CREDIT AGREEMENT
THIS AGREEMENT is entered into as of June 27, 1997, by and between
SCHLOTZSKY'S, INC., a Texas corporation ("Borrower"), and WELLS FARGO BANK
(TEXAS), NATIONAL ASSOCIATION ("Bank").
RECITAL
Borrower has requested from Bank the credit accommodations described
below (each, a "Credit" and collectively, the "Credits"), and Bank has agreed
to provide the Credits to Borrower on the terms and conditions contained
herein.
NOW, THEREFORE, for valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, Bank and Borrower hereby agree as follows:
ARTICLE I
THE CREDITS
SECTION 1.1. LINE OF CREDIT.
(a) LINE OF CREDIT. Subject to the terms and conditions of this
Agreement, Bank hereby agrees to make advances to Borrower from time to time
up to and including April 30, 2000, not to exceed at any time the aggregate
principal amount of Twelve Million Dollars ($12,000,000.00) ("Line of
Credit"), the proceeds of which shall be used to finance working capital
purposes. Borrower's obligation to repay advances under the Line of Credit
shall be evidenced by a promissory note substantially in the form of Exhibit
A attached hereto ("Line of Credit Note"), all terms of which are
incorporated herein by this reference.
(b) BORROWING AND REPAYMENT. Borrower may from time to time during the
term of the Line of Credit borrow, partially or wholly repay its outstanding
borrowings, and reborrow, subject to all of the limitations, terms and
conditions contained herein or in the Line of Credit Note; provided however,
that the total outstanding borrowings under the Line of Credit shall not at
any time exceed the maximum principal amount available thereunder, as set
forth above.
SECTION 1.2. TERM COMMITMENT.
(a) TERM COMMITMENT. Subject to the terms and conditions of this
Agreement, Bank hereby agrees to make advances to Borrower from time to time
up to and including December 30, 1997, not to exceed the aggregate principal
amount of Three Million
Dollars ($3,000,000.00) ("Term Commitment"), the proceeds of which shall be
used to (a) finance capital expenditures and (b) refinance existing debt, and
which shall be converted on December 30, 1997, to a term loan, as described
more fully below. Borrower's obligation to repay advances under the Term
Commitment shall be evidenced by a promissory note substantially in the form
of Exhibit B attached hereto ("Term Commitment Note"), all terms of which are
incorporated herein by this reference.
(b) BORROWING AND REPAYMENT. Borrower may from time to time during the
period in which Bank will make advances under the Term Commitment borrow and
partially or wholly repay its outstanding borrowings, provided that amounts
repaid may not be reborrowed, subject to all the limitations, terms and
conditions contained herein; provided however, that the total outstanding
borrowings under the Term Commitment shall not at any time exceed the maximum
principal amount available thereunder, as set forth above. The outstanding
principal balance of the Term Commitment shall be due and payable in full on
December 30, 1997; provided however, that so long as Borrower is in
compliance on said date with all terms and conditions contained herein and in
any other documents evidencing the Credits, Bank agrees to restructure
repayment of said outstanding principal balance so that principal and
interest shall be amortized over five years and shall be repaid in monthly
installments, as set forth in the promissory note executed by Borrower on
said date to evidence the new repayment schedule.
(c) PREPAYMENT. Borrower may prepay principal on the Term Commitment
solely in accordance with the provisions of the Term Commitment Note.
SECTION 1.3. INTEREST/FEES.
(a) INTEREST. The outstanding principal balance of the Line of Credit
and Term Commitment shall bear interest at the rate of interest set forth in
the Line of Credit Note and Term Commitment Note.
(b) COMPUTATION AND PAYMENT. Interest shall be computed on the basis
of a 360-day year, actual days elapsed, unless such calculation would result
in a usurious rate, in which case interest shall be computed on the basis of
a 365/366-day year, as the case may be, actual days elapsed. Interest shall
be payable at the times and place set forth in the Line of Credit Note and
Term Commitment Note (collectively, the "Notes").
(c) UNUSED COMMITMENT FEE. Borrower shall pay to Bank a fee equal to
one-quarter of one percent (.25%) per annum (computed on the basis of a
360-day year, actual days elapsed) on the average daily unused amount of the
Line Of Credit, which fee
-2-
shall be calculated on a quarterly basis by Bank and shall be due and payable
by Borrower in arrears within ten (10) days after each billing is sent by
Bank.
SECTION 1.4. COLLECTION OF PAYMENTS. Borrower authorizes Bank to
collect all principal, interest and fees due under each Credit by charging
Borrower's demand deposit account number ___________ with Bank, or any other
demand deposit account maintained by Borrower with Bank, for the full amount
thereof. Should there be insufficient funds in any such demand deposit
account to pay all such sums when due, the full amount of such deficiency
shall be immediately due and payable by Borrower.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
Borrower makes the following representations and warranties to Bank,
which representations and warranties shall survive the execution of this
Agreement and shall continue in full force and effect until the full and
final payment, and satisfaction and discharge, of all obligations of Borrower
to Bank subject to this Agreement.
SECTION 2.1. LEGAL STATUS. Borrower is a corporation, duly organized
and existing and in good standing under the laws of the state of Texas, and
is qualified or licensed to do business (and is in good standing as a foreign
corporation, if applicable) in all jurisdictions in which such qualification
or licensing is required or in which the failure to so qualify or to be so
licensed could have a material adverse effect on Borrower.
SECTION 2.2. AUTHORIZATION AND VALIDITY. This Agreement, the Notes,
and each other document, contract and instrument required hereby or at any
time hereafter delivered to Bank in connection herewith (collectively, the
"Loan Documents") have been duly authorized, and upon their execution and
delivery in accordance with the provisions hereof will constitute legal,
valid and binding agreements and obligations of Borrower or the party which
executes the same, enforceable in accordance with their respective terms.
SECTION 2.3. NO VIOLATION. The execution, delivery and performance by
Borrower of each of the Loan Documents do not violate any provision of any
law or regulation, or contravene any provision of the Articles of
Incorporation or By-Laws of Borrower, or result in any breach of or default
under any contract, obligation, indenture or other instrument to which
Borrower is a party or by which Borrower may be bound.
-3-
SECTION 2.4. LITIGATION. There are no pending, or to the best of
Borrower's knowledge threatened, actions, claims, investigations, suits or
proceedings by or before any governmental authority, arbitrator, court or
administrative agency which could have a material adverse effect on the
financial condition or operation of Borrower other than those disclosed by
Borrower to Bank in writing prior to the date hereof.
SECTION 2.5. CORRECTNESS OF FINANCIAL STATEMENT. The consolidated
financial statement of Borrower and Scholtzsky's Real Estate, Inc. dated
March 31, 1997, a true copy of which has been delivered by Borrower to Bank
prior to the date hereof, (a) is complete and correct and presents fairly the
financial condition of Borrower, (b) discloses all liabilities of Borrower
that are required to be reflected or reserved against under generally
accepted accounting principles, whether liquidated or unliquidated, fixed or
contingent, and (c) has been prepared in accordance with generally accepted
accounting principles consistently applied. Since the date of such financial
statement there has been no material adverse change in the financial
condition of Borrower, nor has Borrower mortgaged, pledged, granted a
security interest in or otherwise encumbered any of its assets or properties
except in favor of Bank or as otherwise permitted by Bank in writing.
SECTION 2.6. INCOME TAX RETURNS. Borrower has no knowledge of any
pending assessments or adjustments of its income tax payable with respect to
any year.
SECTION 2.7. NO SUBORDINATION. There is no agreement, indenture,
contract or instrument to which Borrower is a party or by which Borrower may
be bound that requires the subordination in right of payment of any of
Borrower's obligations subject to this Agreement to any other obligation of
Borrower.
SECTION 2.8. PERMITS, FRANCHISES. Borrower possesses, and will
hereafter possess, all permits, consents, approvals, franchises and licenses
required and rights to all trademarks, trade names, patents, and fictitious
names, if any, necessary to enable it to conduct the business in which it is
now engaged in compliance with applicable law.
SECTION 2.9. ERISA. Borrower is in compliance in all material
respects with all applicable provisions of the Employee Retirement Income
Security Act of 1974, as amended or recodified from time to time ("ERISA");
Borrower has not violated any provision of any defined employee pension
benefit plan (as defined in ERISA) maintained or contributed to by Borrower
(each, a "Plan"); no Reportable Event as defined in ERISA has occurred and is
continuing with respect to any Plan initiated by Borrower; Borrower has met
its minimum funding requirements under ERISA
-4-
with respect to each Plan; and each Plan will be able to fulfill its benefit
obligations as they come due in accordance with the Plan documents and under
generally accepted accounting principles.
SECTION 2.10. OTHER OBLIGATIONS. Borrower is not in default on any
obligation for borrowed money, any purchase money obligation or any other
material lease, commitment, contract, instrument or obligation.
SECTION 2.11. ENVIRONMENTAL MATTERS. Except as disclosed by Borrower
to Bank in writing prior to the date hereof, Borrower is in compliance in all
material respects with all applicable federal or state environmental,
hazardous waste, health and safety statutes, and any rules or regulations
adopted pursuant thereto, which govern or affect any of Borrower's operations
and/or properties, including without limitation, the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, the Superfund
Amendments and Reauthorization Act of 1986, the Federal Resource Conservation
and Recovery Act of 1976, and the Federal Toxic Substances Control Act, as
any of the same may be amended, modified or supplemented from time to time.
None of the operations of Borrower is the subject of any federal or state
investigation evaluating whether any remedial action involving a material
expenditure is needed to respond to a release of any toxic or hazardous waste
or substance into the environment. Borrower has no material contingent
liability in connection with any release of any toxic or hazardous waste or
substance into the environment.
ARTICLE III
CONDITIONS
SECTION 3.1. CONDITIONS OF INITIAL EXTENSION OF CREDIT. The
obligation of Bank to grant any of the Credits is subject to the fulfillment
to Bank's satisfaction of all of the following conditions:
(a) APPROVAL OF BANK COUNSEL. All legal matters incidental to the
granting of each of the Credits shall be satisfactory to Bank's counsel.
(b) DOCUMENTATION. Bank shall have received, in form and substance
satisfactory to Bank, each of the following, duly executed:
(i) This Agreement and the Notes.
(ii) Corporate Resolution: Borrowing.
(iii) Certificate of Incumbency.
(iv) Such other documents as Bank may require under any other Section of
this Agreement.
-5-
(c) FINANCIAL CONDITION. There shall have been no material adverse
change, as determined by Bank, in the financial condition or business of
Borrower, nor any material decline, as determined by Bank, in the market
value of any collateral required hereunder or a substantial or material
portion of the assets of Borrower.
(d) INSURANCE. Borrower shall have delivered to Bank evidence of
insurance coverage on all Borrower's property, in form, substance, amounts,
covering risks and issued by companies satisfactory to Bank, and where
required by Bank, with loss payable endorsements in favor of Bank.
SECTION 3.2. CONDITIONS OF EACH EXTENSION OF CREDIT. The obligation
of Bank to make each extension of credit requested by Borrower hereunder
shall be subject to the fulfillment to Bank's satisfaction of each of the
following conditions:
(a) COMPLIANCE. The representations and warranties contained herein
and in each of the other Loan Documents shall be true on and as of the date
of the signing of this Agreement and on the date of each extension of credit
by Bank pursuant hereto, with the same effect as though such representations
and warranties had been made on and as of each such date, and on each such
date, no Event of Default as defined herein, and no condition, event or act
which with the giving of notice or the passage of time or both would
constitute such an Event of Default, shall have occurred and be continuing or
shall exist.
(b) DOCUMENTATION. Bank shall have received all additional documents
which may be required in connection with such extension of credit.
ARTICLE IV
AFFIRMATIVE COVENANTS
Borrower covenants that so long as Bank remains committed to extend
credit to Borrower pursuant hereto, or any liabilities (whether direct or
contingent, liquidated or unliquidated) of Borrower to Bank under any of the
Loan Documents remain outstanding, and until payment in full of all
obligations of Borrower subject hereto, Borrower shall, unless Bank otherwise
consents in writing:
SECTION 4.1. PUNCTUAL PAYMENTS. Punctually pay all principal,
interest, fees or other liabilities due under any of the Loan Documents at
the times and place and in the manner specified therein.
SECTION 4.2. ACCOUNTING RECORDS. Maintain adequate books and records
in accordance with generally accepted accounting
-6-
principles consistently applied, and permit any representative of Bank, at
any reasonable time, to inspect, audit and examine such books and records, to
make copies of the same, and to inspect the properties of Borrower.
SECTION 4.3. FINANCIAL STATEMENTS. Provide to Bank all of the
following, in form and detail satisfactory to Bank:
(a) not later than 120 days after and as of the end of each fiscal
year, an audited consolidated financial statement of Borrower and
Schlotzsky's Real Estate, Inc., prepared by certified public accountant, to
include balance sheet, income statement, statement of cash flows and 10-K
reports;
(b) not later than 45 days after and as of the end of each quarter, a
consolidated financial statement of Borrower and Schlotzsky's Real Estate,
Inc., prepared by Borrower, to include balance sheet, income statement and
10-K reports;
(c) contemporaneously with each quarter financial statement of Borrower
required hereby, a certificate of the president or chief financial officer of
Borrower stating (a) that said financial statements are accurate and that
there exists no Event of Default nor any condition, act or event which with
the giving of notice or the passage of time or both would constitute an Event
of Default and (b) showing the calculations for the covenants set forth in
Section 4.9 below;
(d) from time to time such other information as Bank may reasonably
request.
SECTION 4.4. COMPLIANCE. Preserve and maintain all licenses, permits,
governmental approvals, rights, privileges and franchises necessary for the
conduct of its business; and comply with the provisions of all documents
pursuant to which Borrower is organized and/or which govern Borrower's
continued existence and with the requirements of all laws, rules, regulations
and orders of any governmental authority applicable to Borrower and/or its
business.
SECTION 4.5. INSURANCE. Maintain and keep in force insurance of the
types and in amounts customarily carried in lines of business similar to that
of Borrower, including but not limited to fire, extended coverage, public
liability, flood, property damage and workers' compensation, with all such
insurance carried with companies and in amounts satisfactory to Bank, and
deliver to Bank from time to time at Bank's request schedules setting forth
all insurance then in effect.
-7-
SECTION 4.6. FACILITIES. Keep all properties useful or necessary to
Borrower's business in good repair and condition, and from time to time make
necessary repairs, renewals and replacements thereto so that such properties
shall be fully and efficiently preserved and maintained.
SECTION 4.7. TAXES AND OTHER LIABILITIES. Pay and discharge when due
any and all indebtedness, obligations, assessments and taxes, both real or
personal, including without limitation federal and state income taxes and
state and local property taxes and assessments, except such (a) as Borrower
may in good faith contest or as to which a bona fide dispute may arise, and
(b) for which Borrower has made provision, to Bank's satisfaction, for
eventual payment thereof in the event Borrower is obligated to make such
payment.
SECTION 4.8. LITIGATION. Promptly give notice in writing to Bank of
any litigation pending or threatened against Borrower with a claim in excess
of $100,000.00.
SECTION 4.9. FINANCIAL CONDITION. Maintain Borrower's financial
condition as follows using generally accepted accounting principles
consistently applied and used consistently with prior practices (except to
the extent modified by the definitions herein):
(a) Working Capital not at any time less than $12,000,000.00, with
"Working Capital" defined as total current assets minus total current
liabilities.
(b) Total Liabilities divided by Tangible Net Worth not at any time
greater than .90 to 1.0, with "Total Liabilities" defined as the aggregate of
current liabilities and non-current liabilities less subordinated debt, and
with "Tangible Net Worth" defined as the aggregate of total stockholders'
equity plus subordinated debt less any intangible assets.
(c) EBITDA Coverage Ratio not less than 2.0 to 1.0 as of each fiscal
year end, with "EBITDA" defined as net profit before tax plus interest
expense (net of capitalized interest expense), depreciation expense and
amortization expense, and with "EBITDA Coverage Ratio" defined as EBITDA
divided by the aggregate of total interest expense plus the prior period
current maturity of long-term debt and the prior period current maturity of
subordinated debt.
(d) EBITDA Borrowing Ratio not less than 2.0 to 1.0 as of the end of
each fiscal quarter, with "EBITDA" as defined above and calculated as of the
end of the preceding four fiscal quarters, and with "EBITDA Borrowing Ratio"
defined as the outstanding principal balance of the Revolving Line of Credit
divided by EBITDA.
-8-
SECTION 4.10. NOTICE TO BANK. Promptly (but in no event more than five
(5) days after the occurrence of each such event or matter) give written
notice to Bank in reasonable detail of: (a) the occurrence of any Event of
Default, or any condition, event or act which with the giving of notice or
the passage of time or both would constitute an Event of Default; (b) any
change in the name or the organizational structure of Borrower; (c) the
occurrence and nature of any Reportable Event or Prohibited Transaction, each
as defined in ERISA, or any funding deficiency with respect to any Plan; or
(d) any termination or cancellation of any insurance policy which Borrower is
required to maintain, or any uninsured or partially uninsured loss through
liability or property damage, or through fire, theft or any other cause
affecting Borrower's property in excess of an aggregate of $500,000.00.
ARTICLE V
NEGATIVE COVENANTS
Borrower further covenants that so long as Bank remains committed to
extend credit to Borrower pursuant hereto, or any liabilities (whether direct
or contingent, liquidated or unliquidated) of Borrower to Bank under any of
the Loan Documents remain outstanding, and until payment in full of all
obligations of Borrower subject hereto, Borrower will not without Bank's
prior written consent:
SECTION 5.1. USE OF FUNDS. Use any of the proceeds of any of the
Credits except for the purposes stated in Article I hereof.
SECTION 5.2. OTHER INDEBTEDNESS. Create, incur, assume or permit to
exist any indebtedness or liabilities resulting from borrowings, loans or
advances, whether secured or unsecured, matured or unmatured, liquidated or
unliquidated, joint or several, except (a) the liabilities of Borrower to
Bank, and (b) the liabilities of Borrower existing as of the date hereof and
listed on Exhibit C to this Agreement, and (c) other liabilities not to
exceed an aggregate principal amount of $3,000,000.00.
SECTION 5.3. MERGER, CONSOLIDATION, TRANSFER OF ASSETS. Merge into or
consolidate with any other entity; make any substantial change in the nature
of Borrower's business as conducted as of the date hereof; acquire all or
substantially all of the assets of any other entity; nor sell, lease,
transfer or otherwise dispose of all or a substantial or material portion of
Borrower's assets except in the ordinary course of its business.
-9-
SECTION 5.4. PLEDGE OF ASSETS. Mortgage, pledge, grant or permit to
exist a security interest in, or lien upon, all or any portion of Borrower's
assets now owned or hereafter acquired, except (a) any of the foregoing in
favor of Bank, (b) any of the foregoing existing as of the date hereof and
listed on Exhibit C to this Agreement, (c) purchase money security interests
granted in the ordinary course of business, and (d) liens granted on the
Borrower's real property.
ARTICLE VI
EVENTS OF DEFAULT
SECTION 6.1. The occurrence of any of the following shall constitute
an "Event of Default" under this Agreement:
(a) Borrower shall fail to pay when due any principal, interest, fees
or other amounts payable under any of the Loan Documents.
(b) Any financial statement or certificate furnished to Bank in
connection with, or any representation or warranty made by Borrower or any
other party under this Agreement or any other Loan Document shall prove to be
incorrect, false or misleading in any material respect when furnished or made.
(c) Any default in the performance of or compliance with any
obligation, agreement or other provision contained herein or in any other
Loan Document (other than those referred to in subsections (a) and (b)
above), and with respect to any such default which by its nature can be
cured, such default shall continue for a period of twenty (20) days from its
occurrence.
(d) Any default in the payment or performance of any obligation, or any
defined event of default, under the terms of any contract or instrument
(other than any of the Loan Documents) pursuant to which Borrower has
incurred any debt or other liability to any person or entity, including Bank.
(e) The filing of a notice of judgment lien against Borrower; or the
recording of any abstract of judgment against Borrower in any county in which
Borrower has an interest in real property; or the service of a notice of levy
and/or of a writ of attachment or execution, or other like process, against
the assets of Borrower; or the entry of a judgment against Borrower.
(f) Borrower shall become insolvent, or shall suffer or consent to or
apply for the appointment of a receiver, trustee, custodian or liquidator of
itself or any of its property, or shall generally fail to pay its debts as
they become due, or
-10-
shall make a general assignment for the benefit of creditors; Borrower shall
file a voluntary petition in bankruptcy, or seeking reorganization, in order
to effect a plan or other arrangement with creditors or any other relief
under the Bankruptcy Reform Act, Title 11 of the United States Code, as
amended or recodified from time to time ("Bankruptcy Code"), or under any
state or federal law granting relief to debtors, whether now or hereafter in
effect; or any involuntary petition or proceeding pursuant to the Bankruptcy
Code or any other applicable state or federal law relating to bankruptcy,
reorganization or other relief for debtors is filed or commenced against
Borrower, or Borrower shall file an answer admitting the jurisdiction of the
court and the material allegations of any involuntary petition; or Borrower
shall be adjudicated a bankrupt, or an order for relief shall be entered
against Borrower by any court of competent jurisdiction under the Bankruptcy
Code or any other applicable state or federal law relating to bankruptcy,
reorganization or other relief for debtors.
(g) There shall exist or occur any event or condition which Bank in
good faith believes impairs, or is substantially likely to impair, the
prospect of payment or performance by Borrower of its obligations under any
of the Loan Documents.
(h) The death or incapacity of Borrower. The dissolution or
liquidation of Borrower; or Borrower, or any of its directors, stockholders
or members, shall take action seeking to effect the dissolution or
liquidation of Borrower.
(i) Any change in ownership during the term of this Agreement of an
aggregate of twenty-five percent (25%) or more of the common stock of
Borrower.
SECTION 6.2. REMEDIES. Upon the occurrence of any Event of Default:
(a) all principal and accrued and unpaid interest outstanding under each of
the Loan Documents, any term thereof to the contrary notwithstanding, shall
at Bank's option and without notice become immediately due and payable
without presentment, demand, or any notices of any kind, including without
limitation notice of nonperformance, notice of protest, protest, notice of
dishonor, notice of intention to accelerate or notice of acceleration, all of
which are hereby expressly waived by each Borrower; (b) the obligation, if
any, of Bank to extend any further credit under any of the Loan Documents
shall immediately cease and terminate; and (c) Bank shall have all rights,
powers and remedies available under each of the Loan Documents, or accorded
by law, including without limitation the right to resort to any or all
security for any of the Credits and to exercise any or all of the rights of a
beneficiary or secured party pursuant to applicable law. All rights, powers
and remedies of Bank may be exercised at any time by Bank and from time to
time after the
-11-
occurrence of an Event of Default, are cumulative and not exclusive, and
shall be in addition to any other rights, powers or remedies provided by law
or equity.
ARTICLE VII
MISCELLANEOUS
SECTION 7.1. NO WAIVER. No delay, failure or discontinuance of Bank
in exercising any right, power or remedy under any of the Loan Documents
shall affect or operate as a waiver of such right, power or remedy; nor shall
any single or partial exercise of any such right, power or remedy preclude,
waive or otherwise affect any other or further exercise thereof or the
exercise of any other right, power or remedy. Any waiver, permit, consent or
approval of any kind by Bank of any breach of or default under any of the
Loan Documents must be in writing and shall be effective only to the extent
set forth in such writing.
SECTION 7.2. NOTICES. All notices, requests and demands which any
party is required or may desire to give to any other party under any
provision of this Agreement must be in writing delivered to each party at the
following address:
BORROWER: SCHLOTZSKY'S, INC.
200 West Fourth Street
Austin, TX 78701
BANK: WELLS FARGO BANK (TEXAS),
NATIONAL ASSOCIATION
Central Texas RCBO - Austin
100 Congress, Suite 150
Austin, TX 78701
or to such other address as any party may designate by written notice to all
other parties. Each such notice, request and demand shall be deemed given or
made as follows: (a) if sent by hand delivery, upon delivery; (b) if sent by
mail, upon the earlier of the date of receipt or three (3) days after deposit
in the U.S. mail, first class and postage prepaid; and (c) if sent by
telecopy, upon receipt.
SECTION 7.3. COSTS, EXPENSES AND ATTORNEYS' FEES. Borrower shall pay
to Bank immediately upon demand the full amount of all payments, advances,
charges, costs and expenses, including reasonable attorneys' fees (to include
outside counsel fees and all allocated costs of Bank's in-house counsel to
the extent permissible), expended or incurred by Bank in connection with (a)
the negotiation and preparation of this Agreement and the other Loan
Documents, Bank's continued administration hereof
-12-
and thereof, and the preparation of any amendments and waivers hereto and
thereto, (b) the enforcement of Bank's rights and/or the collection of any
amounts which become due to Bank under any of the Loan Documents, and (c) the
prosecution or defense of any action in any way related to any of the Loan
Documents, including without limitation, any action for declaratory relief,
whether incurred at the trial or appellate level, in an arbitration
proceeding or otherwise, and including any of the foregoing incurred in
connection with any bankruptcy proceeding (including without limitation, any
adversary proceeding, contested matter or motion brought by Bank or any other
person) relating to any Borrower or any other person or entity.
SECTION 7.4. SUCCESSORS, ASSIGNMENT. This Agreement shall be binding
upon and inure to the benefit of the heirs, executors, administrators, legal
representatives, successors and assigns of the parties; provided however,
that Borrower may not assign or transfer its interest hereunder without
Bank's prior written consent. Bank reserves the right to sell, assign,
transfer, negotiate or grant participations in all or any part of, or any
interest in, Bank's rights and benefits under each of the Loan Documents. In
connection therewith, Bank may disclose all documents and information which
Bank now has or may hereafter acquire relating to any of the Credits,
Borrower or its business, [any guarantor hereunder or the business of such
guarantor,] or any collateral required hereunder.
SECTION 7.5. AMENDMENT. This Agreement may be amended or modified
only in writing signed by each party hereto.
SECTION 7.6. NO THIRD PARTY BENEFICIARIES. This Agreement is made and
entered into for the sole protection and benefit of the parties hereto and
their respective permitted successors and assigns, and no other person or
entity shall be a third party beneficiary of, or have any direct or indirect
cause of action or claim in connection with, this Agreement or any other of
the Loan Documents to which it is not a party.
SECTION 7.7. TIME. Time is of the essence of each and every provision
of this Agreement and each other of the Loan Documents.
SECTION 7.8. SEVERABILITY OF PROVISIONS. If any provision of this
Agreement shall be prohibited by or invalid under applicable law, such
provision shall be ineffective only to the extent of such prohibition or
invalidity without invalidating the remainder of such provision or any
remaining provisions of this Agreement.
SECTION 7.9. COUNTERPARTS. This Agreement may be executed in any number
of counterparts, each of which when executed and
-13-
delivered shall be deemed to be an original, and all of which when taken
together shall constitute one and the same Agreement.
SECTION 7.10. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Texas.
SECTION 7.11. SAVINGS CLAUSE. It is the intention of the parties to
comply strictly with applicable usury laws. Accordingly, notwithstanding any
provision to the contrary in the Loan Documents, in no event shall any Loan
Documents require the payment or permit the payment, taking, reserving,
receiving, collection or charging of any sums constituting interest under
applicable laws that exceed the maximum amount permitted by such laws, as the
same may be amended or modified from time to time (the "Maximum Rate"). If
any such excess interest is called for, contracted for, charged, taken,
reserved or received in connection with any Loan Documents, or in any
communication by or any other person to Borrower or any other person, or in
the event that all or part of the principal or interest hereof or thereof
shall be prepaid or accelerated, so that under any of such circumstances or
under any other circumstance whatsoever the amount of interest contracted
for, charged, taken, reserved or received on the amount of principal actually
outstanding from time to time under the Loan Documents shall exceed the
Maximum Rate, then in such event it is agreed that: (i) the provisions of
this paragraph shall govern and control; (ii) neither Borrower nor any other
person or entity now or hereafter liable for the payment of any Loan
Documents shall be obligated to pay the amount of such interest to the extent
it is in excess of the Maximum Rate; (iii) any such excess interest which is
or has been received by Bank, notwithstanding this paragraph, shall be
credited against the then unpaid principal balance hereof or thereof, or if
any of the Loan Documents has been or would be paid in full by such credit,
refunded to Borrower; and (iv) the provisions of each of the Loan Documents,
and any other communication to Borrower, shall immediately be deemed reformed
and such excess interest reduced, without the necessity of executing any
other document, to the Maximum Rate. The right to accelerate the maturity of
the Loan Documents does not include the right to accelerate, collect or
charge unearned interest, but only such interest that has otherwise accrued
as of the date of acceleration. Without limiting the foregoing, all
calculations of the rate of interest contracted for, charged, taken, reserved
or received in connection with any of the Loan Documents which are made for
the purpose of determining whether such rate exceeds the Maximum Rate shall
be made to the extent permitted by applicable laws by amortizing, prorating,
allocating and spreaing during the period of the full term of such Loan
Documents, including all prior and subsequent renewals and extensions hereof
or thereof, all interest at any time contracted for, charged, taken, reserved
or received by Bank. The terms of
-14-
this paragraph shall be deemed to be incorporated into each of the other Loan
Documents.
To the extent that Article 5069-1.04 of the Texas Revised Civil Statutes
is relevant to Bank for the purpose of determining the Maximum Rate, Bank
hereby elects to determine the applicable rate ceiling under such Article by
the indicated (weekly) rate ceiling from time to time in effect, subject to
Bank's right subsequently to change such method in accordance with applicable
law, as the same may be amended or modified from time to time.
SECTION 7.12. RIGHT OF SETOFF; DEPOSIT ACCOUNTS. Upon and after the
occurrence of an Event of Default, (a) Borrower hereby authorizes Bank, at
any time and from time to time, without notice, which is hereby expressly
waived by each Borrower, and whether or not Bank shall have declared the
Credits to be due and payable in accordance with the terms hereof, to set off
against, and to appropriate and apply to the payment of, Borrower's
obligations and liabilities under the Loan Documents (whether matured or
unmatured, fixed or contingent, liquidated or unliquidated), any and all
amounts owing by Bank to Borrower (whether payable in U.S. dollars or any
other currency, whether matured or unmatured, and in the case of deposits,
whether general or special (except trust and escrow accounts), time or demand
and however evidenced), and (b) pending any such action, to the extent
necessary, to hold such amounts as collateral to secure such obligations and
liabilities and to return as unpaid for insufficient funds any and all checks
and other items drawn against any deposits so held as Bank, in its sole
discretion, may elect. Borrower hereby grants to Bank a security interest in
all deposits and accounts maintained with Bank and with any other financial
institution to secure the payment of all obligations and liabilities of
Borrower to Bank under the Loan Documents.
SECTION 7.13. BUSINESS PURPOSE. Borrower represents and warrants that
the Credits are for a business, commercial, investment, agricultural or other
similar purpose and not primarily for a personal, family or household use.
SECTION 7.14. ARBITRATION.
(a) ARBITRATION. Upon the demand of any party, any Dispute shall be
resolved by binding arbitration (except as set forth in (e) below) in
accordance with the terms of this Agreement. A "Dispute" shall mean any
action, dispute, claim or controversy of any kind, whether in contract or
tort, statutory or common law, legal or equitable, now existing or hereafter
arising under or in connection with, or in any way pertaining to, any of the
Loan Documents, or any past, present or future extensions of credit and other
activities, transactions or obligations of any kind related directly or
indirectly to any of the Loan Documents, including without limitation, any of
the foregoing arising in
-15-
connection with the exercise of any self-help, ancillary or other remedies
pursuant to any of the Loan Documents. Any party may by summary proceedings
bring an action in court to compel arbitration of a Dispute. Any party who
fails or refuses to submit to arbitration following a lawful demand by any
other party shall bear all costs and expenses incurred by such other party in
compelling arbitration of any Dispute.
(b) GOVERNING RULES. Arbitration proceedings shall be administered by
the American Arbitration Association ("AAA") or such other administrator as
the parties shall mutually agree upon in accordance with the AAA Commercial
Arbitration Rules. All Disputes submitted to arbitration shall be resolved
in accordance with the Federal Arbitration Act (Title 9 of the United States
Code), notwithstanding any conflicting choice of law provision in any of the
Loan Documents. The arbitration shall be conducted at a location in Texas
selected by the AAA or other administrator. If there is any inconsistency
between the terms hereof and any such rules, the terms and procedures set
forth herein shall control. All statutes of limitation applicable to any
Dispute shall apply to any arbitration proceeding. All discovery activities
shall be expressly limited to matters directly relevant to the Dispute being
arbitrated. Judgment upon any award rendered in an arbitration may be
entered in any court having jurisdiction; provided however, that nothing
contained herein shall be deemed to be a waiver by any party that is a bank
of the protections afforded to it under 12 U.S.C. Section 91 or any similar
applicable state law.
(c) NO WAIVER; PROVISIONAL REMEDIES, SELF-HELP AND FORECLOSURE. No
provision hereof shall limit the right of any party to exercise self-help
remedies such as setoff, foreclosure against or sale of any real or personal
property collateral or security, or to obtain provisional or ancillary
remedies, including without limitation injunctive relief, sequestration,
attachment, garnishment or the appointment of a receiver, from a court of
competent jurisdiction before, after or during the pendency of any
arbitration or other proceeding. The exercise of any such remedy shall not
waive the right of any party to compel arbitration hereunder.
(d) ARBITRATOR QUALIFICATIONS AND POWERS; AWARDS. Arbitrators must be
active members of the Texas State Bar with expertise in the substantive laws
applicable to the subject matter of the Dispute. Arbitrators are empowered
to resolve Disputes by summary rulings in response to motions filed prior to
the final arbitration hearing. Arbitrators (i) shall resolve all Disputes in
accordance with the substantive law of the state of Texas, (ii) may grant any
remedy or relief that a court of the state of Texas could order or grant
within the scope hereof and such ancillary relief as is necessary to make
effective any award, and (iii) shall have the power to award recovery of all
-16-
costs and fees, to impose sanctions and to take such other actions as they
deem necessary to the same extent a judge could pursuant to the Federal Rules
of Civil Procedure, the Texas Rules of Civil Procedure or other applicable
law. Any Dispute in which the amount in controversy is $5,000,000 or less
shall be decided by a single arbitrator who shall not render an award of
greater than $5,000,000 (including damages, costs, fees and expenses). By
submission to a single arbitrator, each party expressly waives any right or
claim to recover more than $5,000,000. Any Dispute in which the amount in
controversy exceeds $5,000,000 shall be decided by majority vote of a panel
of three arbitrators; provided however, that all three arbitrators must
actively participate in all hearings and deliberations.
(e) JUDICIAL REVIEW. Notwithstanding anything herein to the contrary,
in any arbitration in which the amount in controversy exceeds $25,000,000,
the arbitrators shall be required to make specific, written findings of fact
and conclusions of law. In such arbitrations (i) the arbitrators shall not
have the power to make any award which is not supported by substantial
evidence or which is based on legal error, (ii) an award shall not be binding
upon the parties unless the findings of fact are supported by substantial
evidence and the conclusions of law are not erroneous under the substantive
law of the state of Texas, and (iii) the parties shall have in addition to
the grounds referred to in the Federal Arbitration Act for vacating,
modifying or correcting an award the right to judicial review of (A) whether
the findings of fact rendered by the arbitrators are supported by substantial
evidence, and (B) whether the conclusions of law are erroneous under the
substantive law of the state of Texas. Judgment confirming an award in such
a proceeding may be entered only if a court determines the award is supported
by substantial evidence and not based on legal error under the substantive
law of the state of Texas.
(f) MISCELLANEOUS. To the maximum extent practicable, the AAA, the
arbitrators and the parties shall take all action required to conclude any
arbitration proceeding within 180 days of the filing of the Dispute with the
AAA. No arbitrator or other party to an arbitration proceeding may disclose
the existence, content or results thereof, except for disclosures of
information by a party required in the ordinary course of its business, by
applicable law or regulation, or to the extent necessary to exercise any
judicial review rights set forth herein. If more than one agreement for
arbitration by or between the parties potentially applies to a Dispute, the
arbitration provision most directly related to the Loan Documents or the
subject matter of the Dispute shall control. This arbitration provision
shall survive termination, amendment or expiration of any of the Loan
Documents or any relationship between the parties.
-17-
NOTICE: THIS DOCUMENT AND ALL OTHER DOCUMENTS RELATING TO THE INDEBTEDNESS
CONSTITUTE A WRITTEN LOAN AGREEMENT WHICH REPRESENTS THE FINAL AGREEMENT
BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO
UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES RELATING TO THE INDEBTEDNESS.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year first written above.
WELLS FARGO BANK (TEXAS),
SCHLOTZSKY'S, INC. NATIONAL ASSOCIATION
By: By:
------------------------- --------------------------
John C. Wooley Keith Smith
Chief Executive Officer Vice President
FIRST AMENDMENT TO CREDIT AGREEMENT
THIS FIRST AMENDMENT TO CREDIT AGREEMENT (this "Amendment") is entered
into as of September 26, 1997, by and between SCHLOTZSKY'S, INC., a Texas
corporation ("Borrower"), and WELLS FARGO BANK (TEXAS), NATIONAL ASSOCIATION
("Bank").
RECITALS
WHEREAS, Borrower is currently indebted to Bank pursuant to the terms
and conditions of that certain Credit Agreement between Borrower and Bank
dated as of June 27, 1997, as amended from time to time ("Credit Agreement").
WHEREAS, Bank and Borrower have agreed to certain changes in the terms
and conditions set forth in the Credit Agreement and have agreed to amend the
Credit Agreement to reflect said changes.
NOW, THEREFORE, for valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties hereto agree that the Credit
Agreement shall be amended as follows:
1. The following is hereby added to the Credit Agreement as Section
1.1(c):
(c) FRANCHISEE NOTE SUBFEATURE. (i) As a subfeature under the Line
of Credit, Bank agrees from time to time during the term thereof to
make loans (each a "Franchisee Loan" and collectively, the "Franchisee
Loans") to certain franchisees or area distributors (each a
"Franchisee") of Borrower to finance the payment of leasehold
improvements to Borrower. Such loans will be evidenced by promissory
notes (each a "Franchisee Note" and collectively, "Franchisee Notes")
in the form attached hereto as Exhibit "C"; provided however, that the
aggregate amount of all outstanding Franchisee Notes shall not at any
time exceed Four Million Dollars ($4,000,000.00). Each Franchisee
Loan shall be in a minimum amount of Two Hundred Thousand Dollars
($200,000.00). The aggregate principal amount of all Franchisee Notes
shall be reserved under the Line of Credit and shall not be available
for borrowings thereunder.
(ii) Each Franchisee Note shall be issued for a term of one hundred
eighty (180) days, and may be renewed one (1) time for another one
hundred eighty days upon payment of the fee required by Section 1.3(d)
of this
Agreement; provided however, that no Franchisee Note, or renewal thereof,
shall have an expiration date subsequent to the maturity date of the Line
of Credit. Each Franchisee Note shall be subject to the additional terms
and conditions of this agreement or other document, if any, required by
Borrower in connection with the issuance thereof (each a "Franchisee Note
Agreement" and collectively, "Franchisee Note Agreements").
(iii) Borrower acknowledges and agrees that the agreements and other
provisions of this Agreement and the guaranty of all Franchisee Loans
by Borrower are material inducements to Bank's decision whether to
make any Franchisee Loan. Borrower agrees to guarantee and does
hereby unconditionally guarantee the payment of all Franchisee Loan
amounts, including future Franchisee Loans, until all such
indebtedness is fully and finally paid. Borrower agrees that all of
the terms and provisions of the Guaranty of Franchise Note form
(attached hereto as Exhibit "D" and incorporated herein for all
purposes) shall be and are hereby incorporated by reference as the
terms and provisions of this guarantee by Borrower of the Franchisee
Loan amounts.
(iv) Borrower represents and warrants that the persons whose names
are signed as borrowers with respect to Franchisee Loans shall be
franchisees or area distributors of Borrower, their signatures shall
be genuine, and their authority and competence to execute all
Franchisee Loan documents shall be genuine and legally sufficient.
Borrower agrees to assure that all provisions of the Franchisee Note
and funding conditions are adequately explained to each Franchisee
borrower, agrees to not make any misrepresentations in connection with
the execution of any note or loan documents, and agrees not to make or
purport to make any representations on behalf of Bank or enter into
any oral agreements with any borrower that might be construed as
having been made by or on behalf of Bank. Bank may, from time to
time and in its sole discretion, revise the form of the note and other
documents used for Franchisee Loans. Borrower agrees to maintain a
deposit account with Bank which shall be used for the funding of
Franchisee Loans; all advances may be funded by Bank into said deposit
account, with Borrower being responsible for promptly making such
funds available to the Franchisee borrowers. Borrower shall maintain
reliable records of all Franchisee Loans and the balances of such
loans. Borrower agrees that when a Franchisee Loan is to be paid off,
Borrower
-20-
shall be responsible for identifying each specific Franchisee Loan to be
paid off, obtaining the correct payoff quote for each such loan, and
delivering the correct sum to Bank to accomplish the full payment of such
Franchisee Loans.
(v) The obligation of the Bank to make any Franchisee Loan shall be
conditioned upon Bank's receipt of (A) an executed Franchisee Note,
with all blanks filled in, (B) an executed Guaranty of Franchisee
Note in the form attached hereto as Exhibit "D" with all blanks filled
in, and (C) a completed and executed corporate resolution of Borrower
authorizing the Guaranty of the applicable Franchise Note. Borrower
will review and approve all executed Franchisee Loan documents before
submitting them to Bank. Borrower will not change the form of such
documents without Bank's prior written consent.
(vi) Borrower agrees to promptly pay the outstanding indebtedness of
any Franchisee Loan under any circumstance by which the amount of any
Franchisee Loan becomes due and payable, including without limitation,
upon maturity if not renewed, or by acceleration after default. In
addition, Borrower agrees to purchase all Franchisee Loans or pay to
Bank all Franchisee Loan amounts within 10 days of Bank's request for
same upon the occurrence of an Event of Default under this Agreement.
Upon the occurrence of an Event of Default, any and all
obligations of Bank relating to the Franchisee Loans shall immediately
terminate and, at Bank's option, Bank may demand that within ten (10)
days all Franchisee Notes be paid in full by Borrower or that all
Franchisee Loans be purchased from Bank by Borrower without recourse
for the full outstanding balance of all indebtedness under such
Franchisee Loans, except that in the case of an Event of Default of a
type involving insolvency, such demand shall be understood as
occurring automatically, without the necessity of any action by Bank.
If, after default and demand as specified above, Borrower fails
to timely pay or purchase all Franchisee Loans, including all matured
and unmatured Franchisee Notes, then Bank may advance under the Line
of Credit the full amount of the Franchisee Loans to effect the
payment or purchase of such Franchisee Loans by Borrower, and such
sums (plus interest thereon as it accrues) shall be deemed to be an
advance under the
-21-
Line of Credit and due and payable as provided therefor.
(vii) Borrower agrees to keep Franchisee Loan documentation,
guaranties and other forms safe and secure. Borrower agrees that
Borrower nor any employee of Borrower, are agents of Bank, and that
they are not authorized or empowered to act for or on behalf of Bank
in any respect. Their actions with respect to the loan application,
documentation and funding process are performed for or on behalf of
themselves and/or Franchisee borrowers.
(viii) INDEMNIFICATION. BORROWER AGREES TO INDEMNIFY BANK AND HOLD
BANK HARMLESS OF AND FROM ANY AND ALL CLAIMS, CAUSES OF ACTION,
LIABILITIES AND DAMAGES, INCLUDING ATTORNEY'S FEES, WHICH MAY BE
ASSERTED AGAINST BANK OR BANK'S OFFICERS, DIRECTORS, EMPLOYEES,
AGENTS, ATTORNEYS, PARENT CORPORATION OR AFFILIATES BY ANY FRANCHISEE
IN CONNECTION WITH ANY FRANCHISEE LOAN, EXCEPTING ONLY CLAIMS DUE
SOLELY TO GROSS NEGLIGENCE OR INTENTIONAL MISCONDUCT OF BANK.
2. The following is hereby added to the Credit Agreement as
Section 1.3(d):
(d) FRANCHISEE LOAN FEES. (i) Borrower shall pay to Bank a fee upon
the making of each Franchisee Loan equal to one percent (1.00%) of the
face amount thereof. Such fee shall be due and payable immediately
upon the making of each Franchisee Loan. (ii) Borrower shall pay to
Bank fees upon the renewal of each Franchisee Loan equal to one-half
of one percent (0.50%) of the face amount thereof. Such fee shall be
due and payable immediately upon the renewal of each Franchisee Loan.
3. The following is hereby added to the Credit Agreement as
Section 6.1(j):
(j) The nonpayment of any Franchisee Loan within five (5) days of its
maturity. A Franchisee Loan may be paid by renewal only once and then
only upon compliance with the conditions of any such renewals set
forth herein.
4. Annexes "I", and "II" hereto are hereby added to the Credit Agreement
as Exhibits "C", and "D" respectively.
-22-
5. Except as specifically provided herein, all terms and conditions of
the Credit Agreement remain in full force and effect, without waiver or
modification. All terms defined in the Credit Agreement shall have the same
meaning when used in this Amendment. This Amendment and the Credit Agreement
shall be read together, as one document.
6. Borrower hereby remakes all representations and warranties contained
in the Credit Agreement and reaffirms all covenants set forth therein.
Borrower further certifies that as of the date of this Amendment there exists
no Event of Default as defined in the Credit Agreement, nor any condition,
act or event which with the giving of notice or the passage of time or both
would constitute any such Event of Default.
NOTICE: THIS DOCUMENT AND ALL OTHER DOCUMENTS RELATING TO THE INDEBTEDNESS
CONSTITUTE A WRITTEN LOAN AGREEMENT WHICH REPRESENTS THE FINAL AGREEMENT
BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO
UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES RELATING TO THE INDEBTEDNESS.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed as of the day and year first written above.
WELLS FARGO BANK (TEXAS),
SCHLOTSZKY'S, INC. NATIONAL ASSOCIATION
By: By:
--------------------------- ------------------------------
John C. Wooley Keith Smith
Chief Executive Officer Vice President
SECOND AMENDMENT TO CREDIT AGREEMENT
THIS SECOND AMENDMENT TO CREDIT AGREEMENT (this "Amendment") is entered
into as of April 7, 1998, by and between SCHLOTZKY'S, INC., a Texas
corporation ("Borrower"), and WELLS FARGO BANK (TEXAS), NATIONAL ASSOCIATION
("Bank").
RECITALS
WHEREAS, Borrower is currently indebted to Bank pursuant to the terms
and conditions of that certain Credit Agreement between Borrower and Bank
dated as of June 27, 1997, as amended by that certain First Amendment to
Credit Agreement between Borrower and Bank dated as of September 26, 1997
(collectively, the "Credit Agreement").
WHEREAS, Bank and Borrower have agreed to certain changes in the terms
and conditions set forth in the Credit Agreement and have agreed to amend the
Credit Agreement to reflect said changes.
NOW, THEREFORE, for valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties hereto agree that the Credit
Agreement shall be amended as follows:
1. Section 1.1(c) of the Credit Agreement is deleted in its entirety
and the following is substituted therefor:
(c) FRANCHISEE NOTE SUBFEATURE. (i) As a subfeature under the Line
of Credit, Bank agrees from time to time during the term thereof to
make loans to certain franchisees or area distributors (each a
"Franchisee") of Borrower. Such loans shall be for the purpose of
financing (A) the payment to Borrower by a franchisee or an area
distributor for leasehold improvements (the "Leasehold Loans"), or (B)
construction of new restaurants and the purchase of furniture,
fixtures and equipment related thereto by a franchisee (the
"Construction Loans"). Each Leasehold Loan will be evidenced by a
promissory note (each a "Leasehold Note" and collectively, "Leasehold
Notes") in the form attached hereto as Exhibit "C-1". Each
Construction Loan will be evidenced by a promissory note (each a
"Construction Note" and collectively, "Construction Notes") in the
form attached hereto as Exhibit "C-2" (the Leasehold Notes and the
Construction Notes, each a "Franchisee Note" and collectively, the
"Franchisee Notes"); provided however, that the aggregate amount of
all outstanding Franchisee Notes shall not at any time exceed Twelve
Million Dollars ($12,000,000.00).
Each Franchisee Loan shall be in a minimum amount of Two Hundred
Thousand Dollars ($200,000.00). The aggregate principal amount of all
Franchisee Notes shall be reserved under the Line of Credit and shall
not be available for borrowings thereunder.
2. Section 1.1(c) of the Credit Agreement is deleted in its entirety
and the following is substituted therefor:
Borrower specifically acknowledges and agrees that Bank has made no
investigation as to the creditworthiness of any Franchisee and that
Bank would make no Franchisee Loan without the guarantee of such loans
by Borrower. Borrower represents and warrants that Borrower has
established adequate means of obtaining from each Franchisee on a
continuing basis financial and other information pertaining to such
Franchisee's financial condition. Borrower agrees to keep adequately
informed from such means of any facts, events or circumstances which
might in any way affect Borrower's risks hereunder or under any
related Guaranty of Franchisee Note, and Borrower further agrees that
Bank shall have no obligation to disclose to Borrower any information
or material about any Franchisee that is acquired by Bank in any
manner.
3. Section 4.9(d) of the Credit Agreement is deleted in its entirety
and the following is substituted therefor:
(d) EBITDA Borrowing Ratio not less than 2.0 to 1.0 as of the
end of each fiscal quarter, with "EBITDA" as defined above and
calculated as of the end of the preceding four fiscal quarters, and
with "EBITDA Borrowing Ratio" defined as the outstanding principal
balance of the Revolving Line of Credit plus the aggregate principal
amount of funded and unfunded portions of Franchisee Loans divided by
EBITDA.
4. Exhibit "C" is hereby deleted in its entirety, and Annexes "I" and
"II" hereto are substituted therefor as Exhibits C-1 and C-2, respectively.
5. Except as specifically provided herein, all terms and conditions of
the Credit Agreement remain in full force and effect, without waiver or
modification. All terms defined in the Credit Agreement shall have the same
meaning when used in this Amendment. This Amendment and the Credit Agreement
shall be read together, as one document.
-25-
6. Borrower hereby remakes all representations and warranties contained
in the Credit Agreement and reaffirms all covenants set forth therein.
Borrower further certifies that as of the date of this Amendment there exists
no Event of Default as defined in the Credit Agreement, nor any condition,
act or event which with the giving of notice or the passage of time or both
would constitute any such Event of Default.
NOTICE: THIS DOCUMENT AND ALL OTHER DOCUMENTS RELATING TO THE INDEBTEDNESS
CONSTITUTE A WRITTEN LOAN AGREEMENT WHICH REPRESENTS THE FINAL AGREEMENT
BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO
UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES RELATING TO THE INDEBTEDNESS.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed as of the day and year first written above.
WELLS FARGO BANK (TEXAS),
SCHLOTZKY'S, INC. NATIONAL ASSOCIATION
By: By:
----------------------------- ---------------------------
John C. Wooley Keith Smith
Chief Executive Officer Vice President
THIRD AMENDMENT TO CREDIT AGREEMENT
THIS THIRD AMENDMENT TO CREDIT AGREEMENT (this "Amendment") is entered
into as of December 28, 1998, by and between Schlotzsky's, Inc., a Texas
corporation ("Borrower"), and WELLS FARGO BANK (TEXAS), NATIONAL ASSOCIATION
("Bank").
RECITALS
WHEREAS, Borrower is currently indebted to Bank pursuant to the terms
and conditions of that certain Credit Agreement between Borrower and Bank
dated as of June 27, 1997, as amended from time to time ("Credit Agreement").
WHEREAS, Bank and Borrower have agreed to certain changes in the terms
and conditions set forth in the Credit Agreement and have agreed to amend the
Credit Agreement to reflect said changes.
NOW, THEREFORE, for valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties hereto agree that the Credit
Agreement shall be amended as follows:
1. Section 1.1(a) is hereby amended (a) by deleting "April 30, 2000" as
the last day on which Bank will make advances under the Line of Credit, and
by substituting for said date "December 15, 2001," and (b) by deleting
"Twelve Million Dollars ($12,000,000.00)" as the maximum principal amount
available under the Line of Credit, and by substituting for said amount
"Fifteen Million Dollars ($15,000,000.00)," with such changes to be effective
upon the execution and delivery to Bank of a promissory note substantially in
the form of Exhibit A attached hereto (which promissory note shall replace
and be deemed the Line of Credit Note defined in and made pursuant to the
Credit Agreement) and all other contracts, instruments and documents required
by Bank to evidence such change.
1. Section 1.1(c) is hereby amended by deleting "Twelve Million Dollars
($12,000,000.00)" as the maximum amount available for Franchisee loans under
the subfeature therefor under the Line of Credit, and by substituting for
said amount "Ten Million Dollar ($10,000,000.00)," with such change to be
effective upon the execution and delivery to Bank of this Amendment and all
other contracts, instruments and documents required by Bank to evidence such
change.
2. Section 1.3 is hereby deleted in its entirety, and the following
substituted therefor:
"SECTION 1.2. LOAN.
(a) LOAN. Subject to the terms and conditions of this
Agreement, Bank hereby agrees to make a loan to Borrower in
the principal amount of Five Million Dollars ($5,000,000.00)
("Loan"), the proceeds of which shall be used for capital
expenditures. Borrower's obligation to repay the Loan shall
be evidenced by a promissory note substantially in the form
of Exhibit B attached hereto ("Loan Note"), all terms of
which are incorporated herein by this reference. Bank's
commitment to grant the Loan shall terminate on January 22,
1999.
(b) REPAYMENT. The outstanding principal balance of
the Loan shall be due and payable in full on March 31, 1999.
(c) PREPAYMENT. Borrower may prepay principal on the
Loan solely in accordance with the provisions of the Loan
Note."
3. Sections 1.3(a) and (b) are hereby deleted in their entirety, and
the following substituted therefor:
"(a) INTEREST. The outstanding principal balances of
the Line of Credit, the Leasehold Loans, the Construction
Loans and the Loan shall bear interest at the rates of
interest set forth in the Line of Credit Note, the
Franchisee Notes and the Loan Note.
(b) COMPUTATION AND PAYMENT. Interest shall be
computed on the basis of a 360-day year, actual days
elapsed, unless such calculation would result in a usurious
rate, in which case interest shall be computed on the basis
of a 365/366-day year, as the case may be, actual days
elapsed. Interest shall be payable at the times and place
set forth in the Line of Credit Note, the Franchisee
-28-
Notes and the Loan Note (collectively, the "Notes").
4. The following is hereby added to the Credit Agreement as Section 1.4:
"SECTION 1.4. COLLATERAL.
As security for all indebtedness of Borrower to Bank
subject hereto, Borrower hereby grants to Bank security
interests of first priority in all Borrower's accounts
receivables, other right to payment and general intangibles.
All of the foregoing shall be evidenced by and subject
to the terms of such security agreements, financing
statements, deeds of trust and other documents as Bank shall
reasonably require, all in form and substance satisfactory
to Bank. Borrower shall reimburse Bank immediately upon
demand for all costs and expenses incurred by Bank in
connection with any of the foregoing security, including
without limitation, filing and recording fees and costs of
appraisals, audits and title insurance."
5. Except as specifically provided herein, all terms and conditions of
the Credit Agreement remain in full force and effect, without waiver or
modification. All terms defined in the Credit Agreement shall have the same
meaning when used in this Amendment. This Amendment and the Credit Agreement
shall be read together, as one document.
6. Borrower hereby remakes all representations and warranties contained
in the Credit Agreement and reaffirms all covenants set forth therein.
Borrower further certifies that as of the date of this Amendment there exists
no Event of Default as defined in the Credit Agreement, nor any condition,
act or event which with the giving of notice or the passage of time or both
would constitute any such Event of Default.
NOTICE: THIS DOCUMENT AND ALL OTHER DOCUMENTS RELATING TO THE INDEBTEDNESS
CONSTITUTE A WRITTEN LOAN AGREEMENT WHICH REPRESENTS THE FINAL AGREEMENT
BETWEEN THE PARTIES AND MAY NOT BE
-29-
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN
THE PARTIES RELATING TO THE INDEBTEDNESS.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed as of the day and year first written above.
WELLS FARGO BANK (TEXAS),
SCHLOTZSKY'S, INC. NATIONAL ASSOCIATION
By: By:
----------------------------- -------------------------------
John C. Wooley Keith Smith
Chief Executive Officer Vice President
-30-