-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, GCj9Lgz5XFWKv1tRgMJ8G4N+plFUqBB6RCJ/XmlIm6TiTGuCn5A9GEShZoRlbVoH Hh0oXskqUoDSaPrR47DVXA== 0000950135-96-004523.txt : 19961028 0000950135-96-004523.hdr.sgml : 19961028 ACCESSION NUMBER: 0000950135-96-004523 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 19961011 ITEM INFORMATION: Acquisition or disposition of assets ITEM INFORMATION: Other events FILED AS OF DATE: 19961025 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: GROUND ROUND RESTAURANTS INC CENTRAL INDEX KEY: 0000051467 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-EATING PLACES [5812] IRS NUMBER: 135637682 STATE OF INCORPORATION: NY FISCAL YEAR END: 0929 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-06192 FILM NUMBER: 96648196 BUSINESS ADDRESS: STREET 1: 35 BRAINTREE HILL OFFICE PARK STREET 2: PO BOX 9078 CITY: BRAINTREE STATE: MA ZIP: 02184-9078 BUSINESS PHONE: 6173803100 MAIL ADDRESS: STREET 1: 35 BRAINTREE HILL OFFICE PARK CITY: BRAINTREE STATE: MA ZIP: 02184-9078 FORMER COMPANY: FORMER CONFORMED NAME: GR FOODS INC DATE OF NAME CHANGE: 19910626 FORMER COMPANY: FORMER CONFORMED NAME: INTERNATIONAL PROTEINS CORP DATE OF NAME CHANGE: 19900614 FORMER COMPANY: FORMER CONFORMED NAME: MARINE & ANIMAL BY PRODUCTS CORP DATE OF NAME CHANGE: 19700806 8-K 1 GROUND ROUND RESTAURANT, INC. REPORT ON FORM 8-K 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report (Date of earliest event reported) October 11, 1996 ------------------------------- Ground Round Restaurants, Inc. - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) New York 1-6192 13-5637682 - -------------------------------------------------------------------------------- State or other (Commission (I.R.S. Employer jurisdiction File Number) Identification No.) of incorporation) 35 Braintree Hill Office Park, Braintree, Massachusetts 02184-9078 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip code) Registrant's telephone number, including area code (617) 380-3100 ------------------------------ Not Applicable - -------------------------------------------------------------------------------- (Former name or former address, if changed since last report.) 2 Item 2. Acquisition or Disposition of Assets - ------- ------------------------------------ On October 11, 1996, The Ground Round, Inc. ("GRI"), a wholly-owned subsidiary of Ground Round Restaurants, Inc. (the "Company"), completed the sale to Lone Star Steakhouse and Saloon, Inc. ("Lone Star") of 9 restaurant units (the "Restaurants") for an aggregate purchase price of approximately $9.9 million dollars in cash pursuant to the terms of a Contract of Sale (the "Contract of Sale") dated June 28, 1996 between GRI and Lone Star. The amount of the consideration paid by Lone Star to GRI was determined through arms length negotiation of the parties. The assets transferred in connection with the sale of the Restaurants generally include, land or the Company's interest in the leasehold, as the case may be, and the personal property (excluding inventory), fixtures and equipment owned by GRI located at each Restaurant. A copy of the Contract of Sale is filed as an Exhibit to this Form 8-K and is incorporated herein by reference. Proceeds of the sale will be used to reduce outstanding indebtedness under the Company's credit facility pursuant to the terms of a letter agreement relating to the Company's Amended Credit Agreement (as hereinafter defined). Pursuant to the Contract of Sale, Lone Star had agreed to purchase up to 16 restaurant units for an aggregate purchase price of up to $16 million dollars in cash. Pursuant to the terms of a Modification to the Contract of Sale ("Modification of Contract"), dated October 11, 1996, GRI and Lone Star agreed that, in addition to the 9 Restaurants purchased at the Closing, Lone Star would purchase up to 4 more of the original 16 restaurants described in the Contract of Sale, no later than December 10, 1996, subject to the satisfaction of certain conditions. There can be no assurance that the sale of the 4 remaining restaurants will be consummated. In connection with the Modification of Contract, Lone Star deposited $500,000 dollars with counsel to the Company, to be held in escrow in accordance with the Modification of Contract to partially collateralize the purchase prices of the first two restaurants to be purchased, or, to be paid to the Company as liquidated damages if Lone Star fails to purchase any of such restaurants after all conditions have been satisfied. A copy of the press release dated October 15, 1996 relating to the sale of the Restaurants is attached hereto as an Exhibit. 3 Item 5. Other Events - ------- ------------ On September 12, 1996, the Company restructured its existing credit facility by entering into an Amended and Restated Credit Agreement (the "Amended Credit Agreement"), among The Ground Round, Inc., GR of Minn., Inc. (collectively, the "Borrowers"), and The Bank of New York, as Agent, and The Chase Manhattan Bank, as Co-Agent and the other lenders listed therein (collectively, the "Lenders") which, among other things, provides for (i) continuation of the Company's credit facility in the approximate amount of $53,175,163.51, including a term loan in the aggregate principal outstanding amount of $48,484,745.09, (ii) a final maturity of such obligations on May 31, 1997, subject to automatic extension to December 31, 1997 if $12 million of the principal amount of such credit facility is prepaid prior to May 30, 1997, and (iii) the Company to retain approximately $2.8 million out of the first approximately $13.8 million in proceeds from the sale of assets subsequent to April 30, 1996. Interest on the restructured facility will be payable at LIBOR plus 2.625% on the Company's LIBOR loans and Alternate Base Rate ("ABR") plus .75% on the Company's ABR based loans. In connection with the Amended Credit Agreement, the Company is required to pay a restructuring fee equal to 5% of the amount of the restructured facility, subject to reduction to 2.5% upon payment of approximately $12.5 million of the principal amount of the restructured facility prior to March 16, 1997, which obligations are evidenced by a series of Convertible Notes. At the option of the Lenders, the amount of such restructuring fee, initially due on May 30, 1997, is convertible into common stock of the Company ("Common Stock") after May 1, 1997 at a price of $2.71 per share. The Amended Credit Agreement also provides that upon delivery by JUSI Holdings, Inc. ("JUSI"), a subsidiary of U.S. Industries, Inc. ("USI"), to the Lenders of an aggregate of 100,000 shares of the Company's Common Stock, it shall no longer constitute an event of default under the Amended Credit Agreement if USI and its affiliates (i) cease to be the legal and beneficial owners of at least 25% of the outstanding shares of capital stock of the Company, or (ii) shall fail to have two nominees serving on the Company's board of directors while USI owns 20% or more of the capital stock of the Company, and one nominee serving on the Company's board of directors so long as USI owns 10% or more but less than 20% of the outstanding capital stock of the Company (the events listed in clauses (i) and (ii) being hereinafter referred to as the "Prohibited Actions"). The description of the Amended Credit Agreement is qualified in its entirety by the terms and conditions contained in the Amended Credit Agreement, a copy of which is attached as an Exhibit to this Form 8-K and is incorporated herein by reference. In connection with the execution of the Amended Credit Agreement, the Company entered into a Registration Rights Agreement with the Lenders (the "Registration Rights Agreement"), a copy of which is attached as an Exhibit to this Form 8-K and is incorporated herein by reference, granting the Lenders certain demand and "piggy-back" registration rights -2- 4 with respect to both the shares of Common Stock issuable upon exercise by the Lenders of their conversion rights pursuant to the Convertible Notes and the 100,000 shares of Common Stock delivered by USI to the Lenders. In connection with the execution of the Amended Credit Agreement, the Company and JUSI entered into an Amendment, dated as of September 12, 1996, to the Stockholder Agreement, dated as of August 1, 1991, among JUSI and the Company (the "Amended Stockholder Agreement"), which provides, among other things, that (x) upon delivery by JUSI of the 100,000 shares of Common Stock to the Lenders in accordance with the Amended Credit Agreement, JUSI will no longer be restricted from engaging in any of the Prohibited Actions, (y) the restrictions relating to the sale, transfer or disposal of the shares of Common Stock held by JUSI, and certain of its affiliates, shall lapse, and (z) JUSI consents to the Company entering into the Registration Rights Agreement with the Lenders and agrees that the number of shares that JUSI would otherwise be entitled to sell pursuant to its demand registration rights may be reduced, in certain circumstances, if any of the Lenders exercised their "piggy-back" registration rights. A copy of the Amended Stockholder Agreement is filed as an Exhibit to this Form 8-K and is incorporated herein by reference. On October 1, 1996, JUSI transferred 100,000 shares of Common Stock to the Lenders, whereupon the Prohibited Actions ceased to constitute events of default under the Amended Credit Agreement and JUSI exercised one of its demand registration rights under a Registration Rights Agreement requesting the Company to register 3,632,100 shares of Common Stock under the Securities Act of 1933, as amended. Item 7. Financial Statements and Exhibits: - ------- ---------------------------------- (a) Financial Statement of businesses acquired. Not applicable. (b) Pro Forma financial information. Not applicable. (c) Exhibits: 10.1 Amended and Restated Credit Agreement, dated as of September 12, 1996 among The Ground Round, Inc., and GR of Minn., Inc., and the Lenders named therein, and The Bank of New York, as Agent, and The Chase Manhattan Bank, as Co-Agent. 10.2 Form of Term Note payable to the Lenders dated September __, 1996. -3- 5 10.3 Form of Convertible Note payable to the Lenders dated September __, 1996. 10.4 Registration Rights Agreement, dated as of September 12, 1996, between the Company, The Bank of New York, The Chase Manhattan Bank, Bank of America Illinois, NBD Bank, N.A., and Credit Lyonnais New York Branch. 10.5 Amendment, dated as of September 12, 1996, to the Stockholder Agreement dated as of August 1, 1991 among JUSI Holdings Inc. and the Company. 10.6 Contract of Sale dated June 28, 1996 between The Ground Round, Inc. and Lone Star Steakhouse and Saloon, Inc. 10.8 Letter Agreement dated October 11, 1996 to Amended Credit Agreement. 99.1 Press Release dated September 13, 1996. 99.2 Press Release dated October 15, 1996. -4- 6 Signatures. - ----------- Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. GROUND ROUND RESTAURANTS, INC. By: /s/ Stephen Kiel ------------------------------------- Name: Stephen Kiel Title: Senior Vice-President and Chief Financial Officer Date: October 25, 1996 -5- 7 EXHIBIT INDEX ------------- EXHIBIT NO. DESCRIPTION PAGE NO. - ------- ----------- -------- 10.1 Amended and Restated Credit Agreement, dated as of September 12, 1996 among The Ground Round, Inc., and GR of Minn., Inc., and the Lenders named therein, and The Bank of New York, as Agent, and The Chase Manhattan Bank, as Co-Agent. 10.2 Form of Term Note payable to the Lenders dated September __, 1996. 10.3 Form of Convertible Note payable to the Lenders dated September __, 1996. 10.4 Registration Rights Agreement, dated as of September 12, 1996, between the Company, The Bank of New York, The Chase Manhattan Bank, Bank of America Illinois, NBD Bank, N.A., and Credit Lyonnais New York Branch. 10.5 Amendment, dated as of September 12, 1996, to the Stockholder Agreement dated as of August 1, 1991 among JUSI Holdings, Inc. and the Company. 10.6 Contract of Sale dated June 28, 1996 between The Ground Round, Inc. and Lone Star Steak House and Saloon, Inc. 10.8 Letter Agreement dated October 11, 1996 to Amended Credit Agreement. 99.1 Press Release dated September 13, 1996. 99.2 Press Release dated October 15, 1996. -6- EX-10.1 2 AMENDED AND RESTATED CREDIT AGREEMENT 1 EXHIBIT 10.1 - ----------------------------------------------------------------- AMENDED AND RESTATED CREDIT AGREEMENT - ----------------------------------------------------------------- Dated as of September 12, 1996 Among THE GROUND ROUND, INC. and GR OF MINN., INC. as Borrowers and THE LENDERS NAMED HEREIN as Lenders and THE BANK OF NEW YORK as Agent and THE CHASE MANHATTAN BANK as Co-Agent - ----------------------------------------------------------------- AMENDED AND RESTATED AGREEMENT TABLE OF CONTENTS
Page No. PRELIMINARY STATEMENTS 1 ARTICLE 1. DEFINITIONS AND ACCOUNTING TERMS 2 SECTION 1.01 Certain Defined Terms 2 SECTION 1.02 Computation of Time Periods 23 SECTION 1.03 Accounting Terms 23 ARTICLE 2. AMOUNTS AND TERMS OF THE OBLIGATIONS 24 SECTION 2.01 Restructuring of Existing Obligations 24 SECTION 2.02 Termination of Revolving Commitments and Revolving Facility; Termination of Term Commitments 25 SECTION 2.03 Repayment of Term Loans 25 SECTION 2.04 Convertible Note Obligations. 25 SECTION 2.05 Prepayments 26 SECTION 2.06 Interest 28 SECTION 2.07 Fees 29 SECTION 2.08 Conversion or Continuation of Term Loans 29 SECTION 2.09 Increased Costs, Etc 30 SECTION 2.10 Payments and Computations 33 SECTION 2.11 Taxes 34 SECTION 2.12 Sharing of Payments, Etc. 37 SECTION 2.13 Letter of Credit 38 SECTION 2.14 Use of Proceeds 40 SECTION 2.15 ACH Transactions. 40 ARTICLE 3. CONDITIONS OF RESTRUCTURING 41 SECTION 3.01 Conditions Precedent to the Effectiveness of this Agreement 41 SECTION 3.02 Determinations Under Section 3.01. 44 ARTICLE 4. REPRESENTATIONS AND WARRANTIES 44 SECTION 4.01 Representations and Warranties of the Borrowers 44 ARTICLE 5. COVENANTS OF THE BORROWERS 51 SECTION 5.01 Affirmative Covenants 52 SECTION 5.02 Negative Covenants 61 ARTICLE 6. EVENTS OF DEFAULT 67 SECTION 6.01 Events of Default 67 SECTION 6.02 Actions in Respect of the Letter of Credit Upon Default 70 ARTICLE 7. THE AGENT 71 SECTION 7.01 Authorization and Action 71 SECTION 7.02 Agent's Reliance, Etc. 71 SECTION 7.03 BNY and Affiliates 72 SECTION 7.04 Lender Credit Decision 72 SECTION 7.05 Indemnification 72 SECTION 7.06 Successor Agents 73 ARTICLE 8. MISCELLANEOUS 73 SECTION 8.01 Amendments, Etc. 73 SECTION 8.02 Notices, Etc. 74 SECTION 8.03 No Waiver; Remedies 76 SECTION 8.04 Costs and Expenses 76 SECTION 8.05 Right of Set-off 78 SECTION 8.06 Binding Effect 78 SECTION 8.07 Assignments and Participations 78 SECTION 8.08 Governing Law 82 SECTION 8.09 Execution in Counterparts 82 SECTION 8.10 Severability 82 SECTION 8.11 Confidentiality 82 SECTION 8.12 Waiver of Jury Trial 82 Exhibit A - Form of Note Exhibit B - Form of Convertible Note Exhibit C - Form of Opinion of Counsel to the Borrower Exhibit D - Form of Registration Rights Agreement Exhibit E - Form of Second Omnibus Amendment Exhibit F - Form of Guarantor Consent Exhibit G - Form of Compliance Certificate Exhibit H - Form of Mortgage Exhibit I - Form of Assignment and Acceptance Exhibit J - Form of Performance Memorandum Schedule 1.1 - List of Domestic and Eurodollar Lending Offices and Notice Addresses Schedule 3.01(g)(viii) - Schedule of New Mortgages Schedule 4.01(b) - Subsidiaries; Assets and Liabilities of Subsidiaries Schedule 4.01(i) - Pending Litigation Schedule 4.01(l) - Plans, Multiemployer Plans and Welfare Plans Schedule 4.01(s) - Environmental Matters Schedule 4.01(v) - Open Year Information Schedule 4.01(w) - Open Tax Liability Schedule 4.01(y) - Tax Liability Schedule 4.01(bb) - Real Property Schedule 4.01(cc) - Leases Schedule 4.01(dd) - Flood Zone Properties Schedule 4.01(ee) - Franchise Agreements Schedule 4.01(ff) - Investments Schedule 4.01(gg) - Intellectual Property Schedule 4.01(hh) - Liquor Licenses Schedule 4.01(ii) - Debt Schedule 5.01(h) - Location Operating Profit Schedule 5.02(a) - Permitted Liens Schedule 5.02(e) - Permitted Asset Sales
AMENDED AND RESTATED CREDIT AGREEMENT dated as of September 12, 1996 among THE GROUND ROUND, INC., a Delaware corporation (the "First Borrower"), GR OF MINN., INC., a 2 Delaware corporation (the "Second Borrower"; the First Borrower and the Second Borrower each a "Borrower" and together the "Borrowers"), the Lenders (the "Lenders") listed on the signature pages hereof and THE BANK OF NEW YORK (in its individual capacity, "BNY", and in its capacity as agent for the Lenders hereunder, together with any successor appointed pursuant to Article VII, the "Agent") and THE CHASE MANHATTAN BANK, formerly known as Chemical Bank (in its individual capacity, "Chase", and in its capacity as co-agent for the Lenders hereunder, the "Co-Agent"). PRELIMINARY STATEMENTS: The Borrowers, the Lenders, the Agent and the Co-Agent are parties to that certain Amended and Restated Credit Agreement, dated as of October 8, 1993, as amended by a First Amendment, dated as of January 20, 1994, a Second Amendment, dated as of February 10, 1995, a Third Amendment, dated as of May 10, 1995, a Fourth Amendment, dated as of November 22, 1995, a Fifth Amendment, dated as of February 12, 1996, a Sixth Amendment, Waiver and Deferral, dated as of April 12, 1996, a Seventh Amendment, Waiver and Deferral, dated as of May 30, 1996, an Eighth Amendment, Waiver and Deferral, dated as of June 27, 1996 and a Ninth Amendment and Deferral, dated as of July 29, 1996 (as so amended, the "Existing Credit Agreement"). Pursuant to the Existing Credit Agreement, the Borrowers are obligated (1) to certain of the Lenders in their capacity as Tranche A Lenders under the Existing Credit Agreement in respect of revolving credit loans under the Existing Credit Agreement which are referred to therein as "Revolving Advances" in the aggregate outstanding principal amount of $1,953,504.06 (the "Existing Revolving Loans"), (2) to the Tranche A Lenders in respect of certain term loans under the Existing Credit Agreement which are referred to therein as the "Tranche A Term Advances" in the aggregate outstanding principal of $33,777,849.95 (the "Existing Tranche A Loans"), (3) to the Tranche A Lenders in respect of letters of credit issued under the Existing Credit Agreement in the aggregate principal face amount of $4,690,418.43 (the "Existing Letter of Credit"), and (4) to certain of the Lenders in their capacity as Tranche B Lenders in respect of certain term loans under the Existing Credit Agreement which are referred to therein as "Tranche B Term Advances" in the aggregate principal amount of $12,753,391.08 (the "Existing Tranche B Loans"); (the Existing Revolving Loans, the Existing Tranche A Loans, the Existing Letter of Credit and the Existing Tranche B Loans, collectively the "Existing Obligations"). The Borrowers desire to amend and restate the Existing Credit Agreement in its entirety to (i) restructure the Existing Revolver, Existing Tranche A Loans and Existing Tranche B Loans as a single term loan in the aggregate principal outstanding amount of $48,484,745.09, (ii) provide that the final maturity of the Existing Obligations shall be May 31, 1997, provided, that such final maturity may be extended to December 31, 1997 if certain conditions, as more fully set forth herein, are satisfied, (iii) terminate the Commitments under the Existing Credit Agreement (iv) memorialize the extensions of credit being made by BNY and Chase to the Borrowers in conjunction with the ACH systems maintained by the Borrowers, and to secure such extensions of credit with the Collateral securing the Obligations (as defined herein) and (v) enter into certain amendments to the Loan Documents, all as more fully described herein and therein. NOW, THEREFORE, in consideration of the premises and of the mutual covenants and agreements contained herein, the parties hereto hereby agree to amend and restate the Existing Credit Agreement as follows: ARTICLE 1. DEFINITIONS AND ACCOUNTING TERMS SECTION 1.01 Certain Defined Terms. As used in this Agreement, the following terms shall have the following meanings (such meanings to be equally applicable to both the singular and plural forms of the terms defined): 3 "ACH Agreements" means that certain ACH Funds Transfer Services Agreement among the Borrowers, GR Holdings, and BNY, dated as of April 12, 1994 and that certain Agreement for the Automatic Transfer of Credits and/or Debits between the First Borrower and Chase (as successor in interest to Chemical Bank) dated October 26,1993, in each case, as the same may be amended, supplemented or otherwise modified from time to time. "ACH Banks" means BNY and Chase. "ACH Obligations" means the obligations, whether monetary or otherwise, of either Borrower or GR Holdings to BNY or Chase, as applicable, under the ACH Agreements. "Affected Principal Amount" means, in the event that (i) a Borrower shall fail for any reason to borrow or Convert after it shall have notified the Agent of its intent to do so in any instance in which it shall have requested a Eurodollar Rate Loan, an amount equal to the principal amount of such Eurodollar Rate Loan; (ii) a Eurodollar Rate Loan shall terminate for any reason prior to the last day of the Interest Period applicable thereto, an amount equal to the principal amount of such Eurodollar Rate Loan; and (iii) the Borrower shall prepay or repay all or any part of the principal amount of a Eurodollar Rate Loan prior to the last day of the Interest Period applicable thereto, an amount equal to the principal amount of such Eurodollar Rate Loan so prepaid or repaid. "Affiliate" means, as to any Person, any other Person that, directly or indirectly, controls, is controlled by or is under common control with such Person or is a director or officer of such Person. For purposes of this definition, the term "control" (including the terms "controlling," "controlled by" and "under common control with") of a Person means the possession, direct or indirect, of the power to vote 5% or more of the Voting Stock of such Person or to direct or cause the direction of the management and policies of such Person, whether through the ownership of Voting Stock, by contract or otherwise. "Agent" has the meaning specified in the recital of parties to this Agreement. "Agent's Account" means the account of the Agent maintained by the Agent with BNY at its office at One Wall Street, New York, New York 10286, ABA Number 02100001818, Account No. 890-0065-079 (in the name of Agency Function Administration, Reference Ground Round). "Alternate Base Rate" means, on any date, a rate of interest per annum equal to the higher of (i) the Federal Funds Rate in effect on such date plus 1/2 of 1% or (ii) the BNY Rate in effect on such date. "Alternate Base Rate Loan" means a Term Loan that bears interest as provided in Section 2.06(a)(i). "Applicable Lending Office" means, with respect to each Lender, such Lender's Domestic Lending Office in the case of an Alternate Base Rate Loan and such Lender's Eurodollar Lending Office in the case of a Eurodollar Rate Loan. "Applicable Margin" means, at all times: (i) with respect to the unpaid principal amount of Alternate Base Rate Loan, 0.75%, and (ii) with respect to the unpaid principal amount of Eurodollar Rate Loan, 2.625%. "Assignment and Acceptance" means an assignment and acceptance entered into by a Lender and an Eligible Assignee, and accepted by the Agent, in accordance with Section 8.07 and in substantially the form of Exhibit I hereto. "BNY" shall have the meaning set forth in the Introduction. 4 "BNY Rate" means a rate of interest per annum equal to the rate of interest publicly announced in New York City by BNY from time to time as its prime commercial lending rate, such rate to be adjusted automatically (without notice) on the effective date of any change in such publicly announced rate. "Borrower" means The Ground Round, Inc., a company organized under the laws of Delaware, or GR of Minn., Inc., a company organized under the laws of Delaware, as the case may be. "Borrowing" means Term Loans consisting of borrowings of the same type made by the Lenders. "Business Day" means a day of the year on which banks are not required or authorized to close in New York City and, if the applicable Business Day relates to any Eurodollar Rate Loan, a day of the year on which dealings are carried on in the London interbank market. "Capital Expenditures" means, for any period, the sum of all expenditures during such period for equipment, fixed assets, real property or improvements, or for replacements or substitutions therefor or additions thereto, that have a useful life of more than one year (including, for such period, the principal component of Capitalized Leases entered into during such period), and shall include expenditures for store refurbishment, including furniture, fixtures, equipment, materials and labor. For purposes of this definition (i) the purchase price of equipment that is purchased simultaneously with the trade-in of existing equipment or with insurance proceeds shall be included in Capital Expenditures only to the extent of the gross amount of such purchase price less the credit granted by the seller of such equipment for the equipment being traded in at such time or the amount of such proceeds, as the case may be and (ii) the purchase price of equipment, fixed assets, real property or improvements purchased with the proceeds of subordinated Debt permitted to be incurred pursuant to Section 5.02(b) (v) shall not be included in the calculation of Capital Expenditures. "Capitalized Leases" has the meaning specified in clause (e) of the definition of "Debt". "Cash Collateral Account" has the meaning specified in the Amended and Restated Security Agreement. "Cash Equivalents" means any of the following, to the extent owned by the First Borrower free and clear of all Liens and having a maturity of not greater than 180 days from the date of acquisition thereof: (a) readily marketable direct obligations of the Government of the United States or any agency or instrumentality thereof or obligations unconditionally guaranteed by the full faith and credit of the Government of the United States, (b) certificates of deposit of or time deposits (in each case in an amount not to exceed $500,000) with, any Bank or with any other commercial bank that is a Lender or a member of the Federal Reserve System, issues (or the parent of which issues) commercial paper rated as described in clause (c), is organized under the laws of the United States or any State thereof and has combined capital and surplus of at least $1 billion, (c) commercial paper in an aggregate amount of no more than $500,000 per issuer outstanding at any time, issued by any Bank or by any corporation organized under the laws of any State of the United States, rated at least "Prime-1" (or the then equivalent grade) by Moody's Investors Services, Inc. or "A-1" (or the then equivalent grade) by Standard & Poor's Corporation or (d) repurchase agreements with any securities dealer with respect to Cash Equivalents that are fully collateralized in accordance with general industry standards by Cash Equivalents of the type set forth in clause (a) hereof. "Chase" shall have the meaning set forth in the Introduction. 5 "Collateral" means all "Collateral" referred to in the Collateral Documents and all other property that is subject to any Lien in favor of the Agent or the Lenders. "Collateral Documents" means the Security Agreement, the GRR Pledge and Security Agreement, the GR Holdings Pledge and Security Agreement, the GRH-NJ Pledge and Security Agreement, the Subsidiary Pledge and Security Agreement, the Trademark Security Agreement, the GRXR Pledge and Security Agreement, the Mortgages and the New Mortgages. "Collateral Holder" has the meaning specified in the Collateral Documents. "Compliance Certificate" means a certificate in the form of Exhibit G hereto. "Confidential Information" means information that any Loan Party furnishes to the Agent or any Lender in a writing designated as confidential, but does not include any such information that is or becomes generally available to the public or that is or becomes available to the Agent such Lender from a source other than a Loan Party or is in the possession of such Lender or such Lender's Affiliate (as the result of an existing lending relationship) as shown by clear and convincing evidence prior to the Loan Party's furnishing it to the Lender. "Consolidated" refers to the consolidation of financial statements in accordance with GAAP. "Conversion", "Convert" and "Converted" each refers to a conversion of Term Loans of one Type into Term Loans of the other Type pursuant to Section 2.08 or 2.09. "Covenant Adjustments" means adjustments, if any, as may be mutually agreed upon in writing by the Borrowers and the Required Lenders, to the Net Worth, Capital Expenditure and EBITDA covenants set forth in Sections 5.01(n), (p) and (q) hereof (x) due to the sale or closure of restaurant locations other than Yonkers, Newark, Greenbrook or other Category 2 locations specified on Schedule 5.02(e), which adjustments shall be based upon the exclusion of EBITDA and Location Operating Profit attributable to such store locations sold or closed after giving effect to such dispositions, in a manner and in such amounts as may be mutually agreed upon by the Borrowers and the Required Lenders in writing and (y) with respect to the Net Worth covenant set forth in Section 5.01(n), for the one-time write-down of "good will" in connection with the Borrowers' 1996 fiscal year end, in a manner and in such amounts as may be mutually agreed upon in writing by the Borrowers and the Required Lenders. "Convertible Notes" means the promissory notes of the Borrowers payable to the order of any Lender, in substantially the form of Exhibit B, evidencing obligations of the Borrowers to the Lenders. "Current Assets" of any Person means all assets of such Person that would, in accordance with GAAP, be classified as current assets of a company conducting a business the same as or similar to that of such Person, after deducting adequate reserves in each case in which a reserve is proper in accordance with GAAP. "Current Liabilities" of any Person means (a) all Debt of such Person that by its terms is payable on demand or matures within one year from the date of determination excluding, however, (i) any Debt renewable or extendible, at the option of such Person, to a date more than one year from such date or arising under a revolving credit or similar agreement that obligates the lender or lenders to extend credit during a period of more than one year from such date, and (ii) any amount of Funded Debt that matures within one year from the date of determination (other than capitalized lease obligations) and (b) all other items (including taxes accrued as estimated) that in accordance with GAAP would be classified as current liabilities of such Person. 6 "Debt" of any Person means, without duplication, (a) all indebtedness of such Person for borrowed money, (b) all obligations of such Person for the deferred purchase price of property or services, (c) all obligations of such Person evidenced by notes, bonds, debentures or other similar instruments, (d) all indebtedness created or arising under any conditional sale or other title retention agreement with respect to property acquired by such Person (even though the rights and remedies of the seller or lender under such agreement in the event of default are limited to repossession or sale of such property), (e) all obligations of such Person as lessee under leases that have been or should be, in accordance with GAAP, recorded as capital leases ("Capitalized Leases"), (f) all obligations, contingent or otherwise, of such Person under acceptance, letter of credit or similar facilities, (g) all obligations of such Person to purchase, redeem, retire, defease or otherwise acquire for value any capital stock of such Person or any warrants, rights or options to acquire such capital stock, valued, in the case of Redeemable Preferred Stock, at the greater of its voluntary or involuntary liquidation preference plus accrued and unpaid dividends, (h) all Debt of others referred to in clauses (a) through (g) above guaranteed directly or indirectly in any manner by such Person, or in effect guaranteed directly or indirectly by such Person through an agreement (i) to pay or purchase such Debt or to advance or supply funds for the payment or purchase of such Debt, (ii) to purchase, sell or lease (as lessee or lessor) property, or to purchase or sell services, primarily for the purpose of enabling the debtor to make payment of such Debt or to assure the holder of such Debt against loss, (iii) to supply funds to or in any other manner invest in the debtor (including any agreement to pay for property or services irrespective of whether such property is received or such services are rendered) or (iv) otherwise to assure a creditor against loss, and (i) all Debt referred to in clauses (a) through (g) above secured by (or for which the holder of such Debt has an existing right, contingent or otherwise, to be secured by) any Lien on property (including, without limitation, accounts and contract rights) owned by such Person, even though such Person has not assumed or become liable for the payment of such Debt. "Default" means any Event of Default or any event that would constitute an Event of Default but for the requirement that notice be given or time elapse or both. "Defaulting Lender" means any Lender that has failed to make available its ratable share of an Unreimbursed Letter of Credit Obligation as required under Section 2.13(e). "Domestic Lending Office" means, with respect to any Lender, the office of such Lender specified as its "Domestic Lending Office" opposite its name on Schedule 1.1 or in the Assignment and Acceptance pursuant to which it became a Lender, or such other office of such Lender as such Lender may from time to time specify to the First Borrower and the Agent. "EBITDA" means, for any period, net income (or net loss) plus the sum of (a) Interest Expense, (b) income tax expense, (c) depreciation expense and (d) amortization expense plus (i) losses on asset dispositions, (ii) costs associated with store closings, (iii) restructuring charges, (iv) the accounting impact of non-cash modifications to senior management compensation, (v) judgments that are appealable, (vi) losses from the destruction of property or costs relating to claims that are insured to the extent of the loss and (vii) the direct cost associated with store and asset sales that are netted from the proceeds received, less gains on asset dispositions. "Effective Date" means the date on which the conditions set forth in Article III applicable to the effectiveness of this Agreement have been fulfilled. "Eligible Assignee" means (a) a commercial bank organized under the laws of the United States, or any State thereof, and having total assets in excess of $5,000,000,000; (b) a savings and loan association or savings bank organized under the laws of the United States, or any State thereof, and having total assets in excess of $5,000,000,000; (c) a commercial bank organized under the laws of any other country that is a member of the OECD or has concluded special lending arrangements with the International Monetary Fund associated with its General Arrangements to Borrow or of the Cayman Islands or a political subdivision of any such country, and having total assets in excess of $20,000,000,000, so long as such bank is acting through a branch or agency located in the United States or (d) a finance company, 7 insurance company or other financial institution or fund (whether a corporation, partnership, trust or other entity) that is engaged in making, purchasing or otherwise investing in commercial loans in the ordinary course of its business and having total assets in excess of $150,000,000. "Environmental Law" means any law, rule, regulation, order, writ, judgment, injunction, ordinance, decree, determination or award relating to the environment, health or safety or to the release or threatened release of any materials into the environment, including, without limitation the Clean Air Act, as amended, the Clean Water Act of 1977, as amended, the Comprehensive Environmental Compensation and Liability Act of 1980, as amended, the Hazardous Materials Transportation, as amended, the Toxic Substance Control Act, as amended, and the Resource Conservation and Recovery Act of 1976, as amended. "Equipment" has the meaning specified in the Mortgages. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time, and the regulations promulgated and rulings issued thereunder. "ERISA Affiliate" of any Person means any other Person that for purposes of Title IV of ERISA is a member of such Person's controlled group, or under common control with such Person, within the meaning of Section 414 of the Internal Revenue Code. "ERISA Event" with respect to any Person means (a) the occurrence of a reportable event, within the meaning of Section 4043 of ERISA, with respect to any Plan of such Person or any of its ERISA Affiliates unless the 30-day notice requirement with respect to such event has been waived by the PBGC; (b) the provision by the administrator of any Plan of such Person or any of its ERISA Affiliates of a notice of intent to terminate such Plan, pursuant to Section 4041(a)(2) of ERISA (including any such notice with respect to a plan amendment referred to in Section 4041(e) of ERISA); (c) the cessation of operations at a facility of such Person or any of its ERISA Affiliates in the circumstances described in Section 4062(e) of ERISA; (d) the withdrawal by such Person or any of its ERISA Affiliates from a Multiple Employer Plan during a plan year for which it was a substantial employer, as defined in Section 4001(a)(2) of ERISA; (e) the failure by such Person or any of its ERISA Affiliates to make a payment to a Plan required under Section 302(f)(1) of ERISA; (f) the adoption of an amendment to a Plan of such Person or any of its ERISA Affiliates requiring the provision of security to such Plan, pursuant to Section 307 of ERISA; or (g) the institution by the PBGC of proceedings to terminate a Plan of such Person or any of its ERISA Affiliates, pursuant to Section 4042 of ERISA, or the occurrence of any event or condition described in Section 4042 of ERISA that could constitute grounds for the termination of, or the appointment of a trustee to administer, such Plan. "Eurocurrency Liabilities" has the meaning specified in Regulation D of the Board of Governors of the Federal Reserve System, as in effect from time to time. "Eurodollar Lending Office" means, with respect to any Lender, the office of such Lender specified as its "Eurodollar Lending Office" opposite its name on Schedule 1.1 or in the Assignment and Acceptance pursuant to which it became a Lender (or, if no such office is specified, its Domestic Lending Office), or such other office of such Lender as such Lender may from time to time specify to the First Borrower and the Agent. "Eurodollar Rate" means, for any Interest Period for each Eurodollar Rate Loan comprising part of the same Borrowing, an interest rate per annum equal to the rate per annum at which deposits in U.S. dollars are offered by the principal office of BNY in London, England to prime banks the London interbank market at 11:00 A.M. (London time) two Business Days before the first day of such Interest Period in an amount substantially equal to BNY's Eurodollar Rate Loan comprising part of such Borrowing to be outstanding during such Interest Period and for a period equal to such Interest Period. 8 "Eurodollar Rate Loan" means a Term Loan that bears interest as provided in Section 2.06(a)(ii). "Eurodollar Rate Reserve Percentage" for any Interest Period for each Eurodollar Rate Loan comprising part of the same Borrowing means the reserve percentage applicable two Business Days before the first day of such Interest Period under regulations issued from time to time by the Board of Governors of the Federal Reserve System (or any successor) for determining the maximum reserve requirement (including, without limitation, any emergency, supplemental or other marginal reserve requirement) for a member bank of the Federal Reserve System in New York City with respect to liabilities or assets consisting of or including Eurocurrency Liabilities (or with respect to any other category of liabilities that includes deposits by reference to which the interest rate on Eurodollar Rate Loans is determined) having a term equal to such Interest Period. "Event of Default" has the meaning specified in Section 6.01. "Excess Cash Flow" means, without duplication, with respect to GRR and its Subsidiaries on a Consolidated basis for any period, Pre-Tax Net Income during such period plus (a) (i) the aggregate amounts deducted in determining such Pre-Tax Net Income in respect of all deferred charges and depreciation, amortization and other noncash charges except noncash charges which affect Net Working Capital, (ii) the negative change, if any, in Net Working Capital during such period, (iii) all noncash losses deducted in determining such Pre-Tax Net Income and (iv) the aggregate amount received by GRR and its Subsidiaries during such period in respect of any long term notes receivable, minus (b) (i) all noncash gains except noncash gains which affect Net Working Capital included in such Net Income, (ii) net prepayments during such period of Borrowings, but only to the extent such amounts are not available for reborrowing, (iii) scheduled payments or prepayments of the principal of Debt, but only to the extent that such payment cannot be reborrowed or redrawn or is not refinanced during such period, (iv) the aggregate amount of capital expenditures to the extent actually paid in cash, of GRR and its Subsidiaries made during such period, (v) repayments during such period of the portion of Capitalized Lease Obligations of the First Borrower or any Subsidiary not allocable to Interest Expense, (vi) cash income taxes and (vii) the positive change, if any, in Net Working Capital during such period. "Existing Credit Agreement" has the meaning specified in the Preliminary Statements to this Agreement. "Existing Mortgages" has the meaning specified in the definition of "Mortgage". "Expense Loan" means either (i) a loan by the First Borrower to GR Holdings created pursuant to an Investment permitted under Section 5.02(f)(iv) or (ii) a loan by GR Holdings to GRR of the proceeds of the Expense Loan from the First Borrower. "Facility" means the aggregate amount of the Term Loans, the Letter of Credit Exposure and the Convertible Notes. "Federal Funds Rate" means, for any period, a fluctuating interest rate per annum equal for each day during such period to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers, as published for such day (or, if such day is not a Business Day, for the next preceding Business Day) by the Federal Reserve Bank of New York, or, if such rate is not so published for any day that is a Business Day, the average of the quotations for such day for such transactions received by the Agent from three Federal funds brokers of recognized standing selected by it. "First Borrower" has the meaning specified in the recital of parties to this Agreement. 9 "Fiscal Month" means the four or five week accounting period during each Fiscal Quarter. "Fiscal Quarter" means (a) with respect to the first Fiscal Quarter of any Fiscal Year, the first 13 calendar weeks of such Fiscal Year, (b) with respect to the second Fiscal Quarter of such Fiscal Year, the next successive period of 13 calendar weeks in such Fiscal Year, (c) with respect to the third Fiscal Quarter of any Fiscal Year, the next successive period of 13 calendar weeks in such Fiscal Year and (d) with respect to the last Fiscal Quarter of any Fiscal Year, the period of time after the first three Fiscal Quarters of such Fiscal Year through the last day of such Fiscal Year. "Fiscal Year" means, with respect to any Loan Party, the period commencing the day after the Sunday closest to the 30th day of September in any calendar year and ending on the Sunday closest to the 30th day of September in the next succeeding calendar year, and when referred to from time to time herein by reference to a calendar year, shall be the Fiscal Year ending on the Sunday closest to the 30th of September in the calendar year to which reference is made. "Funded Debt" of any Person means (a) all indebtedness of such Person for borrowed money (excluding intercompany debt permitted under the Loan Documents) and (b) all obligations of such Person as lessee under Capitalized Leases including, without limitation, all amounts of Funded Debt required to be paid or prepaid within one year from the date of determination. "GAAP" has the meaning specified in Section 1.03. "Glendloc" means G.R. Glendloc, Incorporated, a Wisconsin corporation and a direct wholly owned subsidiary of the First Borrower. "GR of Baltimore" means Ground Round of Baltimore, Inc., a Maryland corporation and a direct majority owned subsidiary of the First Borrower. "GR Holdings" means Ground Round Holdings, Inc., a company organized under the laws of Delaware and a direct wholly owned subsidiary of GRR. "GR Holdings Guaranty" means the Amended and Restated GR Holdings Guaranty, dated as of April 26, 1992, made by GR Holdings to the Agent, as amended by the Omnibus Amendment, and as thereafter amended, supplemented or otherwise modified from time to time. "GR Holdings Intercompany License Agreement" means the intercompany license agreement, dated as of April 26, 1992, between GR Holdings and the Second Borrower, as the same may be amended, supplemented or otherwise modified from time to time in accordance with Section 5.02(o). "GR Holdings Pledge and Security Agreement" means the Amended and Restated GR Holdings Pledge and Security Agreement, dated as of April 26, 1992, made by GR Holdings to the Agent, as amended by the Omnibus Amendment, and as thereafter amended, supplemented or otherwise modified from time to time. "GRH-NJ" means GRH of NJ, Inc., a company organized under the laws of Delaware and a direct wholly owned subsidiary of GR Holdings. "GRH-NJ Guaranty" means the GRH-NJ Guaranty, dated as of April 26, 1992, made by GRH-NJ to the Agent, as amended by the Omnibus Amendment, and as thereafter amended, supplemented or otherwise modified from time to time. 10 "GRH-NJ Pledge and Security Agreement" means the GRH-NJ Pledge and Security Agreement, dated as of April 26, 1992, made by GRH-NJ to the Agent, as amended by the Omnibus Amendment, and as thereafter amended, supplemented or otherwise modified from time to time. "GRR" means Ground Round Restaurants, Inc., a company organized under the laws of New York. "GRR Guaranty" means the Amended and Restated GRR Guaranty, dated as of April 26, 1992, made by GRR to the Agent, as amended by the Omnibus Amendment and Amendment No. 2 to the GRR Guaranty dated as of January 20, 1994, and as thereafter amended, supplemented or otherwise modified from time to time. "GRR Pledge and Security Agreement" means the Amended and Restated GRR Pledge and Security Agreement, dated as of April 26, 1992, made by GRR to the Agent, as amended by the Omnibus Amendment, and as thereafter amended, supplemented or otherwise modified from time to time. "GRR Tax Group" has the meaning specified in Section 4.01(v). "GRXR Guaranty" means the Guaranty, dated as of October 8, 1993, as amended by the Second Omnibus Amendment, made by GRXR of Bel Air, GRXR of Frederick, GRXR of Hagerstown and GRXR of Charles County to the Agent, and as thereafter amended, supplemented or otherwise modified from time to time. "GRXR of Bel Air" means GRXR of Bel Air, Inc., a Maryland corporation and a direct wholly owned subsidiary of the First Borrower. "GRXR of Charles County" means GRXR of Charles County, Inc., a Maryland corporation and a direct wholly owned subsidiary of the First Borrower. "GRXR of Frederick" means GRXR of Frederick, Inc., a Maryland corporation and a direct wholly owned subsidiary of the First Borrower. "GRXR of Hagerstown" means GRXR of Hagerstown, Inc., a Maryland corporation and a direct wholly owned Subsidiary of the First Borrower. "GRXR Pledge and Security Agreement" means the Pledge and Security Agreement, dated as of October 8, 1993, as amended by the Second Omnibus Amendment, made by GRXR of Frederick, GRXR of Bel Air GRXR of Hagerstown and GRXR of Charles County to the Agent, and as thereafter amended, supplemented or otherwise modified from time to time. "Guarantor" means each of GRR, GR Holdings, GRH-NJ, Glendloc, GR of Baltimore, GRXR of Frederick, GRXR of Bel Air and GRXR of Hagerstown and GRXR of Charles County and any other subsidiary party to the Subsidiary Guaranty. "Hazardous Materials" means all materials subject to any Environmental Law, including, without limitation, materials listed in 49 C.F.R. [Section] 172.101, materials defined as hazardous pursuant to Section 101(14) of the Comprehensive Environmental Response, Compensation and Liability Act 1980, as amended, flammable, explosive or radioactive materials, hazardous or toxic wastes or substances, petroleum or petroleum distillates, PCB's or asbestos-containing materials. "Hedge Agreements" means interest rate swap, cap or collar agreements, interest rate future or option contracts, currency swap agreements, currency future or option contracts and other similar agreements designed to hedge against fluctuations in interest rates or foreign exchange rates. 11 "Hedge Bank" means any Lender party to a Hedge Agreement with the First Borrower. "Highest Lawful Rate" means with respect to any Lender, the maximum rate of interest, if any, that at any time or from time to time may be contracted for, taken, charged or received by such Lender on its Notes or which may be owing to such Lender pursuant to this Agreement under the laws applicable to such Lender and this Agreement. "HMH" means HM Holdings, Inc., a company organized under the laws of Delaware. "Improvements" has the meaning specified in the Mortgages. "Indemnified Party" has the meaning specified in Section 8.04(b). "Insufficiency" means, with respect to any Plan, the amount, if any, of its unfunded benefit liabilities, as defined in Section 4001(a)(18) of ERISA. "Interest Expense" means, for any period, interest expense net of interest income, whether paid or accrued (including the interest component of Capitalized Lease Obligations) on all Debt of GRR and its Subsidiaries on a Consolidated basis for such period, including, without limitation (a) interest expense in respect of the Debt resulting from the Term Loans and Unreimbursed Letter of Credit Obligations, (b) interest expense in respect of the ACH Obligations, (c) net payments payable in connection with all Hedge Agreements and (d) interest capitalized during construction, and, in any case, excluding amortization of deferred Debt expense. "Interest Payment Date" means (i) as to any Alternate Base Rate Loan, the fifteenth day of each month commencing on the first of such days to occur after the Effective Date or (ii) as to any Eurodollar Rate Loan, the maturity date of such Loan. "Interest Period" means, for each Eurodollar Rate Loan comprising part of the same Borrowing, the period commencing on the date of such Eurodollar Rate Loan or the date of the Conversion of any Alternate Base Rate Loan into such Eurodollar Rate Loan, and ending thirty days (30) thereafter provided, that: (a) neither Borrower may select any Interest Period that ends after the Termination Date; (b) Interest Periods commencing on the same date for Eurodollar Rate Loans comprising part of the same Borrowing shall be of the same duration; (c) whenever the last day of any Interest Period would otherwise occur on a day other than a Business Day, the last day of such Interest Period shall be extended to occur on the next succeeding Business Day, provided, however, that, if such extension would cause the last day of Interest Period to occur in the next following calendar month, the last day of such Interest Period shall occur on the next preceding Business Day; and (d) whenever the first day of any Interest Period occurs on a day of an initial calendar month for which there is no numerically corresponding day in the calendar month that succeeds such initial calendar month, such Interest Period shall end on the last Business Day of such succeeding calendar month. "Internal Revenue Code" means the Internal Revenue Code of 1986, as amended from time to time, and the regulations promulgated and rulings issued thereunder. 12 "Investment" in any Person means any loan or advance to such Person, any purchase or other acquisition of any capital stock, warrants, rights, options, obligations or other securities of such Person, any capital contribution to such Person or any other investment in such Person, including, without limitation, any arrangement pursuant to which the investor incurs Debt of the types referred to in clauses (h) and (i) of the definition of "Debt" in respect of such Person. "JUSI" shall mean JUSI Holdings, Inc., a Delaware corporation. "Lenders" means the Lenders listed on the signature pages hereof and each Eligible Assignee that shall become a party hereto pursuant to Section 8.07. "Letter of Credit" has the meaning specified in Section 2.01(b). "Letter of Credit Cash Collateral Account" has the meaning specified in Section 6.02. "Letter of Credit Commissions" has the meaning specified in Section 2.07(a). "Letter of Credit Obligations" means at any date, in respect of all the Lenders, the sum of (a) the undrawn face amount of the Letter of Credit at such date, and (b) the aggregate unpaid reimbursement obligations in respect of the Letter of Credit at such date. "Lien" means any lien, security interest or other charge or encumbrance of any kind, or any other type of preferential arrangement, including, without limitation, the lien or retained security title of a conditional vendor and any easement, right of way or other encumbrance on title to real property. "Loan Documents" means this Agreement, the Notes, the Convertible Notes, the GRR Guaranty, the GR Holdings Guaranty, the GRH-NJ Guaranty, the Subsidiary Guaranty, the GRXR Guaranty, the Collateral Documents, the Reimbursement Agreement, the Registration Rights Agreement and the ACH Agreements. "Loan Parties" means the Borrowers, the Guarantors, and each other Person executing a Loan Document (other than the Agent, the Lenders and any of their Affiliates). "Location Operating Profit" means, for any restaurant, "Location Operating Profit" calculated as set forth on Schedule 5.01(h). "Long-Term Hedge Agreement" means a Hedge Agreement with an initial term of more than one year. "Margin Stock" has the meaning specified in Regulation U. "Mortgage" means collectively (a) any of the mortgages, deeds of trust, trust deeds, leasehold mortgages and leasehold deeds of trust entered into and delivered pursuant to the provisions of Section 5.01(l) of the Existing Credit Agreement (the "Existing Mortgages"), (b) any mortgage delivered pursuant to Section 5.01(l) hereof (the "New Restaurant Mortgages") and (c) any mortgage, deed of trust, etc. entered into by any of the Borrowers or their Subsidiaries after the date hereof as collateral security for the Obligations in each case as thereafter amended, supplemented or otherwise modified from time to time in accordance with their terms. "Mortgage Assignment" has the meaning set forth in Section 3.01(i) (xxii). "Mortgage Policy" has the meaning specified in Section 5.01(1)(B). 13 "Multiemployer Plan" of any Person means a multiemployer plan, as defined in Section 4001(a)(3) of ERISA, to which such Person or any of its ERISA Affiliates is making or accruing an obligation to make contributions, or has within any of the preceding five plan years made or accrued an obligation to make contributions. "Multiple Employer Plan" of any Person means a single employer plan, as defined in Section 4001(a)(15) of ERISA, that (a) is maintained for employees of such Person or any of its ERISA Affiliates and at least one Person other than such Person and its ERISA Affiliates or (b) was so maintained and in respect of which such Person or any of its ERISA Affiliates could have liability under Section 4064 or 4069 of ERISA in the event such plan has been or were to be terminated. "Net Cash Proceeds" means, with respect to any sale, lease, transfer or other disposition of any asset by any Person, the aggregate amount of cash received by or on behalf of such Person in connection with such transaction after deducting therefrom only (a) reasonable and customary brokerage commissions, legal fees, finder's fees and other similar fees and commissions, (b) the amount of taxes payable in connection with or as a result of such transaction, (c) severance, stay bonuses, and other additional compensation above and beyond the Borrowers' standard employee compensation policies, not to exceed 2% of the selling price, and (d) the amount of any Debt (other than the Obligations) secured by a Lien on such asset that, by the terms of such transaction, is required to be repaid upon such disposition, in each case to the extent, but only to the extent, that the amounts so deducted are, at the time of receipt of such cash, actually paid to a Person that is not an Affiliate and are properly attributable to such transaction or to the asset that is the subject thereof. "Net Working Capital" means, with respect to any Person at any date, Current Assets (other than cash or Cash Equivalents) minus Current Liabilities. "Net Worth" means, for any Person, total assets less total liabilities in accordance with GAAP plus (i) the accounting impact of non-cash modifications to senior management compensation, (ii) judgments that are appealable, (iii) losses from the destruction of property or costs relating to claims that are insured to the extent of the loss and (iv) the direct cost associated with store and asset sales that are netted from the proceeds received. "Note" means the promissory note of the Borrowers payable to the order of any Lender, in substantially the form of Exhibit A, evidencing the indebtedness of the Borrowers to such Lender from the Term Loans or Letter of Credit Exposure of such Lender. "Notice of Issuance" has the meaning specified in Section 2.13(b). "Obligation" means, with respect to any Loan Party, any obligation of such Loan Party to the Agent, BNY, the ACH Banks or the Lenders of any kind, including, without limitation, any liability of such Person on any claim, whether or not the right of any creditor to payment in respect such claim is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, disputed, undisputed, legal, equitable, secured or unsecured, and whether or not such claim is discharged, stayed or otherwise affected by any proceeding referred to in Section 6.01(e). Without limiting the generality of the foregoing, the Obligations of the Loan Parties under the Loan Documents include (a) the obligation to pay principal, interest, commissions, charges, expenses, fees, attorneys' fees and disbursements, indemnities and other amounts payable by any Loan Party under any Loan Document and (b) the obligation to reimburse any amount in respect of any of the foregoing that any Lender, in its sole discretion, may elect to pay or advance on behalf of such Loan Party. "OECD" means the Organization for Economic Cooperation and Development. "Offering" means any public or private offering of common or preferred stock of GRR or either Borrower after the Effective Date. 14 "Offering Proceeds" means, with respect to any Offering, the aggregate amount of cash received by the issuer in connection with such offering of common stock after deducting therefrom only reasonable and customary underwriters' discounts and commissions and fees and expenses in connection with such Offering. "Office Lease" means the lease dated November 19, 1990 between the Borrower and Thomas J. Flatley. "Omnibus Amendment" means Amendment No. 1 dated as of October 8, 1993 to the GRH-NJ Pledge and Security Agreement, the GRH-NJ Guaranty, the GR Holdings Guaranty, the GR Holdings Pledge and Security Agreement, the GRR Guaranty, the GRR Pledge and Security Agreement, the Security Agreement, the Subsidiary Guaranty, the Subsidiary Pledge and Security Agreement and the Trademark Security Agreement. "Open Year" has the meaning specified in Section 4.01(w). "Other Taxes" has the meaning specified in Section 2.11(b). "PBGC" means the Pension Benefit Guaranty Corporation. "Permitted Encumbrances" has the meaning specified in the Mortgages. "Permitted Liens" means such of the following as to which no enforcement, collection, execution, levy or foreclosure proceeding shall have been commenced: (a) Liens for taxes, assessments and governmental charges or levies not yet due and payable; (b) Liens imposed by law, such as materialmen's, mechanics', carriers', workmen's and repairmen's Liens and other similar Liens arising in the ordinary course of business securing obligations that are not overdue for a period of more than 30 days; (c) pledges or deposits to secure obligations under workers' compensation laws or similar legislation or to secure public or statutory obligations; and (d) Permitted Encumbrances. "Person" means an individual, partnership, corporation (including a business trust), joint stock company, trust, unincorporated association, joint venture or other entity, or a government or any political subdivision or agency thereof. "Plan" means a Single Employer Plan or a Multiple Employer Plan. "Preferred Stock" means, with respect to any corporation, capital stock issued by such corporation that is entitled to a preference or priority over any other capital stock issued by such corporation upon any distribution of such corporation's assets, whether by dividend or upon liquidation. "Prepayment Account" has the meaning specified in Section 2.05(b)(v). "Profit After Controllables" shall mean, with respect to all restaurants, sales less cost of goods sold less location payroll and bonus expense less location controllable expenses. "Properties" means all restaurant locations operated by the Borrowers, whether such properties are owned in fee title, or leased. "Redeemable" means, with respect to any capital stock, Debt or other right or obligation, any such right or obligation that (a) the issuer has undertaken to redeem at a fixed or determinable date or dates, whether by operation of a sinking fund or otherwise, or upon the occurrence of a condition not solely within the control of the issuer or (b) is redeemable at the option of the holder. 15 "Register" has the meaning specified in Section 8.07(c). "Registration Rights Agreement" means the Registration Rights Agreement dated as of the Effective Date among GRR and the Lenders in substantially the form of Exhibit D hereto. "Regulation U" means Regulation U of the Board of Governors of the Federal Reserve System, as in effect from time to time. "Remaining Interest Period" means (i) in the event that a Borrower shall fail for any reason to convert a Term Loan to a Eurodollar Rate Loan after it shall have notified the Agent of its intent to do so, a period equal to thirty (30) days; or (ii) in the event that a Eurodollar Rate Loan shall terminate for any reason prior to the last day of the Interest Period applicable thereto, a period equal to the remaining portion of such Interest Period if such Interest Period had not been so terminated; or (iii) in the event that the Borrower shall prepay or repay all or any part of the principal amount of a Eurodollar Rate Loan prior to the last day of the Interest Period applicable thereto, a period equal to the period from and including the date of such prepayment or repayment to but excluding the last day of such Interest Period. "Required Lenders" means, at any time, Lenders (other than the Defaulting Lenders) owed or holding in the aggregate at least 66 2/3% of the sum of the then aggregate unpaid principal amount of the Term Loans (without regard to the Term Loans owed to the Defaulting Lenders) and the Letter of Credit Exposure (or if the Letter of Credit has been drawn, in whole or in part, the Unreimbursed Letter of Credit Obligations). "Restaurant Capital Gains" means capital gains, calculated in accordance with GAAP, and as reported by GRR on its reports to the SEC on Form 10-Q and Form 10-K, with respect to each Ground Round restaurant which is sold. "SEC" has the meaning specified in Section 5.01(o)(ii). "Second Omnibus Amendment" shall mean that certain Second Omnibus Amendment dated as of the Effective Date among the Borrowers, the Guarantors and the Agent, in substantially the form of Exhibit E hereto. "Security Agreement" means the Amended and Restated Security Agreement, dated as of April 26, 1992, made by the Borrowers to the Agent, as amended by the Omnibus Amendment, and as thereafter amended, supplemented or otherwise modified from time to time. "Single Employer Plan" of any Person means a single employer plan, as defined in Section 4001(a)(15) of ERISA, that (a) is maintained for employees of such Person or any of its ERISA Affiliates and no Person other than such Person and its ERISA Affiliates or (b) was so maintained an in respect of which such Person or any of its ERISA Affiliates could have liability under Section 4069 of ERISA in the event such plan has been or were to be terminated. "Solvent" means, with respect to any Person on a particular date, that on such date (a) the fair value of the property of such Person is greater than the total amount of liabilities, including, without limitation, contingent liabilities, of such Person, (b) the present fair salable value of the assets of such Person is not less than the amount that will be required to pay the probable liability of such Person on its debts as they become absolute and matured, (c) such Person does not intend to, and does not believe that it will, incur debts or liabilities beyond such Person's ability to pay as such debts and liabilities mature and (d) such Person is not engaged in business or a transaction, and is not about to engage in business or a transaction, for which such Person's property would constitute an unreasonably small capital. 16 "Subordinated Intercompany Note" means an intercompany note in a principal amount of $21,966,333.33 made by the First Borrower in favor of GR Holdings following the loan by GR Holdings to the First Borrower of the offering proceeds of the offering of common stock of GRR to the public on the Original Closing Date. "Subordination Agreement" means the Subordination Agreement, dated September 27, 1991, by the First Borrower and GR Holdings in favor of the Agent, as amended, supplemented or otherwise modified from time to time. "Subsidiary" of any Person means any corporation, partnership, joint venture, trust or estate of which (or in which) more than 50% of (a) the issued and outstanding capital stock having ordinary voting power to elect a majority of the Board of Directors of such corporation (irrespective of whether at the time capital stock of any other class or classes of such corporation shall or might have voting power upon the occurrence of any contingency), (b) the interest in the capital or profits of such partnership or joint venture or (c) the beneficial interest in such trust or estate is at the time directly or indirectly owned or controlled by such Person, by such Person and one or more of its other Subsidiaries or by one or more of such Person's other Subsidiaries. "Subsidiary Guaranty" means the Amended and Restated Subsidiary Guaranty, dated as of April 26, 1992, made by Glendloc and GR of Baltimore, to the Agent, as amended by the Omnibus Amendment, and as thereafter amended, supplemented or otherwise modified from time to time. "Subsidiary Pledge and Security Agreement" means the Amended and Restated Subsidiary Pledge and Security Agreement, dated as of April 26, 1992, made by Glendloc and GR of Baltimore, to the Agent, as amended by the Omnibus Amendment, and as thereafter amended, supplemented or otherwise modified from time to time. "Tax Certificate" has the meaning specified in Section 5.01(o)(xv). "Taxes" has the meaning specified in Section 2.11(a). "Termination Date" shall mean May 31, 1997 provided, that such date shall be automatically extended to December 31, 1997 if (i) on May 31, 1997 no Event of Default shall have occurred and be continuing and (ii) from and after Effective Date and through and including May 31, 1997, the Borrowers shall have prepaid the principal of the Term Loans (whether pursuant to Section 2.05 or otherwise) in an aggregate amount of not less than $10,846,000. "TGRI Intercompany License Agreement" means the intercompany license agreement, dated as of April 26, 1992, between the First Borrower and the Second Borrower, as the same may be amended, supplemented or otherwise modified from time to time in accordance with Section 5.01(i). "Trademark Security Agreement" means the Amended and Restated Trademark Security Agreement, dated as of April 26, 1992, made by the Borrowers, GRR, GR Holdings, GRH-NJ to the Agent, as amended by the Omnibus Amendment, and as thereafter amended, supplemented or otherwise modified from time to time. "Type" refers to the distinction between Term Loans bearing interest at the Alternate Base Rate and Term Loans bearing interest at the Eurodollar Rate. "Unreimbursed Letter of Credit Obligations" means a Letter of Credit Obligation which has not been reimbursed by the Borrowers. "USI" means U.S. Industries, Inc., a company organized under the laws of Delaware. 17 "Voting Stock" means capital stock issued by a corporation, or equivalent interests in any other Person, the holders of which are ordinarily, in the absence of contingencies, entitled to vote for the election of directors (or persons performing similar functions) of such Person, even though the right so to vote has been suspended by the happening of such a contingency. "Welfare Plan" means a welfare plan, as defined in Section 3(1) of ERISA. "Withdrawal Liability" has the meaning specified in Part 1 of Subtitle E of Part IV of ERISA. SECTION 1.02 Computation of Time Periods. In this Agreement in the computation of periods of time from a specified date to a later specified date, the word "from" means "from and including" and the words "to" and "until" each means "to but excluding". SECTION 1.03 Accounting Terms. All accounting terms not specifically defined herein shall be construed in accordance with generally accepted accounting principles consistent with those applied in the preparation of the financial statements referred to in Section 4.01(f) ("GAAP"). ARTICLE 2. AMOUNTS AND TERMS OF THE OBLIGATIONS SECTION 2.01 Restructuring of Existing Obligations. (a) Confirmation of Existing Obligations. The Borrowers hereby (i) confirm and agree that the Borrowers are truly and justly indebted to the Lenders in the aggregate amount of the Existing Obligations, together with all accrued and unpaid interest, fees and expenses that are due and owing in respect thereto, (ii) reaffirm and admit the validity and enforceability of Existing Credit Agreement, this Agreement and the other Loan Documents (including the granting of liens and security interests in the Collateral) and all of the their obligations thereunder, (iii) agree and admit that they have no defenses to, or offsets or counterclaims against, any of their obligations to the Agent or any Lender under the Loan Documents of any kind whatsoever. (b) The Term Loans and the Letter of Credit Obligations. (i) On the Effective Date, the Agent, the Co-Agent and the Lenders hereby agree to restructure the Existing Obligations as follows: (i) the Existing Revolving Loans, the Existing Tranche A Loans and the Existing Tranche B Loans shall be restructured as term loans (each, a "Term Loan" and, together with the Term Loan of each other Lender, the "Term Loans") and (ii) the Existing Letter of Credit shall be restructured as a letter of credit (the "Letter of Credit"). The principal amount of the Term Loans for each Lender and the participating interest of each Lender in the Letter of Credit shall not exceed the amounts set forth opposite its name below:
Letter of Credit Bank Term Loans Percentage Obligations Percentage BNY $18,397,599.28 37.95% 1,215,244.77 25.91% Chase $12,221,468.82 25.21% 1,129,964.44 24.09% BA $ 6,496,609.81 13.40% 852,803.35 18.18% CL $ 6,496,609.81 13.40% 852,803.35 18.18% NBD $ 4,872,457.37 10.04% 639,602.51 13.64% $48,484,745.09 100.00% 4,690,418.42 100.00%
18 Principal amounts outstanding on the Effective Date with respect to (x) the Existing Revolving Loans, the Existing Tranche A Loans and the Existing Tranche B Loans shall be deemed to be principal amounts outstanding with respect to the Term Loans and (y) the maximum principal face amount of the Existing Letter of Credit shall be deemed to be the maximum principal amount of the Letter of Credit, as of the Effective Date. The Existing Letter of Credit shall be deemed to be the Letter of Credit as of the Effective Date. Amounts of the Term Loans which are repaid or prepaid may not be reborrowed. On the Effective Date, the Borrowers will pay all accrued interest to such date owing to the Lenders under the Existing Credit Agreement. (ii) Notes. The Term Loans made by each Lender and the Letter of Credit Obligations owed to each Lender shall be evidenced by a promissory note of the Borrowers substantially in the form of Exhibit A, with appropriate insertions therein as to date and principal amount (each as indorsed or modified from time to time, a "Note" and, collectively with the Term Notes of all other Lenders, the "Notes"), payable to the order of such Lender for the account of its Applicable Lending Office and representing the obligation of the Borrowers to pay on the Termination Date the aggregate unpaid principal balance of the Term Loans made by such Lender and Letter of Credit Obligations owed to each Lender, with interest thereon as prescribed in Section 2.06. Each Note shall (i) be dated the Effective Date, (ii) be stated to mature on the Termination Date and (iii) bear interest from the date thereof on the unpaid principal balance thereof at the applicable interest rate or rates per annum determined as provided in Section 2.06. The (i) date and amount of the Term Loan made by a Lender consisting of an Alternate Base Rate Loan, a Eurodollar Rate Loan or a combination thereof, (ii) the interest rate and Interest Period (if any) applicable to Eurodollar Rate Loan , and (iii) each payment and prepayment of the principal thereof, shall be recorded by such Lender on its books and, prior to any transfer of its Note, indorsed by such Lender on the schedule attached thereto or any continuation thereof, provided that the failure of such Lender to make any such recordation or indorsement shall not affect the obligations of the Borrowers to make payment when due of any amount owing under the Loan Documents. Interest on each Note shall be payable as specified in Section 2.06(b). SECTION 2.02 Termination of Revolving Commitments and Revolving Facility; Termination of Term Commitments. On the Effective Date, the Revolving Credit Commitment of each Lender and the Revolving Facility under the Existing Credit Agreement is hereby expressly and irrevocably terminated in full. On the Effective Date, the Term Commitment of each Lender under the Existing Credit Agreement is hereby expressly and irrevocably terminated in full. SECTION 2.03 Repayment of Term Loans. The Borrowers jointly and severally agree to repay to the Agent for the account of the Lenders, the aggregate principal amount of the Term Loans on the Termination Date. SECTION 2.04 Convertible Note Obligations. In consideration of the agreement by the Lenders to restructure the Existing Obligations, the Borrowers hereby agree to pay to the Lenders the initial aggregate sum of $2,716,458.18 on or prior to May 31, 1997, which obligations shall be evidenced by promissory notes having the terms and in substantially the form of Exhibit B hereto, (each a "Convertible Note", and collectively, the "Convertible Notes") payable to the order of the Lenders as follows:
Lenders Amount % BNY $1,002,536.55 36.91%
19 Chase $ 682,116.01 25.11% BA $ 375,202.05 13.81% CL $ 375,202.05 13.81% NBD $ 281,401.54 10.36% $2,716,458.20 100.00%
The principal amount of the Convertible Notes shall be subject to reduction as provided for in the Convertible Notes. SECTION 2.05 Prepayments. (a) Optional. The Borrowers may, upon at least five Business Days' notice to the Agent stating the proposed date and aggregate principal amount of the prepayment, and if such notice is given the Borrowers jointly and severally hereby agree to, prepay the outstanding principal amount of the Term Loans comprising part of the same Borrowings in whole or ratably in part, together with accrued interest to the date of such prepayment on the principal amount prepaid; provided, however, that (x) each partial prepayment shall be in an aggregate principal amount of $1,000,000 or an integral multiple of $250,000 in excess thereof and (y) no such prepayment of a Eurodollar Rate Loan shall be made other than on the last day of an Interest Period therefor, unless indemnification is provided pursuant to Section 2.09(g). Each such prepayment shall be applied first to Term Loans compromising Borrowings consisting of Alternate Base Rate Loans and second to Term Loans comprising Borrowings consisting of Eurodollar Rate Loans. (b) Mandatory. (i) The Borrowers jointly and severally hereby agree to prepay, on the 90th day following the end of each Fiscal Year commencing after the Fiscal Year ending September 29, 1996, an aggregate principal amount of the Term Loans equal to 75% of the amount of Excess Cash Flow for the prior Fiscal Year. Each such prepayment shall be applied first to Term Loans comprising Borrowings consisting of Alternate Base Rate Loans and second to Term Loans comprising Borrowings consisting of Eurodollar Rate Loans. (ii) The Borrowers jointly and severally hereby agree to prepay, on the date of receipt by the Borrowers or any of their Subsidiaries of the Net Cash Proceeds from (A) the sale, lease, transfer or other disposition of any assets of the Borrowers or any of their Subsidiaries (other than sales of assets in the ordinary course of business) or (B) the sale or issuance by either Borrower or any of their Subsidiaries of any Debt evidenced by notes, bonds or similar instruments, an aggregate principal amount of the Term Loans comprising part of the same Borrowings equal to (x) in the case of subclause (A) above, (a) 0% of Net Cash Proceeds up to $1,154,000, (b) 50% of Net Cash Proceeds in excess of $1,154,000 and less than $4,846,000, (c) 75% of Net Cash Proceeds in excess of $4,846,000 and less than $8,846,000, (d) 100% of Net Cash Proceeds in excess of $8,846,000 and less than $13,846,000 and (e) 80% of Net Cash Proceeds in excess of $13,846,000 (it being understood and agreed that $1,000,000 of Net Sales Proceeds from asset sales occurring prior to the Effective Date previously released to the Borrowers may be retained by the Borrowers for working capital purposes and that the Lenders have received a mandatory prepayment of $1,154,000 on July 22, 1996) and (y) in the case of subclause (B) above, 100% of such Net Sales Proceeds, provided, however, that with respect to Net Cash Proceeds received from the sale or issuance of subordinated Debt incurred to finance Capital Expenditures permitted pursuant to Section 5.02(b)(v), the Borrowers shall be permitted to retain such Net Cash Proceeds in an amount not in excess of $10,000,000 in the aggregate. Each such prepayment shall be applied first to Term Loans comprising Borrowings consisting of Alternate Base Rate Loans and second to Term Loans comprising Borrowings consisting of Eurodollar Rate Loans. (iii) Within one Business Day following receipt by the issuer of the Offering Proceeds from any Offering, the Borrowers jointly and severally hereby agree to prepay an aggregate principal amount of the Term Loans comprising part of the same Borrowings equal to 66-2/3% of such 20 Offering Proceeds. Each such prepayment shall be applied first to Term Loans comprising Borrowings consisting of Alternate Base Rate Loans and second to Term Loans comprising Borrowings consisting of Eurodollar Rate Loans. (iv) In addition to the mandatory prepayments required pursuant to clauses (i) through (iii) above, if the Borrowers or any of their Subsidiaries receive any Federal or state tax refunds (the "Tax Refunds") on or after the Effective Date, the Borrowers hereby jointly and severally agree to prepay the Term Loans in an amount equal to 100% of such Tax Refunds on the date when the aggregate sum of such Tax Refunds, when added to the aggregate amount of Net Cash Proceeds arising from the sale, lease, transfer or other disposition of any assets of the Borrowers or any of their Subsidiaries occurring after the Effective Date (the "Asset Sale Proceeds") exceeds $10,000,000 but is less than $13,846,000, provided, that if on the date that the Borrowers or any of their Subsidiaries receive any Tax Refunds which, when added to the aggregate Asset Sale Proceeds exceeds an amount equal to $13,846,000, in addition to the prepayment of the Term Loans hereinabove provided in this subsection (iv), the Borrowers shall on such date prepay the Term Loans in an additional amount equal to 80% of that portion of the Tax Refunds which when added to the Asset Sale Proceeds exceeds $13,846,000. It is agreed that (x) the Borrowers may use the Tax Refunds for working capital purposes prior to the date that a mandatory prepayment is required to be made in accordance with the terms hereof and (y) the balance of the Tax Refunds not prepaid to the Term Loans provided for above may be retained by the Borrowers for working capital purposes. (v) All prepayments under this subsection (b) shall be made together with accrued interest to the date of such prepayment on the principal amount prepaid. (vi) Notwithstanding the provisions of this Section 2.05(b)(i), (ii), (iii), (iv) or (v), if a prepayment of Eurodollar Rate Loans would be required on a day other than the last day of an Interest Period, the relevant Borrower shall transfer such prepayment amount to an escrow account at BNY (the "Prepayment Account"). The prepayment amount shall be held in the Prepayment Account by the Agent until the last day of such Interest Period at which time the prepayment amount shall be applied by the Agent in accordance with the provisions of this Section 2.05(b). During the time that the prepayment amount is on deposit in the Prepayment Account, the Agent shall invest the prepayment amount in Cash Equivalents on behalf of the relevant Borrower. Following an Event of Default, the Agent shall apply the amount on deposit in the Prepayment Account in accordance with the provisions of this Section 2.05 and the relevant Borrower shall pay to the Agent on account of each Lender any amounts required to compensate such Lenders for losses, costs and expenses that they may reasonably incur as the result of such prepayment in accordance with Section 8.04(c). (vii) All prepayments under this subsection (b) shall permanently reduce the Facility and may not be reborrowed. (c) Convertible Notes. The Borrowers shall not be permitted to prepay any amounts due under the Convertible Notes. SECTION 2.06 Interest. (a) Ordinary Interest. The Borrowers jointly and severally hereby agree to pay interest on the unpaid principal amount of each Term Loan owing to each Lender from the Effective Date until such principal amount shall be paid in full, at the following rates per annum: (i) Alternate Base Rate Loans. During such periods as such Term Loan is a Alternate Base Rate Loan, a rate per annum equal at all times to the sum of (i) the Alternate Base Rate in effect from time to time plus (ii) the Applicable Margin in effect from time to time, payable on each Interest Payment Date. 21 (ii) Eurodollar Rate Loans. During such periods as such Term Loan is a Eurodollar Rate Loan, a rate per annum equal at all times during each Interest Period for such Term Loan to the sum of (i) the Eurodollar Rate for such Interest Period for such Term Loan plus (ii) the Applicable Margin in effect on the first day of such Interest Period, payable on each Interest Payment Date. (b) Default Interest. Upon the occurrence and during the continuance of an Event of Default, the Borrowers hereby agree jointly and severally to pay interest on the unpaid principal amount of each Term Loan owing to each Lender and on the unpaid amount of all interest, fees and other amounts payable hereunder (except as provided in subclause (c) below) that is not paid when due, payable on demand, at a rate per annum equal at all times to 2% per annum above the rate per annum required to be paid on such Term Loan pursuant to subsection (a) above or, in the case of such other amounts, above the rate per annum required to be paid on Alternate Base Rate Loans pursuant to clause (a)(i) above. (c) Default Interest on Convertible Notes. From and after the earlier of (x) the date upon which amounts are due and owing under one or more of the Convertible Notes following a demand for payment by the holders of such Convertible Notes or (ii) the Termination Date, the Borrowers shall pay interest on any amounts due and owing under the Convertible Notes at a rate per annum equal to 2.75% above the Alternate Base Rate. (d) Additional Interest on Eurodollar Rate Loans. The Borrowers hereby agree jointly and severally to pay to each Lender, so long as such Lender shall be required under regulations of the Board of Governors of the Federal Reserve System to maintain reserves with respect to liabilities or assets consisting of or including Eurocurrency Liabilities (to the extent such reserves are actually incurred), additional interest on the unpaid principal amount of each Eurodollar Rate Loan of such Lender, from the date of such Term Loan until such principal amount is paid in full, at an interest rate per annum equal at all times to the remainder obtained by subtracting (i) the Eurodollar Rate for the Interest Period for such Term Loan from (ii) the rate obtained by dividing such Eurodollar Rate by a percentage equal to 100% minus the Eurodollar Rate Reserve Percentage of such Lender for such Interest Period, payable on each date on which interest is payable on such Term Loan. Such additional interest shall be determined by such Lender and notified to the Borrowers through the Agent. (e) Without prejudice to the survival of any other agreement of the Borrowers hereunder, the agreements and obligations of each Borrower contained in this Section 2.06 shall survive the payment in full of principal and interest hereunder and under the Notes for a period of two years. SECTION 2.07 Fees. (a) Letter of Credit Commissions. The Borrowers agree to pay to the Agent, for the account of BNY as the issuer of the Letter of Credit, and for the pro rata account of the Lenders in accordance with each Lender's percentage of the Letter of Credit Obligations as set forth in Section 2.01(b) hereof, commissions (the "Letter of Credit Commissions") with respect to the Letter of Credit for the period from and including the date of issuance thereof to and including the expiration date thereof, at a rate per annum equal to 1% on the average daily amount available to be drawn under such Letter of Credit. The Letter of Credit Commissions shall be (i) calculated on the basis of a 360 day year for the actual number of days elapsed, (ii) payable quarterly in arrears on the fifteenth day of each October, January, April and July of each year, commencing on October 15, 1996 and (iii) nonrefundable. In addition to the foregoing Letter of Credit Commissions, the Borrowers agree to pay to BNY, for its own account, its standard fees and charges customarily charged to customers similar to the Borrowers with respect to any Letter of Credit. (b) Restructuring Fee. The Borrowers agree to pay to the Agent for the account of the Lenders, pro rata in accordance with each Lender's percentage of the restructured Facility, a restructuring fee in the aggregate amount of $203,770, payable in four equal installments on September 13, 1996 and thereafter on the first day of October, November and December 1996. The Agent and the 22 Lenders hereby acknowledge receipt of the first installment of such restructuring fee that is payable on September 13, 1996, in the aggregate amount of $50,942.50, that was paid on July 31, 1996. SECTION 2.08 Conversion or Continuation of Term Loans. (a) Optional. Either Borrower may on any Business Day, upon notice given to the Agent not later than 11:00 A.M. (New York City time) on the third Business Day prior to the date of the proposed Conversion and subject to the provisions of Sections 2.09 and 2.10, Convert all or any portion of the Term Loans owing by such Borrower of one Type comprising the same Borrowing into Term Loans of the other Type or continue all or any portion of the Term Loans comprising Eurodollar Rate Loans as Eurodollar Rate Loans; provided, however, that any Conversion of Eurodollar Rate Loans into Alternate Base Rate Loans shall be made on, and only on, the last day of an Interest Period for such Eurodollar Rate Loans, any Conversion of Alternate Base Rate Loans into Eurodollar Rate Loans shall be in an amount not less than $1,000,000, provided, further, that no Conversion of any Term Loans or continuation of Eurodollar Rate Loans shall result in the aggregate principal amount of Alternate Base Rate Loans to be less than the greater of (x) $2,000,000 and (y) the Net Cash Proceeds reasonably anticipated to be applied to the Term Loans required pursuant to Section 2.05(b) during the next succeeding Interest Period. Each such notice of Conversion or continuation shall, within the restrictions specified above, specify (i) the date of such Conversion or continuation, (ii) the Term Loans to be Converted or continued and (iii) if such Conversion is into Eurodollar Rate Loans, the duration of the initial Interest Period for such Loans. Each notice of Conversion or continuation shall be irrevocable and binding on the relevant Borrower. (b) Mandatory. (i) On the date on which the aggregate unpaid principal amount of Eurodollar Rate Loans having the same Interest Period shall be reduced, by payment or prepayment or otherwise, to less than $1,000,000, such Term Loans shall automatically Convert into Alternate Base Rate Loans on the last day of the Interest Period applicable to such Eurodollar Rate Loans. (ii) If either Borrower shall fail to select the duration of any Interest Period for any Eurodollar Rate Loans in accordance with the provisions contained in the definition of "Interest Period" in Section 1.01, the Agent will forthwith so notify such Borrower and the Lenders, whereupon each such Eurodollar Rate Loans will automatically, on the last day of the then existing Interest Period therefor, Convert into a Alternate Base Rate Loans. SECTION 2.09 Increased Costs, Etc. (a) If, due to either (i) the introduction of or any change (other than any change by way of imposition or increase of reserve requirements included in the Eurodollar Rate Reserve Percentage) in or in the interpretation of any law or regulation or (ii) the compliance with any guideline or request from any central bank or other governmental authority (whether or not having the force of law), there shall be any increase in the cost to any Lender of agreeing to make or making, funding or maintaining Eurodollar Rate Loans, then the Borrowers jointly and severally hereby agree from time to time, upon demand by such Lender (with a copy of such demand to the Agent), to pay to the Agent for the account of such Lender additional amounts sufficient to compensate such Lender for such increased cost; provided, however, that, before making any such demand, each Lender agrees to use reasonable efforts (consistent with its internal policy and legal and regulatory restrictions) to designate a different Applicable Lending office if the making of such a designation would avoid the need for, or reduce the amount of, such increased cost and would not, in the reasonable judgment of such Lender, be otherwise disadvantageous to such Lender. A certificate as to the amount of such increased cost, submitted to the Borrowers by such Lender, shall be conclusive and binding for all purposes, absent manifest error. (b) If any Lender determines that compliance with any law or regulation or any guideline or request from any central bank or other governmental authority (whether or not having the force of law) affects or would affect the amount of capital required or expected to be maintained such Lender or any corporation controlling such Lender and that the amount of such capital is increased by or 23 based upon the existence of such Lender's commitment to lend hereunder and other commitments of this type or the issuance of, or sale or purchase of participation in, the Letter of Credit (or similar contingent obligations), then, upon demand by such Lender (with a copy of such demand to the Agent), the Borrowers jointly and severally hereby agree to pay to the Agent for the account of such Lender, from time to time as specified by such Lender, additional amounts sufficient to compensate such Lender in the light of such circumstances, to the extent that such Lender reasonably determines such increase in capital to be allocable to the existence of such Lender's commitment to lend hereunder or the issuance of, or sale or purchase of participation in, the Letter of Credit; provided, however, that the Borrowers shall not be obligated under this Section 2.09(b) to compensate any Lender for any increase in capital to the extent such increase is required on the Original Closing Date pursuant to 12 C.F.R. ' 3.1-3.21 (1990) or 12 C.F.R. ' 325.1-325.6 and ' 325.101-325.102 (1990). A certificate as to such amounts submitted to the Borrowers by such Lender, shall be conclusive and binding for all purposes, absent manifest error. (c) If, with respect to any Eurodollar Rate Loans, Lenders owed at least 51% of the then aggregate unpaid principal amount thereof, notify the Agent that the Eurodollar Rate for any Interest Period for such Term Loans will not adequately reflect the cost to such Lenders of making, funding or maintaining their Eurodollar Rate Loans for such Interest Period, the Agent shall forthwith so notify the Borrowers and the Lenders, whereupon (i) each such Eurodollar Rate Loan will automatically, on the last day of the then existing Interest Period therefor, Convert into an Alternate Base Rate Loan and (ii) the obligation of the Lenders to make, continue or to Convert Term Loans into, Eurodollar Rate Loans shall be suspended until the Agent shall notify the Borrowers that such Lenders have determined that the circumstances causing such suspension no longer exist. (d) Notwithstanding any other provision of this Agreement, if the introduction of or any change in or in the interpretation of any law or regulation shall make it unlawful, or any central bank or other governmental authority shall assert that it is unlawful, for any Lender or its Eurodollar Lending Office to perform its obligations hereunder to make Eurodollar Rate Loans or to continue to fund or maintain Eurodollar Rate Loans hereunder, then, on notice thereof and demand therefor by such Lender to the Borrowers through the Agent, (i) each Eurodollar Rate Loan will automatically, upon such demand, Convert into an Alternate Base Rate Loan and (ii) the obligation of the Lenders to make, or to Convert Term Loans into, Eurodollar Rate Loans shall be suspended until the Agent shall notify the Borrowers that such Lender has determined that the circumstances causing such suspension no longer exist; provided, however, that, before making any such demand, such Lender agrees to use reasonable efforts (consistent with its internal policy and legal and regulatory restrictions) to designate a different Eurodollar Lending Office if the making of such a designation would allow such Lender or its Eurodollar Lending Office to continue to perform its obligations to make Eurodollar Rate Loans or to continue to fund or maintain Eurodollar Rate Loans and would not, in the judgment of such Lender, be otherwise disadvantageous to such Lender. (e) Upon the occurrence and during the continuance of any Event of Default, (i) each Eurodollar Rate Loan will automatically, on the last day of the then existing Interest Period therefor, Convert into an Alternate Base Rate Loan and (ii) the obligation of the Lenders to make, or to Convert Term Loans into, Eurodollar Rate Loans shall be suspended. (f) Without prejudice to the survival of any other agreement of the Borrowers hereunder, the agreements and obligations of the Borrowers contained in Sections 2.09(a) and Section 2.09(b) above shall survive the payment in full of principal and interest hereunder and under the Notes for a period of two years. (g) Notwithstanding anything contained herein to the contrary, if a Borrower shall fail to borrow or Convert after it shall have given notice to do so in which it shall have requested a Eurodollar Advance, or if a Eurodollar Rate Loan shall be terminated for any reason prior to the last day of the Interest Period applicable thereto, or if, while a Eurodollar Rate Loan is outstanding, any repayment or prepayment of such Eurodollar Rate Loan is made for any reason at any time when the provisions of 24 Section 2.05(b)(v) are not applicable, (including, without limitation, as a result of acceleration or illegality) on a date which is prior to the last day of the Interest Period applicable thereto, the Borrowers jointly and severally agree to indemnify each Lender against, and to pay on demand directly to such Lender, any loss or expense suffered by such Lender as a result of such failure to borrow or convert, termination or repayment, including, without limitation, an amount, if greater than zero, equal to: A x (B-C) x D 360 where: "A" equals such Lender's pro rata share of the Affected Principal Amount; "B" equals the Eurodollar Rate (expressed as a decimal) applicable to such Eurodollar Rate Loans; "C" equals the applicable Eurodollar Rate (expressed as a decimal) in effect on or about the first day of the applicable Remaining Interest Period, based on the applicable rates offered or bid, as the case may be, on or about such date, for deposits in an amount equal approximately to such Lender's pro rata share of the Affected Principal Amount with an Interest Period equal approximately to the applicable Remaining Interest Period, as determined by such Lender; "D" equals the number of days from and including the first day of the applicable Remaining Interest Period to but excluding the last day of such Remaining Interest Period; and any other reasonable out-of-pocket loss or expense (including any internal processing charge customarily charged by such Lender) suffered by such Lender in connection with such Eurodollar Rate Loan, including, without limitation, in liquidating or employing deposits acquired to fund or maintain the funding of its pro rata share of the Affected Principal Amount, or redeploying funds prepaid or repaid, in amounts which correspond to its pro rata share of the Affected Principal Amount. Each determination by the Agent or a Lender pursuant to this Section shall be conclusive and binding on the Borrower absent manifest error. SECTION 2.10 Payments and Computations. (a) The Borrowers shall make each payment hereunder and under the Notes not later than 11:00 A.M. (New York City time) on the day when due in U.S. dollars to the Agent at the Agent's Account in same day funds. The failure of the Borrowers to make any such payment by such time shall not constitute a default hereunder, provided that such payment is made on such due date, but any such payment made after 11:00 A.M. on such due date shall be deemed to have been made on the next Business Day for the purpose of calculating interest on amounts outstanding on the Term Loans. The Agent will promptly thereafter cause to be distributed like funds relating to the payment of principal or interest or fees under or in respect of the Term Loans, the Letter of Credit or the Convertible Notes ratably (other than amounts payable pursuant to Section 2.09(a), 2.09(b) or 2.11) to the Lenders for the account of their Applicable Lending Offices pro rata in accordance with each Lender's percentage of Term Loans, Letter of Credit Obligations or Convertible Notes, respectively, as provided in Section 2.01(b) and 2.04, and like funds relating to the payment of any other amount payable to any Lender to such Lender for the account of its Applicable Lending Office, in each case to be applied in accordance with the terms of this Agreement. Upon its acceptance of an Assignment and Acceptance and recording of the information contained therein in the Register pursuant to Section 8.07(d), from and after the effective date of such Assignment and Acceptance, the Agent shall make all payments hereunder and under the Notes and the Convertible Notes in respect of the interest assigned thereby to the Lender assignee thereunder, and the parties to such Assignment and Acceptance shall make all appropriate adjustments in such payments for periods prior to such effective date directly between themselves. 25 (b) Each Borrower hereby authorizes each Lender, if and to the extent payment owed to such Lender is not made when due hereunder or under any Note or Convertible Note held by such Lender, to charge from time to time against any or all of such Borrower's accounts with such Lender amount so due. (c) All computations of interest and fees shall be made by the Agent on the basis of a year of 360 days, in each case for the actual number of days (including the first day but excluding the last day) occurring in the period for which such interest, fees or commissions are payable. Each determination by the Agent of an interest rate or fee hereunder shall be conclusive and binding for all purposes, absent manifest error. (d) Whenever any payment hereunder or under the Notes and the Convertible Notes shall be stated to be due on a day other than a Business Day, such payment shall be made on the next succeeding Business Day, and such extension of time shall in such case be included in the computation of payment of interest or commitment fee, as the case may be; provided, however, that, if such extension would cause payment of interest on or principal of Eurodollar Rate Loans to be made in the next following calendar month, such payment shall be made on the next preceding Business Day. (e) Unless the Agent shall have received notice from the Borrowers prior to the date on which any payment is due to any Lender hereunder that the Borrowers will not make such payment in full, the Agent may assume that the Borrowers have made such payment in full to the Agent on date and the Agent may, in reliance upon such assumption, cause to be distributed to each such Lender on such due date an amount equal to the amount then due such Lender. If and to the extent the Borrowers shall not have so made such payment in full to the Agent, each such Lender shall repay to the Agent forthwith on demand such amount distributed to such Lender together with interest thereon, for each day from the date such amount is distributed to such Lender until the date such Lender repays such amount to the Agent, at the Federal Funds Rate. SECTION 2.11 Taxes. (a) Any and all payments by the Borrowers hereunder or under the Notes and the Convertible Notes shall be made, in accordance with Section 2.10, free and clear of and without deduction for any and all present or future taxes, levies, imposts, deductions, charges or withholdings, and all liabilities with respect thereto, excluding, in the case of each Lender and the Agent, net income taxes that are imposed by the United States and franchise taxes and net income taxes that are imposed on such Lender or the Agent by the state or foreign jurisdiction under the laws of which such Lender or the Agent (as the case may be) is organized or any political subdivision thereof and, in the case of each Lender, franchise taxes and net income taxes that are imposed on such Lender by the state or foreign jurisdiction of such Lender's Applicable Lending Office or any political subdivision thereof (all such non-excluded taxes, levies, imposts, deductions, charges, withholdings and liabilities being hereinafter referred to as "Taxes"). If the Borrowers shall be required by law to deduct any Taxes from or in respect of any sum payable hereunder or under any Note or Convertible Note to any Lender or the Agent, (i) the sum payable shall be increased as may be necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section 2.11) such Lender or the Agent (as the case may be) receives an amount equal to the sum it would have received had no such deductions been made, (ii) the Borrowers shall make such deductions and (iii) the Borrowers shall pay the full amount deducted to the relevant taxation authority or other authority in accordance with applicable law. (b) In addition, the Borrowers jointly and severally hereby agree to pay any present or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies that arise from any payment made hereunder or under the Notes or the Convertible Note or from the execution, delivery or registration of, or otherwise with respect to, this Agreement, the Notes or the Convertible Notes (hereinafter referred to as "Other Taxes"). 26 (c) The Borrowers will jointly and severally indemnify each Lender and the Agent for the full amount of Taxes or Other Taxes (including, without limitation, any Taxes or Other Taxes imposed by any jurisdiction on amounts payable under this Section 2.11) paid by such Lender or the Agent (as the case may be) and any liability (including penalties, additions to tax, interest and expenses) arising therefrom or with respect thereto. This indemnification shall be made within 30 days from the date such Lender or the Agent (as the case may be) makes written demand therefor. (d) Within 30 days after the date of any payment of Taxes, the Borrowers will furnish to the Agent, at its address referred to in Section 8.02, appropriate evidence of payment thereof. If no Taxes are payable in respect of any payment hereunder or under the Notes or the Convertible Notes by the Borrowers through an account or branch outside the United States or on behalf of the Borrowers by a payor that is not a United States person, the Borrowers will furnish, or will cause such payor to furnish, to the Agent, at such address, a certificate from the appropriate taxing authority or authorities, or an opinion of counsel acceptable to the Agent, in either case stating that such payment is exempt from or not subject to Taxes. For purposes of this subsection (d), the terms "United States" and "United States person" shall have the meanings specified in Section 7701 of the Internal Revenue Code. (e) To the extent that any Lender has not otherwise done so under the Existing Credit Agreement, each Lender organized under the laws of a jurisdiction outside the United States shall on the date of its execution and delivery of this Agreement in the case of each Bank, and on the date of the Assignment and Acceptance pursuant to which it becomes a Lender in the case of each other Lender, and from time to time thereafter if requested in writing by the Borrowers or the Agent (but not if, by virtue of a change in law or regulation, including any judicial or administrative interpretation thereof occurring after the date of the execution and delivery of this Agreement or the date of the Assignment and Acceptance, as the case may be, such Lender is unable to do so), provide the Agent and the Borrowers with a properly completed Internal Revenue Service form 1001 or 4226, as appropriate, or any successor form prescribed by the Internal Revenue Service, certifying that such Lender is entitled to benefits under an income tax treaty to which the United States is a party that reduces the rate of withholding tax on payments under this Agreement or the Notes or Convertible Notes or certifying that the income receivable pursuant to this Agreement or the Notes is effectively connected with the conduct of a trade or business in the United States. If the form provided by a Lender at the time such Lender first becomes a party to this Agreement indicates a United States interest withholding tax rate in excess of zero or if the form provided by such Lender from time to time thereafter indicates a United States interest withholding tax rate in excess of zero (other than by virtue of a change in law or regulation, including any judicial or administrative interpretation thereof occurring after the date such Lender becomes a party to this Agreement) withholding tax at such rate shall be considered excluded from Taxes unless and until such Lender provides the appropriate form certifying that a lesser rate applies, whereupon withholding tax only at such lesser rate shall be considered excluded from Taxes for periods governed by such form; provided, however, that if at the date of an Assignment and Acceptance pursuant to which a Lender assignee becomes a party to this Agreement, the Lender assignor was entitled to payments under subsection (a) in respect of United States withholding tax with respect to interest paid at such date, then, to the extent (but only to the extent) such tax results in liability for such payments, the term Taxes shall be deemed to include (in addition to withholding taxes that may be imposed in the future or other amounts, in both cases otherwise includible in Taxes) United States interest withholding tax, if any, applicable with respect to the Lender assignee on such date. (f) For any period with respect to which a Lender has failed to provide the Borrowers with the appropriate form described in subsection (e) (other than if such failure is due to a change in law occurring after the date on which a form originally was required to be provided or if such form otherwise is not required under subsection (e)), such Lender shall not be entitled to indemnification under subsection (a) or (c) with respect to Taxes imposed by the United States; provided, however, that should a Lender become subject to Taxes because of its failure to deliver a form required hereunder, the 27 Borrowers shall take such steps as such Lender shall reasonably request to assist such Lender to recover such Taxes. (g) Any Lender claiming any additional amounts payable pursuant to this Section 2.11 shall use reasonable efforts (consistent with its internal policy and legal and regulatory restrictions) to change the jurisdiction of its lending office if the making of such a change would avoid the need for, or reduce the amount of, any such additional amounts that may thereafter accrue and would not, in the reasonable judgment of such Lender, be otherwise disadvantageous to such Lender. (h) Without prejudice to the survival of any other agreement of the Borrowers hereunder, the agreements and obligations of the Borrowers contained in this Section 2.11 shall survive the payment in full of principal and interest hereunder and under the Notes. SECTION 2.12 Sharing of Payments, Etc. If any Lender shall obtain any payment (whether voluntary, involuntary, through the exercise of any right of set-off, or otherwise) on account of the Term Loans, Convertible Notes or Unreimbursed Letter of Credit Obligations owing to it (other than pursuant to Section 2.09(a), 2.09(b), 2.11 or 8.04(c)), in excess of its ratable share of payments on account of such Term Loans, Convertible Notes or Unreimbursed Letter of Credit Obligations obtained by all the Lenders, such Lender shall forthwith purchase from the other Lenders such participations in the Term Loans, Convertible Notes or Unreimbursed Letter of Credit Obligations owing to them as shall be necessary to cause such purchasing Lender to share the excess payment ratably with each of them; provided, however, that if all or any portion of such excess payment is thereafter recovered from such purchasing Lender, such purchase from each Lender shall be rescinded and such Lender shall repay to the purchasing Lender the purchase price to the extent of such recovery together with an amount equal to such Lender's ratable share (according to the proportion of (i) the amount of such Lender's required repayment to (ii) the total amount so recovered from the purchasing Lender) of any interest or other amount paid or payable by the purchasing Lender in respect of the total amount so recovered. The Borrowers agree that any Lender so purchasing a participation from another Lender pursuant to this Section 2.12 may, to the fullest extent permitted by law, exercise all its rights of payment (including the right of set-off) with respect to such participation as fully as if such Lender were the direct creditor of the Borrowers in the amount of such participation. SECTION 2.13 Letter of Credit. (a) Letter of Credit Extension. Subject to the terms and conditions of this Agreement, BNY agrees, in reliance on the agreement of the other Lenders set forth in Section 2.13(c), to extend the expiration date of the Letter of Credit to a date no later than October 6, 1997, provided that if the Letter of Credit shall be outstanding on May 31, 1997 and the Termination Date shall not have been extended to December 31, 1997, the Borrowers shall, on or prior to May 31, 1997, (i) cause the Letter of Credit to be returned to BNY undrawn and marked "cancelled" or (ii) if the Borrowers are unable to do so in whole or in part, either (x) provide a "back-to-back" letter of credit to BNY in a form satisfactory to BNY (in its sole discretion), issued by a bank satisfactory to BNY (in its sole discretion), in an amount equal to 105% of the then undrawn stated amount of the Letter of Credit issued and/or (y) deposit cash in the Letter of Credit Cash Collateral Account in an amount equal to 105% of the then undrawn stated amount of all outstanding Letter of Credit as collateral security for the Borrowers reimbursement obligations in connection therewith, such additional letter of credit collateralization or excess cash to be remitted to the Borrowers upon the expiration, cancellation or other termination or satisfaction of such reimbursement obligations. (b) Request for Extension. The Letter of Credit shall have been issued solely in support of the Borrowers' workers' compensation, automobile liability and general liability obligations 28 arising in the ordinary course of business. The Lenders acknowledge that a request for the extension of the Letter of Credit has been given to the Agent prior to August 23, 1996. (c) Drawing and Reimbursement. Each payment by BNY of a draft drawn under the Letter of Credit shall give rise to an obligation on the part of the Borrowers to reimburse BNY immediately for the amount thereof. (d) Letter of Credit Participation and Facility Commitment. Each Lender hereby unconditionally and irrevocably, severally for itself only and without any notice to or the taking of any action by such Lender, takes an undivided participating interest in the obligations of BNY under and in connection with the Letter of Credit in an amount equal to such Lender's percentage of the Unreimbursed Letter of Credit Obligations. Each Lender shall be liable to BNY for the percentage of the unreimbursed amount of any draft drawn and honored under each Letter of Credit. Each Lender shall also be liable for an amount equal to its percentage for any amounts paid by the Borrowers pursuant to Section 2.13(e) that are subsequently rescinded or avoided, or must otherwise be restored or returned. Such liabilities shall be unconditional and without regard to the occurrence of any Default or the compliance by the Borrower with any of its obligations under the Loan Documents. (e) Payments by Lenders. The Agent will promptly notify each Lender (which notice shall be promptly confirmed in writing) of the date and the amount of any draft presented under the Letter of Credit with respect to which there exists an Unreimbursed Letter of Credit Obligation, and forthwith upon receipt of such notice, such Lender (other than BNY) shall make available to the Agent for the account of BNY the amount of its pro rata share of the Unreimbursed Letter of Credit Obligation at the office of the Agent specified in Section 8.02, in lawful money of the United States and in immediately available funds, before 4:00 P.M., on the day such notice was given by the Agent, if the relevant notice was given by the Agent at or prior to 1:00 P.M., on such day, and before 12:00 noon, on the next Business Day, if the relevant notice was given by the Agent after 1:00 P.M., on such day. The Agent shall distribute the payments made by each Lender (other than BNY) pursuant to the immediately preceding sentence to BNY promptly upon receipt thereof in like funds as received. Each Lender shall indemnify and hold harmless the Agent and BNY from and against any and all losses, liabilities (including liabilities for penalties), actions, suits, judgments, demands, costs and expenses (including, without limitation, reasonable attorneys' fees and expenses and an administration fee of not less than $100 payable to BNY as the issuer of the Letter of Credit) resulting from any failure on the part of such Lender to provide, or from any delay in providing, the Agent with such Lender's pro rata share of the Unreimbursed Letter of Credit Obligations in accordance with this clause (b) (except in respect of losses, liabilities or other obligations suffered by BNY resulting from the gross negligence or willful misconduct of BNY). If a Lender does not make available to the Agent when due such Lender's pro rata share of the Unreimbursed Letter of Credit Obligations (other than payments made by BNY by reason of its gross negligence or willful misconduct), such Lender shall be required to pay interest to the Agent for the account of BNY on such Lender's pro rata share of the Unreimbursed Letter of Credit Obligations at a rate of interest per annum equal to the Federal Funds Rate from the date such Lender's payment is due until the date such payment is received by the Agent. The Agent shall distribute such interest payments to BNY upon receipt thereof in like funds as received. (f) Absolute Obligation with Respect to Letter of Credit Payments. The Borrowers' obligation to reimburse the Agent for the account of BNY in respect of the Letter of Credit for each payment under or in respect of the Letter of Credit shall be joint and several and absolute and unconditional under any and all circumstances and irrespective of any set-off, counterclaim or defense to payment which either Borrower may have or have had against the beneficiary of such Letter of Credit, the Agent, BNY as issuer of such Letter of Credit, any Lender or any other Person, including, without limitation, any defense based on the failure of any drawing to conform to the terms of such Letter of Credit, any drawing document proving to be forged, fraudulent or invalid, or the legality, validity, regularity or enforceability of such Letter of Credit; provided, however, that the Borrowers shall not be obligated to reimburse the Agent for the account of BNY as issuer of a Letter of Credit for any wrongful payment under such Letter of Credit made as a result of BNY's gross negligence or willful misconduct. 29 (g) Increased Costs Based on Letter of Credit. Without limiting the provisions of Section 2.09, if any law or regulation or any change in the interpretation or application thereof by any governmental authority or court or administrative authority charged with the administration thereof or GAAP shall either (a) impose, modify or make applicable any reserve, special deposit, assessment or similar requirement against letters of credit issued or participated in by any Lender, or (b) impose on the Agent or such Lender any other condition regarding the Letter of Credit (except for imposition of, or changes in the rate of, tax on the overall net income of the Agent or such Lender) and the result of any event referred to in clause (a) or (b) above shall be to increase the cost to BNY (or any successor thereto as issuer of the Letter of Credit) of extending the expiration date or maintaining the Letter of Credit or its obligations pursuant to Section 2.13(e), or the cost to the Agent of performing its functions hereunder with respect to the Letter of Credit, in any case by an amount which the Agent, BNY, or any Lender, as the case may be, deems material, then, upon demand by the Agent, BNY or such Lender, as the case may be, the Borrowers shall immediately pay to the Agent, BNY or such Lender, as the case may be, from time to time as specified by the Agent, BNY or such Lender, additional amounts which shall be sufficient to compensate the Agent, BNY or such Lender, as the case may be, for such increased cost. A statement in reasonable detail as to such increased cost incurred by the Agent, BNY or such Lender, as the case may be, as a result of any event mentioned in clauses (a) or (b) above, submitted by the Agent, BNY or such Lender, as the case may be, to the Borrowers shall be conclusive, absent manifest error, as to the amount thereof. SECTION 2.14 Use of Proceeds. The proceeds under the Facility shall be used to restructure the Existing Obligations and for working capital purposes. SECTION 2.15. ACH Transactions. Prior to the Effective Date, the Borrowers and the ACH Banks entered into the ACH Agreements in connection with the ACH Banks' providing of automatic funds transfer services. The Borrowers confirm and agree that the ACH Agreements are in full force and effect, and may be terminated by the Borrowers or the ACH Banks in accordance with their terms. ARTICLE 3. CONDITIONS OF RESTRUCTURING SECTION 3.01 Conditions Precedent to the Effectiveness of this Agreement. The effectiveness of this Agreement and the obligation of each Lender to restructure the Existing Obligations on the Effective Date is subject to the following conditions precedent: (a) There shall have occurred no material adverse change in the business, condition (financial or otherwise), operations, performance, properties or prospects of any of the Guarantors, the Borrowers or any of their Subsidiaries since June 30, 1996. (b) The representations and warranties contained in each Loan Document and the Schedules annexed hereto and to the Collateral Documents are true and correct on and as of the Effective Date. (c) There shall exist no action, suit, investigation, litigation or proceeding pending or threatened in any court or before any arbitrator or governmental instrumentality that would be reasonably likely to have a material adverse effect on the business, condition (financial or otherwise), operations, performance, properties or prospects of GRR or the Borrowers and their Subsidiaries taken as a whole. 30 (d) Each Loan Party shall own the percentage of capital stock of each Subsidiary as indicated in Part I of Schedule 4.01(b), in each case free and clear of any lien, charge or encumbrance except for the liens created pursuant to the Collateral Documents; the Lenders shall have a valid and perfected first priority lien and security interest in the stock of GR Holdings, GRH-NJ and of each of the Borrowers and their Subsidiaries and in the other Collateral referred to in the Collateral Documents. (e) The Lenders shall be satisfied that the First Borrower will be able to meet its obligations under all of its Welfare Plans, that the First Borrower's Plans are, in all material respects, funded in accordance with Section 412 of the Internal Revenue Code and Part 3 of Title I of ERISA, that no material "reportable event" (as defined in ERISA, but excluding events for which reporting has been waived) has occurred as to any such Plan and that no termination of, or withdrawal from, any such Plan has occurred or is contemplated that could result in a material liability, and that the First Borrower and its ERISA Affiliates do not maintain any Multiemployer Plan. (f) The Borrowers shall have paid all accrued interest and fees to the Lenders under the Existing Credit Agreement (other than the rescheduled restructuring fee which shall be payable in accordance with the terms of Section 2.07(b)) and all accrued fees and expenses of the Agent the Lenders (including the accrued fees and expenses of counsel to the Agent and local counsel to the Lenders). (g) The Agent shall have received on or before the Effective Date the following, in form and substance satisfactory to the Agent (unless otherwise specified) and in sufficient copies for each Lender: (i) The Notes to the order of the Lenders. (ii) The Convertible Notes to the order of the Lenders. (iii) The Registration Rights Agreement. (iv) Certificates, each dated the Effective Date, of the Secretary or Assistant Secretary of each Loan Party (a) attaching a true and complete copy of the resolutions of such Loan Party's Board of Directors and of all documents evidencing other necessary corporate action (in form and substance satisfactory to the Agent) taken by it to authorize the Loan Documents to which it is a party and the transactions contemplated thereby, (b) attaching a true and complete copy of its certificate of incorporation and by-laws, (c) setting forth the incumbency of its officer or officers who may sign the Loan Documents to which it is a party, including therein a signature specimen of such officer or officers and (d) attaching a certificate of good standing of the Secretary of State of the jurisdiction of its incorporation and of each other jurisdiction in which it is qualified to do business. (v) Counterparts of this Agreement signed by each of the parties hereto (or receipt by the Agent from a party hereto of a facsimile signature page signed by such party which shall have agreed to promptly provide the Agent with originally executed counterparts hereof). (vi) The consent annexed hereto as Exhibit F executed by each of the Guarantors. (vii) The Second Omnibus Amendment duly executed by the parties thereto. (viii) The New Mortgages as to the properties set forth on Schedule 3.01(g). (ix) Projected consolidated income and loss statements, balance sheets and cash flow statements of the Borrowers for the period from the Effective Date through the Extended 31 Maturity Date, together with a schedule of Location Operating Profit and schedule of EBITDA on a store-by-store basis supporting the Borrowers' adjusted business plan dated July 3, 1996, in each case in form and substance satisfactory to the Lenders. (x) Such financial, business and other information regarding each Loan Party, the Borrowers and their Subsidiaries as the Lenders shall have requested in writing, including, without limitation, information as to possible contingent liabilities, tax matters, environmental matters, obligations under ERISA and Welfare Plans, collective bargaining agreements and other arrangements with employees, in form and substance satisfactory to the Lenders. (xi) Evidence of insurance naming the Agent as additional insured and loss payee with such responsible and reputable insurance companies or associations, and in such amounts and covering such risks, as is satisfactory to the Lenders. (xii) A favorable opinion of Robin Moroz, Esq., General Counsel to the Borrowers and the Guarantors, in substantially the form of Exhibit C and as to such other matters as any Lender through the Agent may reasonably request, which opinion the Borrowers acknowledge is being given upon the express instruction of the Borrowers. (xiii) A certificate signed on behalf of the First Borrower, the Second Borrower and GR Holdings by its President or a Vice President dated the Effective Date certifying that each of the (a) TGRI Intercompany License Agreement and (b) GR Holdings Intercompany License Agreement remains in full force and effect on the Effective Date. (xiv) A certificate signed on behalf of the First Borrower and GR Holdings by its President or a Vice President dated the Effective Date certifying that the Subordination Agreement remains in full force and effect on the Effective Date, in favor of the Agent. (xv) A certificate of an officer of each Borrower to the effect that there is no injunction, writ, preliminary restraining order or other order of any nature issued by any court or other governmental authority in any respect affecting the transactions provided for herein and no action or proceeding by or before any court or other governmental authority shall have been commenced and be pending or, to the knowledge of such Borrower, threatened, seeking to prevent or delay the transactions contemplated by the Loan Documents or challenging any other terms and provisions hereof or thereof or seeking any damages in connection therewith. (xvi) A certificate of an officer of each Borrower to the effect that all approvals and consents of all Persons required to be obtained in connection with the consummation of the transactions contemplated by the Loan Documents have been duly obtained and are in full force and effect and that all required notices have been given and all required waiting periods have expired. (xvii) A certificate of an officer of each Borrower to the effect that, immediately prior to the effectiveness of this Agreement (a) all representations and warranties in the Existing Credit Agreement were true and correct in all material respects, (b) there did not exist Event of Default or Default (as each term is defined in the Existing Credit Agreement), under the Existing Credit Agreement and (c) there shall not have occurred any material adverse change in the business, condition (financial or otherwise), operations, performance, properties or prospects of any of the Guarantors, the Borrowers or any of their Subsidiaries since June 30, 1996. SECTION 3.02 Determinations Under Section 3.01. For purposes of determining compliance with the conditions specified in Section 3.01, each Lender shall be deemed to have consented to, approved or accepted or to be satisfied with each document or other matter required thereunder to be consented to or approved by or acceptable or 32 satisfactory to the Lenders unless an officer of the Agent responsible for the transactions contemplated by the Loan Documents shall have received notice from such Lender prior to the Effective Date specifying its objection thereto. ARTICLE 4. REPRESENTATIONS AND WARRANTIES SECTION 4.01 Representations and Warranties of the Borrowers. The Borrowers jointly and severally represent and warrant as follows: (a) Each Loan Party (i) is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation, (ii) is duly qualified and in good standing as a foreign corporation in each other jurisdiction in which it owns or leases property or in which the conduct of its business requires it to so qualify or be licensed except where the failure to so qualify or be licensed would not have a material adverse effect on its business, condition (financial or otherwise), operations, performance, properties or prospects and (iii) has all requisite corporate power and authority to own or lease and operate its properties and to carry on its business as now conducted and as proposed to be conducted. All of the outstanding capital stock of GR Holdings, GRH-NJ, the First Borrower and the Second Borrower has been validly issued, is fully paid and non-assessable and is owned by GRR, GR Holdings, GRH-NJ and the First Borrower, respectively, free and clear of all Liens other than the Liens created pursuant to the Collateral Documents. (b) Set forth in Part I of Schedule 4.01(b) is a complete and accurate list of all Subsidiaries of each Loan Party, showing as of the Effective Date (as to each such Subsidiary) the jurisdiction of its incorporation, the number of shares of each class of capital stock authorized the number outstanding, on the Effective Date and the percentage of the outstanding shares of each such class owned (directly or indirectly) by such Loan Party and the number of shares covered by all outstanding options, warrants, rights of conversion or purchase and similar rights at the Effective Date. All of the outstanding capital stock of all of such Subsidiaries has been validly issued, is fully paid and non-assessable and is owned by such Loan Party or one or more of its Subsidiaries as indicated in Part I of Schedule 4.01(b) free and clear of all Liens, except those created by the Collateral Documents. Each such Subsidiary (i) is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation, (ii) is duly qualified and in good standing as a foreign corporation in each other jurisdiction in which it owns or leases property or in which the conduct of its business requires it to so qualify or be licensed except where the failure to so qualify or be licensed would not have a material adverse effect on its business, condition (financial or otherwise), operations, performance, properties or prospects and (iii) has all requisite corporate power and authority to own or lease and operate its properties and to carry on its business as now conducted and as proposed to be conducted. The Subsidiaries of the First Borrower own, as of the Effective Date, the assets and liabilities set forth in Part II of Schedule 4.01(b). (c) The execution, delivery and performance by each Loan Party of this Agreement, the Notes, the Convertible Notes and each other Loan Document to which it is or is to be a party, and the consummation of the other transactions contemplated hereby, are within such Loan Party's corporate powers, have been duly authorized by all necessary corporate action, and do not (i) contravene such Loan Party's charter or by-laws, (ii) violate any law (including, without limitation, the Securities Exchange Act of 1934 and the Racketeer Influenced and Corrupt Organizations Chapter of the Organized Crime Control Act of 1970), rule, regulation (including, without limitation, Regulation X of the Board of Governors of the Federal Reserve System), order, writ, judgment, injunction, decree, determination or award, (iii) conflict with or result in the breach of, or constitute a default under, any contract, loan agreement, indenture, mortgage, deed of trust, lease or other instrument binding on or affecting any Loan Party, any of its Subsidiaries or any of their properties or (iv) result in or require the creation or imposition of any Lien upon or with respect to any of the properties of any Loan Party or any of its Subsidiaries other than the Liens created pursuant to the Collateral Documents. No Loan Party or any of its Subsidiaries is in 33 violation of any such law, rule, regulation, order, writ, judgment, injunction, decree, determination or award or certificate of occupancy or health, safety or liquor license requirement or in breach of any such contract, loan agreement, indenture, mortgage, deed of trust, lease or other instrument, the violation or breach of which could have a material adverse effect on the business, condition (financial or otherwise), operations, performance, properties or prospects of any Loan Party or any of its Subsidiaries. (d) No authorization or approval or other action by, and no notice to or filing with, any governmental authority or regulatory body or any other third party is required for the due execution, delivery and performance by any Loan Party of this Agreement, the Notes, the Convertible Notes or any other Loan Document to which it is or is to be a party, or for the consummation of the other transactions contemplated hereby (other than the filing of the New Mortgage and the UCC financing statements in appropriate jurisdictions. All applicable waiting periods in connection with the transactions contemplated hereby have expired without any action having been taken by any competent authority restraining, preventing or imposing materially adverse conditions upon the rights of the Loan Parties or their Subsidiaries freely to transfer or otherwise dispose of, or to create any Lien on, any properties now owned or hereafter acquired by any of them. (e) This Agreement, each of the Notes and the Convertible Notes and each other Loan Document when delivered hereunder will have been, duly executed and delivered by each Loan Party thereto. This Agreement is, and each other Loan Document when delivered hereunder will be, the legal, valid and binding obligation of each Loan Party thereto, enforceable against such Loan Party in accordance with its terms. (f) The Consolidated balance sheets of GRR and its Subsidiaries as at October 1, 1995, and the related Consolidated statements of income and cash flow of GRR and its Subsidiaries for the Fiscal Year then ended, accompanied by an opinion of Ernst & Young, independent public accountants, and the Consolidated balance sheets of GRR and its Subsidiaries as at June 30, 1996, and the related Consolidated statements of income and cash flow of GRR and its Subsidiaries for the nine months then ended, duly certified by the chief financial officer of GRR, copies of which have been furnished to each Lender, fairly present the Consolidated financial condition of GRR and its Subsidiaries as at such dates and the Consolidated results of the operations of GRR and its Subsidiaries for the periods ended on such dates, all in accordance with generally accepted accounting principles applied on a consistent basis, and since June 30, 1996, there has been no material adverse change in the business, condition (financial or otherwise), operations, performance, properties or prospects of GRR or any of its Subsidiaries. (g) The Consolidated forecasted balance sheets, income statements and cash flow statements of GRR and its Subsidiaries delivered to the Lenders pursuant to Section 5.01(o), provided by the chief financial officer of GRR, copies of which have been furnished to each Lender, were prepared in good faith on the basis of the assumptions stated therein, which assumptions were fair in the light of conditions existing at the time of delivery of such forecasts, and represented, at the time of delivery, the First Borrower's best estimate of its future financial performance. (h) No information, exhibit or report furnished by any Loan Party or either of the Borrowers to the Agent or any Lender in connection with the negotiation of the Loan Documents or pursuant to the terms of the Loan Documents contained any untrue statement of a material fact or omitted to state a material fact necessary to make the statements made therein not misleading when delivered. (i) Except as set forth on Schedule 4.01(i), there is no action, suit, investigation, litigation or proceeding affecting any Loan Party, either of the Borrowers or any of their Subsidiaries pending or to the best of the knowledge of Borrowers or their Subsidiaries, threatened be any court, governmental agency or arbitrator that (i) would be reasonably likely to have a material adverse effect on the business, condition (financial or otherwise), operations, performance, properties or prospects of any Loan Party, either of the Borrowers or any of their Subsidiaries or (ii) purports to affect the legality, 34 validity or enforceability of this Agreement, any Note or any other Loan Document or the consummation of the transactions contemplated hereby. (j) No proceeds of any Term Loan will be used to acquire any equity security of a class that is registered pursuant to Section 12 of the Securities Exchange Act of 1934. (k) Neither of the Borrowers is engaged in the business of extending credit for the purpose of purchasing or carrying Margin Stock, and no proceeds of any Advance 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. (l) Set forth on Schedule 4.01(l) is a complete and accurate list as of the Effective Date of all Plans, Multiemployer Plans and Welfare Plans with respect to any employees of any Loan Party, either of the Borrowers or any of their Subsidiaries. (m) No ERISA Event has occurred or is reasonably expected to occur with respect to any Plan of any Loan Party. (n) Schedule B (Actuarial Information) to the most recent annual report (Form 5500 Series) for each Plan subject to Title IV of ERISA of any Loan Party, copies of which have been filed with the Internal Revenue Service and furnished to the Lenders, is complete and accurate and fairly presents the funding status of such Plan, and since the date of such Schedule B there has been no material adverse change in such funding status. (o) Neither any Loan Party nor any of its ERISA Affiliates has incurred or is reasonably expected to incur any Withdrawal Liability to any Multiemployer Plan. (p) Neither any Loan Party nor any of its ERISA Affiliates has been notified by the sponsor of a Multiemployer Plan that such Multiemployer Plan is in reorganization or has been terminated, within the meaning of Title IV of ERISA, and no Multiemployer Plan of any Loan Party is reasonably expected to be in reorganization or to be terminated, within the meaning of Title IV of ERISA. (q) The aggregate annualized cost (including, without limitation, the cost of insurance premiums) with respect to Welfare Plans for which the Loan Parties and their Subsidiaries are liable does not have a material adverse effect on the business, condition (financial or otherwise) operations, performance, properties or prospects of any Loan Party and its Subsidiaries taken as a whole. (r) Neither the business nor the properties of any Loan Party or any of its Subsidiaries are affected by any fire, explosion, accident, strike, lockout or other labor dispute, drought, storm, hail, earthquake, embargo, act of God or of the public enemy or other casualty (whether not covered by insurance) that could have a material adverse effect on the business, condition (financial or otherwise), operations, performance, properties or prospects of any Loan Party and its Subsidiaries taken as a whole. (s) Except as disclosed on Schedule 4.01(s) prepared as of the Effective Date, the operations and properties of each Loan Party and each of their Subsidiaries comply in all material respects with all applicable Environmental Laws and have not been used for the storage, treatment disposal or handling of Hazardous Materials except in material compliance with all applicable Environmental Laws. There are no material liabilities under any applicable Environmental Law associated with or arising from the operations or properties of the Loan Parties, and to the knowledge of the Loan Parties and their Subsidiaries, there are no conditions on, in, under or related to the properties or operations of any of the Loan Parties and their Subsidiaries that could give rise to material costs or liabilities imposed under any applicable Environmental Laws. 35 (t) Neither any Loan Party nor any of its Subsidiaries is a party to any indenture, loan or credit agreement or any lease or other agreement or instrument or subject to any charter or corporate restriction that could have a material adverse effect on the business, condition (financial or otherwise), operations, performance, properties or prospects of any Loan Party and its Subsidiaries taken as a whole, or on the ability of any Loan Party or any of its Subsidiaries to carry out its obligations under this Agreement, the Notes or any other Loan Document. (u) Each Loan Party and each of its Subsidiaries has filed, has caused to be filed or has been included in all tax returns (Federal, state, local and foreign) required to be filed and has paid all taxes shown thereon to be due, together with applicable interest and penalties. (v) Set forth on Schedule 4.01(v) is a complete and accurate list, as of the Effective Date, of each taxable year of the affiliated group (within the meaning of Section 1504(a) of the Internal Revenue Code) of which each of the Borrowers is a member (the "GRR Tax Group") for which Federal income tax returns have been filed and for which the expiration of the applicable statute of limitations for assessment or collection has not occurred by reason of extension or otherwise (an "Open Year"). (w) The aggregate asserted liability, as of the Effective Date, in respect of all items from Revenue Agent Reports (Internal Revenue Service Form 886) for Open Years of the GRR Tax Group, together with applicable interest and penalties, does not exceed $250,000, and set forth on Schedule 4.01(w) is a complete and accurate description, as of the Effective Date, of each such item that separately, for all such Open Years, together with applicable interest and penalties, exceeds $250,000. (x) The aggregate unpaid amount, as of the Effective Date, of adjustments to the Federal income tax liability of the GRR Tax Group proposed by the Internal Revenue Service with respect to Open Years does not exceed $250,000. No issues have been raised by the Internal Revenue Service in respect of Open Years that, in the aggregate, could have a material adverse effect on the business, condition (financial or otherwise), operations, performance, properties or prospects of the GRR Tax Group or any member thereof or of any Subsidiary of either of the Borrowers. (y) The aggregate unpaid amount, as of the Effective Date, of adjustments to the state, local and foreign tax liability of each member of the GRR Tax Group and of each Subsidiary of the First Borrower proposed by all state, local and foreign taxing authorities (other than amounts arising from adjustments to Federal income tax returns) does not exceed $250,000, and set forth on Schedule 4.01(y) is a complete and accurate description, as of the Effective Date, of each such item that separately, for all such open Years, together with applicable interest and penalties, exceeds $250,000. No issues have been raised by such taxing authorities that, in the aggregate, would be reasonably likely to have a material adverse effect on the business, condition (financial or otherwise), operations, performance, properties or prospects of any member of the GRR Tax Group or of any Subsidiary of the Borrowers. (z) Neither any Loan Party nor any of its Subsidiaries is an "investment company", or an "affiliated person" of, or "promoter" or "principal underwriter" for, an "investment company", as such terms are defined in the Investment Company Act of 1940, as amended. Neither the making of any Term Loans nor the application of the proceeds of repayment thereof by either of the Borrowers, nor the consummation of the other transactions contemplated hereby, will violate any provision of such Act or any rule, regulation or order of the Securities and Exchange Commission thereunder. (aa) Each Loan Party is, individually and together with its Subsidiaries, Solvent. (bb) Set forth on Schedule 4.01(bb) is a complete and accurate list, as of the Effective Date, of all real property owned by any Loan Party or any of its Subsidiaries, showing as of the Effective Date the street address, county or other relevant jurisdiction, state, record owner an book value thereof. 36 Each Loan Party and such Subsidiary has good, marketable and insurable fee simple title to such real property, free and clear of all Liens, other than Liens created or permitted by the Loan Documents. (cc) Set forth on Schedule 4.01(cc) is a complete and accurate list, as of the Effective Date, of all leases of real property under which any Loan Party or any of its Subsidiaries is the lessee, showing as of the Effective Date the street address, county or other relevant jurisdiction, state, lessor, lessee, expiration date and annual rental cost thereof. (dd) (i) Other than as set forth on Schedule 4.01(dd), none of the Properties are located in an area identified by the Secretary of Housing and Urban Development or a successor thereto as an area having special flood hazards pursuant to the terms of the National Flood Insurance Act of 1968, or the Flood Disaster Protection Act of 1973, as amended, or any successor law; or as to any Properties which are located in such an area, the Borrowers will obtain and maintain insurance against damage or loss by flood on such basis and in such amounts as shall be required by the Lenders; (ii) each of the Properties is served by all utilities required for the current use thereof; (iii) all streets necessary to serve the Properties and the Improvements for the current use thereof have been completed and are serviceable and have been dedicated or accepted by the appropriate governmental entities and the Borrowers have access from public roads to the Properties and the Improvements; and (iv) there is no condemnation or similar proceeding pending or threatened affecting any part of any of the Properties that might materially adversely affect any of the Properties. (ee) Set forth on Schedule 4.01(ee) is a complete and accurate list, as of the Effective Date, of all franchise agreements to which either of the Borrowers or any of their Subsidiaries is a party each of which is in full force and effect and as to which the franchisee thereunder is in substantial compliance with the terms and conditions thereof, except as set forth on Schedule 4.01(i). (ff) Set forth on Schedule 4.01(ff) is a complete and accurate list, as of the Effective Date, of all Investments held by any Loan Party, either of the Borrowers or any of their Subsidiaries, showing as of the Effective Date the amount, obligor or issuer and maturity, if any, thereof. (gg) Set forth on Schedule 4.01(gg) is a complete and accurate list, as of the Effective Date, of all patents, trademarks, trade names, service marks and registered copyrights (the "Intellectual Property"), and all applications therefor and licenses thereof, owned, used or held for use by each Loan Party or any of its Subsidiaries, showing as of the Effective Date the jurisdiction in which registered, the registration number, the date of registration and the expiration date. There is no claim, suit, action or proceeding pending or to the best knowledge of the Borrowers threatened against any Loan Party or any of their Subsidiaries that involves a claim of infringement of Intellectual Property and none of the Loan Parties or any of their Subsidiaries has any knowledge of any existing infringement by any Person of any Intellectual Property. (hh) Set forth on Schedule 4.01(hh) are all liquor licenses owned or granted to the First Borrower or any of its Subsidiaries as of the Effective Date. All such licenses are in full force and effect (other than licenses relating to properties that the Borrowers have closed or sold as permitted under the terms of this Agreement) and constitute all such licenses which are required by any such Person to operate its business as presently conducted. (ii) Set forth on Schedule 4.01(ii) is a complete and accurate list of all Debt of each of the Borrowers and their Subsidiaries, showing as of the Effective Date the principal amounts outstanding thereunder. ARTICLE 5. COVENANTS OF THE BORROWERS SECTION 5.01 Affirmative Covenants. 37 So long as any Term Loan or Convertible Note shall remain unpaid, the Letter of Credit shall be outstanding or any reimbursement obligation in respect thereof shall remain unpaid, each Borrower will, unless the Required Lenders shall otherwise consent in writing: (a) Compliance with Laws, Etc. Comply, and cause each of its Subsidiaries to comply, in all material respects, with all applicable laws, rules, regulations and orders, such compliance to include, without limitation, compliance with ERISA, all applicable Environmental Laws, the Racketeer Influenced and Corrupt Organizations Chapter of the Organized Crime Control Act of 1970 and the Federal Trade Commission's "Disclosure Requirements and Prohibitions Concerning Franchising and Business Opportunity Ventures" (16 C.F.R. ' 436.1 et seq.) and all state laws and regulations of similar import. (b) Payment of Taxes, Etc. Pay and discharge, and cause each of its Subsidiaries to pay and discharge, before the same shall become delinquent, (i) all taxes, assessments and governmental charges or levies imposed upon it or upon its property and (ii) all lawful claims that, if unpaid, might by law become a Lien upon its property; provided, however, that neither such Borrower nor any of its Subsidiaries shall be required to pay or discharge any such tax, assessment, charge or claim that is being contested in good faith and by proper proceedings and as to which appropriate reserves are being maintained. (c) Maintenance of Insurance. Maintain, and cause each of its Subsidiaries to maintain, insurance with responsible and reputable insurance companies or associations in such amounts and covering such risks as is usually carried by companies engaged in similar businesses and owning similar properties in the same general areas in which such Borrower or such Subsidiary operates. (d) Preservation of Corporate Existence, Etc. Preserve and maintain, and cause each of its Subsidiaries to preserve and maintain, its corporate existence, rights (charter and statutory) and franchises; provided, however, that neither such Borrower nor any of its Subsidiaries shall be required to preserve any right or franchise if the Board of Directors of such Borrower or such Subsidiary shall determine that the preservation thereof is no longer desirable in the conduct of the business of such Borrower or such Subsidiary, as the case may be, and that the loss thereof is not disadvantageous in any material respect to such Borrower, such Subsidiary or the Lenders. (e) Visitation Rights. At any reasonable time and from time to time, permit the Agent or any of the Lenders or any agents or representatives thereof, to examine and make copies of and abstracts from the records and books of account of, and visit the properties of, such Borrower and any of its Subsidiaries, and to discuss the affairs, finances and accounts of such Borrower and any of its Subsidiaries with any of their officers or directors and with their independent certified public accountants. (f) Keeping of Books. Keep, and cause each of its Subsidiaries to keep, proper books of record and account, in which full and correct entries shall be made of all financial transactions and the assets and business of such Borrower and each such Subsidiary in accordance with GAAP. (g) Maintenance of Properties. (i) Maintain and preserve, and cause each of its Subsidiaries to maintain and preserve, all of its properties that are used or useful in the conduct of its business in good working order and condition, ordinary wear and tear expected. (ii) Operate and maintain its Properties in good order, repair and operating condition, promptly make all necessary repairs, restorations, renewals, replacements, additions and improvements thereto, interior and exterior, structural and nonstructural, foreseen and unforeseen, or otherwise necessary to insure that the same shall not be diminished or impaired so as to adversely affect the value of such Property, and will not cause or allow its Properties to be misused, wasted or to deteriorate. (iii) Subject to Section 5.02(e), keep its Properties fully equipped and replace all worn out or obsolete Equipment with fixtures or personal property necessary to operate the business. 38 (iv) Will not (a) initiate or support any zoning reclassification of its Properties, seek any variance under existing zoning ordinances applicable to the Properties or use or permit the use of its Properties in a manner which would result in such use becoming a non-conforming use under applicable zoning ordinances, (b) modify or amend any of the Permitted Encumbrances, (c) impose any restrictive covenants or encumbrances upon its Properties, execute or file any subdivision plat affecting its Properties or consent to the annexation of its Properties to any municipality, (d) permit or suffer its Properties to be used by the public or any Person in such manner as might make possible a claim of adverse usage or possession or of any implied dedication or easement or (e) remove, demolish or structurally or materially alter any part of the Improvements, or construct on its Properties any new building, structure, facility or other improvement, in each case, if such action would adversely affect the value of any of its Property. (v) Use its Properties for substantially the same use as in effect as of the Effective Date, and for no other use. (h) Compliance with Terms of Leaseholds. Make all payments and otherwise perform all obligations in respect of all leases of real property, keep such leases in full force and effect and not allow such leases to lapse or be terminated or any rights to renew such leases to be forfeited or cancelled, notify the Agent of any default by any party with respect to such leases and cooperate with the Agent in all respects to cure any such default, and cause each of its Subsidiaries to do so; provided, however, that the Borrowers may allow to lapse or be terminated any lease, or any rights to renew any lease, if the Location Operating Profit of the restaurant to which such lease relates has not exceeded $200,000 within the most recent twelve months. (i) Performance of Certain Contracts. (a) With respect to the Office Lease, perform and observe all the terms and provisions of such Office Lease and with respect to each franchise agreement, perform and observe all the terms and provisions of such agreements to be performed or observed by it. (b) With respect to the TGRI Intercompany Licensing Agreement and the GR Holdings Intercompany Licensing Agreement, perform and observe all the terms and provisions of such agreements to be performed or observed by the First Borrower or the Second Borrower, as the case may be. (j) Transactions with Affiliates. Conduct, and cause each of its Subsidiaries to conduct, all transactions otherwise permitted under the Loan Documents with any of their Affiliates on terms that are fair and reasonable and no less favorable to such Borrower or such Subsidiary than it would obtain in a comparable arm's-length transaction with a Person not an Affiliate. (k) Cash Concentration Accounts. Maintain main cash concentration accounts with one or more Lenders satisfactory to the Required Banks. (l) Mortgages. At the request of the Agent or the Required Lenders, deliver (i) with respect to any existing Restaurants on property owned in fee by either Borrower which is not subject to an Existing Mortgage on the Effective Date, a deed of trust, trust, deed or mortgage substantially in the form of Exhibit H hereto together with the documents indicated below and (ii) in the case of property which is leased, use its best efforts to deliver, deeds of trust, trust deeds, mortgages, leasehold mortgages, and leasehold deeds of trust in substantially the form of Exhibit H to the Existing Credit Agreement (as amended from time to time in accordance with their terms, the "New Restaurant Mortgages"), duly executed by the relevant Borrower, together with: (A) evidence that counterparts of the New Restaurant Mortgages have been duly recorded in all filing or recording offices that the Lenders may deem necessary or desirable in order to create a valid first and subsisting Lien on the property described therein in favor of the Lenders, 39 (B) American Land Title Association Lender's Extended Coverage title insurance policies ("Mortgage Policies") in form, with endorsements and in amount acceptable to the Agent, issued and reinsured by title insurers acceptable to the Agent, insuring the New Restaurant Mortgages on the properties identified therein to be valid first and subsisting Liens on the property described therein, free and clear of all defects (including, but not limited to, mechanics' and materialmen's Liens) and encumbrances, excepting only Permitted Encumbrances, and providing for such other affirmative insurance (including endorsements for future advances under the Loan Documents and for mechanics' and materialmen's Liens) and such reinsurance as the Agent may deem necessary or desirable, (C) such consents and agreements of lessors and other third parties, and such estoppel letters and other confirmations, as the Required Lenders may reasonably deem necessary or desirable, (D) evidence of the insurance required by the terms of the New Restaurant Mortgages, and (E) evidence that all other action that the Required Lenders may reasonably deem necessary or desirable in order to create valid first and subsisting Liens on the property described in the New Restaurant Mortgages has been taken. (m) Interest Rate Hedging. Enter into and maintain Long-Term Hedge Agreements with Persons acceptable to the Required Lenders (provided, however, that such Person shall be a Lender), covering a notional amount of 50% of the amount outstanding under the Facility. (n) Net Worth. Maintain at all times, Consolidated Net Worth of GRR and its Subsidiaries of not less than the amount set forth below (net of Covenant Adjustments) for each period set forth below: Fiscal Period Net Worth July, 1996 $45,055,000 August, 1996 $44,268,000 September, 1996 $38,348,000 October, 1996 $37,631,000 November, 1996 $37,231,000 December, 1996 $37,364,000 January, 1997 $36,456,000 February, 1997 $35,904,000 March, 1997 $35,912,000 April, 1997 $35,516,000 May, 1997 $35,139,000 June, 1997 $35,257,000 July, 1997 $35,006,000 August, 1997 $34,854,000 September, 1997 $35,052,000 October, 1997 $34,914,000 November, 1997 $34,870,000 December, 1997 $35,341,000 (o) Reporting Requirements. Furnish to the Agent for distribution to the Lenders: (i) as soon as possible and in any event within two days after the occurrence of each Default continuing on the date of such statement, a statement of the chief financial officers of the 40 Borrowers and GRR setting forth details of such Default and the action that the Borrowers have taken and propose to take with respect thereto; (ii) as soon as available and in any event within 45 days after the end of each of the first three quarters of each Fiscal Year of the Borrowers, (A) the quarterly report of GRR as filed with the Securities and Exchange Commission (the "SEC") on Form 10-Q and (B) a Consolidated balance sheet of GRR and its Subsidiaries as of the end of such quarter and Consolidated statements of income and cash flow of GRR and its Subsidiaries for the period commencing at the end of the previous Fiscal Year and ending with the end of such quarter, setting forth in each case in comparative form the corresponding figures for the corresponding period of the preceding Fiscal Year, all in reasonable detail and duly certified (subject to year-end audit adjustments) by the chief financial officers of the Borrowers and GRR as having been prepared in accordance with GAAP, together with (A) a certificate of said officer stating that no Default has occurred and is continuing or, if a Default has occurred and is continuing, a statement as to the nature thereof and the action that the Borrowers have taken and propose to take with respect thereto, (B) consolidating balance sheets of GRR and its Subsidiaries and GR Holdings and its Subsidiaries as of the end of such Fiscal Quarter and consolidating statements of income for GRR and its Subsidiaries and GR Holdings and its Subsidiaries and (C) a Compliance Certificate satisfactory to the Agent showing computations used by the Borrowers in determining compliance with the covenants contained in Sections 5.01(m), 5.01(n), 5.01 (p) through (r), 5.02(a) through (c), 5.02(e) through (h) and 5.02(p). (iii) as soon as available and in any event within 90 days after the end of each Fiscal Year of the Borrowers, (A) the annual report of GRR as filed with the SEC on Form 10-K and (B) a copy of the annual audit report for such year for GRR and its Subsidiaries, including therein Consolidated balance sheet of GRR and its Subsidiaries as of the end of such Fiscal Year and Consolidated statements of income and cash flow of GRR and its Subsidiaries for such Fiscal Year, in each case accompanied by an opinion acceptable to the Required Lenders of Ernst & Young or other independent public accountants of recognized standing acceptable to the Required Lenders, together with (C) consolidating balance sheets of GRR and its Subsidiaries and GR Holdings and its Subsidiaries as of the end of such Fiscal Year and consolidating statements of income for GRR and its Subsidiaries and GR Holdings and its Subsidiaries, (D) a schedule in form satisfactory to the Agent of the computations used by such accountants in determining, as of the end of such Fiscal Year, compliance with the covenants contained in Sections 5.01(m), 5.01(n), 5.01 (p) through (r), 5.02(a) through (c), 5.02(e) through (h) and 5.02(p) which may be in the form of the Compliance Certificate and (E) a Compliance Certificate of the chief financial officer of the Borrowers including a statement that no Default has occurred and is continuing or, if a default has occurred and is continuing, a statement as to the nature thereof and the action that the Borrowers have taken and propose to take with respect thereto; (iv) promptly and in any event within 30 days after any Loan Party or any of its ERISA Affiliates knows or has reason to know that any ERISA Event has occurred, a statement of the chief financial officer of the First Borrower describing such ERISA Event and the action, if any, that such Loan Party or such ERISA Affiliate has taken and proposes to take with respect thereto; (v) promptly and in any event within 10 Business Days after receipt thereof by any Loan Party or any of its ERISA Affiliates, copies of each notice from the PBGC stating its intention to terminate any Plan or to have a trustee appointed to administer any Plan; (vi) promptly and in any event within 30 days after the filing thereof with the Internal Revenue Service, copies of each Schedule B (Actuarial Information) to the annual report (Form 5500 Series) with respect to each Plan of each Loan Party; (vii) promptly and in any event within 10 Business Days after receipt thereof by any Loan Party or any of its ERISA Affiliates from the sponsor of a Multiemployer Plan, copies of each notice received by such Loan Party or any of its ERISA Affiliates concerning (A) the imposition of Withdrawal Liability by any Multiemployer Plan, (B) the reorganization or termination, within the meaning of Title IV 41 of ERISA, of any Multiemployer Plan or (C) the amount of liability incurred, or that may be incurred, by such Loan Party or any of its ERISA Affiliates in connection with any event described in clause (A) or (B); (viii) promptly and in any event within 30 days after any Loan Party or any of its ERISA Affiliates knows or has reason to know that any Prohibited Transaction resulting in a material liability of such Loan Party has occurred, a statement of the chief financial officer of the First Borrower describing such Prohibited Transaction and the action, if any, that such Loan Party or such ERISA Affiliate has taken and proposes to take with respect thereto; (ix) promptly after the commencement thereof, notice of all actions, suits and proceedings before any court or governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, affecting any Loan Party or any of its Subsidiaries of the type described in Section 4.01(i); (x) promptly after the sending or filing thereof, copies of all proxy statements, financial statements and reports that any Loan Party or any of its Subsidiaries sends to its stockholders, and copies of all regular, periodic and special reports, and all registration statements, that any Loan Party or any of its Subsidiaries files with the SEC or any governmental authority that may be substituted therefor, or with any national securities exchange; (xi) promptly after the furnishing thereof, copies of any statement or report furnished to any other holder of the securities of any Loan Party or of any of its Subsidiaries pursuant to the terms of any indenture, loan or credit or similar agreement and not otherwise required to be furnished to the Lenders pursuant to any other clause of this Section 5.01(o); (xii) within 45 days following the last day of each Fiscal Quarter, a schedule of receivables due under the franchise agreements in form and substance satisfactory to the Required Lenders; (xiii) within (i) 10 days after receipt, copies of all Revenue Agent Reports (Internal Revenue Service Form 886), or other written proposals of the Internal Revenue Service, that propose, determine or otherwise set forth positive adjustments to the Federal income tax liability of the GRR Tax Group aggregating $750,000 or more and (ii) two Business Days of receipt, thereof, a notice to the Agent that the Borrowers or any of their Subsidiaries have received a Federal or State tax refund; (xiv) promptly, and in any event within five Business Days after the due date (with extensions) for filing the final Federal income tax return in respect of each taxable year, a certificate (a "Tax Certificate"), signed by the President or the chief financial officer of the First Borrower, stating that the common parent of the GRR Tax Group has paid to the Internal Revenue Service or other taxing authority, the full amount of all Federal income taxes shown to be due on all Federal income tax returns required to be filed by such affiliated group for such year; (xv) no later than 30 days after the end of each Fiscal Month, a Performance Memorandum of the Borrowers (in substantially the form of Exhibit J hereto), together with such other information as is reasonably requested by any of the Lenders in writing; (xvi) no later than 90 days following the end of each Fiscal Year, updated Schedules to the Loan Documents; (xvii) notice of a material default by either of the Borrowers (or any other party if either of the Borrowers know of any material default) under the Office Lease and notice of a material default by either of the Borrowers under any franchise agreement (or any other party if either of the Borrowers know of any material default) (other than a payment default which the Borrowers will deliver notice of pursuant to subsection (xiii) of this Section); 42 (xviii) such other information respecting the business, condition (financial or otherwise), operations, performance, properties or prospects of any Loan Party or any of its Subsidiaries as any Lender may from time to time reasonably request; and (xix) on the 15th and 30th of each calendar month, or if such date is not a Business Day, the closest immediately preceding or succeeding Business Day occurring in such month, a cash flow forecast on a 60 day rolling basis for the immediately succeeding 60 day period following the date of such forecast in substantially the same form as the cash flow forecasts previously submitted to the Agent; and (xx) no later than January 20, 1997, a calculation of the Profit After Controllables for the three month period comprising fiscal October, November and December 1996, in such detail as may reasonably be required by the Lenders. (p) Capital Expenditures. Not permit Capital Expenditures of the Borrowers and the Guarantors to exceed the amounts set forth below (net of Covenant Adjustments) for the period commencing on the Effective Date and ending on the last day of the fiscal period set forth below: Cumulative Capital Fiscal Period Expenditures July, 1996 $ 350,000 August, 1996 $ 700,000 September, 1996 $1,050,000 October, 1996 $1,435,000 November, 1996 $1,792,000 December, 1996 $2,054,000 January, 1997 $2,269,000 February, 1997 $2,514,000 March, 1997 $2,716,000 April, 1997 $2,940,000 May, 1997 $3,164,000 June, 1997 $3,514,000 July, 1997 $3,864,000 August, 1997 $4,214,000 September, 1997 $4,482,000 October, 1997 $4,750,000 November, 1997 $5,018,000 December, 1997 $5,280,000 (q) Cumulative EBITDA. Maintain cumulative EBITDA of the Borrowers and the Guarantors, of not less than the amounts set forth below (net of Covenant Adjustments) for each period commencing on July 1, 1996 and ending on the last day of the fiscal period set forth below: Fiscal Period Cumulative EBITDA July, 1996 $(354,000) 43 August, 1996 $(128,000) September, 1996 $579,000 October, 1996 $1,091,000 November, 1996 $1,866,000 December, 1996 $3,458,000 January, 1997 $3,720,000 February, 1997 $4,324,000 March, 1997 $5,777,000 April, 1997 $6,524,000 May, 1997 $7,290,000 June, 1997 $8,836,000 July, 1997 $9,723,000 August, 1997 $10,709,000 September, 1997 $12,329,000 October, 1997 $13,323,000 November, 1997 $14,411,000 December, 1997 $16,297,000 provided that the actual amount of expenditures paid in cash during such period with respect to subclauses (i) through (iii) of the definition of EBITDA shall only be excluded up to the following amounts for the period commencing on the Effective Date and ending the last day of the fiscal period set forth below: Fiscal Period Amount July, 1996 $240,000 August, 1996 $590,000 September, 1996 $846,000 October, 1996 $922,000 November, 1996 $1,148,000 December, 1996 $1,314,000 January, 1997 $1,404,000 February, 1997 $1,494,000 March, 1997 $1,609,000 April, 1997 $1,684,000 May, 1997 $1,759,000 June, 1997 $1,859,000 July, 1997 $1,934,000 August, 1997 $2,009,000 September, 1997 $2,184,000 October, 1997 $2,334,000 November, 1997 $2,484,000 December, 1997 $2,659,000 (r) Profit After Controllables. Not permit the average monthly Profit After Controllables of the Borrowers and the Guarantors for the three month period comprising fiscal October, November and December 1996 (i.e., the sum of the Profit After Controllables for the fiscal quarter ended December 29, 1996, divided by gross restaurant sales for such fiscal quarter) to be less than 18.5% of gross restaurant sales exclusive of franchise income, as reported to the Lenders pursuant to Section 5.01(o)(xxi). (s) Retention of Financial Advisors. The Borrowers shall have retained and shall continue to retain Zolfo, Cooper, LLP (or such other financial advisors reasonably acceptable to the Lenders) to assist the Borrowers in preparing financial projections, advising the Borrowers on operating strategy and financial planning in respect of asset dispositions and to make such advisors available to the 44 Lenders to discuss such projections, operating strategy and financial planning as may be reasonably requested by any Lender. SECTION 5.02 Negative Covenants. So long as any Term Loan or any Convertible Note shall remain unpaid, the Letter of Credit shall be outstanding or any reimbursement obligation in respect thereof shall remain unpaid, neither of the Borrowers will, without the written consent of the Required Lenders: (a) Liens, Etc. Create, incur, assume or suffer to exist, or permit any of its Subsidiaries to create, incur, assume or suffer to exist, any Lien on or with respect to any of its properties or assets of any character (including, without limitation, accounts) whether now owned or hereafter acquired, or sign or file, or permit any of its Subsidiaries to sign or file, under the Uniform Commercial Code of any jurisdiction, a financing statement that names such Borrower or any of its Subsidiaries as debtor, or sign, or permit any of its Subsidiaries to sign, any security agreement authorizing any secured party thereunder to file such financing statement, or assign, or permit any of its Subsidiaries to assign, any accounts or other right to receive income, excluding, however, from the operation of the foregoing restrictions the following: (i) Liens created by the Loan Documents; (ii) Permitted Liens; (iii) the Liens described on Schedule 5.02(a); (iv) purchase money Liens upon or in property acquired or held by the Borrowers or any of their Subsidiaries in the ordinary course of business to secure the purchase price of such property or to secure Debt incurred solely for the purpose of financing the acquisition of any such property to be subject to such Liens, or Liens existing on any such property at the time of acquisition, or extensions, renewals or replacements of any of the foregoing for the same or a lesser amount; provided, however, that no such Lien shall extend to or cover any property other than the property being acquired, and no such extension, renewal or replacement shall extend to or cover any property not theretofore subject to the Lien being extended, renewed or replaced; and provided further that the aggregate principal amount of the Debt at any one time outstanding secured by Liens permitted by this clause (iv) shall not exceed $1,000,000 at any one time outstanding (less the aggregate principal amount of the Debt outstanding secured by Liens permitted under Section 7(a)(iv) of the GR Holdings Guaranty) and that any such Debt shall not otherwise be prohibited by the terms of the Loan Documents; (v) Liens arising in connection with Capitalized Leases of the First Borrower in an amount not to exceed $1,000,000 in the aggregate; (vi) Liens in the Collateral granted to secure other Debt permitted under Section 5.02(b)(vi) if consented to by the Required Lenders; and (vii) other Liens of the Borrowers securing Debt outstanding in an aggregate principal amount not to exceed $100,000. (b) Debt. Create, incur, assume or suffer to exist, or permit any of its Subsidiaries to create, incur, assume or suffer to exist, any Debt other than: (i) Debt under the Loan Documents; 45 (ii) Debt secured by Liens permitted by Section 5.02(a)(iv) or (v) not to exceed in each case and on a Consolidated basis, $1,000,000 less the aggregate principal amount of the Debt outstanding secured by Liens permitted under Section 7(a) of the GR Holdings Guaranty); (iii) unsecured Debt incurred in the ordinary course of business for the deferred purchase price of property or services, maturing within one year from the date created; provided, however, that such Debt shall not exceed $750,000 in the aggregate; (iv) Debt of the relevant Borrower and its Subsidiaries set forth in Schedule 4.01(ii); (v) Debt evidenced by the Subordinated Intercompany Note and other subordinated Debt incurred on terms satisfactory to the Lenders not in excess of $10,000,000 in the aggregate; and (vi) endorsement of negotiable instruments for deposit or collection or similar transactions in the ordinary course of business. (c) Lease Obligations. Create, incur or assume, or permit any of its Subsidiaries to create, incur or assume, any obligations as lessee (i) for the rental or hire of real or personal property in connection with any sale and leaseback transaction, (ii) for the rental or hire of real or personal property of any kind in connection with any restaurant not in existence and being operated by the Borrowers on the Effective Date; provided, however, that leases to which the Borrowers were a party on the Effective Date may be renewed (or new leases covering the same property may be entered into) so long as such renewal or new lease covers the same property and is on substantially the same terms and conditions (reasonable increases in rent being substantially the same) as the lease that is the subject of such renewal or termination. (d) Mergers, Etc. Merge with or into or consolidate with or into any Person, or permit any of its Subsidiaries to do so, except that any Subsidiary of the First Borrower (other than the Second Borrower) may merge with or into the First Borrower so long as the First Borrower is surviving corporation. (e) Sales, Etc. of Assets. Sell, lease, transfer or otherwise dispose of, or permit any of its Subsidiaries to sell, lease, transfer or otherwise dispose of, any of its assets, including (without limitation) substantially all assets constituting the business of a division, branch or other unit operation, except (i) sales of obsolete equipment, (ii) sales of Inventory in the ordinary course of its business, (iii) sales of any restaurant the Location Operating Profit of which has been less than $200,000 for the most recent 12 month period, and/or (iv) sales of any restaurant or other asset listed on Schedule 5.02(e) hereto; provided that all such restaurants or other assets are sold for cash, and that the Net Cash Proceeds of such restaurant sale or sales shall be paid to the Agent in accordance with the provisions of Section 2.05(b)(ii) hereof. (f) Investments in Other Persons. Make or hold, or permit any of its Subsidiaries to make or hold, any Investment in any Person other than: (i) with respect to the Second Borrower, investments by the First Borrower in the ordinary course of business and as otherwise permitted under this Agreement, and with respect to all other Subsidiaries, investments by the First Borrower in the ordinary course of business; (ii) Investments by the First Borrower in (x) Hedge Agreements with an initial term of up to one year in an amount not to exceed the aggregate principal amount of the outstanding Term Loans less Long-Term Hedge Agreements and (y) Cash Equivalents and Long-Term Hedge Agreements in an aggregate amount not to exceed $30,000,000 at any time outstanding; 46 (iii) Investments set forth on Schedule 4.01(ff); (iv) Investments by the First Borrower in GR Holdings in the form of an intercompany loan in an aggregate amount not to exceed $500,000; provided, however, that any Investments pursuant to this subsection (iv) shall reduce the amounts available to be distributed as a dividend pursuant to Section 5.02(g) below; and (v) other Investments by the First Borrower in an aggregate amount invested not to exceed $250,000. (g) Dividends, Etc. With respect to the First Borrower, declare or pay any dividends, purchase, redeem, retire, defease or otherwise acquire for value any of its capital stock or any warrants, rights or options to acquire such capital stock, now or hereafter outstanding, return any capital to its stockholders as such, make any distribution of assets, capital stock, warrants, rights, options, obligations or securities to its stockholders as such or issue or sell any capital stock or any warrants, rights or options to acquire such capital stock, or permit any of its Subsidiaries to purchase, redeem, retire, defease or otherwise acquire for value any capital stock of the First Borrower or any warrants, rights or options to acquire such capital stock or to issue or sell any capital stock or any warrants, rights or options to acquire such capital stock, except that the First Borrower may declare and deliver dividends (i) payable only in common stock of the First Borrower, (ii) to be upstreamed ultimately to GRR to pay federal income taxes (net of refunds) and to pay state and local income taxes (net of refunds) with respect to those states and localities under the laws of which GRR is liable for the state or local income taxes of the Borrowers, (iii) to be upstreamed ultimately to GRR to pay directors' fees and other corporate overhead expenses, in an amount not to exceed $500,000 in the aggregate per year, and (iv) to pay interest on the Subordinated Intercompany Note. In the case of clause (ii) and (iii) above, as and when needed and actually applied to such expenses, and provided that no payments pursuant to clause (iii) or (iv) shall be made at any time when a Default or Event of Default shall have occurred and be continuing. (h) Prohibition as to New Restaurants. The Borrowers shall not open or operate any restaurant location, whether leased or otherwise, that is not in existence (or in operation) on the Effective Date, provided, the Borrowers shall be permitted to enter into franchise agreements with Persons that are not Affiliates of either Borrower or any of the Guarantors. (i) Change in Nature of Business. Make, or permit any of its Subsidiaries to make, any material change in the nature of its business as carried on at the Effective Date. (j) Charter Amendments. Amend, or permit any of its Subsidiaries to amend, its certificate of incorporation or bylaws. (k) Accounting Changes. Make or permit, or permit any of its Subsidiaries to make or permit, any change in accounting policies or reporting practices, except allowed by GAAP. (l) Prepayments, Etc. of Debt. Prepay, redeem, purchase, defease or otherwise satisfy prior to the scheduled maturity thereof in any manner, or make any payment in violation of any subordination terms of, any Debt (other than Debt under this Agreement), or amend, modify or change in any manner any term or condition of any Debt, or permit any of its Subsidiaries to do any of the foregoing. (m) Amendment, Etc. of Certain Contracts. Cancel or terminate the Office Lease or consent to or accept any cancellation or termination thereof, amend or otherwise modify the Office Lease or give any consent, waiver or approval thereunder, waive any default under or breach of the Office Lease, agree in any manner to any other amendment, modification or change of any term or condition of the Office Lease or take any other action in connection with the Office Lease that would impair the value of 47 the interest or rights of the First Borrower thereunder or that would impair the interest or rights of the Agent or any Lender, or enter into or agree to any amendment, modification or waiver of any term or condition of the GR Holdings Intercompany License Agreement, the Subordinated Intercompany Note, the Subordination Agreement or the TGRI Intercompany License Agreement or permit any of its Subsidiaries to do any of the foregoing. (n) Ownership Change. Take, or permit any of its Subsidiaries to take, any action that would result in an "ownership change" (as defined in Section 382 of the Internal Revenue Code) with respect to either Borrower or any of its Subsidiaries or the application of the separate return limitation year" or "consolidated return change of ownership" limitations under the Federal income tax consolidated return regulations with respect to either Borrower or any of its Subsidiaries, in each case that would result in a material restriction on the use of any tax attribute (including any net operating loss) by the First Borrower or any of its Subsidiaries. (o) Negative Pledge. Enter into or suffer to exist, or permit any of its Subsidiaries to enter into or suffer to exist, any agreement prohibiting or conditioning the creation or assumption of any Lien upon any of its property or assets other than (i) in favor of the Agent and the Lenders or (ii) in connection with any Debt permitted by Section 5.02(b)(ii) hereof. (p) Issuance of Capital Stock. Issue, or permit any of its Subsidiaries to issue, any capital stock, other than to holders of the Convertible Notes. (q) Creation of Subsidiaries. Create any new Subsidiary unless, in the case of the First Borrower, the creation of such Subsidiary is necessary because of a particular state's laws relating to liquor licenses and unless the stock of such Subsidiary is pledged (to the extent permitted under such state's laws) to the Agent for the benefit of the Lenders, the ACH Banks and the Hedge Banks. (r) Franchise Agreements. With respect to any franchise agreement, (i) take any action that would impair the value of the franchise agreements taken as a whole or (ii) reduce the franchise fee paid to the First Borrower by an existing or new franchisee under its franchise agreement as originally executed (except that the First Borrower may set the compensation level or may settle or compromise the amount owing under any franchise agreement in the ordinary course of business). (s) Notice Regarding Future Obligations. Give any notice, or permit any of its Subsidiaries to give any notice, pursuant to ' 443.055 of Missouri Revised Statutes or make any request of the Mortgagee pursuant to ' 382.520 of Kentucky Revised Statutes or otherwise by which either Borrower elects to terminate or limit the operation of the Mortgages recorded in such states as security for future advances or future obligations under or incurred after the date the Mortgagee receives such notice or request. ARTICLE 6. EVENTS OF DEFAULT SECTION 6.01 Events of Default. If any of the following events ("Events of Default") shall occur and be continuing: (a) either Borrower shall (i) fail to pay any principal of, or interest on, any Term Loan or Convertible Note, or (ii) fail to reimburse BNY for any amounts drawn under the Letter of Credit in accordance with the terms hereof, (iii) any Loan Party shall fail to make any other payment under any Loan Document, in each case when the same becomes due and payable or (iv) either Borrower shall fail to perform its obligations under the ACH Agreements; or 48 (b) any representation or warranty made by any Loan Party (or any of its officers) under or in connection with any Loan Document shall prove to have been incorrect in any material respect when made; or (c) (i) either of the Borrowers shall fail to perform or observe any term, covenant or agreement contained in Section 5.01(d), 5.01(g)(iv), 5.01(n) through (r) or 5.02 or (ii) any Loan Party shall fail to perform any other term, covenant or agreement contained in any Loan Document on its part to be performed or observed if such failure shall remain unremedied for 10 days after written notice thereof shall have been given to the Borrowers by the Agent or any Lender; or (d) any Loan Party or any of its Subsidiaries shall fail to pay any principal of, premium or interest on or any other amount payable in respect of any Debt that is outstanding in a principal amount of at least $100,000 in the aggregate (but excluding Debt outstanding hereunder) such Loan Party or such Subsidiary (as the case may be), when the same becomes due and payable (whether by scheduled maturity, required prepayment, acceleration, demand or otherwise); or any other event shall occur or condition shall exist under any agreement or instrument relating to any such Debt, if the effect of such event or condition is to accelerate, or to permit the acceleration of, the maturity of such Debt; or any such Debt shall be declared to be due and payable or required to be prepaid or redeemed (other than by a regularly scheduled required prepayment or redemption), purchased or defeased, or an offer to prepay, redeem, purchase or defease such Debt shall be required to be made, in each case prior to the stated maturity thereof; or (e) any Loan Party or any of its Subsidiaries shall generally not pay its debts as such debts become due, or shall admit in writing its inability to pay its debts generally, or shall make a general assignment for the benefit of creditors; or any proceeding shall be instituted by or against any Loan Party or any of its Subsidiaries seeking to adjudicate it a bankrupt or insolvent, or seeking liquidation, winding up, reorganization, arrangement, adjustment, protection, relief, or composition of it or its debts under any law relating to bankruptcy, insolvency or reorganization or relief of debtors, or seeking the entry of an order for relief or the appointment of a receiver, trustee, or other similar official for it or for any substantial part of its property and such action (i) results in the entry of any order for relief against it or (ii) shall remain undismissed or unstayed for a period of 30 days; or any Loan Party or any of its Subsidiaries shall take any corporate action to authorize any of the actions set forth above in this subsection (e); or (f) any judgment or order for the payment of money in excess of $250,000 shall be rendered against any Loan Party or any of its Subsidiaries and either (i) enforcement proceedings shall have been commenced by any creditor upon such judgment or order or (ii) there shall be any period of 30 consecutive days during which a stay of enforcement of such judgment or order, by reason of a pending appeal or otherwise, shall not be in effect; or (g) any non-monetary judgment or order shall be rendered against any Loan Party or any of its Subsidiaries that could have a material adverse affect on (i) the business, condition (financial or otherwise), operations, performance, properties or prospects of any Loan Party or any its Subsidiaries, (ii) the ability of any Loan Party or any of its Subsidiaries to perform its obligations under any Loan Document to which it is a party or (iii) the rights and remedies of the Agent or the Lenders under any Loan Document, and there shall be any period of 10 consecutive days during which a stay of enforcement of such judgment or order, by reason of a pending appeal or otherwise, shall not be in effect; or (h) any provision of any Loan Document after delivery thereof pursuant to Section 3.01 shall for any reason cease to be valid and binding on or enforceable against any Loan Party to it, or any such Loan Party shall contest the validity or enforceability thereof or so state in writing; or (i) any Collateral Document shall for any reason (other than pursuant to the terms thereof) cease to create a valid and perfected first priority Lien on the Collateral purported to be covered 49 thereby or any Loan Party thereto shall contest the validity or enforceability of any Collateral Document; or (j) GRR, GR Holdings and GRH-NJ shall at any time for any reason cease to be the legal and beneficial owner of 100% of the shares of capital stock of GR Holdings, GRH-NJ and the First Borrower, respectively; or (k) USI shall at any time for any reason cease to be the legal and beneficial owner of at least 25% of the shares of capital stock of GRR, provided, that on and after the date on which JUSI shall have delivered to the Agent, for the ratable benefit of the Lenders, 100,000 shares the Common Stock of GRR (which such shares shall be duly authorized, validly issued, fully paid and non-assessible and subject to no obligation or limitations other than those required by the securities laws and those set forth in the Registration Rights Agreement and shall be accompanied by undated blank stock powers or appropriate instruments of transfers as may be reasonably requested by the Agent), this clause (k) shall be of no further effect; or (l) USI shall at any time when it is a legal and beneficial owner of (x) twenty (20%) percent or more of the capital stock of GRR fail to have two nominees of USI serving on the board of directors of GRR at all times or (y) ten (10%) percent or more but less than twenty (20%) of the capital stock of GRR fail to have one nominee of USI serving on the board of directors of GRR at all times; provided, however, that if one or both of the nominees of USI cease to serve on the board of directors of GRR as a result of death or resignation, USI shall have ten days in which to appoint their successor or successors and, provided further, however, that on and after the date on which JUSI shall have delivered to the Agent, for the ratable benefit of the Lenders, 100,000 shares of the Common Stock of GRR (which such shares shall be duly authorized, validly issued, fully paid and non-assessible and subject to no obligation or limitations other than those required by the securities laws and those set forth in the Registration Rights Agreement and shall be accompanied by undated blank stock powers or appropriate instruments of transfers as may be reasonably requested by the Agent), this clause (l) shall be of no further effect; or (m) any Person or two or more Persons (other than USI or any of its Affiliates) acting in concert shall have acquired beneficial ownership (within the meaning of Rule 13d-3 of the Securities and Exchange Commission under the Securities Exchange Act of 1934), directly or indirectly of Voting Stock of GRR (or other securities convertible into such Voting Stock) representing 50% or more of the combined voting power of all Voting Stock of GRR; or (n) any ERISA Event shall have occurred with respect to a Plan subject to Title IV of ERISA of any Loan Party and the sum (determined as of the date of occurrence of such ERISA Event) of the Insufficiency of such Plan and the Insufficiency of any and all other Plans of any Loan Party with respect to which an ERISA Event shall have occurred and then exist (or the liability of the Loan Parties and their ERISA Affiliates related to such ERISA Event) exceeds $500,000; or (o) any Loan Party or any of its ERISA Affiliates shall have been notified by the sponsor of a Multiemployer Plan that it has incurred Withdrawal Liability to such Multiemployer Plan in an amount that, when aggregated with all other amounts required to be paid to Multiemployer Plans by the Loan Parties and their ERISA Affiliates as Withdrawal Liability (determined as of the date of such notification), exceeds $500,000 or requires payments exceeding $100,000 per annum; or (p) any Loan Party or any of its ERISA Affiliates shall have been notified by the sponsor of a Multiemployer Plan that such Multiemployer Plan is in reorganization or is being terminated, within the meaning of Title IV of ERISA, and as a result of such reorganization or termination the aggregate annual contributions of the Loan Parties and their ERISA Affiliates to all Multiemployer Plans that are then in reorganization or being terminated have been or will be increased over the amounts contributed to such Multiemployer Plans for the plan years of such Multiemployer Plans immediately 50 preceding the plan year in which such reorganization or termination occurs by an amount exceeding $500,000; or (q) there shall occur in the judgment of the Required Lenders any material adverse change in the business, condition (financial or otherwise), operations, performance, properties or prospects of any Loan Party or any of its Subsidiaries; or (r) five or more liquor licenses of GR Holdings, the Borrowers or their Subsidiaries are, at any one time (whether on a temporary or permanent basis), suspended, revoked or terminated (except in connection with sales or disposals of restaurants permitted pursuant to Section 5.02(e)) or (s) for any reason, GRR, GR Holdings, GRR-NJ or either of the Borrowers cease to be a member of the GRR Tax Group; then, and in any such event, the Agent (i) shall at the request, or may with the consent, of the Required Lenders, by notice to the Borrowers, declare the Notes, the Convertible Notes, all interest thereon and all other amounts payable under this Agreement and the other Loan Documents to be forthwith due and payable, whereupon the Notes, the Convertible Notes, all such interest and all such amounts shall become and be forthwith due and payable, without presentment, demand, protest or further notice of any kind, all of which are hereby expressly waived by the Borrowers; provided, however, that in the event of an actual or deemed entry of an order for relief with respect to any Loan Party under the Federal Bankruptcy Code, the Notes, the Convertible Notes, all such interest and all such amounts shall automatically become and be due and payable, without presentment, demand, protest or any notice of any kind, all of which are hereby expressly waived by the Borrowers. SECTION 6.02 Actions in Respect of the Letter of Credit Upon Default. If any Event of Default shall have occurred and be continuing, the Agent may, irrespective of whether it is taking any of the actions described in Section 6.01 or otherwise, make demand upon the Borrowers to, and forthwith upon such demand the Borrowers will, pay to the Agent on behalf of the Lenders in same day funds at the Agent's offices designated in such demand, for deposit in the Letter of Credit Cash Collateral Account, an amount equal to 105% of the aggregate maximum amount available to be drawn under the Letter of Credit (assuming compliance with all conditions to drawing). If at any time the Agent determines that any funds held in the Letter of Credit Cash Collateral Account are subject to any right or claim of any person or entity other than the Agent and the Lender or that the total amount of such funds is less than 105% of the aggregate maximum amount available to be drawn under the Letter of Credit (assuming compliance with all conditions to drawing), the Borrowers will, forthwith upon demand by the Agent, pay to the Agent, as additional funds to be deposited and held in the Letter of Credit Cash Collateral Account, an amount equal to the excess of (a) 105% of such aggregate maximum amount over (b) the total amount of funds, if any, then held in the Letter of Credit Cash Collateral Account that the Agent determines to be free and clear of any such right and claim. ARTICLE 7. THE AGENT SECTION 7.01 Authorization and Action. Each Lender hereby appoints and authorizes the Agent to take such action as agent on its behalf and to exercise such powers and discretion under this Agreement and the other Loan Documents as are delegated to the Agent by the terms hereof, together with such powers and discretion as are reasonably incidental thereto. As to any matters not expressly provided for by the Loan Documents (including, without limitation, enforcement or collection of the Notes and the Convertible Notes), the Agent shall not be required to exercise any discretion or take any action, but shall be required to act or to refrain from acting (and shall be fully protected in so acting or refraining from acting) upon the instructions of the Required Lenders, and such instructions shall be binding upon all Lenders and all holders of Notes and the 51 Convertible Notes; provided, however, that the Agent shall not be required to take any action that exposes the Agent to personal liability or that is contrary to this Agreement or applicable law. The Agent agrees to give to each Lender prompt notice of each notice given to it by either Borrower pursuant to the terms of this Agreement. SECTION 7.02 Agent's Reliance, Etc. Neither the Agent nor any of its directors, officers, agents or employees shall be liable for any action taken or omitted to be taken by it or them under or in connection with the Loan Documents, except for its or their own gross negligence or wilful misconduct. Without limitation the generality of the foregoing, the Agent: (i) may treat the payee of any Note as the holder thereof until the Agent receives and accepts an Assignment and Acceptance entered into by the Lender that is the payee of such Note, as assignor, and an Eligible Assignee, as assignee, as provided in Section 8.07; (ii) may consult with legal counsel (including counsel for any Loan Party), independent public accountants and other experts selected by it and shall not be liable for any action taken or omitted to be taken in good faith by it in accordance with the advice of such counsel, accountants or experts; (iii) makes no warranty or representation to any Lender and shall not be responsible to any Lender for any statements, warranties or representations made in or in connection with the Loan Documents; (iv) shall not have any duty to ascertain or to inquire as to the performance or observance of any of the terms, covenants or conditions of any Loan Document on the part of any Loan Party or to inspect the property (including the books and records) of any Loan Party; (v) shall not be responsible to any Lender for the due execution, legality, validity, enforceability, genuineness, sufficiency or value of any Loan Document or any other instrument or document furnished pursuant hereto; and (vi) shall incur no liability under or in respect of any Loan Document by acting upon any notice, consent, certificate or other instrument or writing (which may be by telegram, telecopy, cable or telex) believed by it to be genuine and signed or sent by the proper party or parties. SECTION 7.03 BNY and Affiliates. With respect to the Term Loans restructured by it and the Note issued to it, BNY shall have the same rights and powers under the Loan Documents as any other Lender and may exercise the same as though it were not the Agent; and the term "Lender" or "Lenders" shall, unless otherwise expressly indicated, include BNY in its individual capacity. BNY and its affiliates may accept deposits from, lend money to, act as trustee under indentures of, accept investment banking engagements from and generally engage in any kind of business with, any Loan Party, any of its Subsidiaries and any Person who may do business with or own securities of any Loan Party or any such Subsidiary, all as if BNY were not the Agent and without any duty to account therefor to the Lenders. SECTION 7.04 Lender Credit Decision. Each Lender acknowledges that it has, independently and without reliance upon the Agent or any other Lender and based on the financial statements referred to in Section 4.01 and such other documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement. Each Lender also acknowledges that it will, independently and without reliance upon the Agent or any other Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement. SECTION 7.05 Indemnification. The Lenders agree to indemnify the Agent (to the extent not promptly reimbursed by the Borrowers), ratably according to the respective principal amounts of the Notes then held by each of them, from and against any and all liabilities, obligations, losses, damages, penalties, actions judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever that may be imposed on, incurred by, or asserted against the Agent in any way relating to or arising out of the Loan Documents or any action taken or omitted by the Agent under the Loan Documents; provided, however, that no Lender shall be liable for 52 any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting from the Agent's gross negligence or willful misconduct. Without limitation of the foregoing, each Lender agrees to reimburse the Agent promptly upon demand for its ratable share of any costs and expenses payable by either Borrower under Section 8.04, to the extent that the Agent is not promptly reimbursed for such costs and expenses by such Borrower. SECTION 7.06 Successor Agents. The Agent may resign as to any or all of the Facility at any time by giving written notice thereof to the Lenders and the Borrowers and may be removed as to all the Facility for gross negligence or willful misconduct by the Required Lenders. Upon any such resignation or removal, the Required Lenders shall have the right to appoint a successor Agent as to such of the Facilities as to which the Agent has resigned or been removed. If no successor Agent shall have been so appointed by the Required Lenders, and shall have accepted such appointment, within 30 days after the retiring Agent's giving of notice of resignation or the Required Lenders' removal of the retiring Agent, then the retiring Agent may, on behalf of the Lenders, appoint a successor Agent, which shall be a commercial bank organized under the laws of the United States or of any State thereof and having a combined capital and surplus of at least $250,000,000. Upon the acceptance of any appointment as Agent hereunder by a successor Agent as to all of the Facility, such successor Agent shall thereupon succeed to and become vested with all the rights, powers, discretion, privileges and duties of the retiring Agent, and the retiring Agent shall be discharged from its duties and obligations under the Loan Documents. Upon the acceptance of any appointment as Agent hereunder by a successor Agent as to less than all of the Facility, such successor Agent shall thereupon succeed to and become vested with all the rights, powers, discretion, privileges and duties of the retiring Agent as to such Facility, other than with respect to funds transfers and other similar aspects of the administration of Borrowings under such Facility, and payments by the Borrowers in respect of such Facility, and the retiring Agent shall be discharged from its duties and obligations under this Agreement as to such Facility, other than as aforesaid. After any retiring Agent's resignation or removal hereunder as Agent as to all of the Facility, the provisions of this Article VII shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Agent as to any Facility under this Agreement. ARTICLE 8. MISCELLANEOUS SECTION 8.01 Amendments, Etc. No amendment or waiver of any provision of this Agreement or the Notes, nor consent to any departure by the Borrowers therefrom, shall in any event be effective unless the same shall be in writing and signed by the Required Lenders, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given; provided, however, that (a) no amendment, waiver or consent shall, unless in writing and signed by all the Lenders, do any of the following: (i) waive any of the conditions to the effectiveness of this Agreement specified in Section 3.01, (ii) change the percentage of the Term Loans or Unreimbursed Letter of Credit Obligation or of the aggregate unpaid principal amount of the Notes, or the Convertible Notes, or the number of Lenders, that shall be required for the Lenders or any of them to take any action hereunder, (iii) release any of the Collateral (except that (A) the Agent (x) shall release Collateral that is expressly permitted to be sold under the Loan Documents and (y) may release Collateral in an amount not to exceed $1,000,000 in the aggregate, (B) the Required Lenders may permit the release of Collateral in an amount not to exceed $5,000,000 in the aggregate, provided that the proceeds of the sale of such Collateral shall be applied in accordance with Section 2.05(b)(ii)) and (C) the Agent shall release all of the Collateral in the event the Borrowers shall have paid or repaid the Obligations (other than amounts owing under the Convertible Notes) in their entirety and the Borrowers shall have deposited into the Prepayment Account an amount equal to 100% of the aggregate outstanding principal amount of the Convertible Notes, such amount to be held by the Agent for the benefit of the Lenders until such time as (i) the Lenders shall have exercised their right of conversion and GRR shall have delivered shares of its common stock to such Lenders in accordance with the terms of the Convertible Notes or (ii) the Lenders shall have demanded payment under the Convertible Notes which 53 shall have become payable in accordance with their terms) and the Agent shall have applied the amounts in the Prepayment Account to the principal of the Convertible Notes, or (iv) amend Section 6.01(k) or this Section 8.01; and (b) no amendment, waiver or consent shall, unless in writing and signed by the Required Lenders and each Lender that has a Term Loan under the Facility affected by such amendment, waiver or consent, (i) increase the Term Loans or Unreimbursed Letter of Credit Obligations of such Lender or subject such Lender to any additional obligations, (ii) reduce the principal of, or interest on, the Notes or the Convertible Notes payable to such Lender or any fees or other amounts payable hereunder to such Lender, (iii) postpone any date fixed for any payment of principal of, or interest on, the Notes held by such Lender or any fees or other amounts payable hereunder to such Lender or (iv) change the order of application of any prepayment set forth in Section 2.05 in any manner that materially affects such Lender; and provided further that no amendment, waiver or consent shall, unless in writing and signed by the Agent in addition to the Lenders required above to take such action, affect the rights or duties of the Agent under this Agreement or any Note. SECTION 8.02 Notices, Etc. All notices, requests and demands to or upon the respective parties hereto to be effective shall be in writing and, unless otherwise expressly provided herein, shall be deemed to have been duly given or made when delivered by hand, or when deposited in the mail, first-class postage prepaid, or, in the case of telecopier notice, when sent, addressed as follows in the case of the Borrower or the Agent, and at the office indicated for notice on Schedule 1.1 in the case of each Lender, or to such other addresses as to which the Agent may be hereafter notified by the respective parties hereto or any future holders of the Notes: if to the First Borrower: The Ground Round, Inc. 35 Braintree Hill Office Park Braintree, Massachusetts 02184, Attention: Robin Moroz, Esq. General Counsel and Corporate Secretary Telephone: (617) 380-3100 Telecopy: (617) 380-3233 with a copy to: The Ground Round, Inc. 35 Braintree Hill Office Park Braintree, Massachusetts 02184, Attention: Stephen J. Kiel Chief Financial Officer Telephone: (617) 380-3100 Telecopy: (617) 380-3233 if to the Second Borrower: GR of Minn., Inc. c/o Prentice Hall 32 Lockerman Square Suite L100 Dover, Delaware 19901 Attention: Robin Moroz, Esq. General Counsel and 54 Corporate Secretary; Telephone: (617) 380-3100 Telecopy: (617) 380-3233 if to the Agent: The Bank of New York One Wall Street New York, New York 10286 Attention: Jay B. Lifton Telephone: (212) 635-7297 Telecopy: (212) 635-7498 with a copies to: The Bank of New York, N.A. National Community Division 385 Rifle Camp Road West Paterson, New Jersey 07424 Attention: Frank S. Bridges Telephone: (201) 357-7712 Mark F. Liscio, Esq. Zalkin, Rodin & Goodman LLP 750 Third Avenue New York, New York 10017 Telephone: (212) 455-0626 Telecopy: (212) 682-6331 or, as to either of the Borrowers or the Agent, at such other address as shall be designated by such party in a written notice to the other parties and, as to each other party, at such other address as shall be designated by such party in a written notice to the Borrowers and the Agent. All such notices and communications shall, when mailed, telegraphed, telecopied, telexed or cabled, be effective when deposited in the mails, delivered to the telegraph company, transmitted by telecopier (as verified by automatic telecopier verification by the sender's machine), confirmed by telex answerback or delivered to the cable company, respectively, except that notices and communications to the Agent pursuant to Article II, III or VII shall not be effective until received by the Agent. SECTION 8.03 No Waiver; Remedies. No failure on the part of any Lender or the Agent to exercise, and no delay in exercising, any right hereunder or under any Note shall operate as a waiver thereof; nor shall any single or partial exercise of any such right preclude any other or further exercise thereof or the exercise of any other right. The remedies herein provided are cumulative and not exclusive of any remedies provided by law. SECTION 8.04 Costs and Expenses. (a) The Borrowers jointly and severally hereby agree to pay on demand (i) all costs and expenses of the Agent and each of the Lenders in connection with the syndication of the Facilities and the negotiation, preparation, execution, delivery, administration, modification and amendment of the Loan Documents (including, without limitation, (A) all due diligence, transportation, computer, duplication, appraisal, audit, insurance, consultant, search, filing and recording fees and expenses and (B) the reasonable fees and expenses of counsel for the Agent and each of the Lenders with respect thereto, with respect to advising the Agent and each of the Lenders as to their rights and responsibilities, or the 55 perfection, protection or preservation of rights or interests, under the Loan Documents, with respect to negotiations with the Borrowers or with other creditors of any Loan Party or any of its Subsidiaries arising out of any Default or any events or circumstances that may give rise to a Default and with respect to presenting claims in, monitoring or otherwise participating in any bankruptcy, insolvency or other similar proceeding affecting creditors' rights generally), (ii) all costs and expenses of the Agent and the Lenders in connection with the enforcement of the Loan Documents, whether in any action, suit or litigation, any bankruptcy, insolvency or other similar proceeding affecting creditors' rights generally or otherwise (including, without limitation, the reasonable fees and expenses of counsel for the Agent and each Lender with respect thereto) and (iii) all reasonable fees and expenses of counsel for each Lender in connection with negotiations with the Borrowers or with other creditors of any Loan Party or any of its Subsidiaries arising out of a payment default or any events or circumstances that may give rise to a payment default. (b) The Borrowers jointly and severally hereby agree to indemnify and hold harmless the Agent and each Lender and each of their Affiliates and their officers, directors, employees, agents and advisors (each, an "Indemnified Party") from and against any and all claims, damages, losses, liabilities, fines, and penalties and expenses (including, without limitation, reasonable fees and expenses of counsel) that may be incurred by or asserted or awarded against any Indemnified Party, in each case arising out of or in connection with or by reason of, or in connection with the preparation for a defense of, any investigation, litigation or proceeding arising out of, related to or in connection with any transactions contemplated hereby, including without limitation any claims, costs, liabilities, fines or penalties under Environmental Laws in connection with the property and operations of any of the Loan Parties and their Subsidiaries, whether or not an Indemnified Party is a party thereto and whether or not the transactions contemplated hereby are consummated, except to the extent such claim, damage, loss, liability or expense is found in a final, non-appealable judgment by a court of competent jurisdiction to have resulted from such Indemnified Party's gross negligence or willful misconduct or, with respect to Environmental Laws, to the extent that any claims, damage, losses, liabilities or expenses relate to conditions caused by acts of the Lenders. (c) If any payment of principal of, or Conversion of, any Eurodollar Rate Loan is made by either of the Borrowers to or for the account of a Lender other than on the last day of the Interest Period for such Term Loan, as a result of a payment or conversion pursuant to Section 2.08(b)(i) or 2.09(d), acceleration of the maturity of the Notes pursuant to Section 6.01 or for any other reason, the Borrowers jointly and severally hereby agree, upon demand by such Lender (with a copy of such demand to the Agent), to pay to the Agent for the account of such Lender any amounts required to compensate such Lender for any additional losses, costs or expenses that it may reasonably incur as a result of such payment, including, without limitation, any loss, cost or expense incurred by reason of the liquidation or reemployment of deposits or other funds acquired by any Lender to fund or maintain such Term Loan. (d) If any Loan Party fails to pay when due any costs, expenses or other amounts payable by it under any Loan Document, including, without limitation, fees and expenses of counsel and indemnities, such amount may be paid on behalf of such Loan Party by the Agent, in its sole discretion. (e) Without prejudice to the survival of any other agreement of the Borrowers hereunder, the agreements and obligations of the Borrowers contained in this Section 8.04 shall survive the payment in full of principal and interest hereunder and under the Notes and the Convertible Notes for a period of two years except that the indemnity obligations relating to Environmental Laws shall survive for a period of ten years. SECTION 8.05 Right of Set-off. Upon (a) the occurrence and during the continuance of any Event of Default and (b) the making of the request or the granting of the consent specified by Section 6.01 to authorize the Agent to declare the Notes and the Convertible Notes due and payable pursuant to the provisions of Section 6.01, each Lender is hereby authorized at any time and from time to time, to the fullest extent permitted by law, 56 to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other indebtedness at any time owing by such Lender to or for the credit or the account of the Borrowers against any and all of the Obligations of the Borrowers now or hereafter existing under this Agreement and the Note held by such Lender, irrespective of whether such Lender shall have made any demand under this Agreement or such Note and although such obligations may be unmatured. Each Lender agrees promptly to notify the Borrowers after any such set-off and application made by such Lender; provided, however, that the failure to give such notice shall not affect the validity of such set-off and application. The rights of each Lender under this Section are in addition to other rights and remedies (including, without limitation, other rights of set-off) that such Lender may have. SECTION 8.06 Binding Effect. This Agreement shall become effective when it shall have been executed by each of the Borrowers and the Agent and when the Agent shall have been notified by each Lender that such Lender has executed it and thereafter shall be binding upon and inure to the benefit of the Borrowers, the Agent and each Lender and their respective successors and assigns, except that the Borrowers shall not have the right to assign its rights hereunder or any interest herein without the prior written consent of the Lenders. SECTION 8.07 Assignments and Participations. (a) Each Lender may assign to one or more banks or other entities all or a portion of its rights and obligations under this Agreement (including, without limitation, all or a portion of the Term Loan owing to it and the Note and Convertible Note held by it); provided, however, that (i) each such assignment shall be of a uniform, and not a varying, percentage of all rights and obligations under and in respect of the Facility, (ii) except in the case of an assignment to a Person that, immediately prior to such assignment, was a Lender or an assignment of all of a Lender's rights and obligations under this Agreement, the amount of Term Loan, Unreimbursed Letter of Credit Obligation and Convertible Note of the assigning Lender being assigned pursuant to each such assignment (determined as of the date of the Assignment and Acceptance with respect to such assignment) shall in no event be less than $2,500,000, (iii) each such assignment shall be to an Eligible Assignee or to an Affiliate of the assignor and (iv) the parties to each such assignment shall execute and deliver to the Agent, for its acceptance and recording in the Register, an Assignment and Acceptance, together with any Note and Convertible Note subject to such assignment and a processing and recordation fee of $3,000; provided, further, that nothing in this Section 8.07 shall prevent or prohibit any Lender from pledging its Term Loans hereunder to a Federal Reserve Bank in support of borrowings by such Lender from such Federal Reserve Bank. Upon such execution, delivery, acceptance and recording, from and after the effective date specified in such Assignment and Acceptance, (x) the assignee thereunder shall be a party hereto and, to the extent that rights and obligations hereunder have been assigned to it pursuant to such Assignment and Acceptance, have the rights and obligations of a Lender hereunder and (y) the Lender assignor thereunder shall, to the extent that rights and obligations hereunder have been assigned by it pursuant to such Assignment and Acceptance, relinquish its rights and be released from its obligations under this Agreement (and, in the case of an Assignment and Acceptance covering all or the remaining portion of an assigning Lender's rights and obligations under this Agreement, such Lender shall cease to be a party hereto). (b) By executing and delivering an Assignment and Acceptance, the Lender assignor thereunder and the assignee thereunder confirm to and agree with each other and the other parties hereto as follows: (i) other than as provided in such Assignment and Acceptance, such assigning Lender makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with this Agreement or the execution, legality, validity, enforceability, genuineness, sufficiency or value of this Agreement or any other instrument or document furnished pursuant hereto; (ii) such assigning Lender makes no representation or warranty and assumes no responsibility with respect to the financial condition of the Borrowers or the performance or observance by the Borrowers of any of their obligations under this Agreement or any other instrument or 57 document furnished pursuant hereto; (iii) such assignee confirms that it has received a copy of this Agreement, together with copies of the financial statements referred to in Section 4.01 and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into such Assignment and Acceptance; (iv) such assignee will, independently and without reliance upon the Agent, such assigning Lender or any other Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement; (v) such assignee confirms that it is an Eligible Assignee; (vi) such assignee appoints and authorizes the Agent to take such action as agent on its behalf and to exercise such powers and discretion under this Agreement as are delegated to the Agent by the terms hereof, together with such powers and discretion as are reasonably incidental thereto; and (vii) such assignee agrees that it will perform in accordance with their terms all of the obligations that by the terms of this Agreement are required to be performed by it as a Lender. (c) The Agent shall maintain at its address referred to in Section 8.02 a copy of each Assignment and Acceptance delivered to and accepted by it and a register for the recordation of the names and addresses of the Lenders and the principal amount of the Term Loans and Unreimbursed Letter of Credit Obligation and Convertible Note owing under the Facility to, each Lender from time to time (the "Register"). The entries in the Register shall be conclusive and binding for all purposes, absent manifest error, and the Borrowers, the Agent and the Lenders may treat each Person whose name is recorded in the Register as a Lender hereunder for all purposes of this Agreement. The Register shall be available for inspection by the Borrowers or any Lender at any reasonable time and from time to time upon reasonable prior notice. (d) Upon its receipt of an Assignment and Acceptance executed by an assigning Lender and an assignee representing that it is an Eligible Assignee, together with any Note and Convertible Note subject to such assignment, the Agent shall, if such Assignment and Acceptance has been completed and is in substantially the form of Exhibit I hereto, (i) accept such Assignment and Acceptance, (ii) record the information contained therein in the Register and (iii) give prompt notice thereof to the Borrowers. Within five Business Days after its receipt of such notice, the Borrowers, at their own expense, shall execute and deliver to the Agent in exchange for the surrendered Note and Convertible Note relating to such assignment a new Note or Convertible Note to the order of such Eligible Assignee in an amount equal to the Term Loan, Letter of Credit Exposure and Convertible Note assumed by it under a facility pursuant to such Assignment and Acceptance and, if the assigning Lender has retained a Term Loan, Unreimbursed Letter of Credit Obligation and Convertible Note under the Facility, a new Note and Convertible Note to the order of the assigning Lender in an amount equal to the Term Loan, Letter of Credit Exposure and Convertible Note retained by it hereunder. Such new Note or Convertible Note shall be in an aggregate principal amount equal to the aggregate principal amount of such surrendered Note and Convertible Note, shall be dated the effective date of such Assignment and Acceptance and shall otherwise be in substantially the form of Exhibit I hereto. (e) Each Lender may sell participations to one or more banks or other entities in or to all or a portion of its rights and obligations under this Agreement (including, without limitation, all or a portion of its Term Loan, Unreimbursed Letter of Credit Obligation and Convertible Note owing to it and the Note or Convertible Note held by it); provided, however, that (i) such Lender's obligations under this Agreement (including, without limitation, its Term Loan and Unreimbursed Letter of Credit Obligation and Convertible Note to the Borrowers hereunder) shall remain unchanged, (ii) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations, (iii) such Lender shall remain the holder of any such Note for all purposes of this Agreement, (iv) the Borrowers, the Agent and the other Lenders shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under this Agreement and (v) no participant under any such participation shall have any right to approve any amendment or waiver of any provision of any Loan Document, or any consent to any departure by any Loan Party therefrom, except to the extent that such amendment, waiver or consent would reduce the principal of, or interest on, the Notes, the Convertible Notes or any fees or other amounts payable hereunder (other than amounts payable pursuant to Section 2.05), in each case to the 58 extent subject to such participation, postpone any date fixed for any payment of principal of, or interest on, the Notes, the Convertible Notes or any fees or other amounts payable hereunder, in each case to the extent subject to such participation, or release all or substantially all of the Collateral. (f) Any Lender may, in connection with any assignment or participation or proposed assignment or participation pursuant to this Section 8.07, disclose to the assignee or participant or proposed assignee or participant, any information relating to the Borrowers furnished to such Lender by or on behalf of the Borrowers; provided, however, that, prior to any such disclosure, the assignee or participant or proposed assignee or participant shall agree to preserve the confidentiality of any Confidential Information received by it from such Lender. SECTION 8.08 Governing Law. This Agreement and the Notes shall be governed by, and construed in accordance with, the laws of the State of New York. SECTION 8.09 Execution in Counterparts. This Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. Delivery of an executed counterpart of a signature page to this Agreement by telecopier shall be effective as delivery of a manually executed counterpart of this Agreement. SECTION 8.10 Severability. Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. SECTION 8.11 Confidentiality. Neither the Agent nor any Lender shall disclose any Confidential Information to any Person without the consent of the Borrowers, other than (a) to the Agent's or such Lender's Affiliates and their officers, directors, employees, agents and advisors and to actual or prospective Eligible Assignees and participants, and then only on a confidential basis, (b) as required by any law, rule or regulation or judicial process, (c) as requested or required by any state, federal or foreign authority or examiner regulating banks or banking and (d) in connection with litigation between any Loan Party and the Lenders. SECTION 8.12 Waiver of Jury Trial. EACH OF THE BORROWERS, THE AGENT AND THE LENDERS HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER BASED ON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR RELATING TO ANY OF THE LOAN DOCUMENTS, THE TERM LOANS, THE LETTER OR CREDIT, THE CONVERTIBLE NOTE OR THE ACTIONS OF THE AGENT OR ANY LENDER IN THE NEGOTIATION, ADMINISTRATION, PERFORMANCE OR ENFORCEMENT THEREOF. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective officers thereunto duly authorized, as of the date first above written. 59 THE GROUND ROUND, INC. By: /s/ Stephen J. Kiel ----------------------------------- Name: Stephen J. KIEL --------------------------------- Title: Sr. Vice President, Chief Financial Officer and Treasurer -------------------------------- GR OF MINN., INC. By: /s/ Stephen J. Kiel ---------------------------------- Name: Stephen J. Kiel -------------------------------- Title: Vice President and Treasurer ------------------------------- THE BANK OF NEW YORK, as Agent By: /s/ Mark Slane ---------------------------------- Name: Mark Slane -------------------------------- Title: Senior Vice President ------------------------------- Banks THE BANK OF NEW YORK By: /s/ Mark Slane ---------------------------------- Name: Mark Slane -------------------------------- Title: Senior Vice President ------------------------------- THE CHASE MANHATTAN BANK By: /s/ Susan E. Atkins ---------------------------------- Name: Susan E. Atkins -------------------------------- Title: Vice President ------------------------------- BANK OF AMERICA ILLINOIS By: /s/ Steve A. Aronowitz ---------------------------------- Name: Steve A. Aronowitz -------------------------------- Title: Vice President ------------------------------- NBD BANK, N.A. By: /s/ Dennis Saletta ---------------------------------- Name: Dennis Saletta -------------------------------- Title: Vice President ------------------------------- 60 CREDIT LYONNAIS NEW YORK BRANCH By: /s/ Alan Sidrane ---------------------------------- Name: Alan Sidrane -------------------------------- Title: First Vice President ------------------------------- EX-10.2 3 FORM OF TERM NOTE 1 Exhibit 10.2 TERM NOTE $________________ September ___, 1996 New York, New York FOR VALUE RECEIVED, the undersigned, THE GROUND ROUND, INC., a Delaware corporation, and GR OF MINN., INC., a Delaware corporation (the "Borrowers"), hereby JOINTLY AND SEVERALLY promise to pay to the order of __________________ (the "Lender"), at the office of The Bank of New York, as Agent (the "Agent"), located at One Wall Street, New York, New York, or at such other place as the Agent may specify from time to time, in lawful money of the United States of America, the principal sum of $______________, payable in the amounts and at the times set forth in the Credit Agreement (as hereinafter defined), the final principal payment to be made on the Termination Date (as defined in the Credit Agreement). This Note shall bear interest from the date hereof on the unpaid balance hereof payable at the rate or rates and at the time or times provided for in the Amended and Restated Credit Agreement, dated as of September ___, 1996, among the Borrowers, the Lender and certain other signatory Lenders parties thereto and the Agent (as the same may be amended, modified or supplemented from time to time, the "Credit Agreement"). Capitalized terms used herein that are defined in the Agreement shall have the meanings therein defined. In no event shall the interest rate payable hereon exceed the Highest Lawful Rate. This Note is one of the Notes referred to in the Credit Agreement and is entitled to the benefits of, and is subject to the terms set forth in the Credit Agreement. The principal of this Note is prepayable in amounts and under the circumstances, and its maturity is subject to acceleration upon the terms, set forth in the Credit Agreement. Except as otherwise expressly provided in the Credit Agreement, if any payment on this Note becomes due and payable on a day which is not a Business Day, the maturity thereof shall be extended to the next Business Day, and interest shall be payable at the applicable rate or rates specified in the Credit Agreement during such extension period. Presentment for payment, demand, notice of dishonor, protest, notice of protest and all other demands and notices in connection with the delivery, performance and enforcement of this Note are hereby waived, except as specifically otherwise provided in the Credit Agreement. This Note is being delivered in, is intended to be performed in, shall be construed and interpreted in accordance with, and be governed by the internal laws of, the State of New York, without regard to principles of conflicts of law. This Note may be amended only by an instrument in writing executed pursuant to the provisions of Section 8.01 of the Credit Agreement. THE GROUND ROUND, INC. By: Name: Title: GR OF MINN., INC. EX-10.3 4 CONVERTIBLE NOTE 1 Exhibit 10.3 Form of Convertible Note $______________ September __, 1996 FOR VALUE RECEIVED, THE GROUND ROUND, INC., a Delaware corporation, GR OF MINN., INC., a Delaware corporation and GROUND ROUND RESTAURANTS INC., ("GRR"), a New York corporation (collectively, the "Obligors"), DO HEREBY JOINTLY AND SEVERALLY PROMISE to pay to the order of _________________, (the "Bank"), at the office of The Bank of New York (the "Agent"), at One Wall Street, New York, New York 10286, the sum of ________________ ($__________) or the aggregate unpaid principal amount of the Obligors' obligations hereunder, whichever is less, in lawful money of the United States of America on the date set forth below. The obligations of the Borrowers hereunder shall be joint and several. Unless otherwise defined herein, all terms that are defined in the Agreement (as hereinafter defined) shall have the same meaning herewith. This Convertible Note is one of the Convertible Notes referred to in that certain Amended and Restated Credit Agreement, dated as of September _, 1996, as the same may be amended, modified or supplemented from time to time (the "Agreement") among the Borrowers, the Agent and each of the financial institutions from time to time party thereto (the "Lenders"), and is subject to the provisions contained therein which, among other things, contains provisions for the acceleration of the maturity hereof upon the happening of certain events, for prepayment of the principal hereof prior to the maturity thereof and for the amendment or waiver of certain provisions of the Agreement, all upon the terms and conditions specified therein. Subject to the right of the holder of this Convertible Note to convert amounts owing hereunder to common stock of GRR, this Convertible Note shall be due and payable as follows: (i) if the holder has issued a demand for payment on or prior to May 25, 1997, on May 31, 1997 or (ii) if the holder has not issued a demand for payment on or prior to May 31, 1997, on thirty days prior written demand for payment provided the holder has not otherwise theretofore exercised its rights of conversion; provided, that if demand for payment has not been issued by the holder on or prior to November 30, 1997 and the holder has not otherwise theretofore exercised its rights of conversion, this Convertible Note shall be due and payable on December 31, 1997 without the necessity of a demand for payment or the taking of any action by the holder, the Agent or any of the Lenders. Any 2 demand for payment or exercise of a conversion right shall be irrevocable. The principal amount of this Convertible Note shall be automatically reduced by (i) $__________ for each $1,000,000 in aggregate principal reductions of the Term Loans (as defined in the Agreement) received by the Lenders as a prepayment under Section 2.05 of the Agreement during the period commencing July 19, 1996 through and including November 15, 1996; (ii) $___________ for each $1,000,000 in aggregate principal reductions of the Term Loans received by the Lenders as a prepayment under Section 2.05 of the Agreement during the period commencing November 16, 1996 through and including March 15, 1997 and (iii) $__________ for each $1,000,000 in aggregate principal reductions of the Term Loans received by the Lenders as a prepayment under Section 2.05 of the Agreement during the period commencing March 16, 1997 and prior to May 31, 1997; provided, that notwithstanding the foregoing, the aggregate principal amount of this Convertible Note shall not be reduced to an amount less than $_________. This Note is secured by certain Collateral referred to in the Agreement, reference to which is hereby made for a description of the Collateral provided thereby and the rights of the Borrowers, the Agent and the holder of this Note in respect of such Collateral. This Convertible Note is not subject to prepayment by, or on behalf of, the Obligors. This Convertible Note shall not, prior to the date that the principal amount owed hereunder is due and owing (whether upon its scheduled maturity or by acceleration), accrue interest. From and after the date that any principal amount then due and owing remains unpaid hereunder, interest shall accrue on such unpaid principal amount at the rate set forth in Section 2.06(c) of the Agreement and shall be payable on demand. The holder of this Convertible Note shall have the right, at its option, at any time during the period from and after May 1, 1997 through and including 5:00 p.m. N.Y.C. time on the Termination Date (as the same may be extended pursuant to the terms of the Agreement), to convert, subject to the terms and provisions hereof, the principal of this Convertible Note into non-registered and so legended shares of common stock of GRR at a conversion price equal to $2.70833 (the "Conversion Price") of principal hereunder for each share of common stock upon surrender of this Convertible Note to GRR at the address set forth in Section 8.02 of the Agreement, together with a written notice of election executed by the holder hereof to convert this Convertible Note, specifying the name or names in which the shares of common stock shall be registered, with the addresses of the persons so named. As promptly as practicable after the surrender of this Convertible Note for conversion as set forth herein, GRR shall deliver, or cause to be delivered, certificates 3 representing the number of shares of fully paid and non-assessable common stock into which this Convertible Note may be converted in accordance with the provisions hereof, registered in the names as may be specified in such conversion notice. Such conversion shall be deemed to have been made at the close of business on the date that such Convertible Note shall have been surrendered to GRR. Each holder entitled to receive the shares of common stock upon conversion of such Convertible Note shall be treated for all purposes as having become the record holder or holders of such shares of common stock at such time. If the last day for the exercise of the conversion right shall be a Sunday or shall be, in the city in which is then located GRR's principal place of business, a legal holiday or a day on which banking institutions in such city are authorized by law to close, then such conversion rights may be exercised on the next succeeding business day. The Conversion Price shall be subject to adjustment as follows: (a) In case GRR shall (i) pay a dividend in shares of its capital stock, (ii) subdivide its outstanding shares of common stock, (iii) combine its outstanding shares of common stock into a smaller number of shares, or (iv) issue by reclassification of its shares of common stock any shares of GRR, the conversion price in effect immediately prior thereto shall be adjusted so that the holder of this Convertible Note if thereafter surrendered for conversion shall be entitled to receive the number of shares of common stock of GRR which it would have owned or have been entitled to receive after the happening of any of the events described above, had such Convertible Note been converted immediately prior to the happening of such event. Such adjustment shall be made whenever any of the events listed above shall occur. An adjustment made pursuant to this paragraph shall become effective retroactively immediately after the record date in the case of a dividend and shall become effective immediately after the effective date in the case of a subdivision, combination or reclassification. (b) In case GRR shall issue rights or warrants to holders of its common stock entitling them (for a period expiring within 15 days after the record date mentioned below) to subscribe for or purchase shares of common stock at a price per share less than the closing price (as defined below) per share of common stock at the record date mentioned below, the price per share at which this Convertible Note may thereafter be converted into common stock shall be determined by dividing the price per share for which this Convertible Note were theretofore convertible into common stock by a fraction of which the numerator shall be the number of shares of common stock outstanding on the date of issuance of such rights or warrants plus the number of additional shares of common stock offered for subscription or purchase, and of which the denominator shall be the number of shares of common stock outstanding on the date of 4 issuance of such rights or warrants plus the number of shares which the aggregate offering price of the total number of shares so offered would purchase at such current market price. Such adjustment shall be made whenever such rights or warrants are issued, and shall become effective retroactively immediately after the record date for the determination of stockholders entitled to receive such rights or warrants. (c) For the purpose of any computation under subparagraph (b) above, the "closing price" for any business day shall mean: (i) if the shares shall not be listed or admitted to trading on any national securities exchange, the closing price, if reported, or, if the closing price is not reported, the average of the closing bid and asked prices, as reported by the National Association of Securities Dealers Automated Quotation System (NASDAQ or a similar source selected from time to time by GRR for such purpose, or (ii) if the shares are listed or admitted to trading on the New York Stock Exchange, the closing price on the NYSE - Consolidated Tape (or any successor composite tape reporting transactions on the New York Exchange) or, if such a composite tape shall not be in use or shall not report transactions in the shares, or if the shares shall be listed on a stock exchange other than the New York Stock Exchange, the last reported sales price on the principal national securities exchange on which the greatest number of the shares has been traded during the thirty (30) consecutive business days preceding such business day, or, in either case, if there is no transaction on any business day, the average of the bid and asked prices on such day. (d) No adjustment in the conversion price shall be required unless such adjustment would require an increase or decrease of at least $.10 in such price. All calculations under this paragraph shall be made to the nearest cent or to the nearest one-hundredth of a share, as the case may be. No fractional shares shall be issued upon the conversion of this Convertible Note. If any fractional interest in a share of common stock would, except for the provisions of this paragraph, be deliverable upon the conversion of this Convertible Note, GRR shall, in lieu of delivering a fractional share therefor, adjust such fractional interest as follows: if GRR would otherwise be obligated to issue less than one-half of a share, GRR shall reduce the number of shares to be issued to the nearest whole number of shares (e.g. 100 4/9 shares shall be reduced to 100 shares) and if GRR would otherwise be obligated to issue one-half or more of a share, GRR shall increase the number of shares to be issued to the nearest whole number of shares (e.g., 100 1/2 shares shall be increased to 101 shares). Any share of GRR common stock issued to the holder of this Convertible Note shall be governed by the terms of that certain Registration Rights Agreement among GRR and the Lenders of even date herewith. This Convertible Note shall be governed by, and construed in accordance with, the laws of the State of New York, without regard to conflicts of law principles. THE GROUND ROUND, INC. By: ---------------------- Title: GR OF MINN., INC. By: ---------------------- Title: GROUND ROUND RESTAURANTS, INC. By: ---------------------- Title: 5 This Convertible Note shall be governed by, and construed in accordance with, the laws of the State of New York, without regard to conflicts of law principles. THE GROUND ROUND, INC. By: ---------------------------- Title: GR OF MINN., INC. By: ---------------------------- Title: GROUND ROUND RESTAURANTS, INC. By: ---------------------------- Title: EX-10.4 5 REGISTRATION RIGHTS AGREEMENT 1 EXHIBIT 10.4 REGISTRATION RIGHTS AGREEMENT THIS REGISTRATION RIGHTS AGREEMENT, dated as of September 12, 1996, between GROUND ROUND RESTAURANTS, INC., a New York corporation (the "Company"), and THE BANK OF NEW YORK, THE CHASE MANHATTAN BANK, BANK OF AMERICA ILLINOIS, NBD BANK, N.A., AND CREDIT LYONNAIS NEW YORK BRANCH (together with their transferees, successors and assigns each, a "Holder", and collectively, the "Holders"). RECITALS: The Holders are party to that certain Amended and Restated Credit Agreement, dated as of September 12, 1996, among The Ground Round, Inc. and GR of Minn., Inc. (the "Borrowers"), The Bank of New York, as agent for the Holders and The Chase Manhattan Bank as co-agent for the Holders (the "Credit Agreement"). Pursuant to the Credit Agreement, the Company and the Borrowers have issued to the Holders Convertible Notes (as defined in the Credit Agreement) pursuant to which the Company may be obligated to issue to the Holders, in the aggregate, up to 1,003,001 shares of the Company's common stock, par value $.16-2/3 per share (the "Convertible Note Shares"). In addition, upon the occurrence of certain events set forth in the Credit Agreement, JUSI Holdings, Inc. ("JUSI") may deliver to the Holders, in the aggregate, 100,000 shares of the Company's common stock, par value $.16-2/3 per share (the "JUSI Shares"). THE PARTIES HERETO AGREE AS FOLLOWS: 1. Certain Definitions. Capitalized terms used herein which are not otherwise defined herein and which are defined in, or by reference in, the Credit Agreement shall have the meanings given therein. For the purposes of this Agreement, the following terms shall have the follow meanings: "Agreement" shall mean this Registration Rights Agreement, as the same may be amended, modified or supplemented from time to time. "Commission" shall mean the United States Securities and Exchange Commission, or any other Federal agency then administering the Securities Act and the Exchange Act. "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended, or any similar federal statute then in effect, and a reference to a particular section thereof shall be deemed to include a reference to the comparable section, if any, of any such similar federal statute. "Person" shall mean any natural person, corporation, limited liability company, business trust, joint venture, association, company, partnership or government, or agency or political subdivision thereof. "Registrable Securities" shall mean (i) the Convertible Note Shares (ii) the JUSI Shares and (iii) any securities issued in exchange for or substitution of any thereof or as a result of a stock split or as a dividend or other distribution in respect of any thereof. "Registration Expenses" shall mean all of the costs and expenses of each registration hereunder including, but not limited to, any filing fees, fees and expenses of compliance with securities or "Blue Sky" laws (including fees and disbursements of counsel in connection with "Blue Sky qualifications of the Registrable Securities), rating agency fees, National Association of Securities Dealers (NASD) fees 2 for review of underwriting agreements, printing expenses (including expenses of printing of any registration statements and prospectuses), messenger and delivery expenses, the fees and expenses incurred in connection with the listing of the Registrable Securities to be registered on each securities exchange on which the Shares are then listed or proposed to be listed, and fees and disbursements of counsel for the Company and its independent certified public accountants (including the expenses of any special audit or cold comfort letters required by or incidental to such performance), Securities Act liabilities insurance (if the Company elects to obtain such insurance), the fees and expenses of any special experts retained by the Company in connection with such registration, reasonable fees and expenses of one counsel (who shall be selected by the selling Holders) for the Holders incurred in connection with each registration hereunder and any reasonable out-of-pocket expenses of the Holders (or the agents who manage their accounts), excluding (x) any travel costs and counsel fees except as set forth above and (y) any underwriting discounts or commissions attributable (to the sale of Registrable Securities. "Securities Act" shall mean the Securities Act of 1933, as amended, or any similar federal statute then in effect, and a reference to a particular section thereof shall be deemed to include a reference to the comparable section, if any, of any such similar federal statute. "Shares" shall mean shares of the Company's authorized common stock, par value $.16-2/3 per share, as constituted on the date hereof and any securities into which such shares may thereafter be changed. 2. Shelf Registration. On the earlier to occur of (i) the date upon which any Shares of the Company shall have become registered with the Commission under the Securities Act after the date hereof (other than a registration statement on Form S-4 or S-8 and (ii) January 31, 1997, the Company shall use its best efforts to cause to become effective a shelf registration pursuant to Rule 415 of the Securities Act of all Registrable Securities to the extent necessary to permit the disposition of the Registrable Securities so to be registered (whether or not such Registrable Securities shall then have been issued or delivered to the Holders) and to cause such registration to remain effective in compliance with the provisions of the Securities Act and the laws of any state or other jurisdiction applicable to the disposition of all Registrable Securities covered by such registration statement until the earlier of (x) such time as all of such Registrable Securities have been disposed of and (y) December 31, 1997. 3. Registration Rights. (a) Demand Registration Rights. Subject to the provisions of the last sentence of this Paragraph 3(a) and to Paragraph 3(c), if at any time after December 31, 1997, unless the Company shall then have a registration statement currently effective with respect to the Registrable Securities the subject of such Demand, through and including December 31, 2000, the Company shall receive written notice (a "Demand") from Holders holding at least 50% of the Registrable Securities outstanding at the time such Demand is made, which states that such Holders desire to transfer Registrable Securities under circumstances that would require the filing of a registration statement under the Securities Act, the Company shall then cause to be prepared and filed an appropriate registration statement under the Securities Act to the end that such Registrable Securities may be sold thereunder as soon as practicable thereafter, and the Company will use its best efforts to cause the registration statement to become effective and remain effective for a period of not less than 120 days. If the Holders intend to distribute the Registrable Securities covered by the Demand by means of an underwriting, they shall so state in the Demand and set forth in the Demand the name of the proposed managing underwriter(s). Subject to the provisions of Paragraph 3(c) and the written consent of the selling Holders, not to be unreasonably withheld (other than with respect to other piggyback registration rights that are in existence on the date hereof pursuant to the Registration Rights Agreement dated as of August 20, 1991 between the Company and GSB Holdings, Inc. and the H.M. Holdings Stockholder Agreement dated as of August 1, 1991, (the "H.M. Holdings Stockholders Agreement") for which consent shall not be necessary), the Company shall have the right to include in such registration statement shares ("Other Shares") of the Company to be sold by the Company or held by other shareholders ("Other Holders") pursuant to arrangements entered into by 3 the Company and such Other Holders. In no event shall the Company be required to effect more than one (1) registration of the Holders Registrable Securities pursuant to this Paragraph (a). (b) "Piggyback" Registration Rights. The Company shall, at least thirty (30) days prior to the filing of any registration statement under the Securities Act (other than a registration statement on Form S-4 or S-8 or any successor forms) relating to the public offering of any class of its equity securities by the Company or any Other Holders, give written notice of such proposed filing and of the proposed date thereof to each Holder, and if, on or before the tenth (10th) day following the date on which such notice is given, the Company shall receive a written request from any Holder requesting that the Company include among the securities covered by such registration statement some or all of the Registrable Securities owned by such Holders, the Company shall include such Registrable Securities in such registration statement, if filed. Except as may otherwise be provided in this Agreement, Registrable Securities with respect to which a request for registration has been received will be registered by the Company and offered to the public on the same terms and subject to the same conditions applicable to the piggyback registration to be sold by the Company or by the other Persons selling under such piggyback registration. The Company shall be under no obligation to complete any offering of its securities it proposes to make under this subparagraph (b) and shall incur no liability to any Holder for its failure to do so. In connection with any registration covered by this subparagraph (b) involving any underwriting of securities, the Company shall not be required to include any Holder's Registrable Securities in such registration unless such Holder accepts the terms of the underwriting as agreed upon between the Company (or other persons who have the right to agree upon the underwriting terms relating to such offering) and the underwriters. (c) Terms and Conditions of Registration. In connection with any registration statement filed pursuant to this Agreement, the following provisions shall apply: (i) If such registration statement shall be filed pursuant to Paragraph 3(a) or (b) hereof, all Holders owning Registrable Securities shall, if requested by the managing underwriter, agree not to sell publicly any Registrable Securities (other than the Registrable Securities so registered), for the same period as may be agreed to by the Company or by Other Holders following the effective date as of the registration statement relating to such offering. (ii) If such registration statement shall be filed pursuant to Paragraph 3(b) hereof and if the managing underwriter advises that the inclusion in such registration of some or all of the Other Shares or the Registrable Securities, as the case may be, sought to be registered by the Other Holders or Holders seeking to register Shares pursuant to Paragraph 3(b), creates a substantial risk that the proceeds or price per share to be derived from such registration by the party initiating the filing of such registration statement will be reduced or that the number of shares sought to be registered is too large a number to be reasonably sold, the number of shares sought to be registered by all shareholders (other than the Company) shall be reduced, pro rata in proportion to the number of shares sought to be registered by all such persons, to the extent necessary to reduce the number of all shares to be registered to the number recommended by the managing underwriter. (iii) If such registration statement shall be filed pursuant to paragraph 3(b) hereof and covers only securities to be sold by the Company and Registrable Securities, and if the managing underwriter advises that the inclusion in such registration of some or all of the Registrable Securities sought to be registered by the Holders creates a substantial risk that the proceeds or price per share to be derived from such registration by the Company will be reduced or that the number of shares sought to be registered is too large a number to be reasonably sold, the number of shares sought to be registered by the Holders shall be reduced, pro rata in proportion to the number of shares sought to be registered by all Holders, to the extent necessary to reduce the number of all shares to be registered to the number recommended by the managing underwriter. 4 (iv) It shall be a condition to the Company's obligations under this Agreement that Holders seeking to register Registrable Securities will promptly provide the Company with such information as it shall reasonably request in order to prepare such registration statement. (v) No Registration Expenses in connection with the preparation of all registration statements filed in connection herewith shall be borne by the Holders. (vi) Following the effective date of any registration statement hereunder, the Company shall, upon the request of any Holder seeking to register Registrable Securities, forthwith supply such number of prospectuses (including preliminary prospectuses and amendments and supplements thereto) meeting the requirements of the Securities Act and such other documents as are referred to in the prospectus as shall be reasonably requested by any such Holder to permit such Holder to make a public distribution of its Registrable Securities, provided that such Holder furnishes the Company with such appropriate information relating to such Holder's intentions in connection therewith as the Company shall reasonably request in writing. (vii) The Company shall prepare and file such amendments and supplements to such registration statement filed hereunder as may be necessary to keep such registration statement effective and to comply with the provisions of the Securities Act and applicable "Blue Sky" laws with respect to the offer and sale or other disposition of the Registrable Securities covered by such registration statement during the period required for distribution of the Registrable Securities (except in the case of a Demand Registration pursuant to Paragraph 3(a) hereof for the period specified in such paragraph), and shall promptly as practicable after filing same with the Commission, deliver copies of such documents to each Holder holding Registrable Securities covered by such registration statement. (viii) The Holders seeking to register Registrable Securities to be included in a registration statement filed under the provisions of Paragraph 3(a), shall select the underwriter or underwriters, if any, who are to undertake the offering and distribution of the Registrable Securities, subject to the Company's prior approval of the underwriter, which approval shall not be unreasonably withheld, but the Company alone shall make such selection with respect to a registration statement as to which Holders may have registration rights pursuant to Paragraph 3(b). (ix) If a request for registration is made pursuant to Paragraph 3(a), the Company may postpone the filing of a registration statement if, based on the good faith judgment of the Company's Board of Directors, (A) for up to 90 days from the date of request if such postponement is necessary in order to avoid premature disclosure of a matter involving a material transaction then undertaken by the Company that the Board has determined would not be in the best interest of the Company to prematurely disclose or (B) for a period of up to 90 days from the end of the Company's fiscal year if the filing of a registration statement at the time of such request would require duplicative year-end audit and accounting expenses, provided that in no event shall the Company be permitted to postpone the filing of a registration statement pursuant to this subparagraph (ix) more than once in any twelve month period. (x) The Company shall use its best efforts to register the Registrable Securities of the Holders seeking to register Registrable Securities covered by any such registration statement under such securities or Blue Sky laws in such jurisdictions as any Holder may reasonably request; provided, however, that the Company shall not be required to (A) qualify generally to do business in any jurisdiction where it would not otherwise be required to qualify but for this subparagraph (x) or (B) consent to general service of process or subject itself to taxation in any such jurisdiction. (xi) The Company shall cooperate with the Holders holding Registrable Securities covered by any registration statement hereunder and the managing underwriter or underwriters, if any, to facilitate the timely preparation and delivery of certificates (not bearing any restrictive legends) representing Registrable Securities to be sold under such registration statement and enable such securities 5 to be in such denominations and registered in such names as the managing underwriter or underwriters, if any, or selling Holders may request; (xii) The Company shall enter into such customary agreements (including an underwriting agreement in customary form) and take all such other actions as the Holders of the Registrable Securities being sold or the underwriters retained by Holders participating in an underwritten public offering, if any, reasonably request in order to expedite or facilitate the disposition of such Registrable Securities. (xiii) If pursuant to Paragraph 3 the Company has previously filed a registration statement with respect to Registrable Securities, and if such previous registration has not been withdrawn or abandoned or the Securities covered thereby not distributed pursuant thereto, the Company will not file or cause to be effective any other registration of any of the Shares (or securities convertible into or exchangeable or exercisable for the Shares) under the Securities Act (except on Forms S-4 or S-8 or any successor forms or pursuant to the H.M. Holdings Stockholders Agreement), whether on its own or at the request of any Other Holder of the Shares (or securities convertible into or exchangeable or exercisable for the Shares), until a period of 120 days has elapsed from the effective date of such previous registration (provided that in the case of a registration pursuant to Paragraph 3(a), such period shall commence on the date the Company is first served the notice of Demand and shall continue until one hundred and twenty (120) days have elapsed from the effective date of such Demand registration). (xiv) In the event that the average per share "closing price" of Shares for the thirty (30) calendar day period immediately preceding a Demand multiplied by the aggregate number of Registrable Securities requested to be registered pursuant to Paragraph 3(a) above (the "Mark Value") shall be less than $150,000, at the Company's option, the Company shall be entitled to purchase all (but not less than all) of such Registrable Securities at such Market Value. As used herein, the term "closing price" shall have the meaning given such term in the Convertible Notes. (xv) At the Company's option, the Company may register (on a pro rata basis) any of the Registrable Securities in any registration statement filed by the Company, provided, however, while such registration statement is effective, the Demand Registration right pursuant to Paragraph 3(a) and the Piggyback Registration right pursuant to Paragraph 3(b) shall be inapplicable with respect to the Registrable Securities covered by such registration statement. Except as herein provided, such registration shall not limit or diminish any of the Holders' rights under this Agreement. (xvi) In connection with any offering of Registrable Securities to be registered under this Agreement, each Holder of Registrable Securities included or to be included in such registration shall: (A) If such registration is being made pursuant to any underwritten offering, enter into and perform its obligations under any underwriting agreement to which it is a party. (B) Upon receipt of any notice from the Company of the happening of any event as a result of which the prospectus included in the registration statement as then in effect includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing, forthwith discontinue its disposition of Registrable Securities pursuant to the registration statement relating thereto until its receipt of the copies of the supplemented or amended prospectus and, if so directed by the Company, deliver to the Company all copies then in its possession of the prospectus relating to such Registrable Securities current at the time of receipt of such notice. (C) At the end of any period during which the Company is obligated to keep any registration statement current and effective, discontinue sales of shares pursuant to such registration statement upon receipt of notice from the Company of its intention to remove from registration the shares covered by such 6 registration statement which remain unsold, and notify the Company of the number of shares registered which remain unsold promptly after receipt of such notice from the Company. 4. Indemnification. (a) In the event of the registration of any Registrable Securities of the Holders under the Securities Act pursuant to the provisions of Paragraphs 3(a) or (b), the Company agrees to indemnify and hold harmless each Holder and each of their respective agents and representatives, each underwriter, broker or dealer, if any, of such Registrable Securities, and each other person, if any, who controls any Holder, such underwriter, broker or dealer within the meaning of the Securities Act, and each officer and director of any Holder, from and against any and all losses, claims, damages or liabilities (or actions in respect thereof), joint or several, to which any Holder, and each of their respective agents and representatives, or such underwriter, broker or dealer or controlling person may become subject under the Securities Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in any registration statement under which such Registrable Securities were registered under the Securities Act, any preliminary prospectus or final prospectus relating to such Registrable Securities, or any amendment or supplement thereto, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, or any violation by the Company of any rule or regulation under the Securities Act applicable to the Company or relating to any action or inaction required by the Company in connection with any such registration and will reimburse and each of their respective agents and representatives and each such underwriter, broker or dealer and controlling person for any legal or other expenses reasonably incurred by any Holder or such underwriter, broker or dealer or controlling person in connection with investigating or defending any such loss, claim, damage, liability or action; provided, however, that the Company will not be liable in any such case to the extent that any such loss, claim, damage or liability arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in such registration statement, such preliminary prospectus, such final prospectus or such amendment or supplement thereto in reliance upon and in conformity with written information furnished to the Company by any Holder or any of their respective agents and representatives, or such underwriter, broker, dealer or controlling person specifically and expressly for use in the preparation thereof. (b) In the event of the registration of any Registrable Securities of any Holder under the Securities Act for sale pursuant to the provisions of this Agreement, each Holder agrees, and shall cause each underwriter, broker or dealer, if any, of such Registrable Securities, and each other person, if any, who controls any Holder, such underwriter, broker or dealer within the meaning of the Securities Act to, agree severally, and not jointly, to indemnify and hold harmless the Company, its agents and representatives, each underwriter, broker or dealer, if any, and each other person, if any, who controls the Company, such underwriter, broker or dealer, within the meaning of the Securities Act, and each officer and director of the Company, from and against any losses, claims, damages or liabilities, joint or several, to which the Company, its agents and representatives, officers and directors, or such underwriter, broker or dealer or controlling person may become subject under the Securities Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in any registration statement under which such Registrable Securities were registered under the Securities Act, any preliminary prospectus or final prospectus relating to such Registrable Securities, or any amendment or supplement thereto, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, which untrue statement or alleged untrue statement or omission or alleged omission was made therein in reliance upon and in conformity with written information furnished to the Company by any Holder, such underwriter, broker or dealer or controlling person specifically for use in connection with the preparation thereof or arise out of or are based upon any violation by any Holder, such underwriter, broker or dealer or controlling person or any rule or regulation under the Securities Act, and will reimburse the Company, its agents and representatives, such controlling person and each such officer or director for any legal or any 7 other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability, or action. (c) Promptly after receipt by a person entitled to indemnification under this Paragraph 4 (an "indemnified party") of notice of the commencement of any action or claim relating to any registration statement filed under Paragraphs 3(a) or (b) as to which indemnity may be sought hereunder, such indemnified party will, if a claim for indemnification hereunder in respect thereof is to be made against any other party hereto (an "indemnifying party"), give written notice to such indemnifying party of the commencement of such action or claim, but the omission so to notify the indemnifying party will not relieve it from any liability which it may have to any indemnified party otherwise than pursuant to the provisions of this Paragraph 4 and shall also not relieve the indemnifying party of its obligations under this Paragraph 4 except to the extent that the omission results in a failure of actual timely notice to the indemnifying party or such indemnifying party is damaged solely as a result of the failure to give timely notice. In case any such action is brought against an indemnified party, and it notifies an indemnifying party of the commencement thereof, the indemnifying party will be entitled (at its own expense) to participate in and, to the extent that it may wish, jointly with any other indemnifying party similarly notified, to assume the defense, with counsel satisfactory to such indemnified party, of such action and/or to settle such action and, after notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof, the indemnifying party will not be liable to such indemnified party for any legal or other expenses subsequently incurred by such indemnified party in connection with the defense thereof, other than the reasonable cost of investigation; provided, however, that no indemnifying party or indemnified party shall enter into any settlement agreement which would impose any liability on such other party or parties without the prior written consent of such other party or parties. In no event shall the Indemnifying party be obligated to pay the fees and expenses of more than one counsel for all indemnified parties with respect to any claim or related claims or be liable for any settlement or compromise effected without its written consent. 5. Other Registration Rights. Except for (x) registration rights granted to other Persons on or prior to the date hereof, (y) underwriter's rights or options or Shares issuable upon exercise of warrants or securities convertible into Shares in connection with a public offering of the Company's securities or (z) the private placement by the Company of securities convertible into Shares or warrants, rights or options exercisable for Shares the Company will not grant any Person any demand or piggyback registration rights with respect to the Shares (or securities convertible into or exchangeable or exercisable for Shares) other than registration rights ("new rights") that would (i) not be inconsistent with the terms of this Agreement and (ii) provide that the Holders have a piggyback right upon the exercise of such new rights and shall be included in the registration statement and on an equal basis with the securities being registered pursuant to the exercise of the new rights. 6. Miscellaneous. (a) Amendments and Waivers. This Agreement may not be amended without the written consent of the parties hereto. (b) Successors and Assigns. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and permitted assigns. The Company may not assign this Agreement or any right, remedy, obligation or liability arising hereunder or by reason hereof. The registration rights of a Holder under this Agreement may only be transferred to a Person acquiring at least twenty-five percent of the transferring Holder's then Registrable Securities. (c) Notices. All notices and other communications provided for hereunder shall be given and shall be effective as provided in the Credit Agreement. (d) Descriptive Headings. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise effect the meaning of terms contained herein. 8 (e) Severability. In the event that any one or more of the provisions, paragraphs, words, clauses, phrases or sentences contained herein, or the application thereof in any circumstances, is held invalid, illegal or unenforceable in any respect for any reason, the validity, legality and enforceability of such provision, paragraph, word, clause, phrase or sentence in every other respect and of the remaining provisions, paragraphs, words, clauses, phrases or sentences hereof shall not be in any way impaired, it being intended that all rights, powers and privileges of the parties hereto shall be enforceable to the fullest extent permitted by law. (f) Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which shall constitute one and the same instrument, and it shall not be necessary in making proof of this Agreement to produce or account for more one such counterpart executed by the party other than the party seeking to enforce this Agreement. (g) Governing Law. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of New York. (h) Merger, etc. If, directly or indirectly, (i) the Company shall merge with and into, or consolidate with, any other Person, (ii) any Person shall merge with and into, or consolidate with, the Company and the Company shall be the surviving corporation of such merger or consolidation and, in connection with such merger or consolidation, all or part of the Registrable Securities shall be changed into or exchanged for stock or other securities of any other Person, then, in each such case, proper provision shall be made so that such Person shall be bound by the provisions of this Agreement and the term "Company" shall thereafter be deemed to refer to such Person. IN WITNESS WHEREOF, each of the undersigned has caused this Agreement to be executed on its behalf as of the date first written above. GROUND ROUND RESTAURANTS, INC. By /s/ Stephen J. Kiel --------------------------------------- Title Sr. Vice President, Chief Financial ------------------------------------ Officer and Treasurer ------------------------------------ THE BANK OF NEW YORK By /s/ Mark Slane --------------------------------------- Title Senior Vice President ------------------------------------ THE CHASE MANHATTAN BANK By /s/ Susan E. Atkins --------------------------------------- Title Vice President ------------------------------------ BANK OF AMERICA ILLINOIS By /s/ Steve A. Aronowitz --------------------------------------- Title Vice President ------------------------------------ NBD BANK, N.A. 9 By /s/ Dennis Saletta ------------------------------------- Title Vice President ---------------------------------- CREDIT LYONNAIS NEW YORK BRANCH By /s/ Alan Sidrane ------------------------------------- Title First Vice President ---------------------------------- EX-10.5 6 AMENDMENT TO STOCKHOLDER AGREEMENT 1 EXHIBIT 10.5 AMENDMENT TO STOCKHOLDER AGREEMENT ---------------------------------- AMENDMENT dated as of September 12, 1996 to the Stockholder Agreement dated as of August 1, 1991 ("Stockholder Agreement") among JUSI HOLDINGS INC., successor in interest to HM Holdings, Inc. ("JUSI"), and GROUND ROUND RESTAURANTS, INC. ("Company" or "GRR"). WHEREAS, in connection with GRR refinancing of its credit facility with the Bank of New York, as Agent for the Lenders ("Lenders") (such refinancing of the credit facility being referred to herein as the "Credit Agreement"), the Lenders have agreed that upon delivery by JUSI of One hundred thousand (100,000) shares of common stock of GRR to the Lenders it shall no longer constitute an Event of Default under the Credit Agreement if U.S. Industries, Inc., JUSI's ultimate parent corporation ("USI") and its affiliates (i) cease to be the legal and beneficial owners of at least twenty-five percent (25%) of the outstanding shares of capital stock of GRR, or (ii) shall fail to have two (2) nominees serving on the Board of Directors of GRR while they own twenty percent (20%) or more of the capital stock of GRR, and one (1) nominee serving on the Board of Directors of GRR so long as they own ten percent (10%) or more but less than 20% of the outstanding capital stock of GRR; and WHEREAS, in connection with the Credit Agreement, GRR has issued Convertible Notes (as defined in the Credit Agreement) to the Lenders, and, in connection therewith, has entered into a Registration Rights Agreement with the Lenders ("Registration 2 Rights Agreement") whereby Lenders are granted certain demand and "piggy-back" registration rights with respect to shares of GRR common stock issuable upon exercise by the Lenders of their conversion rights pursuant to the Convertible Notes and 100,000 shares of GRR common stock that may be transferred by JUSI to the Lenders; and WHEREAS, pursuant to the Stockholder Agreement, JUSI has certain demand and "piggy-back" registration rights which conflict with the registration rights granted to Lenders in the Registration Rights Agreement, and JUSI is willing to amend the Stockholders Agreement so as to eliminate such conflict and to enable GRR to enter into the Registration Rights Agreement with the Lenders; and WHEREAS, the parties desire to amend the Stockholder Agreement so as to enable JUSI and the Company to comply with their obligations and obtain the benefits of the Credit Agreement; NOW, THEREFORE, in consideration of the premises and other valuable consideration, receipt of which is hereby acknowledged, the parties hereby agree as follows: 1. All references in the Stockholder Agreement to "HMH" shall be deemed to mean "JUSI", and all references to the "Hanson Group" shall be deemed to mean "JUSI and its subsidiaries and affiliates." 2. JUSI hereby consents to the Registration Rights Agreement and agrees to amend Paragraph (c)(ii) of Annex A to the Stockholder Agreement by changing the period (".") at the end thereof to a semicolon (";") and adding the following language at the end thereof: 2 3 "provided, however, that if such Registration Statement shall be filed pursuant to Paragraph (a) hereof, and one or more of the Lenders exercises its "piggy-back" registration rights pursuant to Section 3(b) of the Registration Rights Agreement, dated as of September 12, 1996, among GRR and the Lenders, any reduction of the number of shares sought to be registered by all shareholders, including the initiating party (other than GRR) shall be reduced PRO RATA in proportion to the number of shares sought to be registered by all such persons (other than GRR) to the extent recommended by the managing underwriter." 3. Section 3.2(b) is hereby deleted in its entirety. 4. JUSI hereby acknowledges that GRR has complied with Section 3.3(b) in connection with the issuance of the Convertible Notes to the Lenders pursuant to the Credit Agreement and hereby waives its rights pursuant to Section 3.3(b) with respect thereto. 5. Effective upon delivery by JUSI of 100,000 shares of common stock of GRR to the Lenders in accordance with Section 6.01(k) of the Credit Agreement, Paragraph 4 of the Stockholder Agreement shall thereupon be deleted in its entirety. 6. In all other respects the provisions of the Stockholder Agreement shall remain in full force and effect. IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of the date first above written. JUSI Holdings Inc.: ------------------- By: /s/ George H. MacLean -------------------------- Name: George H. MacLean Title: Sr. Vice President 3 4 Ground Round Restaurants, Inc.: ------------------------------- By: /s/ Robin L. Moroz ---------------------------- Name: Robin L. Moroz Title: Vice President 4 EX-10.6 7 CONTRACT OF SALE WITH LONE STAR 1 EXHIBIT 10.6 CONTRACT OF SALE Contract of Sale (sometimes hereinafter referred to as "Contract" or "Agreement") dated June 28, 1996 between The Ground Round, Inc. ("Seller") as seller and Lone Star Steakhouse & Saloon, Inc. ("Purchaser") as purchaser of the "Ground Round" restaurants described on Schedule A hereto and related assets. SECTION 1 REAL AND PERSONAL PROPERTY BEING SOLD Seller agrees to sell and convey the Restaurants (as such term is defined in Section 1.4 below) to Purchaser and Purchaser agrees to purchase the Restaurants from Seller, for the purchase price and upon the terms and conditions herein set forth, which Restaurants consist of the following property: 1.1 LAND With respect to the three (3) Restaurants identified as "fee" properties on Schedule A, the tracts of land described in Schedules 1.1(a) through 1.1(c) attached hereto and made a part hereof together with all rights, easements, and interests appurtenant thereto, including, but not limited to, any streets or other public ways adjacent to said real property and any water or mineral rights owned by or leased to Seller (all of such property being hereinafter referred to as the "Land"). 1.2 IMPROVEMENTS All improvements located on the Land, including the buildings, together with the number of parking spaces set forth on Schedule 1.2 and any and all amenities and other improvements located on the Land (all such improvements being hereinafter referred to as the "Improvements"). The Improvements shall also include any buildings owned by Seller on the Leaseholds (as such term is defined in Section 1.3 below). The Land and the Improvements are collectively referred to as the "Real Properties". 1.3 LEASEHOLDS The tenant's interest in the leaseholds for the thirteen (13) Restaurants identified as "leaseholds" on Schedule A together with all rights, easements and interests appurtenant thereto (all of such leasehold interests being hereinafter referred to as the "Leaseholds"). 1.4 PERSONAL PROPERTY All personal property, fixtures and equipment presently owned by Seller which are located on or in the Real Properties or 2 Leaseholds or used in connection with the operation and maintenance of the Restaurants, including, without limitation, all HVAC systems, refrigerators and refrigeration systems; china, glassware, and silverware; engineering, maintenance and housekeeping supplies, including soap and cleaning materials; draperies, material, and carpeting; and other supplies of all kinds including such resupplies as shall occur and be made in a normal course of business, but excluding food, liquor, smaller items in existence on the Contract Date consumed in the ordinary course of business, uniforms, stationary and printing and "Ground Round" signage. All items included in the sale and marked with Seller's tradenames shall be modified by Purchaser to remove or paint over the tradenames. All items of personal property and fixtures and equipment referred to above which are included in the sale are the "Personal Property" and the Real Properties, Leaseholds and Personal Property are collectively the "Properties" or the "Restaurants". SECTION 2 BUSINESS ASSETS BEING SOLD In recognition of the fact that the value of the businesses as specified herein is dependent upon the use of each of the Properties as a restaurant, Seller hereby agrees to transfer to Purchaser at the Closing (as such term is defined in Section 3 below) the following items: 2.1 GOVERNMENTAL PERMITS All rights of Seller and all governmental licenses and permits used in connection with the conduct of any business on the Properties to the extent assignable (collectively, "Government Permits"), including but without limitation, the license or licenses to sell alcoholic beverages in the Restaurants. 2.2 OPERATING CONTRACTS All operating leases, executory contracts, service contracts, and repair agreements (collectively, "Operating Contracts") with respect to the Properties but only (i) if assignment is permitted by the terms thereof and (ii) to the extent Purchaser elects to assume one or more of the Operating Contracts. 2.3 OTHER MISCELLANEOUS AND INTANGIBLE PERSONAL PROPERTY (a) All customer lists and records owned or possessed by Seller pertaining to the transaction of business at the Restaurants, together with the architectural plans provided that Seller may keep any original documents required by law in -2- 3 connection with the filing of Seller's tax returns or other governmental filings. (b) All other intangible property not described above owned by Seller or GR of Minn Inc. and used or useful in connection with the ownership and operation of the Restaurants, including, without limitation, contract rights, guarantees, warranties, and goodwill, but only to the extent that such are assignable by their own terms or under law but specifically excluding any rights to the trademark "Ground Round" (collectively the "Intangible Property"). (c) All current sales records and information with respect to the Restaurants provided that Seller may keep any original documents required by law in connection with the filing of Seller's tax returns or other governmental filings. 2.4 LEASEHOLDS The Leaseholds shall be assigned by Seller to Purchaser effective as of the Closing Date in form attached as Schedule 2.4 or the form required by the landlord provided such form is substantially similar to Schedule 2.4; provided that Seller shall proceed in good faith to comply with its obligations with respect to the Leaseholds under the terms of this Contract. SECTION 3 CLOSING The closing (the "Closing") of title hereunder in respect to the Restaurants and payment of the consideration thereof shall occur on or before the later of (i) forty-five (45) days after the Contract Date or (ii) five (5) business days after the issuance or approved assignments of the liquor permits as required under Section 13.4.1, subject only to the provisions relating to the extension of time to close. If not all of the liquor permits are obtained prior to the scheduled Closing Date, Purchaser agrees to close in two (2) separate groups of Restaurants as follows: the first eleven (11) Restaurants for which Purchaser obtains the liquor permits and all other conditions of this Contract are satisfied shall comprise the first group which shall close on the scheduled Closing Date or as soon as practicable thereafter; the second group shall consist of the balance of the Restaurants to be purchased hereunder which shall close within five (5) business days after the satisfaction of all closing conditions as to such Restaurants. If no Closing occurs on or before November 30, 1996 for any Restaurant or Restaurants because of a failure of condition hereunder after compliance by each of the parties with their respective obligations hereunder, this Contract may be terminated by either party as to the Restaurant or Restaurants which have not closed (or in its entirety if the first group of Restaurants has not closed) by that date upon written notice to the other given at any time -3- 4 after November 30, 1996 and thereafter neither party shall have any further liability for the Restaurants not purchased. For purposes of this Contract, each of the dates on which the two groups of Restaurants close shall be referred to as a "Closing" or "Closing Date". The Closing shall occur at the offices of Olshan Grundman Frome & Rosenzweig LLP, 505 Park Avenue, New York, New York. The date on which Purchaser receives a fully executed copy of this Contract shall be the "Contract Date". At Closing, the Purchase Price as defined in Section 4 shall be delivered to Seller in the manner provided and title to each of the Real Properties and assignments of each of the Leaseholds, to the extent Purchaser has elected to purchase each of such Real Properties and Leaseholds pursuant to the terms hereof, together with all other documents to be delivered by Seller to Purchaser, shall be delivered and conveyed to Purchaser. Legal possession and physical occupancy of the Properties shall be given to Purchaser at 12:01 P.M. on the Closing Date. SECTION 4 PURCHASE PRICE 4.1 GENERAL TERMS The purchase price ("Purchase Price") for the Restaurants shall be Sixteen Million Dollars ($16,000,000.00), subject to the adjustments as expressly provided in this Contract and shall be payable in the manner set forth herein. 4.2 ALLOCATION OF PURCHASE PRICE The Purchase Price shall be allocated among the assets acquired by Purchaser as set forth on Schedule 4.2. SECTION 5 DEFAULT 5.1 DEFAULT If the Closing fails to occur due to the default of either party, the non-defaulting party may have such remedies as provided in law or equity. SECTION 6 DUE DILIGENCE 6.1 PHYSICAL INSPECTIONS. Purchaser may enter upon any of the Properties, on at least 24 hours' notice to Seller's resident manager of the Restaurant to be inspected, to perform such inspections and tests of the Restaurant, including, without limitation, all leased areas and structural and mechanical systems within the Improvements and the environmental condition of the land underlying the Improvements (provided Purchaser shall not drill test holes without Seller's prior written consent), as -4- 5 Purchaser shall, in its sole discretion, deem appropriate. Purchaser shall minimize interference with Seller's business. 6.2 EXAMINE RECORDS. Purchaser and Purchaser's accountants may examine and copy any and all books and records maintained by Seller or its agents relating to the ownership and operation of the Restaurants (the "Records") for the three (3) most recent full calendar years and the current calendar year. SECTION 7 TERMS OF LEASEHOLDS Purchaser shall be entitled to contact the landlords of the Leaseholds identified on Schedule 7 (the "Renegotiated Leaseholds") in order to obtain a written amendment modifying the terms of such Leaseholds as of the Closing Date so as to have terms acceptable to Purchaser. To the extent Purchaser is unable to obtain such modifications, Purchaser may either accept the Renegotiated Leaseholds "as is" or, notwithstanding Section 12.12, elect to terminate this Contract as to not more than two (2) of the Renegotiated Leaseholds for which Purchaser is unable to obtain modifications and receive a credit against the Purchase Price in an amount equal to the portion of the Purchase Price allocated in Schedule 4.2 to the Renegotiated Leaseholds not being assumed by Purchaser provided that Purchaser may not terminate this Contract with respect to both the Poughkeepsie, NY and Rochester (Greece), NY Restaurants, i.e., Purchaser may terminate as to either of such locations but not both. Seller shall execute all assignment and modification documents ("Assignment Documents") reasonably requested by the landlords to confirm the transfer of the Leaseholds and the modification of the Renegotiated Leaseholds. SECTION 8 TITLE COMMITMENT AND SURVEY 8.1 TITLE 8.1.1 TITLE TO THE PROPERTIES. Purchaser shall arrange for the delivery to Purchaser, at Purchaser's sole cost and expense, of title commitments, dated on or after the Contract Date (the "Title Commitments"), issued by a title company of Purchaser's choice (the "Title Company") (a) committing to issue to Purchaser an American Land Title Association ("ALTA") (or local equivalent) owner's policy of title insurance in the amount of the allocated Purchase Price for the Real Properties and an ALTA leasehold policy of title insurance in the amount of the allocated Purchase Price for the Leaseholds, showing fee simple title to each of the Real Properties and leasehold title to each of the Leaseholds, in Seller, and such endorsements and affirmative insurance requested by Purchaser to deliver good and -5- 6 marketable title in accordance with the terms of this Contract and (b) containing true and correct copies of all documents, whether recorded or unrecorded referred to in the Title Commitments. Purchaser shall order the Title Commitments within five (5) business days of receipt of evidence of Seller's lenders' consent to this transaction. 8.1.2 TITLE TO PERSONAL PROPERTY. At Closing, Seller shall warrant that Seller has good title to the Personal Property. 8.1.3 CONTRACT RIGHTS. At Closing, Seller shall warrant to Purchaser that Seller has good title to the Operating Contracts to be assumed by Purchaser and the Intangible Properties that Seller has no knowledge of any material defect or unmerchantable title thereto, and that Seller has not created or suffered any lien, encumbrances, attachment, security interest, or other outstanding interest or right that would diminish, affect, or reduce title thereto. 8.1.4 DEFECTS OF TITLE AND CURE. In the event the Title Commitments disclose any matters which render title unmarketable or which do (or could in the future) materially interfere with the current use or operation of any of the Restaurants, Purchaser shall notify Seller promptly of any such items. Seller then shall have the right for a period of thirty (30) days to take all reasonable steps to cure or remove such matters of record that have been objected to by Purchaser, provided, however, that Seller shall have no obligation to commence litigation or spend in excess of $100,000 per Property or $500,000 in the aggregate to cure such matters except that Seller shall cure and the Purchase Price may be used at Closing to satisfy all monetary liens created or suffered by Seller. Any items not objected to by Purchaser are the "Permitted Exceptions". The failure to record the Leasehold Documentation for a Leasehold because of an express provision in the lease prohibiting recordation or landlord's refusal to execute the Leasehold Documentation in recordable form shall not be a defect provided Seller requests that the landlord so execute. 8.1.5 DEFECTS OF TITLE - TERMINATION. If, at the expiration of said thirty (30) day period, Seller shall then be unable to convey good or marketable title free and clear of all such encumbrances and defects or obtain affirmative insurance that Purchaser shall not suffer loss or damage because of the encumbrance or defect, Purchaser, nevertheless, may (i) elect to accept such title as Seller may be able to convey, with a credit against the monies payable at the Closing equal to the reasonably estimated costs to cure the same up to $100,000 per Property or $500,000 in the aggregate, but without any other credit or liability on the part of Seller, (ii) terminate this Contract as to the non-complying Property or Properties and receive a credit -6- 7 against the Purchase Price for the amount allocated to that Restaurant or Restaurants on Schedule 4.2, or (iii) if Seller is unable to convey title to three (3) or more Properties in accordance with the terms hereof, then Purchaser may terminate this Contract in its entirety. 8.2 UCC SEARCH Seller at Seller's sole expense, shall be responsible for obtaining a UCC search of the records of the local and state offices pertaining to Seller and Properties. Seller warrants to discharge any liens or encumbrances at Closing. 8.3 SURVEYS No later than twenty (20) days after the Contract Date, Seller will deliver to Purchaser, at Seller's sole cost and expense, a print of an as-built survey of each of the Restaurants (the "Surveys"). Prior to Closing, the Surveys will be updated, will be certified by the surveyor to have been prepared in accordance with minimum detail requirements of the ALTA land survey standards (or local equivalent), and will be recertified to the Title Company, Purchaser and Purchaser's lender(s), if any. In the event the Surveys show any encroachment over a lot line, a prohibited encroachment over any easement, or any other matter that, renders title unmarketable or does (or could, in the future) materially interfere with the current use or operation of the particular Property or render the fee or leasehold title thereto unmarketable, such matter shall be considered a defect of title hereunder unless the Title Company will affirmatively insure that Purchaser shall suffer no loss or damage as a result of the matter in question. 8.4 NON-DISTURBANCE AGREEMENTS After receipt by Purchaser of the Title Commitments for the Leaseholds, Purchaser shall notify Seller to the extent it requires Seller to request non-disturbance agreements for any Leasehold. SECTION 9 SELLER'S DELIVERIES Seller shall deliver the following within ten (10) business days of the Contract Date (unless a different time period is expressly referred to with respect to a specific item): 9.1 PLANS Copies of all environmental condition reports, engineering and architectural plans and specifications, drawings, soil reports, studies, certificates of occupancy, and surveys -7- 8 relating to the construction of each of the Restaurants in Seller's possession or control. 9.2 TAXES Copies of the bills issued for the three (3) most recent years for which bills have been issued for all real estate taxes and personal property taxes and with copies of any and all notices pertaining to real estate taxes or assessments applicable to each of the Restaurants. 9.3 CONTRACTS Copies of all leasing, maintenance, repair service, pest control, and supply contracts (including without limitation janitorial, elevator, scavenger, laundry, and landscaping agreements) and any other contracts or agreements relating to or affecting the Restaurants that will be binding upon the Restaurants or Purchaser subsequent to Closing, all as amended. Purchaser shall notify Seller within ten (10) business days of receipt of the Operating Contracts delivered pursuant to this Contract if it elects to assume any of such Contracts. If no notice is given by Purchaser, the Operating Contracts shall not be assumed. 9.4 LICENSES All licenses of Seller for the benefit of the Restaurants or of third parties burdening the Restaurants other than Ground Round trademarks. 9.5 UTILITY DEPOSITS A list of deposits held by the providers of utilities to the Restaurants. 9.6 HISTORICAL CAPITAL EXPENDITURE BUDGETS A summary of all capital expenditures made by Seller during last three (3) years. 9.7 LEASEHOLD ITEMS Copies of all inspection reports, deficiency letters, improvement requirements, default notices and similar communications received or sent by Seller in connection with the Leaseholds during the past twenty-four (24) calendar months and shall promptly deliver to Purchaser such communications received by Seller on or after the Contract Date. -8- 9 9.8 MISCELLANEOUS RESTAURANT ASSETS A complete listing of all miscellaneous Restaurant assets having a value of $1,000 or more on or before the Closing. 9.9 LANDLORDS' ESTOPPELS Seller shall provide Purchaser with estoppel letters from all landlords under the Leaseholds or Personal Property and from the fee owner at the Wilmington, Delaware Restaurant, to be furnished not less than fifteen (15) days prior to Closing. The Leasehold estoppels shall be in the form attached as Schedule 9.9 or in the landlord's or fee owner's form provided such form is substantially similar to Schedule 9.9. 9.10 PAYROLL SUMMARY A list of all employees presently employed by Seller or by the managers of the Restaurants with respect to the Properties, except those employees being retained by Seller for other business, indicating, in each case, the name of each such employee, the position occupied by such employee, such employee's rate of compensation and any agreement relating to any increase thereof or bonus to be paid to such employee, term of employment, contract agreement, if any, and any other relevant information with respect to such employee. 9.11 TITLE REPORT A copy of the most recent title report in Seller's possession for each of the Properties. 9.12 CASUALTY INSURANCE A schedule of casualty insurance in place with respect to each of the Properties. 9.13 MISCELLANEOUS LEASEHOLD ITEMS Copies of all correspondence, non-disturbance agreements, prior estoppels and other miscellaneous documents with respect to the Leaseholds and contained in Seller's files. SECTION 10 SELLER'S REPRESENTATIONS, WARRANTIES, AND COVENANTS 10.1 GENERAL TERMS In order to induce Purchaser to purchase the Restaurants and to consummate the other transactions contemplated herein, Seller hereby represents and warrants to Purchaser that the following are true statements as of the date hereof and -9- 10 agrees that the following shall be true statements as of the Closing. 10.2 DUE AUTHORIZATION The performance of this Contract and the transactions contemplated hereunder by Seller and each officer of Seller have been duly authorized by all necessary action on the part of Seller and by its shareholders and board of directors, and this Agreement is binding on and enforceable against Seller in accordance with its terms. Seller shall simultaneously with the execution of this Contract and immediately prior to the Closing Date, furnish Purchaser with certified resolutions evidencing that Seller's officers have been duly authorized to enter into and perform this Contract on behalf of Seller and the transactions contemplated hereunder. Except as set forth in the side letter dated the date hereof, no further consent of any shareholder, subtenant, creditor, investor, judicial or administrative bonds, governmental authority, or other party to such execution, delivery, and performance is required. 10.3 AUTHORITY AND CAPACITY Seller warrants that Seller is the sole owner of the Real Properties in fee simple and the sole owner of the Leaseholds and has the right and power to enter into this Contract and to carry out the terms hereof. All persons signing as Seller agree to execute Seller's deeds and assignments required hereunder. 10.4 FOREIGN ENTITY STATUS At the Closing, Seller shall deliver to Purchaser such documents as may be required by the Internal Revenue Service pursuant to Section 1445 of the Internal Revenue Code of 1986, as amended, or the regulations issued pursuant thereto certifying as to the non-foreign status of Seller. 10.5 NO CONFLICTS BY CONSUMMATION OF AGREEMENT Seller represents that neither the execution of this Contract nor the consummation of the transactions contemplated hereby will (a) result in a breach of, default under, acceleration of, or imposition of any lien or encumbrance against the Restaurants under any agreement to which Seller is a party or by which Seller or the Properties (or any portion thereof) are bound or (b) violate any restriction, court order, judgment, law, regulation, charter, bylaw, instrument, or agreement to which Seller or the Properties (or any portion thereof) are subject. -10- 11 10.6 NO UNDISCLOSED INTEREST To the extent any of the Real Properties are comprised of more than one parcel, such parcels are contiguous with respect to the respective Restaurant. Seller neither owns nor leases nor has any other interest in any real property adjoining, adjacent, or otherwise connected with the operation of the Properties. 10.7 NO UNTRUE STATEMENT The representations and warranties of Seller contained herein, in the Schedules and the other deliveries made simultaneously herewith were true in all material respects when made and are, or as to deliveries to be made after the Contract Date, will be true in all material respects at the Closing or such later date and Seller shall deliver to Purchaser a certificate dated the Closing Date signed by the President of Seller to that effect and indicating any material changes. Seller shall notify Purchaser promptly if Seller becomes aware of any transaction or occurrence prior to the Closing Date which would make any of the covenants, representations, and warranties of Seller contained herein not true in any material respect with the same force and effect as if made on and as of the date on which Seller becomes aware of such transaction or occurrence. 10.8 FURTHER ASSURANCES The parties hereto agree to execute, acknowledge, deliver, and record such certificates, amendments, instruments, and documents and to take such other action as may be necessary to carry out the intent and purposes of this Agreement. 10.9 NO FURTHER ENTRANCE INTO BINDING AGREEMENTS Seller will not enter into any new Operating Contracts or agreements of any kind (whether written or oral) affecting any Properties or cancel, modify, or renew any existing Operating Contracts without Purchaser's prior written consent unless such Operating Contract shall be terminable on or before the Closing. 10.10 CONTINUED OPERATION Seller shall continue to operate and manage the Restaurants, maintaining present services (including pest control), shall maintain the Restaurants in good repair and working order; shall keep on hand sufficient materials, supplies, equipment, and other personal property for the operation and management of the Restaurants; and shall maintain in full force and effect and make all payments, and perform, when due, all of Seller's obligations under the Operating Contracts to be assumed -11- 12 by Purchaser, the Governmental Permits, and all mortgages, restrictions, and other agreements affecting or relating to the Restaurants and otherwise in accordance with applicable laws, ordinances, rules, and regulations affecting or relating to the Restaurants. Seller shall deliver the Restaurants at Closing in substantially the same condition as on the Contract Date, reasonable wear and tear excepted. Except as otherwise provided herein, Seller shall terminate, as of the Closing Date, those of the Operating Contracts that by their terms are not assignable or those which Purchaser has elected not to assume. None of the Personal Property or fixtures shall be removed from the Properties unless replaced by personal property or fixtures of equal or greater utility value. 10.10.1 REPAIRS AND MAINTENANCE. All repairs and replacements necessary to maintain the Properties in their current condition will be made in the regular course of business up to the Closing Date at the expense of Seller. 10.10.2 PERSONAL PROPERTY. Each Restaurant has and will at Closing have in place HVAC and refrigeration systems as well as all other equipment and fixtures in good working order sufficient to maintain and operate a full service restaurant, said HVAC and refrigeration systems and other equipment and fixtures to be maintained in accordance with all applicable laws and regulations, including, without limitation, local health code regulations with respect to proper temperature maintenance of said equipment. To the knowledge of Seller, there are no major structural, electrical or mechanical defects with respect to any of the Restaurants. 10.10.3 TAXES. Seller is current in the payment of all taxes affecting the Properties or operation thereof and Seller shall continue to make timely payments of all such taxes when due. 10.10.4 INSURANCE. Seller carries insurance upon or in connection with the Properties of the kind customarily maintained and in the amounts as required by any mortgagee, and said insurance is in full force and effect on the date hereof and no notices of cancellation or suspension have been received with respect thereto. 10.11 LICENSES AND PERMITS 10.11.1 Seller owns and holds all licenses, permits, certificates, concessions, franchises, rights, approvals, and other authorizations (collectively the "Permits"), all unencumbered and subject to no challenge or revocation, as are required to carry out and conduct the business carried out and conducted at the Restaurants and each and every aspect thereof and to own, use, and operate the business thereon carried on and -12- 13 conducted; and all such Permits will pass to Purchaser at Closing without creating the right of termination or revocation on the part of any third party granting such Permit. With respect to the Properties and their use and operation, Seller is not obligated or under any liability to make any payments by way of royalties or fees or otherwise pursuant to any license, royalty, franchise, or other agreement to any owner of, licensor of, or claimant to a patent, trademark, trade name, copyright, or other intangible asset with respect to the use thereof or in connection with the conduct of its business or otherwise and except for payments under the Leasehold Documentation (as such term is defined in Section 10.13.1). All such Permits are listed on Schedule 10.11.1. 10.11.2. Seller will execute and, where necessary, Purchaser will join in the execution of all applications and instruments required in connection with the transfer of the Permits in order to transfer the benefits of the Permits to Purchaser on the Closing Date to the extent a Permit is transferable. Seller shall preserve in force all existing Permits and shall timely file proper applications for renewal of any Permit expiring prior to the Closing Date. If any such Permit shall be suspended or revoked, Seller shall promptly so notify Purchaser and shall take all measures necessary to cause the reinstatement of such Permit without any additional limitation or condition. 10.11.3 Seller holds valid licenses under local law permitting the sale of alcoholic beverages and all permits as are required in order for Seller to sell alcoholic beverages on the Properties in the places and in the manner in which Seller has heretofore sold such alcoholic beverages. 10.12 CONTRACTS Other than the Leasehold Documentation, there are no service contracts, maintenance contracts, or any other contracts, or any other contracts or agreements in connection with the operation of the Real Properties or Personal Property which shall survive Closing, and there are no actions pending or, to Seller's knowledge, threatened between Seller, as landlord, and any tenant on the Real Properties, to reduce any of their rentals. 10.13 LEASES 10.13.1 Annexed hereto as Schedule 10.13.1 is a list of all of the documentation constituting the Leaseholds including without limitation, the lease, amendments and agreements relating thereto, and all assignments thereof (the "Leasehold Documentation"), true and complete copies of which Documentation have been delivered to Purchaser prior to execution of this Contract. The Documentation (i) has not been modified, amended, supplemented or -13- 14 changed in any manner, (ii) and the Leaseholds are valid, binding, and in full force and effect. No written notice of any default has been given by any of the landlords under the Leaseholds which default remains uncured and no non-monetary defaults on the part of Seller or any other party thereto the cure for which will cost more than $10,000 exist under the Leaseholds; all rent and additional rent and other payments under the Leaseholds, including, without limitation, fixed payments and percentage payments, have been paid to date. There are no other modifications or agreements relating to the Leaseholds not heretofore delivered to Purchaser. Except for the Friendly's Sublease at the Philadelphia (Red Lion) Restaurant (see Section 10.14), there are no subleases or tenancies. Seller shall deliver to Purchaser at the Closing and thereafter all reports, statements, and financial information necessary or appropriate to enable Seller to calculate rent, additional rent and other sums payable to the landlords, and otherwise to file required financial and other statements pursuant to the Leasehold Documentation. The security deposits listed on Schedule 10.13.1 are true and correct and have not been used by the landlords under the Leaseholds to cure any defaults by Seller. 10.13.2 To the extent required by the Leasehold Documentation, Seller shall diligently use all reasonable efforts to obtain the approval from the landlords thereunder for the assumption of the existing Leaseholds or the issuance of a new lease agreement directly with Purchaser provided any such new lease shall be on terms substantially similar to the present terms. 10.13.3 There are no outstanding requirements or recommendations by any insurance company issuing a policy with respect to the Properties or by any board of fire underwriters or by any other bodies exercising similar functions requiring or recommending any repair or ameliorative work to be done in, at, or about the Restaurants. 10.14 SUBLEASES AND TENANCIES. There are no subleases or tenancies (collectively "Tenancies") under the Leaseholds except for the sublease for a Friendly's Restaurant ("Friendly's") at the Philadelphia (Red Lion), PA location granted by that certain Sublease Agreement dated September 9, 1981 (the "Friendly's Sublease"): 10.14.1 The Friendly's Sublease is in full force and effect and has not been modified, amended, or extended. 10.14.2 No renewal or extension options have been granted to Friendly's except as set forth in the Friendly's Sublease. -14- 15 10.14.3 There are no other agreements with Friendly's which will be binding on Purchaser. 10.14.4 The rent under the Friendly's Sublease is being collected on a current basis and there are no arrearages in excess of ten (10) days. 10.14.5 Friendly's is not entitled to rental concessions or abatements for any period subsequent to the scheduled date of closing. 10.14.6 There are no material defaults by either party under the Friendly's Sublease. 10.14.7 There are no security deposits for the Friendly's Sublease other than those set forth in such Sublease. 10.15 EMPLOYEE-RELATED REPRESENTATIONS 10.15.1 There are no labor disputes pending or threatened, and Seller has no knowledge or reason to believe such disputes are threatened. 10.15.2 There are no collective bargaining agreements covering persons employed at the Restaurants. 10.16 NO OUTSTANDING LITIGATION OR OUTSTANDING CONFLICTS Seller represents and warrants that there are no suits, arbitration proceedings, other proceedings, or governmental investigations pending against it or, to the knowledge of Seller, threatened that adversely and materially affect its right or ability to enter into this Contract or to consummate the sale of the Restaurants in accordance with the terms of this Contract, or that materially affect the Restaurants except as set forth on Schedule 10.16. 10.17 EMINENT DOMAIN/CONDEMNATION ACTIONS Seller represents and warrants that, there are no pending condemnation actions of any nature with respect to the Restaurants that would materially impair the economic viability of any of the Restaurants, and Seller has not received any notice of any such threatened or contemplated condemnation actions. 10.18 TITLE MATTERS Seller has good and marketable title to the Personal Property and all Personal Property has been fully paid for. -15- 16 10.19 MORTGAGES AND BANKRUPTCY All mortgages encumbering the Real Properties are in good standing, and Seller shall keep all such mortgages in good standing through the Closing Date. There are no other liens, attachments, executions, assignments for the benefit of creditors, or voluntary or involuntary proceedings in bankruptcy pending against Seller or contemplated by Seller, and to the knowledge of Seller no such action has been threatened against it. 10.20 ZONING The Properties and the current operation of the Restaurants comply in all material respects with all zoning and use laws and regulations. Except as required by law, Seller shall not seek or consent to any amendment to any Permit or Government Permit that would alter the existing permissible uses of the Restaurants or any part thereof. Seller has not made nor shall Seller make any applications before any zoning board or commission seeking to modify or change the present zoning of the Real Properties. 10.21 ENVIRONMENTAL CONDITIONS Except as disclosed in Schedule 10.21: (i) to the knowledge of Seller, no Hazardous Substances (as hereinafter defined) have been released, treated, stored or disposed of, or otherwise deposited in or on, or migrated to, any of the Properties, including without limiting the generality of the foregoing, the surface waters and subsurface waters of the Properties; (ii) to the knowledge of Seller there are no substances or conditions (including asbestos or asbestos-containing materials) in or on the Properties or any other parcels which may materially adversely affect the Properties or use thereof or which would be reasonably likely to support a claim or cause of action under any existing federal, state or local environmental statute, regulation, ordinance or other environmental regulatory requirement (hereinafter collectively called "Applicable Environmental Laws"), including, without limitation, the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA"), as amended 42 U.S.C. ss.ss.6901 et seq. and the Resource Conservation and Recovery Act ("RCRA"), as amended, 42 U.S.C. ss.ss.6901 et seq., which terms shall also include, whether or not included in the definitions contained in Applicable Environmental Laws, petroleum, solvents, or polychlorinated biphenyls; (iii) there are no underground tanks at the Properties and no part of any of the Properties -16- 17 constitutes "wetlands"; (iv) there are no liens under Applicable Environmental Laws affecting the Properties and no government actions have been taken or, to the knowledge of Seller, are in process, which could subject any portion of the Properties to such liens. As used herein, "Hazardous Substances" shall mean any hazardous materials, hazardous waste, hazardous and toxic substances, pollutants and contaminants, as those terms are defined by any Applicable Environmental Laws. For purposes of this Section 10.21, Hazardous Substances shall not include (x) substances properly used by Seller in the ordinary maintenance of the Properties, and (z) petroleum released in de minimis amounts and typically associated with the use of portions of the Properties for driving and parking motor vehicles. For the purposes of this subsection, only the knowledge of Seller's officers and regional managers shall be imputed to Seller. Any suit or action by Purchaser against Seller with regard to a breach of the representations in this Section 10.21 must be commenced within three (3) years after the Closing Date. 10.22 VIOLATIONS Seller shall cure all violations of record of any governmental agency having jurisdiction including any violations issued under the Americans with Disabilities Act and shall deliver the Restaurants free of all violations of record provided that if Purchaser files alteration plans with the local municipality for any Restaurant which filing causes the municipality to inspect the Restaurant for which the plans were filed prior to Closing and such inspection results in the filing of a violation prior to Closing, then Seller shall not be required to cure the violation if the filed plans that provide Purchaser will be replacing, repairing or otherwise curing the item cited. 10.23 LIMITATIONS ON SELLER'S REPRESENTATIONS, WARRANTIES, AND COVENANTS Purchaser acknowledges that except as otherwise expressly set forth in this Contract, Purchaser is acquiring the Restaurants "as is". 10.24 SURVIVAL OF CONTRACT All warranties, representations and covenants of Seller made in this Contract shall survive the Closing provided that, except as provided in Section 10.21, any action or suit must be commenced by Purchaser within eighteen (18) months after the Closing Date. -17- 18 10.25 NON-COMPETITION Seller covenants and warrants that it and its affiliates, and their successors and assigns, shall not, in any capacity, including, without limitation, as owner, shareholder, director, agent, employee, consultant, advisor, investor, or partner, operate, in any capacity, either directly or indirectly, including, without limitation, as owner, lessor, lessee, manager, franchisor, or franchisee any type of restaurant, bar or saloon within five (5) miles from any of the purchased Restaurants, for a period of five (5) years from the Closing Date. Seller and Purchaser believe that the restrictions contained in this Section are reasonable. However, in case any one or more of the provisions of this Section shall be invalid, illegal or unenforceable in any respect, any such provision shall be ineffective to the extent of such invalidity, illegality or unenforceability and the validity, legality and enforceability of the remaining provisions contained herein shall not in any way be affected thereby. Seller recognizes that Purchaser will suffer irreparable damage if the terms of this restriction are violated and that it will be difficult, if not impossible, to compute Purchaser's actual damages resulting from such violation. Therefore, in addition to any other rights and remedies which Purchaser may have under this Contract or otherwise, Purchaser and any Successor (as hereinafter defined) shall have the right to have the provisions of this Section specifically enforced by a court having equity jurisdiction and the right to require Seller to account for and pay over to Purchaser all profits and payments derived or received by Seller as a result of Seller's breach of this Section. For purposes of this Section, "Successor" means any direct or indirect assignee or transferee of Purchaser to this Contract, any successor to Purchaser including, without limitation, any successor by merger or consolidation or by acquisition of all or substantially all of the assets, property, or business of Purchaser. 10.26 OWNERSHIP OF DECATUR RESTAURANT Seller represents that Ground Round Holdings Inc. owns title to the Decatur, IL Restaurant, and that such title holder is a wholly owned subsidiary of Seller. By its signature below, such subsidiary joins in all warranties, representations and covenants of Seller and shall be deemed a party to this Contract for all purposes relating to the Decatur Restaurant. Seller unconditionally guarantees all of such subsidiary's obligations under this Contract. -18- 19 SECTION 11 REPRESENTATIONS AND WARRANTIES OF PURCHASER 11.1 GENERAL TERMS In order to induce Seller to sell the Restaurants and to consummate the other transactions contemplated herein, Purchaser hereby represents and warrants to Seller that the following are true statements as of the date hereof and agrees that the following shall be true statements as of the Closing. The representations, warranties and covenants of Purchaser herein shall survive the Closing but any action or suit must be commenced by Seller within eighteen (18) months after the Closing Date. 11.2 DUE ORGANIZATION Purchaser is duly organized, validly existing, and in good standing under the laws of the state of its formation, and has all requisite power and authority to execute this Contract and the documents referred to herein to be executed by Purchaser. Prior to the closing, Purchaser shall have taken all actions required for the consummation of the transaction contemplated by this Contract or any document delivered or to be delivered in connection with this Contract. At Closing, if this Contract is assigned to a subsidiary corporation or limited liability company, the assignee will be duly organized, validly existing, in good standing under the laws of a State chosen by Purchaser and authorized to enter into the transactions contemplated by this Contract. 11.3 NO CONFLICT Neither the execution, delivery, and performance of this Contract or any other agreement contemplated hereunder nor the carrying out by Purchaser of the transactions contemplated hereby or thereby will conflict with, result in a breach of, constitute a default under, or accelerate the maturity of (a) any applicable provisions of Purchaser's charter or by-laws or other governing instrument, (b) any applicable legal requirements, or (c) any other agreement, indenture, or instrument to which Purchaser is a party or by which Purchaser is or may be bound or affected. No consent of any third party is required in order for Purchaser to enter into this Contract or any other agreement contemplated hereunder or for Purchaser to carry out the transactions contemplated hereby or thereby. 11.4 NO PENDING LITIGATION The individuals and the entity comprised by Purchaser represent and warrant that as of the Contract Date, there are no suits, arbitration proceedings, other proceedings, or -19- 20 governmental investigations that are pending against them or to their knowledge threatened that adversely and materially affect their right or ability to enter into this Contract or to consummate the purchase of the Restaurants in accordance with the terms of this Contract. 11.5 ALTERATION PLANS Purchaser may file alteration plans for the Restaurants with any municipal office prior to the Closing Date but shall not cause a permit to be issued until after the Closing. Purchaser shall deliver a copy of all filed plans to Seller. SECTION 12 PRORATIONS AND ADJUSTMENTS 12.1 ACCOUNTS PAYABLE All accounts receivable arising out of the operation of the Restaurants from and after the date of Closing shall belong to Purchaser. Purchaser assumes no responsibility or liability for any accounts payable, obligations, or indebtedness of Seller or the Restaurants, except those obligations assumed by Purchaser hereunder, and Seller shall hold Purchaser harmless and indemnify Purchaser from any claim by any party relating to any accounts payable, obligation, or indebtedness of any nature that was incurred prior to the Closing except those obligations assumed by Purchaser. 12.2 LIABILITIES NOT ASSUMED The purchase and sale of the Restaurants shall be a transfer of assets only, and no liabilities or obligations of Seller, whether incurred prior to or after the date hereof, shall be assigned by Seller or assumed by Purchaser, with the exception of the following: any liability under the Leaseholds and Operating Contracts actually assumed by Purchaser, relating to obligations arising from and after the Closing Date. Except as specifically provided herein, Purchaser shall not be responsible for any liabilities arising from acts or omissions of Seller prior to the Closing Date, even though the claim with respect thereto may be brought after the Closing Date. 12.3 RENTS Base Rents, additional rents and other charges payable under the Leaseholds shall be prorated as of midnight of the day prior to the Closing Date. To the extent any percentage rent or other additional rent or charges are payable in arrears, then Seller shall deliver satisfactory documentary evidence of the calculation of such additional rent, the parties shall apportion such amount based on the amounts due as of midnight of the date prior to the Closing Date and Seller shall deliver to Purchaser -20- 21 all documentation and affidavits required under the terms of the Leasehold Documentation or reasonably required by Purchaser in connection therewith. 12.4 UTILITIES Seller shall be responsible for all water, sewer, and all other utility charges through the date prior to Closing hereunder, and Seller will use its best efforts to have meters for such utility services read on the Closing Date and thereafter Purchaser shall be responsible for such utility services in its own name commencing with the Closing Date and thereafter. Seller agrees not to terminate utility services. All deposits ("Utility Deposits") held by utility providers, including the provider of telephone service, shall not be adjusted, but shall become the property of Purchaser because the amounts of the Utility Deposits are included in the Purchase Price provided however any charges for utilities which are prepaid shall be adjusted. If any of the Utility Deposits are refunded to Seller, then the amount of said deposit shall be credited or paid to Purchaser. 12.5 REAL ESTATE AND PERSONAL PROPERTY TAXES Real estate taxes, personal property taxes, and assessments shall be prorated to the date of Closing, using the last available tax bill. Accrued general real estate, personal property, and ad valorem taxes for the current year shall be prorated on the basis of actual bills therefor, if available prior to closing. If such bills are not available, then such taxes shall be prorated on the basis of one hundred three percent (103%) of the most currently available information for the Real Properties and promptly reprorated upon the issuance of final bills therefor (and any amounts due from one party by reason of such reproration to the other shall be paid in cash at that time). Prior to or at Closing, Seller shall pay or have paid all such bills that are due and payable prior to or on the Closing Date and shall furnish evidence of such payment to Purchaser and the Title Company. 12.6 SALES TAXES There shall be no apportionment with respect to sales tax charged to customers of the Restaurants subject to such taxes. After the Closing, Seller shall file final sales and occupancy tax returns with the appropriate taxing authority and pay to the appropriate taxing authority sales charged to customers and others during the period of time prior to the Closing Date. -21- 22 12.7 PAYROLL Seller will pay all employees for all services performed through 12:01 A.M. of the date of Closing, together with all contributions to welfare, pension, fringe benefit, and other such programs required to be made on their behalf, and the employer's share of payroll taxes, social security, unemployment compensation taxes, and disability insurance incident to such salaries, wages, or other benefits. Seller shall terminate all employees of the Restaurants on or prior to Closing and shall be solely responsible for all payments and claims incurred in connection therewith. Purchaser shall have the right but not the obligation to hire those of Seller's employees who are not retained by Seller in other businesses. 12.8 TELEPHONE CHARGES Purchaser and Seller shall obtain and determine all telephone charges applicable to the telephone system in use at the Restaurants, and Seller shall execute any and all forms required in order to transfer the existing telephone numbers, and any and all rights thereto, to Purchaser. 12.9 LEASE SECURITY DEPOSITS All security deposits on Schedule 10.13.1 shall not be adjusted but shall become the property of Purchaser, subject to the terms of the Leaseholds, because the amount of such deposits are included in the Purchase Price. 12.10 PREPAID DEPOSITS All prepaid amounts under Operating Contracts actually assumed by Purchaser shall be adjusted. Three (3) business days before the Closing Date, Seller shall provide Purchaser with a complete schedule (the "Reservation Schedule") of post-closing customer reservations, which Reservation Schedule shall list (a) the party for whose benefit the reservation was made and the date and time therefor; (b) the amount of any other deposits made for advance banquets and/or future services to be provided after the Closing Date. Purchaser may elect to receive a credit for such deposits and arrange with the depositor for the banquets or other service. If Purchaser does not so elect, Seller shall refund such deposits and pay all claims or damages related thereto. Seller shall accept no reservations or deposits for services to be rendered after the Closing Date. -22- 23 12.11 VENDING MACHINES All revenues from vending machines and commissions, if any, payable by the telephone company in respect of public telephones in the Properties and long distance telephone calls made from the Properties shall accrue to the benefit of Purchaser for periods after the Closing and to Seller for the periods prior to the Closing. 12.12 PURCHASER'S WAIVER AND TERMINATION RIGHT Purchaser may waive any failure of a particular Restaurant to comply with the terms of this Contract only in writing. In addition to any right of Purchaser to terminate this Contract in its entirety (including, without limitation, the right arising because of the inability of Seller to obtain the consents and estoppels of the landlords under the Leaseholds or the failure to obtain liquor permits), Purchaser may also terminate this Contract with respect to a certain Restaurant or Restaurants only, if such Restaurant does not comply with the terms of this Contract or Purchaser otherwise is entitled to terminate this Contract and Purchaser shall receive a credit against the Purchase Price for the amount allocated on Schedule 4.2 to the terminated Restaurant or Restaurants provided that Purchaser may not terminate this Contract as to more than five (5) Restaurants in the aggregate because of the failure to obtain either liquor permits or landlord consents and estoppels. If either the liquor permits or the landlord consents and estoppels are not obtained for more than five (5) Restaurants, Purchaser may (i) only terminate as to five (5) of such Restaurants of its choice and waive the failure of the balance to comply or (ii) terminate this Contract in its entirety. SECTION 13 CLOSING DOCUMENTS AND PROCEDURE Not later than twenty (20) days prior to the Closing, the parties shall deliver copies of certain documents, set forth below, to the other parties as specified; the original of said documents shall be executed and delivered at the Closing together with such other documents as are contemplated by this Contract. 13.1 TITLE DEED Special warranty deeds for all of the Real Properties (except for the New York Restaurant which shall be a bargain and sale deed with covenant) in recordable form, executed by Seller, conveying the Real Properties to Purchaser free and clear of all claims, liens, and encumbrances except for the Permitted Exceptions and items approved by Purchaser. Any action or suit on any covenant contained in the deed must be commenced within eighteen (18) months after the Closing Date. -23- 24 13.2 LEASE ASSIGNMENTS Warranty assignments in the form required under Section 2.4 executed by Seller, assigning the Leaseholds to Purchaser free and clear of all claims, liens and encumbrances except for the Permitted Exceptions. 13.3 BILL OF SALE A warranty assignment and bill of sale, executed by Seller, assigning, conveying, and warranting to Purchaser title to the Personal Property, free and clear of all encumbrances, other than items approved by Purchaser in writing. 13.4 ASSIGNMENT OF PERMITS To the extent any Governmental Permits or Permits are assignable, an assignment, executed by Seller, to Purchaser of all of Seller's right, title and interest in and to the Governmental Permits or Permits, together with executed copies, applications, forms, and other documents as may be necessary to fully effectuate the transfer of the same to Purchaser as herein contemplated and provided that Purchaser shall have all permits and licenses required to operate the Restaurants. 13.4.1 LIQUOR PERMITS. Among the permits and licenses to be assigned and transferred with respect to the operation of the Properties and the conduct of Seller's business are the liquor permits issued to Seller by the local liquor authorities. At the Closing, Seller shall cause to be executed and delivered to Purchaser or Purchaser's nominee an instrument in form reasonably satisfactory to Purchaser that issues, assigns, conveys, or transfers to Purchaser all of Seller's rights and interests in, under, and to each of the liquor permits and such written authorization or consent from any governmental agency having jurisdiction recognizing and approving such transfer. If liquor permits for all of the Properties are not lawfully transferred or issued to Purchaser on or prior to Closing, Purchaser shall have the rights set forth in Section 12.12. Purchaser shall proceed promptly and diligently and use reasonable efforts to obtain approval of the transfer of the existing liquor permits or issuance of new permits in accordance with law and Purchaser's past practices. Purchaser shall deliver a copy of all liquor permit filings to Seller. 13.5 ASSIGNMENT OF INTANGIBLE PERSONAL PROPERTY An assignment executed by Seller, to Purchaser of all right, title, and interest of Seller and its agents in and to the Intangible Properties executed by Seller. -24- 25 13.6 ASSIGNMENT OF OPERATING CONTRACTS An Assignment executed by Seller to Purchaser of those of the Operating Contracts that are to be assumed by Purchaser, in which Seller agrees to indemnify, protect, defend, and hold Purchaser harmless from and against any and all claims, damages, losses, costs, and expenses (including attorney fees) that arise in connection with the Operating Contracts and relate to the time period prior to Closing. 13.7 ORIGINAL DOCUMENTS To the extent not previously delivered to Purchaser, original copies of the Operating Contracts, Governmental Permits and Permits. 13.8 KEYS All keys used in connection with the Properties, tagged for identification. 13.9 TITLE POLICY The title policy (or a "marked-up" Title Commitment) issued by the Title Company, dated as of the Closing Date, in such amounts and containing non-imputation, creditor's rights exception, zoning and such other endorsements as may be reasonably requested by Purchaser in order to obtain the benefits of the title insurance, ownership, current use and occupancy of the Properties. 13.10 RESOLUTIONS AND CERTIFICATES A certified resolution authorizing Seller to enter into and perform this Agreement and to perform Seller's obligations hereunder. At Closing, a certificate of Seller signed by a senior officer, dated the Closing Date, certifying that all of the representations and warranties of Seller contained in this Agreement are true and correct on and as of the Closing Date with the same force and effect as if made on and as of the Closing Date. 13.11 CLOSING STATEMENT A counterpart, executed by Seller, of a closing statement conforming to the proration and other relevant provisions of this Agreement. -25- 26 13.12 RECORDS To the extent not previously delivered to Purchaser, original copies of all Records (including, without limitation, all ledgers) pertaining to the Restaurants. 13.13 CERTIFICATE OF NON-FOREIGN STATUS Seller shall deliver a Certificate of Non-Foreign Status in form satisfactory to Purchaser's counsel. 13.14 AFFIDAVITS AND INDEMNITIES Affidavits and indemnities reasonably required by Purchaser or the Title Company to establish the authority and capacity of Seller to consummate the transaction described herein and to cause the Title Company to issue the policies including endorsements. 13.14.1 AFFIDAVIT OF TITLE. By Seller to Purchaser, Seller's affidavit of title in form and content as customary in the county in which the Properties is located. 13.15 SUB-TENANT ESTOPPEL AND CONSENT. By Seller to Purchaser, an estoppel from Friendly's in the form of Schedule 9.9. with the following additional paragraph: "Friendly's has no right to consent to the assignment to Lone Star nor to any further assignment of the lease." 13.16 WARRANTY ASSIGNMENT By Seller to Purchaser, a general assignment to Purchaser of all warranties that exist as to equipment, Personal Property, or structural components of the building that have not expired by lapse of time. 13.17 LANDLORD'S CONSENTS By Seller to Purchaser, a consent signed and delivered by each of the landlords for the Leaseholds, or if in Purchaser's judgment such consent is not required by the terms of the lease, then a copy of a written notice to such landlord signed and sent by Seller given within the time requirements of the lease but not less than thirty (30) days prior to Closing and such other evidence reasonably requested by Purchaser to comply with the terms of each of the Leaseholds governing assignments. If all of the landlord consents are not obtained prior to Closing, Purchaser shall have the rights set forth in Section 12.12. Purchaser's assignee shall represent to each landlord that the assignee (i) shall spend at least $750,000 in improving and -26- 27 renovating the Restaurant located on such landlord's premises and (ii) shall have a minimum net worth of $1,000,000 at closing. 13.18 NON-DISTURBANCE AGREEMENTS By Seller to Purchaser, a written agreement executed by each of the landlords of the Leaseholds and any holder of a mortgage on the real property demised under the Leaseholds for which Purchaser directs Seller to request such an agreement from the landlord, in which such mortgagee agrees not to disturb Purchaser's tenancy in the event of foreclosure in form and on terms satisfactory to Purchaser provided that to the extent any existing non-disturbance agreement is satisfactory to Purchaser and is assignable by its terms, then a new agreement shall not be required and further provided that it shall not be a condition to Closing to obtain such non-disturbance agreements and Seller shall be required to deliver such agreements only to the extent the landlord complies with the request. 13.19 TRANSFER TAX RETURNS Each party shall execute and deliver such transfer tax returns as may be required for the transfer of the Real Properties or the Leaseholds. The parties agree that the allocations to the real property portion of the Purchase Price on Schedule 4.2 approximates the fair market value of the interest in realty transferred. 13.20 OTHER DOCUMENTS Such other documents and instruments as are contemplated hereunder or as may reasonably be required by Purchaser, its counsel, or the Title Company and necessary to consummate this transaction and to otherwise effect the agreements of the parties hereto. PURCHASER'S RESPONSIBILITIES At Closing, Purchaser shall deliver to Seller: 13.21 PURCHASE PRICE The full Purchase Price, plus or minus prorations and other adjustments hereunder, in the amount provided in this agreement by certified check or wire transfer. 13.22 ASSUMPTION OF LEASES By Purchaser to Seller, an assumption of the lessee's interest under the Leaseholds in the form attached as Schedule 2.4. -27- 28 13.23 CLOSING STATEMENT A counterpart, executed by Purchaser, of a closing statement conforming to the proration and other relevant provisions of this Agreement. 13.24 ASSUMPTION OF OPERATING CONTRACTS An assumption executed by Purchaser in which Purchaser agrees to assume the Operating Contracts to be assumed by it, subject to the agreement of Seller to indemnify, protect, defend, and hold Seller harmless from and against any and all claims, damages, losses, costs and expenses (including attorney fees) that arise in connection with the assigned Operating Contracts and relate to the time period before the Closing. 13.25 RESOLUTIONS Certified resolution authorizing Purchaser to enter into and perform this Agreement and to perform Purchaser's obligations hereunder. 13.26 AFFIDAVITS Affidavits reasonably required by the Title Company to establish the authority or capacity of Purchaser to consummate the transaction described herein. 13.27 OTHER DOCUMENTS Such other documents and instruments as are contemplated hereunder or as may reasonably be required by Seller, its counsel, or the Title Company and necessary to consummate this transaction and to otherwise effect the agreements of the parties hereto. SECTION 14 CLOSING EXPENSES 14.1 CLOSING EXPENSES Seller shall pay the survey costs, recording fees, all escrow fees, any transfer, stamp or documentary taxes and fees to the landlords of the Leaseholds except for the reasonable fees charged by the landlords of the Renegotiated Leaseholds. Purchaser shall pay the cost of the sales tax on the Personal Property, title policy, and the reasonable fees charged by the landlords of the Renegotiated Leaseholds. 14.2 BROKERAGE FEES Seller and Purchaser each warrant to the other that each has dealt with no broker, salesman, finder, or consultant -28- 29 with respect to this Contract or the sale contemplated herein. Each party shall be responsible for the costs of their respective financial advisors. Except as provided above, each shall indemnify, protect, defend, and hold the other harmless from and against all claims, losses, costs, expenses, and damages (including attorney fees) resulting from a breach of the foregoing warranty. SECTION 15 EMINENT DOMAIN AND RISK OF LOSS 15.1 EMINENT DOMAIN In the event of the institution of any proceedings, judicial, administrative, or otherwise, relating to the taking of a portion of any of the Properties by eminent domain, or condemnation, prior to closing, which taking materially interferes with the current use or operation of the Property, Purchaser shall have the right (a) to terminate this Contract, which right shall be exercised within fifteen (15) days after notice of condemnation or proposed taking is received by Purchaser, whereupon the parties shall be released from any further obligations hereunder, or (b) elect to close this transaction, in which event there shall be no reduction in the Purchase Price, except that Purchaser shall be entitled to receive the award as a result of such taking. 15.2 RISK OF LOSS If any of the Properties or any part thereof shall be damaged or destroyed by fire or other casualty prior to the Closing, and such damage shall not have been repaired or reconstructed prior to Closing in a good and workmanlike manner to the reasonable satisfaction of Purchaser, and the cost of repair of such damage exceeds $75,000, Purchaser may, at its option, (a) receive the proceeds of any insurance payable in connection therewith, under Seller's insurance policy or policies, and thereupon remain obligated to perform this Agreement, or (b) terminate this Contract, which option shall be exercised within fifteen (15) days after notice of the fire or other casualty is received by Purchaser, whereupon the parties shall be released from any further obligations hereunder. Seller agrees to advise Purchaser of the present insurance coverage upon each of the Properties, to keep said policy or policies in full force and effect through the Closing Date, and to advise Purchaser promptly of any damage to any of the Properties by any loss or casualty. SECTION 16 ASSIGNMENT, SUCCESSORS, AND HEIRS This Contract may not be assigned prior to the Closing Date by either party without the prior written consent of the other, except that Purchaser shall have the right to assign its -29- 30 interest in this Contract to one or more corporations or limited liability companies organized by Purchaser or Purchaser's affiliates. Such assignments by Purchaser shall not relieve Purchaser of its obligations hereunder. Purchaser specifically agrees that notwithstanding any assignment, Purchaser shall indemnify Seller from any default under the Leaseholds arising from and after the Closing Date and shall guaranty the assignee's obligations under the assumption agreement to be executed and delivered by the assignee. Subject to the foregoing provisions, this Contract shall inure to the benefit of and be binding upon the parties hereto and their respective successors and assigns. SECTION 17 GENERAL CLAUSES 17.1 BENEFIT This Agreement is for the benefit only of the parties hereto or their nominees, successors, beneficiaries, and assigns, and no other person or entity shall be entitled to rely hereon, receive any benefit herefrom, or enforce against any party hereto any provision hereof. 17.2 BINDING AGREEMENT This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective heirs, personal representatives, successors, and assigns, and shall constitute the entire agreement among the parties. 17.3 BUSINESS DAY If any date herein set forth for the performance of any obligations by Seller or Purchaser or for the delivery of any instrument or notice as herein provided should be on a Saturday, Sunday, or legal holiday, the compliance with such obligations or delivery shall be deemed acceptable on the next business day following such Saturday, Sunday, or legal holiday. As used herein, the term "legal holiday" means any state or federal holiday for which financial institutions or post offices are generally closed in the States of Texas or New York. 17.4 CONTROLLING LAW This Contract shall be interpreted in accordance with the laws of the State of New York. New York law shall govern the marketability standard referred in Section 8.1.5. 17.5 ENTIRE AGREEMENT 17.5.1 This Contract constitutes the entire understanding between the parties with respect to the transaction contemplated herein, and all prior or contemporaneous oral -30- 31 agreements, understandings, representations, and statements are merged into this Agreement. Neither this Contract nor any provisions hereof may be waived, modified, amended, discharged, or terminated except by an instrument in writing signed by the party against which the enforcement of such waiver, modification, amendment, discharge, or termination is sought, and then only to the extent set forth in such instrument. 17.5.2 This Contract may be executed in one or more counterparts, and all so executed shall constitute one contract, binding on all the parties hereto, notwithstanding that all of the parties are not signatory to the same counterpart. 17.5.3 WAIVER. No modification or amendment of this Contract shall be of any force or effect unless it is in writing and executed by both Seller and Purchaser. 17.6 HOLD HARMLESS AND INDEMNITY Seller agrees to indemnify and hold harmless Purchaser from and against all claims, damages, losses, and expenses, including reasonable legal fees and other costs, arising from any and all liability, loss, or damage Purchaser may suffer as a result of claims, demands, costs, or judgments against it arising from or in any way connected with any accident, action, or incident of whatever nature occurring during the period of Seller's ownership of the Properties or from a breach of a representation, warranty or covenant by Seller contained herein; and Purchaser agrees to indemnify and hold harmless Seller from and against all claims, damages, losses, and expenses, including reasonable legal fees and other costs, arising from any and all liability, loss, or damage Seller may suffer as a result of claims, demands, costs, or judgments against it arising from or in any way connected with any accident, action, or incident of whatever nature during the period of Purchaser's ownership of the Properties or from a breach of a representation, warranty or covenant by Purchaser contained herein. 17.7 NOTICES Any notice or election that may be or is required to be given pursuant to the provisions of this Agreement shall be sufficiently served if sent by certified or registered U.S. Mails, postage prepaid, return receipt requested and addressed as follows: As to Purchaser: Lone Star Steakhouse & Saloon, Inc. 224 East Douglas, Suite 700 Wichita, Kansas 67202 Attn: Gerald Aaron Vice President and General Counsel -31- 32 with a copy to: Olshan Grundman Frome & Rosenzweig LLP 505 Park Avenue New York, NY 10022 Attn: Steven Wolosky, Esq. As to Seller: The Ground Round, Inc. 35 Braintree Hill Office Park Braintree, Massachusetts 02184-9078 Attn: Michael Jorgensen or Robin L. Moroz, Esq. With a copy to: Kane Kessler P.C. 1350 Avenue of the Americas New York, New York 10019 Attn: Jeffrey S. Tullman, Esq. 17.7.1 NOTICE DEEMED SERVED. Any properly mailed notice shall be deemed to have been served as of its posting for purposes of establishing that the sending party complied with this Contract's applicable time limitations. 17.7.2 The attorney for a party may send notices on behalf of such party. SECTION 18 PUBLICITY Simultaneously with the execution of this Contract the parties have approved the text of a press release to be issued by each of the parties. Thereafter each party may issue press releases as may be required by law. Copies of all press releases shall be given to the other party promptly after issuance. GROUND ROUND HOLDINGS, INC. By: /s/ Christian R. Guntner -------------------------- THE GROUND ROUND, INC. LONE STAR STEAKHOUSE & SALOON, INC. By: /s/ Christian R. Guntner By: /s/ John D. White -------------------------- -------------------------- -32- EX-10.8 8 LETTER AGREEMENT 1 Exhibit 10.8 October 11, 1996 The Ground Round, Inc. GR of Minn., Inc. 35 Braintree Hill Office Park Braintree, MA 02184-9078 Gentlemen: Reference is made to that certain Amended and Restated Credit Agreement, dated as of September 12, 1996 (the "CREDIT AGREEMENT") among the parties hereto. Unless otherwise defined herein, all terms defined in the Credit Agreement be used herein as therein defined. By their execution hereof, each of the Borrowers, the Lenders, the Agent and the Co-Agent agree that, notwithstanding the provisions of Section 2.05(b)(ii) of the Credit Agreement, upon the receipt by the Borrowers of the Net Cash Proceeds from the sale of the nine (9) properties set forth on Annex A hereto to Lonestar Steakhouse & Saloon, Inc. pursuant to the terms of that certain Contract of Sale dated June 28, 1996 (the "LONESTAR CONTRACT"), $8,121,416 of such Net Cash Proceeds shall be applied to the prepayment of the Term Loans comprising part of the same Borrowings, PROVIDED, that upon the sale of any of the properties set forth on Annex B hereto pursuant to the terms of the Lonestar Contract, the Borrower shall be permitted to retain up to $1,798,000 of such Net Cash Proceeds for working capital purposes and, PROVIDED, FURTHER, that if the Net Cash Proceeds from such sales of any of the properties set forth on Annex B exceed $1,798,000, such excess Net Cash Proceeds shall be allocated in accordance with Section 2.05(b)(ii) after giving effect to all such sales. It is understood and agreed that the right of the Borrowers to retain such $1,798,000 of Net Cash Proceeds is conditioned upon (i) the prior receipt by the Lenders of $8,121,416 provided for herein, (ii) the closing of the sale of the properties listed on Annex B hereto prior to the expiry of the Lonestar Contract and (iii) such Net Cash Proceeds having arisen from the sale of the properties listed on Annex B. The Letter Agreement shall not become effective until the date on which it shall have been executed by the Borrowers and 2 the Lenders, and the Agent shall have received evidence satisfactory to it of such execution. This Letter Agreement shall be limited precisely as written and shall not be deemed to be a consent granted pursuant to, or a waiver or modification of, any other term or condition of the Credit Agreement or any of the instruments or agreements referred to therein or to prejudice any right or rights which the Agent or the Lenders may now have or may have in the future under or in connection with the Credit Agreement or any of the instruments or agreements referred to therein. This Letter Agreement may be executed in any number of counterparts and by the different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed to be an original and all of which when taken together shall constitute but one and the same letter. If you are in agreement with the foregoing, kindly sign the enclosed counterpart of this Letter Agreement and deliver such signed counterpart (by telecopy and by overnight delivery) to the Agent. This Letter Agreement is intended to be performed in the State of New York and shall be construed and is enforceable in accordance with, and shall be governed by, the internal laws of the State of New York without regard to principles of conflict of laws. 2 3 IN WITNESS WHEREOF, the parties hereto have caused this Letter Agreement to be executed by their respective officers duly authorized as the date first above written. THE GROUND ROUND, INC. By: /s/ Stephen Kiel ----------------------------------------- Name: Stephen Kiel Title: Director, Chief Financial Officer, Senior Vice President and Treasurer GR OF MINN., INC. By: /s/ Stephen Kiel ----------------------------------------- Name: Stephen J. Kiel Title: Director, Vice President and Treasurer THE BANK OF NEW YORK, Individually and as Agent By: /s/ J.B. Lifton ----------------------------------------- Name: J.B. Lifton Title: V.P. THE CHASE MANHATTAN BANK, Individually and as Co-Agent By: /s/ William J. Caggiano ----------------------------------------- Name: William J. Caggiano Title: Managing Director BANK OF AMERICA ILLINOIS By: /s/ Steve Aronowitz ----------------------------------------- Name: Steve Aronowitz Title: Managing Director NBD BANK By: /s/ Dennis Saletta ----------------------------------------- Name: Dennis Saletta Title: Vice President CREDIT LYONNAIS NEW YORK BRANCH By: /s/ Alan Sidrane ----------------------------------------- Name: Alan Sidrane Title: First Vice President 3 4 Consent of Guarantors dated as of October 11, 1996 The undersigned, as the Guarantors referred to in the Credit Agreement, each hereby consents to the execution and performance of the Letter Agreement to which this consent is attached. GRH OF NJ, INC. By: /s/ Stephen Kiel ----------------------------------------- Name: Stephen Kiel Title: Director, Vice President and Treasurer GROUND ROUND HOLDINGS, INC. By: /s/ Stephen Kiel ----------------------------------------- Name: Stephen Kiel Title: Director, Vice President and Treasurer GROUND ROUND HOLDINGS, INC. By: /s/ Stephen Kiel ----------------------------------------- Name: Stephen Kiel Title: Director, Vice President and Treasurer GROUND ROUND RESTAURANTS, INC. By: /s/ Stephen Kiel ----------------------------------------- Name: Stephen Kiel Title: Senior Vice President, Chief Financial Officer & Treasurer G.R. GLENDLOC, INCORPORATED By: /s/ Robin L. Moroz ----------------------------------------- Name: Robin L. Moroz Title: Vice President and Secretary GROUND ROUND OF BALTIMORE, INC. By: /s/ Robin L. Moroz ----------------------------------------- Name: Director, Vice President, Assistant Secretary & Treasurer GRXR OF BEL AIR, INC. By: /s/ Robin L. Moroz ----------------------------------------- Name: Robin L. Moroz Title: Director, President and Treasurer GRXR OF FREDERICK, INC. By: /s/ Robin L. Moroz ----------------------------------------- Name: Robin L. Moroz Title: Director, President and Treasurer 4 5 GRXR OF HAGERSTOWN, INC. By: /s/ Robin L. Moroz ----------------------------------------- Name: Robin L. Moroz Title: Director, President and Treasurer GRXR OF CHARLES COUNTY, INC. By: /s/ Robin L. Moroz ----------------------------------------- Name: Robin L. Moroz Title: Director, President and Treasurer 5 EX-99.1 9 PRESS RELEASE DATED 9/13/96 1 [GROUND ROUND LETTERHEAD] Exhibit 99.1 FOR IMMEDIATE RELEASE Contact: Steve Kiel Market: Nasdaq Chief Financial Officer Symbol: GRXR Telephone: 617/380-3115 Date: September 13, 1996 GROUND ROUND RESTAURANTS, INC. AND BANKS COMPLETE RESTRUCTURED FINANCING Braintree, Mass, September 13, 1996. Ground Round Restaurants, Inc. (NASDAQ: GRXR) announced today that the Company and its banks have restructured the Company's Credit Facility on the terms previously announced. The restructured facility expires on May 31, 1997, subject to automatic extension to December 31, 1997 if certain conditions are met prior to the initial expiration date. Ground Round Restaurants, Inc. operates 143 company and franchises 45 family-oriented, full-service, casual dining restaurants in the Northeast, Mid-Atlantic and Midwest regions of the United States. ### EX-99.2 10 PRESS RELEASE DATED 10/15/96 1 Exhibit 99.2 GROUND ROUND RESTAURANTS, INC. - -------------------------------------------------------------------------------- 35 Braintree Hill Office Park TEL (617) 380-3100 P.O. Box 9078 - Braintree, MA 02184-9078 FAX (617) 380-3207 FOR IMMEDIATE RELEASE Contacts: Stephen Kiel Peter Dobrow - -------- Ground Round -or- Creamer Dickson Basford (617) 380-3115 (212) 887-8145 SALE OF NINE GROUND ROUND SITES TO LONE STAR COMPLETED BRAINTREE, Mass., Oct. 15, 1996 - Ground Round Restaurants, Inc. (Nasdaq:GRXR) announced that the company has completed the sale of nine units to Lone Star Steakhouse and Saloon, Inc. (Nasdaq: STAR). The sale is part of an agreement initially announced on July 1 to sell up to 16 Ground Round sites for up to $16 million, and was based upon satisfaction of certain conditions to be met. The nine units are located in the Northeast and Midwest, and transfer of ownership is effective immediately. The sale of additional restaurants, as agreed, is expected to be fully completed by the end of November. "The sale of these stores will give us the funds to reduce debt by approximately eight million dollars, and provide resources for additional investment and future growth," said Daniel R. Scoggin, Chairman of the Board, Chief Executive Officer and President of The Ground Round. "The transaction is a component of our turnaround process to return The Ground Round to a casual-dining industry leader." The company also announced that a subsidiary of U.S. Industries, Inc. exercised its right to have the company register 3,632,100 shares of the company's common stock (approximately 25 percent of the shares outstanding) for sale. Ground Round Restaurants, Inc. operates 133 company and franchise 46 family-oriented, full-service, casual dining restaurants in the Northeast, Mid-Atlantic and Midwest regions of the United States. # # # October 15, 1996 -----END PRIVACY-ENHANCED MESSAGE-----