EXHIBIT 10.1 FORBEARANCE AGREEMENT

 

                                                                    EXHIBIT 10.1

 

                              FORBEARANCE AGREEMENT

 

                              Dated January 2, 2004

 

     This  FORBEARANCE  AGREEMENT  (this  "Agreement")  dated January 2, 2004 is

entered into by and among AVADO BRANDS, INC. (the "Borrower"), each of financial

institutions  listed on the signature  pages hereof under the heading  "Lenders"

and their  respective  successors  and assigns  (individually,  a "Lender"  and,

collectively,   the   "Lenders"),   HILCO   CAPITAL  LP,  in  its   capacity  as

administration  agent  for the  Lenders  (in such  capacity,  together  with its

successors in such capacity, the "Administrative  Agent") and DRAWBRIDGE SPECIAL

OPPORTUNITIES  FUND LP, in its capacity as collateral  agent for the Lenders (in

such capacity,  together with its successors in such capacity,  the  "Collateral

Agent").  Capitalized  terms used herein and not otherwise  defined herein shall

have the  meanings  ascribed  to such  terms in the  Credit  Agreement  (defined

below).

 

                               W I T N E S E T H:

 

     WHEREAS,  the  Borrower,  the  Lenders,  the  Administrative  Agent and the

Collateral  Agent are parties to that certain Third Amended and Restated  Credit

Agreement  dated as of March 21, 2003,  as amended and  otherwise  modified from

time to time (as so amended and modified,  the "Credit Agreement"),  pursuant to

which the Lenders  have made certain  loans to the  Borrower  and, to secure the

performance of the  obligations  thereunder,  the Borrower has granted  security

interests in the Collateral  owned by the Borrower to the Collateral  Agent, for

the benefit of the Agents and the Lenders; and

 

     WHEREAS,  each of Don Pablo's  Holding Corp., a Delaware  corporation,  Don

Pablo's Operating Corp., an Ohio corporation, Don Pablo's Limited, Inc., an Ohio

corporation, Don Pablo's of Texas, LP, a Texas limited partnership,  Canyon Cafe

Operating Corp., a Georgia corporation,  Canyon Cafe TX General, Inc., a Georgia

corporation,  Canyon Cafe Limited,  Inc., a Georgia corporation,  Canyon Cafe of

Texas, LP, a Texas limited partnership, Hops of the Ohio Valley, Inc., a Florida

corporation,  Hops of Southwest Florida, Inc., a Florida corporation, Hops Grill

& Bar, Inc., a Florida corporation,  Cypress Coast Construction  Corporation,  a

Florida  corporation,  Hops  Marketing,  Inc.,  a Florida  corporation,  Hops of

Southeast Florida,  Ltd., a Florida limited partnership,  Hops of Coral Springs,

Ltd., a Florida  limited  partnership,  Hops of Boynton  Beach,  Ltd., a Florida

limited partnership, Hops of South Florida, Ltd., a Florida limited partnership,

Hops of Stuart,  Ltd., a Florida  limited  partnership,  Hops of the Gold Coast,

Ltd., a Florida limited  partnership,  Hops of the Ohio Valley,  Ltd., a Florida

limited partnership, Hops of Bowling Green, Ltd., a Florida limited partnership,

Hops of Greater Orlando,  Ltd., a Florida limited  partnership,  Hops of Florida

Mall, Ltd., a Florida limited  partnership,  Hops of Altamonte Springs,  Ltd., a

Florida limited partnership, Hops of Greater Orlando II, Ltd., a Florida limited

partnership,  Hops of Lakeland,  Ltd., a Florida  limited  partnership,  Hops of

Southwest Florida, Ltd., a Florida limited partnership, Hops of Bradenton, Ltd.,

a Florida  limited  partnership,  HNEF Area Manager II, Ltd., a Florida  limited

partnership,  The Hops Northeast  Florida Joint Venture No. I, a Florida general

partnership,  The Hops Northeast Florida Joint Venture No. II, a Florida general

partnership, The Hops Northeast Florida Joint Venture No. III, a Florida general

partnership,  Hops of South Carolina, Ltd., a Florida limited partnership,  Hops

of the Carolinas, Ltd., a Florida limited partnership, Hops of Matthews, Ltd., a

Florida limited  partnership,  Hops of the Carolinas II, Ltd., a Florida limited

partnership, Hops of Atlanta, Ltd., a Florida limited partnership, Hops of Ohio,

Ltd., a Florida limited  partnership,  Hops of Greater Detroit,  Ltd., a Florida

limited partnership,  Hops of Kansas, Ltd., a Florida limited partnership,  Hops

of Missouri,  LLC, a Florida limited liability company, Hops of Indiana, Ltd., a

Florida limited  partnership,  Hops of Greater  Boston,  Ltd., a Florida limited

partnership,  and Hops of Rhode Island,  LLC, a Rhode Island  limited  liability

company,(collectively,   the  "Guarantors")  have  guaranteed  the  payment  and

performance  of the  Obligations  pursuant to the  Guaranties,  and have secured

their obligations thereunder pursuant to the Security Agreements;

 

     WHEREAS,  the  Borrower has notified the Agents that the Borrower is not in

compliance with certain financial covenants under the Credit Agreement and, as a

result thereof,  the Administrative  Agent, the Collateral Agent and the Lenders

are entitled to enforce their rights and remedies under the Credit Agreement and

the other Loan Documents;

 

     WHEREAS,  the Borrower has also advised the Agents and the Lenders that the

Borrower's failure to comply with its financial covenants may continue;

 

     WHEREAS,   the  Borrower  and  the  Guarantors   have  requested  that  the

Administrative  Agent,  the  Collateral  Agent  and  the  Lenders  forbear  from

enforcing  certain of their rights and remedies in connection with such defaults

for a short period of time, to provide  additional  liquidity during such period

and  to   assist   them  in   connection   with  a   possible   refinancing   or

debtor-in-possession financing in the event of a bankruptcy filing; and

 

     WHEREAS, the Administrative Agent, the Collateral Agent and the Lenders are

willing to grant such  forbearance  and to provide  additional  liquidity on the

terms and conditions set forth herein.

 

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     NOW,  THEREFORE,  in  consideration of the facts set forth in the foregoing

recitals,  which the parties  hereto agree are true and  correct,  and for other

good and valuable  consideration,  including their mutual promises  contained in

this Agreement,  the Borrower, each Guarantor,  the Administrative Agent and the

Collateral Agent agree as follows:

 

     1. Acknowledgments by the Loan Parties. Each Loan Party hereby acknowledges

that:

 

     (a) Events of Default have  occurred and  presently  exist under the Credit

Agreement  as a result of (i) the  failure  by the  Borrower  to give the notice

required  under  Section  7.10 of the Credit  Agreement,  (ii) the breach of the

covenant set forth in Section 10.02 of the Credit Agreement for period ending on

September 28, 2003,  (iii) the breach of the covenant set forth in Section 10.03

of the Credit  Agreement for the period  ending on September 28, 2003,  (iv) the

breach of the covenant set forth in Section  10.04 of the Credit  Agreement  for

the period ending on September 28, 2003, and (v) a default under the Senior Note

Documents  and the  Senior  Subordinated  Documents  that  may  arise  from  the

nonpayment  of interest  under such  documents  or, with  respect to the present

value  calculations for the sale and leaseback  transaction  entered into by the

Borrower or its  Subsidiaries  in August  2003,  the breach of the  indebtedness

covenant  under  such  documents.  The  Events  of  Default  specified  in  this

subsection (a) are collectively referred to as the "Existing Defaults"; provided

that the Event of Default  specified  in clause (v) above  shall  constitute  an

Existing  Default only so long as no holder of a Senior Note or holder of Senior

Subordinated Note accelerates the obligations  thereunder or exercises any other

remedy  such  holder  may have  under the  Senior  Note  Documents,  the  Senior

Subordinated Documents or otherwise with respect thereto.

 

     (b) Pursuant to Section 4.01(c) of the Credit Agreement,  interest has been

accruing on the principal  balance of the Loans and all other  Obligations since

September 28, 2003 at a rate which is three  percent  (3.0%) per annum in excess

of the Applicable Interest Rate in effect from time to time. Pursuant to Section

4.02(b) of the Credit Agreement, the Letter of Credit Fee is being calculated at

a rate which is three percent  (3.0%) per annum in excess of the rate  otherwise

applicable  thereunder since September 28, 2003. In consideration of the Lenders

entering into this  Agreement,  the Borrower agrees that interest shall continue

to accrue, and the Letter of Credit Fee shall continue to be calculated, at such

rates.

 

     (c) The  Collateral  Agent  has the  right  pursuant  to  Section  5 of the

Depository  Account  Agreement among Royal Bank of Canada,  the Borrower and the

Collateral  Agent to deliver a Notice that an Event of Default has  occurred and

is continuing under the Credit Agreement. The Loan Parties hereby consent to the

Collateral Agent  delivering such Notice to Royal Bank of Canada  simultaneously

with the execution and delivery of this Agreement.

 

     2. Agreement to Forbear; Nature of Forbearance.

 

     (a) Upon the satisfaction of the conditions  precedent set forth in Section

4 hereof, the Administrative  Agent, the Collateral Agent and the Lenders hereby

agree not to take any of the following actions as a result of the occurrence and

continuance of the Existing Defaults,  for the period beginning on the date this

Agreement  becomes  effective  and ending  immediately  upon the  earlier of the

occurrence of an "Other  Default" (as defined  below) and January 31, 2004 (such

period  being  hereinafter  referred  to  as  the  "Forbearance   Period"):  (1)

accelerate  the  maturity of the  Obligations  pursuant to Section  11.01 of the

Credit Agreement,  or (2) commence any nonjudicial foreclosure or seizure of all

or any portion of the  Collateral  other than wiring all collected  funds in the

Master Account to the  Administrative  Agent's account after the Notice referred

to in Section  4(c) below is sent to Royal Bank of Canada.  For purposes of this

Agreement,  "Other  Default"  shall  mean any Event of  Default  other  than the

Existing Defaults.

 

     (b) The Agents and the Lenders  expressly reserve the right to exercise all

rights and remedies under the Loan Documents and applicable law immediately with

respect  to the  occurrence  of any  Other  Default  and,  immediately  upon the

expiration of the Forbearance Period, with respect to the Existing Defaults.

 

     (c)  Except as  expressly  provided  in  Section  2(a),  the Agents and the

Lenders  reserve  each and every right and remedy they may have under any of the

Loan  Documents or under  applicable  law.  Nothing in this  Agreement or in the

decision by the Lenders to make  additional  Loans as contemplated in Section 3,

shall be deemed to  constitute  a waiver by any Agent or any Lender of any Event

of Default, whether now existing or hereafter arising, or of any right or remedy

the  Agents  and the  Lenders  may  have  under  any of the  Loan  Documents  or

applicable law, except to the extent expressly provided in Section 2(a).

 

     3.  Amendment  to  the  Credit  Agreement.  Upon  the  satisfaction  of the

conditions  precedent  set forth in Section 4 hereof,  the Credit  Agreement  is

hereby amended as follows:

 

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     (a) Section 1.01 of the Credit Agreement is hereby amended by inserting the

following new defined terms in proper alphabetical order:

 

     "Assets Held For Sale Fee" has the meaning ascribed to such term in Section

4.02(f).

 

     "Existing   Defaults"  has  the  meaning  ascribed  to  such  term  in  the

Forbearance Agreement.

 

     "Forbearance  Agreement"  means the Forbearance  Agreement dated January 2,

2004 entered into by and among the  Borrower,  the Lenders,  the  Administrative

Agent and the Collateral  Agent, as such agreement may be amended,  supplemented

or otherwise modified from time to time.

 

     "Forbearance  Effective Date" has the meaning  ascribed to such term in the

Forbearance Agreement.

 

     "Forbearance  Period"  has  the  meaning  ascribed  to  such  term  in  the

Forbearance Agreement.

 

     (b) The definition of "Commitment" in Section 1.01 of the Credit  Agreement

is hereby amended by deleting such  definition in its entirety and  substituting

therefor the following:

 

     "Commitment"  means,  with respect to any Lender,  the  obligation  of such

Lender to make Loans pursuant to the terms and conditions of this Agreement, and

which shall not exceed the  principal  amount set forth  opposite  such Lender's

name on the signature  pages hereof or the signature  page of the Assignment and

Acceptance  by which it became (or  becomes) a Lender,  as such may be  modified

from time to time  pursuant to the terms of this  Agreement or to give effect to

any applicable  Assignment  and  Acceptance;  "Commitments"  means the aggregate

principal  amount of the Commitments of all the Lenders,  which amount shall not

exceed  $39,000,000.  The amount of the  Commitments may be reduced from time to

time in accordance with the terms of this Agreement.

 

     (c) The definition of "Commitment  Reduction Amount" in Section 1.01 of the

Credit  Agreement is hereby amended by deleting such  definition in its entirety

and substituting therefor the following:

 

     "Commitment Reduction Amount" means an amount equal to $10,000,000.

 

     (d) The  definition of "EBITDA" in Section 1.01 of the Credit  Agreement is

hereby  amended by deleting  such  definition  in its entirety and  substituting

therefor the following:

 

     "EBITDA" means,  with respect to any Person for any period,  the Net Income

of such  Person  for such  period,  plus,  without  duplication,  the sum of the

following  amounts of such Person for such period and to the extent  deducted in

determining Net Income of such Person for such period: (A) Net Interest Expense,

(B) income tax expense, (C) depreciation  expense, (D) amortization expense, (E)

restructuring  charges,  asset revaluation and other special charges  (excluding

legal  fees