and
all other Obligations then out-
standing, shall immediately become
due and payable without further
action of any kind and without
presentment, demand, protest or
notice of any kind, all of which
are hereby expressly waived by the
Borrower. If any other Default
shall occur hereunder, then in each
and every such case, the Lender
may at any time thereafter while
such Default is continuing do any
one or more of the following:
(a) declare without
notice to the Borrower the
unpaid principal amount of the
Note (with accrued interest
thereon) and all other Obliga-
tions to be immediately due
and payable, whereupon the
same shall forthwith become
due and payable, without
presentment, demand, protest
or notice of any kind, all of
which the Borrower hereby
expressly waives; and/or
(b) exercise any
rights and remedies available
to the Lender under this
Agreement, the Note, the
Security Documents, the other
Financing Documents and appli-
cable Laws.
Section 6.2.2.
Enforcement Costs and Proceeds.
The Borrower agrees to pay to the
Lender all Enforcement Costs paid
or incurred by the Lender in
exercising any of its rights and
remedies available under the
provisions of this Agreement, or
any of the other Financing
Documents and applicable Laws. All
Enforcement Costs, together with
interest thereon from the date
incurred or advanced until paid in
full shall accrue interest at a per
annum rate of interest equal at all
times to the Post- Default Rate and
shall be paid by the Borrower to
the Lender whenever demanded by the
Lender.
Any proceeds of the
collection of the Obligations will
be applied by the Lender to the
payment of Enforcement Costs, and
any balance of such proceeds will
be applied by the Lender to the
payment of the remaining
Obligations (whether then due or
not), at such time or times and in
such order and manner of
application as the Lender may from
time to time in its sole discretion
determine.
Section 6.2.3.
Performance by Lender. If the
Borrower shall fail to pay the
Obligations or otherwise fail to
perform, observe or comply with any
of the conditions, covenants,
terms, stipulations or agreements
contained in this Agreement or any
of the other Financing Documents,
the Lender without notice to or
demand upon the Borrower and
without waiving or releasing any of
the Obligations or any Default, may
(but shall be under no obligation
to) at any time thereafter and
during the continuance of an Event
of Default, make such payment or
perform such act for the account
and at the expense of the Borrower,
and may enter upon the premises of
the Borrower for that purpose and
take all such action thereon as the
Lender may consider necessary or
appropriate for such purpose. The
Borrower hereby appoints the Lender
or the Lender's designee as its
attorney in fact for the purposes
of effecting during the continuance
of a Default, any or all of the
provisions of this Section in the
Lender's name or in the name of the
Borrower such appointment being
coupled with an interest and being
irrevocable. All acts of said
attorney are hereby ratified and
approved and said attorney or
designee shall not be liable for
any acts of omission or commission
nor for any error of judgment or
mistake, unless done maliciously.
All Enforcement Costs, together
with interest thereon from the date
of payment, advance or incurring
until paid in full at the Post-Default Rate,
shall be paid by the
Borrower to the Lender on demand
and shall constitute and become a
part of the Obligations.
Section 6.2.4. Other
Remedies. Upon the occurrence of
an Event of Default (and in
addition to all of its rights,
powers and remedies under this
Agreement), the Lender is
authorized to offset and apply to
all or any part of the Obligations
all moneys, credits and other
property of any nature whatsoever
of the Borrower now or at any time
hereafter in the possession of, in
transit to or from, under the
control or custody of, or on
deposit with, the Lender.
ARTICLE VII
MISCELLANEOUS
SECTION 7.1. Course of
Dealing; Amendment. No course of
dealing between the Borrower and
the Lender shall be effective to
amend, modify or change any
provision of this Agreement or the
other Financing Documents. The
Lender shall have the right at all
times to enforce the provisions of
this Agreement and the other
Financing Documents in strict
accordance with the terms hereof
and thereof, notwithstanding any
conduct or custom on the part of
the Lender in refraining from so
doing at any time or times. The
failure or delay of the Lender at
any time or times to enforce the
rights under such provisions,
strictly in accordance with the
same, shall not be construed as
having created a custom in any way
or manner contrary to specific
provisions of this Agreement or as
having in any way or manner
modified or waived the same. This
Agreement and the other Financing
Documents may not be amended,
modified, or changed in any respect
except by an agreement in writing
signed by the Lender and the
Borrower.
SECTION 7.2. Waiver,
Cumulative Remedies. The Lender
may, at any time and from time to
time, execute and deliver to the
Borrower a written instrument waiv-
ing, on such terms and conditions
as the Lender may specify in such
written instrument, any of the
requirements of this Agreement or
of the other Financing Documents or
any Default or Event of Default and
its consequences, provided, that
any such waiver shall be for such
period and subject to such condi-
tions as shall be specified in any
such instrument. In the case of
any such waiver, the Borrower and
the Lender shall be restored to
their former positions prior to
such Default or Event of Default
and shall have the same rights as
they had hereunder. No such waiver
shall extend to any subsequent or
other Default or Event of Default,
or impair any right consequent
thereto and shall be effective only
in the specific instance and for
the specific purpose for which
given. The rights, powers and
remedies provided in this Agreement
and in the other Financing Docu-
ments are cumulative, may be
exercised concurrently or separate-
ly, may be exercised from time to
time and in such order as the
Lender shall determine, and are in
addition to, and not exclusive of,
rights, powers and remedies
provided by applicable Laws.
Without limiting the generality of
the foregoing, the Lender may:
(a) without reducing or
impairing the obligation of the
Borrower and without notice,
release or compromise with any
guarantor or other Person liable
for all or any part of the
Obligations under the Financing
Documents or otherwise; and
(b) without reducing or
impairing the obligations of the
Borrower and without notice
thereof: (i) waive any provision
of this Agreement or the other
Financing Documents, (ii) exercise
or fail to exercise rights of set-off
or other rights, or (iii)
accept partial payments or extend
from time to time the maturity of
all or any part of the Obligations.
SECTION 7.3. Notices.
All notices, requests and demands
to or upon the parties to this
Agreement shall be deemed to have
been given or made when delivered
by hand, or five (5) days after the
date when deposited in the mail,
postage prepaid by registered or
certified mail, return receipt
requested, or, in the case of
telegraphic notice, when delivered
to the telegraphic company and when
properly transmitted, or when sent
by overnight courier when delivered
to such overnight courier, ad-
dressed as follows or to such other
address as may be hereafter
designated in writing by one party
to the other:
Borrower: 1657 Crofton Boulevard
Crofton, Maryland 21114
Attn: Chief Financial Officer
With copy to: John B. Ward, Jr.
Mason, Ketterman & Morgan
300 East Lombard Street
Suite 1100
Baltimore, Maryland 21202
Lender: 25 South Charles Street
Baltimore, Maryland 21201
Attn: Christopher A. Padgett
Vice President
Mail Code 101-560
With copy to: Kathleen M. Donahue
Miles & Stockbridge
10 Light Street
8th Floor
Baltimore, Maryland 21202
except in cases where it is
expressly herein provided that such
notice, request or demand is not
effective until received by the
party to whom it is addressed.
SECTION 7.4. Management
and Administration by Lender. The
Borrower agrees to pay on demand
all documented out-of-pocket
losses, costs and expenses,
(including reasonable counsel fees
and documented out-of-pocket
expenses) of the Lender, in
connection with all waivers,
consents and amendments of this
Agreement and the other Financing
Documents requested by the
Borrower. All of the advances,
expenditures, costs and expenses
described in this Section shall
bear interest payable on demand by
the Borrower from the date paid or
incurred until paid in full at the
Post-Default Rate.
SECTION 7.5.
Consent to Jurisdiction, etc. The
Borrower irrevocably submits to the
jurisdiction of any state or
federal court sitting in the State
of Maryland over any suit, action
or proceeding arising out of or
relating to this Agreement, the
Note or any of the other Financing
Documents. The Borrower
irrevocably waives, to the fullest
extent permitted by law, any
objection that it may now or
hereafter have to the laying of the
venue of any such suit, action or
proceeding brought in any such
court and any claim that any such
suit, action or proceeding brought
in any such court has been brought
in an inconvenient forum. Final
judgment in any such suit, action
or proceeding brought in any such
court shall be conclusive and
binding upon the Borrower and may
be enforced in any court to the
jurisdiction of which the Borrower
is subject, by a suit upon such
judgment, provided that service of
process is effected upon the
Borrower in one of the manners
specified in this Section or as
otherwise permitted by law. The
Borrower hereby irrevocably desig-
nates and appoints John B. Ward,
Jr., Esquire, Mason, Ketterman &
Morgan, 300 East Lombard Street,
Suite 1100, Baltimore, Maryland
21202, as the Borrower's authorized
agent to receive on the Borrower's
behalf service of any and all
process that may be served in any
suit, action or proceeding of the
nature referred to in this Section
In any state or federal court
sitting in the State of Maryland.
If such agent shall cease so to
act, the Borrower shall irrevocably
designate and appoint without delay
another such agent in the State of
Maryland satisfactory to the Lender
and shall promptly deliver to the
Lender evidence in writing of such
other agent's acceptance of such
appointment and its agreement that
such appointment shall be
irrevocable. The Borrower hereby
consents to process being served in
any suit, action or proceeding of
the nature referred to in this
Section by (a) the mailing of a
copy thereof by registered or
certified mail, postage prepaid,
return receipt requested, to the
Borrower at the Borrower's address
designated in or pursuant to
Section 7.3 hereof, and (b) serving
a copy thereof upon the agent, if
any, designated and appointed by
the Borrower as the Borrower's
agent for service of process by or
pursuant to this Section. The
Borrower irrevocably agrees that
such service shall be deemed in
every respect effective service of
process upon the Borrower in any
such suit, action or proceeding,
and shall, to the fullest extent
permitted by law, be taken and held
to be valid personal service upon
the Borrower. Nothing in this
Section shall affect the right of
the Lender to serve process in any
manner otherwise permitted by law
or limit the right of the Lender
otherwise to bring proceedings
against the Borrower in the courts
of any jurisdiction or juris-
dictions.
SECTION 7.6. Waiver of
Trial by Jury. The Borrower and
the Lender hereby jointly and
severally waive trial by jury in
any action or proceeding to which
the Borrower and the Lender may be
parties, arising out of or in any
way pertaining to (a) this
Agreement, or (b) any of the
Financing Documents. This waiver
constitutes a waiver of trial by
jury of all claims against all
parties to such actions or pro-
ceedings, including claims against
parties who are not parties to this
Agreement.
This waiver is knowingly,
willingly and voluntarily made by
the Borrower and the Lender, and
the Borrower and the Lender hereby
represent that no representations
of fact or opinion have been made
by any individual to induce this
waiver of trial by jury or to in
any way modify or nullify its
effect. The Borrower and the
Lender further represent that they
have been represented in the
signing of this Agreement and in
the making of this waiver by
independent legal counsel, selected
of their own free will, and that
they have had the opportunity to
discuss this waiver with counsel.
SECTION 7.7. Costs and
Expenses. The Borrower agrees to
pay:
(a) Upon being billed
therefor, all reasonable documented
out-of-pocket costs and expenses of
the Lender in connection with the
preparation, execution and delivery
of this Agreement and the other
Financing Documents, including the
reasonable fees and documented out-of-pocket
expenses of counsel for
the Lender.
(b) Upon demand any and
all stamp and other taxes and fees
payable or determined to be payable
in connection with the execution
and delivery of this Agreement, the
Note, the Security Documents and
the other Financing Documents. The
Borrower also agrees to save the
Lender harmless from and against
any and all liabilities with
respect to or resulting from any
delay in paying or omission to pay
such taxes or fees.
All costs, expenses,
taxes and fees described in this
Section shall be part of the
Enforcement Costs and shall bear
interest, payable on demand by the
Borrower, from the date due until
paid in full at the Post-Default
Rate.
SECTION 7.8.
Severability. In case one or more
provisions contained in this
Agreement or in the other Financing
Documents shall be invalid, illegal
or unenforceable in any respect
under any law, the validity,
legality and enforceability of the
remaining provisions contained
herein and in the other Financing
Documents shall remain effective
and binding on the parties thereto
and shall not be affected or
impaired thereby.
SECTION 7.9. Assignment,
Etc. The Lender may, without
notice to, or consent of, the
Borrower, sell, assign or transfer
to or participate with any Person
or Persons all or any part of the
Obligations (a "Transfer"), and
each such Person or Persons shall
have the right to enforce the
provisions of this Agreement, the
Note and any of the other Financing
Documents as fully as the Lender,
provided that the Lender shall
continue to have the unimpaired
right to enforce the provisions of
this Agreement, the Note and any of
the other Financing Documents as to
so much of the Obligations that the
Lender has not sold, assigned or
transferred and, provided further,
that the Lender shall not make a
Transfer if such Transfer would
result in an increase in the amount
of taxes or other costs incurred or
payable by the Borrower. In
connection with the foregoing, the
Lender shall have the right to
divulge to any such actual or
potential purchaser, assignee,
transferee or participant all
information, reports, financial
statements and documents obtained
in connection with this Agreement,
the Note and any of the other
Financing Documents or otherwise,
provided, the Lender obtains
assurances of confidential
treatment of such information from
officers and agents of prospective
purchasers of, or participants in,
the Loan.
SECTION 7.10. Survival.
All representations, warranties and
covenants contained among the
provisions of this Agreement shall
survive the execution and delivery
of this Agreement, the Note and the
other Financing Documents.
SECTION 7.11. Binding
Effect. This Agreement, the Note
and all other Financing Documents
shall be binding upon and inure to
the benefit of the Borrower and the
Lender and their respective
successors and assigns, except that
the Borrower shall not have the
right to assign its rights
hereunder or any interest herein
without the prior written consent
of the Lender.
SECTION 7.12. Applicable
Law. The Borrower acknowledges and
agrees that the Financing
Documents, including this
Agreement, shall be governed by the
laws of the State of Maryland.
SECTION 7.13. Duplicate
Originals and Counterparts. This
Agreement may be executed in any
number of duplicate originals or
counterparts, each of such
duplicate originals or counterparts
shall be deemed to be an original
and all taken together shall
constitute but one and the same
instrument.
SECTION 7.14. Exhibits
and Schedules. Any exhibits and
schedules attached to this
Agreement are an integral part
hereof and are hereby incorporated
herein and included in the term
"this Agreement".
SECTION 7.15. Headings.
Article, Section and subsection
headings in this Agreement are
included herein for convenience of
reference only, shall not
constitute a part of this Agreement
for any other purpose and shall not
be deemed to affect the meaning or
construction of any of the
provisions hereof.
IN WITNESS WHEREOF, each of
the parties hereto have executed
and delivered this Agreement under
their respective seals as of the
day and year first written above.
WITNESS OR ATTEST: FRIENDCO RESTAURANTS, INC.
/S/ D.J. Norman By:/S/ Charles C. McGuire III(Seal)
Name:
Title:
WITNESS: THE FIRST NATIONAL BANK OF MARYLAND
/S/ Sean M. Sands By:/S/ Christopher A. Padgett(Seal)
Christopher A. Padgett
Vice President
FINANCING STATEMENT
TO BE RECORDED WITH THE MARYLAND
STATE DEPARTMENT OF ASSESSMENTS &
TAXATION
This Financing Statement is
presented to a Filing Officer
pursuant to the Maryland Uniform
Commercial Code.
1. NAME AND ADDRESS DAVCO RESTAURANTS, INC.
OF DEBTOR: 1657 Crofton Boulevard
Crofton, Maryland 21114
2. NAME AND ADDRESS THE FIRST NATIONAL BANK OF MARYLAND
OF SECURED PARTY: 25 South Charles Street
Baltimore, Maryland 21201
Attn: Christopher A. Padgett
Mail Code 101-560
3. Debtor's principal place
of business is in Anne Arundel
County, Maryland.
4. This Financing Statement
covers all right, title and
interest of the Debtor in and to
the following types (or items) of
property:
(a) 100% of the shares
of the capital stock (the
"Stock") of Friendco
Restaurants, Inc.;
(b) All stock rights,
rights to subscribe, dividends
(including, but not limited
to, cash dividends, stock
dividends, dividends paid in
stock and liquidating
dividends) and any other
rights and property interests
including, but not limited to,
accounts, contract rights,
instruments and general
intangibles arising out of or
relating to the Stock;
(c) All other or
additional stock or other
securities or property
(including cash) paid or
distributed in respect of the
Stock by way of stock-split,
spin-off, split-up,
reclassification, combination
of shares or similar corporate
rearrangement;
(d) All other or
additional stock or other
securities or property
(including cash) which may be
paid or distributed in respect
of the Stock by reason of any
consolidation, merger,
exchange of stock, conveyance
of assets, liquidation or
similar corporate
reorganization; and
(e) All proceeds (both
cash and non-cash) of the
foregoing, whether now or
hereafter arising under the
foregoing.
5. The Debtor certifies that
no recordation tax is payable in
connection with the recording of
this Financing Statement.
DEBTOR:
DAVCO RESTAURANTS, INC.
By:/S/ Charles C. McGuire III
Name:
Title:
Filing Officer: After recordation, please return this Financing
Statement to:
Kathleen M. Donahue, Esq.
Miles & Stockbridge
A Professional Corporation
10 Light Street, 8th Floor
Baltimore, Maryland 21202
EXHIBIT 11-1
DavCo Restaurants, Inc.
Computation of Earnings Per Share
(In 000's except per share data)
For the 13 For the 39
weeks ended weeks ended
_______________ _______________
June 28, June 29, June 28, June 29,
1997 1996 1997 1996
_______________ _________________
Number of shares issued 6,588 6,588 6,588 6,588
Treasury Stock (weighted-average (159) (26) (159) (9)
Dilutive effect of outstanding options,
treasury stock method 547 492 545 506
Weighted-average number of common
and common equivalent shares
outstanding 6,976 7,054 6,974 7,085
Net Income 2,949 2,238 4,735 3,156
Net Income per common and common
equivalent share $ 0.4 $ 0.32 $ 0.6 $ 0.45
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
BALANCE SHEET AS OF JUNE 28, 1997, AND THE STATEMENT OF OPERATONS FOR THE
39 WEEKS ENDED JUNE 28, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-27-1997
<PERIOD-START> SEP-29-1996
<PERIOD-END> JUN-28-1997
<CASH> 1003
<SECURITIES> 0
<RECEIVABLES> 753
<ALLOWANCES> 0
<INVENTORY> 1489
<CURRENT-ASSETS> 5464
<PP&E> 111967
<DEPRECIATION> 21807
<TOTAL-ASSETS> 118478
<CURRENT-LIABILITIES> 31824
<BONDS> 36629
0
0
<COMMON> 7
<OTHER-SE> 50018
<TOTAL-LIABILITY-AND-EQUITY> 118478
<SALES> 163185
<TOTAL-REVENUES> 163185
<CGS> 99404
<TOTAL-COSTS> 132442
<OTHER-EXPENSES> 19418
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3710
<INCOME-PRETAX> 8217
<INCOME-TAX> 3482
<INCOME-CONTINUING> 4735
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4735
<EPS-PRIMARY> 0.68<F1>
<EPS-DILUTED> 0.68<F1>
<FN>
<F1>EARNINGS PER SHARE DATA IS IN ACTUAL DOLLARS. MULTIPLIER NOT APPLICABLE.
</FN>
</TABLE>
