CREDIT AGREEMENT

Exhibit 10.1

CREDIT AGREEMENT

by and among

BUCA, INC.

and

EACH OF ITS SUBSIDIARIES THAT ARE SIGNATORIES HERETO

as Borrowers,

THE LENDERS THAT ARE SIGNATORIES HERETO

as the Lenders,

and

BUCA FINANCING, LLC

as Agent

Dated as of August 5, 2008

 

TABLE OF CONTENTS

 

 

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EXHIBITS AND SCHEDULES

 

 

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CREDIT AGREEMENT

THIS CREDIT AGREEMENT (this “ Agreement ”), is entered into as of August 5, 2008, by and among the lenders identified on the signature pages hereof (such lenders, together with their respective successors and permitted assigns, are referred to hereinafter each individually as a “ Lender ” and collectively as the “ Lenders ”), BUCA FINANCING, LLC , a Florida limited liability company, as the administrative agent for the Lenders (in such capacity, together with its successors and assigns in such capacity, “ Agent ”), BUCA, INC. , a Minnesota corporation (“ Parent ”), and each of Parent’s Subsidiaries identified on the signature pages hereof (such Subsidiaries, together with Parent, are referred to hereinafter each individually as a “ Borrower ”, and individually and collectively, jointly and severally, as the “ Borrowers ”).

The parties agree as follows:

ARTICLE 1

DEFINITIONS AND CONSTRUCTION

Section 1.1 Definitions . Capitalized terms used in this Agreement shall have the meanings specified therefor on Schedule 1.1 .

Section 1.2 Accounting Terms . All accounting terms not specifically defined herein shall be construed in accordance with GAAP. When used herein, the term “financial statements” shall include the notes and schedules thereto. Whenever the term “Borrowers” or the term “Parent” is used in respect of a financial covenant or a related definition, it shall be understood to mean Parent and its Subsidiaries on a consolidated basis unless the context clearly requires otherwise.

Section 1.3 Code . Any terms used in this Agreement that are defined in the Code shall be construed and defined as set forth in the Code unless otherwise defined herein, provided , however , that to the extent that the Code is used to define any term herein and such term is defined differently in different Articles of the Code, the definition of such term contained in Article 9 shall govern.

Section 1.4 Construction . Unless the context of this Agreement or any other Loan Document clearly requires otherwise, references to the plural include the singular, references to the singular include the plural, the terms “includes” and “including” are not limiting, and the term “or” has, except where otherwise indicated, the inclusive meaning represented by the phrase “and/or.” The words “hereof,” “herein,” “hereby,” “hereunder,” and similar terms in this Agreement or any other Loan Document refer to this Agreement or such other Loan Document, as the case may be, as a whole and not to any particular provision of this Agreement or such other Loan Document, as the case may be. Section, subsection, clause, schedule, and exhibit references herein are to this Agreement unless otherwise specified. Any reference in this Agreement or in the other Loan Documents to any agreement, instrument, or document shall include all alterations, amendments, changes, extensions, modifications, renewals, replacements, substitutions, joinders, and supplements, thereto and thereof, as applicable (subject to any restrictions on such alterations, amendments, changes, extensions, modifications, renewals, replacements, substitutions, joinders, and supplements set forth herein). Any reference herein or in the other Loan Documents to the satisfaction or repayment in full of the Obligations shall mean the repayment in full in cash (or cash collateralization in accordance with the terms hereof) of all Obligations other than contingent indemnification Obligations. Any reference herein to any Person shall be construed to include such Person’s successors and assigns. Any requirement of a writing contained herein or in the other Loan Documents shall be satisfied by the transmission of a Record and any Record transmitted shall constitute a representation and warranty as to the accuracy and completeness of the information contained therein.

Section 1.5 Schedules and Exhibits . All of the schedules and exhibits attached to this Agreement shall be deemed incorporated herein by reference.

 

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ARTICLE 2

LOAN AND TERMS OF PAYMENT

Section 2.1 [Intentionally Omitted].

Section 2.2 Term Loans . Subject to the terms and conditions of this Agreement, on the Closing Date each Lender with a Term Loan Commitment agrees (severally, not jointly or jointly and severally) to make term loans (collectively, the “ Term Loans ”) to Borrowers in an amount equal to such Lender’s Pro Rata Share of the Term Loan Commitment. The Term Loan shall be repaid in full on December 31, 2009. The outstanding unpaid principal balance and all accrued and unpaid interest under the Term Loan shall be due and payable on the date of termination of this Agreement, whether by its terms, by prepayment, or by acceleration. All amounts outstanding under the Term Loan shall constitute Obligations.

Section 2.3 Borrowing Procedures .

(a) [Intentionally Omitted] .

(b) [Intentionally Omitted] .

(c) Making of Loans . Each Lender shall make the amount of such Lender’s Pro Rata Share of the Term Loan Commitment available to Agent in immediately available funds, to Agent’s Account, not later than 5:00 p.m. (New York time) on the Closing Date. After Agent’s receipt of the proceeds of such advances by the Lenders, Agent shall make the proceeds thereof available to Administrative Borrower on the Closing Date by transferring immediately available funds equal to such proceeds received by Agent (net of any fees or expenses due to Agent or the Lender Group by the Borrowers as of such date) to Administrative Borrower’s Designated Account; provided , however , that, Agent shall not request any Lender to make, and no Lender shall have the obligation to make, any Term Loan if Agent shall have actual knowledge that one or more of the applicable conditions precedent set forth in Section 3.2 will not be satisfied on the Closing Date unless such condition has been waived.

(d) [ Intentionally Omitted ].

(e) [ Intentionally Omitted ].

(f) Notation . Agent shall record on its books the principal amount of the Term Loans owing to each Lender, and the interests therein of each Lender, from time to time and such records shall, absent manifest error, conclusively be presumed to be correct and accurate.

(g) Lenders’ Failure to Perform . All Term Loans shall be made by the Lenders contemporaneously and in accordance with their Pro Rata Shares. It is understood that (i) no Lender shall be responsible for any failure by any other Lender to perform its obligation to make any Term Loan hereunder, nor shall any Term Loan Commitment of any Lender be increased or decreased as a result of any failure by any other Lender to perform its obligations hereunder, and (ii) no failure by any Lender to perform its obligations hereunder shall excuse any other Lender from its obligations hereunder.

Section 2.4 Payments .

(a) Payments by Borrowers .

(i) Except as otherwise expressly provided herein, all payments by Borrowers shall be made to Agent’s Account for the account of the Lender Group and shall be made in immediately available funds, no later than 11:00 a.m. (New York time) on the date specified herein. Any payment received by Agent later than 11:00 a.m. (New York time), shall be deemed to have been received on the following Business Day and any applicable interest or fee shall continue to accrue until such following Business Day.

 

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(ii) Unless Agent receives notice from Administrative Borrower prior to the date on which any payment is due to the Lenders that Borrowers will not make such payment in full as and when required, Agent may assume that Borrowers have made (or will make) such payment in full to Agent on such date in immediately available funds and Agent may (but shall not be so required), in reliance upon such assumption, distribute to each Lender on such due date an amount equal to the amount then due such Lender. If and to the extent Borrowers do not make such payment in full to Agent on the date when due, each Lender severally shall repay to Agent on demand such amount distributed to such Lender, together with interest thereon at a rate per annum of 15% for each day from the date such amount is distributed to such Lender until the date repaid.

(b) Apportionment and Application .

(i) Except as otherwise provided in the Loan Documents (or any agreements between Agent and individual Lenders), aggregate principal and interest payments shall be apportioned ratably among the Lenders (according to the unpaid principal balance of the Obligations to which such payments relate held by each Lender) and payments of fees and expenses (other than fees or expenses that are for Agent’s separate account, after giving effect to any agreements between Agent and individual Lenders) shall be apportioned ratably among the Lenders having a Pro Rata Share of the Term Loan Commitment or Obligation to which a particular fee relates. Except as otherwise specifically provided in clause (b)(iii) below or in Section 2.4(d) , all payments shall be remitted to Agent and all such payments, and all proceeds of Collateral received by Agent, shall be applied as follows:

(A) first, ratably to pay any Lender Group Expenses then due to Agent or any of the Lenders under the Loan Documents, until paid in full,

(B) second , ratably to pay any fees or premiums then due to Agent (for its separate account, after giving effect to any agreements between Agent and individual Lenders) or any of the Lenders under the Loan Documents until paid in full,

(C) third , ratably to pay interest due in respect of the Term Loan until paid in full,

(D) fourth , ratably to pay all principal amounts then due and payable (other than as a result of an acceleration thereof) with respect to the Term Loan until paid in full,

(E) fifth , if an Event of Default has occurred and is continuing, to pay the outstanding principal balance of the Term Loan until the Term Loan is paid in full,

(F) sixth , if an Event of Default has occurred and is continuing, to pay any other Obligations, until paid in full, and

(G) seventh , to Borrowers (to be wired to the Designated Account) or such other Person entitled thereto under applicable law.

(ii) [Intentionally Omitted] .

(iii) In each instance, so long as no Event of Default has occurred and is continuing, this Section 2.4(b) shall not apply to any payment made by Borrowers to Agent and specified by Borrowers to be for the payment of specific Obligations then due and payable (or prepayable) under any provision of this Agreement.

(iv) For purposes of the foregoing, (other than clause (G)), “paid in full” means payment of all amounts owing under the Loan Documents (other than contingent indemnification obligations) according to the terms thereof, including loan fees, service fees, professional fees, interest (and specifically including interest accrued after the commencement of any Insolvency Proceeding), default interest, interest on interest, and expense reimbursements, except to the extent that default or overdue interest (but not any other interest) and loan fees, each arising from or related to a default, are disallowed in any Insolvency Proceeding; provided , however , that for purposes of clause (G), “paid in full” means payment of all amounts owing under the Loan Documents (other than contingent

 

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indemnification obligations) according to the terms thereof, including loan fees, service fees, professional fees, interest (and specifically including interest accrued after the commencement of any Insolvency Proceeding), default interest, interest on interest, and expense reimbursements, whether or not any of the foregoing would be or is allowed or disallowed in whole or in part in any Insolvency Proceeding.

(v) In the event of a direct conflict between the priority provisions of this Section 2.4 and other provisions contained in any other Loan Document, it is the intention of the parties hereto that such priority provisions in such documents shall be read together and construed, to the fullest extent possible, to be in concert with each other. In the event of any actual, irreconcilable conflict that cannot be resolved as aforesaid, the terms and provisions of this Section 2.4 shall control and govern.

(c) Optional and Mandatory Prepayments .

(i) Optional . At any time after the Closing Date so long as (A) the Merger Effective Time has occurred or the Merger Agreement has been terminated under circumstances that do not constitute a Merger Termination Event and (B) a Discharge of the Senior Creditor Indebtedness has occurred or the Senior Creditors have consented to such prepayment, Borrowers may voluntarily prepay the principal balance of the Term Loan in whole or in part. Each partial prepayment of the Term Loan shall be in an amount which is an integral multiple of $10,000.

(ii) Mandatory .

(A) Immediately upon any voluntary or involuntary (including casualty losses or condemnations) sale or disposition by any Borrower or its Subsidiaries of property or assets (other than sales or dispositions which qualify as Permitted Dispositions), such Borrower shall prepay, without penalty or premium, the outstanding Obligations in accordance with clause (d) below in an amount equal to 100% of the Net Cash Proceeds (including condemnation awards and payments in lieu thereof) received by such Person in connection with such sales or dispositions to the extent that the aggregate amount of such Net Cash Proceeds received by Borrowers and its Subsidiaries (and not paid to Agent as a prepayment of the Obligations) for all such sales or dispositions shall exceed $250,000 in any fiscal year; provided , however , that, so long as (1) no Default or Event of Default shall have occurred and is continuing, (2) Administrative Borrower shall have given Agent prior written notice of Borrowers’ and their respective Subsidiaries’ intention to apply such monies to the costs of replacement of the property or assets which are the subject of such sale or disposition or the cost of purchase or construction of other assets useful in the business of any of the Borrowers or their respective Subsidiaries, (3) the monies are held in a cash collateral account in which Agent has a perfected security interest (if requested by Agent, in its sole discretion), and (4) a Borrower or a Subsidiary of a Borrower completes such replacement, purchase or construction within 180 days after the initial receipt of such monies, such Borrower shall have the option to apply such monies to the costs of replacement of the property or assets which are the subject of such sale or disposition or the costs of purchase or construction of other assets useful in the business of any of the Borrowers or their respective Subsidiaries unless and to the extent that such applicable period shall have expired without such replacement, purchase or construction being made or completed, in which case, any amounts remaining in the cash collateral account shall be paid to Agent and applied as set forth above. Nothing contained in this subclause (A) shall permit any Borrower or its Subsidiaries to sell or otherwise dispose of any property or assets other than in accordance with Section 6.4 .

(B) Immediately upon the receipt by any Borrower or its Subsidiaries of any Extraordinary Receipts in any fiscal year, such Borrower shall prepay, without premium or penalty, the outstanding Obligations in accordance with clause (d) below in an amount equal to 100% of such Extraordinary Receipts, net of the amount of any Senior Creditor Indebtedness which is required to be, and is, repaid in connection with such receipt and any reasonable expenses incurred in collecting such Extraordinary Receipts.

 

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(C) Immediately upon the issuance or incurrence by any Borrower or its Subsidiaries of any Indebtedness (other than Indebtedness permitted by Section 6.1 ), or the issuance by any Borrower or its Subsidiaries of any shares of its or their Stock (other than Excluded Issuances), such Borrower shall prepay the outstanding principal of the Obligations in accordance with clause (d) in an amount equal to 100% of the Net Cash Proceeds received by such Borrower or its Subsidiaries in connection with such issuance or incurrence. The provisions of this subsection (C) shall not be deemed to be implied consent to any such issuance or incurrence otherwise prohibited by the terms and conditions of this Agreement.

(D) Immediately upon the occurrence of a Merger Termination Event, the Borrowers shall prepay the outstanding Obligations plus an additional amount equal to 30% of the outstanding principal amount of the Term Loans as of such termination. NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN THIS AGREEMENT, SUCH ADDITIONAL AMOUNT IS NOT A PENALTY, BUT REPRESENTS LIQUIDATED DAMAGES IN CONNECTION WITH OCCURRENCE OF A MERGER TERMINATION EVENT. THE PARTIES AGREE THAT IT WOULD BE IMPRACTICABLE AND EXTREMELY DIFFICULT TO ASCERTAIN THE ACTUAL DAMAGES SUFFERED BY THE LENDERS AS A RESULT OF THE OCCURRENCE OF SUCH MERGER TERMINATION EVENT, AND THAT UNDER THE CIRCUMSTANCES EXISTING AS OF THE DATE OF THIS AGREEMENT, THE LIQUIDATED DAMAGES PROVIDED FOR IN THIS SECTION REPRESENTS A REASONABLE ESTIMATE OF THE DAMAGES WHICH THE LENDERS WILL INCUR AS A RESULT OF SUCH OCCURRENCE, PROVIDED, HOWEVER, THAT THIS PROVISION SHALL NOT LIMIT THE LENDERS’ RIGHT TO RECEIVE REIMBURSEMENT FOR ATTORNEYS’ FEES, NOR WAIVE OR AFFECT THE LENDERS’ RIGHT AND THE BORROWERS’ OBLIGATIONS UNDER OTHER SECTIONS OF THIS AGREEMENT, THE OTHER TRANSACTION DOCUMENTS OR THE MERGER AGREEMENT. THE PARTIES ACKNOWLEDGE THAT THE PAYMENT OF SUCH LIQUIDATED DAMAGES IS NOT INTENDED AS A FORFEITURE OR PENALTY, BUT IS INTENDED TO CONSTITUTE LIQUIDATED DAMAGES TO THE LENDERS. NOTWITHSTANDING THE FOREGOING, IF THE BORROWERS INTERFERE WITH OR MAKE ANY ATTEMPT TO INTERFERE WITH THE LENDERS RECEIVING OR RETAINING, AS THE CASE MAY BE, THE LIQUIDATED DAMAGES PROVIDED FOR IN THIS SECTION, THE LENDERS SHALL HAVE THE RIGHT TO ELECT TO RECOVER THE GREATER OF ITS ACTUAL DAMAGES OR THE LIQUIDATED DAMAGES BY GIVING WRITTEN NOTICE TO THE BORROWERS AND THE LENDERS SHALL HAVE ALL OTHER RIGHTS AND REMEDIES AGAINST THE BORROWERS PROVIDED AT LAW AND IN EQUITY.

(E) Notwithstanding the foregoing provisions of this Section 2.4(c)(ii) , no mandatory prepayments of Obligations shall be required pursuant to Sections 2.4(c)(ii)(A) through (C)  until a Discharge of the Senior Creditor Indebtedness has occurred.

(d) Application of Mandatory Payments . Each prepayment pursuant to subsections (A) through (C) of Section 2.4(c)(ii) shall, (i) so long as no Event of Default shall have occurred and be continuing, be applied to the outstanding principal amount of the Term Loan, until paid in full and (ii) if an Event of Default shall have occurred and be continuing, be applied in the manner set forth in Section 2.4(b)(i) .

(e) Interest and Fees . Any prepayment made pursuant to subsections (A) through (C) of Section 2.4(c)(ii) shall be accompanied by accrued and uncapitalized interest on the principal amount being prepaid to the date of prepayment.

Section 2.5 [ Intentionally Omitted ].

 

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Section 2.6 Interest Rates: Rates, Payments, and Calculations .

(a) Interest Rates . Except as provided in clause (c) below, all Obligations that have been charged to the Loan Account pursuant to the terms hereof shall bear interest on the Daily Balance thereof at a per annum rate equal to 15%.

(b) [Intentionally Omitted] .

(c) Default Rate . Upon the occurrence and during the continuation of an Event of Default (and at the election of Agent or the Required Lenders), all Obligations that have been charged to the Loan Account pursuant to the terms hereof shall bear interest on the Daily Balance thereof at a per annum rate equal to 2 percentage points above the per annum rate otherwise applicable hereunder.

(d) Payment .

(i) Prior to the occurrence of an Event of Default (or thereafter if such Event of Default has been cured or waived) or the date on which the outstanding principal amount of the Obligations shall become due and payable, all interest accrued hereunder, on the first Business Day of each month that Obligations are outstanding, (A) shall capitalize and such capitalized amount shall be added pro rata to each Lender’s Pro Rata Share of the Term Loans and shall thereafter constitute Term Loans hereunder and shall accrue interest at the rate then applicable to the Term Loans (solely to the extent that the aggregate principal balance (including any accrued and unpaid capitalized interest) of the Term Loans after such capitalization would not exceed $4,000,000) or (B) otherwise, shall be due and payable, in arrears, in cash.

(ii) Except as provided in the Fee Letter, both (A) all interest accrued hereunder after the occurrence and during the continuance of an Event of Default or after the date on which the outstanding principal amount of the Obligations shall become due and payable and (B) all other fees payable hereunder, shall be due and payable, in arrears, in cash, on the first Business Day of each month at any time that Obligations are outstanding.

(iii) Borrowers hereby authorize Agent, from time to time, without prior notice to Borrowers, to charge all interest and fees (when due and payable), all Lender Group Expenses (as and when incurred), all fees and costs provided for in the Fee Letter (when due and payable or as and when incurred, as the case may be), and all other payments as and when due and payable under any Loan Document (including the amounts due and payable with respect to the Term Loans) to Borrowers’ Loan Account, which amounts thereafter shall constitute Term Loans hereunder and accrue interest at the rate then applicable to Term Loans.

(iv) The Lender Group and the Borrowers intend to contract in strict compliance with applicable usury law from time to time in effect. In furtherance thereof such Persons stipulate and agree that none of the terms and provisions contained in the Transaction Documents shall ever be construed to create a contract to pay, for the use, forbearance or detention of money, interest in excess of the maximum amount of interest permitted to be charged by applicable law from time to time in effect (the “ Maximum Lawful Rate ”). No Borrower, nor any present or future guarantors, endorsers, or other Persons hereafter becoming liable for payment of any Obligation shall ever be liable for unearned interest thereon or shall ever be required to pay interest thereon in excess of the Maximum Lawful Rate, and the provisions of this Section 2.6(d)(iv) ) shall control over all other provisions of the Transaction Documents which may be in conflict or apparent conflict herewith. The Lender Group expressly disavows any intention to charge or collect excessive unearned interest or finance charges in the event the maturity of any Obligation is accelerated. If (i) the maturity of any Obligation is accelerated for any reason; (ii) any Obligation is prepaid and as a result any amounts held to constitute interest are determined to be in excess of the Maximum Lawful Rate; or (iii) any Lender or any other holder of any or all of the Obligations shall otherwise collect money which is determined to constitute interest which would otherwise increase the interest on any or all of the Obligations to an amount in excess of the Maximum Lawful Rate, then all sums determined to constitute interest in excess of such

 

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legal limit shall, without penalty, be promptly applied to reduce the then outstanding principal of the Obligations or, at such Lender’s option, promptly returned to the Borrowers or the other payor thereof upon such determination. In determining whether or not the interest paid or payable, under any specific circumstance, exceeds the Maximum Lawful Rate, the Borrowers and the Lender Group (and any other payors thereof) shall to the greatest extent permitted under applicable law, (A) characterize any non-principal payment as an expense, fee or premium rather than as interest; (B) exclude voluntary prepayments and the effects thereof; and (C) amortize, prorate, allocate, and spread the total amount of interest throughout the entire contemplated term of the instruments evidencing the Obligations in accordance with the amounts outstanding from time to time thereunder. Notwithstanding anything to the contrary set forth in this Section 2.6 or elsewhere in this Agreement, if a court of competent jurisdiction determines in a final order that the rate of interest payable hereunder exceeds the Maximum Lawful Rate, then so long as the Maximum Lawful Rate would be so exceeded, the rate of interest payable hereunder shall be equal to the Maximum Lawful Rate; provided , however , that if at any time thereafter the rate of interest payable hereunder is less than the Maximum Lawful Rate, the Borrowers shall continue to pay interest hereunder at the Maximum Lawful Rate until such time as the total interest received by the Lender Group is equal to the total interest which would have been received had the interest rate payable hereunder been (but for the operation of this paragraph) the interest rate payable since the Closing Date as otherwise provided in this Agreement. Thereafter, interest hereunder shall be paid at the rate(s) of interest and in the manner provided in this Section 2.6 and elsewhere in this Agreement, unless and until the rate of interest again exceeds the Maximum Lawful Rate, and at that time this paragraph shall again apply. In no event shall the total interest received by any Lender pursuant to the terms hereof exceed the amount which such Lender could lawfully have received had the interest due hereunder been calculated for the full term hereof at the Maximum Lawful Rate. If the Maximum Lawful Rate is calculated pursuant to this paragraph, such interest shall be calculated at a daily rate equal to the Maximum Lawful Rate divided by the number of days in the year in which such calculation is made. As used in this Section 2.6(d)(iv) only, the term “applicable law” means the laws of the State of New York or the laws of the United States, whichever laws allow the greater interest, as such laws now exist or may be changed or amended or come into effect in the future.

(e) Computation . All interest and fees chargeable under the Loan Documents shall be computed on the basis of a 360 day year for the actual number of days elapsed.

Section 2.7 Cash Management . Unless otherwise waived by Senior Agent, until termination of the Term Loan Commitments and payment in full of the Obligations:

(a) Administrative Borrower shall establish and maintain a concentration account in the name of Senior Agent (“ Concentration Account ”) on terms reasonably satisfactory to Senior Agent at the bank set forth on Schedule 2.7(a) (the “ Concentration Account Bank ”).

(b) Borrowers shall and shall cause each of their domestic Subsidiaries to (i) establish and maintain a collection account or accounts (each, a “ Collection Account ”) on terms reasonably satisfactory to Senior Agent at one or more of the banks set forth on Schedule 2.7(b) (each, a “ Collection Account Bank ”), (ii) request in writing and otherwise take such reasonable steps to ensure that all of its and its domestic Subsidiaries’ Account Debtors forward payment of the amounts owed by them directly to such Collection Accounts or to the Concentration Account, (iii) subject to Section 6.12 , deposit or cause to be deposited promptly, and in any event no later than 5 days after the date of receipt thereof, all of their Collections from Restaurants directly to such Collection Accounts or the Concentration Account, and (iv) instruct each of the Collection Account Banks to forward payment, no later than the earlier of (a) the first Business Day after the date on which the amount in such Collection Account equals or exceeds $250,000, or (b) once per week, all of the amounts in any Collection Account maintained by such Collection Account Bank directly to the Concentration Account.

 

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(c) Borrowers shall, and shall cause each of their domestic Subsidiaries that receive Collections through credit card charges to, establish and maintain Credit Card Agreements with Senior Agent and each Credit Card Processor; provided that with respect to American Express, Discover and Diners Club, Borrowers shall instruct in writing that such Credit Card Processors transfer all amounts payable by them to any Borrower or its Subsidiaries to the Concentration Account in lieu of delivering a Credit Card Agreement with Senior Agent and such Credit Card Processors. Each such Credit Card Agreement shall provide, among other things, that each such Credit Card Processor shall transfer all proceeds of credit card charges for sales by such Borrowers or such Subsidiary, as applicable, received by it (or other amounts payable by such Credit Card Processor) into the Concentration Account on each Business Day (or on such other basis as shall be agreed upon by Senior Agent). Neither any Borrower nor any domestic Subsidiary may change any direction or designation set forth in the Credit Card Agreements regarding payment of charges without the prior written consent of Senior Agent, and neither any Borrower nor any domestic Subsidiary shall cause the proceeds of credit card charges to be transferred to any Deposit Account other than the Concentration Account.

(d) The Concentration Account Bank and each Cash Management Bank shall establish and maintain Cash Management Agreements or Control Agreements with Senior Agent, in form and substance reasonably acceptable to Senior Agent. Each such Cash Management Agreement and Control Agreement shall provide, among other things, that (i) the applicable Cash Management Bank will comply with any instructions originated by Senior Agent directing the disposition of the funds in such Cash Management Accounts maintained by it without further consent by any Borrower or its Subsidiaries, as applicable, (ii) the Cash Management Bank has no rights of setoff or recoupment or any other claim against such Cash Management Accounts other than for payment of its service fees and other charges directly related to the administration of any such Cash Management Account and for returned checks or other items of payment, and (iii) upon the instruction of the Senior Agent (an “ Activation Instruction ”), such Cash Management Bank will forward by daily sweep all amounts in the applicable Cash Management Account to the Agent’s Account (as defined in the Senior Creditor Loan Agreement prior to the Discharge of the Senior Creditor Indebtedness; thereafter, as defined herein). Agent agrees not to issue an Activation Instruction with respect to the Cash Management Accounts unless both an Event of Default has occurred and is continuing and the Discharge of the Senior Creditor Indebtedness has occurred at the time such Activation Instruction is issued. Agent agrees to use commercially reasonable efforts to rescind an Activation Instruction issued by it (the “ Rescission ”) if: (x) the Event of Default upon which such Activation Instruction was issued has been waived in writing in accordance with the terms of this Agreement, and (y) no additional Event of Default has occurred and is continuing prior to the date of the Rescission or is reasonably expected to occur on or immediately after the date of the Rescission.

(e) So long as no Default or Event of Default has occurred and is continuing, Borrowers may amend Schedule 2.7(a) and Schedule 2.7(b) to add or replace a Cash Management Bank or Cash Management Account; provided , however , that (i) such prospective Cash Management Bank shall be reasonably satisfactory to Senior Agent, and (ii) prior to the time of the opening of such Cash Management Account, a Borrower or its Subsidiary, as applicable, and such prospective Cash Management Bank shall have executed and delivered to Senior Agent a Cash Management Agreement or Control Agreement in form and substance acceptable to Senior Agent in its Permitted Discretion. Borrowers (or their Subsidiaries, as applicable) shall close any of their Cash Management Accounts (and establish replacement cash management accounts in accordance with the foregoing sentence) promptly and in any event within 45 days of notice from Senior Agent that the creditworthiness of any Cash Management Bank is no longer acceptable in Senior Agent’s reasonable judgment, or as promptly as practicable and in any event within 75 days of notice from Senior Agent that the operating performance, funds transfer, or availability procedures or performance of the Cash Management Bank with respect to Cash Management Accounts is no longer acceptable in Senior Agent’s reasonable judgment.

(f) The Cash Management Accounts shall be cash collateral accounts subject to Cash Management Agreements or Control Agreements.

 

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(g) Upon the Discharge of the Senior Creditor Indebtedness, each instance of “Senior Agent” in Sections 2.7(a) through (f)  (and, except to the extent the context may otherwise require, in any terms defined in Schedule 1.1 hereto to the extent used in said sections) shall be replaced with “Agent” and the obligations of the Borrowers thereunder shall be construed accordingly in connection therewith.

Section 2.8 Crediting Payments . The receipt of any payment item by Agent (whether from transfers to Agent by the Cash Management Banks pursuant to the Cash Management Agreements or otherwise) shall not be considered a payment on account unless such payment item is a wire transfer of immediately available federal funds made to the Agent’s Account or unless and until such payment item is honored when presented for payment. Should any payment item not be honored when presented for payment, then Borrowers shall be deemed not to have made such payment and interest shall be calculated accordingly. Anything to the contrary contained herein notwithstanding, any payment item shall be deemed received by Agent only if it is received into the Agent’s Account on a Business Day on or before 11:00 a.m. (New York time). If any payment item is received into the Agent’s Account on a non-Business Day or after 11:00 a.m. (New York time) on a Business Day, it shall be deemed to have been received by Agent as of the opening of business on the immediately following Business Day.

Section 2.9 Designated Account . Agent is authorized to make the Term Loans under this Agreement based upon telephonic or other instructions received from anyone purporting to be an Authorized Person or, without instructions, if pursuant to Section 2.6(d) . Administrative Borrower agrees to establish and maintain the Designated Account with the Designated Account Bank for the purpose of receiving the proceeds of the Term Loans.

Section 2.10 Maintenance of Loan Account; Statements of Obligations . Agent shall maintain an account on its books in the name of Borrowers (the “ Loan Account ”) on which Borrowers will be charged with the Term Loans and with all other payment Obligations hereunder or under the other Loan Documents, including, accrued interest, fees and expenses, and Lender Group Expenses. In accordance with Section 2.8 , the Loan Account will be credited with all payments received by Agent from Borrowers or for Borrowers’ account, including all amounts received in the Agent’s Account from any Cash Management Bank. Agent shall render statements regarding the Loan Account to Administrative Borrower, including principal, interest, and fees, and including an itemization of all charges and expenses constituting Lender Group Expenses owing, and such statements, absent manifest error, shall be conclusively presumed to be correct and accurate and constitute an account stated between Borrowers and the Lender Group unless, within 30 days after receipt thereof by Administrative Borrower, Administrative Borrower shall deliver to Agent written objection thereto describing the error or errors contained in any such statements.

Section 2.11 Fees . Borrowers shall pay to Agent, as and when due and payable under the terms of the Fee Letter, the fees set forth in the Fee Letter.

Section 2.12 [ Intentionally Omitted ].

Section 2.13 Registered Notes . Agent, as a non-fiduciary on behalf of Borrowers (or in the case of an assignment not recorded in the Register in accordance with Section 13.1(i) , the assigning Lender), agrees to record each Term Loan on the Register (or in the case of an assignment not recorded in the Register in accordance with Section 13.1(i) , a register comparable to the Register) referred to in Section 13.1(i) . Each Term Loan recorded on the Register (or comparable register) may not be evidenced by promissory notes other than Registered Notes (as defined below). Upon the registration of each Term Loan on the Register, each Borrower agrees, at the request of any Lender shown on the Register as the registered owner of such Term Loan, to execute and deliver to such Lender a promissory note, in conformity with the terms of this Agreement, in registered form to evidence such Registered Loan, in form and substance reasonably satisfactory to such Lender, and registered as provided in Section 13.1(i) (a “ Registered Note ”), payable to such Lender or registered assigns and otherwise

 

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duly completed. Once recorded on the Register (or comparable register), each Term Loan may not be removed from the Register (or comparable register) so long as it or they remain outstanding, and a Registered Note may not be exchanged for a promissory note that is not a Registered Note.

Section 2.14 [Intentionally Omitted] .

Section 2.15 Joint and Several Liability of Borrowers .

(a) Each Borrower is accepting joint and several liability hereunder and under the other Loan Documents in consideration of the financial accommodations to be provided by the Lender Group under this Agreement, for the mutual benefit, directly and indirectly, of each Borrower and in consideration of the undertakings of the other Borrowers to accept joint and several liability for the Obligations.

(b) Each Borrower, jointly and severally, hereby irrevocably and unconditionally accepts, not merely as a surety but also as a co-debtor, joint and several liability with the other Borrowers, with respect to the payment and performance of all of the Obligations (including, without limitation, any Obligations arising under this Section 2.15 ), it being the intention of the parties hereto that all the Obligations shall be the joint and several obligations of each Borrower without preferences or distinction among them.

(c) If and to the extent that any Borrower shall fail to make any payment with respect to any of the Obligations as and when due or to perform any of the Obligations in accordance with the terms thereof, then in each such event the other Borrowers will make such payment with respect to, or perform, such Obligation.

(d) The Obligations of each Borrower under the provisions of this Section 2.15 constitute the absolute and unconditional, full recourse Obligations of each Borrower enforceable against each Borrower to the full extent of its properties and assets, irrespective of the validity, regularity or enforceability of this Agreement against or in respect of the other Borrowers or any other circumstances whatsoever.

(e) Except as otherwise expressly provided in this Agreement, each Borrower hereby waives notice of acceptance of its joint and several liability, notice of the occurrence of any Default, Event of Default, or of any demand for any payment under this Agreement, notice of any action at any time taken or omitted by Agent or Lenders under or in respect of any of the Obligations, any requirement of diligence or to mitigate damages and, generally, to the extent permitted by applicable law, all demands, notices and other formalities of every kind in connection with this Agreement (except as otherwise provided in this Agreement). Each Borrower hereby assents to, and waives notice of, any extension or postponement of the time for the payment of any of the Obligations, the acceptance of any payment of any of the Obligations, the acceptance of any partial payment thereon, any waiver, consent or other action or acquiescence by Agent or Lenders at any time or times in respect of any default by any Borrower in the performance or satisfaction of any term, covenant, condition or provision of this Agreement, any and all other indulgences whatsoever by Agent or Lenders in respect of any of the Obligations, and the taking, addition, substitution or release, in whole or in part, at any time or times, of any security for any of the Obligations or the addition, substitution or release, in whole or in part, of any Borrower. Without limiting the generality of the foregoing, each Borrower assents to any other action or delay in acting or failure to act on the part of any Agent or Lender with respect to the failure by any Borrower to comply with any of its respective Obligations, including, without limitation, any failure strictly or diligently to assert any right or to pursue any remedy or to comply fully with applicable laws or regulations thereunder, which might, but for the provisions of this Section 2.15 afford grounds for terminating, discharging or relieving any Borrower, in whole or in part, from any of its Obligations under this Section 2.15 , it being the intention of each Borrower that, so long as any of the Obligations hereunder remain unsatisfied, the Obligations of each Borrower under this Section 2.15 shall not be discharged except by performance and then only to the extent of such performance. The Obligations of each Borrower under this Section 2.15 shall not be diminished or rendered unenforceable by any winding up, reorganization, arrangement, liquidation, reconstruction or similar proceeding with respect to any other Borrower or any Agent or Lender.

 

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(f) Each Borrower represents and warrants to Agent and Lenders that such Borrower is currently informed of the financial condition of Borrowers and of all other circumstances which a diligent inquiry would reveal and which bear upon the risk of nonpayment of the Obligations. Each Borrower further represents and warrants to Agent and Lenders that such Borrower has read and understands the terms and conditions of the Loan Documents. Each Borrower hereby covenants that such Borrower will continue to keep informed of Borrowers’ financial condition, the financial condition of other guarantors, if any, and of all other circumstances which bear upon the risk of nonpayment or nonperformance of the Obligations.

(g) Each Borrower waives all rights and defenses arising out of an election of remedies by Agent or any Lender, even though that election of remedies, such as a nonjudicial foreclosure with respect to security for a guaranteed obligation, has destroyed Agent’s or such Lender’s rights of subrogation and reimbursement against such Borrower by the operation of Section 580(d) of the California Code of Civil Procedure or otherwise:

(h) Each Borrower waives all rights and defenses that such Borrower may have because the Obligations are secured by Real Property. This means, among other things:

(i) Agent and Lenders may collect from such Borrower without first foreclosing on any Real or Personal Property Collateral pledged by Borrowers.

(ii) If Agent or any Lender forecloses on any Real Property Collateral pledged by Borrowers:

(A) The amount of the Obligations may be reduced only by the price for which that collateral is sold at the foreclosure sale, even if the collateral is worth more than the sale price.

(B) Agent and Lenders may collect from such Borrower even if Agent or Lenders, by foreclosing on the Real Property Collateral, has destroyed any right such Borrower may have to collect from the other Borrowers.

This is an unconditional and irrevocable waiver of any rights and defenses such Borrower may have because the Obligations are secured by Real Property. These rights and defenses include, but are not limited to, any rights or defenses based upon Section 580a, 580b, 580d or 726 of the California Code of Civil Procedure.

(i) The provisions of this Section 2.15 are made for the benefit of Agent, Lenders and their respective successors and assigns, and may be enforced by it or them from time to time against any or all Borrowers as often as occasion therefor may arise and without requirement on the part of any such Agent, Lender, successor or assign first to marshal any of its or their claims or to exercise any of its or their rights against any Borrower or to exhaust any remedies available to it or them against any Borrower or to resort to any other source or means of obtaining payment of any of the Obligations hereunder or to elect any other remedy. The provisions of this Section 2.15 shall remain in effect until all of the Obligations shall have been paid in full or otherwise fully satisfied. If at any time, any payment, or any part thereof, made in respect of any of the Obligations, is rescinded or must otherwise be restored or returned by any Agent or Lender upon the insolvency, bankruptcy or reorganization of any Borrower, or otherwise, the provisions of this Section 2.15 will forthwith be reinstated in effect, as though such payment had not been made.

(j) Each Borrower hereby agrees that it will not enforce any of its rights of contribution or subrogation against any other Borrower with respect to any liability incurred by it hereunder or under any of the other Loan Documents, any payments made by it to Agent or Lenders with respect to any of the Obligations or any collateral security therefor until such time as all of the Obligations have been paid in full in cash. Any claim which any Borrower may have against any other Borrower with respect to any payments to any Agent or Lender hereunder or under any other Loan Documents are hereby expressly made subordinate and junior in right of payment, without limitation as to any increases in the Obligations arising hereunder or thereunder, to the prior payment in full in cash of the Obligations and, in the event of any insolvency, bankruptcy, receivership, liquidation, reorganization or other similar proceeding under the laws of any jurisdiction relating to any Borrower, its debts or its assets, whether voluntary or involuntary, all such Obligations shall be paid in full in cash before any payment or distribution of any character, whether in cash, securities or other property, shall be made to any other Borrower therefor.

 

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(k) [ Intentionally Omitted ]

Section 2.16 [Intentionally Omitted] .

ARTICLE 3

CONDITIONS; TERM OF AGREEMENT

Section 3.1 [ Intentionally Omitted ]

Section 3.2 Conditions Precedent to Making of the Term Loan . The obligation of each Lender to make its Pro Rata Share of the Term Loan is subject to the fulfillment, to the satisfaction of Agent and each Lender of each of the conditions precedent set forth on Schedule 3.2 (the making of such Pro Rata Share of the Term Loan by a Lender being conclusively deemed to be its satisfaction or waiver of the conditions precedent) and the following conditions precedent:

(a) the representations and warranties contained in this Agreement or in the other Loan Documents shall be true and correct in all material respects on and as of the Closing Date (except to the extent that such representations and warranties relate solely to an earlier date);

(b) no Default or Event of Default shall have occurred and be continuing on and as of the Closing Date, nor shall either result from the making of the Term Loans;

(c) no injunction, writ, restraining order, or other order of any nature restricting or prohibiting, directly or indirectly, the making of the Term Loans shall have been issued and remain in force by any Governmental Authority against any Borrower, Agent, any Lender, or any of their Affiliates; and

(d) no Material Adverse Change shall have occurred since the date of the latest financial statements submitted to Agent on or prior to the Closing Date.

Section 3.3 Conditions Subsequent to Making of the Term Loan . The Borrowers shall (the failure by Borrowers to so perform or cause to be performed constituting an Event of Default):

(a) upon request by the Agent, Borrowers shall use their best efforts to deliver to Agent, within 60 days after any such request, (i) consents, in form and substance reasonably satisfactory to Agent, to granting of a Mortgage on any Real Property (other than Real Property constituting an Excluded Asset under clause (i) of the definition thereof) from any party whose consent is required for the granting of any such Mortgage and (ii) mortgagee title insurance policies (or marked commitments to issue the same) for any Mortgage referred to in the foregoing clause (i), issued by a title insurance company satisfactory to Agent in their Permitted Discretion, in amounts satisfactory to Agent in their Permitted Discretion, assuring Agent that such Mortgage on such Real Property is a valid and enforceable Second Priority mortgage Lien (subject to Permitted Liens) free and clear of all defects and encumbrances except Permitted Liens, and is otherwise in form and substance reasonably satisfactory to Agent; and

(b) upon request by the Agent, Borrowers shall use their best efforts to deliver to Agent, within 60 days of any such request, Collateral Access Agreements with respect to any of premises listed on Schedule R-2 , but only to the extent a similar agreement has been provided to the Senior Agent.

Section 3.4 Term . This Agreement shall continue in full force and effect for a term ending on December 31, 2009 (the “ Maturity Date ”). The foregoing notwithstanding, the Lender Group, upon the election of the Required Lenders, shall have the right to terminate its obligations under this Agreement (other than under Section 16.7 ) immediately and without notice upon the occurrence and during the continuation of an Event of Default.

Section 3.5 Effect of Termination . On the date of termination of this Agreement, all Obligations immediately shall become due and payable without notice or demand. No termination of this Agreement, however, shall relieve or discharge Borrowers or their Subsidiaries of their duties, Obligations, or covenants hereunder or under

 

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any other Loan Document and the Agent’s Liens in the Collateral shall remain in effect until all Obligations have been paid in full and the Lender Group’s obligations to provide additional credit hereunder have been terminated. When this Agreement has been terminated and all of the Obligations have been paid in full and the Lender Group’s obligations to provide additional credit under the Loan Documents have been terminated irrevocably, Agent will, at Borrowers’ sole expense, execute and deliver any termination statements, lien releases, mortgage releases, re-assignments of trademarks, discharges of security interests, and other similar discharge or release documents (and, if applicable, in recordable form) as are reasonably necessary to release, as of record, the Agent’s Liens and all notices of security interests and liens previously filed by Agent with respect to the Obligations.

Section 3.6 [Intentionally Omitted] .

ARTICLE 4

REPRESENTATIONS AND WARRANTIES

In order to induce the Lender Group to enter into this Agreement, each Borrower makes the following representations and warranties to the Lender Group which shall be true, correct, and complete, in all material respects, as of the date hereof, and shall be true, correct, and complete, in all material respects, as of the Closing Date and such representations and warranties shall survive the execution and delivery of this Agreement:

Section 4.1 No Encumbrances . Each Borrower and its Subsidiaries has good and indefeasible title to, or a valid leasehold interest in, their personal property assets and good and marketable title to, or a valid leasehold interest in, their Real Property, in each case, free and clear of Liens except for Permitted Liens.

Section 4.2 [ Intentionally Omitted ].

Section 4.3 [ Intentionally Omitted ].

Section 4.4 Equipment . Each material item of Equipment of Borrowers and their Subsidiaries is used or held for use in their business and is in good working order, ordinary wear and tear and damage by casualty excepted (except where the failure to be in such good working order could not reasonably be expected to result in a Material Adverse Change).

Section 4.5 Location of Inventory and Equipment . Except as disclosed on Schedule 4.5 (as such Schedule may be updated pursuant to Section 5.9 ), the Inventory and Equipment (other than vehicles or Equipment out for repair) of Borrowers and their Subsidiaries are not stored with a bailee, warehouseman, or similar party and are located only at, or in-transit between, the locations identified on Schedule 4.5 (as such Schedule may be updated pursuant to Section 5.9 ).

Section 4.6 Inventory Records . Each Borrower keeps correct and accurate records itemizing and describing the type, quality, and quantity of its and its Subsidiaries’ Inventory and the book value thereof.

Section 4.7 State of Incorporation; Location of Chief Executive Office; Organizational Identification Number; Commercial Tort Claims .

(a) The jurisdiction of organization of Parent is set forth on Schedule 4.7(a) .

(b) The chief executive office of each Borrower and each of its Subsidiaries is located at the address indicated on Schedule 4.7(b) (as such Schedule may be updated pursuant to Section 5.9 ).

(c) Parent’s FEIN and organizational identification number, if any, are identified on Schedule 4.7(c) .

 

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(d) As of the Closing Date, Borrowers and their Subsidiaries do not hold any commercial tort claims, except as set forth on Schedule 4.7(d) .

Section 4.8 Due Organization and Qualification; Subsidiaries .

(a) Each of the Borrowers is duly organized and existing and in good standing under the laws of the jurisdiction of its organization and qualified to do business in any state where the failure to be so qualified reasonably could be expected to result in a Material Adverse Change.

(b) Set forth on Schedule 4.8(b) , is, as of the Closing Date, a complete and accurate description of the authorized capital Stock of Parent, by class, and, as of the Closing Date, a description of the number of shares of each such class that are issued and outstanding. Other than (i) as described on Schedule 4.8(b) , (ii) the Warrant and (iii) as contemplated by the Merger Agreement, there are, as of the Closing Date, no subscriptions, options, warrants, or calls requiring the issuance by Parent of any shares of Parent’s capital Stock, including any right of conversion or exchange under any outstanding security or other instrument. Parent is not subject to any obligation (contingent or otherwise) to repurchase or otherwise acquire or retire any shares of its capital Stock or any security convertible into or exchangeable for any of its capital Stock.

(c) Set forth on Schedule 4.8(c) (as such Schedule may be updated upon written notice to Agent) is a complete and accurate list of Parent’s direct and indirect Subsidiaries, showing: (i) the jurisdiction of their organization and their FEIN and organizational numbers, (ii) the number of shares of each class of common and preferred Stock authorized for each of such Subsidiaries, and, as of the Closing Date, a description of the number of shares of each such class that are issued and outstanding, and (iii) the number and the percentage of the outstanding shares of each such class owned directly or indirectly by Parent or a Subsidiary of Parent. All of the outstanding capital Stock of each such Subsidiary has been validly issued and is fully paid and non-assessable.

(d) Except as set forth on Schedule 4.8(c) , there are no subscriptions, options, warrants, or calls relating to any shares of any capital Stock of any Subsidiary of Parent, including any right of conversion or exchange under any outstanding security or other instrument. Neither Parent nor any of its Subsidiaries is subject to any obligation (contingent or otherwise) to repurchase or otherwise acquire or retire any shares of any such Subsidiaries’ capital Stock or any security convertible into or exchangeable for any such capital Stock.

Section 4.9 Due Authorization; No Conflict .

(a) As to each Borrower, the execution, delivery, and performance by such Borrower of this Agreement and the other Transaction Documents to which it is a party have been duly authorized by all necessary corporate, limited liability company or limited partnership action on the part of such Borrower.

(b) As to each Borrower, the execution, delivery, and performance by such Borrower of this Agreement and the other Transaction Documents to which it is a party do not and will not (i) violate any provision of federal, state, or local law or regulation applicable to any Borrower, the Governing Documents of any Borrower, or any order, judgment, or decree of any court or other Governmental Authority binding on any Borrower, (ii) conflict with, result in a breach of, or constitute (with due notice or lapse of time or both) a default under any material contractual obligation of any Borrower (including any Material Contract), (iii) result in or require the creation or imposition of any Lien of any nature whatsoever upon any properties or assets of Borrower, other than Permitted Liens, or (iv) require any approval of the holders of any Borrower’s Stock or any approval or consent of any Person under any material contractual obligation of any Borrower (including any Material Contract), other than consents or approvals that have been obtained and that are still in force and effect.

(c) Other than the filing of financing statements, any filings required with the United States Copyright office or Office of Patents and Trademarks, and the recordation of the Mortgages, the execution, delivery, and performance by each Borrower of this Agreement and the other Transaction Documents to which such

 

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Borrower is a party do not and will not require any registration with, consent, or approval of, or notice to, or other action with or by, any Governmental Authority, other than consents or approvals that have been obtained and that are still in force and effect.

(d) As to each Borrower, this Agreement and the other Transaction Documents to which such Borrower is a party, and all other documents contemplated hereby and thereby, when executed and delivered by such Borrower will be the legally valid and binding obligations of such Borrower, enforceable against such Borrower in accordance with their respective terms, except as enforcement may be limited by equitable principles or by bankruptcy, insolvency, reorganization, moratorium, or similar laws relating to or limiting creditors’ rights generally.

(e) To the extent that they can be perfected by the filing, notation, or registration of Liens (except to the extent that perfection is not required pursuant to the express terms of the Security Agreement), Agent’s Liens on the Collateral (other than with respect to assets having de minimus value) are validly created, perfected, and Second Priority Liens, subject only to Permitted Liens.

(f) The execution, delivery, and performance by each Guarantor of the Loan Documents to which it is a party have been duly authorized by all necessary corporate, limited liability company or limited partnership action on the part of such Guarantor.

(g) The execution, delivery, and performance by each Guarantor of the Loan Documents to which it is a party do not and will not (i) violate any provision of federal, state, or local law or regulation applicable to such Guarantor, the Governing Documents of such Guarantor, or any order, judgment, or decree of any court or other Governmental Authority binding on such Guarantor, (ii) conflict with, result in a breach of, or constitute (with due notice or lapse of time or both) a default under any material contractual obligation of such Guarantor (including any Material Contract), (iii) result in or require the creation or imposition of any Lien of any nature whatsoever upon any properties or assets of such Guarantor, other than Permitted Liens, or (iv) require any approval of the holders such Guarantor’s Stock or any approval or consent of any Person under any material contractual obligation of such Guarantor (including any Material Contract), other than consents or approvals that have been obtained and that are still in force and effect.

(h) Other than the filing of financing statements, any filings required with the United States Copyright office or Office of Patents and Trademarks and the recordation of the Mortgages, the execution, delivery, and performance by each Guarantor of the Loan Documents to which such Guarantor is a party do not and will not require any registration with, consent, or approval of, or notice to, or other action with or by, any Governmental Authority, other than consents or approvals that have been obtained and that are still in force and effect.

(i) The Loan Documents to which each Guarantor is a party, and all other documents contemplated hereby and thereby, when executed and delivered by such Guarantor will be the legally valid and binding obligations of such Guarantor, enforceable against such Guarantor in accordance with their respective terms, except as enforcement may be limited by equitable principles or by bankruptcy, insolvency, reorganization, moratorium, or similar laws relating to or limiting creditors’ rights generally.

Section 4.10 Litigation . Other than matters that are disclosed on Schedule 4.10 hereto or that reasonably could not be expected to result in a Material Adverse Change, there are no actions, suits, or proceedings pending or, to the best knowledge of each Borrower, threatened against any Borrower or any of its Subsidiaries.

Section 4.11 No Material Adverse Change . All financial statements relating to Borrowers and their Subsidiaries (or any Guarantor, separately) that have been delivered by Borrowers to the Lender Group have been prepared in accordance with GAAP (except, in the case of unaudited financial statements, for the lack of footnotes and being subject to year-end audit adjustments) and present fairly in all material respects, Borrowers’ and their Subsidiaries’ (or such Guarantor’s, as applicable) consolidated financial condition as of the date thereof and consolidated results of operations for the period then ended. There has not been a Material Adverse Change with respect to Borrowers and their Subsidiaries (or such Guarantor, as applicable) since the date of the latest financial statements submitted to Agent on or before the Closing Date.

 

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Section 4.12 Fraudulent Transfer .

(a) Each Borrower is Solvent.

(b) No transfer of property is being made by any Borrower or any Subsidiary of a Borrower and no obligation is being incurred by any Borrower or any Subsidiary of a Borrower in connection with the transactions contemplated by this Agreement or the other Loan Documents with the intent to hinder, delay, or defraud either present or future creditors of Borrowers or their Subsidiaries.

Section 4.13 Employee Benefits . None of Borrowers, any of their Subsidiaries, or any of their ERISA Affiliates maintains or contributes to any Benefit Plan.

Section 4.14 Environmental Condition . Except as set forth on Schedule 4.14 , (a) to Borrowers’ knowledge, none of Borrowers’ or their Subsidiaries’ properties or assets has ever been used by Borrowers, their Subsidiaries, or by previous owners or operators in the disposal of, or to produce, store, handle, treat, release, or transport, any Hazardous Materials, where such use, production, storage, handling, treatment, release or transport was in violation, in any respect, of any applicable Environmental Law (except where such violation could not reasonably be expected to result in a Material Adverse Change), (b) to Borrowers’ knowledge, none of Borrowers’ nor their Subsidiaries’ properties or assets has ever been designated or identified in any manner pursuant to any environmental protection statute as a Hazardous Materials disposal site, (c) none of Borrowers nor any of their Subsidiaries have received notice that a Lien arising under any Environmental Law has attached to any revenues or to any Real Property owned or operated by Borrowers or their Subsidiaries (except for Liens that have been released and Liens with respect to which such Borrower or Subsidiary has posted bonds or other financial assurances sufficient to satisfy the obligations or liability evidenced thereby), and (d) none of Borrowers nor any of their Subsidiaries have received a summons, citation, notice, or directive from the United States Environmental Protection Agency or any other federal or state governmental agency concerning any action or omission by any Borrower or any Subsidiary of a Borrower resulting in the releasing or disposing of Hazardous Materials into the environment (unless such Borrower or Subsidiary has taken or is diligently taking all Remedial Actions required to abate said release or disposition or otherwise to come into compliance with applicable Environmental Law and so long as the effect of such release or disposition could not reasonably be expected to result in a Material Adverse Change).

Section 4.15 Intellectual Property . Each Borrower and each of its Subsidiaries owns, or holds licenses in, all trademarks, trade names, copyrights, patents, patent rights, and licenses that are necessary to the conduct of its business as currently conducted, and attached hereto as Schedule 4.15 (as updated from time to time) is a true, correct, and complete listing of all material patents, patent applications, trademarks, trademark applications, and copyright registrations as to which any Borrower or any of its Subsidiaries is the owner or is an exclusive licensee.

Section 4.16 Leases . Borrowers and their Subsidiaries enjoy peaceful and undisturbed possession under all leases material to their business and to which they are parties or under which they are operating and all of such material leases are valid and subsisting and no material default by Borrowers or their Subsidiaries exists under any of them.

Section 4.17 Deposit Accounts and Securities Accounts . Set forth on Schedule 4.17 (as updated from time to time) is a listing of all of Borrowers’ and their Subsidiaries’ Deposit Accounts and Securities Accounts, including, with respect to each bank or securities intermediary (a) the name and address of such Person, and (b) the account numbers of the Deposit Accounts or Securities Accounts maintained with such Person.

Section 4.18 Complete Disclosure . All factual information (taken as a whole) furnished by or on behalf of Borrowers or their Subsidiaries in writing to Agent or any Lender (including all information contained in the Schedules hereto or in the other Transaction Documents) for purposes of or in connection with this Agreement, the other Transaction Documents, or any transaction contemplated herein or therein is, and all other such factual

 

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information (taken as a whole) hereafter furnished by or on behalf of any of the Borrowers or their Subsidiaries in writing to Agent or any Lender for purposes of or in connection with this Agreement, the other Transaction Documents, or any transactions contemplated herein or therein will be, true and accurate in all material respects on the date as of which such information is dated or certified and not incomplete by omitting to state any fact necessary to make such information (taken as a whole) not misleading in any material respect at such time in light of the circumstances under which such information was provided. On the Closing Date, the Closing Date Projections represent, and as of the date on which any other Projections are delivered to Agent, such additional Projections represent Borrowers’ good faith estimate of their and their Subsidiaries’ future consolidated performance for the periods covered thereby.

Section 4.19 Indebtedness . Set forth on Schedule 4.19 is a true and complete list of all Indebtedness of each Borrower and each of its Subsidiaries outstanding immediately prior to the Closing Date (other than Indebtedness permitted by Section 6.1(e) , (f)  or (i) ) and such Schedule accurately reflects the aggregate principal (or, in the case of letters of credit, undrawn face) amount of such Indebtedness.

Section 4.20 Material Contracts . Set forth on Schedule 4.20 is a complete and accurate list, as of the Closing Date, of all Material Contracts of Borrowers and their Subsidiaries (other than the Transaction Documents and the Merger Agreement), showing the parties and principal subject matter thereof and amendments and modifications thereto. Except for matters which, either individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Change, each Material Contract (other than those that have expired at the end of their normal terms) (a) is in full force and effect and is binding upon and enforceable against the relevant Borrower or the relevant Subsidiary and, to the best of each Borrower’s knowledge, each other Person that is a party thereto in accordance with its terms, (b) has not been otherwise amended or modified (other than amendments or modifications permitted by Section 6.7(d) ), and (c) is not in default due to the action of any Borrower or any of their Subsidiaries.

Section 4.21 Suppliers . Except as set forth on Schedule 4.21 hereto, there exists no actual or, to the best knowledge of Borrowers, threatened termination, cancellation or limitation of, or modification to or change in, the business relationship between any Borrower, on the one hand, and any material supplier thereof, on the other hand which could reasonably be expected to result in a Material Adverse Change; and, to the best knowledge of each Borrower, there exists no present state of facts or circumstances that could reasonably be expected to give rise to or result in any such termination, cancellation, limitation, modification or change.

Section 4.22 Margin Stock . Except as disclosed on Schedule 4.22 hereto, no Borrower nor any of its Subsidiaries is engaged in the business of extending credit for the purpose of purchasing or carrying margin stock (within the meaning of Regulations T, U or X of the Board of Governors of the Federal Reserve System). Except as disclosed on Schedule 4.22 hereto, no proceeds of any Term Loan will be used to purchase or carry any margin stock or to extend credit to others for the purpose of purchasing or carrying any margin stock. Margin stock constitutes and at all times will constitute less than 25% of those assets of the Borrowers and their respective Subsidiaries which are subject to any limitation on sale, pledge or other restriction hereunder.

Section 4.23 Permits, Licenses, Etc. Each Borrower and Guarantor has, and is in compliance with all governmental permits, licenses, authorizations, approvals, entitlements and accreditations required for such Person lawfully to own, lease, manage or operate, or to acquire, each business currently owned, leased, managed or operated, or previously acquired, by such Person (except where the failure to have or be in compliance with any such permit, license, authorization, approval, entitlement or accreditation could not reasonably be expected to result in a Material Adverse Change). No condition exists or event has occurred which, in itself or with the giving of notice or lapse of time or both, would result in the suspension, revocation, impairment, forfeiture or non-renewal of any such required permit, license, authorization, approval, entitlement or accreditation, and there is no outstanding claim that any thereof is not in full force and effect (except where such suspension, revocation, impairment, forfeiture, non-renewal, or claim could not reasonably be expected to result in a Material Adverse Change). Schedule 4.23 sets forth a complete and accurate list, as of the Closing Date, listed by Restaurant, of all

 

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licenses (the “ Liquor Licenses ”) permitting Borrowers and Guarantors to sell and dispense alcoholic beverages within each of the Restaurants for on-premises consumption. Each Borrower and Guarantor is in compliance with all state, municipal and other governmental laws, regulations and rules with respect to the sale of liquor and all alcoholic beverages and has the right to sell liquor at retail for consumption within the Restaurants, subject to and in accordance with all applicable provisions of the Liquor Licenses (except where failure to be in such compliance or to have such right could not reasonably be expected to result in a Material Adverse Change).

Section 4.24 Real Property; Compliance with Laws . The current use and occupancy of all properties owned or leased by the Borrowers complies, in all material respects, with all zoning ordinances and other similar laws.

Section 4.25 Certain Documents . The Borrowers have delivered to the Agent a complete and correct copy of the material Senior Creditor Agreements, including any amendments, supplements or modifications with respect thereto.

AFFIRMATIVE COVENANTS

Each Borrower covenants and agrees that, until termination of all of the Term Loan Commitments and payment in full of the Obligations, Borrowers shall and shall cause each of their respective Subsidiaries to do all of the following:

Section 5.1 Accounting System . Maintain at all times from and after the Closing Date a system of accounting that enables Borrowers to produce financial statements in accordance with GAAP and maintain records pertaining to the Collateral that contain information as from time to time reasonably may be requested by Agent.

Section 5.2 Collateral Reporting . Provide Agent, with copies for each Lender, with each of the reports set forth on Schedule 5.2 at the times specified therein.

Section 5.3 Financial Statements, Reports, Certificates . Deliver to Agent, with copies to each Lender, each of the financial statements, reports, or other items set forth on Schedule 5.3 at the time specified therein. In addition, each Borrower agrees that no Subsidiary of such Borrower will have a fiscal year different from that of Parent.

Section 5.4 Guarantor Reports . Cause each Guarantor to deliver its annual financial statements at the time when Parent provides its audited financial statements to Agent, but only to the extent such Guarantor’s financial statements are not consolidated with Parent’s financial statements.

Section 5.5 Inspection . Permit Agent, each Lender, and each of their duly authorized representatives or agents to visit any of its properties and inspect any of its assets or books and records, to examine and make copies of its books and records, and to discuss its affairs, finances, and accounts with, and to be advised as to the same by, its officers and employees at such reasonable times and intervals as Agent or any such Lender may designate and, so long as no Default or Event of Default exists, with reasonable prior notice to Administrative Borrower.

Section 5.6 Maintenance of Properties . Maintain and preserve all of their properties which are necessary or useful in the proper conduct to their business in good working order and condition, ordinary wear, tear, and casualty excepted (and except where the failure to do so could not reasonably be expected to result in a Material Adverse Change), and comply at all times in all material respects with the provisions of all material leases to which it is a party as lessee, so as to prevent any loss or forfeiture thereof or thereunder.

Section 5.7 Taxes . Cause all material assessments and taxes, whether real, personal, or otherwise, due or payable by, or imposed, levied, or assessed against Borrowers, their Subsidiaries, or any of their respective assets to be paid in full, before delinquency or before the expiration of any extension period, except to the extent that the validity of such assessment or tax shall be the subject of a Permitted Protest. Borrowers will and will cause their Subsidiaries to make timely payment or deposit of all material withholding taxes required of them by

 

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applicable laws, including those laws concerning F.I.C.A., F.U.T.A., state disability, and local, state, and federal income taxes, and will, upon request, furnish Agent with proof reasonably satisfactory to Agent indicating that the applicable Borrower or Subsidiary of a Borrower has made such payments or deposits.

Section 5.8 Insurance .

(a) At Borrowers’ expense, maintain insurance respecting Borrowers’ and their Subsidiaries’ assets wherever located, covering loss or damage by fire, theft, explosion, and all other hazards and risks as ordinarily are insured against by other Persons engaged in the same or similar businesses. Borrowers also shall maintain business interruption, public liability, and product liability insurance, as well as insurance against larceny, embezzlement, and criminal misappropriation. All such policies of insurance shall be in such amounts and with such insurance companies as are reasonably satisfactory to Agent; provided , however , that if the coverages are substantially similar to those in existence as of the Closing Date, they shall be deemed to be satisfactory; provided further , however , that if Borrowers request Agent to approve coverages or insurance companies and such Person does not disapprove such request within 5 Business Days of its receipt of such request, then such Person shall be deemed to have approved such request. Borrowers shall deliver copies of all such policies of property and liability insurance to Agent with an endorsement naming Agent as additional insured and, following the discharge of the Senior Creditor Indebtedness, as the sole loss payee (under a satisfactory lender’s loss payable endorsement), as appropriate. Each endorsement shall contain a clause requiring the insurer to give not less than 30 days prior written notice to Agent in the event of cancellation of the policy for any reason whatsoever.

(b) Administrative Borrower shall give Agent prompt notice of any loss exceeding $500,000 covered by any such insurance. So long as no Event of Default has occurred and is continuing, Borrowers shall have the exclusive right to adjust any losses payable under any property insurance policies which are less than $2,500,000. In the case of any losses payable under such property insurance policies exceeding $2,500,000, subject to the prior right of the Senior Agent, Agent shall have the right to adjust all such losses, without any liability to Borrowers whatsoever in respect of such adjustments. Following the occurrence and during the continuation of an Event of Default, subject to the prior right of the Senior Agent, Agent shall have the exclusive right to adjust any losses payable under any such property insurance policies, without any liability to Borrowers whatsoever in respect of such adjustments. Any monies received as payment for any loss under any such property insurance policy or as payment of any award or compensation for condemnation or taking by eminent domain in excess of $250,000 per fiscal year, shall, following the Discharge of the Senior Creditor Indebtedness, be paid over to Agent to be applied in accordance with Section 2.4(c)(ii)(A) and Section 2.4(d) .

(c) Borrowers will not and will not suffer or permit their Subsidiaries to take out separate property or liability insurance concurrent in form or contributing in the event of loss with that required to be maintained under this Section 5.8 , unless Agent is included thereon as an additional insured or, following the Discharge of the Senior Creditor Indebtedness, loss payee under a lender’s loss payable endorsement. Administrative Borrower promptly shall notify Agent whenever such separate insurance is taken out, specifying the insurer thereunder and, in reasonable detail, the particulars as to the policies evidencing the same, and copies of such policies promptly shall be provided to Agent.

Section 5.9 Location of Inventory and Equipment . Keep Borrowers’ and their Subsidiaries’ Inventory and Equipment (other than vehicles and Equipment out for repair) only at the locations identified on Schedule 4.5 and their chief executive offices only at the locations identified on Schedule 4.7(b) ; provided , however , that Administrative Borrower may amend Schedule 4.5 or Schedule 4.7(b) so long as such amendment occurs by written notice to Agent not less than 30 days prior to the date on which such Inventory or Equipment is moved to such new location or such chief executive office is relocated, so long as such new location is within the continental United States or Hawaii, and so long as, in the case of a leased location, the applicable Borrower or Guarantor uses commercially reasonable efforts to provide Agent a Collateral Access Agreement with respect thereto.

 

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Section 5.10 Compliance with Laws . Comply with the requirements of all applicable laws, rules, regulations, and orders of any Governmental Authority, other than laws, rules, regulations, and orders the non-compliance with which, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Change.

Section 5.11 Leases . Pay when due all rents and other material amounts payable under any material leases to which any Borrower or any Subsidiary of a Borrower is a party or by which any Borrower’s or any of its Subsidiaries’ properties and assets are bound, unless such payments are the subject of a Permitted Protest.

Section 5.12 Existence . At all times preserve and keep in full force and effect each Borrower’s and each of their Subsidiaries’ valid existence and good standing (except as a result of a merger or dissolution of a Subsidiary permitted under Section 6.3 ) and, except where the failure to preserve and keep the same in full force and effect could not reasonably be expected to result in a Material Adverse Change, any rights and franchises material to their businesses.

Section 5.13 Environmental .

(a) Keep any property either owned or operated by any Borrower or any Subsidiary of a Borrower free of any Environmental Liens or post bonds or other financial assurances sufficient to satisfy the obligations or liability evidenced by such Environmental Liens, (b) comply, in all material respects, with Environmental Laws and provide to Agent documentation of such compliance which Agent reasonably requests, (c) promptly notify Agent of any release of a Hazardous Material in any reportable quantity from or onto property owned or operated by any Borrower or any Subsidiary of a Borrower and take any Remedial Actions required to abate said release or otherwise to come into compliance with applicable Environmental Law, and (d) promptly, but in any event within 5 Business Days of its receipt thereof, provide Agent with written notice of any of the following: (i) notice that an Environmental Lien has been filed against any of the real or personal property of any Borrower or any Subsidiary of a Borrower, (ii) commencement of any Environmental Action or notice that an Environmental Action will be filed against any Borrower or any Subsidiary of a Borrower, and (iii) notice of a violation, citation, or other administrative order pursuant to any Environmental Law which reasonably could be expected to result in a Material Adverse Change.

Section 5.14 Disclosure Updates . Promptly and in no event later than 5 Business Days after obtaining knowledge thereof, notify Agent if any written information, exhibit, or report furnished to the Lender Group by or on behalf of any Borrower or any of its Subsidiaries for purposes of or in connection with this Agreement, the other Loan Documents, or any transaction contemplated herein or therein, at the time it was furnished, contained any untrue statement of a material fact or omitted to state any material fact necessary to make the statements contained therein not misleading in light of the circumstances in which made. The foregoing to the contrary notwithstanding, any notification pursuant to the foregoing provision will not cure or remedy the effect of the prior untrue statement of a material fact or omission of any material fact nor shall any such notification have the effect of amending or modifying this Agreement or any of the Schedules hereto.

Section 5.15 Control Agreements . Upon request by the Agent, use their best efforts in order for Agent to obtain control in accordance with Sections 8-106, 9-104, 9-105, 9-106, and 9-107 of the Code (but subject to the prior Discharge of the Senior Creditor Indebtedness) with respect to (subject to the provisos contained in Section 6.12 ) all of its Securities Accounts, Deposit Accounts, material electronic chattel paper, investment property and material letter of credit rights (except to the extent the same constitute Excluded Assets).

Section 5.16 Formation of Subsidiaries . At the time that any Borrower or any Guarantor forms any direct or indirect Subsidiary or acquires any direct or indirect Subsidiary after the Closing Date, such Borrower or such Guarantor may amend Schedule 4.8(c) in accordance with Section 4.8(c) to reflect such new Subsidiary and shall (a) if such new Subsidiary is a domestic Subsidiary, (i) cause such new Subsidiary to provide to Agent the Guaranty (or a joinder thereto) and a joinder to the Security Agreement, together with such other security documents (including, if requested by Agent, Mortgages with respect to any Real Property of such new

 

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Subsidiary that does not constitute an Excluded Asset), as well as appropriate financing statements (and with respect to all property subject to a Mortgage, fixture filings), all in form and substance satisfactory to Agent in their Permitted Discretion (including being sufficient to grant Agent a Second Priority Lien (subject to Permitted Liens) in and to substantially all of the assets of such newly formed or acquired Subsidiary other than those constituting Excluded Assets), (ii) provide to Agent a pledge agreement and appropriate certificates and powers or financing statements, hypothecating all of the direct or beneficial ownership interest in such new Subsidiary, in form and substance satisfactory to Agent in their Permitted Discretion, and (iii) provide to Agent all other documentation, including one or more opinions of counsel satisfactory to Agent in their Permitted Discretion, which in their reasonable opinion is appropriate with respect to the execution and delivery of the applicable documentation referred to in this clause (a) above (including policies of title insurance or other documentation with respect to all property subject to a Mortgage); and (b) if such new Subsidiary is a foreign Subsidiary, (i) provide to Agent a pledge agreement and appropriate certificates and powers, financing statements or other appropriate instruments, hypothecating all of the direct or beneficial ownership interest of such new Subsidiary not constituting Excluded Assets, in form and substance satisfactory to Agent in their Permitted Discretion, and (ii) provide to Agent all other documentation, including one or more opinions of counsel satisfactory to Agent in their Permitted Discretion, which in their reasonable opinion is appropriate with respect to the execution and delivery of the applicable documentation referred to in this clause (b) above. Any document, agreement, or instrument executed or issued pursuant to this Section 5.16 shall be a Loan Document.

Section 5.17 Material Contracts . Contemporaneously with the delivery of a Compliance Certificate each fiscal quarter, provide Agent with copies of (a) each Material Contract entered into since the delivery of the previous Compliance Certificate to Agent and (b) each amendment or modification of any Material Contract entered into since the delivery of the previous Compliance Certificate to Agent.

Section 5.18 Obtaining Permits, Etc . Obtain, maintain and preserve and take all necessary action to timely renew all governmental permits, licenses (including Liquor Licenses), authorizations, approvals, entitlements and accreditations which are necessary or useful in the proper conduct of its business (except where the failure to obtain, maintain, preserve or renew the same could not reasonably be expected to result in a Material Adverse Change).

Section 5.19 Further Assurances Regarding Real Property Collateral . From time to time, at its own expense, promptly execute and deliver all further instruments and documents, and take all further action, that Agent may reasonably request, in order to perfect and protect any security interest granted or purported to be granted under the Loan Documents with respect to the Real Property Collateral, or to enable Agent to exercise and enforce its rights and remedies hereunder with respect to any of the Real Property Collateral; provided that so long as no Event of Default shall have occurred and is continuing, no memorandum of lease with respect to the Gaithersburg, MD Restaurant shall be recorded.

ARTICLE 6

NEGATIVE COVENANTS

Each Borrower covenants and agrees that, until termination of all of the Term Loan Commitments and payment in full of the Obligations, Borrowers will not and will not permit any of their respective Subsidiaries to do any of the following:

Section 6.1 Indebtedness . Create, incur, assume, suffer to exist, guarantee, or otherwise become or remain, directly or indirectly, liable with respect to any Indebtedness, except:

(a) Indebtedness evidenced by this Agreement and the other Loan Documents,

(b) Indebtedness set forth on Schedule 4.19 ,

(c) Permitted Purchase Money Indebtedness,

 

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(d) refinancings, renewals, or extensions of Indebtedness permitted under clauses (b) and (c) of this Section 6.1 (and continuance or renewal of any Permitted Liens associated therewith) so long as: (i) the terms and conditions of such refinancings, renewals, or extensions do not, in Agent’s reasonable judgment, materially impair the prospects of repayment of the Obligations by Borrowers or materially impair Borrowers’ creditworthiness, (ii) such refinancings, renewals, or extensions do not result in an increase in the principal amount of, or interest rate with respect to, the Indebtedness so refinanced, renewed, or extended or add one or more Borrowers as liable with respect thereto if such additional Borrowers were not liable with respect to the original Indebtedness, (iii) such refinancings, renewals, or extensions do not result in a shortening of the average weighted maturity of the Indebtedness so refinanced, renewed, or extended, nor are they on terms or conditions, that, taken as a whole, are materially more burdensome or restrictive to the applicable Borrower, (iv) if the Indebtedness that is refinanced, renewed, or extended was subordinated in right of payment to the Obligations, then the terms and conditions of the refinancing, renewal, or extension Indebtedness must include subordination terms and conditions that are at least as favorable to the Lender Group as those that were applicable to the refinanced, renewed, or extended Indebtedness, and (v) the Indebtedness that is refinanced, renewed, or extended is not recourse to any Person that is liable on account of the Obligations other than those Persons which were obligated with respect to the Indebtedness that was refinanced, renewed, or extended; provided , however , that any Indebtedness incurred pursuant to this clause (d) shall reduce on a dollar by dollar basis the amount of Indebtedness permitted under clauses (b) and (c) of this Section 6.1 ,

(e) endorsement of instruments or other payment items for deposit,

(f) Indebtedness composing Permitted Investments,

(g) Indebtedness under Hedging Agreements entered into in the ordinary course of business and not for speculative purposes;

(h) unsecured Indebtedness not otherwise permitted by clauses (a) through (g) of this Section 6.1 the aggregate outstanding principal amount of which does not at any time exceed $550,000 and which is subordinated to the Obligations on terms reasonably satisfactory to Agent; and

(i) Senior Creditor Indebtedness.

Section 6.2 Liens . Create, incur, assume, or suffer to exist, directly or indirectly, any Lien on or with respect to any of its assets, of any kind, whether now owned or hereafter acquired, or any income or profits therefrom, except for Permitted Liens (including Liens that are replacements of Permitted Liens to the extent that the original Indebtedness is refinanced, renewed, or extended under Section 6.1(d) and so long as the replacement Liens only encumber those assets that secured the refinanced, renewed, or extended Indebtedness).

Section 6.3 Restrictions on Fundamental Changes .

(a) Enter into any merger, consolidation, reorganization, or recapitalization, or reclassify its Stock, except that (i) any Subsidiary (other than a Texas Subsidiary or a non-domestic Subsidiary) of Parent may merge into any other Subsidiary of Parent which is a Borrower or Guarantor; provided , however , that if a Borrower is a party to such merger it or another Borrower shall be the survivor thereof, (ii) any Texas Subsidiary may merge into any other Texas Subsidiary and, with the consent of the Required Lenders (which consent shall not be unreasonably withheld), into any other Subsidiary of Parent which is a Borrower or Guarantor; provided , however , that if a Borrower is a party to such merger it or another Borrower shall be the survivor thereof, (iii) any non-domestic Subsidiary may merge into any other non-domestic Subsidiary and (iv) any Borrower may enter into any merger as contemplated by the Merger Agreement,

(b) Liquidate, wind up, or dissolve itself (or suffer any liquidation or dissolution), except that (i) any Subsidiary (other than a Texas Subsidiary or a non-domestic Subsidiary) of Parent may liquidate and dissolve into any other Subsidiary of Parent which is a Borrower or Guarantor, (ii) any Texas Subsidiary may liquidate and dissolve into any other Texas Subsidiary and, with the consent of the Required Lenders

 

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(which consent shall not be unreasonably withheld), into any other Subsidiary of Parent which is a Borrower or Guarantor, and (iii) any non-domestic Subsidiary may liquidate and dissolve into any other non-domestic Subsidiary,

(c) Other than Permitted Dispositions, convey, sell, lease, license, assign, transfer, or otherwise dispose of, in one transaction or a series of transactions, all or any substantial part of its assets, or

(d) Suspend or go out of a substantial portion of the business of Parent and its Subsidiaries, taken as a whole.

Section 6.4 Disposal of Assets . Other than Permitted Dispositions, convey, sell, lease, license, assign, transfer, or otherwise dispose of any of the assets of any Borrower or any Subsidiary of a Borrower.

Section 6.5 Change Name . Other than in connection with a merger or dissolution of a Subsidiary of Parent permitted by Section 6.3 , change any Borrower’s or any of their domestic Subsidiaries’ name, organizational identification number, state of organization, or organizational identity; provided , however , that a Borrower or a domestic Subsidiary of a Borrower may change its name upon at least 30 days prior written notice by Administrative Borrower to Agent of such change and so long as, at the time of such written notification, such Borrower or such domestic Subsidiary provides any financing statements necessary to perfect and continue perfected the Agent’s Liens.

Section 6.6 Nature of Business . Make any change in the principal nature of their business.

Section 6.7 Prepayments and Amendments . Except in connection with a refinancing permitted by Section 6.1(d) ,

(a) optionally prepay, redeem, defease, purchase, or otherwise acquire any Indebtedness of any Borrower or any Subsidiary of a Borrower, other than the Obligations in accordance with this Agreement and other than the Senior Creditor Indebtedness,

(b) make any payment on account of Indebtedness that has been contractually subordinated in right of payment to the Obligations if such payment is not permitted at such time under the subordination terms and conditions related to such Indebtedness,

(c) directly or indirectly, amend, modify, alter, increase, or change any of the terms or conditions of any agreement, instrument, document, indenture, or other writing evidencing or concerning Indebtedness permitted under Section 6.1(b) , (c) , (d) , (g) , or (h) ,

(d) directly or indirectly, amend, modify, alter, increase, or change any of the terms or conditions of or waive any of its rights under any Material Contract (other than any Senior Creditor Agreement) in any manner materially adverse to any Borrower or the Lender Group, or

(e) without the prior written consent of the Agent, directly or indirectly, amend, modify, alter, increase, or change any of the terms or conditions of any Senior Creditor Agreement to the extent that such amendment, modification, alteration, increase, or change would (i) increase the sum of (without duplication) the principal balance of the Senior Creditor Indebtedness and the aggregate face amount of the “Letters of Credit” (as defined in the Senior Creditor Loan Agreement) issued under the Senior Creditor Agreements by an amount greater than $15,000,000, (ii) increase the “Applicable Margin” or similar component of the interest rate by more than 3% per annum (excluding increases resulting from the accrual of interest at the default rate) or (iii) extend the scheduled maturity of the Senior Creditor Indebtedness or any refinancing thereof beyond the scheduled maturity of the Subordinated Creditor Indebtedness or any refinancing thereof.

Section 6.8 Change of Control . Cause, permit, or suffer, directly or indirectly, any Change of Control.

Section 6.9 Consignments . Consign any of their Inventory or sell any of their Inventory on bill and hold, sale or return, sale on approval, or other conditional terms of sale.

 

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Section 6.10 Distributions . Other than (a) distributions or declaration and payment of dividends by any Subsidiary of a Borrower to a Borrower or Guarantor, and (b) so long as no Default or Event of Default has occurred and is continuing, and so long as the aggregate amount thereof does not exceed $192,500 during any fiscal year of Parent, payments by Parent to effect the repurchase of common Stock issued pursuant to options or awards granted to employees, directors, officers or consultants of Parent or any of its Subsidiaries under any stock-based incentive plan of Parent or upon the exercise of any purchase rights under stock purchase agreements with Restaurant managers entered into in connection with Parent’s Paisano Partner Program, make any distribution or declare or pay any dividends (in cash or other property, other than common Stock) on, or purchase, acquire, redeem, or retire any of any Borrower’s Stock, of any class, whether now or hereafter outstanding.

Section 6.11 Accounting Methods . Modify or change their fiscal year or their method of accounting (other than as may be required to conform to GAAP) or enter into, modify, or terminate any agreement currently existing, or at any time hereafter entered into with any third party accounting firm or service bureau for the preparation or storage of Borrowers’ or their Subsidiaries’ accounting records without said accounting firm or service bureau agreeing to provide Agent information regarding Borrowers’ and their Subsidiaries’ financial condition.

Section 6.12 Investments . Except for Permitted Investments, directly or indirectly, make or acquire any Investment, or incur any liabilities (including contingent obligations) for or in connection with any Investment other than contributions by Parent to Una Famiglia Foundation in an amount not to exceed $110,000 in the aggregate for any fiscal year; provided , however , that Borrowers and their Subsidiaries shall not have (a) Permitted Investments in the form of cash not in Deposit Accounts or Securities Accounts, in excess of an amount, at any one time, equal to (i) with respect to (A) any Saturday, Sunday or Monday during the month of December or the first week of January, or (B) the day after Mother’s Day, (y) $55,000 times (z) the number of operating Restaurants of Borrowers and their Subsidiaries, (ii) with respect to any Saturday, Sunday or Monday not falling within the foregoing clause (a)(i), (A) $38,500 times (B) the number of operating Restaurants of Borrowers and their Subsidiaries, and (iii) with respect to any day not falling within the foregoing clause (a)(i) or clause (a)(ii), (A) $16,500 times (B) the number of operating Restaurants of Borrowers and the Subsidiaries, or (b) Permitted Investments (other than in the Cash Management Accounts or in Deposit Accounts or Securities Accounts constituting Excluded Assets) in Deposit Accounts or Securities Accounts in an aggregate amount in excess of $275,000 at any one time unless the applicable Borrower or its Subsidiary, and the applicable securities intermediary or bank have (subject to Section 5.15 ) entered into Control Agreements governing such Permitted Investments in order to perfect (and further establish) the Agent’s Liens in such Permitted Investments. Subject to the foregoing provisos and Section 5.15 , Borrowers shall not and shall not permit their Subsidiaries to establish or maintain any Deposit Account or Securities Account unless Agent shall have received a Control Agreement in respect of such Deposit Account or Securities Account.

Section 6.13 Transactions with Affiliates . Except as set forth on Schedule P-1 hereto or as contemplated by the Merger Agreement, directly or indirectly enter into or permit to exist any transaction with any Affiliate of any Borrower (other than a Borrower or Guarantor) except for transactions that (a) are in the ordinary course of Borrowers’ and their Subsidiaries’ business, (b) are upon fair and reasonable terms, (c) if they involve one or more payments by any Borrower or any of its Subsidiaries that are required to be disclosed in any periodic report on Form 10-K or Form 10-Q filed by Parent with the SEC, are fully disclosed to Agent promptly following the filing of such report, and (d) are no less favorable to Borrowers or their respective Subsidiaries, as applicable, than would be obtained in an arm’s length transaction with a non-Affiliate.

Section 6.14 Use of Proceeds . Use the proceeds of the Term Loans for any purpose other than working capital purposes in the ordinary course of business or the making of Capital Expenditures as permitted by this Agreement (which such purpose shall not include, for the avoidance of doubt, any optional prepayment, redemption, defeasement, purchase, or otherwise acquisition of any Senior Creditor Indebtedness).

 

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Section 6.15 Inventory and Equipment with Bailees . Store the Inventory or Equipment of Borrowers or their Subsidiaries at any time now or hereafter with a bailee, warehouseman, or similar party, except (a) any bailee, warehouseman or similar party listed on Schedule 6.15 so long as the aggregate value of all such stored Inventory and Equipment does not exceed $110,000 at any one time, and (b) any other bailee, warehouseman or similar party provided that a Collateral Access Agreement executed thereby has been delivered to the Agent.

Section 6.16 Financial Covenants .

(a) Fail to maintain or achieve:

(i) Minimum EBITDA . EBITDA, measured on a month-end basis, of at least the required amount set forth in the following table for the applicable period set forth opposite thereto:

 

(ii) [ Intentionally Omitted ].

(b) Make:

(i) Maintenance Capital Expenditures . Maintenance Capital Expenditures in any fiscal year (or portion thereof, if applicable) in excess of the amount set forth in the following table for the applicable period:

 

(ii) Growth Capital Expenditures . Any Growth Capital Expenditures.

Section 6.17 New Restaurants . Construct, purchase, develop, acquire, build, convert or complete (without duplication among fiscal years) more than 7 new Restaurants in any fiscal year of Parent and its Subsidiaries.

 

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ARTICLE 7

EVENTS OF DEFAULT

Any one or more of the following events shall constitute an event of default (each, an “ Event of Default ”) under this Agreement:

Section 7.1 If Borrowers fail to pay when due and payable, or when declared due and payable, (a) all or any portion of the Obligations consisting of interest, fees, or charges due the Lender Group, reimbursement of Lender Group Expenses, or other amounts (other than any portion thereof constituting principal) constituting Obligations (including any portion thereof that accrues after the commencement of an Insolvency Proceeding, regardless of whether allowed or allowable in whole or in part as a claim in any such Insolvency Proceeding) or (b) all or any portion of the principal of the Obligations;

Section 7.2 If Borrowers or any Subsidiary of any Borrower

(a) fail to perform or observe any covenant or other agreement contained in any of Section 2.7 , 5.2 , 5.3 , 5.4 , 5.5 , 5.8 , 5.12 , 5.14 , 5.16 , and 6.1 through 6.17 of this Agreement;

(b) fail to perform or observe any covenant or other agreement contained in any of Section 5.6 , 5.7 , 5.9 , 5.10 , 5.11 , and 5.15 of this Agreement and such failure continues for a period of 10 days after the earlier of (i) the date on which such failure shall first become known to any officer of any Borrower or any of their Subsidiaries or (ii) written notice thereof is given to Administrative Borrower by Agent; or

(c) fail to perform or observe any covenant or other agreement contained in this Agreement, or in any of the other Transaction Documents; in each case, other than any such covenant or agreement that is the subject of another provision of this Section 7.1 (in which event such other provision of this Section 7.1 shall govern), and such failure continues for a period of 20 days after the earlier of (i) the date on which such failure shall first become known to any officer of any Borrower or its Subsidiaries or (ii) written notice thereof is given to Administrative Borrower by Agent;

Section 7.3 If any material portion of the assets of the Borrowers, or the Borrowers and their Subsidiaries, taken as a whole, is attached, seized, subjected to a writ or distress warrant, or is levied upon, or comes into the possession of any third Perso